Realpage
Annual Report 2016

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Annual Report 2016 TO OUR STOCKHOLDERS toward our mission of empowering the real estate industry to unlock actionable insights T his has been an outstanding year for RealPage. We have made tremendous progress through our unique, data-rich platform. Our vision is expanding beyond the operational holding period of an asset to include the transactional side of real estate, where we help optimize the yield on the purchase and sale of an asset. 2016 What stands out about 2016 is not only our focus on driving profit levels to historical highs, but also our commitment to investing for the future while taking a disciplined approach to operational execution. With this focus on excellence, we grew revenue by 22%, to $567 million, while improving adjusted EBITDA by an impressive 38% to $127 million, which makes RealPage one of the largest and most profitable companies in the Software-as-a-Service universe. Highlights of our 2016 performance include: strong growth in multifamily sales productivity, increased adoption of suites of multiple products, solid margin expansion despite significant investments, and exceptional execution related to the integration and achievement of acquisition synergies. As we look at the future, we firmly believe there has never been a more exciting time for RealPage. Our previous investments have positioned us well. Going forward, we expect to expand the investment in our platform and work tirelessly to help our clients be as successful as possible, by empowering owners, operators, lenders and investors with the best capabilities available in the market. We will continue investing in our comprehensive integrated suite to gain market share, drive adoption and generate the cash flow to enable further investments. Technology is the lifeblood of our business and innovation is the prerequisite for any growth strategy. Our innovation road map will continue to be driven by organic initiatives that are augmented with carefully considered and financially viable acquisitions. The opportunity to automate and optimize the rental housing industry through our platform is immense. One example within that opportunity is related to data analytics. We estimate that approximately 10% of the roughly 45 million rental housing units in the US use any sort of data-driven pricing science to improve yields, with even lower penetration internationally. We see the future as one in which real estate owners must optimize their assets using the richest source of data, with analytics as an imperative to effectively compete. 1 The combination of our massive pool of lease transaction data, our expertise in apartment marketing dynamics, a data science team that can extract actionable insights, and our forecasting abilities all create a unique competitive advantage. We believe there is significant untapped demand for solutions that raise efficiency and precision to an industry that has historically lacked tools available to other asset classes. However, our support for our customers doesn’t stop with asset optimization. We are transforming the renter experience with our comprehensive suite of solutions. In 2017 and beyond, we will continue to spearhead in-house innovations that make our clients more successful and increase value to more market segments. We are also investing in our next generation infrastructure – one that enables scale, accelerated client adoption and improved client satisfaction. Our M&A strategy is the other key component accelerating our technology innovation. To date, in 2017, we announced acquisitions augmenting our data analytics assets. We continue to evaluate new opportunities consistent with our global strategy, vision and return goals. We are pleased with our acquisition integration track record and believe we can continue to acquire successfully. We believe 20%+ free cash flow return on invested capital underscores our success with acquisitions and a capital allocation strategy that continues to focus on the most efficient sources of capital available. We deploy and prioritize capital across internal investments, acquisitions and share repurchases based on the most compelling risk-adjusted returns for our shareholders. In summary, I am pleased with our outstanding accomplishments in 2016. We successfully balanced investing in RealPage’s future with driving efficiencies to meet our margin expansion objectives. Our operational and financial goals for the future are aligned around our vision to empower the real estate industry and our commitment to drive increased shareholder value over the long term. Thank you for your continuing support. Sincerely, Steve Winn Chairman, Chief Executive Officer and President 2 18% M 5 5 $ M 7 4 $ M 1 4 $ M 8 1 1 $ M 9 1 1 $ M 6 1 1 $ 2014 2015 2016 2014 2015 2016 Asset Optimization (10%) Lease Management (22%) Asset Optimizatio n R Four Four Product Product Families Families e S e r sident vices 49% M 8 1 2 $ M 6 4 1 $ M 0 1 1 $ Le Manag a s e e 2016 On-Demand Revenue by Product Family(1) m e n t Property M anagement 11% M 3 5 1 $ M 7 3 1 $ M 1 2 1 $ 2014 2015 2016 2014 2015 2016 Resident Services (40%) Property Management (28%) 3 Total Revenue(1) ($ in MM) 5-Year CAGR: 17% 7 . 9 7 3 $ 0 . 5 0 4 $ 3 . 2 2 3 $ 2 . 7 6 5 $ 4 . 6 6 4 $ 2012 2013 2014 2015 2016 7 . 8 5 2 $ 2011 Ending On-Demand Rental Units (000’s) 5-Year CAGR: 9% KEY OPERATING METRICS 3 1 1 , 8 2 2 0 , 9 2 0 3 , 7 0 6 5 , 9 8 6 5 , 0 1 9 8 9 , 0 1 2011 2012 2013 2014 2015 2016 Adjusted EBITDA(2) Operating Cash Flow(3) ($ in MM) 5 . 6 5 $ 2 . 9 4 $ 3 . 3 7 $ 4 . 8 5 $ 3 . 0 9 $ 2 . 9 6 $ 6 . 0 7 $ 0 . 0 7 $ 2 . 6 3 1 $ 2 . 7 2 1 $ 0 . 6 9 $ 2 . 2 9 $ 2011 2012 2013 2014 2015 2016 (1) Includes acquisition-related and other deferred revenue adjustments for the years ended December 31, 2016, 2015, 2014, 2013, 2012 and 2011. (2) See discussion and reconciliation of Adjusted EBITDA to GAAP Net Income included within the Annual Report on Form 10-K filed with the SEC on March 1, 2017. (3) Includes the accounting treatment of tenant reimbursements related to the headquarters move during 2016. 4 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________________________ FORM 10-K ___________________________________________ (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-34846 ___________________________________________ RealPage, Inc. (Exact name of registrant as specified in its charter) ___________________________________________ Delaware (State or other jurisdiction of incorporation or organization) 2201 Lakeside Blvd. Richardson, Texas (Address of principal executive offices) 75-2788861 (I.R.S. Employer Identification No.) 75082-4305 (Zip Code) (972) 820-3000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.001 par value (Title of class) The NASDAQ Stock Market LLC (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No Based on the closing price of the registrant’s common stock on the last business day of the registrant’s most recently completed second fiscal quarter, which was June 30, 2016, the aggregate market value of its shares held by non-affiliates on that date was approximately $1,209,704,772. On February 17, 2017, 80,960,039 shares of the registrant’s Common Stock, $0.001 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant’s definitive proxy statement for its 2017 Annual Meeting of Stockholders to be filed within 120 days of the Registrant’s fiscal year ended December 31, 2016 are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. TABLE OF CONTENTS PART I Business Item 1. Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Legal Proceedings Item 3. Item 4. Mine Safety Disclosures PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Item 6. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9. Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships, and Related Transactions, and Director Independence Item 14. Principal Accounting Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules SIGNATURES AND EXHIBIT INDEX Signatures Exhibit Index 2 13 35 35 35 35 36 39 41 64 66 107 107 108 108 108 108 108 108 109 110 111 [THIS PAGE INTENTIONALLY LEFT BLANK] SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS We have made forward-looking statements in this Annual Report on Form 10-K that are subject to risks and uncertainties. Forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are subject to the “safe harbor” created by those sections. The forward- looking statements in this Annual Report on Form 10-K are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “aspires,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will” or “would” or the negative of these terms and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this document in greater detail under the heading “Risk Factors.” We believe it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risks described in “Risk Factors” included in this Annual Report on Form 10-K, as well as any other cautionary language in this Annual Report on Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of the events described in “Risk Factors” and elsewhere in this Annual Report on Form 10-K could harm our business. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Annual Report on Form 10-K. You should read this document completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. 1 Item 1. Business Company Overview PART I RealPage, Inc., a Delaware corporation (together with its subsidiaries, the “Company” or “we” or “us”), is a technology leader to the real estate industry, helping owners, managers, and investors optimize both operational yields and investment returns. Our platform of data analytics and software solutions enables the real estate rental industry to manage property operations (such as marketing, pricing, screening, leasing, and accounting), identify opportunities through market intelligence, and obtain data-driven insight for better operational and financial decision-making. Our integrated, on demand platform provides a single point of access and a massive repository of real-time lease transaction data, including prospect, renter, and property data. By leveraging data as well as integrating and streamlining a wide range of complex processes and interactions among the apartment real estate ecosystem (owners, managers, prospects, renters, service providers, and investors), our platform helps our clients improve financial and operational performance and prudently place and harvest capital. As of December 31, 2016, over 11,000 clients used one or more of our on demand software solutions to help manage the operations of approximately 11.0 million multifamily, single family, and vacation rental units. Our clients include each of the ten largest multifamily property management companies in the United States, ranked as of January 1, 2016 by the National Multifamily Housing Council ("NMHC"), based on the number of units managed. We sell our solutions through our direct sales organization. Our total revenues were approximately $568.1 million, $468.5 million, and $404.6 million for the years ended December 31, 2016, 2015, and 2014, respectively. In the same periods, we had operating income (loss) of approximately $31.2 million, $(11.6) million, and $(15.5) million, respectively, and net income (loss) of approximately $16.7 million, $(9.2) million, and $(10.3) million, respectively. Our company was formed in 1998 to acquire Rent Roll, Inc., which marketed and sold on premise property management systems for the conventional and affordable multifamily rental housing markets. In June 2001, we released OneSite, our first on demand property management system. Since 2002, we have expanded our platform of data analytics and software-enabled solutions to include property management, lease management, resident services, and asset optimization capabilities. In addition to the multifamily markets, we now serve the single family, senior living, student living, military housing, and vacation rental markets. In addition, since July 2002, we have completed 35 acquisitions of complementary technologies to supplement our internal product development and sales and marketing efforts and expand the scope of our solutions, the types of rental real estate properties served by our solutions, and our client base. We have accumulated a massive repository of lease transaction data through our experience serving the rental real estate industry and through acquisitions. By leveraging this data, we provide the analysis and actionable data necessary for investors to make informed capital allocation decisions. In connection with our expansion and acquisition activity, we have allocated greater resources to the development and infrastructure needs of developing and increasing sales of our platform of solutions. Industry Overview The rental real estate market is large, growing, and complex. The rental real estate market is large and characterized by challenging and location-specific operating requirements, diverse industry participants, significant mobility among renters, and a variety of property types, including single family and a wide range of multifamily property types, including conventional, affordable, privatized military, student, and senior housing. According to the U.S. Census Bureau American Housing Survey for the United States, there were 44.0 million rental real estate units in the United States in 2013. Based on U.S. Census Bureau data and our own estimates, we believe that the overall size of the U.S. rental real estate market, including rent, utilities, and insurance, exceeds $435.0 billion annually. We estimate that the total addressable market for our current data analytics and on demand software solutions is approximately $9.8 billion per year. This estimate assumes that each of the 44.0 million rental units in the United States has the potential to generate annually a range of approximately $140 in revenue per unit for single family units to approximately $370 in revenue per unit for conventional multifamily units. In addition, we estimate that the student and senior markets have the potential to generate annually approximately $690 in revenue per unit and affordable housing markets will generate annually approximately $160 in revenue per unit. We base this potential revenue assumption on our review of the purchasing patterns of our existing clients with respect to our data analytics and on demand software solutions, the solutions currently utilized by our existing clients, the number of units our clients manage with these solutions, and our current pricing for data analytics and on demand software solutions. The global vacation rental market is large and generally segmented by the type of property and seasonality. Based on our industry research, we estimate the total global vacation rental market to be approximately $130.0 billion annually. Professional vacation managers, representing roughly 2.0 million units, are responsible for approximately half of the total vacation rental transactions in the market and the other half of the total transactions relate to properties that are individually managed by the property owners. We estimate that the total addressable market for our vacation rental solutions is approximately $1.6 billion 2 per year. This estimate assumes that each of the 2.0 million units managed has the potential to generate annual revenue per unit of $810. We estimate the potential revenue assumptions based on our review of market industry research and realistic solution penetration rates, as well as related trends affecting the vacation rental market, including the analysis of vacancy rates and the average number of nights booked. We believe there is increasing demand for solutions that bring efficiency and precision to the rental real estate industry, which has historically lacked the tools available to other investment classes. We leverage our massive pool of lease transaction data to provide our clients with analytical tools and actionable intelligence to inform the prudent allocation of capital. Precision data analytics and price optimization solutions represent a significant opportunity to increase yield from the approximate $3.0 trillion of apartment stock in the U.S., turning over at a rate of approximately $150.0 billion per year. Rental real estate management spans both the renter life cycle and the operations of a property. The renter life cycle can be separated into four key stages: prospect, applicant, residency or stay, and post-residency or post-stay. Each stage has unique requirements, and a property owner’s or manager’s ability to effectively address these requirements can significantly impact revenue and profitability. In addition to managing the renter life cycle, property owners and managers must also manage the operations of their properties. Critical components of property operations include materials and service provider procurement; insurance and risk mitigation; utility and energy management; yield management; information technology and telecommunications management; accounting; expense tracking and management; document management; security; staff hiring and training; staff performance measurement and management; and marketing. Managing the renter life cycle and the operations of a property involves several different constituents, including property owners and managers, prospects, renters, service providers, and investors. Property owners can include single-property owners, multi-property owners, national residential apartment syndicates that may own thousands of units through a variety of investment funds, and real estate investment trusts ("REITs"). Property managers often are responsible for a large number of properties that can range from single family units to multifamily apartment communities. Property owners and managers also need to manage a variety of service providers, including utilities, insurance providers, video, voice and data providers, and maintenance and capital goods suppliers. Managing these diverse relationships, combined with renter turnover, property turnover, as well as regulatory and compliance requirements, can make the operations of even a small portfolio of rental properties complex. Challenges are compounded for real estate portfolio managers responsible for a large number of geographically dispersed properties, which require overseeing potentially hundreds of thousands of individual rental processes. Legacy information technology solutions designed to manage the rental real estate management process are inadequate. During the 1970’s and 1980’s, the rental real estate industry was highly fragmented and regionally organized. During this period, the first property management systems and software solutions emerged to help property owners and managers with basic accounting and record keeping functions. These solutions provided limited functionality and scalability and often were not tailored to the specific needs of the rental real estate industry. Beginning in the mid 1990’s, the rental real estate market began to consolidate and large, nationally focused and publicly financed companies emerged, which aggregated significant numbers of units. The rise of national real estate portfolio managers, many of them accountable to public shareholders, created a need for more sophisticated and scalable property management systems that included a centralized database and were designed to optimize and automate multiple business processes within the renter life cycle and property operations. Despite increasing market demands, the available solutions continued to be insufficient to fully address the complex requirements of the rental real estate industry, which moved beyond basic accounting and record keeping functions to also include value-added services, such as Internet marketing, applicant screening, billing solutions and analytics for pricing, and yield optimization. Additionally, the rise of national syndicates and REITs fueled the need for tools that provide increased visibility into the operational performance of portfolio properties and market analysis resources to maximize return on investment. To address its complex and evolving requirements, the rental real estate industry has historically implemented a myriad of single point solutions; general purpose applications, such as Microsoft Excel; and/or internally developed solutions to manage their properties. These solutions can be expensive to implement and maintain; often lack integrated functionality to help rental real estate owners, managers, and investors maximize operational yields; and do not have dynamic reporting and analysis tools necessary to optimize investment returns or support capital allocation decisions. In addition, many professionals in the rental real estate industry still rely on paper or spreadsheet-based approaches, which are typically time intensive and prone to human error or internal mismanagement. The rental real estate industry has relied upon print and Internet listing firms to attract leads required to fill available vacancies. 3 We believe these historical solutions are inadequate because they: • • • • • • • • require significant customization to implement, which frequently inhibits upgrading to new versions or platforms in a timely manner; require information technology ("IT") resources to support integration points between property management systems and disparate value-added services; require IT resources to implement and maintain data security, data integrity, performance, and business continuity solutions; lack scalability and flexibility to account for the expansion or contraction of a property portfolio; lack material organic lease generation capability and do not track the cost of leads generated by each source; lack effective spend management capabilities for controlling property management costs; lack comprehensive analytics for pricing and yield optimization; lack workflow level integration; • do not provide owners, managers, and investors with visibility into overall property performance; and • cannot be easily updated to meet new regulations and compliance requirements. On demand software solutions are well suited to meet the rental real estate market's needs. The ubiquitous nature of the Internet, widespread broadband adoption, and improved network reliability and security has enabled the deployment and delivery of business-critical applications online. The on demand delivery model is substantially more economical than traditional on premise software solutions that generally have higher deployment and support costs and require the client to purchase and maintain the associated servers, storage, networks, security, and disaster recovery solutions. The RealPage Solution We provide a technology platform of data analytics and on demand software solutions that integrates and streamlines rental real estate management and property operations. Our platform provides the analytical and software solutions necessary to optimize operational yields and returns on investment, and contributes to a more efficient property management process and an improved experience for all of the constituents involved in the rental real estate ecosystem. Benefits to our Clients We believe the benefits of our solutions for our clients include the following: Increased revenues: Our data analytics and on demand software solutions enable our clients to increase their revenues and optimize operational yields by improving their sales and marketing effectiveness; pricing and occupancy; and collection of rental payments, utility expenses, late fees, and other charges. Additionally, our solutions enable our clients to realize new sources of revenue from complementary solutions and services. Reduced operating costs: Our data analytics and on demand software solutions help our clients reduce costs and optimize operational yields by streamlining and automating many ongoing property management functions; centralizing and controlling purchasing by on-site personnel; and transferring costs from the site to more efficient centrally managed operations. Our on demand delivery model also reduces a rental property's operating costs by eliminating the need to own and support the applications or associated hardware infrastructure. In addition, our integrated solutions consolidate the initial implementation and training costs and ongoing support associated with multiple applications. This is particularly important for rental real estate professionals who want to reduce enterprise-class IT infrastructure, support, and staff training. Improved quality of service for renters and prospects: Our solutions improve the level of service that rental real estate properties provide to renters and prospects by enabling certain types of transactions to be completed online; expediting the processing of rental applications, maintenance service requests, and payments; and increasing the frequency and quality of communication with their renters and prospects. This provides higher renter satisfaction and increased differentiation from competing properties that do not use our solutions while optimizing operational yields. Streamlined and simplified property management business processes: Our platform provides integrated solutions for managing a wide variety of property management processes that have traditionally been managed by separate manual or disaggregated applications. Our on demand software solutions utilize common authentication that enables data sharing and workflow automation of certain business processes, thereby eliminating redundant data entry and simplifying many recurring tasks. The efficiency of our solutions allows for optimization of operational yields. Greater visibility into real estate investment portfolio: Our portfolio management solutions are designed specifically for general partners, limited partners, property management professionals, and other real estate investment firms. These solutions allow stakeholders to quickly combine financial and operating metrics based upon portfolio attributes to evaluate performance, 4 trends, and operations across a portfolio, as well as facilitate the assessment of potential asset management strategies. These solutions provide an unprecedented level of visibility into a real estate portfolio, including information down to the property level, and are designed to work with any property management system. Our portfolio management solutions provide stakeholders the critical information necessary to maximize investment returns and prudently allocate and harvest capital investment. Ability to integrate third-party products and services: Our open architecture and application framework facilitate the integration of third-party applications and services into our solutions. This enables our clients to conduct these business functions through the same system that they already use for many of their other tasks and to leverage the same repository of lease transaction data, including prospect, renter, and property data, that supports our solutions. Increased visibility into property performance: Our platform of data analytics and on demand software solutions enable rental real estate owners, managers, and investors to gain a comprehensive view of the operational and financial performance of each of their properties. Our solutions provide a library of standard reports, dashboards, scorecards, and alerts, and we also provide interfaces to several widely used report writers and business intelligence tools. We maintain a massive repository of real-time lease transaction data, subsets of which can be utilized to factor rental payment history into applicant screening processes and to create more accurate supply and demand models and statistically based price elasticity models to improve price optimization. This enables our clients to optimize both operational yields and investment returns. Simple implementation and support: Our platform of solutions includes pre-configured extensions that meet the specific needs of a variety of property types and can be easily tailored by our clients to meet more specific requirements of their properties and business processes. We strive to minimize the need for professional consulting services to implement our solutions and train personnel. Improved scalability: We host our solutions for our clients, thereby reducing or eliminating our clients’ costs associated with expanding or contracting IT infrastructure as their property portfolios evolve. We also bear the risk of technological obsolescence because we own and manage our data center infrastructure and are continually upgrading it to newer generations of technology without incremental cost to our clients. Competitive Strengths of our Solutions The competitive strengths of our solutions are as follows: Integrated on demand software platform based on a repository of real-time lease transaction data: Our solutions are delivered through an integrated on demand software platform that provides a single point of access via the Internet with a common repository of lease transaction data, including prospect, renter, and property data, which permits our solutions to access requested data through offline data transfer or in real-time. Large and growing apartment real estate ecosystem: At December 31, 2016, our client base of over 11,000 clients used one or more of our integrated data analytics or on demand software solutions to help manage the operations of approximately 11.0 million rental real estate units. Our solutions automate and streamline many of the recurring transactions and interactions among this large and expanding apartment real estate ecosystem, including prospect inquiries, applications, monthly rent payments, and service requests. As the number of constituents of the apartment real estate ecosystem increases, the volume of lease transaction date in our repository and its value to the constituents of the ecosystem grows. Comprehensive platform of data analytics and on demand software solutions and services for the rental real estate industry: Our platform of solutions and services provide a broad range of analytical and on demand capabilities for managing the renter life cycle and core operational processes for property management. This integrated, on demand platform enables our clients to optimize operational yields and investment returns. Precision data analytics and price optimization tools based on in-depth lease transaction data: The combination of our massive pool of lease transaction data, our expertise in apartment marketing dynamics, our data science team that can extract actionable insights, and our forecasting abilities creates a unique competitive advantage. Our statistical-based modeling and forecasting solutions provide our clients with granular, market-specific intelligence which facilitates the optimization of operational yields and returns on investment. Precision data analytics and price optimization solutions represent a significant opportunity to increase yields from the nearly $3.0 trillion of apartment stock in the U.S., turning over at a rate of $150.0 billion per year. Open cloud computing architecture: Our cloud computing architecture enables our solutions to interface with our clients’ existing systems and allows our clients to outsource the management of third-party business applications. This open architecture enables our clients to buy our solutions incrementally while continuing to use existing third-party solutions, allowing us to shorten sales cycles and increase adoption of our solutions within our target markets. Deep rental real estate industry expertise: We have been serving the rental real estate industry exclusively for over 18 years and our senior management team members have extensive experience in the rental real estate industry. We design our 5 solutions based on our extensive expertise, insight into industry trends and developments, and property management best practices that help our clients simplify the challenges of owning and managing rental properties. Experienced management team with strong integrating and operating track record: We have a highly seasoned and effective management team with extensive expertise in the rental real estate industry. By leveraging this expertise and knowledge, we have developed, and continue to improve, data analytics and on demand software solutions which help our clients simplify the challenges of owning and managing rental properties; increase operational yields; and make better capital placement and harvesting decisions. Our management team has a proven ability to acquire and integrate complementary businesses and technologies, as demonstrated by the 35 acquisitions we have completed since July 2002. We continue to attract and retain experienced management talent to support our growth. Our Strategy We intend to leverage our platform of solutions and industry presence to solidify our position as a technology leader to the real estate industry. The key elements of our strategy to accomplish this objective are as follows: Acquire new clients: We intend to actively pursue new client relationships with property management professionals and investors that do not currently use our solutions. In addition to marketing our property management solutions, we will seek to sell our software-enabled, value-added services to clients of other third-party property management systems by utilizing our open architecture to facilitate integration of our solutions with those systems. Increase the adoption of the RealPage platform: Many of our clients rely on our platform to manage their daily operations and track all of their critical prospect, renter, and property information. Additionally, some of our clients utilize our software-enabled, value-added services to complement third-party Enterprise Resource Planning ("ERP") systems. We have continually introduced new software-enabled, value-added services to complement our platform of solutions and marketed our on demand solutions to our clients who are utilizing third-party ERP systems. We believe that the penetration of our on demand software solutions to date has been modest and significant potential exists for additional on demand revenue from sales of these solutions to our client base. We have significant opportunities to further leverage the critical role that our solutions play in our clients’ operations by increasing the adoption of our platform of solutions and value-added services within our existing client base, and we intend to actively focus on up-selling and cross-selling our solutions to our clients. Add new features and functionality to our rental real estate industry platform: We believe that we offer the most comprehensive platform of data analytics and on demand software solutions for the rental real estate industry. Our platform enables our clients to control many aspects of the residential rental property management process. We are able to add new capabilities that further enhance our platform, and we intend to continue developing and introducing new solutions to sell to both new and existing clients. These solutions may include localized solutions to support our clients as they grow their international operations. We also intend to develop new relationships with third-party application providers that can use our open architecture to offer additional product and service capabilities to their clients through our platform. Pursue acquisitions of complementary businesses, products, and technologies: Since July 2002, we have completed 35 acquisitions that have enabled us to expand our platform, enter into new rental property markets, and expand our client base. We continue to selectively evaluate our capital allocation strategy to focus on the most efficient sources of capital available to us for the acquisition of businesses and technologies that may help us accomplish these and other strategic objectives. Solutions and Services Our platform is designed to serve as a single system of record for all of the constituents of the rental real estate ecosystem; to support the entire renter life cycle, from prospect to applicant to residency or guest to post-residency or post-stay; and to optimize operational yields and returns on investment. Common authentication, work flow, and user experience across solution categories enables each of these constituents to access different applications as appropriate for their roles. Our platform consists of four primary categories of solutions: Property Management, Lease Management, Resident Services, and Asset Optimization. These solutions provide complementary asset performance and investment decision support; risk mitigation, billing and utility management; resident engagement, spend management, operations and facilities management; and lead generation and lease management capabilities that collectively enable our clients to manage all the stages of the renter life cycle. Each of our solution categories includes multiple product centers that provide distinct capabilities that can be bundled as a package or licensed separately. Each product center integrates with a central repository of lease transaction data, including prospect, renter, and property data. In addition, our open architecture allows third-party applications to access our solutions using our RealPage Exchange platform. We offer different versions of our platform for different types of properties in different real estate markets. For example, our platform supports the specific and distinct requirements of: • conventional single family properties; • conventional multifamily properties; 6 • affordable Housing and Urban Development ("HUD") properties; • affordable tax credit properties; • rural housing properties; • privatized military housing; • commercial properties; • student housing; • senior living; and • vacation rentals. Asset Optimizatio n R Fourur Product Product Families Families e S e r sident vices Le Manag a s e e m e n t Property M anagement Property Management Our property management solutions are referred to as ERP systems. These solutions manage core property management business processes, including leasing, accounting, budgeting, purchasing, facilities management, document management, and support and advisory services. It includes a central database of prospect, applicant, renter, and property information that is accessible in real time by our other solutions. Our property management solutions also interface with most popular general ledger accounting systems through our RealPage Exchange platform. This makes it possible for clients to deploy our solutions using our accounting system or a third-party accounting system. Our property management solution category consists of seven primary solutions including OneSite, Propertyware, Kigo, Spend Management Solutions, The RealPage Cloud, SmartSource, and EasyLMS. OneSite OneSite is our flagship on demand property management solution for multifamily properties. OneSite is also tailored to the specific needs of different property types (conventional multifamily, affordable properties, rural housing, privatized military housing, senior living, student living, and commercial). OneSite offers functionality that generates lease documents, posts financial transactions to the renter ledger, records back-office accounting entries, manages service requests, measures acuity of senior residents, enables senior community management, manages procurement activities, enables property-specific budgeting, and measures actual property performance to budget. Propertyware Propertyware is our on demand property management system for single-family properties and small, centrally managed multifamily properties. Propertyware functionality includes accounting, maintenance and work order management, marketing, spend management, and portal services. In addition, we offer our screening and payment solutions through our Propertyware brand to single family and small, centrally managed multifamily properties. 7 Kigo Kigo is our on demand vacation rental property management system. Kigo offers solutions for vacation rental property management that include vacation rental calendars, scheduling, reservations, accounting, channel management, website design, payment processing, and other tasks to aid the management of leads, revenue, resources, and lodging calendars. Spend Management Solutions Our spend management solutions enable property owners and managers to better control costs. Spend management functionality includes purchase order automation; automated approval workflows, including mobile approvals; eProcurement solutions and services leveraging our volume to negotiate vendor discounts; budget and spend limit controls; centralized expense reporting; invoice management; bid management for capital projects; and automated vendor compliance tools. The RealPage Cloud The RealPage Cloud leverages our robust application infrastructure to allow property owners and managers to outsource portions of their IT operations. The platform offers functionality to property owners and managers that reduces IT complexity, lowers the total cost of ownership for technology, improves security, improves performance, and increases scalability. SmartSource SmartSource provides back-office accounting and IT management and support services to managers of multifamily properties. Outsourcing these functions through SmartSource allows property managers to focus on their core competencies and to scale their operations with lower risk and greater flexibility and productivity. EasyLMS EasyLMS is a learning management system for property management professionals and their staff. EasyLMS substantially reduces training time by compartmentalizing subject matter and disseminating lessons in 10 to 15 minute increments for easier consumption during the workday. The system also incorporates gamification and active engagement to enhance the effectiveness of the learning solution and knowledge retention. Lease Management Lease management solutions aim to optimize marketing spend and the leasing process. These solutions manage core leasing and marketing processes including websites and syndication, paid lead generation, organic lead generation, lead management, automated lead closure, lead analytics, real-time unit availability, automated online apartment leasing, and applicant screening. Our lease management solution category consists of six primary solutions: Online Leasing, Contact Center, Websites & Syndication, MyNewPlace, Lead2Lease, and Resident Screening. Online Leasing Online leasing is our on demand leasing platform that transacts the entire leasing process online. Among other functions, the platform utilizes widgets that enable renters to confirm unit availability, generate a price quote, apply for residency, and fully execute a lease. Contact Center Contact center is our 24 by 7 on demand lead closure and resident maintenance support solution. Contact center provides both live agent and automated platforms. Communication channels and functionality include call, web chat, email with instant call reply, email for leasing, as well as RealPage Live Agent calls and answer automation for maintenance support. Contact center is a strategic service partner offering a combination of people, process, and technology to track all leads, schedule visits, and capture emergency and non-emergency maintenance requests on behalf of our clients. Websites and Syndication LeaseStar websites and syndication anchor our on demand organic lead generation platform. Functionality includes property website design and enhanced search engine optimized (“SEO”) content (e.g. high-resolution photography, video tours, animated tours, 3D floor plans, and interactive site maps), mobile applications and integration with online leasing to drive traffic and lead quality. Syndication tools ensure consistency across multiple marketing channels and include classified directory campaign services, renter social referrals, reputation management, surveys, real-time reporting, and enhanced lead management. MyNewPlace MyNewPlace is a paid lead generation site that helps renters find rental housing options utilizing functionality including enhanced photography, 3D floor plans, SEO-enhanced descriptions, and neighborhood information. Lead2Lease Lead2Lease is a lead management tool that cultivates lead generation and influences lead conversion. 8 Resident Screening Screening is part of our risk mitigation platform to reduce rental payment delinquency. Resident screening uses many disparate data sources, including national credit bureaus and a large, proprietary database of on demand rental payment histories, to evaluate applicant credit profiles. Additional functionality includes criminal background checks and eviction history from real-time databases aggregated by third-party data providers. In addition, certain functionality enables owners and managers to optimize credit thresholds based on occupancy levels, and adjust deposit and rent amounts based on the default risk of the renter in a yield neutral manner. Resident Services Our resident services solutions provide a platform to optimize the transactional and social experience of prospects and renters, and enhance a property’s reputation. These solutions facilitate core renter management business processes including utility billing, renter payment processing, service requests, lease renewals, renters insurance, and consulting and advisory services. Our resident services solution category consists of five primary solutions: Resident & Utility Billing, Resident Payments, Resident Portal, Contact Center Maintenance, and Renter's Insurance. Resident and Utility Billing Resident and Utility Billing is our on demand billing and utility management platform. In 2016, we augmented our utility management solutions with the acquisition of NWP Services Corporation ("NWP"). By combining the complementary functionalities of Velocity Utility Solutions LLC and NWP, the platform scope includes automated convergent billing, utility invoice processing, utility cost management, automated energy recovery, infrastructure services (e.g., accounting, community energy, media, data, and telecom) and sub-metering services. Resident Payments Payments is our on demand payment-processing platform that enables electronic collection of rent and other payments. Provided through our RealPage Payments subsidiaries with both operator and renter processing options for fee reduction, the platform accommodates the processing of multiple payment types including check, money order, automated clearing house ("ACH"), debit cards, and credit cards. Resident Portal Resident portal is our on demand platform for facilitating renter transactions, social engagement, and community management. Resident portal functionality includes online community facilitation (between multifamily property managers, local vendors, and other renters), service request placement and status, and lease renewals. Contact Center Maintenance Contact center maintenance is our on demand platform for service request management. Functionality from the platform includes service call, email, and chat routing technology; service request tracking; and remote agent staffing, on a permanent or overflow basis to optimize the service request process. Enhancements include automated answering services and other features that amplify the ability of multifamily property managers to communicate with their residents. Renter’s Insurance Renter’s insurance is part of our risk mitigation platform to reduce liability and property damage risk. The platform offers liability and content protection renter's insurance provided through our subsidiary Multifamily Internet Ventures, LLC, under the consumer-facing brand name “eRenterPlan.” Liability policies protect property owners and managers against financial loss due to renter-caused damage, while content protection provides additional coverage for a renter’s personal belongings in the event of loss. Asset Optimization Our asset optimization solutions aim to optimize property financial and operational performance, and provide comprehensive analytics-based decision support for optimum investment performance throughout the phases of real estate investment (e.g., acquisition, operation, renovation, and disposition). These solutions facilitate core asset management, business intelligence, performance benchmarking and investment analysis including, real-time yield management, revenue growth forecasting, key variable sensitivity forecasting, internal operating metric benchmarking and external market benchmarking. Our asset optimization solution category consists of three primary solutions: YieldStar Price Optimizer, Business Intelligence, and Asset and Investment Management. YieldStar Price Optimizer YieldStar is our on demand yield management platform. The platform includes real-time statistical models leveraging a repository of lease transaction data to calculate optimal rent for each rental unit, pricing management advisory services, and MPF Research, an apartment market research database. 9 Business Intelligence Business intelligence is our on demand business intelligence platform designed to enable property owners and managers to outperform their peers. Business intelligence functionality includes easy-to-use customized internal reporting at any aggregation level and during any time horizon, simultaneously leveraging operational, financial and marketing data. In addition, the platform includes a robust peer-benchmarking component that leverages a massive repository of lease transaction data for assessing both internal and external market performance metrics, economic tools for revenue forecasting, and key operating variable forecasting. Asset and Investment Management Asset and Investment Management is an integrated analytics platform providing general partners, limited partners, REITs and property management companies with increased transparency into their portfolios. The anchor component, Portfolio Asset Management (“PAM”), enables the collection of property level financial information and operational data across a portfolio, regardless of asset type or operational platform. Using PAM, portfolio managers can collect, share, analyze and report on critical metrics, facilitating better investment and operational decisions. Professional Services We have developed repeatable, cost-effective consulting and implementation services to assist our clients in taking advantage of the capabilities enabled by our asset optimization solutions. Our consulting and implementation methodology leverages the nature of our on demand software architecture, the industry-specific expertise of our professional services employees, and the design of our platform to simplify and expedite the implementation process. Our consulting and implementation services include project and application management procedures, business process evaluation, business model development and data conversion. Our consulting teams work closely with customers to facilitate the smooth transition and operation of our solutions. We offer training programs for training administrators and onsite property managers on the use of our solutions. Training options include regularly hosted classroom and online instruction (through our online learning courseware), as well as online webinars. Our clients can integrate their own training content with our content to deliver an integrated and customized training program for their on-site property managers. On Demand Delivery Infrastructure Our IT infrastructure operates four redundant 40 GBPS dedicated fiber links connecting data centers containing hundreds of servers and multiple storage area networks. This architecture makes it possible to expand the data center incrementally with little or no disruption as more users or additional applications are added. With approximately 6,750 virtual servers, 630 physical servers and 5.4 petabytes of data storage, we leverage this infrastructure and massive repository of lease transaction data to power our platform of solutions. Our infrastructure is based on an open architecture that enables third-party applications to access OneSite and other hosted applications through our RealPage Exchange platform that provides access to more than 100 different public and private web services and extensible markup language ("XML") gateways that are used to import and export data through third-party application program interfaces ("APIs") and process hundreds of thousands of transactions per day. RealPage Exchange also interfaces with third-party property management systems as well as our platform solutions. In addition, our system is designed to replicate data into a Universal Data Store ("UDS") each day. Access to UDS is enabled through an access layer called UDS Direct, which enables clients to build portfolio reports, dashboards and alerts using any Open Database Connectivity or Java Database Connectivity compliant report writer tool such as Microsoft Excel, Microsoft Access, Microsoft SQL Server Reporting Service or Crystal Reports. UDS is also transmitted to a number of our larger clients each night to feed portfolio reporting systems that they have built internally. As of December 31, 2016, we employed approximately 160 employees who were responsible for maintaining data security, integrity, availability, performance and business continuity in our cloud computing facilities. We annually obtain a Service Organization Controls audit performed under Statements on Standards for Attestation Engagements No. 16 on a specified set of internal controls. Certain clients conduct separate business continuity audits of their own. In addition to our production data centers, we manage a separate development and quality assurance testing facility used to control the pre-production testing required before each new release of our on demand software. We typically deploy new releases of the software underlying our on demand software solutions on a monthly or quarterly schedule depending on the solution. Product Support We offer product support services that provide our clients with assistance from our product support professionals by phone, web, or email in resolving issues with our solutions. We offer two product support options: Standard and Platinum Support. Standard Support includes product support during business hours Monday through Friday. Platinum Support includes 10 the features of Standard Support, with customized engagement that includes a designated senior product support liaison. We also sponsor the RealPage User Group to facilitate communications between us and our community of users. The RealPage User Group is governed by a steering committee of our clients, which consists of two elected positions and subcommittee chairs, each representing a RealPage product center or group of product centers. Product Development We devote a substantial portion of our resources to developing new solutions and enhancing existing solutions, conducting product and quality assurance testing, improving core technology, and strengthening our technological expertise in the rental real estate industry. We typically deploy new releases of the software underlying our on demand software solutions on a monthly or quarterly schedule depending on the solution. As of December 31, 2016, our product development group consisted of approximately 420 employees in the United States and 490 employees located in India, Canada, Spain and the Philippines. Product development expense totaled $73.6 million, $68.8 million and $64.4 million during the years ended December 31, 2016, 2015, and 2014, respectively. Sales and Marketing We sell our rental real estate software and services through our direct sales organization. As of December 31, 2016, we employed approximately 430 sales representatives. We organize our sales force by geographic region, size of our prospective clients, and property type. This focus provides a higher level of service and understanding of our clients’ unique needs. Our typical sales cycle with a prospective client begins with the generation of a sales lead through Internet marketing, email campaigns, telemarketing efforts, trade shows, or other means of referral. The sales lead is followed by an assessment of the prospective client’s requirements, sales presentations, and product demonstrations. Our sales cycle can vary substantially from client to client but typically requires three to six months for larger clients and one to six weeks for smaller clients. In addition to new client sales, we sell additional solutions and consulting services to our existing clients to help them more efficiently and effectively manage their properties as the rental real estate market evolves and competitive conditions change. We generate qualified client leads, accelerate sales opportunities, and build brand awareness through our marketing programs. Our marketing programs target property management company executives, technology professionals, and senior business leaders. Our marketing team focuses on the unique needs of clients within our target markets. Our marketing programs include the following activities: • field marketing events for clients and prospects; • participation in, and sponsorship of, user conferences, trade shows, and industry events; • client programs, including client user meetings and our online client community; • online marketing activities, including online advertising and SEO, email campaigns, web campaigns, white papers, free product trials and demos, webcasts, case studies, and the use of social media, including blogging, Facebook, LinkedIn, and Twitter; • public relations; • use of our website to provide product and company information, as well as learning opportunities for potential clients; and • ongoing consumer email marketing campaigns that drive adoption of transactional products, such as online payments and renter's insurance, by residents on behalf of our property management clients. We host an annual user conference where clients both participate in and lead various types of sessions and planned discussions designed to help accelerate business performance through the use of our integrated platform of solutions. The conference features a variety of client speakers, panelists, and presentations focused on businesses of all sizes. The event also brings together our clients, technology vendors, service providers, and other key participants in the rental real estate industry to exchange ideas and best practices for improving business performance. Attendees gain insight into our product plans and participate in interactive sessions that give them the opportunity to provide input into new features and functionality. Strategic Relationships We maintain relationships with a variety of technology vendors and service providers to enhance the capabilities of our integrated platform of solutions. This approach allows us to expand our platform and client base and to enter new markets. We have established the following types of strategic relationships: 11 Technology Vendors We have relationships with a number of leading technology companies whose products we integrate into our platform or offer to complement our solutions. The cooperative relationships with our software and hardware technology partners allow us to build, optimize, and deliver a broad range of solutions to our clients. Service Providers We have relationships with a number of service providers that offer complementary services that integrate into our platform and address key requirements of rental property owners and managers, including credit card and ACH services, transaction processing capabilities, and insurance underwriting services. Clients We are committed to developing long-term client relationships and working closely with our clients to configure our solutions to meet the evolving needs of the rental real estate industry. Our clients include REITs, leading property management companies, fee managers, regionally based owner operators, vacation property owners, and service providers. As of December 31, 2016, we had over 11,000 clients who used one or more of our on demand software solutions to help manage the operations of approximately 11.0 million rental real estate units. Our clients include each of the ten largest multifamily property management companies in the United States, ranked as of January 1, 2016 by the NMHC, based on number of units managed. For the years ended December 31, 2016, 2015 and 2014, no one client accounted for more than 10% of our revenue. Revenues for our largest client were 5.7%, 4.6%, and 4.9% of total revenues for the years ended December 31, 2016, 2015, and 2014, respectively. Intellectual Property We rely on a combination of copyright, trademark, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights. These laws, procedures, and restrictions provide only limited protection. We currently have no issued patents or pending patent applications. In the future, we may file patent applications, but patents may not be issued with respect to these patent applications, or if patents are issued, they may not provide us with any competitive advantages, may not be issued in a manner that gives us the protection that we seek, and may be successfully challenged by third parties. We endeavor to enter into agreements with our employees and contractors and with parties with whom we do business in order to limit access to and disclosure of our proprietary information. We cannot be certain that the steps we have taken will prevent unauthorized use or reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive with ours or that infringe on our intellectual property. The enforcement of our intellectual property rights also depends on any legal actions against these infringers being successful, but these actions may not be successful, even when our rights have been infringed. Furthermore, effective patent, trademark, trade dress, copyright, and trade secret protection may not be available in every country in which our solutions are available over the Internet. In addition, the legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain and still evolving. Employees As of December 31, 2016, we had approximately 4,400 employees. We believe that our success is attributable in large part to our employees and an experienced management team, many members of which have years of industry experience in building, implementing, marketing, and selling property management solutions critical to business operations. Our future performance depends in part upon the continued service of our key sales, marketing, technical, and senior management personnel and our continuing ability to attract and retain highly qualified personnel. We believe we have a corporate culture that attracts highly qualified and motivated employees. We consider our current relationship with our employees to be good. Our employees are not represented by a labor union and are not subject to a collective bargaining agreement. Available Information We maintain an Internet website at www.realpage.com. We make available, free of charge, on our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after providing such reports to the Securities and Exchange Commission (“SEC”). We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and other documents with the SEC under the Securities Exchange Act of 1934, as amended. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC's Office of Investor Education and Advocacy at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy, and information statements and other information regarding issuers, including RealPage, Inc., that file electronically with the SEC. The public can obtain any document we file with the SEC at www.sec.gov. Information contained on, or connected to, our 12 website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K or any other filing that we make with the SEC. Item 1A. Risk Factors Risks Related to Our Business Our quarterly operating results have fluctuated in the past and may fluctuate in the future, which could cause our stock price to decline. Our quarterly operating results may fluctuate as a result of a variety of factors, many of which are outside of our control. Fluctuations in our quarterly operating results may be due to a number of factors, including the risks and uncertainties discussed elsewhere in this filing. Some of the important factors that could cause our revenues and operating results to fluctuate from quarter to quarter include: • • • the extent to which on demand software solutions maintain current and achieve broader market acceptance; fluctuations in leasing activity by our clients; increase in the number or severity of insurance claims on policies sold by us; • our ability to timely introduce enhancements to our existing solutions and new solutions; • our ability to renew the use of our on demand solutions for units managed by our existing clients and to increase the use of our on demand solutions for the management of units by our existing and new clients; • changes in our pricing policies or those of our competitors or new competitors; • changes in local economic, political and regulatory environments of our international operations; • the variable nature of our sales and implementation cycles; • general economic, industry and market conditions in the rental housing industry that impact our current and potential clients; • • • the amount and timing of our investment in research and development activities; technical difficulties, service interruptions, data or document losses or security breaches; Internet usage trends among consumers and the methodologies Internet search engines utilize to direct those consumers to websites such as our LeaseStar product family; • our ability to hire and retain qualified key personnel, including particular key positions in our sales force and IT department; • our ability to anticipate and adapt to external forces and the emergence of new technologies and products; • our ability to enter into new markets and capture additional market share; • changes in the legal, regulatory or compliance environment related to the rental housing industry or the markets in which we operate, including without limitation changes related to fair credit reporting, payment processing, data protection and privacy, social media, utility billing, insurance, the Internet and e-commerce, licensing, telemarketing, electronic communications, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and the Health Information Technology Economic and Clinical Health Act (“HITECH”); • • the amount and timing of operating expenses and capital expenditures related to the expansion of our operations and infrastructure; the timing of revenue and expenses related to recent and potential acquisitions or dispositions of businesses or technologies; • our ability to integrate acquisition operations in a cost-effective and timely manner; • litigation and settlement costs, including unforeseen costs; and • new accounting pronouncements and changes in accounting standards or practices, particularly any affecting the recognition of subscription revenue or accounting for mergers and acquisitions. Fluctuations in our quarterly operating results or guidance that we provide may lead analysts to change their long-term models for valuing our common stock, cause us to face short-term liquidity issues, impact our ability to retain or attract key personnel or cause other unanticipated issues, all of which could cause our stock price to decline. As a result of the potential variations in our quarterly revenue and operating results, we believe that quarter-to-quarter and year-to-date period comparisons 13 of our revenues and operating results may not be meaningful and the results of any one quarter should not be relied upon as an indication of future performance. If we are unable to manage the growth of our diverse and complex operations, our financial performance may suffer. The growth in the size, dispersed geographic locations, complexity and diversity of our business and the expansion of our product lines and client base has placed, and our anticipated growth may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We increased our number of employees from approximately 900 as of December 31, 2008 to approximately 4,400 as of December 31, 2016. We increased our number of on demand clients from approximately 2,700 as of December 31, 2008 to approximately 11,000 as of December 31, 2016. In addition, we have grown and expect to continue to grow through acquisitions. Our ability to effectively manage our anticipated future growth will depend on, among other things, the following: • successfully supporting and maintaining a broad range of current and emerging solutions; • identifying suitable acquisition targets and efficiently managing the closing of acquisitions and the integration of targets into our operations; • maintaining continuity in our senior management and key personnel; • attracting, retaining, training and motivating our employees, particularly technical, client service and sales personnel; • enhancing our financial and accounting systems and controls; • enhancing our information technology infrastructure, processes and controls; • successfully completing system upgrades and enhancements; and • managing expanded operations in geographically dispersed locations. If we do not manage the size, complexity and diverse nature of our business effectively, we could experience product performance issues, delayed software releases and longer response times for assisting our clients with implementation of our solutions and could lack adequate resources to support our clients on an ongoing basis, any of which could adversely affect our reputation in the market and our ability to generate revenue from new or existing clients. The nature of our platform is complex and highly integrated, and if we fail to successfully manage releases or integrate new solutions, it could harm our revenues, operating income and reputation. We manage a complex platform of solutions that consists of our property management solutions, integrated software- enabled value-added services and web-based advertising and lease generation services. Many of our solutions include a large number of product centers that are highly integrated and require interoperability with other RealPage, Inc. products, as well as products and services of third-party service providers. Additionally, we typically deploy new releases of the software underlying our on demand software solutions on a bi-weekly, monthly or quarterly schedule, depending on the solution. Due to this complexity and the condensed development cycles under which we operate, we may experience errors in our software, corruption or loss of our data or unexpected performance issues from time to time. For example, our solutions may face interoperability difficulties with software operating systems or programs being used by our clients, or new releases, upgrades, fixes or the integration of acquired technologies may have unanticipated consequences on the operation and performance of our other solutions. If we encounter integration challenges or discover errors in our solutions late in our development cycle, it may cause us to delay our launch dates. Any major integration or interoperability issues or launch delays could have a material adverse effect on our revenues, operating income and reputation. Our business depends substantially on the renewal of our products and services for on demand units managed by our clients and the increase in the use of our on demand products and services for on demand units. With the exception of some of our LeaseStar and Propertyware solutions, which are typically month-to-month, we generally license our solutions pursuant to client agreements with a term of one year or longer. The pricing of the agreements is typically based on a price per unit basis. Our clients have no obligation to renew these agreements after their term expires, or to renew these agreements at the same or higher annual contract value. In addition, under specific circumstances, our clients have the right to cancel their client agreements before they expire, for example, in the event of an uncured breach by us, or in some circumstances, upon the sale or transfer of a client property, by giving 30 days’ notice or paying a cancellation fee. In addition, clients often purchase a higher level of professional services in the initial term than they do in renewal terms to ensure successful activation. As a result, our ability to grow is dependent in part on clients purchasing additional solutions or professional services for their on demand units after the initial term of their client agreement. Though we maintain and analyze historical data with respect to rates of client renewals, upgrades and expansions, those rates may not accurately predict future trends in renewal of on demand units. Our clients’ on demand unit renewal rates may decline or fluctuate for a number of reasons, including, but not limited to, their level of satisfaction with our solutions, our pricing, our competitors’ pricing, 14 reductions in our clients’ spending levels or reductions in the number of on demand units managed by our clients. If our clients cancel or amend their agreements with us during their term, do not renew their agreements, renew on less favorable terms or do not purchase additional solutions or professional services in renewal periods, our revenue may grow more slowly than expected or decline and our profitability may be harmed. Additionally, we have experienced, and expect to continue to experience, some level of on demand unit attrition as properties are sold and the new owners and managers of properties previously owned or managed by our clients do not continue to use our solutions. We cannot predict the amount of on demand unit turnover we will experience in the future. However, we have experienced higher rates of on demand unit attrition with our Propertyware property management system, primarily because it serves smaller properties than our OneSite property management system, and we may experience higher levels of on demand unit attrition to the extent Propertyware grows as a percentage of our revenues. If we experience increased on demand unit turnover, our financial performance and operating results could be adversely affected. On demand revenue that is derived from products that help owners and managers lease and market apartments, such as certain products in LeaseStar and LeasingDesk, may decrease as occupancy rates rise. We have also experienced, and expect to continue to experience, some number of consolidations of our clients with other parties. If one of our clients consolidates with a party who is not a client, our client may decide not to continue to use our solutions for its on demand units. In addition, if one of our clients is consolidated with another client, the acquiring client may have negotiated lower prices for our solutions or may use fewer of our solutions than the acquired client. In each case, the consolidated entity may attempt to negotiate lower prices for using our solutions as a result of the entity’s increased size. These consolidations may cause us to lose on demand units or require us to reduce prices as a result of enhanced client leverage, which could cause our financial performance and operating results to be adversely affected. Historically, our on demand units managed by our clients have renewed at a rate of 97.3% based on an average of the last two years ending December 31, 2016. Because we recognize subscription revenue over the term of the applicable client agreement, a decline in subscription renewals or new service agreements may not be reflected immediately in our operating results. We generally recognize revenue from clients ratably over the terms of their client agreements which, with the exception of our month-to-month advertising, lease generation and Propertyware agreements, are typically one year. As a result, much of the revenue we report in each quarter is deferred revenue from client agreements entered into during previous quarters. Consequently, a decline in new or renewed client agreements in any one quarter will not be fully reflected in our revenue or our results of operations until future periods. Accordingly, this revenue recognition model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new clients must be recognized over the applicable subscription term. We may not be able to continue to add new clients and retain and increase sales to our existing clients, which could adversely affect our operating results. Our revenue growth is dependent on our ability to continually attract new clients while retaining and expanding our service offerings to existing clients. Growth in the demand for our solutions may be inhibited and we may be unable to sustain growth in our sales for a number of reasons, including, but not limited to: • our failure to develop new or additional solutions; • our inability to market our solutions in a cost-effective manner to new clients or in new vertical or geographic markets; • our inability to expand our sales to existing clients; • the inability of our LeaseStar product family to grow traffic to its websites, resulting in lower levels of lead and lease/move-in traffic to clients; • our inability to build and promote our brand; and • perceived or actual security, integrity, reliability, quality or compatibility problems with our solutions. A substantial amount of our past revenue growth was derived from purchases of upgrades and additional solutions by existing clients. Our costs associated with increasing revenue from existing clients are generally lower than costs associated with generating revenue from new clients. Therefore, a reduction in the rate of revenue increase from our existing clients, even if offset by an increase in revenue from new clients, could reduce our profitability and have a material adverse effect on our operating results. If we are not able to integrate past or future acquisitions successfully, our operating results and prospects could be harmed. We have acquired new technology and domain expertise through multiple acquisitions, including our most recent acquisitions. We expect to continue making acquisitions. The success of our future acquisition strategy will depend on our 15 ability to identify, negotiate, complete and integrate acquisitions. Acquisitions are inherently risky, and any acquisitions we complete may not be successful. Any acquisitions we pursue involve numerous risks, including the following: • difficulties in integrating and managing the operations and technologies of the companies we acquire; • diversion of our management’s attention from normal daily operations of our business; • our inability to maintain the clients, the key employees, the key business relationships and the reputations of the businesses we acquire; • our inability to generate sufficient revenue from acquisitions to offset our increased expenses associated with acquisitions; • difficulties in predicting or achieving the synergies between acquired businesses and our own businesses; • our responsibility for the liabilities of the businesses we acquire, including, without limitation, liabilities arising out of their failure to maintain effective data security, data integrity, disaster recovery and privacy controls prior to the acquisition, or their infringement or alleged infringement of third-party intellectual property, contract or data access rights prior to the acquisition; • difficulties in complying with new markets or regulatory standards to which we were not previously subject; • delays in our ability to implement internal standards, controls, procedures and policies in the businesses we acquire; and • adverse effects of acquisition activity on the key performance indicators we use to monitor our performance as a business. Our current acquisition strategy includes the acquisition of complementary businesses, products, and solutions. In order to integrate and fully realize the benefits of such acquisitions, we expect to build application interfaces that enable such clients to use a wide range of our solutions while they continue to use their legacy management systems. In addition, over time we expect to migrate each acquired company’s clients to our on demand property management solutions to retain them as clients and to be in a position to offer them our solutions on a cost-effective basis. These efforts may be unsuccessful or entail costs that result in losses or reduced profitability. Unanticipated events and circumstances occurring in future periods may affect the realizability of our intangible assets recognized through acquisitions. The events and circumstances that we consider include significant under-performance relative to projected future operating results and significant changes in our overall business or product strategies. These events and circumstances may cause us to revise our estimates and assumptions used in analyzing the value of our other intangible assets with indefinite lives, and any such revision could result in a non-cash impairment charge that could have a material impact on our financial results. We may be unable to secure the equity or debt funding necessary to finance future acquisitions on terms that are acceptable to us, or at all. If we finance acquisitions by issuing equity or convertible debt securities, our existing stockholders will likely experience ownership dilution, and if we finance future acquisitions with debt funding, we will incur interest expense and may have to comply with additional financing covenants or secure that debt obligation with our assets. If we are unable to successfully develop or acquire and sell enhancements and new solutions, our revenue growth will be harmed and we may not be able to meet profitability expectations. The industry in which we operate is characterized by rapidly changing client requirements, technological developments and evolving industry standards. Our ability to attract new clients and increase revenue from existing clients will depend in large part on our ability to successfully develop, bring to market and sell enhancements to our existing solutions and new solutions that effectively respond to the rapid changes in our industry. Any enhancements or new solutions that we develop or acquire may not be introduced to the market in a timely or cost-effective manner and may not achieve the broad market acceptance necessary to generate the revenue required to offset the operating expenses and capital expenditures related to development or acquisition. If we are unable to timely develop or acquire and sell enhancements and new solutions that keep pace with the rapid changes in our industry, our revenue will not grow as expected and we may not be able to maintain or meet profitability expectations. We derive a substantial portion of our revenue from a limited number of our solutions and failure to maintain demand for these solutions and increase demand for our other solutions could negatively affect our operating results. Historically, a majority of our revenue was derived from sales of our OneSite property management system and our LeasingDesk software-enabled value-added service. If we suffer performance issues with these solutions or if we are unable to develop enhancements necessary to maintain demand for these solutions or to diversify our revenue base by increasing demand for our other solutions, our operating results could be negatively impacted. 16 We use a small number of owned data centers to deliver our solutions. Any disruption of service at our data centers or other facilities could interrupt or delay our clients’ access to our solutions, which could harm our operating results. The ability of our clients to access our service is critical to our business. We host our products and services, support our operations and service our clients primarily from our data centers in the Dallas, Texas area. We may fail to provide such service as a result of numerous factors, many of which are beyond our control, including, without limitation: mechanical failure, power outage, human error, physical or electronic security breaches, war, terrorism and related conflicts or similar events worldwide, fire, earthquake, hurricane, flood and other natural disasters, sabotage and vandalism. We attempt to mitigate these risks at our Texas-based data centers and other facilities through various business continuity efforts, including: redundant infrastructure, 24 x 7 x 365 system activity monitoring, backup and recovery procedures, use of a secure off-site storage facility for backup media, separate test systems and rotation of management and system security measures, but our precautions may not protect against all potential problems. Disaster recovery procedures are in place to facilitate the recovery of our operations, products and services within the stated service level goals. Our secondary data center is equipped with physical space, power, storage and networking infrastructure and Internet connectivity to support the solutions we provide in the event of the interruption of services at our primary data center. Even with this secondary data center, however, our operations would be interrupted during the transition process should our primary data center experience a failure. Moreover, both our primary and secondary data centers are located in the greater metropolitan Dallas area. As a result, any regional disaster could affect both data centers and result in a material disruption of our services. Problems at one or more of our data centers, whether or not within our control, could result in service disruptions or delays or loss or corruption of data or documents. This could damage our reputation, cause us to issue credits to clients, subject us to potential liability or costs related to defending against claims, or cause clients to terminate or elect not to renew their agreements, any of which could negatively impact our revenues and harm our operating results. Interruptions or delays in service from our third-party data center providers could impair our ability to deliver certain of our products to our clients, resulting in client dissatisfaction, damage to our reputation, loss of clients, limited growth and reduction in revenue. Some of our products and services derived from recent acquisitions are hosted and supported from data centers in other geographic locations within the continental United States and Europe, many of which are operated by third-party providers. Our operations depend, in part, on our third-party data center providers’ abilities to protect these facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. In the event that any of our third-party hosting or facilities arrangements is terminated, or if there is a lapse of service or damage to a facility, we could experience interruptions in the availability of our on demand software as well as delays and additional expenses in arranging new facilities and services. Despite precautions taken at these third party data centers, the occurrence of spikes in usage volume, a natural disaster, an act of terrorism, adverse changes in United States or foreign laws and regulations, vandalism or sabotage, a decision to close a third-party facility without adequate notice, or other unanticipated problems at a facility could result in lengthy interruptions in the availability of our on demand software. Even with current and planned disaster recovery arrangements, our business could be harmed. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue, subject us to liability and cause us to issue credits or cause clients to fail to renew their subscriptions, any of which could materially adversely affect our business. We provide service level commitments to our clients, and our failure to meet the stated service levels could significantly harm our revenue and our reputation. Our client agreements provide that we maintain certain service level commitments to our clients relating primarily to product functionality, network uptime, critical infrastructure availability and hardware replacement. For example, our service level agreements generally require that our solutions are available 98% of the time during coverage hours (normally 6:00 a.m. though 10:00 p.m. Central time daily) 365 days per year (other than certain permitted exceptions such as maintenance). If we are unable to meet the stated service level commitments, we may be contractually obligated to provide clients with refunds or credits. Additionally, if we fail to meet our service level commitments a specified number of times within a given time frame or for a specified duration, our clients may terminate their agreements with us or extend the term of their agreements at no additional fee. As a result, a failure to deliver services for a relatively short duration could cause us to issue credits or refunds to a large number of affected clients or result in the loss of clients. In addition, we cannot assure you that our clients will accept these credits, refunds, termination or extension rights in lieu of other legal remedies that may be available to them. Our failure to meet our commitments could also result in substantial client dissatisfaction or loss. Because of the loss of future revenues through the issuance of credits or the loss of clients or other potential liabilities, our revenue could be significantly impacted if we cannot meet our service level commitments to our clients. 17 We face intense competitive pressures and our failure to compete successfully could harm our operating results. The market for many of our solutions is intensely competitive, fragmented and rapidly changing. Some of these markets have relatively low barriers to entry. With the introduction of new technologies and market entrants, we expect competition to intensify in the future. Increased competition generally could result in pricing pressures, reduced sales and reduced margins. Often we compete to sell our solutions against existing systems that our potential clients have already made significant expenditures to install. Our competitors vary depending on our product and service. In the market for accounting software we compete with Yardi Systems, Inc. (“Yardi”), MRI Software LLC (“MRI”), Entrata, Inc., formerly Property Solutions International, Inc. (“Entrata”), AMSI Property Management (owned by Infor Global Solutions, Inc.), Intacct Corp, NetSuite Inc., Intuit Inc., Oracle Corporation, PeopleSoft and JD Edwards (each owned by Oracle Corporation), SAP AG, Microsoft Corporation, AppFolio Inc. and various smaller providers of accounting software. High costs are typically associated with switching an organization’s accounting software. In the market for property management software, we face competitive pressure from Yardi and its Voyager products, AMSI Property Management (owned by Infor Global Solutions, Inc.), Bostonpost (owned by MRI), Jenark (owned by CoreLogic), Entrata, ResMan and MRI. In the single family market, our accounting and property management systems primarily compete with Yardi, AppFolio Inc., Intuit Inc., DIY Real Estate Solutions (acquired by Yardi), Buildium, LLC, Rent Manager (owned by London Computer Systems, Inc.), and Property Boss Solutions, LLC. In the market for vertically-integrated cloud computing for multifamily real estate owners and property managers, our only substantial competition is from Yardi. We also compete with cloud computing service providers such as Amazon.com Inc., Rackspace Hosting Inc., International Business Machines Corp. and many others. We offer a number of software-enabled value-added services that compete with a disparate and large group of competitors. In the applicant screening market, our principal competitors are LexisNexis (a subsidiary of Reed Elsevier Group plc), CoreLogic, Inc. (formerly First Advantage Corporation, an affiliate of The First American Corporation), Entrata, TransUnion Rental Screening Solutions, Inc. (a subsidiary of TransUnion LLC), Resident Check Inc., Yardi, On-Site.com and many other smaller regional and local screening companies. In the insurance market, our principal competitors are Assurant, Inc., Bader Company, CoreLogic, Inc., Entrata, Yardi and a number of national insurance underwriters (including GEICO Corporation, The Allstate Corporation, State Farm Fire and Casualty Company, Farmers Insurance Exchange, Nationwide Mutual Insurance Company and United Services Automobile Association) that market renter's insurance. There are many smaller screening and insurance providers in the risk mitigation area that we encounter less frequently, but they nevertheless present a competitive presence in the market. In the client relationship management (“CRM”) market, we compete with providers of contact center and call tracking services, including LeaseHawk LLC, Yardi, Entrata, and numerous regional and local contact centers. In addition, we compete with lead tracking solution providers, including LeaseHawk LLC, Lead Tracking Solutions (acquired by Yardi), Anyone Home, Inc., and Who’s Calling, Inc. In addition, we compete with content syndication providers VaultWare (owned by MRI Software LLC) and rentbits.com, Inc. Finally, we compete with companies providing web portal services, including Apartments24-7.com, Inc., Ellipse Communications, Inc., Entrata, G5 Search Marketing, Inc., Spherexx.com and Yardi. Certain Internet listing services also offer websites for their clients, usually as a free value add to their listing service. In the marketing and web portal services market, we compete with G5 Search Marketing, Inc., Spherexx LLC, ReachLocal, Inc., Entrata, On-Site.com, Yodle, Inc., Yardi and many local or regional advertising agencies. In the Internet listing service market, we compete with ForRent (a division of Dominium Enterprises), Apartment Guide (a division of RentPath, Inc.), Rent.com (owned by RentPath, Inc.), RentPath, Inc., Apartments.com (a division of CoStar Group, Inc.), Apartment Finder (a division of CoStar Group, Inc.), Move, Inc., Entrata, Rent Café (a division of Yardi), Zillow (and Trulia, Inc.) and many other companies in regional areas. In the Senior Living market, we compete against A Place for Mom, Inc., Care.com, Inc., Caring, Inc., Eldermark, Care Patrol Franchise Systems, LLC, Yardi, Aging with Grace, LLC, SeniorHousingNet.com (owned by Move, Inc.), G5 Search Marketing Inc., SeniorHomes.com (owned by Moseo, Corp.), The Right Click LLC, ALMSA Corporation and many other regionally focused companies. In the utility billing and energy management market, we compete at a national level with American Utility Management, Inc., Conservice, LLC, Yardi (following its acquisitions of ista North America and Energy Billing Systems, Inc.), Entrata, Ocius LLC (recently acquired by PayLease) and Minol USA, L.P. Many other smaller utility billing companies compete for smaller rental properties or in regional areas. In the revenue management market, we compete with Entrata, The Rainmaker Group, and Yardi. Certain market research companies such as CoStar Group, Inc. also offer products that present competitive pricing information in a manner that can be used as a tool to manage pricing. 18 In the market for multifamily housing market research, we compete with Reis, Inc., Pierce-Eislen, Inc. (owned by Yardi), CoStar Group, Inc. and Portfolio Research, Inc. In the spend management market, we compete with Yardi, AvidXchange, Inc., Nexus Systems, Inc., Ariba, Inc., Oracle Corporation, Buyers Access LLC, and PAS Purchasing Solutions. In the payment processing market, we compete with Chase Paymentech Solutions, LLC (a subsidiary of JPMorgan Chase & Co.), First Data Corporation, Fiserv, Inc., MoneyGram International, Inc., On-Site.com, Entrata, PayLease LLC, RentPayment.com (a subsidiary of Yapstone, Inc.), Yardi, a number of national banking institutions and those that take payments directly from tenants. In the affordable housing compliance and audit services market, we compete with Zeffert and Associates, Inc., Preferred Compliance Solutions, Inc., Spectrum Enterprises, Inc. and many other smaller local and regional compliance and audit services. In the vacation rental market, we compete with LiveRez, Inc., HomeAway Software, Inc., Airbnb, and many other smaller local and regional companies. We partner with some competitors to syndicate vacation rental listings to their Internet listing sites. In addition, many of our existing or potential clients have developed or may develop their own solutions that may be competitive with our solutions. We also may face competition for potential acquisition targets from our competitors who are seeking to expand their offerings. With respect to all of our competitors, we compete based on a number of factors, including total cost of ownership, level of integration with property management systems, ease of implementation, product functionality and scope, performance, security, scalability and reliability of service, brand and reputation, sales and marketing capabilities and financial resources. Some of our existing competitors and new market entrants may enjoy substantial competitive advantages, such as greater name recognition, longer operating histories, larger installed client bases and larger sales and marketing budgets, as well as greater financial, technical and other resources. In addition, any number of our existing competitors or new market entrants could combine or consolidate, or obtain new financing through public or private sources, to become a more formidable competitor with greater resources. As a result of such competitive advantages, our existing and future competitors may be able to: • develop superior products or services, gain greater market acceptance and expand their offerings more efficiently or more rapidly; • adapt to new or emerging technologies and changes in client requirements more quickly; • take advantage of acquisition and other opportunities more readily; • adopt more aggressive pricing policies, such as offering discounted pricing for purchasing multiple bundled products; • devote greater resources to the promotion of their brand and marketing and sales of their products and services; and • devote greater resources to the research and development of their products and services. If we are not able to compete effectively, our operating results will be harmed. We integrate our software-enabled value-added services with competitive property management software for some of our clients. Our application infrastructure, marketed to our clients as the RealPage Cloud, is based on an open architecture that enables third-party applications to access and interface with applications hosted in the RealPage Cloud through our RealPage Exchange platform. Likewise, through this platform our RealPage Cloud services are able to access and interface with other third-party applications, including third-party property management systems. We also provide services to assist in the implementation, training, support and hosting with respect to the integration of some of our competitors’ applications with our solutions. We sometimes rely on the cooperation of our competitors to implement solutions for our clients. However, frequently our reliance on the cooperation of our competitors can result in delays in integration. There is no assurance that our competitors, even if contractually obligated to do so, will continue to cooperate with us or will not prospectively alter their obligations to do so. We also occasionally develop interfaces between our software-enabled value-added services and competitor property management software without their cooperation or consent. There is no assurance that our competitors will not alter their applications in ways that inhibit or prevent integration or assert that their intellectual property rights restrict our ability to integrate our solutions with their applications. Moreover, regardless of merit, such interface-related activity may result in costly litigation. 19 We face competition to attract consumers to our LeaseStar product websites and mobile applications, which could impair our ability to continue to grow the number of users who use our websites and mobile applications, which would harm our business, results of operations and financial condition. The success of our LeaseStar product family depends on our ability to continue to attract additional consumers to our websites and mobile applications. Our existing and potential competitors include companies that could devote greater technical and other resources than we have available, have a more accelerated time frame for deployment and leverage their existing user bases and proprietary technologies to provide products and services that consumers might view as superior to our offerings. Any of our future or existing competitors may introduce different solutions that attract consumers or provide solutions similar to our own but with better branding or marketing resources. If we are unable to continue to grow the number of consumers who use our website and mobile applications, our business, results of operations and financial condition would be harmed. We operate in a business environment in which social media integration is playing a significantly increasing role. Social media is a new and rapidly changing industry wherein the rules and regulations related to use and disclosure of personal information is unclear and evolving. The operation and marketing of multi-tenant real estate developments is likely to become more dependent upon the use of and integration with social media platforms as communities attempt to reach their current and target clients through social applications such as Facebook, Twitter, Instagram, LinkedIn, Pinterest, Tumblr, Google+ and other current and emerging social applications. The use of these applications necessarily involves the disclosure of personal information by individuals participating in social media, and the corresponding utilization of such personal information by our products and services via integration programs and data exchanges. The regulatory framework for social media privacy and security issues is currently in flux and is likely to remain so for the foreseeable future. Practices regarding the collection, use, storage, transmission and security of personal information by companies on social media platforms have recently come under increased public scrutiny as various government agencies and consumer groups have called for new regulation and changes in industry practices. We are also subject to each social media platform’s terms and conditions for use, application development and integration, which may be modified, restricted or otherwise changed, affecting and possibly curtailing our ability to offer products and services. These factors, many of which are beyond our control, present a high degree of uncertainty for the future of social media integration. As such, there is no assurance that our participation in social media integration will be risk free, as contractual, statutory or other legal restrictions may be created that limit or otherwise impede our participation in or leverage of social media integration. We may be unable to compete successfully against our existing or future competitors in attracting advertisers, which could harm our business, results of operations and financial condition. In our LeaseStar product family, we compete to attract advertisers with media sites, including websites dedicated to providing real estate listings and other rental housing related services to real estate professionals and consumers, major Internet portals, general search engines and social media sites as well as other online companies. We also compete for a share of advertisers’ overall marketing budgets with traditional media such as television, magazines, newspapers and home/apartment guide publications, particularly with respect to advertising dollars spent at the local level by real estate professionals to advertise their qualifications and listings. Large companies with significant brand recognition have large numbers of direct sales personnel and substantial proprietary advertising inventory and web traffic, which may provide a competitive advantage. To compete successfully for advertisers against future and existing competitors, we must continue to invest resources in developing our advertising platform and proving the effectiveness and relevance of our advertising products and services. Pressure from competitors seeking to acquire a greater share of our advertisers’ overall marketing budget could adversely affect our pricing and margins, lower our revenue and increase our research and development and marketing expenses. If we are unable to compete successfully against our existing or future competitors, our business, financial condition or results of operations would be harmed. Variability in our sales and activation cycles could result in fluctuations in our quarterly results of operations and cause our stock price to decline. The sales and activation cycles for our solutions, from initial contact with a prospective client to contract execution and activation, vary widely by client and solution. We do not recognize revenue until the solution is activated. While most of our activations follow a set of standard procedures, a client’s priorities may delay activation and our ability to recognize revenue, which could result in fluctuations in our quarterly operating results. Additionally, certain of our products are offered in suites containing multiple solutions, resulting in additional fluctuation in activations depending on each client’s priorities with respect to solutions included in the suite. 20 Many of our clients are price sensitive, and if market dynamics require us to change our pricing model or reduce prices, our operating results will be harmed. Many of our existing and potential clients are price sensitive, and uncertain global economic conditions, as well as decreased leasing velocity, have contributed to increased price sensitivity in the multifamily housing market and the other markets that we serve. As market dynamics change, or as new and existing competitors introduce more competitive pricing or pricing models, we may be unable to renew our agreements with existing clients or clients of the businesses we acquire or attract new clients at the same price or based on the same pricing model as previously used. As a result, it is possible that we may be required to change our pricing model, offer price incentives or reduce our prices, which could harm our revenue, profitability and operating results. If we do not effectively expand and train our sales force, we may be unable to add new clients or increase sales to our existing clients and our business will be harmed. We continue to be substantially dependent on our sales force to obtain new clients and to sell additional solutions to our existing clients. We believe that there is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel to support our growth. New hires require significant training and, in most cases, take significant time before they achieve full productivity. Our recent hires and planned hires may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. If we are unable to hire and train sufficient numbers of effective sales personnel, or the sales personnel are not successful in obtaining new clients or increasing sales to our existing client base, our business will be harmed. Material defects or errors in the software we use to deliver our solutions could harm our reputation, result in significant costs to us and impair our ability to sell our solutions. The software applications underlying our solutions are inherently complex and may contain material defects or errors, particularly when first introduced or when new versions or enhancements are released. We have, from time to time, found defects in the software applications underlying our solutions, and new errors in our existing solutions may be detected in the future. Any errors or defects that cause performance problems or service interruptions could result in: • a reduction in new sales or subscription renewal rates; • unexpected sales credits or refunds to our clients, loss of clients and other potential liabilities; • delays in client payments, increasing our collection reserve and collection cycle; • diversion of development resources and associated costs; • harm to our reputation and brand; and • unanticipated litigation costs. Additionally, the costs incurred in correcting defects or errors could be substantial and could adversely affect our operating results. Failure to effectively manage the development, sale and support of our solutions and data processing efforts outside the United States could harm our business. Our success depends on our ability to process high volumes of client data, enhance existing solutions and develop new solutions rapidly and cost effectively. We currently maintain offices in Hyderabad, India; Cebu, Philippines and Manila, Philippines where we employ development and data processing personnel or conduct other business functions important to our operations. We believe that performing these activities in Hyderabad, Cebu and Manila increases the efficiency and decreases the costs of our related operations. We also maintain an office in Barcelona, Spain where certain of our vacation rental product development, sales and support operations are based. We believe our access to a multilingual employee base enhances our ability to serve vacation rental property managers in non-English speaking countries. We also maintain an office in Dubai, United Arab Emirates. Managing and staffing international operations requires management’s attention and financial resources. The level of cost savings achieved by our international operations may not exceed the amount of investment and additional resources required to manage and operate these international operations. Additionally, if we experience difficulties as a result of political, social, economic or environmental instability, change in applicable law, limitations of local infrastructure or problems with our workforce or facilities at our or third parties’ international operations, our business could be harmed due to delays in product release schedules or data processing services. 21 We rely on third-party technologies and services that may be difficult to replace or that could cause errors, failures or disruptions of our service, any of which could harm our business. We rely on third-party providers in connection with the delivery of our solutions. Such providers include, but are not limited to, computer hardware and software vendors, database and data providers and cloud hosting providers. We currently utilize equipment, software and services from Akami, Inc.; Avaya, Inc.; Brocade Communications Systems, Inc.; Cisco Systems, Inc.; Dell Inc.; EMC Corporation; Microsoft Corporation; Oracle Corporation; salesforce.com, Inc.; Amazon Web Services, a division of Amazon.com, Inc., as well as many other smaller providers. Our OneSite Accounting service relies on a software-as-a-service, or SaaS, accounting system developed and maintained by a third-party service provider. We host this application in our data centers and provide supplemental development resources to extend this accounting system to meet the unique requirements of the rental housing industry. Our shared cloud portfolio reporting service utilizes software licensed from IBM. We expect to utilize additional service providers as we expand our platform. Although the third-party technologies and services that we currently require are commercially available, such technologies and services may not continue to be available on commercially reasonable terms, or at all. Any loss of the right to use any of these technologies or services could result in delays in the provisioning of our solutions until alternative technology is either developed by us, or, if available, is identified, obtained and integrated, and such delays could harm our business. It also may be time consuming and costly to enter into new relationships. Additionally, any errors or defects in the third-party technologies we utilize or delays or interruptions in the third- party services we rely on could result in errors, failures or disruptions of our services, which also could harm our business. We depend upon third-party service providers for important payment processing functions. If these third-party service providers do not fulfill their contractual obligations or choose to discontinue their services, our business and operations could be disrupted and our operating results would be harmed. We rely on several large payment processing organizations to enable us to provide payment processing services to our clients, including electronic funds transfers, or EFT, check services, bank card authorization, data capture, settlement and merchant accounting services and access to various reporting tools. These organizations include Bank of America Merchant Services, Bank of America, N.A., Paymentech, LLC, Fiserv, Inc., Financial Transmission Network, Inc., Jack Henry & Associates, Inc., JPMorgan Chase Bank, N.A. and Wells Fargo, N.A. We also rely on third-party hardware manufacturers to manufacture the check scanning hardware our clients utilize to process transactions. Some of these organizations and service providers are competitors who also directly or indirectly sell payment processing services to clients in competition with us. With respect to these organizations and service providers, we have significantly less control over the systems and processes than if we were to maintain and operate them ourselves. In some cases, functions necessary to our business are performed on proprietary third-party systems and software to which we have no access. We also generally do not have long-term contracts with these organizations and service providers. Accordingly, the failure of these organizations and service providers to renew their contracts with us or fulfill their contractual obligations and perform satisfactorily could result in significant disruptions to our operations and adversely affect operating results. In addition, businesses that we have acquired, or may acquire in the future, typically rely on other payment processing service providers. We may encounter difficulty converting payment processing services from these service providers to our payment processing platform. If we are required to find an alternative source for performing these functions, we may have to expend significant money, time and other resources to develop or obtain an alternative, and if developing or obtaining an alternative is not accomplished in a timely manner and without significant disruption to our business, we may be unable to fulfill our responsibilities to clients or meet their expectations, with the attendant potential for liability claims, damage to our reputation, loss of ability to attract or maintain clients and reduction of our revenue or profits. We face a number of risks in our payment processing business that could result in a reduction in our revenues and profits. In connection with our electronic payment processing services, we process renter payments and subsequently submit these renter payments to our clients after varying clearing times established by RealPage. These payments are settled through our sponsoring clearing banks, and in the case of EFT, our Originating Depository Financial Institutions, or ODFIs. Currently, we rely on Bank of America, N.A., Wells Fargo, N.A. and JPMorgan Chase Bank, N.A. as our sponsoring clearing banks. In the future, we expect to enter into similar sponsoring clearing bank relationships with one or more other national banking institutions. The renter payments that we process for our clients at our sponsoring clearing banks are identified in our consolidated balance sheets as restricted cash and the corresponding liability for these renter payments is identified as client deposits. Our electronic payment processing business and related maintenance of custodial accounts subjects us to a number of risks, including, but not limited to: • liability for client costs related to disputed or fraudulent transactions if those costs exceed the amount of the client reserves we have during the clearing period or after renter payments have been settled to our clients; • electronic processing limits on the amount of custodial balances that any single ODFI, or collectively all of our ODFIs, will underwrite; 22 • • reliance on clearing bank sponsors, card payment processors and other service payment provider partners to process electronic transactions; failure by us or our bank sponsors to adhere to applicable laws and regulatory requirements or the standards of the electronic payments rules and regulations and other rules and regulations that may impact the provision of electronic payment services; • continually evolving and developing laws and regulations governing payment processing and money transmission, the application or interpretation of which is not clear in some jurisdictions; • incidences of fraud, a security breach or our failure to comply with required external audit standards; and • our inability to increase our fees at times when electronic payment partners or associations increase their transaction processing fees. If any of these risks related to our electronic payment processing business were to materialize, our business or financial results could be negatively affected. Although we attempt to structure and adapt our payment processing operations to comply with these complex and evolving laws and regulations, our efforts may not guarantee compliance. In the event that we are found to be in violation of these legal requirements, we may be subject to monetary fines, cease and desist orders, mandatory product changes, or other penalties that could have an adverse effect on our results of operations. Additionally, with respect to the processing of EFTs, we are exposed to financial risk and EFTs between a renter and our client may be returned for various reasons such as insufficient funds or stop payment orders. These returns are charged back to the client by us. However, if we or our sponsoring clearing banks are unable to collect such amounts from the client’s account or if the client refuses or is unable to reimburse us for the chargeback, we bear the risk of loss for the amount of the transfer. While we have not experienced material losses resulting from chargebacks in the past, there can be no assurance that we will not experience significant losses from chargebacks in the future. Any increase in chargebacks not paid by our clients may adversely affect our financial condition and results of operations. We entered into a Service Provider Agreement with Wells Fargo Merchant Services, LLC and Wells Fargo Bank, NA (“Wells Fargo”), effective January 1, 2014. Under the Service Provider Agreement, RealPage, Inc. is a registered independent sales organization, or ISO, of Wells Fargo. Wells Fargo acts as a merchant acquiring bank for processing RealPage client credit card and debit card payments (“Card Payments”), and RealPage serves as an ISO. As an ISO, RealPage assumes the underwriting risk for processing Card Payments on behalf of its clients. If RealPage experiences excessive chargebacks, either RealPage or Wells Fargo has the authority to cease client card processing services, and such events could result in a material adverse effect on our revenues, operating income, and reputation. Evolution and expansion of our payment processing business may subject us to additional regulatory requirements and other risks, for which failure to comply or adapt could harm our operating results. The evolution and expansion of our payment processing business may subject us to additional risks and regulatory requirements, including laws governing money transmission and payment processing/settlement services. These requirements vary throughout the markets in which we operate, and have increased over time as the geographic scope and complexity of our product services have expanded. While we maintain a compliance program focused on applicable laws and regulations throughout the payments industry, there is no guarantee that we will not be subject to fines, criminal and civil lawsuits or other regulatory enforcement actions in one or more jurisdictions, or be required to adjust business practices to accommodate future regulatory requirements. In order to maintain flexibility in the growth and expansion of our payments operations, we have obtained money transmitter licenses (or their equivalents) in several states, the District of Columbia and Puerto Rico and expect to continue the license application process in additional jurisdictions throughout the United States as needed to accommodate new product development. Our efforts to acquire and maintain these licenses could result in significant management time, effort, and cost, and may still not guarantee compliance given the constant state of change in these regulatory frameworks. Accordingly, costs associated with changes in compliance requirements, regulatory audits, enforcement actions, reputational harm, or other regulatory limits on our ability to grow our payment processing business could adversely affect our financial results. If our security measures are breached and unauthorized access is obtained to our software platform and infrastructure, or our clients’ or their renters’ or prospects’ data, we may incur significant liabilities, third parties may misappropriate our intellectual property, our solutions may be perceived as not being secure and clients may curtail or stop using our solutions. Maintaining the security of our software platform and service infrastructure is of paramount importance to us and our clients, and we devote significant resources to this effort. Breaches of the security measures we take to protect our software platform and service infrastructure and our and our clients’ confidential or proprietary information that is stored on and transmitted through those systems could disrupt and compromise the security of our internal systems and on demand applications, impair our ability to provide products and services to our clients and protect the privacy of their data, compromise 23 our confidential or technical business information harming our competitive position, result in theft or misuse of our intellectual property or otherwise adversely affect our business. The solutions we provide involve the collection, storage and transmission of confidential personal and proprietary information regarding our clients and our clients’ current and prospective renters and business partners. Specifically, we collect, store and transmit a variety of client data such as demographic information and payment histories of our clients’ prospective and current renters and business partners. Additionally, we collect and transmit sensitive financial data such as credit card and bank account information. Treatment of certain types of data, such as personally identifiable information, protected health information and sensitive financial data may be subject to federal or state regulations requiring heightened privacy and security. If our data security or data integrity measures are breached or otherwise fail or prove to be inadequate for any reason, as a result of third-party actions or our employees’ or contractors’ errors or malfeasance or otherwise, and unauthorized persons obtain access to this information, or the data is otherwise compromised, we could incur significant liability to our clients and to their prospective or current renters or business partners, significant costs associated with internal regulatory investigations and litigation, or significant fines and sanctions by payment processing networks or governmental authorities. Any of these events or circumstances could result in damage to our reputation and material harm to our business. We also rely upon our clients as users of our system to promote security of the system and the data within it, such as administration of client-side access credentialing and control of client-side display of data. On occasion, our clients have failed to perform these activities in such a manner as to prevent unauthorized access to data. To date, these breaches have not resulted in claims against us or in material harm to our business, but we cannot be certain that the failure of our clients in future periods to perform these activities will not result in claims against us, which could expose us to potential litigation, damage to our reputation and material harm to our business. There can be no certainty that the measures we have taken to protect our software platform and service infrastructure, our confidential and proprietary information and the privacy and integrity of our clients’, their current or prospective renters’ and business partners’ data are adequate to prevent or remedy unauthorized access to our system. Because techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. Experienced computer programmers seeking to intrude or cause harm, or hackers, may attempt to penetrate our service infrastructure from time to time. Hackers may consist of sophisticated organizations, competitors, governments or individuals who launch targeted attacks to gain unauthorized access to our systems. A hacker who is able to penetrate our service infrastructure could misappropriate proprietary or confidential information or cause interruptions in our services. We might be required to expend significant capital and resources to protect against, or to remedy, problems caused by hackers, and we may not have a timely remedy against a hacker who is able to penetrate our service infrastructure. In addition to purposeful breaches, inadvertent actions or the transmission of computer viruses could expose us to security risks. If an actual or perceived breach of our security occurs or if our clients and potential clients perceive vulnerabilities, the market perception of the effectiveness of our security measures could be harmed, we could lose sales and clients and our business could be materially harmed. If we are unable to cost-effectively scale or adapt our existing architecture to accommodate increased traffic, technological advances or changing client requirements, our operating results could be harmed. As we continue to increase our client base and the number of products used by our clients to manage units, the number of users accessing our on demand software solutions over the Internet will continue to increase. Increased traffic could result in slow access speeds and response times. Since our client agreements typically include service availability commitments, slow speeds or our failure to accommodate increased traffic could result in breaches of our client agreements. In addition, the market for our solutions is characterized by rapid technological advances and changes in client requirements. In order to accommodate increased traffic and respond to technological advances and evolving client requirements, we expect that we will be required to make future investments in our network architecture. If we do not implement future upgrades to our network architecture cost- effectively, or if we experience prolonged delays or unforeseen difficulties in connection with upgrading our network architecture, our service quality may suffer and our operating results could be harmed. Because certain solutions we provide depend on access to client data, decreased access to this data or the failure to comply with the evolving laws and regulations governing privacy of data, cloud computing and cross-border data transfers, or the failure to address privacy concerns applicable to such data, could harm our business. Certain of our solutions depend on our continued access to our clients’ data regarding their prospective and current renters, including data compiled by other third-party service providers who collect and store data on behalf of our clients. Federal, state and foreign governments have adopted and continue to adopt new laws and regulations addressing data privacy and the collection, processing, storage, transmission, use and disclosure of personal information. Such laws and regulations are subject to differing interpretations and may be inconsistent among jurisdictions. These and other requirements could reduce demand for our solutions or restrict our ability to store and process data or, in some cases, impact our ability to offer our services and solutions in certain locations. 24 In addition to government activity, privacy advocacy and other industry groups have established or may establish new self-regulatory standards that may place additional burdens on us. Our clients may expect us to meet voluntary certification or other standards established by third parties. If we are unable to maintain these certifications or meet these standards, it could adversely affect our ability to provide our solutions to certain clients and could harm our business. Any restrictions on the use of or decrease in the availability of data from our clients, or other third parties that collect and store such data on behalf of our clients, and the costs of compliance with, and other burdens imposed by, applicable legislative and regulatory initiatives may limit our ability to collect, aggregate or use this data. Any limitations on our ability to collect, aggregate or use such data could reduce demand for certain of our solutions. Additionally, any inability to adequately address privacy concerns, even if unfounded, or comply with applicable privacy laws, regulations and policies, could result in liability to us or damage to our reputation and could inhibit sales and market acceptance of our solutions and harm our business. The market for on demand software solutions in the rental housing industry continues to develop, and if it does not develop further or develops more slowly than we expect, our business will be harmed. The market for on demand SaaS software solutions in the rental housing industry delivered via the Internet through a web browser is rapidly growing but still relatively immature compared to the market for traditional on premise software installed on a client’s local personal computer or server. It is uncertain whether the on demand delivery model will achieve and sustain high levels of demand and market acceptance, making our business and future prospects difficult to evaluate and predict. While our existing client base has widely accepted this new model, our future success will depend, to a large extent, on the willingness of our potential clients to choose on demand software solutions for business processes that they view as critical. Many of our potential clients have invested substantial effort and financial resources to integrate traditional enterprise software into their businesses and may be reluctant or unwilling to switch to on demand software solutions. Some businesses may be reluctant or unwilling to use on demand software solutions because they have concerns regarding the risks associated with security capabilities, reliability and availability, among other things, of the on demand delivery model. If potential clients do not consider on demand software solutions to be beneficial, then the market for these solutions may not further develop, or it may develop more slowly than we expect, either of which would adversely affect our operating results. If use of the Internet and mobile technology, particularly with respect to online rental housing products and services, does not continue to increase as rapidly as we anticipate, our business could be harmed. Our future success is substantially dependent on the continued use of the Internet and mobile technology as effective media of business and communication by our clients and consumers. Internet and mobile technology use may not continue to develop at historical rates, and consumers may not continue to use the Internet or mobile technology as media for information exchange or we may not keep up with the latest technology. Further, these media may not be accepted as viable long-term outlets for rental housing information for a number of reasons, including actual or perceived lack of security of information and possible disruptions of service or connectivity. If consumers begin to access rental housing information through other media and we fail to innovate, our business may be negatively impacted. Economic trends that affect the rental housing market may have a negative effect on our business. Our clients include a range of organizations whose success is intrinsically linked to the rental housing market. Economic trends that negatively or positively affect the rental housing market may adversely affect our business. Instability or downturns affecting the rental housing market may have a material adverse effect on our business, prospects, financial condition and results of operations by: • decreasing demand for leasing and marketing solutions; • reducing the number of occupied sites and units on which we earn revenue; • preventing our clients from expanding their businesses and managing new properties; • causing our clients to reduce spending on our solutions; • subjecting us to increased pricing pressure in order to add new clients and retain existing clients; • causing our clients to switch to lower-priced solutions provided by our competitors or internally developed solutions; • delaying or preventing our collection of outstanding accounts receivable; and • causing payment processing losses related to an increase in client insolvency. In addition, economic trends that reduce the frequency of renter turnover or the quantity of new renters may reduce the number of rental transactions completed by our clients and may, as a result, reduce demand for our rental, leasing or marketing transaction specific services. 25 If clients and other advertisers reduce or end their advertising spending on our LeaseStar products and we are unable to attract new advertisers, our business would be harmed. Some components of our LeaseStar product family depend on advertising generated through sales to real estate agents and brokerages, property owners and other advertisers relevant to rental housing. Our ability to attract and retain advertisers, and ultimately to generate advertising revenue, depends on a number of factors, including: • increasing the number of consumers of our LeaseStar products and services; • demonstrating lead generation value to our LeaseStar clients; • competing effectively for advertising dollars with other online media companies; • continuing to develop our advertising products and services; • keeping pace with changes in technology and with our competitors; and • offering an attractive return on investment to our advertiser clients for their advertising spending with us. Reductions in lead generation could have a negative effect on our operating results. We could face reductions in leads generated for our clients if third-party originators of such leads were to elect to suspend sending leads to us or our sources for such leads were reduced. Reductions in leads generated could reduce the value of our lead generation services, make it difficult for us to add new lead generation services clients, retain existing lead generation services clients and maintain or increase sales levels to our existing lead generation services clients and could adversely affect our operating results. We may require additional capital to support business growth, and this capital might not be available. We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges or opportunities, including the need to develop new solutions or enhance our existing solutions, enhance our operating infrastructure or acquire businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Debt financing secured by us in the future could involve additional restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges or opportunities could be significantly limited. Our debt obligations contain restrictions that impact our business and expose us to risks that could adversely affect our liquidity and financial condition. All of our obligations under the Credit Facility are secured by substantially all of our assets. All of our existing and future domestic subsidiaries are required to guarantee our obligations under the Credit Facility, other than certain immaterial subsidiaries, foreign subsidiary holding companies and our payment processing subsidiaries. Such guarantees by existing and future domestic subsidiaries are and will be secured by substantially all of the assets of such subsidiaries. Our Credit Facility contains customary covenants, subject in each case to customary exceptions and qualifications, which limit our and certain of our subsidiaries’ ability to, among other things: • incur additional indebtedness or guarantee indebtedness of others; • create liens on our assets; • enter into mergers or consolidations; • dispose of assets; • prepay certain indebtedness; • make changes to our governing documents and certain of our agreements; • pay dividends and make other distributions on our capital stock, and redeem and repurchase our capital stock; • make investments, including acquisitions; and • enter into transactions with affiliates. Our Credit Facility also contains, subject in each case to customary exceptions and qualifications, customary affirmative covenants. We are also required to comply with a maximum consolidated net leverage ratio and a minimum consolidated interest coverage ratio. See additional discussion of these requirements in Note 7, Debt, of the Notes to the Consolidated 26 Financial Statements under Item 8 of this Annual Report on Form 10-K. As of December 31, 2016, we were in compliance with all of the covenants under our Credit Facility. The Credit Facility contains customary events of default, subject to customary cure periods for certain defaults, that include, among others, non-payment defaults, covenant defaults, material judgment defaults, bankruptcy and insolvency defaults, cross-defaults to certain other material indebtedness, ERISA defaults, inaccuracy of representations and warranties and a change in control default. If we experience a decline in cash flow due to any of the factors described in this “Risk Factors” section or otherwise, we could have difficulty paying interest and principal amounts due on our indebtedness and meeting the financial covenants set forth in our Credit Facility. If we are unable to generate sufficient cash flow or otherwise obtain the funds necessary to make required payments under our Credit Facility, or if we fail to comply with the requirements of our indebtedness, we could default under our Credit Facility. Any default that is not cured or waived could result in the termination of the revolving commitments, the acceleration of the obligations under the Credit Facility, an increase in the applicable interest rate under the Credit Facility and a requirement that our subsidiaries that have guaranteed the Credit Facility pay the obligations in full, and would permit our lender to exercise remedies with respect to all of the collateral that is securing the Credit Facility, including substantially all of our and our subsidiary guarantors’ assets. Any such default could have a material adverse effect on our liquidity and financial condition. Even if we comply with all of the applicable covenants, the restrictions on the conduct of our business could adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that may be beneficial to the business. Even if the Credit Facility was terminated, additional debt we could incur in the future may subject us to similar or additional covenants. Assertions by a third party that we infringe its intellectual property, whether successful or not, could subject us to costly and time-consuming litigation or expensive licenses. The software and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement, misappropriation, misuse and other violations of intellectual property rights. We have received in the past, and may receive in the future, communications from third parties claiming that we have infringed or otherwise misappropriated the intellectual property rights or terms of use of others. Our technologies may not be able to withstand any third-party claims against their use. Since we currently have no patents, we may not use patent infringement as a defensive strategy in such litigation. Additionally, although we have licensed from other parties proprietary technology covered by patents, we cannot be certain that any such patents will not be challenged, invalidated or circumvented. If such patents are invalidated or circumvented, this may allow existing and potential competitors to develop products and services that are competitive with, or superior to, our solutions. Many of our client agreements require us to indemnify our clients for certain third-party claims, such as intellectual property infringement claims, which could increase our costs of defending such claims and may require that we pay damages if there were an adverse ruling or settlement related to any such claims. These types of claims could harm our relationships with our clients, may deter future clients from purchasing our solutions or could expose us to litigation for these claims. Even if we are not a party to any litigation between a client and a third party, an adverse outcome in any such litigation could make it more difficult for us to defend our intellectual property in any subsequent litigation in which we are a named party. Litigation could force us to stop selling, incorporating or using our solutions that include the challenged intellectual property or redesign those solutions that use the technology. In addition, we may have to pay damages if we are found to be in violation of a third party’s rights. We may have to procure a license for the technology, which may not be available on reasonable terms, if at all, may significantly increase our operating expenses or may require us to restrict our business activities in one or more respects. As a result, we may also be required to develop alternative non-infringing technology, which could require significant effort and expense. There is no assurance that we would be able to develop alternative solutions or, if alternative solutions were developed, that they would perform as required or be accepted in the relevant markets. In some instances, if we are unable to offer non-infringing technology, or obtain a license for such technology, we may be required to refund some or the entire license fee paid for the infringing technology by our clients. Our exposure to risks associated with the use of intellectual property may be increased as a result of acquisitions, as we have a lower level of visibility into the development process with respect to acquired technology or the care taken to safeguard against infringement risks. Such risks include, without limitation, patent infringement risks, copyright infringement risks, risks arising from the inclusion of open source software that is subject to onerous license provisions that could even require disclosure of our proprietary source code, or violations of terms of use for third party solutions that our acquisition targets use. Third parties may make infringement and similar or related claims after we have acquired technology that had not been asserted prior to our acquisition. 27 Any failure to protect and successfully enforce our intellectual property rights could compromise our proprietary technology and impair our brands. Our success depends significantly on our ability to protect our proprietary rights to the technologies we use in our solutions. If we are unable to protect our proprietary rights adequately, our competitors could use the intellectual property we have developed to enhance their own products and services, which could harm our business. We rely on a combination of copyright, service mark, trademark and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. We currently have no issued patents and no significant pending patent applications, and we may be unable to obtain patent protection in the future. In addition, if any patents are issued in the future, they may not provide us with any competitive advantages, may not be issued in a manner that gives us the protection that we seek and may be successfully challenged by third parties. Unauthorized parties may attempt to copy or otherwise obtain and use the technologies underlying our solutions. Monitoring unauthorized use of our technologies is difficult, and we do not know whether the steps we have taken will prevent unauthorized use of our technology. If we are unable to protect our proprietary rights, we may find ourselves at a competitive disadvantage to others who have not incurred the substantial expense, time and effort required to create similar innovative products. We cannot assure you that any future service mark or trademark registrations will be issued for pending or future applications or that any registered service marks or trademarks will be enforceable or provide adequate protection of our proprietary rights. If we are unable to secure new marks, maintain already existing marks and enforce the rights to use such marks against unauthorized third-party use, our ability to brand, identify and promote our solutions in the marketplace could be impaired, which could harm our business. We customarily enter into agreements with our employees, contractors and certain parties with whom we do business to limit access to, use of, and disclosure of our confidential and proprietary information. The legal and technical steps we have taken, however, may not prevent unauthorized use or the reverse engineering of our technology. Moreover, we may be required to release the source code of our software to third parties under certain circumstances. For example, some of our client agreements provide that if we cease to maintain or support a certain solution without replacing it with a successor solution, then we may be required to release the source code of the software underlying such solution. In addition, others may independently develop technologies that are competitive to ours or infringe our intellectual property. Moreover, it may be difficult or practically impossible to detect copyright infringement or theft of our software code. Enforcement of our intellectual property rights also depends on our legal actions being successful against these infringers, but these actions may not be successful, even when our rights have been infringed. Furthermore, the legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in Internet-related industries are uncertain and still evolving. Additionally, as we sell our solutions internationally, effective patent, trademark, service mark, copyright and trade secret protection may not be available or as robust in every country in which our solutions are available. As a result, we may not be able to effectively prevent competitors outside the United States from infringing or otherwise misappropriating our intellectual property rights, which could reduce our competitive advantage and ability to compete or otherwise harm our business. We may be unable to halt the operations of websites that aggregate or misappropriate data from our websites. From time to time, third parties have misappropriated data from our websites through website scraping, software robots or other means and aggregated this data on their websites with data from other companies. In addition, copycat websites have misappropriated data on our network and attempted to imitate our brand or the functionality of our website. When we have become aware of such websites, we have employed technological or legal measures in an attempt to halt their operations. However, we may be unable to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to halt their operations. In some cases, particularly in the case of websites operating outside of the United States, our available remedies may not be adequate to protect us against the impact of the operation of such websites. Regardless of whether we can successfully enforce our rights against the operators of these websites, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations or financial condition. In addition, to the extent that such activity creates confusion among consumers or advertisers, our brand and business could be harmed. Legal proceedings against us could be costly and time consuming to defend. We are from time to time subject to legal proceedings and claims that arise in the ordinary course of business, including claims brought by our clients or vendors in connection with commercial disputes, claims brought by our clients’ current or prospective renters, including class action lawsuits based on asserted statutory or regulatory violations, employment-based claims made by our current or former employees, administrative agencies, government regulators, or insurers. In March 2015, we were named in a purported class action lawsuit in the United States District Court for the Eastern District of Pennsylvania, styled Stokes v. RealPage, Inc., Case No. 2:15-cv-01520. The claims in this purported class action relate to alleged violations of the Fair Credit Reporting Act (“FCRA”) in connection with background screens of prospective tenants of our clients. On January 25, 2016, the court entered an order placing the case on hold until the United States Supreme 28 Court issued its decision in Spokeo, Inc. v. Robins, which case addressed issues related to standing to bring claims related to the FCRA. On May 16, 2016, the U.S. Supreme Court issued its opinion in the Spokeo litigation, vacating the decision of the United States Court of Appeals for the Ninth Circuit, and remanding the case for further consideration by the U.S. Court of Appeals. Following the Supreme Court’s decision in Spokeo, the judge in the Stokes case lifted the stay. On June 24, 2016, we filed a motion to dismiss certain claims made in the case based upon the Spokeo decision. On October 19, 2016, the U.S. District Court denied the motion to dismiss. We intend to defend this case vigorously. In November 2014, the Company was named in a purported class action lawsuit in the United States District Court for the Eastern District of Virginia, styled Jenkins v. RealPage, Inc., Case No. 3:14cv758. The claims in this purported class action relate to alleged violations of the FCRA in connection with background screens of prospective tenants of our clients. This case has since been transferred to the United States District Court for the Eastern District of Pennsylvania. On January 25, 2016, the court entered an order placing the case on hold until the United States Supreme Court issued its decision in the Spokeo case. Following the Supreme Court’s decision in Spokeo, the judge in the Jenkins case lifted the stay. On June 24, 2016, we filed a motion to dismiss certain claims made in the case based upon the Spokeo decision. On October 19, 2016, the U.S. District Court denied the motion to dismiss. We intend to defend this case vigorously. Litigation, enforcement actions and other legal proceedings, regardless of their outcome, may result in substantial costs and may divert management’s attention and our resources, which may harm our business, overall financial condition and operating results. In addition, legal claims that have not yet been asserted against us may be asserted in the future. Although we maintain insurance, there is no guarantee that such insurance will be available or sufficient to cover any such legal proceedings or claims. For example, insurance may not cover such legal proceedings or claims or the insurer may withhold or dispute coverage of such legal proceedings or claims on various grounds, including by alleging such coverage is beyond the scope of such policies, that we are not in compliance with the terms of such insurance policies or that such policies are not in effect, even after proceeds under such insurance policies have been received by us. In addition, insurance may not be sufficient for one or more such legal proceedings or claims and may not continue to be available on terms acceptable to us, or at all. A legal proceeding or claim brought against us that is uninsured or under-insured could result in unanticipated costs, thereby harming our operating results. We could be sued for contract, warranty or product liability claims, and such lawsuits may disrupt our business, divert management’s attention and our financial resources or have an adverse effect on our financial results. We provide warranties to clients of certain of our solutions and services relating primarily to product functionality, network uptime, critical infrastructure availability and hardware replacement. General errors, defects, inaccuracies or other performance problems in the software applications underlying our solutions or inaccuracies in or loss of the data we provide to our clients could result in financial or other damages to our clients. Additionally, errors associated with any delivery of our services, including utility billing, could result in financial or other damages to our clients. There can be no assurance that any warranty disclaimers, general disclaimers, waivers or limitations of liability set forth in our contracts would be enforceable or would otherwise protect us from liability for damages. We maintain general liability insurance coverage, including coverage for errors and omissions, in amounts and under terms that we believe are appropriate. There can be no assurance that this coverage will continue to be available on terms acceptable to us, or at all, or in sufficient amounts to cover one or more large product liability claims, or that the insurer will not deny coverage for any future claim or dispute coverage of such legal proceedings or claims even after proceeds under such insurance policies have been received by us. The successful assertion of one or more large product liability claims against us that exceeds available insurance coverage, could have a material adverse effect on our business, prospects, financial condition and results of operations. If we fail to develop our brands in a cost-effective manner, our financial condition and operating results could be harmed. We market our solutions under discrete brand names. We believe that developing and maintaining awareness of our brands is critical to achieving widespread acceptance of our existing and future solutions and is an important element in attracting new clients and retaining our existing clients. Additionally, we believe that developing these brands in a cost- effective manner is critical in meeting our expected margins. In the past, our efforts to build our brands have involved significant expenses and we intend to continue to make expenditures on brand promotion. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brands. If we fail to build and maintain our brands in a cost-effective manner, we may fail to attract new clients or retain our existing clients, and our financial condition and results of operations could be harmed. If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with United States generally accepted accounting 29 principles. We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, which requires annual management assessment of the effectiveness of our internal control over financial reporting and a report by our independent auditors. If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, harm our ability to operate our business and reduce the trading price of our stock. Changes in, or errors in our interpretations and applications of, financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported results of operations. A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices or errors in our interpretations and applications of financial accounting standards or practices may adversely affect our reported financial results or the way in which we conduct our business. We have incurred, and will incur, increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our operating results. As a public company, we have incurred, and will incur, significant legal, accounting, investor relations and other expenses, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with current corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act, as well as rules implemented by the Securities Exchange Commission and The NASDAQ Stock Market LLC. We expect these rules and regulations to continue to affect our legal and financial compliance costs and to make some activities more time-consuming and costly. As a public company, it is more expensive for us to obtain director and officer liability insurance and it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers. The rental housing industry, electronic commerce and many of the products and services that we offer, including background screening services, utility billing, affordable housing compliance and audit services, insurance and payments are subject to extensive and evolving governmental regulation. Changes in regulations or our failure to comply with regulations could harm our operating results. The rental housing industry is subject to extensive and complex federal, state and local laws and regulations. Our services and solutions must work within the extensive and evolving legal and regulatory requirements applicable to our clients and third-party service providers, including, but not limited to, those under the Fair Credit Reporting Act, the Fair Housing Act, the Deceptive Trade Practices Act, the Drivers Privacy Protection Act, the Gramm-Leach-Bliley Act, the Fair and Accurate Credit Transactions Act, the United States Tax Reform Act of 1986 (TRA86), which is an IRS law governing tax credits, the Privacy Rules, Safeguards Rule and Consumer Report Information Disposal Rule promulgated by the Federal Trade Commission, or FTC, the FTC’s Telemarketing Sales Rule, the Telephone Consumer Protection Act (TCPA), the CAN-SPAM Act, the Electronic Communications Privacy Act, the regulations of the United States Department of Housing and Urban Development, or HUD, HIPAA/HITECH, rules and regulations of the Consumer Financial Protection Bureau (CFPB) and complex and divergent state and local laws and regulations related to data privacy and security, credit and consumer reporting, deceptive trade practices, discrimination in housing, telemarketing, electronic communications, call recording, utility billing and energy and gas consumption. These regulations are complex, change frequently and may become more stringent over time. Although we attempt to structure and adapt our solutions and service offerings to comply with these complex and evolving laws and regulations, we may be found to be in violation. If we are found to be in violation of any applicable laws or regulations, we could be subject to administrative and other enforcement actions as well as class action lawsuits or demands for client reimbursement. Additionally, many applicable laws and regulations provide for penalties or assessments on a per occurrence basis. Due to the nature of our business, the type of services we provide and the large number of transactions processed by our solutions, our potential liability in an enforcement action or class action lawsuit could be significant. In addition, entities such as HUD, the FTC and the CFPB have the authority to promulgate rules and regulations that may impact our clients and our business. On February 23, 2015, we received from the FTC a Civil Investigative Demand consisting of interrogatories and a request to produce documents relating to our compliance with the Fair Credit Reporting Act. We have responded to the request. At this time, we do not know the scope of the investigation and we do not have sufficient information to evaluate the likelihood or merits of any potential enforcement action, or to predict the outcome or costs of responding to, or the costs, if any, of resolving this investigation. We believe increased regulation is likely in the area of data privacy, and laws and regulations applying to the solicitation, collection, processing or use of personally identifiable information or consumer information could affect our clients’ ability to use and share data, potentially reducing demand for our on demand software solutions. In October 2015, the European Court of Justice invalidated the U.S.-EU Safe Harbor framework, which had been the primary compliance mechanism for establishing data transfers outside of the European Economic Area in accordance with the European Union’s Data Protection Directive 95-46 EC. While alternative compliance options exist, the long-term viability of the overall compliance framework remains in 30 question, which could result in increased regulation, cost of compliance and limitations on data transfers for both our clients and the Company. Some of our LeaseStar products operate under the real estate brokerage laws of numerous states and require maintaining licenses in many of these states. Brokerage laws in these states could change, affecting our ability to provide some LeaseStar, or if applicable, other products in these states. We deliver our on demand software solutions over the Internet and sell and market certain of our solutions over the Internet. As Internet commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely. Taxation of products or services provided over the Internet or other charges imposed by government agencies or by private organizations for accessing the Internet may also be imposed. Any regulation imposing greater fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of on demand software solutions, which could harm our business and operating results. Our business is subject to the risks of international operations. Compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business. These numerous and sometimes conflicting laws and regulations include internal control and disclosure rules, data privacy and filtering requirements, anti-corruption laws, such as the Foreign Corrupt Practices Act, and other local laws prohibiting corrupt payments to governmental officials, and antitrust and competition regulations, among others. Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business and on our ability to carry on operations in one or more countries, and could also materially affect our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Although we have implemented policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies. In addition, we are subject to a variety of risks inherent in doing business internationally, including: • political, social, economic or environmental instability, terrorist attacks and security concerns in general; • • limitations of local infrastructure; fluctuations in currency exchange rates; • higher levels of credit risk and payment fraud; • reduced protection for intellectual property rights in some countries; • difficulties in staffing and managing global operations and the increased travel, infrastructure and legal compliance costs associated with multiple international locations; • compliance with statutory equity requirements and management of tax consequences; and • outbreaks of highly contagious diseases. If we are unable to manage the complexity of our international operations successfully, our financial results could be adversely affected. Our LeasingDesk insurance business is subject to governmental regulation which could reduce our profitability or limit our growth. Through our wholly owned subsidiary, Multifamily Internet Ventures LLC, we hold insurance agent licenses from a number of individual state departments of insurance and are subject to state governmental regulation and supervision in connection with the operation of our LeasingDesk insurance business. In addition, Multifamily Internet Ventures LLC has appointed numerous sub-producing agents to generate insurance business for its eRenterPlan product. These sub-producing agents primarily consist of property owners and managers who market the eRenterPlan to residents. The sub-producing agents are subject to the same state regulation and supervision, and Multifamily Internet Ventures LLC cannot ensure that these sub- producing agents will not violate these regulations, and thus expose the LeasingDesk business to sanctions by these state departments of insurance for any such violations. Furthermore, state insurance departments conduct periodic examinations, audits and investigations of the affairs of insurance agents. This state governmental supervision could reduce our profitability or limit the growth of our LeasingDesk insurance business by increasing the costs of regulatory compliance, limiting or restricting the solutions we provide or the methods by which we provide them or subjecting us to the possibility of regulatory actions or proceedings. Our continued ability to maintain these insurance agent licenses in the jurisdictions in which we are licensed depends on our compliance with the rules and regulations promulgated from time to time by the regulatory authorities in each of these jurisdictions. In all jurisdictions, the applicable laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licenses and 31 approvals and to implement regulations, as well as regulate rates that may be charged for premiums on policies. Accordingly, we may be precluded or temporarily suspended from carrying on some or all of the activities of our LeasingDesk insurance business or fined or penalized in a given jurisdiction. No assurances can be given that our LeasingDesk insurance business can continue to be conducted in any given jurisdiction as it has been conducted in the past. Multifamily Internet Ventures LLC is required to maintain a 50-state general agency insurance license as well as individual insurance licenses for each sales agent involved in the solicitation of insurance products. Both the agency and individual licenses require compliance with state insurance regulations, payment of licensure fees, and continuing education programs. In the event that regulatory compliance requirements are not met, Multifamily Internet Ventures LLC could be subject to license suspension or revocation, state Department of Insurance audits and regulatory fines. As a result, our ability to engage in the business of insurance could be restricted, and our revenue and financial results will be adversely affected. We generate commission revenue from the insurance policies we sell as a registered insurance agent and if insurance premiums decline or if the insureds experience greater than expected losses, our revenues could decline and our operating results could be harmed. Through our wholly owned subsidiary, Multifamily Internet Ventures LLC, a managing general insurance agency, we generate commission revenue from offering liability and renter’s insurance. Through Multifamily Internet Ventures LLC we also sell additional insurance products, including auto and other personal lines insurance, to renters that buy renter's insurance from us. These policies are ultimately underwritten by various insurance carriers. Some of the property owners and managers that participate in our programs opt to require renters to purchase rental insurance policies and agree to grant to Multifamily Internet Ventures LLC exclusive marketing rights at their properties. If demand for residential rental housing declines, property owners and managers may be forced to reduce their rental rates and to stop requiring the purchase of rental insurance in order to reduce the overall cost of renting. If property owners or managers cease to require renter's insurance, elect to offer policies from competing providers or insurance premiums decline, our revenues from selling insurance policies will be adversely affected. Additionally, one type of commission paid by insurance carriers to Multifamily Internet Ventures LLC is contingent commission, which is affected by claims experienced at the properties for which the renters purchase insurance. In the event that the severity or frequency of claims by the insureds increase unexpectedly, the contingent commission we typically earn will be adversely affected. As a result, our quarterly, or annual, operating results could fall below the expectations of analysts or investors, in which event our stock price may decline. Our ability to use net operating losses to offset future taxable income may be subject to certain limitations. In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. Our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Internal Revenue Code. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we maintain profitability. If we are required to collect sales and use taxes on the solutions we sell in additional taxing jurisdictions, we may be subject to liability for past sales and our future sales may decrease. States and some local taxing jurisdictions have differing rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that may change over time. We review these rules and regulations periodically and currently collect and remit sales taxes in taxing jurisdictions where we believe we are required to do so. However, additional state and/or local taxing jurisdictions may seek to impose sales or other tax collection obligations on us, including for past sales. A successful assertion that we should be collecting additional sales or other taxes on our solutions could result in substantial tax liabilities for past sales, discourage clients from purchasing our solutions or may otherwise harm our business and operating results. This risk is greater with regard to solutions acquired through acquisitions. We may also become subject to tax audits or similar procedures in jurisdictions where we already collect and remit sales taxes. A successful assertion that we have not collected and remitted taxes at the appropriate levels may also result in substantial tax liabilities for past sales. Liability for past taxes may also include very substantial interest and penalty charges. Our client contracts provide that our clients must pay all applicable sales and similar taxes. Nevertheless, clients may be reluctant to pay back taxes and may refuse responsibility for interest or penalties associated with those taxes. If we are required to collect and pay back taxes and the associated interest and penalties, and if our clients fail or refuse to reimburse us for all or a portion of these amounts, we will incur unplanned expenses that may be substantial. Moreover, imposition of such taxes on our solutions going forward will effectively increase the cost of such solutions to our clients and may adversely affect our ability to continue to sell those solutions to existing clients or to gain new clients in the areas in which such taxes are imposed. 32 Changes in our effective tax rate could harm our future operating results. We are subject to federal and state income taxes in the United States and various foreign jurisdictions, and our domestic and international tax liabilities are subject to the allocation of expenses in differing jurisdictions. Our tax rate is affected by changes in the mix of earnings and losses in jurisdictions with differing statutory tax rates, including jurisdictions in which we have completed or may complete acquisitions, certain non-deductible expenses arising from the requirement to expense stock options and the valuation of deferred tax assets and liabilities, including our ability to utilize our net operating losses. Increases in our effective tax rate could harm our operating results. We rely on our management team and need additional personnel to grow our business, and the loss of one or more key employees or our inability to attract and retain qualified personnel could harm our business. Our success and future growth depend on the skills, working relationships and continued services of our management team. The loss of our Chief Executive Officer or other senior executives, or our inability to successfully integrate certain new members of our management, could adversely affect our business. Our future success also will depend on our ability to attract, retain and motivate highly skilled software developers, marketing and sales personnel, technical support and product development personnel in the United States and internationally. All of our employees work for us on an at-will basis. Competition for these types of personnel is intense, particularly in the software industry. As a result, we may be unable to attract or retain qualified personnel. Our inability to attract and retain the necessary personnel could adversely affect our business. Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and teamwork fostered by our culture, and our business may be harmed. We believe that a strong corporate culture that nurtures core values and philosophies is essential to our long-term success. We call these values and philosophies the “RealPage Promise” and we seek to practice the RealPage Promise in our actions every day. The RealPage Promise embodies our corporate values with respect to client service, investor communications, employee respect and professional development and management decision-making and leadership. As our organization grows and we are required to implement more complex organizational structures, we may find it increasingly difficult to maintain the beneficial aspects of our corporate culture which could negatively impact our future success. Risks Related to Ownership of our Common Stock The concentration of our capital stock owned by insiders may limit your ability to influence corporate matters. Our executive officers, directors, and entities affiliated with them together beneficially owned approximately 30.9% of our common stock as of December 31, 2016. Further, Stephen T. Winn, our President, Chief Executive Officer and Chairman of the Board, and entities beneficially owned by Mr. Winn held an aggregate of approximately 29.0% of our common stock as of December 31, 2016. This significant concentration of ownership may adversely affect the trading price of our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. Mr. Winn and entities beneficially owned by Mr. Winn may exert significant influence over our management and affairs and matters requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership may have the effect of delaying or preventing a change of control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change of control would benefit our other stockholders. The trading price of our common stock price may be volatile. The trading price of our common stock could be subject to wide fluctuations in response to various factors, including, but not limited to, those described in this “Risk Factors” section, some of which are beyond our control. Factors affecting the trading price of our common stock include: • variations in our operating results or in expectations regarding our operating results; • variations in operating results of similar companies; • announcements of technological innovations, new solutions or enhancements, strategic alliances or agreements by us or by our competitors; • announcements by competitors regarding their entry into new markets, and new product, service and pricing strategies; • marketing, advertising or other initiatives by us or our competitors; • increases or decreases in our sales of products and services for use in the management of units by clients and increases or decreases in the number of units managed by our clients; • threatened or actual litigation; 33 • major changes in our board of directors or management; • recruitment or departure of key personnel; • changes in our financial guidance and how our actual results compare to such guidance; • changes in the estimates of our operating results or changes in recommendations by any research analysts that elect to follow our common stock; • market conditions in our industry and the economy as a whole; • the overall performance of the equity markets; • sales of our shares of common stock by existing stockholders; • volatility in our stock price, which may lead to higher stock-based expense under applicable accounting standards; and • adoption or modification of regulations, policies, procedures or programs applicable to our business. In addition, the stock market in general, and the market for technology and specifically Internet-related companies, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may harm the market price of our common stock regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and our resources, whether or not we are successful in such litigation. Our stock price could decline due to the large number of outstanding shares of our common stock eligible for future sale. Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales could also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. As of December 31, 2016, we had 81,087,353 shares of common stock outstanding. Of these shares, 77,879,692 were immediately tradable without restriction or further registration under the Securities Act, unless these shares are held by “affiliates,” as that term is defined in Rule 144 under the Securities Act. As of December 31, 2016, holders of 22,271,835 shares, or approximately 27.5%, of our outstanding common stock were entitled to rights with respect to the registration of these shares under the Securities Act. If we register their shares of common stock, these stockholders could sell those shares in the public market without being subject to the volume and other restrictions of Rule 144 and Rule 701. In addition, we have registered approximately 27,634,259 shares of common stock that have been issued or reserved for future issuance under our stock incentive plans. Of these shares, 2,477,474 shares were eligible for sale upon the exercise of vested options as of December 31, 2016. Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock. Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include: • a classified board of directors whose members serve staggered three-year terms; • not providing for cumulative voting in the election of directors; • authorizing our board of directors to issue, without stockholder approval, preferred stock with rights senior to those of our common stock; • prohibiting stockholder action by written consent; and • requiring advance notification of stockholder nominations and proposals. These and other provisions of our amended and restated certificate of incorporation and our amended and restated bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay in the future for shares of our common stock and result in the market price of our common stock being lower than it would be without these provisions. 34 If securities analysts do not continue to publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline. We expect that the trading price for our common stock may be affected by research or reports that industry or financial analysts publish about us or our business. If one or more of the analysts who cover us downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease coverage of our company, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline. We do not anticipate paying any cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. If we do not pay cash dividends, you would receive a return on your investment in our common stock only if the market price of our common stock has increased when you sell your shares. In addition, the terms of our credit facilities currently restrict our ability to pay dividends. See additional discussion under the Dividend Policy heading of Part II, Item 5 of this Annual Report on Form 10-K. Item 1B. Unresolved Staff Comments None. Item 2. Properties In 2016, we relocated our corporate headquarters and data center from Carrollton, Texas, to Richardson, Texas. At December 31, 2016, we leased approximately 421,000 square feet of space for our corporate headquarters in Richardson, Texas under a lease agreement that expires in August 2028. We also have offices in Costa Mesa, California; Irvine, California; San Francisco, California; Tampa, Florida; Alpharetta, Georgia; Louisville, Kentucky; Ann Arbor, Michigan; Bloomington, Minnesota; Greenville, South Carolina; South Burlington, Vermont; Hyderabad, India; Cebu, Philippines; Manila, Philippines; and Barcelona, Spain. We also license data center space and employ the services of cloud services providers at multiple locations in the U.S. and internationally. We believe our current and planned office and data center facilities will be adequate for the foreseeable future. Item 3. Legal Proceedings We are subject to legal proceedings and claims arising in the ordinary course of business. We are involved in litigation and other legal proceedings and claims that have not been fully resolved. At this time, we believe that any reasonably possible adverse outcome of these matters would not be material either individually or in the aggregate. Our view of those matters may change in the future as litigation and events related thereto unfold. See the risk factors "Assertions by a third party that we infringe its intellectual property, whether successful or not, could subject us to costly and time-consuming litigation or expensive licenses," "The rental housing industry, electronic commerce and many of the products and services that we offer, including background screening services, utility billing, affordable housing compliance and audit services, insurance and payments are subject to extensive and evolving governmental regulation. Changes in regulations or our failure to comply with regulations could harm our operating results," and "Legal proceedings against us could be costly and time consuming to defend" in Part I, Item 1A of this Form 10-K under the heading “Risk Factors.” Item 4. Mine Safety Disclosures Not applicable. 35 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information and Holders Our common stock is traded on the NASDAQ Global Select Market under the symbol “RP.” The following table sets forth for the periods indicated the high and low sale prices per share of our common stock as reported on the NASDAQ Global Select Market for the periods indicated: Year Ended December 31, 2016 First Quarter Second Quarter Third Quarter Fourth Quarter Year Ended December 31, 2015 First Quarter Second Quarter Third Quarter Fourth Quarter $ $ Low High $ $ 16.06 19.54 21.62 23.69 17.90 17.66 16.55 16.23 Low 22.51 23.55 22.22 30.85 High 22.58 20.98 20.00 23.98 On February 17, 2017, the closing price of our common stock on the NASDAQ Global Select Market was $34.55 per share and there were approximately 214 holders of record of our common stock. Restricted shares granted under our stock- based expense plans which have not yet vested are considered to be held by one holder. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, the number of record holders of our shares is not indicative of the total number of stockholders. Dividend Policy We have neither declared nor paid any cash dividends on our common stock in recent fiscal years. We do not expect to pay cash dividends on our common stock for the foreseeable future. Instead, we anticipate that all of our earnings will be used for the operation and growth of the business. Any future determination to declare cash dividends would be subject to the discretion of our board of directors and would depend upon various factors, including our results of operations; financial condition and liquidity requirements; restrictions that may be imposed by applicable law and our contracts; and other factors deemed relevant by our board of directors. Additionally, our Credit Facility contains customary covenants, subject in each case to customary exceptions and qualifications. Included in these covenants is a restriction which prevents us from paying dividends and making other distributions on our capital stock. Equity Compensation Plan Information For information regarding securities authorized for issuance under equity compensation plans, see the risk factor “Our stock price could decline due to the large number of outstanding shares of our common stock eligible for future sale” in Part I, Item 1A of this Form 10-K under the heading “Risk Factors” and see Part III, Item 12 of this Form 10-K. 36 Performance Graph The following graph compares the relative performance of our common stock, the NASDAQ Global Market Index, NASDAQ Composite, and the NASDAQ Computer and Data Processing Index. This graph covers the annual periods ending December 31, 2012 through December 31, 2016. In each case, this graph assumes a $100 investment on December 31, 2011 at our closing price of $25.27 per share and reinvestment of all dividends, if any. Comparison of 5 Year Cumulative Total Return Assumes Initial Investment of $100 December 31, 2016 300.00 250.00 200.00 150.00 100.00 50.00 0.00 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 RealPage, Inc. NASDAQ Composite-Total Returns NASDAQ Global Market Index NASDAQ Computer and Data Processing Index RealPage, Inc. $ 100.00 $ 85.36 $ 92.52 $ 86.90 $ 88.84 $ 118.72 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2016 NASDAQ Composite—Total Returns NASDAQ Global Market Index NASDAQ Computer and Data Processing Index 100.00 117.75 165.05 189.38 202.57 220.53 100.00 115.52 192.75 204.34 204.31 196.43 100.00 113.93 164.04 175.40 229.99 250.05 37 Issuer Purchases of Equity Securities The following table provides information with respect to repurchases of our common stock made during the fourth quarter of 2016 by RealPage, Inc. or any "affiliated purchaser" of RealPage, Inc. as defined in Rule 10b-18(a)(3) under the Exchange Act: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) October 1, 2016 through October 31, 2016 November 1, 2016 through November 30, 2016 December 1, 2016 through December 31, 2016 Total — $ — — — $ — — — — — $ 44,894,113 — — 44,894,113 44,894,113 — $ 44,894,113 (1) Our board of directors approved an extension of our May 2014 share repurchase program in May 2015 and again in April 2016. Each renewal permitted the repurchase of up to $50.0 million of our common stock during the period commencing on the extension start date and ending one year thereafter. The current extension of the share repurchase program will expire on May 6, 2017. During 2016 and 2015, the Company repurchased 1,012,823 shares and 1,798,199 shares, respectively, under the share repurchase program. These shares were repurchased at a weighted average cost of $20.98 and $19.51 per share and a total cost of $21.2 million and $35.1 million, respectively. 38 Item 6. Selected Financial Data We have derived the consolidated statements of operations and balance sheet data for the years ended December 31, 2016, 2015, 2014, 2013, and 2012 from our audited consolidated financial statements. Over the last five fiscal years, we have acquired a number of companies as disclosed in Note 3 "Acquisitions" of the Notes to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K. The results of our acquired companies have been included in our consolidated financial statements since their respective dates of acquisition and have contributed to the growth in our results of operations. This information should be read in conjunction with our audited consolidated financial statements, the related notes to these financial statements, and the information in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and included elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of our future results. Revenue: On demand On premise Professional and other Total revenue Cost of revenue Gross profit Operating expenses: Product development Sales and marketing General and administrative Impairment of identified intangible assets Total operating expenses Operating income (loss) Interest expense and other, net Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Net income (loss) attributable to common stockholders: Basic and diluted Net income (loss) per share attributable to common stockholders: Basic Diluted Weighted average shares used in computing net income (loss) per share attributable to common stockholders: Basic Diluted Year Ended December 31, 2016 2015 2014 2013 2012 (in thousands, except per share data) $ 542,531 $ 450,962 $ 390,622 $ 362,312 $ 306,400 2,836 22,761 568,128 242,301 325,827 73,607 135,213 85,013 750 294,583 31,244 (3,758) 27,486 10,836 16,650 $ 2,970 14,588 468,520 198,613 269,907 68,799 123,108 68,814 20,801 3,094 10,835 404,551 174,871 229,680 64,418 111,563 69,202 — 3,691 11,019 377,022 148,321 228,701 50,638 95,894 60,610 — 5,216 10,556 322,172 128,562 193,610 48,177 76,992 56,993 — 281,522 (11,615) (1,449) (13,064) (3,846) (9,218) $ 245,183 (15,503) (1,104) (16,607) (6,333) (10,274) $ 207,142 182,162 21,559 (1,077) 20,482 (210) 20,692 $ 11,448 (2,046) 9,402 4,219 5,183 16,650 $ (9,218) $ (10,274) $ 20,692 $ 5,183 0.22 0.21 $ $ (0.12) $ (0.12) $ (0.13) $ (0.13) $ 0.28 0.27 $ $ 0.07 0.07 $ $ $ $ 76,854 77,843 76,689 76,689 76,991 76,991 74,962 76,187 71,838 74,002 39 Year Ended December 31, 2016 2015 2014 2013 2012 (in thousands, except client and employee data) $ 104,886 $ 30,911 $ 26,936 $ 34,502 $ 33,804 297,455 788,098 250,527 95,891 122,429 403,335 384,763 221,943 623,201 215,347 91,179 40,292 296,749 326,452 186,819 566,294 196,709 80,388 20,882 237,514 328,780 180,531 501,834 173,095 71,756 1,428 187,330 314,504 $ 127,210 $ 92,191 $ 70,589 $ 90,312 $ 136,216 75,241 11,024 10,989 4,410 96,012 33,384 11,998 10,568 4,122 69,972 37,062 10,744 9,560 3,875 69,209 32,952 8,725 9,022 3,337 127,484 402,197 124,855 70,079 10,000 147,126 255,071 73,349 58,412 18,774 8,466 8,113 2,893 Consolidated Balance Sheet Data: Cash and cash equivalents(1) Total current assets Total assets Total current liabilities Total deferred revenue Current and long-term debt(2) Total liabilities Total stockholders’ equity Other Financial Data: Adjusted EBITDA(3) Operating cash flow Capital expenditures Selected Operating Data: Number of on demand clients at period end Number of on demand units at period end Total number of employees at period end (1) Excludes restricted cash. (2) Includes capital lease obligations. (3) A definition of this non-GAAP financial measure and a discussion of our use of it is included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Annual Report on Form 10-K. The following table presents a reconciliation of net income (loss) to Adjusted EBITDA: 2016 2015 2014 2013 2012 Year Ended December 31, (in thousands) Net income (loss) $ 16,650 $ (9,218) $ (10,274) $ 20,692 $ 5,183 Acquisition-related and other deferred revenue adjustments Depreciation, asset impairment, and loss on disposal of assets Amortization of intangible assets Acquisition-related expense (income) Interest expense, net Income tax expense (benefit) Litigation-related expense Headquarters relocation costs Stock-based expense Stock registration costs Adjusted EBITDA (949) (2,157) 435 2,717 89 25,813 30,268 363 3,825 10,836 — 3,552 36,852 — 44,385 25,377 (1,841) 1,367 (3,846) 2 — 38,122 — 19,288 22,404 1,987 1,117 (6,333) 4,915 — 37,050 — 14,411 17,648 3,269 1,427 (210) 661 — 29,697 — 13,539 19,498 (350) 2,160 4,219 10,158 — 18,178 675 $ 127,210 $ 92,191 $ 70,589 $ 90,312 $ 73,349 40 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read together with “Selected Financial Data” and our audited consolidated financial statements and accompanying notes included elsewhere in this filing. This discussion contains forward-looking statements, based on current expectations and related to our plans, estimates, beliefs, and anticipated future financial performance. These statements involve risks and uncertainties and our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and elsewhere in this filing. Overview We are a technology leader to the real estate industry, helping owners, managers, and investors optimize both operational yields and investment returns. By leveraging data as well as integrating and streamlining a wide range of complex processes and interactions among the apartment real estate ecosystem, our platform helps our clients improve financial and operational performance and prudently place and harvest capital. The substantial majority of our revenue is derived from sales of our on demand software solutions. We also derive revenue from our professional and other services. A small percentage of our revenue is derived from sales of our on premise software solutions to our existing on premise clients. Our on demand software solutions are sold pursuant to subscription license agreements and our on premise software solutions are sold pursuant to term or perpetual licenses and associated maintenance agreements. We price our solutions based primarily on the number of units the client manages with our solutions. For our insurance-based solutions, we earn revenue based on a commission rate that considers earned premiums; agent commission; incurred losses; and premiums and profits retained by our underwriter. Our transaction-based solutions are priced based on a fixed rate per transaction. We sell our solutions through our direct sales organization and derive substantially all of our revenue from sales in the United States. Our revenue has increased from $468.5 million in 2015 to $568.1 million in 2016. The increase in revenue was driven by incremental revenue from our recent acquisitions and growth in the sales of our on demand software solutions. Sales of our solutions have benefited from growth in the number of units managed with one or more of our solutions and greater client adoption across our platform of solutions. In 2016, our on demand revenue represented 95.5% of our total revenue. While the use of and transition to data analytics and on demand software solutions in the rental real estate industry is growing rapidly, we believe it remains at a relatively early stage of adoption. Additionally, there is a low level of penetration of our on demand software solutions in our existing client base. We believe these factors present us with significant opportunities to generate revenue through sales of additional data analytics and on demand software solutions. Our existing and potential clients base their decisions to invest in our solutions on a number of factors, including general economic conditions. Our company was formed in 1998 to acquire Rent Roll, Inc., which marketed and sold on premise property management systems for the conventional and affordable multifamily rental housing markets. In June 2001, we released OneSite, our first on demand property management system. Since 2002, we have expanded our platform of solutions to include property management; lease management; resident services; and asset optimization capabilities. In addition to the multifamily markets, we now serve the single family, senior living, student living, military housing, and vacation rental markets. In addition, since July 2002, we have completed 35 acquisitions of complementary technologies to supplement our internal product development and sales and marketing efforts and expand the scope of our solutions; the types of rental housing and vacation rental properties served by our solutions; and our client base. In connection with this expansion and these acquisitions, we have committed greater resources to developing and increasing sales of our platform of data analytics and on demand solutions. As of December 31, 2016, we had approximately 4,400 employees. Recent Acquisitions Current Acquisition Activity Axiometrics LLC In January 2017, we acquired substantially all of the assets of Axiometrics LLC ("Axiometrics"), a leading provider of multifamily market data. This acquisition augmented our existing lease transaction data pool, further enhancing the accuracy and value of the analysis and forecasts provided to our clients through our data analytics solutions. We will integrate Axiometrics with our existing market research database, MPF Research. Purchase consideration was comprised of a cash payment at closing of $67.5 million, a deferred cash obligation of up to $7.5 million, and contingent cash payments of up to $5.0 million. The deferred cash obligation serves as security for our benefit against the sellers' indemnification obligation and, subject to any indemnification claims made, will be released over a period of 24 months following the acquisition date. Payment of the contingent cash obligation is dependent upon the achievement of certain revenue targets during the twelve-month period ending December 31, 2018. 41 Lease Rent Options In February 2017, we entered into an agreement to acquire Lease Rent Options ("LRO") and related assets from The Rainmaker Group Holdings, Inc. The acquisition of LRO will extend our revenue management footprint, augment our repository of real-time lease transaction data, and increase our data science talent and capabilities. We expect the acquisition of LRO to increase the market penetration of our YieldStar solution and drive revenue growth in our asset optimization solutions. Pursuant to the purchase agreement, consideration will consist of a cash payment at closing of approximately $298.5 million, subject to reduction for outstanding indebtedness, unpaid transaction expenses, and a working capital adjustment, and a deferred cash obligation of up to $1.5 million. The deferred cash obligation serves as security for our benefit against the sellers' indemnification obligations. Subject to any indemnification claims made, the deferred cash obligation will be released approximately twelve months following the acquisition date. The completion of the acquisition remains subject to certain standard conditions, and is expected to close during the second quarter of 2017. 2016 Acquisitions eSupply Systems, LLC In June 2016, we acquired substantially all of the assets of eSupply Systems, LLC (“eSupply”) and those of certain entities related to eSupply. eSupply is an e-procurement software and group purchasing service which augmented our existing spend management solutions. The addition of this group purchasing organization provides increased purchasing power and highly competitive pricing structures for our clients. The addition of eSupply’s assets rounded out our spend management offering, by adding a powerful group purchasing service to an already robust e-procurement platform, a large network of vendors, a vendor credentialing service, and purchasing advisory services. We acquired eSupply for a purchase price of $7.0 million, consisting of a cash payment of $5.5 million at closing and deferred cash obligations of up to $1.6 million, payable over 18 months after the acquisition date. The deferred cash obligation is subject to adjustments specified in the purchase agreement related to the sellers’ indemnification obligations. AssetEye, Inc. In May 2016, we acquired all of the issued and outstanding stock of AssetEye, Inc. (“AssetEye”). AssetEye is a data aggregation, reporting, and collaboration platform for institutions holding multiple real estate asset classes. This acquisition expanded our existing on demand offerings, which serve all asset classes, including commercial, hospitality, multifamily, single family, senior living, and student housing. The AssetEye software provides asset and portfolio managers with a solution to evaluate performance, trends, and operations across a portfolio with transparency into property-level data. On demand analytics allow stakeholders to quickly combine financial results and operating metrics based upon portfolio attributes that help evaluate asset management strategies. We acquired AssetEye’s issued and outstanding stock for a purchase price of $4.9 million. The purchase price consisted of a cash payment of $3.6 million at closing, net of cash acquired of $0.8 million; deferred cash obligations of up to $1.0 million, payable over a period of two years following the date of acquisition; contingent cash payments of up to $1.0 million if certain revenue targets are achieved during the three-month period ended September 30, 2017; and additional cash payments of $0.2 million due to former shareholders of AssetEye. NWP Services Corporation In March 2016, we acquired all of the issued and outstanding stock of NWP Services Corporation (“NWP”). NWP provides a full range of utility management services, including: resident billing; payment processing; utility expense management; analytics and reporting; sub-metering and maintenance; and regulatory compliance. The primary products offered by NWP include Utility Logic, Utility Smart, Utility Genius, SmartSource, and NWP Sub-meter. Through the NWP acquisition, we obtained a significantly larger share of the utility metering services market. We acquired NWP’s issued and outstanding stock for a purchase price of $69.0 million. The purchase price consisted of a cash payment of $59.0 million at closing, net of cash acquired of $0.1 million; deferred cash obligations of $7.2 million, payable over a period of three years following the date of acquisition; and other amounts totaling $3.2 million, consisting of payments to certain employees and shareholders of NWP. 2015 Acquisitions Indatus In June 2015, we acquired certain assets from ICIM Corporation, including the Answer Automation, Call Tracker, and Zip Digital products, marketed under the name Indatus. The Indatus offerings are software-as-a-service ("SaaS") products that provide automated answering services, marketing spend analysis tools, and other features which enhance the ability of managers of multifamily properties to communicate with their residents. 42 We acquired Indatus for a purchase price of $49.4 million, consisting of a cash payment of $43.8 million at closing; deferred cash payments of up to $5.0 million, payable over nineteen months after the acquisition date; and contingent cash payments of up to $2.0 million, in the aggregate, for meeting certain revenue targets during the twelve-month periods ending June 30, 2016 and 2017. The first deferred cash payment was made in the third quarter of 2016. The contingent consideration revenue targets for the twelve-month period ended June 30, 2016, were not achieved and no payment was made. If the revenue targets for the second twelve-month period are achieved, the maximum potential contingent consideration payment is $2.0 million. VRX In June 2015, we acquired certain assets from RJ Vacations, LLC and Switch Development Corporation, including the VRX product (“VRX”). VRX is a SaaS application which allows vacation rental management companies to manage the cleaning and turning of units, accounting, and document management. VRX augments our existing line of solutions offered to the vacation rental industry. We acquired VRX for a purchase price of $2.0 million, consisting of a cash payment of $1.5 million at closing and a contingent cash payment of up to $0.5 million. Payment of the contingent cash obligation is dependent upon the achievement of certain subscription or booking activity targets and is subject to adjustments specified in the acquisition agreement related to the sellers’ indemnification obligations. The VRX purchase agreement also provides for us to make additional contingent cash payments of up to $3.0 million. Payment of the additional contingent cash payments is dependent upon the achievement of certain revenue targets during the twelve-month periods ended December 31, 2016, 2017, and 2018, and the sellers providing certain services during a specified period following the acquisition date. Due to this post-acquisition service requirement, we concluded that the additional contingent cash obligations represent post-acquisition compensation; therefore, these amounts were excluded from the purchase consideration. The revenue targets for the first contingent cash payment were not met. Additionally, one of the sellers separated from us prior to completing the required service period. As a result of this separation, the maximum potential payout of the remaining contingent cash payments is $1.5 million. Key Business Metrics In addition to financial measures, we monitor our operating performance using a number of financially and non- financially derived metrics that are not included in our consolidated financial statements. We monitor the key performance indicators reflected in the following table: Revenue: Total revenue On demand revenue On demand revenue as a percentage of total revenue Ending on demand units Average on demand units Non-GAAP on demand revenue Non-GAAP on demand revenue per average on demand unit Non-GAAP on demand annual client value Adjusted EBITDA Year Ended December 31, 2016 2015 2014 (in thousands, except dollar per unit data) $ $ $ $ $ $ 568,128 542,531 95.5% 10,989 11,042 541,582 50.67 556,813 127,210 $ $ $ $ $ $ 468,520 450,962 96.3% 10,568 10,118 448,805 44.36 468,796 92,191 $ $ $ $ $ $ 404,551 390,622 96.6% 9,560 9,361 391,057 41.78 399,417 70,589 Adjusted EBITDA as a percentage of total revenue 22.4% 19.7% 17.4% On demand revenue: This metric represents the GAAP revenue derived from license and subscription fees relating to our on demand software solutions, typically licensed over one year terms; commission income from sales of renter’s insurance policies; and transaction fees for certain of our on demand software solutions. We consider on demand revenue to be a key business metric because we believe the market for our on demand software solutions represents the largest growth opportunity for our business. On demand revenue as a percentage of total revenue: This metric represents on demand revenue for the period presented divided by total revenue for the same period. We use on demand revenue as a percentage of total revenue to measure our success executing our strategy to increase the penetration of our on demand software solutions and expand our recurring revenue streams attributable to these solutions. We expect our on demand revenue to remain a significant percentage of our 43 total revenue although the actual percentage may vary from period to period due to a number of factors, including the timing of acquisitions; professional and other revenues; and on premise perpetual license sales and maintenance fees. Ending on demand units: This metric represents the number of rental housing units managed by our clients with one or more of our on demand software solutions at the end of the period. We use ending on demand units to measure the success of our strategy of increasing the number of rental housing units managed with our on demand software solutions. Property unit counts are provided to us by our clients as new sales orders are processed. Property unit counts may be adjusted periodically as information related to our clients’ properties is updated or supplemented, which could result in adjustments to the number of units previously reported. Average on demand units: We calculate average on demand units as the average of the beginning and ending on demand units for each quarter in the period presented. This metric is a measure of our success increasing the number of on demand software solutions utilized by our clients to manage their rental housing units, our overall revenue, and profitability. Non-GAAP total revenue: This metric is calculated by adding acquisition-related and other deferred revenue adjustments to total revenue. We believe it is useful to include deferred revenue written down for GAAP purposes under purchase accounting rules and revenue deferred due to a lack of historical experience determining the settlement of the contractual obligation in order to appropriately measure the underlying performance of our business operations in the period of activity and associated expense. Further, we believe this measure is useful to investors as a way to evaluate the Company’s ongoing performance. The following provides a reconciliation of GAAP to non-GAAP total revenue: Total revenue Acquisition-related and other deferred revenue adjustments Non-GAAP total revenue Year Ended December 31, 2016 2015 (in thousands) 2014 $ $ 568,128 (949) 567,179 $ $ 468,520 (2,157) 466,363 $ $ 404,551 435 404,986 Non-GAAP on demand revenue: This metric reflects total on demand revenue plus acquisition-related and other deferred revenue adjustments, as defined below. We believe inclusion of these items provides a useful measure of the underlying performance of our on demand business operations in the period of activity and associated expense. Further, we believe that investors and financial analysts find this measure to be useful in evaluating the Company’s ongoing performance because it provides a more accurate depiction of on demand revenue. The following provides a reconciliation of GAAP to non-GAAP on demand revenue: On demand revenue Acquisition-related and other deferred revenue adjustments Non-GAAP on demand revenue Year Ended December 31, 2016 2015 2014 $ $ 542,531 (949) 541,582 $ $ (in thousands) 450,962 (2,157) 448,805 $ $ 390,622 435 391,057 Non-GAAP on demand revenue per average on demand unit (“RPU”): This metric is calculated by dividing non-GAAP on demand revenue by average on demand units for the same period, including pro forma adjustments for significant acquisitions and dispositions during the period. For interim periods, the calculation is performed on an annualized basis. Non-GAAP on demand annual client value (“ACV”): We define ACV as RPU multiplied by ending on demand units. We monitor this metric to measure our success increasing the number of on demand units and the amount of software solutions utilized by our clients to manage their rental housing units. In addition, we believe ACV provides a useful proxy for the annual run-rate value of on demand client relationships. Adjusted EBITDA: We define Adjusted EBITDA as net income (loss), plus (1) acquisition-related and other deferred revenue adjustments, (2) depreciation, asset impairment, and the loss on disposal of assets, (3) amortization of intangible assets, (4) acquisition-related expense (income), (5) interest expense, net, (6) income tax expense (benefit), (7) litigation-related expense, (8) headquarters relocation costs, and (9) stock-based expense. We believe that investors and financial analysts find this non-GAAP financial measure to be useful in analyzing the Company’s financial and operational performance, comparing this performance to the Company’s peers and competitors, and understanding the Company’s ability to generate income from ongoing business operations. 44 The following provides a reconciliation of GAAP net income (loss) to Adjusted EBITDA: Year Ended December 31, 2016 2015 2014 Net income (loss) $ Acquisition-related and other deferred revenue adjustments Depreciation, asset impairment, and loss on disposal of assets (in thousands) $ (9,218) $ (2,157) 44,385 25,377 (1,841) 1,367 (3,846) 2 — 38,122 16,650 (949) 25,813 30,268 363 3,825 10,836 — 3,552 36,852 $ 127,210 $ 92,191 $ (10,274) 435 19,288 22,404 1,987 1,117 (6,333) 4,915 — 37,050 70,589 Amortization of intangible assets Acquisition-related expense (income) Interest expense, net Income tax expense (benefit) Litigation-related expense Headquarters relocation costs Stock-based expense Adjusted EBITDA Adjusted EBITDA Margin: Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by non-GAAP total revenue. We believe that investors and financial analysts find this non-GAAP financial measure to be useful in analyzing our financial and operational performance, comparing this performance to our peers and competitors, and understanding our ability to generate income from ongoing business operations. Non-GAAP Financial Measures We report our financial results in accordance with GAAP; however, we believe that, in order to properly understand the Company’s short-term and long-term financial, operational, and strategic trends, it may be helpful for investors to exclude certain non-cash or non-recurring items when used as a supplement to financial performance measures in accordance with GAAP. These non-cash or non-recurring items result from facts and circumstances that vary in both frequency and impact on continuing operations. We also use results of operations excluding such items to evaluate our operating performance compared against prior periods, make operating decisions, determine executive compensation, and serve as a basis for long-term strategic planning. These non-GAAP financial measures provide us with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certain non-cash expenses and other items that we believe might otherwise make comparisons of our ongoing business with prior periods more difficult, obscure trends in ongoing operations, reduce our ability to make useful forecasts, or obscure the ability to evaluate the effectiveness of certain business strategies, and management incentive structures. In addition, we also believe that investors and financial analysts find this information helpful in analyzing our financial and operational performance and comparing this performance to our peers and competitors. These non-GAAP financial measures are used in conjunction with traditional GAAP financial measures as part of our overall assessment of our performance. We do not place undue reliance on non-GAAP financial measures as measures of operating performance. Non-GAAP financial measures should not be considered substitutes for other measures of financial performance or liquidity reported in accordance with GAAP. There are limitations to using non-GAAP financial measures, including that other companies may calculate these measures differently than we do; that they do not reflect changes in, or cash requirements for, our working capital; and that they do not reflect our capital expenditures or future requirements for capital expenditures. We compensate for the inherent limitations associated with using non-GAAP financial measures through disclosure of these limitations, presentation of our financial statements in accordance with GAAP, and reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures. We exclude or adjust each of the items identified below from the applicable non-GAAP financial measure referenced above for the reasons set forth with respect to each excluded item: Acquisition-related and other deferred revenue: These items are included to reflect deferred revenue written down for GAAP purposes under purchase accounting rules and revenue deferred due to a lack of historical experience determining the settlement of the contractual obligation in order to appropriately measure the underlying performance of our business operations in the period of activity and associated expense. Asset impairment and loss on disposal of assets: These items comprise gains and/or losses on the disposal and impairment of long-lived assets, which are not reflective of our ongoing operations. We believe exclusion of these items facilitates a more accurate comparison of our results of operations between periods. 45 Depreciation of long-lived assets: Long-lived assets are depreciated over their estimated useful lives in a manner reflecting the pattern in which the economic benefit is consumed. Management is limited in its ability to change or influence these charges after the asset has been acquired and placed in service. We do not believe that depreciation expense accurately reflects the performance of the Company’s ongoing operations for the period in which the charges are incurred, and are therefore not considered by management in making operating decisions. Amortization of intangible assets: These items are amortized over their estimated useful lives and generally cannot be changed or influenced by management after acquisition. Accordingly, these items are not considered by us in making operating decisions. We do not believe such charges accurately reflect the performance of the Company’s ongoing operations for the period in which such charges are incurred. Acquisition-related expense (income): These items consist of direct costs incurred in our business acquisition transactions and the impact of changes in the fair value of acquisition-related contingent consideration obligations. We believe exclusion of these items facilitates a more accurate comparison of the results of the Company’s ongoing operations across periods and eliminates volatility related to changes in the fair value of acquisition-related contingent consideration obligations. Litigation-related expense: This item relates to the Company's litigation with Yardi Systems, Inc., including related insurance litigation and settlement costs. This significant and non-recurring litigation and related ancillary matters were resolved in the second quarter of 2014. We believe that the costs incurred related to this litigation are not reflective of the Company’s ongoing operations. Headquarters relocation costs: These items consist of duplicative rent and other expenses related to the relocation of our corporate headquarters and data center, which was substantially completed in the third quarter of 2016. These costs are not reflective of the Company’s ongoing operations due to their non-recurring nature. Stock-based expense: This item is excluded because these are non-cash expenditures that we do not consider part of ongoing operating results when assessing the performance of our business, and also because the total amount of the expenditure is partially outside of management’s control because it is based on factors such as stock price, volatility, and interest rates, which may be unrelated to the Company’s performance during the period in which the expenses are incurred. Key Components of Our Results of Operations Revenue We derive our revenue from three primary sources: our on demand software solutions, our on premise software solutions, and our professional and other services. On demand revenue: Revenue from our on demand software solutions is comprised of license and subscription fees relating to our on demand software solutions, typically licensed for one year terms; commission income from sales of renter’s insurance policies; and transaction fees for certain on demand software solutions, such as payment processing, spend management, and billing services. Typically, we price our on demand software solutions based primarily on the number of units or beds the client manages with our solutions. For our insurance based solutions, our agreement provides for a fixed commission on earned premiums related to the policies sold by us. The agreement also provides for a contingent commission to be paid to us in accordance with the agreement. Our transaction-based solutions are priced based on a fixed rate per transaction. On premise revenue: Our on premise software solutions are distributed to our clients and maintained locally on the client’s hardware. Revenue from our on premise software solutions is comprised of license fees under term and perpetual license agreements. Typically, we have licensed our on premise software solutions pursuant to term license agreements with an initial term of one year that include maintenance and support. Clients can renew their term license agreement for additional one-year terms at renewal price levels. We no longer actively market our legacy on premise software solutions to new clients, and only license these solutions to a small portion of our existing on premise clients as they expand their portfolio of rental housing properties. While we intend to continue supporting our on premise software solutions, we expect that many of the clients who license these solutions will transition to our on demand software solutions over time. Professional and other revenue: Revenue from professional and other services consists of consulting and implementation services; training; and other ancillary services. We complement our solutions with professional and other services for our clients willing to invest in enhancing the value or decreasing the implementation time of our solutions. Our professional and other services are typically priced as time and material engagements. Cost of Revenue Cost of revenue consists primarily of personnel costs related to our operations; support services; training and implementation services; expenses related to the operation of our data centers; and fees paid to third-party service providers. Personnel costs include salaries, bonuses, stock-based expense, and employee benefits. Cost of revenue also includes an allocation of facilities costs; overhead costs and depreciation; as well as amortization of acquired technology related to strategic 46 acquisitions and amortization of capitalized development costs. We allocate facilities, overhead costs, and depreciation based on headcount. Operating Expenses We classify our operating expenses into three categories: product development; sales and marketing; and general and administrative. Our operating expenses primarily consist of personnel costs; costs for third-party contracted development; marketing; legal; accounting and consulting services; and other professional service fees. Personnel costs for each category of operating expenses include salaries, bonuses, stock-based expense, and employee benefits for employees in that category. In addition, our operating expenses include an allocation of our facilities costs; overhead costs and depreciation based on headcount for that category; as well as amortization of purchased intangible assets resulting from our acquisitions. Product development: Product development expense consists primarily of personnel costs for our product development employees and executives and fees to contract development vendors. Our product development efforts are focused primarily on increasing the functionality and enhancing the ease of use of our platform of solutions and expanding our suite of data analytics and on demand software solutions. In addition, we maintain product development and service centers in Hyderabad, India; Manila, Philippines; and Cebu City, Philippines. Sales and marketing: Sales and marketing expense consists primarily of personnel costs for our sales, marketing, and business development employees and executives; information technology; travel and entertainment; and marketing programs. Marketing programs consist of amounts paid for services for SEO and search engine marketing (“SEM”); renter’s insurance; other advertising; trade shows; user conferences; public relations; industry sponsorships and affiliations; and product marketing. In addition, sales and marketing expense includes amortization of certain purchased intangible assets, including client relationships; key vendor and supplier relationships; and finite-lived trade names, obtained in connection with our acquisitions. General and administrative: General and administrative expense consists of personnel costs for our executives; finance and accounting; human resources; management information systems; and legal personnel, as well as legal, accounting, and other professional service fees; and other corporate expenses. Interest Expense and Other, Net Interest expense, net, consists primarily of interest income and interest expense. Interest income represents earnings from our cash and cash equivalents. Interest expense is associated with amounts borrowed under the Credit Facility, capital lease obligations, and certain acquisition-related liabilities. We participate in interest rate swap agreements, the purpose of which is to eliminate variability in interest rate payments on a portion of the Term Loan. For that portion, the swap agreements replace the Term Loan's variable rate with a fixed rate. Income Taxes As of December 31, 2016, we had gross federal and state net operating loss ("NOL") carryforwards of approximately $158.9 million and $60.6 million, respectively. If not utilized, our federal NOL carryforwards will begin to expire in 2022, and our state NOL carryforwards will begin to expire in 2017. NOLs that we have generated are not currently subject to the carryforward limitation in Section 382 of the Internal Revenue Code (“Section 382 limitation”); however, $37.6 million of NOLs generated by our subsidiaries prior to our acquisition of them are subject to the Section 382 limitation. The limitation on these pre-acquisition NOL carryforwards will fully expire in 2035. A cumulative change in ownership among material shareholders, as defined in Section 382 of the Internal Revenue Code, during a three-year period may also limit utilization of our federal net operating loss carryforwards. Critical Accounting Policies Our consolidated financial statements are prepared in accordance with GAAP. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, management’s significant judgment is required to make estimates, assumptions, and judgments that affect the reported amount of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. In some instances, we could reasonably use different accounting estimates, and in other instances, results could differ significantly from our estimates. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. We believe that the assumptions and estimates associated with revenue recognition; fair value measurements; business combinations; goodwill and other intangible assets with indefinite lives; impairment of long-lived assets; stock-based expense; income taxes; and capitalized product development costs have the greatest potential impact on our consolidated financial statements. Therefore, we believe the accounting policies discussed below are critical to understanding our historical and future 47 performance, as these policies relate to the more significant areas involving our management’s judgments, assumptions, and estimates. Revenue Recognition We derive our revenue from three primary sources: on demand software solutions, on premise software solutions, and professional services. We commence revenue recognition when all of the following conditions are met: • • • • there is persuasive evidence of an arrangement; the solution and/or service has been provided to the client; the collection of the fees is probable; and the amount of fees to be paid by the client is fixed or determinable. If the fees are not fixed or determinable, we recognize revenues as payments become due from clients or when amounts owed are collected, provided all other conditions for revenue recognition have been met. Accordingly, this may materially affect the timing of our revenue recognition and results of operations. When arrangements with clients include multiple software solutions and/or services, we allocate arrangement consideration to each deliverable based on its relative selling price. In such circumstances, we determine the relative selling price for each deliverable based on vendor specific objective evidence of selling price ("VSOE"), if available, or our best estimate of selling price ("BESP"). We have determined that third-party evidence of selling price is not available as our solutions and services are not largely interchangeable with those of other vendors. Our process for determining BESP considers multiple factors, including prices charged by us for similar offerings when sold separately, pricing and discount strategies, and other business objectives. Taxes collected from clients and remitted to governmental authorities are presented on a net basis. On Demand Revenue Our on demand revenue consists of license and subscription fees, transaction fees related to certain of our software- enabled value-added services, and commissions derived from us selling certain risk mitigation services. License setup and subscription fees are comprised of a charge billed at the initial order date and monthly or annual subscription fees for accessing our on demand software solutions. The license setup fee billed at the initial order date is recognized as revenue on a straight-line basis over the longer of the contractual term or the period in which the client is expected to benefit, which we consider to be three years. Recognition starts once the product has been activated. Revenue from monthly and annual subscription fees is recognized on a straight-line basis over the access period. We recognize revenue from transaction fees derived from certain of our software-enabled value-added services as the related services are performed. As part of our risk mitigation services to the rental housing industry, we act as an insurance agent and derive commission revenue from the sale of insurance products to individuals. The commissions are based upon a percentage of the premium that the insurance company charges to the policyholder and are subject to forfeiture in instances where a policyholder cancels prior to the end of the policy. Our contract with our underwriting partner provides for contingent commissions to be paid to us in accordance with the agreement. This agreement provides for a calculation that considers, on the policies sold by us, earned premiums less i) earned agent commissions; ii) a percent of premium retained by our underwriting partner; iii) incurred losses; and iv) profit retained by our underwriting partner during the time period. Our estimate of contingent commission revenue considers historical loss experience on the policies sold by us. If the policy is cancelled, our commissions are forfeited as a percent of the unearned premium. As a result, we recognize commissions related to these services as earned ratably over the policy term. On Premise Revenue Sales of our on premise software solutions consists of an annual term license, which includes maintenance and support. Clients can renew their annual term license for additional one-year terms at renewal price levels. We recognize revenue for the annual term license and support services on a straight-line basis over the contract term. We also derive on premise revenue from multiple element arrangements that include perpetual licenses with maintenance and other services to be provided over a fixed term. Revenue is recognized for delivered items using the residual method when we have VSOE of fair value for the undelivered items and all other criteria for revenue recognition have been met. When VSOE has not been asserted for the undelivered items, we recognize the arrangement fees ratably over the longer of the customer support period or the period during which professional services are rendered. 48 Professional and Other Revenue Professional services and other revenue are recognized as the services are rendered for time and material contracts. Training revenues are recognized after the services are performed. Business Combinations When we acquire businesses, we allocate the total consideration to the fair value of tangible assets and liabilities and identifiable intangible assets acquired. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates are based on the application of valuation models using historical experience and information obtained from the management of the acquired companies. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur in future periods which may affect the realizability of these estimated asset values. Additionally, at times we provide for the payment of additional cash consideration to the extent certain targets are achieved in the future. The fair value of this contingent consideration is based on significant estimates and is initially recorded as part of the purchase price. Changes to the fair value are reflected in the Consolidated Statements of Operations. Goodwill and Other Intangible Assets with Indefinite Lives We have recorded goodwill and other intangible assets with indefinite lives in conjunction with our business acquisitions. We have determined that we have a single reporting unit. We test goodwill and other intangible assets with indefinite lives for impairment separately on an annual basis in the fourth quarter of each year. Additionally, we will test goodwill and other intangible assets with indefinite lives in the interim if events and circumstances indicate that goodwill and other intangible assets with indefinite lives may be impaired. Factors we consider important that could trigger an impairment review include, but are not limited to, significant under-performance relative to projected future operating results, significant changes in the manner of our use of the acquired assets or our overall business and/or product strategies, and significant industry or economic trends. If an event occurs that would cause us to revise our estimates and assumptions used in analyzing the value of our goodwill and other intangible assets with indefinite lives, the revision could result in a non-cash impairment charge that could have a material impact on our financial results. We evaluate impairment of goodwill by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test. The first step involves a comparison of the fair value of a reporting unit with its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, the second step involves a comparison of the implied fair value and carrying amount of the goodwill of that reporting unit to determine the impairment charge, if any. We quantitatively evaluate other intangible assets with indefinite lives by estimating the fair value of those assets based on estimated future earnings derived from the assets using the income approach model. We have grouped intangible assets with indefinite lives that have been determined to be inseparable due to their interchangeable use into single units of accounting for purposes of testing for impairment. If the carrying amount of these intangible assets with indefinite lives exceeds the fair value, we would recognize an impairment loss equal to the excess of carrying value over fair value. Intangible Assets Intangible assets consist of acquired developed product technologies, acquired client relationships, vendor relationships, and trade names. We record intangible assets at fair value and amortize those with finite lives over the shorter of the contractual life or the estimated useful life. We estimate the useful lives of acquired developed product technologies and client relationships based on factors that include the planned use of each developed product technology and the expected pattern of future cash flows to be derived from each developed product technology and existing client relationships. We include amortization of acquired developed product technologies in "Cost of revenue" and amortization of acquired client relationships, vendor relationships and trade names in "Sales and marketing" expenses in our Consolidated Statements of Operations. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. Stock-Based Expense We recognize compensation expense related to awards of stock options and restricted stock granted to employees based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. We estimate the fair value of time-based vesting stock option awards using the Black-Scholes option pricing model on the date of grant and the associated expense is recognized over the requisite service period, which is generally the vesting period, on a straight-line basis. Determining the fair value of stock-based expense awards under this model requires judgment, 49 including estimating the volatility, risk free rate, expected term, and estimated dividend yield. The assumptions used in calculating the fair value of stock-based expense awards represent our best estimates, based on management's judgment. We have granted stock options with exercise prices equal to the fair market value of our common stock, as of the grant date. The fair value of our time-based restricted stock awards is based on the closing price of our common stock on the NASDAQ Global Select Market on the date of grant. Compensation expense for these awards is recognized on a straight-line basis over the requisite service period of three years. The fair value of restricted stock awards with market-based and time-based vesting conditions is estimated using a discrete model based on multiple stock price-paths developed through the use of Monte Carlo simulation. Expense associated with market-based awards is recognized over the requisite service period using the graded-vesting attribution method. Changes to the assumptions underlying our valuation model may have a significant impact on the underlying value of the market-based restricted stock awards, which could have a material impact on our consolidated financial statements. We estimate the fair value of restricted stock awards with performance-based and time-based vesting conditions based on the closing price of our common stock on the date of grant. Compensation expense for performance-based restricted stock awards is recognized when achievement of the performance condition is determined to be probable. Expense is recognized on a straight-line basis over the requisite service period. Income Taxes Income taxes are determined using the liability method, which results in income tax assets and liabilities arising from temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The liability method requires the effect of tax rate changes on current and accumulated deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that the deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. We consider whether a valuation allowance is needed on our deferred tax assets by evaluating all positive and negative evidence relative to our ability to recover deferred tax assets, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we begin with historical results and incorporate assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies, if any. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. We may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. We currently have recorded no liability for uncertain tax positions due to the fact that there were no material identified tax benefits that were considered uncertain positions. Capitalized Product Development Costs We capitalize specific product development costs, including costs to develop software products or the software components of our solutions to be marketed to our clients, as well as software programs to be used solely to meet our internal needs. The costs incurred in the preliminary stages of development related to research; project planning; training; maintenance and general and administrative activities; and overhead costs are expensed as incurred. The costs of relatively minor upgrades and enhancements to the software are also expensed as incurred. Once an application has reached the development stage, internal and external costs incurred in the performance of application development stage activities, including materials, services, and payroll-related costs for employees, are capitalized, if direct and incremental, until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized costs are recorded as part of property, equipment, and software. Internal use software is amortized on a straight-line basis over its estimated useful life, generally three years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. 50 Results of Operations The following tables set forth our results of operations for the specified periods. The period-to-period comparison of financial results is not necessarily indicative of future results. Consolidated Statements of Operations Data Revenue: On demand On premise Professional and other Total revenue Cost of revenue (1) Gross profit Operating expenses: Product development (1) Sales and marketing (1) General and administrative (1) Impairment of identified intangible assets Total operating expenses Operating income (loss) Interest expense and other, net Income (loss) before income taxes Income tax expense (benefit) Net income (loss) (1) Includes stock-based expense as follows: Cost of revenue Product development Sales and marketing General and administrative Year Ended December 31, 2016 2015 2014 (in thousands) 542,531 2,836 22,761 568,128 242,301 325,827 73,607 135,213 85,013 750 294,583 31,244 (3,758) 27,486 10,836 16,650 $ $ $ 450,962 2,970 14,588 468,520 198,613 269,907 68,799 123,108 68,814 20,801 281,522 (11,615) (1,449) (13,064) (3,846) (9,218) $ 390,622 3,094 10,835 404,551 174,871 229,680 64,418 111,563 69,202 — 245,183 (15,503) (1,104) (16,607) (6,333) (10,274) Year Ended December 31, 2016 2015 (in thousands) 2014 $ 3,310 7,071 11,364 15,107 $ 4,046 8,585 12,996 12,495 3,826 8,637 12,966 11,621 $ $ $ 51 The following table sets forth our results of operations for the specified periods as a percentage of our revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results. Revenue: On demand On premise Professional and other Total revenue Cost of revenue Gross profit Operating expenses: Product development Sales and marketing General and administrative Impairment of identified intangible assets Total operating expenses Operating income (loss) Interest expense and other, net Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Year Ended December 31, 2016 2015 2014 (as a percentage of total revenue) 95.5% 0.5 4.0 100.0 42.6 57.4 13.0 23.8 15.0 0.1 51.9 5.5 (0.7) 4.8 1.9 2.9% 96.3 % 0.6 3.1 100.0 42.4 57.6 14.7 26.3 14.7 4.4 60.1 (2.5) (0.3) (2.8) (0.8) (2.0)% 96.6 % 0.8 2.6 100.0 43.2 56.8 15.9 27.6 17.1 — 60.6 (3.8) (0.3) (4.1) (1.6) (2.5)% Comparison of the years ended December 31, 2016 and 2015 Revenue Revenue: On demand On premise Professional and other Total revenue On demand unit metrics: Ending on demand units Average on demand units Non-GAAP on demand revenue Non-GAAP on demand revenue per average on demand unit Non-GAAP on demand annual client value Year Ended December 31, 2016 2015 Change % Change (in thousands, except dollar per average on demand unit data) $ $ $ $ $ 542,531 $ 450,962 $ 2,836 22,761 2,970 14,588 568,128 $ 468,520 $ 10,989 11,042 541,582 50.67 556,813 $ $ $ 10,568 10,118 448,805 44.36 468,796 $ $ $ 91,569 (134) 8,173 99,608 421 924 92,777 6.31 88,017 20.3% (4.5) 56.0 21.3 4.0 9.1 20.7 14.2 18.8% On demand revenue: Although on demand revenue decreased as a percentage of total revenue, from 96.3% in 2015 to 95.5% in 2016, in absolute dollars it increased year-over-year by $91.6 million, or 20.3%. This increase was driven by incremental revenue from our recent acquisitions, greater client adoption across our platform of solutions, and growth in the number of rental units managed with one or more of our solutions. Continued client adoption across our platforms contributed to an increase in our revenue per average on demand unit from $44.36 to $50.67, or 14.2%, during the twelve months ended December 31, 2016, as compared to the same period in 2015. On demand revenue associated with our property management solutions grew $15.7 million, or 11.4%, during the twelve months ended December 31, 2016, as compared to the same period in 2015. This increase was driven by the growth of our OneSite and spend management solutions and benefited from incremental revenue from our recent acquisitions. 52 On demand revenue was most impacted by strong growth within our resident services solutions, which grew $72.0 million, or 49.2%, year-over-year. This growth is attributable to incremental revenues from our recent acquisitions and the continued growth of our other resident services solutions, most notably payments and renter's insurance. Lease management solutions' on demand revenue decreased $4.4 million, or 3.6%, during the twelve months ended December 31, 2016, as compared to the same period in 2015. Despite growth in our online leasing and screening solutions, lease management decreased due to lower revenues from our contact center and senior leasing solutions. These decreases reflect the sale of certain assets associated with our senior living referral services in the fourth quarter of 2016 and the effect of continued unfavorable macro-economic conditions and increased competition. On demand revenue from our asset optimization solutions increased year-over-year by $8.3 million, or 17.8%. This increase is primarily attributable to the growth of our Business Intelligence solution, revenues from which increased 37.7% from 2015 to 2016, and the continued growth of our YieldStar solution. On premise revenue: On premise revenue decreased $0.1 million in 2016, as compared to 2015. We no longer actively market our legacy on premise software solutions to new clients and only market and support our acquired on premise software solutions. We expect on premise revenue as a percentage of our total revenue to continue to decrease as we transition on premise software to our on demand solutions. Professional and other revenue: Professional and other services revenue increased $8.2 million for the year ended December 31, 2016, as compared to the same period in 2015. This increase is primarily attributable to incremental revenue from our recent acquisitions and our new service offerings, such as portfolio management and learning solutions. On demand unit metrics: As of December 31, 2016, one or more of our on demand solutions was utilized in the management of approximately 11.0 million rental property units. On demand units increased year-over-year by 0.4 million units, or 4.0%, despite the sale of certain assets associated with our senior living referral services in the fourth quarter of 2016. This growth is attributable to new client sales; marketing efforts to existing clients; and our 2016 acquisitions, which contributed 2.4% to total ending on demand units. Cost of Revenue Cost of revenue Stock-based expense Depreciation and amortization expense Total cost of revenue 2016 2015 Change % Change Year Ended December 31, $ $ 210,825 3,310 28,166 242,301 $ $ (in thousands) 170,552 4,046 24,015 198,613 $ $ 40,273 (736) 4,151 43,688 23.6% (18.2) 17.3 22.0% Cost of revenue: During the year ended December 31, 2016, cost of revenue, excluding stock-based expense and depreciation and amortization expense, increased $40.3 million, as compared to the same period in 2015. A year-over-year increase in direct costs of $20.0 million was primarily attributable to incremental costs from our recent acquisitions and higher transaction volumes from our Payments solution. Personnel costs and consulting fees increased during 2016 by $11.7 million and $2.4 million, respectively, largely driven by incremental costs from our recent acquisitions. Additionally, investment in our infrastructure and the relocation of our corporate headquarters and data center drove a year-over-year increase of $5.8 million in information technology and facilities expense. Changes in stock-based expense and depreciation and amortization expense are separately addressed below. Cost of revenue as a percentage of total revenue was 42.6% and 42.4% during the years ended December 31, 2016 and 2015, respectively. The cost of revenue from our NWP acquisition has served to increase this percentage because of NWP’s higher mix of sub-meter installation revenue and services that carry a higher direct labor cost. Excluding the effect of these factors, cost of revenue as a percentage of total revenue decreased between the periods due to the growth of our higher margin products, such as payments and renter's insurance, partially offset by higher depreciation expense. 53 Operating Expenses The following analysis of operating expenses by category excludes consideration of stock-based expense and depreciation and amortization expense, which are separately addressed below. Product development expense Stock-based expense Depreciation expense Total product development expense 2016 2015 Change % Change Year Ended December 31, $ $ 60,800 7,071 5,736 73,607 $ $ (in thousands) 54,935 8,585 5,279 68,799 $ $ 5,865 (1,514) 457 4,808 10.7% (17.6) 8.7 7.0% Product development: Product development expense increased $5.9 million during the year ended December 31, 2016, as compared to the same period in 2015. Personnel expense during the period increased $6.5 million, driven by additional headcount to support the development of our next generation infrastructure, new functionality, and incremental expense from our recent acquisitions. A year-over-year increase in facilities expense of $1.3 million was primarily driven by the relocation of our corporate headquarters and data center and, to a lesser extent, incremental cost from our recent acquisitions. These increases were partially offset by a decrease in professional fees between the periods of $1.2 million, primarily attributable to the completion of prior year projects related to our lease management solutions. Additionally, a loss of $1.4 million on the disposal of assets related to in-process software development projects was recognized in 2015. Product development as a percentage of total revenue decreased from 14.7% for the year ended December 31, 2015, to 13.0% for the same period in 2016. Improvement in this ratio was attributable to incremental revenue from acquired solutions introduced in 2016, the completion of projects related to our lease management solutions, and focused cost containment strategies. Sales and marketing expense Stock-based expense Depreciation and amortization expense Total sales and marketing expense 2016 2015 Change % Change Year Ended December 31, $ $ 107,942 11,364 15,907 135,213 $ $ (in thousands) 96,778 12,996 13,334 123,108 $ $ 11,164 (1,632) 2,573 12,105 11.5% (12.6) 19.3 9.8% Sales and marketing: Sales and marketing expense for the year ended December 31, 2016, increased $11.2 million, as compared to the same period in 2015. Personnel expense increased $5.8 million year-over-year, primarily due to incremental headcount from our recent acquisitions, and investments to enhance sales productivity and expand our client engagement function. Marketing program costs increased $3.6 million during 2016, reflecting investments to accelerate client demand across our portfolio of solutions. Investment in our sales support technology infrastructure led to a year-over-year increase in information technology expense of $1.3 million, and the relocation of our corporate headquarters and data center drove an increase in facilities expense of $0.9 million. Sales and marketing expense as a percentage of total revenue decreased from 26.3% for the year ended December 31, 2015, to 23.8% for 2016. This reduction was attributable to benefits from our cost containment strategy, leverage gained from our focus on sales productivity, and lower consulting expense. Lower stock-based expense during 2016 also contributed to the decrease. These reductions were partially offset by higher depreciation and amortization expense related to our recent acquisitions. 2016 2015 Change % Change Year Ended December 31, General and administrative expense Stock-based expense Depreciation expense Total general and administrative expense $ $ 64,881 15,107 5,025 85,013 $ $ (in thousands) 53,056 12,495 3,263 68,814 $ $ 11,825 2,612 1,762 16,199 22.3% 20.9 54.0 23.5% General and administrative: General and administrative expense increased $11.8 million during the year ended December 31, 2016, as compared to the same period in 2015. Personnel expense increased $6.2 million year-over-year, primarily 54 driven by incremental headcount from our recent acquisitions and investments to support our continued growth. The relocation of our corporate headquarters and data center during 2016 drove an increase in facilities expense of $1.0 million. An increase in sales tax obligations of $2.3 million and changes in the fair value of our acquisition-related obligations of $2.8 million also contributed to higher general and administrative expense. These increases were partially offset by a decrease in professional expense of $1.7 million due to higher legal fees in 2015. General and administrative expense as a percentage of total revenue increased from 14.7% to 15.0% during the year ended December 31, 2016, as compared to the same period in 2015. The increase in this ratio was driven by the year-over-year decrease in gains related to changes in the fair value of our acquisition-related obligations and was partially offset by lower professional fees in 2016 and benefits realized from our cost containment strategies. Impairment of Identified Intangible Assets: During the first quarter of 2015, we completed the integration of the InstaManager and Kigo platforms into a single solution marketed under the Kigo name. Subsequent to this integration, we discontinued the use of the InstaManager trade name to market or identify the software. Due to this change in circumstance, we evaluated the InstaManager trade name for impairment and concluded an impairment in the amount of $0.5 million existed at March 31, 2015. In connection with the preparation of our third quarter 2015 financial statements, we identified indicators requiring the assessment of certain indefinite-lived trade names for impairment, primarily associated with our 2011 acquisition of MyNewPlace. Identified indicators included declines in actual and anticipated lead-generation revenues and a change in our long-term marketing strategy. As a result, we analyzed these intangible assets and recorded a $20.3 million impairment charge during the third quarter of 2015, representing the amount by which the carrying value of the indefinite-lived trade names exceeded their estimated fair value. Given the change in our long-term marketing strategy and anticipated use of the trade names, we reclassified the remaining balance to finite-lived intangible assets as of September 30, 2015, and it is being amortized on a straight-line basis over an estimated useful life of seven years. In the fourth quarter of 2016, we sold certain assets associated with our senior living referral services with a net carrying value of $3.7 million. Based on the status of the sale negotiations at the end of the third quarter, we determined there was a possibility that certain of the assets could be impaired and performed an impairment analysis. As a result of that analysis we recorded an impairment of the associated trade names at September 30, 2016, in the amount of $0.8 million, the amount by which the carrying value of the trade names exceeded their estimated fair value on the date of analysis. Stock-based Expense 2016 2015 Change % Change Year Ended December 31, (in thousands) Stock-based expense $ 36,852 $ 38,122 $ (1,270) (3.3)% Stock-based expense for the year ended December 31, 2016, decreased $1.3 million as compared to 2015. This decrease is primarily attributable to the impact of forfeitures and awards which became fully vested during the year ended December 31, 2016, partially offset by incremental expense from awards granted during the same period. Depreciation and Amortization Expense Depreciation expense Amortization expense Total depreciation and amortization expense 2016 2015 Change % Change Year Ended December 31, $ $ 24,566 30,268 54,834 $ $ (in thousands) 20,514 25,377 45,891 $ $ 4,052 4,891 8,943 19.8% 19.3 19.5% Depreciation and amortization expense increased $8.9 million year-over-year from 2015 to 2016. The increase in depreciation expense during these periods was primarily due to incremental depreciation expense from our recent acquisitions and expense arising from the relocation of our corporate headquarters and data center. Amortization expense increased during these periods primarily due to the addition of finite-lived intangible assets in connection with our recent acquisitions. 55 Interest Expense and Other, Net Total amounts outstanding under our interest bearing obligations at December 31, 2016 and 2015 included: Revolving facility Term loan Interest bearing acquisition-related liabilities As of December 31, 2016 2015 $ (in thousands) — $ 122,637 3,935 40,000 — 5,408 Interest expense and other for the year ended December 31, 2016, increased $2.3 million as compared to the same period in 2015. This increase is primarily due to a year-over-year increase in interest expense, attributable to higher average outstanding borrowings in 2016 as a result of our $125.0 million Term Loan entered into in February 2016. Provision for Income Taxes For the year ended December 31, 2016, we recognized a consolidated tax expense of $10.8 million on income before income taxes of $27.5 million, resulting in an effective tax rate of 39.4%. We recognized a domestic income tax expense of $10.4 million, with an effective tax rate of 43.9%, resulting from the statutory federal tax rate and the effect of non-deductible expenses, state income tax rates, and other adjustments. We incurred foreign income tax expense of $0.4 million with an effective rate of 10.6%. Our foreign effective tax rate is lower than foreign statutory rates primarily because a significant portion of our foreign operations in India and the Philippines occur in tax advantaged economic zones or are subject to statutory tax holidays. Comparison of the years ended December 31, 2015 and 2014 Revenue Revenue: On demand On premise Professional and other Total revenue On demand unit metrics: Ending on demand units Average on demand units Non-GAAP on demand revenue Non-GAAP on demand revenue per average on demand unit Non-GAAP on demand annual client value Year Ended December 31, 2015 2014 Change % Change (in thousands, except dollar per average on demand unit data) $ $ $ $ $ 450,962 $ 390,622 $ 2,970 14,588 3,094 10,835 468,520 $ 404,551 $ 10,568 10,118 448,805 44.36 468,796 $ $ $ 9,560 9,361 391,057 41.78 399,417 $ $ $ 60,340 (124) 3,753 63,969 1,008 757 57,748 2.58 69,379 15.4% (4.0) 34.6 15.8 10.5 8.1 14.8 6.2 17.4% On demand revenue: On demand revenue represented 96.3% and 96.6% of our total revenue during the twelve months ended December 31, 2015 and 2014, respectively. Our on demand revenue increased $60.3 million, or 15.4%, for the twelve months ended December 31, 2015 as compared to the same period in 2014. This increase was driven by an increase in the number of rental units managed with one or more of our solutions and greater client adoption across our platform of solutions. Continued client adoption across our platforms contributed to an increase in our revenue per average on demand unit from $41.78 to $44.36, or 6.2%, during the twelve months ended December 31, 2015, as compared to the same period in 2014. Overall revenue growth continues to benefit from our investments in on demand data processing infrastructure, product development, and sales force. On demand revenue associated with our property management solutions grew $15.8 million, or 13.0%, during the twelve months ended December 31, 2015, as compared to the same period in 2014. This increase was driven primarily by growth within OneSite, related to our accounting and compliance monitoring solutions; spend management solutions; Propertyware; and Kigo. On demand revenue was most impacted by strong growth within our resident services solutions, which grew $36.0 million, or 32.7%, during the twelve months ended December 31, 2015, as compared to the same period in 2014. This growth was driven 56 by our payment processing solution, which continues to benefit from a market that has not fully realized the advantages of electronic payments; our renter's insurance products; as well as incremental revenue as a result of the Indatus acquisition in June 2015. Lease management solutions' on demand revenue grew $3.1 million, or 2.6%, during the twelve months ended December 31, 2015, as compared to the same period in 2014. This growth was driven by our screening, portal, and organic lead generation solutions, partially offset by lower revenue associated with our non-organic lead generation solutions. On demand revenue attributed to asset optimization solutions grew $5.4 million, or 13.1%, during the twelve months ended December 31, 2015, as compared to the same period in 2014. This increase was driven by growth of the YieldStar platform and augmented by our recently released next-generation business intelligence suite, performance analytics, and revenue forecaster. On premise revenue: On premise revenue decreased $0.1 million in 2015, as compared to 2014. Revenue from our on premise software solutions has continued to decrease as we have ceased actively marketing our legacy on premise software solutions to new clients and as many of our existing on premise clients have transitioned to our on demand software solutions. Professional and other revenue: Professional and other services revenue increased $3.8 million in 2015, as compared to 2014, primarily from consulting and training services related to the implementation of our solutions and improved pricing strategy. On demand unit metrics: As of December 31, 2015, one or more of our on demand solutions was utilized in the management of approximately 10.6 million rental property units, representing an increase of 1.0 million units, or 10.5%, compared to 2014. The increase in the number of rental property units managed by one or more of our on demand solutions was due to new client sales; marketing efforts to existing clients; and our 2015 acquisitions, which contributed 4.9% to total ending on demand units. Cost of Revenue Cost of revenue Stock-based expense Depreciation and amortization expense Total cost of revenue 2015 2014 Change % Change Year Ended December 31, $ $ 170,552 4,046 24,015 198,613 $ $ (in thousands) 151,821 3,826 19,224 174,871 $ $ 18,731 220 4,791 23,742 12.3% 5.8 24.9 13.6% Cost of revenue: Total cost of revenue increased $18.7 million for the twelve months ended December 31, 2015, as compared to the same period in 2014, primarily as a result of an $8.7 million increase in direct costs resulting from increased sales of our solutions, including higher transaction volumes from our payments processing solution. Additionally, personnel expense increased $8.2 million related to increased expenditures to support our growth initiatives and, to a lesser degree, increases in headcount as a result of our acquisitions. Higher technology and facility related expenses of $2.4 million also contributed to the year-over-year increase in cost of revenue. These items were partially offset by a decrease in other expenses of $0.6 million. Operating Expenses Product development expense Stock-based expense Depreciation expense Total product development expense 2015 2014 Change % Change Year Ended December 31, $ $ 54,935 8,585 5,279 68,799 $ $ (in thousands) 50,871 8,637 4,910 64,418 $ $ 4,064 (52) 369 4,381 8.0% (0.6) 7.5 6.8% Product development: Total product development expense increased in 2015, as compared to 2014, primarily due to an increase of $2.8 million in personnel expense related to increased headcount combined with higher variable compensation. Growth in our personnel expense was partially mitigated by efficiencies realized from labor optimization initiatives. Additionally, we recognized impairment charges of $1.4 million associated with certain discontinued software development projects and information technology expense increased by $0.3 million. During the same period, consulting fees and travel expense decreased by $0.3 million and $0.1 million, respectively. 57 Sales and marketing expense Stock-based expense Depreciation and amortization expense Total sales and marketing expense Year Ended December 31, 2015 2014 Change % Change $ $ 96,778 12,996 13,334 123,108 $ $ (in thousands) 85,178 12,966 13,419 111,563 $ $ 11,600 30 (85) 11,545 13.6% 0.2 (0.6) 10.3% Sales and marketing: Total sales and marketing expense increased in 2015, as compared to 2014, primarily due to increased personnel expense of $7.6 million, consistent with our efforts to expand and invest in our sales force. During the same period, information technology expense increased $1.8 million related to our continued investment in our sales force; consulting and professional services expense increased $0.9 million; marketing programs and renter's insurance advertising fees increased $3.6 million; and other expenses increased $1.0 million year-over-year. These increases were partially offset by lower SEO and SEM activity of $3.3 million, consistent with our focus on increasing the efficiency of certain business functions. 2015 2014 Change % Change Year Ended December 31, General and administrative expense Stock-based expense Depreciation expense Total general and administrative expense $ $ 53,056 12,495 3,263 68,814 $ $ (in thousands) 53,828 11,621 3,753 69,202 $ $ (772) 874 (490) (388) (1.4)% 7.5 (13.1) (0.6)% General and administrative: Total general and administrative expense decreased $0.8 million for the twelve months ended December 31, 2015, as compared to the same period in 2014. This change was primarily due to a net decrease in the fair value of our acquisition-related liabilities of $3.4 million combined with a decrease in legal expense of $4.8 million, the majority of which related to one-time litigation and settlement costs incurred in the first quarter of 2014. These decreases were partially offset by an increase in personnel expense of $4.0 million, related to the scaling of our international operations to support the growth of our business and higher variable compensation; a net loss on the disposal and impairment of certain long-lived assets of $1.3 million, related to the implementation of our global real estate strategy and our acquisition-related activities; higher consulting and professional fees of $1.2 million; higher insurance and taxes of $0.6 million; and an increase in other expense of $0.3 million. Stock-based Expense 2015 2014 Change % Change Year Ended December 31, (in thousands) Stock-based expense $ 38,122 $ 37,050 $ 1,072 2.9% Stock-based expense for the year ended December 31, 2015, increased $1.1 million, as compared to 2014. Increased expense in 2015 was driven by new awards granted during 2015, partially offset by decreases attributable to forfeitures and awards which became fully vested after December 31, 2014. Depreciation and Amortization Expense Depreciation expense Amortization expense Total depreciation and amortization expense 2015 2014 Change % Change Year Ended December 31, $ $ 20,514 25,377 45,891 $ $ (in thousands) 18,902 22,404 41,306 $ $ 1,612 2,973 4,585 8.5% 13.3 11.1% Depreciation and amortization expense increased $4.6 million year-over-year from 2014 to 2015. The increase in depreciation expense during these periods was attributable to additional assets being placed into service during the period. Amortization expense increased during these periods primarily due to the addition of finite-lived intangible assets in connection with our acquisitions. 58 Interest Expense and Other, Net Total amounts outstanding under our interest-bearing obligations at December 31, 2015 and 2014: Revolving facility Interest bearing acquisition-related liabilities As of December 31, 2015 2014 $ (in thousands) $ 40,000 5,408 20,000 5,372 Interest expense for the year ended December 31, 2015, increased $0.2 million, as compared to the same period in 2014. The higher interest expense is primarily due to higher average outstanding balances on our Revolving Facility in 2015, partially offset by lower interest rates during the same period. Provision for Income Taxes For the year ended December 31, 2015, we recognized a consolidated tax benefit of $3.8 million on a loss before income taxes of $13.1 million, resulting in an effective tax rate of 29.4%. We recognized a domestic income tax benefit of $3.9 million, with an effective tax rate of 25.1%, resulting from the statutory federal tax rate and the effect of non-deductible expenses, state income tax rates, and other adjustments. We incurred foreign income tax expense of $0.1 million with an effective rate of 4.2%. Our foreign effective tax rate is lower than foreign statutory rates primarily because a significant portion of our foreign operations in India and the Philippines occur in tax advantaged economic zones or are subject to statutory tax holidays. Quarterly Results of Operations The following table presents our unaudited consolidated quarterly results of operations for the eight fiscal quarters ended December 31, 2016. This information is derived from our unaudited consolidated financial statements, and includes all adjustments that we consider necessary for the fair statement of our financial position and operating results for the quarters presented. Operating results for individual periods is not necessarily indicative of the operating results for a full year. Historical results are not necessarily indicative of the results to be expected in future periods. You should read this data together with our consolidated financial statements and the related notes to these financial statements included elsewhere in this filing. Revenue: On demand On premise Professional and other Total revenue Cost of revenue Gross profit Operating expenses: Product development Sales and marketing General and administrative Impairment of identified intangible assets Total operating expenses Operating income (loss) Interest expense and other, net Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Net income (loss) per share attributable to common stockholders: Basic Diluted $ $ $ December 31, 2016 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015 (in thousands, except per share amounts) Three Months Ended, $ 141,627 $ 140,883 $ 136,610 $ 123,411 $ 117,090 $ 116,772 $ 110,640 $ 106,460 695 6,749 149,071 61,364 87,707 18,714 34,025 23,058 — 75,797 11,910 (912) 10,998 3,637 682 6,390 687 5,422 772 4,200 147,955 142,719 128,383 64,111 83,844 18,743 33,860 21,677 750 75,030 8,814 (1,064) 7,750 3,540 62,078 80,641 18,878 35,129 21,932 — 75,939 4,702 (1,074) 3,628 1,545 54,748 73,635 17,272 32,199 18,346 — 67,817 5,818 (708) 5,110 2,114 669 3,941 121,700 50,818 70,882 15,880 30,410 17,017 — 63,307 7,575 (401) 7,174 3,274 834 3,982 726 3,396 741 3,269 121,588 114,762 110,470 51,740 69,848 16,858 32,698 13,424 20,274 83,254 48,493 66,269 18,084 30,887 20,037 — 69,008 (13,406) (2,739) (391) (390) (13,797) (3,129) (5,605) 189 47,562 62,908 17,977 29,113 18,336 527 65,953 (3,045) (267) (3,312) (1,704) 7,361 $ 4,210 $ 2,083 $ 2,996 $ 3,900 $ (8,192) $ (3,318) $ (1,608) 0.09 0.09 $ $ 0.05 0.05 $ $ 0.03 0.03 $ $ 0.04 0.04 $ $ 0.05 0.05 $ $ (0.11) $ (0.04) $ (0.11) $ (0.04) $ (0.02) (0.02) 59 The following table sets forth our results of operations for the specified periods as a percentage of our revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results. December 31, 2016 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015 (as a percentage of total revenue) Three Months Ended, Revenue: On demand On premise Professional and other Total revenue Cost of revenue Gross profit Operating expenses: Product development Sales and marketing General and administrative Impairment of identified intangible assets Total operating expenses Operating income (loss) Interest expense and other, net Income (loss) before income taxes Income tax expense (benefit) Net income (loss) 95.0% 95.2% 95.7% 96.1% 96.3% 96.0 % 96.4 % 96.4 % 0.5 4.5 100.0 41.2 58.8 12.6 22.8 15.4 — 50.8 8.0 (0.6) 7.4 2.4 5.0% 0.5 4.3 100.0 43.3 56.7 12.7 22.9 14.7 0.5 50.8 5.9 0.5 3.8 100.0 43.5 56.5 13.2 24.6 15.4 — 53.2 3.3 (0.7) (0.8) 5.2 2.4 2.5 1.1 2.8% 1.4% 0.6 3.3 100.0 42.6 57.4 13.5 25.1 14.3 — 52.9 4.5 (0.6) 3.9 1.6 2.3% 0.5 3.2 100.0 41.8 58.2 13.0 25.0 14.0 — 52.0 6.2 (0.3) 5.9 2.7 3.2% 0.7 3.3 100.0 42.6 57.4 13.9 26.8 11.0 16.7 68.4 (11.0) (0.3) (11.3) (4.6) 0.6 3.0 100.0 42.3 57.7 15.8 26.9 17.4 — 60.1 (2.4) (0.3) (2.7) 0.2 0.7 2.9 100.0 43.1 56.9 16.3 26.3 16.6 0.5 59.7 (2.8) (0.2) (3.0) (1.5) (6.7)% (2.9)% (1.5)% Reconciliation of Quarterly Non-GAAP Financial Measures The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the eight fiscal quarters ended December 31, 2016: December 31, 2016 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015 Three Months Ended, (in thousands) Net income (loss) $ 7,361 $ 4,210 $ 2,083 $ 2,996 $ 3,900 $ (8,192) $ (3,318) $ (1,608) Acquisition-related and other deferred revenue adjustments Depreciation, asset impairment, and loss on disposal of assets Amortization of intangible assets Acquisition-related expense (income) Interest expense and other, net Income tax expense (benefit) Litigation-related expense Headquarters relocation costs Stock-based expense Adjusted EBITDA (187) (161) (258) (343) (545) (614) (532) (466) 6,635 7,573 695 937 3,637 — — 9,469 7,119 6,563 7,847 7,737 (266) (9) 1,079 3,540 — 1,353 8,255 1,090 1,545 — 1,174 10,737 5,496 7,111 (57) 719 2,114 — 1,025 8,391 5,415 6,791 (188) 401 3,274 — — 7,456 25,952 6,868 6,150 6,927 6,079 5,580 (3,310) 391 (5,605) — — 565 308 189 — — 1,092 267 (1,704) 2 — 8,669 11,250 10,747 $ 36,120 $ 32,976 $ 30,662 $ 27,452 $ 26,504 $ 24,218 $ 21,409 $ 20,060 Liquidity and Capital Resources Our primary sources of liquidity as of December 31, 2016, consisted of $104.9 million of cash and cash equivalents; $200.0 million available under our Revolving Facility; and $31.6 million of current assets less current liabilities (excluding $104.9 million of cash and cash equivalents and $89.6 million of deferred revenue). 60 Our principal uses of liquidity have been to fund our operations, working capital requirements, capital expenditures, and acquisitions; to service our debt obligations; and to repurchase shares of our common stock. We expect that working capital requirements; capital expenditures and acquisitions; debt service; and share repurchases will continue to be our principal needs for liquidity over the near term. In addition, we have made several acquisitions in which a portion of the cash purchase price is payable at various times through 2019. We expect to fund these obligations from cash provided by operating activities. In February 2017, we entered into the Third Amendment to Credit Agreement and Incremental Amendment ("Third Amendment") to the Credit Facility which, among other things, provided for an incremental $200.0 million delayed draw term loan ("Delayed Draw Term Loan") and extended the maturity date of the Credit Facility through 2022. This additional capacity will provide financing for our acquisition strategy. See additional discussion of the Third Amendment under the section "Contractual Obligations, Commitments, and Contingencies" below. In January 2017, we acquired substantially all of the assets of Axiometrics. Purchase consideration was comprised of a cash payment at closing of $67.5 million, a deferred cash obligation of up to $7.5 million, and contingent cash payments of up to $5.0 million. The deferred cash obligation serves as security for our benefit against the sellers' indemnification obligations and, subject to any indemnification claims made, will be released over a period of 24 months following the acquisition date. Payment of the contingent cash obligation is dependent upon the achievement of certain revenue targets during the twelve- month period ending December 31, 2018. In February 2017, we entered into an agreement to acquire LRO and related assets from The Rainmaker Group Holdings, Inc. Pursuant to the purchase agreement, purchase consideration will consist of a cash payment at closing of approximately $298.5 million, subject to reduction for outstanding indebtedness, unpaid transaction expenses, and a working capital adjustment, and a deferred cash obligation of up to $1.5 million. The deferred cash obligation serves as security for our benefit against the sellers' indemnification obligations and, subject to any indemnification claims made, will be released approximately twelve months following the acquisition date. The completion of the acquisition remains subject to certain standard conditions, and is expected to close during the second quarter of 2017. We expect to finance this transaction with proceeds from the Delayed Draw Term Loan. We believe that our existing cash and cash equivalents, working capital (excluding deferred revenue and cash and cash equivalents), and our cash flow from operations will be sufficient to fund our operations and planned capital expenditures and service our debt obligations for at least the next twelve months. Our future capital requirements will depend on many factors, including our rate of revenue growth; the timing and size of acquisitions; the expansion of our sales and marketing activities; the timing and extent of spending to support product development efforts; the timing of introductions of new solutions and enhancements to existing solutions; and the continuing market acceptance of our solutions. In addition to those discussed above, we may enter into acquisitions of complementary businesses, applications, or technologies in the future, which could require us to seek additional equity or debt financing. Subsequent to the execution the Third Amendment, we have term debt capacity of $200.0 million at rates similar to our existing term debt which could be used to fund future acquisitions. Additional funds may not be available on terms favorable to us, or at all. As of December 31, 2016, we have gross federal and state NOL carryforwards of $158.9 million and $60.6 million, respectively. NOLs that we have generated are not currently subject to the Section 382 limitation; however, approximately $37.6 million of NOLs generated by our subsidiaries prior to our acquisition of them are subject to the Section 382 limitation. Our federal and state NOL carryforwards may be available to offset potential payments of future income tax liabilities. If unused, these NOL carryforwards expire at various dates beginning in 2022 for federal NOLs and in 2017 for state NOLs. Total state NOLs expiring in the next five years total approximately $5.0 million. The following table sets forth cash flow data for the periods indicated therein: Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Net Cash Provided by Operating Activities Year Ended December 31, 2016 2015 2014 $ $ 136,216 (145,141) 82,943 $ 96,012 (78,361) (13,339) 69,972 (79,269) 1,778 During 2016, net cash provided by operating activities consisted of net income of $16.7 million, net adjustments to net income of $94.4 million and a net inflow of cash from changes in working capital of $25.1 million. Adjustments to net income primarily consisted of depreciation and amortization expense of $54.8 million, stock-based expense of $36.9 million, income tax-related items of $2.4 million, and charges recognized in net income of $1.2 million related to the disposition and impairment of our long-lived assets. These items were partially offset by other adjustments totaling $0.9 million. Changes in working capital included net cash inflows from accounts payable and accrued liabilities of $5.8 million and from changes in other current assets of $21.0 million, primarily related to the receipt of payments from our tenant improvement 61 allowance for our new corporate headquarters. Net inflows from changes in other current and long-term liabilities of $6.0 million and deferred revenue of $4.5 million also contributed to the increase from changes in working capital. These items were partially offset by net cash outflows related to accounts receivable of $12.2 million. In 2015, we generated $96.0 million of net cash from operating activities representing an increase compared to 2014 of $26.0 million. Our net cash from operating activities consisted of a net loss of $9.2 million, net adjustments to the net loss of $99.0 million, and cash inflows from working capital of $6.2 million. Adjustments to the net loss consisted of a loss on disposal and impairment of assets in the amount of $23.9 million, primarily related to the impairment of certain indefinite-lived trade names associated with our 2011 acquisition of MyNewPlace; amortization and depreciation expense of $45.9 million; and stock-based expense of $38.1 million. These items were partially offset by net adjustments related to income tax items of $5.6 million and changes in the fair value of our acquisition-related liabilities of $3.3 million. The net inflow from changes in working capital during 2015 was attributable to an increase in deferred revenue of $10.8 million; a net increase in accounts payable and accrued liabilities of $3.1 million, largely related to an increase in variable compensation; and a net increase in other working capital accounts of $1.0 million. These changes were partially offset by a decrease in cash flows related to accounts receivable of $8.7 million. In 2014, we generated $70.0 million of net cash from operating activities representing an increase compared to 2013. Our net cash from operating activities consisted of our net loss of $10.3 million, net adjustments to the net loss of $68.8 million, and an increase in cash flows from working capital of $11.5 million. The increase in cash flows from working capital was due to an increase in deferred revenue of $8.4 million, an increase in accounts payable and accrued liabilities of $3.8 million, a decrease in accounts receivable of $1.9 million, and an increase in other liabilities of $0.3 million. These changes were partially offset by an increase in other assets of $2.9 million. Net Cash Used in Investing Activities In 2016, our investing activities resulted in a net cash outflow of $145.1 million. We used $71.4 million in our acquisitions of NWP, AssetEye, and eSupply and $70.7 million for capital expenditures. Capital expenditures during the period were primarily to support our strategy of consolidating our real estate footprint, capitalized software development costs, and to support our information technology infrastructure and were reduced by the proceeds from the sale of certain assets associated with our senior living referral services. Additionally, in the third quarter of 2016, we purchased a minority interest in an unrelated company that specializes in the aggregation of commercial lease data for $3.0 million. In 2015, our investing activities resulted in a net cash outflow of $78.4 million. This outflow was principally attributable to expenditures of $45.3 million related to our acquisitions of Indatus and VRX. Capital expenditures, net of proceeds from disposals, of $33.1 million also contributed to the net cash outflow. These capital expenditures chiefly related to the development of new and enhancement of existing solutions combined with investments in our data processing infrastructure. In 2014, our investing activities used $79.3 million. Cash used in investing activities included $41.9 million related to our 2014 acquisitions and $37.4 million for capital expenditures related primarily to investments in technology infrastructure to support growth initiatives. Cash used in investing activities increased, as compared to 2013, due to an increase in consideration paid in connection with our acquisition activity in the amount of $13.1 million and an increase in capital expenditures in the amount of $4.1 million. Net Cash Provided by (Used in) Financing Activities The net cash provided by our financing activities consisted largely of proceeds of $122.4 million from the Term Loan we entered into in February 2016, net of payments during the year ended December 31, 2016, of $2.3 million. Concurrent with the receipt of the Term Loan, we repaid $40.0 million of the outstanding Revolving Facility. Other significant uses of cash during the period included treasury stock purchases of $21.2 million under our share repurchase program, payments of acquisition- related consideration of $5.7 million, and other expenditures totaling $1.1 million consisting of financing costs related to the Term Loan and payments under our capital lease obligations. Finally, activity under our stock-based compensation plans resulted in net inflows of $28.5 million, of which $6.0 million was related to excess tax benefits from stock-based compensation. Financing activities resulted in a net cash outflow of $13.3 million during 2015. This outflow consisted primarily of repurchases of our common stock under our stock repurchase program of $35.1 million, payments of acquisition-related liabilities of $3.7 million, and payments on capital lease obligations of $0.6 million. These outflows were partially offset by proceeds from our Revolving Facility, net of payments, of $20.0 million, which were used to finance our acquisition of Indatus, and net activity of $6.1 million related to our stock-based compensation plans. Our financing activities resulted in a net $1.8 million increase in cash in 2014. Cash provided by financing activities during 2014 primarily consisted of borrowings, net of payments, on our Revolving Facility of $20.0 million and $5.5 million in net proceeds related to issuances of common stock under our stock-based expense plans. These proceeds were partially offset 62 by expenditures of $15.5 million related to purchases of common stock under our stock repurchase program, $6.4 million in payments of acquisition-related liabilities, expenditures related to the origination of our 2014 Revolving Facility in the amount of $1.2 million, and capital lease payments of $0.6 million. Contractual Obligations, Commitments, and Contingencies The following table summarizes, as of December 31, 2016, our minimum payments, including interest when applicable, for long-term debt and other obligations for the next five years and thereafter: Total Less Than 1 year 1-3 years 3-5 years More Than 5 years Payments Due by Period Long-term debt obligations (1) Interest obligations on long-term debt (2) Capital lease obligations Operating lease obligations (3) Acquisition-related liabilities (4) $ $ 122,637 3,503 437 96,041 15,424 238,042 $ $ 5,469 1,165 313 11,195 13,674 31,816 (in thousands) 117,168 2,338 124 21,024 1,750 142,404 $ $ $ $ — $ — — 15,182 — 15,182 $ — — — 48,640 — 48,640 (1) Represents the contractually required principal payments for our Term Loan and excludes unamortized debt issuance costs reflected in our consolidated balance sheets. (2) Future interest obligations on our floating rate debt were estimated using a LIBOR forward rate curve and include the related effects of interest rate swap agreements. (3) Net of income under non-cancellable subleases. (4) We have made several acquisitions in which a portion of the cash purchase price is payable at various times through 2019. Long-Term Debt Obligations On September 30, 2014, we entered into an agreement for a secured revolving Credit Facility to refinance our outstanding revolving loans with certain lender parties. The Credit Facility provides an aggregate principal amount of up to $200.0 million, with sub-limits of $10.0 million for the issuance of letters of credit and for $20.0 million of swingline loans ("Revolving Facility"). The Credit Facility allowed us, subject to certain conditions, to request additional term loans or revolving commitments in an aggregate principal amount of up to $150.0 million, plus an amount that would not cause our consolidated net leverage ratio to exceed 3.25 to 1.00. At our option, amounts outstanding under the Credit Facility accrued interest at a per annum rate equal to either LIBOR, plus a margin ranging from 1.25% to 1.75%, or the Base Rate, plus a margin ranging from 0.25% to 0.75% ("Applicable Margin"). The base LIBOR rate is, at our discretion, equal to either one, two, three, or six month LIBOR. The Base Rate is defined as the greater of Wells Fargo's prime rate, the Federal Funds Rate plus 0.50%, or one month LIBOR plus 1.00%. In each case, the Applicable Margin is determined based upon our consolidated net leverage ratio. In February 2016, we entered into an amendment ("2016 Amendment") to the Credit Facility. The 2016 Amendment provided for an incremental term loan in the amount of $125.0 million (“Term Loan”) that is coterminous with the existing Credit Facility, reducing the amount of additional term loans or revolving commitments available under the Credit Facility to $25.0 million, plus an amount that would not cause us to exceed the consolidated net leverage ratio limitation. Under the terms of the 2016 Amendment, an additional tier was added such that the Applicable Margin now ranges from 1.25% to 2.00% for LIBOR loans, and 0.25% to 1.00% for Base Rate loans. We incurred debt issuance costs in the amount of $0.7 million in conjunction with the execution of the 2016 Amendment. Amounts borrowed under the Revolving Facility may be voluntarily prepaid and re-borrowed. Principal payments on the Term Loan are due in quarterly installments that began in June 2016 and such amounts may not be re-borrowed. Accumulated interest on amounts outstanding under the Credit Facility is due and payable quarterly, in arrears, for loans bearing interest at the Base Rate and at the end of the applicable interest period in the case of loans bearing interest at the adjusted LIBOR. All outstanding principal and accumulated interest is due upon the Credit Facility's maturity on September 30, 2019. The Term Loan is subject to mandatory repayment requirements in the event of certain asset sales or if certain insurance or condemnation events occur, subject to customary reinvestment provisions. We may prepay the Term Loan in whole or in part at any time, without premium or penalty, with prepayment amounts to be applied to remaining scheduled principal amortization payments as specified by us. The Credit Facility is secured by substantially all of our assets, and certain of our existing and future material domestic subsidiaries are required to guarantee obligations under the Credit Facility. We are also required to comply with customary affirmative and negative covenants, as well as a consolidated net leverage ratio and a consolidated interest coverage ratio. The 63 consolidated net leverage ratio, which is the ratio of funded indebtedness on the last day of each fiscal quarter to the four previous consecutive fiscal quarters' consolidated EBITDA, cannot be greater than 3.50 to 1.00, provided that we can elect to increase the ratio to 3.75 to 1.00 for a specified period following a permitted acquisition. The Amendment permits us to elect to increase the maximum permitted consolidated net leverage ratio on a one-time basis to 4.00 to 1.00 following the issuance of convertible or high yield notes in an initial principal amount of at least $150.0 million. The consolidated interest coverage ratio, which is a ratio of our four previous fiscal consecutive quarters' consolidated EBITDA to our interest expense, cannot be less than 3.00 to 1.00 as of the last day of any fiscal quarter. As of December 31, 2016, we were in compliance with the covenants under our Credit Facility. The Credit Facility contains customary events of default, subject to customary cure periods for certain defaults, that include, among others, non-payment defaults; covenant defaults; material judgment defaults; bankruptcy and insolvency defaults; cross-defaults to certain other material indebtedness; ERISA defaults; inaccuracy of representations and warranties; and a change in control default. In the event of a default on our Credit Facility, the obligations under the Credit Facility could be accelerated, the applicable interest rate under the Credit Facility could be increased, the loan commitments could be terminated, our subsidiaries that have guaranteed the Credit Facility could be required to pay the obligations in full, and our lenders would be permitted to exercise remedies with respect to all of the collateral that is securing the Credit Facility, including substantially all of our and our subsidiary guarantors’ assets. Any such default that is not cured or waived could have a material adverse effect on our liquidity and financial condition. In February 2017, the Company entered into the Third Amendment to the Credit Facility. The Third Amendment modifies certain terms of the Credit Facility to, among other things, provide for an incremental $200.0 million Delayed Draw Term Loan which is available to be drawn until May 31, 2017, extend the maturity of the Credit Facility to February 24, 2022, and amend the amortization schedule for the Term Loan. Under the amended amortization schedule, the Company will make quarterly principal payments of 0.6% of the Term Loan's and Delayed Draw Term Loan's respective outstanding balances beginning June 30, 2017. The quarterly payment amounts increase to 1.3% of their respective outstanding balances beginning on June 30, 2018, and to 2.5% beginning on June 30, 2020. Any remaining principal balance on Term Loan and Delayed Draw Term Loan is due on the date of maturity, February 24, 2022. With the new Delayed Draw Term Loan, the existing Term Loan, and the Revolving Facility, the Credit Facility now includes $122.6 million of drawn and $400.0 million of available credit. Except as amended, all of the existing terms of the Credit Facility remain in effect. All of the obligations under the Credit Facility, including the Delayed Draw Term Loan once drawn, are secured by substantially all of the Company's assets and by its existing and future domestic subsidiaries, except certain excluded subsidiaries, as provided in the Credit Facility. Share Repurchase Program On May 6, 2014, our board of directors approved a share repurchase program authorizing the repurchase of up to $50.0 million of our common stock for a period of up to one year after the approval date. Shares repurchased under the plan are retired. In May 2015, our board of directors approved an extension of the share repurchase program through May 6, 2016, permitting the repurchase of up to $50.0 million of our common stock during the period commencing on the extension date and ending on May 6, 2016. On April 26, 2016, our board of directors approved another one-year extension of the share repurchase program. The terms of the extension permit the repurchase of up to $50.0 million of our common stock during the period commencing on the extension day and ending on May 6, 2017. During 2016 and 2015, we repurchased 1,012,823 shares and 1,798,199 shares, respectively, under the share repurchase program. These shares were repurchased at a weighted average cost of $20.98 and $19.51 per share and a total cost of $21.2 million and $35.1 million, respectively. At December 31, 2016 and 2015, there was $44.9 million and $22.9 million, respectively, available under the repurchase program for future purchases. Off-Balance Sheet Arrangements We do not have any off-balance sheet financing arrangements and we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates. We do not hold or issue financial instruments for trading purposes. We had cash and cash equivalents of $104.9 million and $30.9 million at December 31, 2016 and 2015, respectively. We hold cash and cash equivalents for working capital purposes. We do not have material exposure to market risk with respect to 64 investments, as our investments consist primarily of highly liquid investments purchased with original maturities of three months or less. We had $122.6 million outstanding under our Term Loan at December 31, 2016. The Term Loan is reflected net of unamortized debt issuance costs of $0.5 million in the accompanying Consolidated Balance Sheets. At December 31, 2016, we had no balance outstanding under our Revolving Facility, and we had a $40.0 million outstanding balance as of December 31, 2015. At our option, amounts borrowed under the Credit Facility accrue interest at a per annum rate equal to either LIBOR, plus a margin ranging from 1.25% to 2.00%, or the Base Rate, plus a margin ranging from 0.25% to 1.00%. The base LIBOR rate is, at our discretion, equal to either one, two, three, or six month LIBOR. The Base Rate is defined as the greater of Wells Fargo’s prime rate, the Federal Funds Rate plus 0.50%, or one month LIBOR plus 1.00%. If the applicable rates change by 10% of the December 31, 2016 closing market rates, our annual interest expense would change by less than $0.1 million. On March 31, 2016, we entered into two interest rate swap agreements to eliminate variability in interest payments on a portion of the Term Loan. For that portion, the swap agreements replace the term note’s variable rate with a blended fixed rate of 0.89%. We do not use derivative financial instruments for speculative or trading purposes; however, we may adopt additional specific hedging strategies in the future. 65 Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Page 67 69 70 71 72 73 75 66 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders RealPage, Inc. We have audited the accompanying consolidated balance sheets of RealPage, Inc. (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule listed in the index under Item 15(c). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2017 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Dallas, Texas March 1, 2017 67 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders RealPage, Inc. We have audited RealPage, Inc.’s (the Company) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)(the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As indicated in the accompanying “Management’s Report on Internal Control over Financial Reporting,” management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of NWP Services Corporation, which is included in the 2016 consolidated financial statements of the Company and constituted approximately 14% and 19% of total and net assets, respectively, as of December 31, 2016, and approximately 9% and 12% of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of NWP Services Corporation. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2016 and 2015, the related consolidated statements of operations, comprehensive income (loss), and stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2016 of the Company and our report dated March 1, 2017 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Dallas, Texas March 1, 2017 68 RealPage, Inc. Consolidated Balance Sheets (in thousands, except share amounts) December 31, 2016 2015 Assets Current assets: Cash and cash equivalents Restricted cash Accounts receivable, less allowance for doubtful accounts of $2,468 and $2,318 at December 31, 2016 and 2015, respectively Prepaid expenses Other current assets Total current assets Property, equipment, and software, net Goodwill Identified intangible assets, net Deferred tax assets, net Other assets Total assets Liabilities and stockholders’ equity Current liabilities: Accounts payable Accrued expenses and other current liabilities Current portion of deferred revenue Current portion of term loan, net Customer deposits held in restricted accounts Total current liabilities Deferred revenue Revolving facility Term loan, net Other long-term liabilities Total liabilities Commitments and contingencies (Note 9) Stockholders’ equity: Preferred stock, $0.001 par value: 10,000,000 shares authorized and zero shares issued and outstanding at December 31, 2016 and 2015, respectively Common stock, $0.001 par value: 125,000,000 shares authorized, 86,062,191 and 82,919,033 shares issued and 81,087,353 and 78,793,670 shares outstanding at December 31, 2016 and 2015, respectively Additional paid-in capital Treasury stock, at cost: 4,974,838 and 4,125,363 shares at December 31, 2016 and 2015, respectively Accumulated deficit Accumulated other comprehensive loss Total stockholders’ equity Total liabilities and stockholders’ equity See accompanying notes 69 $ $ $ $ 104,886 83,654 $ 92,367 10,836 5,712 297,455 130,428 259,938 74,976 15,665 9,636 788,098 21,421 50,464 89,583 5,469 83,590 250,527 6,308 — 116,657 29,843 403,335 $ $ 30,911 85,461 74,192 8,294 23,085 221,943 82,198 220,097 81,280 12,051 5,632 623,201 17,448 28,294 84,200 — 85,405 215,347 6,979 40,000 — 34,423 296,749 — — 86 534,348 (30,358) (119,260) (53) 384,763 788,098 $ 83 471,668 (24,338) (120,415) (546) 326,452 623,201 RealPage, Inc. Consolidated Statements of Operations (in thousands, except per share amounts) Revenue: On demand On premise Professional and other Total revenue Cost of revenue Gross profit Operating expenses: Product development Sales and marketing General and administrative Impairment of identified intangible assets Total operating expenses Operating income (loss) Interest expense and other, net Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Net income (loss) per share attributable to common stockholders: Basic Diluted Weighted average shares used in computing net income (loss) per share attributable to common stockholders: Basic Diluted See accompanying notes Year Ended December 31, 2016 2015 2014 $ 542,531 $ 450,962 $ 390,622 2,836 22,761 568,128 242,301 325,827 73,607 135,213 85,013 750 294,583 31,244 (3,758) 27,486 10,836 16,650 0.22 0.21 $ $ $ $ $ $ 2,970 14,588 468,520 198,613 269,907 68,799 123,108 68,814 20,801 281,522 (11,615) (1,449) (13,064) (3,846) (9,218) $ 3,094 10,835 404,551 174,871 229,680 64,418 111,563 69,202 — 245,183 (15,503) (1,104) (16,607) (6,333) (10,274) (0.12) $ (0.12) $ (0.13) (0.13) 76,854 77,843 76,689 76,689 76,991 76,991 70 RealPage, Inc. Consolidated Statements of Comprehensive Income (Loss) (in thousands) Net income (loss) Gain on interest rate swaps, net Foreign currency translation adjustment, net Comprehensive income (loss) See accompanying notes Year Ended December 31, 2016 2015 $ $ 16,650 $ 536 (43) 17,143 $ (9,218) $ — (337) (9,555) $ 2014 (10,274) — (47) (10,321) 71 4 0 5 , 4 1 3 $ ) 3 8 1 , 1 1 ( $ ) 8 7 0 , 2 ( ) 6 8 0 , 5 6 ( $ ) 2 6 1 ( $ 4 5 8 , 0 9 3 $ 2 2 1 9 , 9 — — — — ) 5 1 2 , 2 2 ( ) 5 1 2 , 2 2 ( ) 6 9 0 , 2 ( 8 4 2 , 2 0 5 0 , 7 3 ) 0 0 4 , 2 ( ) 7 4 ( ) 4 7 2 , 0 1 ( 3 1 1 , 2 1 0 8 7 , 8 2 3 2 ) 4 4 5 , 1 4 ( — ) 6 6 4 , 1 ( 2 2 1 , 8 3 ) 7 3 3 ( ) 8 1 2 , 9 ( 9 8 4 , 8 2 2 5 4 , 6 2 3 1 ) 4 6 2 , 7 2 ( — 4 5 2 , 3 8 8 6 , 6 3 0 0 4 ) 3 4 ( 6 3 1 0 5 6 , 6 1 — — — — — — — — — — ) 8 9 3 , 3 3 ( ) 4 7 1 , 4 ( — — ) 4 4 5 , 1 4 ( 4 0 6 , 0 5 — — — — — — ) 6 1 7 , 2 ( 5 6 7 , 2 — — — — ) 8 3 3 , 4 2 ( ) 5 2 1 , 4 ( — — ) 4 6 2 , 7 2 ( 4 4 2 , 1 2 — — — — — — — — ) 3 6 8 , 1 ( 3 1 0 , 1 — — — — — — — — — — — — — ) 4 7 2 , 0 1 ( ) 0 6 3 , 5 7 ( — — — ) 7 3 8 , 5 3 ( — — — ) 8 1 2 , 9 ( ) 5 1 4 , 0 2 1 ( — — — ) 5 9 4 , 5 1 ( — — — — — 0 5 6 , 6 1 — — — — — — ) 7 4 ( — ) 9 0 2 ( — — — — — — ) 7 3 3 ( — ) 6 4 5 ( — — — — — — 0 0 4 ) 3 4 ( 6 3 1 — — — 2 1 9 , 9 8 4 2 , 2 0 5 0 , 7 3 ) 0 0 4 , 2 ( — — — — 4 6 6 , 7 3 4 2 1 1 , 2 1 ) 4 6 7 , 4 1 ( ) 6 6 4 , 1 ( 2 2 1 , 8 3 — — 8 6 6 , 1 7 4 7 8 4 , 8 2 ) 1 ( — ) 8 4 7 , 5 ( 4 5 2 , 3 8 8 6 , 6 3 — — — — 3 6 7 , 4 8 3 $ ) 8 5 3 , 0 3 ( $ ) 5 7 9 , 4 ( ) 0 6 2 , 9 1 1 ( $ ) 3 5 ( $ 8 4 3 , 4 3 5 $ 1 8 — 2 — — — — — — 3 8 1 2 ) 3 ( — — — — — 3 8 2 2 ) 1 ( — — — — — — — 6 8 $ 2 1 5 , 0 8 2 4 9 8 5 7 , 1 — — — — — — — 8 4 8 4 2 6 , 1 2 1 2 , 3 8 ) 5 6 7 , 2 ( — — — — — 9 6 5 , 1 7 8 5 , 2 9 1 9 , 2 8 ) 3 1 0 , 1 ( — — — — — — $ 2 6 0 , 6 8 l a t o T ’ s r e d l o h k c o t S k c o t S y r u s a e r T d e t a l u m u c c A d e t a l u m u c c A r e h t O e v i s n e h e r p m o C y t i u q E t n u o m A s e r a h S t i c i f e D s s o L l a n o i t i d d A n i - d i a P l a t i p a C k c o t S n o m m o C t n u o m A s e r a h S s e t o n g n i y n a p m o c c a e e S 2 7 . c n I , e g a P l a e R y t i u q E ’ s r e d l o h k c o t S f o s t n e m e t a t S d e t a d i l o s n o C ) s d n a s u o h t n i ( n o i t a s n e p m o c d e s a b - k c o t s m o r f t i f e n e b x a t t e N n o i t a r e d i s n o c t n e g n i t n o c d e t a l e r - n o i t i s i u q c A t s o c t a , d e s a h c r u p k c o t s y r u s a e r T e s n e p x e d e s a b - k c o t S 4 1 0 2 , 1 y r a u n a J f o s a e c n a l a B k c o t s n o m m o c f o e c n a u s s I k c o t s d e t c i r t s e r f o e c n a u s s I t s o c t a , d e s a h c r u p k c o t s y r u s a e r T k c o t s y r u s a e r t f o t n e m e r i t e R e s n e p x e d e s a b - k c o t S k c o t s n o m m o c f o e c n a u s s I k c o t s d e t c i r t s e r f o e c n a u s s I 4 1 0 2 , 1 3 r e b m e c e D f o s a e c n a l a B n o i t a l s n a r t y c n e r r u c n g i e r o F s s o l t e N n o i t a s n e p m o c d e s a b - k c o t s m o r f y c n e i c i f e d x a t t e N t s o c t a , d e s a h c r u p k c o t s y r u s a e r T k c o t s y r u s a e r t f o t n e m e r i t e R e s n e p x e d e s a b - k c o t S k c o t s n o m m o c f o e c n a u s s I k c o t s d e t c i r t s e r f o e c n a u s s I 5 1 0 2 , 1 3 r e b m e c e D f o s a e c n a l a B n o i t a l s n a r t y c n e r r u c n g i e r o F s s o l t e N s g n i n r a e o t e g d e h w o l f h s a c n o n i a g d e z i l a e r f o n o i t a c i f i s s a l c e R n o i t a s n e p m o c d e s a b - k c o t s m o r f t i f e n e b x a t t e N s t n e m e e r g a p a w s e t a r t s e r e t n I n o i t a l s n a r t y c n e r r u c n g i e r o F 6 1 0 2 , 1 3 r e b m e c e D f o s a e c n a l a B e m o c n i t e N RealPage, Inc. Consolidated Statements of Cash Flows (in thousands) Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Deferred taxes Stock-based expense Excess tax benefit from stock-based compensation Impairment of identified intangible assets Loss on disposal and impairment of other long-lived assets Acquisition-related consideration Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: Accounts receivable Prepaid expenses and other current assets Other assets Accounts payable Accrued compensation, taxes, and benefits Deferred revenue Other current and long-term liabilities Net cash provided by operating activities Cash flows from investing activities: Purchases of property, equipment, and software Proceeds from disposal of property, equipment, and software Acquisition of businesses, net of cash acquired Intangible asset additions Purchase of cost method investment Net cash used in investing activities Cash flows from financing activities: Proceeds from term loan Payments on term loan Proceeds from revolving facility Payments on revolving facility Deferred financing costs Payments on capital lease obligations Payments of acquisition-related consideration Issuance of common stock Excess tax benefit from stock-based compensation Purchase of treasury stock related to stock-based compensation Purchase of treasury stock under share repurchase program Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Effect of exchange rate on cash Cash and cash equivalents: Beginning of period End of period 73 Year Ended December 31, 2016 2015 2014 $ 16,650 $ (9,218) $ (10,274) 54,834 8,386 36,852 (5,998) 750 497 (877) (12,239) 20,973 83 652 5,220 4,452 5,981 136,216 (75,241) 4,500 (71,400) — (3,000) (145,141) 124,688 (2,345) — (40,000) (392) (548) (5,684) 28,490 5,998 (6,020) (21,244) 82,943 74,018 (43) 45,891 (5,219) 38,122 (357) 20,801 3,070 (3,268) (8,701) 1,391 (543) (806) 3,888 10,791 170 96,012 (33,384) 305 (45,282) — — (78,361) — — 51,500 (31,500) (8) (574) (3,685) 12,115 357 (6,461) (35,083) (13,339) 4,312 (337) 41,306 (7,891) 37,050 (2,248) — 386 173 1,929 (2,363) (592) 1,821 1,964 8,443 268 69,972 (37,062) — (41,947) (260) — (79,269) — — 68,572 (48,572) (1,188) (562) (6,419) 9,914 2,248 (6,694) (15,521) 1,778 (7,519) (47) 30,911 104,886 $ $ 26,936 30,911 $ 34,502 26,936 RealPage, Inc. Consolidated Statements of Cash Flows, continued (in thousands) Supplemental cash flow information: Cash paid for interest Cash paid for income taxes, net of refunds Non-cash investing activities: Accrued property, equipment, and software See accompanying notes Year Ended December 31, 2016 2015 2014 $ $ $ 2,833 1,961 3,993 $ $ $ 1,086 693 3,424 $ $ $ 814 512 607 74 RealPage, Inc. Notes to Consolidated Financial Statements 1. The Company RealPage, Inc., a Delaware corporation, together with its subsidiaries, (the “Company” or “we” or “us”) is a technology provider of property management solutions that enable owners and managers of a wide variety of single family, multifamily, and vacation rental property types to manage property operations (marketing, pricing, screening, leasing, accounting, etc.), identify opportunities through market intelligence, and give data-driven insight related to the placement and harvesting of capital. Our integrated, on demand platform provides a single point of access and a massive repository of lease transaction data, including prospect, renter, and property data. By leveraging data as well as integrating and streamlining a wide range of complex processes and interactions among the apartment real estate ecosystem (owners, managers, prospects, renters, service providers, and investors), our platform improves financial operational performance and informs the prudent allocation of capital. Our solutions enable property owners and managers to optimize operational yields and investment returns through higher occupancy, improved pricing methodologies, new sources of revenue from ancillary services, improved collections, and more integrated and centralized processes. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements and footnotes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of RealPage, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Segment and Geographic Information Our chief operating decision maker is our Chief Executive Officer, who reviews financial information presented on a company-wide basis. As a result, we determined that the Company has a single reporting segment and operating unit structure. Principally, all of our revenue for the years ended December 31, 2016, 2015, and 2014 was earned in the United States. Net property, equipment, and software held were $125.3 million and $77.4 million located in the United States, and $5.1 million and $4.8 million in our international subsidiaries at December 31, 2016 and 2015, respectively. Substantially all of the net property, equipment, and software held in our international subsidiaries was located in the Philippines, Spain, and India at both December 31, 2016 and 2015. Use of Estimates The preparation of financial statements in conformity with GAAP requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include the allowance for doubtful accounts; the useful lives of intangible assets and the recoverability or impairment of tangible and intangible asset values; fair value measurements; contingent commissions related to the sale of insurance products; purchase accounting allocations and contingent consideration; revenue and deferred revenue and related reserves; stock-based expense; and our effective income tax rate and the recoverability of deferred tax assets, which are based upon our expectations of future taxable income and allowable deductions. Actual results could differ from these estimates. The Company is self-insured for the cost of claims made under its employee medical programs. These costs include an estimate for expected settlements of pending claims and an estimate for claims incurred but not reported. These significant estimates are based on management's assessment of outstanding claims, historical analyses, and current payment trends. Concentrations of Credit Risk Our cash accounts are maintained at various financial institutions and may, from time to time, exceed federally insured limits. The Company has not experienced any losses in such accounts. Concentrations of credit risk with respect to accounts receivable result from substantially all of our clients being in the multifamily rental housing market. Our clients, however, are dispersed across different geographic areas. We do not require collateral from clients. We maintain an allowance for doubtful accounts based upon the expected collectability of accounts receivable. No single client accounted for 10% or more of our revenue or accounts receivable for the years ended December 31, 2016, 2015, or 2014. Revenues for our largest client were 5.7%, 4.6%, and 4.9% of our total revenues for the years ended December 31, 2016, 2015, and 2014, respectively. 75 Cash and Cash Equivalents We consider all highly liquid investments with a maturity date, when purchased, of three months or less to be cash equivalents. Restricted Cash Restricted cash consists of cash collected from tenants that will be remitted primarily to our clients. Accounts Receivable Accounts receivable primarily represent trade receivables from clients that we present net of an allowance for doubtful accounts. For several of our solutions, we invoice clients prior to the period in which service is provided. For certain transactions, we have met the requirements to recognize revenue in advance of invoicing the client. In these instances, we record unbilled receivables for the amount that will be due from the client upon invoicing. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of clients to make required payments, or the client canceling prior to the service being rendered. As a result, a portion of our allowance is for services not yet rendered and, therefore, classified as an offset to deferred revenue. In evaluating the sufficiency of the allowance for doubtful accounts we consider the current financial condition of the client, the specific details of the client account, the age of the outstanding balance, the current economic environment, and historical credit trends. Any change in the assumptions used in analyzing a specific account receivable might result in an additional allowance for doubtful accounts being recognized in the period in which the change occurs. Accounts receivable are written off upon determination of non-collectability following established Company policies based on the aging from the accounts receivable invoice date. In the case of balances relating to services not yet rendered, the balance is written off when the client cancels the service or when we determine that the invoiced service will no longer be provided, whichever occurs first. During the years ended December 31, 2016, 2015, and 2014, we incurred bad debt expense of $2.4 million, $2.0 million, and $1.5 million, respectively. Accounts receivable includes commissions due to the Company related to the sale of insurance products to individuals and commissions which are contingent based upon the activity in the underlying policies. Contingent commissions are determined based on a calculation that considers earned agent commissions, a percent of premium retained by our underwriting partner, incurred losses, and profit retained by our underwriting partner during the time period. Contingent commissions receivables are recorded at their estimated net realizable value, based on estimates and considerations which include, but are not limited to, the historical and projected loss rates incurred by the underlying policies. Inventory Inventories are stated at the lower of net realizable value or cost, determined on a first-in, first-out basis. The Company establishes inventory allowances for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated realizable values based on assumptions about forecasted demand, open purchase commitments, and market conditions. Inventories consist primarily of meters, including subcontract labor costs on contracts in progress. Property, Equipment, and Software Property, equipment, and software are recorded at cost less accumulated depreciation and amortization, which are computed using the straight-line method over the following estimated useful lives: Data processing and communications equipment Furniture, fixtures, and other equipment Software 3 - 5 years 3 - 5 years 3 - 5 years Software includes both purchased and internally developed software. Leasehold improvements are depreciated over the shorter of the lease term or twelve years. Gains and losses from asset disposals are included in the line "General and administrative" in the Consolidated Statements of Operations. Capitalized Product Development Costs We capitalize specific product development costs, including costs to develop software products or the software components of our solutions to be marketed to external users, as well as software programs to be used solely to meet our internal needs. The costs incurred in the preliminary stages of development related to research, project planning, training, maintenance, general and administrative activities, and overhead costs are expensed as incurred. The costs of relatively minor upgrades and enhancements to the software are also expensed as incurred. Once an application has reached the development stage, internal and external costs incurred in the performance of application development stage activities, including costs of materials, services, and payroll and payroll-related costs for employees, are capitalized, if direct and incremental, until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial 76 testing. We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized costs are recorded as part of property, equipment, and software. Internal use software is amortized on a straight-line basis over its estimated useful life, generally three to five years. Our management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. Impairment of Long-Lived Assets We perform an impairment review of long-lived assets held and used whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an impairment review include, but are not limited to, significant under-performance relative to current and historical or projected future operating results, significant changes in the manner of our use of the asset, or significant changes in our overall business and/or product strategies. When we determine that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of these indicators, we determine the recoverability by comparing the carrying amount of the asset or asset group to net future undiscounted cash flows that the asset is expected to generate. If the asset or asset group fails this recoverability test, we would recognize an impairment charge equal to the excess of the asset's carrying value over its fair market value. Business Combinations The Company applies the guidance contained in ASC Topic 805, Business Combinations (“ASC 805”) in determining whether an acquisition transaction constitutes a business combination. ASC 805 defines a business as consisting of inputs and processes applied to those inputs that have the ability to create outputs. The acquisition transactions in Note 3 were determined to constitute business combinations and were accounted for under ASC 805. Purchase consideration includes assets transferred, liabilities incurred, and/or equity interests issued by us, all of which are measured at their fair value as of the date of acquisition. Our business combination transactions may be structured to include an up-front cash payment and deferred and/or contingent cash payments to be made at specified dates subsequent to the date of acquisition. Deferred cash payments are included in the acquisition consideration based on their fair value as of the acquisition date. The fair value of these obligations is estimated based on the present value, as of the date of acquisition, of the anticipated future payments. The future payments are discounted using a rate that considers an estimate of the return expected by a market-participant and a measurement of the risk inherent in the cash flows, among other inputs. Deferred cash payments are generally subject to adjustments specified in the underlying purchase agreement related to the seller’s indemnification obligations. Contingent cash payments are obligations to make future cash payments to the seller, the payment of which is contingent upon the achievement of stipulated operational or financial targets in the post-acquisition period. Contingent cash payments are included in the purchase consideration at their fair value as of the acquisition date. The fair value of these payments is estimated using a probability weighted discount model based on the achievement of the specified targets. The fair value of these liabilities is re-evaluated on a quarterly basis, and any change is reflected in the line “General and administrative” in the accompanying Consolidated Statements of Operations. These estimates are inherently uncertain and unpredictable. Unanticipated events and circumstances may occur that would affect the accuracy or validity of these estimates. The total purchase consideration is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Any excess consideration is classified as goodwill. Acquired intangibles are recorded at their estimated fair value based on the income approach using market-based estimates. Acquired intangibles generally include developed product technologies, which are amortized over their useful life on a straight-line basis, and client relationships, which are amortized over their useful life proportionately to the expected discounted cash flows derived from the asset. When trade names acquired are not classified as indefinite-lived, they are amortized on a straight-line basis over their expected useful life. Acquisition costs are expensed as incurred and are included in the line “General and administrative” in the accompanying Consolidated Statements of Operations. We include the results of operations from acquired businesses in our consolidated financial statements from the effective date of the acquisition. Goodwill and Identified Intangible Assets with Indefinite Lives We test goodwill and identified intangible assets with indefinite lives for impairment separately on an annual basis in the fourth quarter of each year. Additionally, we test these assets in the interim if events and circumstances indicate they may be impaired. The events and circumstances that we consider include, but are not limited to, significant under-performance relative to current and historical or projected future operating results and significant changes in our overall business and/or product strategies. If an event or circumstance occurs that would cause us to revise our estimates and assumptions used in analyzing the value of our goodwill and identified intangible assets with indefinite lives, the revision could result in a non-cash impairment charge that could have a material impact on our financial results. We evaluate impairment of goodwill by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its 77 carrying value. If it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test. The first step involves a comparison of the fair value of a reporting unit with its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, the second step involves a comparison of the implied fair value and carrying amount of the goodwill of that reporting unit to determine the impairment charge, if any. We quantitatively evaluate identified intangible assets with indefinite lives by estimating the fair value of those assets based on estimated future earnings derived from the assets using the income approach model. Assets with indefinite lives that have been determined to be inseparable due to their interchangeable use are grouped into single units of accounting for purposes of testing for impairment. If the carrying amount of an identified intangible asset with an indefinite life exceeds its fair value, we would recognize an impairment loss equal to the excess of carrying value over fair value. Identified Intangible Assets with Finite Lives Identified intangible assets with finite lives consist of acquired developed technologies, client relationships, vendor relationships, and trade names. We record intangible assets at fair value and amortize those with finite lives over the shorter of the contractual life or the estimated useful life. We estimate the useful lives of acquired developed product technologies and client relationships based on factors that include the planned use of each developed product technology and the expected pattern of future cash flows to be derived from each developed product technology and existing client relationships. Estimated useful lives for identified intangible assets with finite lives consist of the following: Developed technologies Client relationships Vendor relationships Trade names 3 - 5 years 3 - 10 years 7 years 1 - 7 years We include amortization of acquired developed technologies in "Cost of revenue" and amortization of acquired client relationships, vendor relationships and trade names in "Sales and marketing" expenses in our Consolidated Statements of Operations. Derivative Financial Instruments The Company is exposed to interest rate risk related to our variable rate debt. The Company manages this risk through a program that may include the use of interest rate derivatives, the counterparties to which are major financial institutions. Our objective in using interest rate derivatives is to add stability to interest cost by reducing our exposure to interest rate movements. We do not use derivative instruments for trading or speculative purposes. Our interest rate derivatives are designated as cash flow hedges and are carried in the Consolidated Balance Sheets at their fair value. Unrealized gains and losses resulting from changes in the fair value of these instruments are classified as either effective or ineffective. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income (“AOCI”), while the ineffective portion is recorded as a component of interest expense in the period of change. Amounts reported in AOCI related to interest rate derivatives are reclassified into interest expense as interest payments are made on our variable-rate debt. If an interest rate derivative agreement is terminated prior to its maturity, the amounts previously recorded in AOCI are recognized into earnings over the period that the forecasted transactions impact earnings. If the hedging relationship is discontinued because it is probable that the forecasted transactions will not occur according to our original strategy, any related amounts previously recorded in AOCI are recognized in earnings immediately. Other Current and Long-Term Liabilities Accrued expenses and other current liabilities consisted of the following at December 31, 2016 and 2015: Accrued compensation, payroll taxes, and benefits Self-insured medical plans Current portion of liabilities related to acquisitions Other current liabilities Total accrued expenses and other current liabilities 78 December 31, 2016 2015 (in thousands) $ $ 19,387 1,774 13,084 16,219 50,464 $ $ 12,492 1,831 6,502 7,469 28,294 Other long-term liabilities consisted of the following at December 31, 2016 and 2015: Accrued lease liability Other long-term liabilities Total other long-term liabilities December 31, 2016 2015 (in thousands) $ $ 28,086 1,757 29,843 $ $ 27,869 6,554 34,423 The accrued lease liability at December 31, 2016 and 2015 primarily consisted of deferred rent amounts related to our corporate headquarters in Richardson, Texas. See Note 9 for additional information regarding this lease. Deferred Revenue Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from our subscription services described above and is recognized as the revenue recognition criteria are met. For several of our solutions, we invoice our clients in annual, monthly, or quarterly installments in advance of the commencement of the service period. Accordingly, the deferred revenue balance does not represent the total contract value of annual subscription agreements. Revenue Recognition We derive our revenue from three primary sources: on demand software solutions, on premise software solutions, and professional services. We commence revenue recognition when all of the following conditions are met: • • • • there is persuasive evidence of an arrangement; the solution and/or service has been provided to the client; the collection of the fees is probable; and the amount of fees to be paid by the client is fixed or determinable. If the fees are not fixed or determinable, we recognize revenues as payments become due from clients or when amounts owed are collected, provided all other conditions for revenue recognition have been met. Accordingly, this may materially affect the timing of our revenue recognition and results of operations. When arrangements with clients include multiple software solutions and/or services, we allocate arrangement consideration to each deliverable based on its relative selling price. In such circumstances, we determine the relative selling price for each deliverable based on vendor specific objective evidence of selling price ("VSOE"), if available, or our best estimate of selling price ("BESP"). We have determined that third-party evidence of selling price is not available as our solutions and services are not largely interchangeable with those of other vendors. Our process for determining BESP considers multiple factors, including prices charged by us for similar offerings when sold separately, pricing and discount strategies, and other business objectives. Taxes collected from clients and remitted to governmental authorities are presented on a net basis. On Demand Revenue Our on demand revenue consists of license and subscription fees, transaction fees related to certain of our software- enabled value-added services, and commissions derived from our selling certain risk mitigation services. License and subscription fees are comprised of a charge billed at the initial order date and monthly or annual subscription fees for accessing our on demand software solutions. The license fee billed at the initial order date is recognized as revenue on a straight-line basis over the longer of the contractual term or the period in which the client is expected to benefit, which we consider to be three years. Recognition starts once the product has been activated. Revenue from monthly and annual subscription fees is recognized on a straight-line basis over the access period. We recognize revenue from transaction fees derived from certain of our software-enabled value-added services as the related services are performed. As part of our risk mitigation services to the rental housing industry, we act as an insurance agent and derive commission revenue from the sale of insurance products to individuals. The commissions are based upon a percentage of the premium that the insurance company charges to the policyholder and are subject to forfeiture in instances where a policyholder cancels prior to the end of the policy. Our contract with our underwriting partner provides for contingent commissions to be paid to us in accordance with the agreement. This agreement provides for a calculation that considers, on the policies sold by us, earned premiums less i) earned agent commissions, ii) a percent of premium retained by our underwriting partner, iii) incurred losses, and iv) profit retained by our underwriting partner during the time period. Our estimate of contingent commission revenue considers historical loss experience on the policies sold by us. If the policy is cancelled, our commissions are forfeited as a 79 percent of the unearned premium. As a result, we recognize commissions related to these services as earned ratably over the policy term. On Premise Revenue Sales of our on premise software solutions consist of an annual term license, which includes maintenance and support. Clients can renew their annual term license for additional one-year terms at renewal price levels. We recognize revenue for the annual term license and support services on a straight-line basis over the contract term. We also derive on premise revenue from multiple-element arrangements that include perpetual licenses with maintenance and other services to be provided over a fixed term. Revenue is recognized for delivered items using the residual method when we have VSOE of fair value for the undelivered items and all other criteria for revenue recognition have been met. When VSOE has not been asserted for the undelivered items, we recognize the arrangement fees ratably over the longer of the client support period or the period during which professional services are rendered. Professional and Other Revenue Professional services and other revenue are recognized as the services are rendered for time and material contracts. Training revenues are recognized after the services are performed. Cost of Revenue Cost of revenue consists primarily of salaries and related personnel expenses of our operations and support personnel, including training and implementation services; expenses related to the operation of our data centers; fees paid to third-party providers; allocations of facilities overhead costs; depreciation; amortization of acquired technologies; and amortization of capitalized software. Stock-Based Expense The Company recognizes compensation expense related to stock options and shares of restricted stock based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. The Company generally grants time-based stock options and restricted stock awards, which vest over a specified period of time; market-based awards, which become eligible to vest only after the achievement of a condition based upon the trading price of the Company's common stock and vest over a specified period of time thereafter; and performance-based awards, which become eligible to vest upon the achievement of a specific performance condition, after which they vest over a specified period of time. For time-based stock options and restricted stock awards and performance-based awards, expense is recognized on a straight-line basis over the requisite service period. Expense associated with market-based awards is recognized over the requisite service period using the graded-vesting attribution method. Advertising Expenses Advertising costs are expensed as incurred and totaled $19.4 million, $16.3 million, and $15.1 million for the years ended December 31, 2016, 2015, and 2014, respectively. Income Taxes Income taxes are provided based on the liability method, which results in income tax assets and liabilities arising from temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The liability method requires the effect of tax rate changes on current and accumulated deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized. We establish valuation allowances when necessary to reduce deferred tax assets to the amounts expected to be realized. We evaluate the need for, and the adequacy of, valuation allowances based on the expected realization of our deferred tax assets. The factors used to assess the likelihood of realization include historical earnings, our latest forecast of taxable income, and available tax planning strategies that could be implemented to realize the net deferred tax assets. We may recognize a tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. There were no identified tax benefits that were considered uncertain positions at December 31, 2016 and 2015. 80 Leases Some of the operating lease agreements entered into by the Company contain provisions for future rent increases, rent free periods, periods in which rent payments are reduced (abated), or lease incentives. The total amount of rental payments due over the lease term is charged to rent expense on the straight-line method over the term of the lease. The difference between rent expense recorded and the amount paid is credited or charged to “Accrued lease liability,” which is included in “Accrued expenses and other current liabilities" or "Other long-term liabilities" in the accompanying Consolidated Balance Sheets, depending upon when the liability is expected to be relieved. Fair Value Measurements Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Legal Contingencies We review the status of each legal contingency and record a provision for a liability when we consider that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We review these provisions quarterly and make adjustments where needed as additional information becomes available. If either or both of the criteria are not met, we assess whether there is at least a reasonable possibility that a loss, or additional losses beyond those already accrued, may be incurred. If there is a reasonable possibility that a material loss (or additional material loss in excess of any accrual) may be incurred, we disclose an estimate of the amount of loss or range of losses, either individually or in the aggregate, as appropriate, if such an estimate can be made, or disclose that an estimate of loss cannot be made. Recently Adopted Accounting Standards We adopted Accounting Standards Update (“ASU”) 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs and ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Agreements in the first quarter of 2016. As a result of our retrospective adoption of these standards, we present term loans payable net of unamortized debt issuance costs in the Consolidated Balance Sheets. Prior to adoption of this ASU, such issuance costs were included in other assets. Our adoption of this standard did not result in a reclassification of previously reported amounts, as we did not have outstanding term loans at December 31, 2015. As required, debt issuance costs related to our secured revolving facility continue to be presented in "Other assets" in the Consolidated Balance Sheets. In November 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement to restate prior period financial statements for measurement-period adjustments. This ASU requires that the cumulative impact of a measurement period adjustment, including the impact on prior periods, be recognized in the reporting period in which the adjustment is identified. We adopted ASU 2015-16 in the first quarter of 2016. In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU provides guidance to clarify the customer’s accounting for fees paid in a cloud computing arrangement and whether such an arrangement contains a software license or is solely a service contract. We adopted this standard in the first quarter of 2016 and prospectively applied the guidance to all arrangements entered into or materially modified after January 1, 2016. Recently Issued Accounting Standards In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business to assist entities with evaluating whether a set of transferred assets and activities ("set") is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the set is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If it is not met, the entity evaluates whether the set meets the requirements that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The ASU requires the changes to be implemented on a prospective basis and is applicable for annual reporting periods beginning after December 15, 2017, including interim periods therein. Early application is permitted. We have not yet selected a transition date and are currently evaluating the potential impact of this amendment on our financial statements. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows - Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within, and must be applied retrospectively. Early adoption of this ASU is permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. Management has not yet selected a transition date and is currently evaluating the impact of this ASU on our financial statements. 81 In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in fiscal years beginning after December 15, 2018. The amendments in this ASU are to be applied through a cumulative-effect adjustment to retained earnings as of the first reporting period in which the ASU is effective. We have not yet selected a transition date and are currently evaluating the impact of adopting ASU 2016-13 on our financial statements. On March 30, 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). This guidance simplifies accounting for stock-based compensation. A key change is the accounting for excess tax benefits and tax deficiencies. These will be recognized as income tax expense or benefit in the income statement in the period they occur, regardless of whether the benefit reduces taxes payable in the current period. Current GAAP requires tax benefits in excess of compensation cost to be recorded as additional paid-in capital to the extent taxes payable are reduced and tax deficiencies to be recorded in equity to the extent of previous accumulated excess tax benefit and then recorded to the income statement. With the adoption of this ASU, the Company will also record previously unrecognized net operating loss carryforwards of approximately $44.1 million, less any valuation allowance determined to be necessary, related to the excess stock compensation deductions that arose but were not used in prior years. This ASU also will cause excess tax benefits to be reflected as operating cash flows and will allow the Company to elect to either estimate the number of awards that are expected to vest, as in current GAAP, or account for forfeitures as they occur. ASU 2016-09 is effective for interim and annual periods beginning after December 15, 2016. We will adopt the standard in our interim reporting period beginning January 1, 2017. Each of the various provisions within this standard has its own specified transition method; some will be applied prospectively and others will be applied on a retrospective or modified retrospective basis. On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Current GAAP requires lessees to classify their leases as either capital leases, for which the lessee recognizes a lease liability and a related leased asset, or operating leases, which are not reflected in the lessee’s balance sheet. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with a term of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease will depend primarily on its classification as a finance or an operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 will require both operating and finance leases to be recognized on the balance sheet. Additionally, the ASU will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and provides for certain practical expedients. Transition will require application of the new guidance to the beginning of the earliest comparative period presented. We have not yet selected a transition date and are currently evaluating the impact of adopting ASU 2016-02 on our financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This new standard, as amended by certain supplementary ASU’s released in 2016, will replace most existing GAAP guidance on this topic. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also provides guidance on the recognition of costs to obtain or fulfill a contract with a customer. In August 2015, the FASB approved a one-year deferral of the new revenue reporting standard's effective date for entities reporting under U.S. GAAP. In accordance with the deferral, we have determined that we will adopt the standard in our interim reporting period beginning January 1, 2018. The new guidance may be applied retrospectively to each prior period presented (full retrospective method) or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). We currently anticipate adopting the standard using the modified retrospective method. While we are continuing to assess all potential impacts of the standard, we currently expect that adoption of the standard will result in limited changes in the timing of our revenue recognition. We anticipate that commissions paid to our direct sales force will qualify as incremental costs of obtaining a contract and will be capitalized and subsequently amortized. The standard will require additional revenue disclosures in our consolidated financial statements, and we are currently developing our framework for these new disclosures. 82 3. Acquisitions 2016 Acquisitions eSupply Systems, LLC In June 2016, we acquired substantially all of the assets of eSupply Systems, LLC (“eSupply”) and those of certain entities related to eSupply. eSupply is an e-procurement software and group purchasing service which augmented our Spend Management solutions. We acquired eSupply for a purchase price of $7.0 million, consisting of a cash payment of $5.5 million at closing and a deferred cash obligation of up to $1.6 million, payable over 18 months after the acquisition date. The fair value of the deferred cash obligation on the date of acquisition was $1.5 million. The first deferred cash payment was made in the fourth quarter of 2016. This acquisition was financed using proceeds from the Term Loan issued in February 2016. The acquired identified intangible assets consisted of developed technology and client relationships. These intangible assets were assigned estimated useful lives of three and ten years, respectively. We recognized goodwill in the amount of $3.2 million related to this acquisition, which is primarily comprised of anticipated synergies with our existing Spend Management solutions. Goodwill and the acquired identified intangible assets are deductible for tax purposes. AssetEye, Inc. In May 2016, we acquired all of the issued and outstanding stock of AssetEye, Inc. (“AssetEye”). AssetEye is a data aggregation, reporting, and collaboration platform for institutions holding multiple real estate asset classes. This solution provides asset and portfolio managers with a solution to evaluate performance, trends, and operations across a portfolio with transparency into property-level data. The acquisition of AssetEye expanded the Company’s on demand solutions to serve all asset classes, including: commercial, hospitality, multifamily, single family, senior living, and student housing. We acquired AssetEye’s issued and outstanding stock for a purchase price of $4.9 million. The purchase price consisted of a cash payment of $3.6 million at closing, net of cash acquired of $0.8 million; deferred cash obligations of $1.0 million, payable over a period of two years following the date of acquisition; contingent cash payments of up to $1.0 million if certain revenue targets are achieved during the three-month period ended September 30, 2017; and additional cash payments of $0.2 million due to former shareholders of AssetEye which are expected to be remitted over a short-term period. The fair value of the deferred and contingent cash obligations was $0.9 million and $0.2 million, respectively, at the date of acquisition. This acquisition was financed with proceeds from the Term Loan issued in February 2016. The acquired identified intangible assets included developed technology and client relationships having useful lives of five and ten years, respectively. We recognized goodwill in the amount of $3.2 million related to this acquisition, which is primarily comprised of anticipated synergies between the AssetEye solution and our existing complementary solutions as well as our sales and marketing infrastructure. Goodwill and identified intangible assets recognized in connection with this transaction are not deductible for tax purposes. NWP Services Corporation In March 2016, we acquired all of the issued and outstanding stock of NWP Services Corporation (“NWP”). NWP provides a full range of utility management services, including: resident billing; payment processing; utility expense management; analytics and reporting; sub-metering and maintenance; and regulatory compliance. The primary products offered by NWP include Utility Logic, Utility Smart, Utility Genius, SmartSource, and NWP Sub-meter. We are integrating NWP into our resident services product family. The integrated platform will enable property owners and managers to increase the collection of rental utilities and energy recovery. Goodwill arising from this acquisition consists of anticipated synergies from the integration of NWP into our existing structure. We acquired NWP’s issued and outstanding stock for an initial purchase price of $69.0 million. The purchase price consisted of a cash payment of $59.0 million at closing, net of cash acquired of $0.1 million; deferred cash obligations of $7.2 million, payable over a period of three years following the date of acquisition; and other amounts totaling $3.2 million, consisting of payments to certain employees and former shareholders of NWP that are expected to be remitted over a short-term period. The acquisition-date fair value of the deferred cash obligation was $6.8 million. This acquisition was financed with proceeds from the Term Loan issued in February 2016. Acquisition costs associated with this transaction totaled $0.3 million and were expensed as incurred. The acquired identified intangible assets were comprised of developed technologies, trade name, and client relationships having useful lives of five, three, and ten years, respectively. Goodwill and identified intangible assets acquired in this business combination, valued at $35.3 million and $16.3 million in our initial purchase price allocation, have carryover tax bases of $0.7 million and $11.0 million, respectively, which are deductible for tax purposes. Goodwill and identified intangible assets recognized in excess of those carryover tax basis amounts are not deductible for tax purposes. Accounts receivable acquired had a gross contractual value of $11.3 million at acquisition, of which $3.4 million was estimated to be uncollectible. 83 We assigned approximately $10.2 million of value to deferred tax assets in our initial purchase price allocation, consisting primarily of $9.9 million of federal and state net operating losses (“NOL”). This NOL amount reflects the tax benefit from approximately $27.3 million of NOLs we expect to realize after considering various limitations and restrictions on NWP’s pre- acquisition NOLs. In connection with the acquisition of NWP, we recorded an indemnification asset of $1.2 million, which represents the selling security holders’ obligation under the purchase agreement to indemnify the Company for the outcome of certain accrued obligations. The indemnification asset was recognized on the same basis as the corresponding liability, which is based on its estimated fair value as of the date of acquisition. Subsequent to the acquisition date, management continued to review information relating to events and circumstances that existed at the acquisition date. This review resulted in measurement period adjustments to the provisional amounts recorded at the acquisition date related to deferred cash obligations paid to the sellers and deferred tax assets associated with the transaction. These measurement period adjustments resulted in a change in goodwill, deferred tax assets, and the deferred cash obligation of $(1.8) million, $1.0 million, and $(0.8) million, respectively. Purchase Price Allocation The estimated fair values of assets acquired and liabilities assumed presented below are provisional and are based on the information available as of the acquisition date. We believe that this information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is awaiting additional information necessary to finalize those values. Therefore, the provisional measurements of fair value are subject to change, and such changes could be significant. We expect to finalize the valuation of these assets and liabilities as soon as practicable, but no later than one year from the respective acquisition dates. The preliminary allocation of each purchase price, including the effects of the measurement period adjustments described above, was as follows: Restricted cash Accounts receivable Property, equipment, and software Intangible assets: Developed product technologies Client relationships Trade names Goodwill Deferred tax assets, net Other assets, net of other liabilities Accounts payable and accrued liabilities Client deposits held in restricted accounts Deferred revenue Deferred tax liabilities, net Total purchase price NWP AssetEye (in thousands) eSupply $ $ $ 4,960 7,902 3,194 2,740 12,900 709 33,520 11,173 3,065 (6,962) (5,018) — — 68,183 $ — $ 90 — 1,638 1,041 6 3,154 — 8 — — (16) (1,010) 4,911 $ — 259 — 2,160 1,390 35 3,216 — 71 (147) — (29) — 6,955 At December 31, 2016, deferred cash obligations related to acquisitions completed in 2016 totaled $8.7 million, and are carried net of a discount of $1.2 million in the Consolidated Balance Sheets. The aggregate fair value of contingent cash obligations related to these acquisitions was $0.5 million at December 31, 2016. During the year ended December 31, 2016, we recognized a loss of $0.3 million due to changes in the fair value of contingent cash obligations related to these acquisitions. We made deferred cash payments of $0.1 million during the year ended December 31, 2016, related to these acquisitions. During the same period, we made payments totaling $3.3 million related to amounts due to certain employees and former shareholders of the acquired businesses described above. There were no payments of contingent cash obligations made related to these acquisitions during the year ended December 31, 2016. 84 2015 Acquisitions Indatus In June 2015, we acquired certain assets from ICIM Corporation, including the Answer Automation, Call Tracker, and Zip Digital products, marketed under the name Indatus. The Indatus offerings are software-as-a-service ("SaaS") products that provide automated answering services, marketing spend analysis tools, and other features which enhance the ability of managers of multifamily properties to communicate with their residents. We are currently integrating the Indatus assets with our existing contact center and maintenance products, which will increase the features of these existing solutions. We acquired the Indatus assets for a purchase price of $49.4 million, consisting of a cash payment of $43.8 million at closing; deferred cash payments of up to $5.0 million, payable over nineteen months after the acquisition date; and contingent cash payments of up to $2.0 million, in the aggregate, if certain revenue targets are met for the twelve months ending June 30, 2016 and 2017. The first deferred cash payment was made in the third quarter of 2016. The contingent consideration revenue targets for the twelve-month period ended June 30, 2016, were not achieved and no payment was made. If the revenue targets for the second twelve-month period are achieved, the maximum potential contingent consideration payment is $2.0 million. The fair value of the deferred and contingent cash payments was $4.7 million and $0.9 million, respectively, as of the acquisition date. Direct acquisition costs were $0.3 million and the acquisition was financed using proceeds from our Revolving Facility. The acquired developed product technologies and client relationships have useful lives of three and ten years, respectively. The trade name acquired was amortized over a useful life of one year, based on our anticipated use of the asset. Goodwill and identified intangible assets associated with the acquisition are deductible for tax purposes. Goodwill arising from the acquisition consisted largely of synergies from the integration of Indatus with our pre-existing products and from leveraging our existing client base and sales staff. VRX In June 2015, we acquired certain assets from RJ Vacations, LLC and Switch Development Corporation, including the VRX product (“VRX”). VRX is a SaaS application which allows vacation rental management companies to manage the cleaning and turning of units, accounting, and document management. We integrated VRX with our Kigo vacation rental solution. We acquired the VRX assets for a purchase price of $2.0 million, consisting of a cash payment of $1.5 million at closing and a contingent cash payment of up to $0.5 million. Payment of the contingent cash obligation was dependent upon the achievement of certain subscription or booking activity targets and is subject to adjustments specified in the acquisition agreement related to the sellers’ indemnification obligations. The contingent cash obligation had a fair value of $0.5 million, as of the acquisition date, and was due fifteen months after the date of acquisition. The acquisition agreement also provided for the sellers to receive additional contingent cash payments of up to $3.0 million. Payment of the additional contingent cash obligations is dependent upon the achievement of certain revenue targets during the twelve month periods ending December 31, 2016, 2017, and 2018, and the sellers providing certain services during a specified period following the acquisition date. Due to this post-acquisition service requirement, the Company concluded that the additional contingent cash obligations represent post-acquisition compensation; therefore, these amounts were excluded from the purchase consideration. The revenue targets for the first contingent cash payment were not met. Additionally, one of the sellers separated from the Company prior to completing the required service period. As a result of this separation, the maximum potential payout of the remaining contingent cash payments is $1.5 million. This acquisition was financed using cash flows from operations. The acquired developed product technologies have an estimated useful life of three years. The estimated fair value of the client relationships acquired was immaterial and these intangible assets were expensed as of the acquisition date. Goodwill arising from the acquisition consisted largely of synergies from the integration of VRX with Kigo. Goodwill and identified intangible assets associated with the acquisition are deductible for tax purposes. 85 Purchase Price Allocation We allocated the purchase price of Indatus and VRX as follows: Accounts receivable Intangible assets: Developed product technologies Client relationships Trade names Goodwill Other liabilities, net of other assets Total purchase price Indatus VRX (in thousands) 646 $ 13,400 9,770 83 25,575 (57) 49,417 $ — 794 11 — 1,186 — 1,991 $ $ At December 31, 2016 and 2015, deferred cash obligations related to acquisitions completed in 2015 totaled $2.5 million and $5.1 million, and were carried net of a discount of $0.1 million and $0.2 million, respectively. Payments of deferred cash obligations related to these acquisitions totaling $2.4 million were made during the twelve months ended December 31, 2016. The aggregate fair value of contingent cash obligations related to acquisitions completed in 2015 was immaterial at December 31, 2016, and $0.8 million at December 31, 2015. During the years ended December 31, 2016 and 2015, we recognized a net gain in the amount of $0.8 million and $0.6 million, respectively, due to changes in the fair value of the contingent cash obligations related to these acquisitions. There were no payments of contingent cash obligations made related to these acquisitions during the years ended December 31, 2016 and 2015. 2014 Acquisitions InstaManager In January 2014, we acquired certain assets from Bookt LLC, including the InstaManager product (“InstaManager”). InstaManager was a SaaS vacation rental booking engine used by professional managers of vacation rental properties which offered marketing websites; online pricing and availability; online booking; automated reservations; payment processing; and insurance sales. The acquisition of InstaManager expanded our product offerings to include property management software for the vacation rental market. We acquired InstaManager for a purchase price of $9.2 million, consisting of a cash payment of $6.0 million at closing; a deferred cash payment of up to $1.0 million, payable over two years after the acquisition date; and contingent cash payments totaling up to $7.0 million if certain revenue targets were met during the twelve month periods ended March 31, 2015 and 2016. The initial fair values of the deferred and contingent cash payments were $0.8 million and $2.4 million, respectively. The deferred cash obligations were paid in the first quarters of 2015 and 2016. The performance target for the first contingent cash payment was achieved and the related payment was made in the third quarter of 2015. The second contingent cash target was not achieved and expired in the first quarter of 2016. The acquired developed product technologies have a useful life of three years. Goodwill and identified intangible assets associated with this acquisition are deductible for tax purposes. Goodwill arising from the acquisition consisted largely of economies of scale from the integration of InstaManager into our pre-existing operating structure. This acquisition was financed using cash flows from operations. We assigned an indefinite useful life to the trade name acquired, as we did not anticipate ceasing use of the trade name in the marketplace. In March 2015, we completed the integration of InstaManager with another vacation rental software product and concurrently ceased use of the trade name in marketing activities. As a result of this event, we assessed the InstaManager trade name for impairment. See further discussion of this analysis and conclusion in Note 6. Virtual Maintenance Manager In March 2014, we acquired certain assets from Virtual Maintenance Manager LLC, including the Virtual Maintenance Manager product (“VMM”). VMM is a SaaS product that facilitates the management of the end-to-end maintenance life cycle for single family and multifamily rental properties and provides property managers with enhanced visibility into their maintenance costs, manages resources, and provides enhanced business control for property managers. We integrated VMM into our existing Propertyware products. We acquired the VMM assets for a purchase price of $1.2 million, consisting of a cash payment of $1.0 million at closing; deferred cash payments of up to $0.2 million, payable over two years after the acquisition date; and contingent cash payments 86 of up to $2.0 million if certain revenue targets were met for the twelve-month periods ended June 30, 2015 and 2016. The initial fair value of the deferred and contingent cash payments was $0.2 million and less than $0.1 million, respectively. The deferred cash obligation was paid in the second quarters of 2015 and 2016. The contingent cash targets were not achieved and expired in the second quarter of 2016. The acquired developed product technologies and client relationships were assigned useful lives of three and ten years, respectively. Goodwill and identified intangible assets associated with this acquisition are deductible for tax purposes. Goodwill arising from the acquisition consisted largely of economies of scale from the integration of VMM into our pre- existing operating structure and from synergies with our existing products. The acquisition of VMM was financed using cash flows from operations. Notivus In May 2014, we acquired certain assets from Notivus Multi-Family LLC, including the Notivus product ("Notivus"). Notivus is a SaaS application that provides an outsourced vendor credentialing solution to assist multifamily owners and managers in the credentialing and ongoing monitoring of their current and prospective vendors, suppliers, and independent contractors. We subsequently integrated Notivus into our existing Compliance Depot products. We acquired the Notivus assets for a purchase price of $4.4 million, consisting of a cash payment of $3.6 million at closing and a deferred cash payment of up to $0.8 million, payable over two years after the acquisition date. The initial fair value of the deferred cash payment was approximately $0.8 million. The deferred cash payments were made in the third quarter of 2015 and the second quarter of 2016. The acquired developed product technologies were assigned a useful life of three years. Goodwill and identified intangible assets associated with this acquisition are deductible for tax purposes. Goodwill arising from the acquisition consisted largely of the economies of scale from the integration of Notivus into our pre-existing operating structure and from synergies with our existing products. This acquisition was financed using cash flows from operations. Kigo In June 2014, we acquired all of the issued and outstanding stock of Kigo, Inc. ("Kigo"). Kigo is a SaaS vacation rental booking system based in the United States with operations in Spain. Kigo offers services for vacation rental property managers that include vacation rental calendars, scheduling, reservations, accounting, channel management, website design, payment processing, and other tasks to aid the management of leads, revenue, resources, and lodging calendars. We integrated our existing vacation rental products with Kigo and launched an enhanced version of the software in March 2015. We acquired Kigo for a purchase price of $36.2 million, consisting of a cash payment of $30.7 million and a deferred cash payment of up to $5.5 million, payable over two and a half years after the acquisition date. Interest is accrued on the deferred cash payment at a rate equal to the one-month London Interbank Offered Rate ("LIBOR"), plus a premium of 1.00%, and is payable on the date the underlying principal is due. The first deferred cash payment was made in the first quarter of 2016. This acquisition was financed from proceeds from our Revolving Facility and cash flows from operations. Direct acquisition costs were $0.5 million. The acquired developed product technologies and client relationships were assigned useful lives of three and ten years, respectively. The trade name acquired has an indefinite useful life as we do not plan to cease using it in the marketplace. Goodwill and identified intangible assets associated with this acquisition are not deductible for tax purposes. Goodwill arising from the acquisition consisted largely of the economies of scale from the integration of Kigo into our pre-existing operating structure and from synergies with our existing products. 87 Purchase Price Allocation We allocated the purchase price for InstaManager, VMM, Notivus, and Kigo as follows: InstaManager VMM Notivus Kigo (in thousands) Intangible assets Developed technologies Client relationships Trade names Goodwill Deferred revenue Deferred tax liabilities, net Net other assets (liabilities) Total purchase price $ 4,490 $ — 527 4,135 (33) — 55 671 200 — 358 — — — $ 9,174 $ 1,229 $ $ 1,840 $ — — 2,852 (156) — (141) 4,395 $ 2,570 1,120 602 32,996 — (495) (547) 36,246 At December 31, 2016 and 2015, deferred cash obligations related to acquisitions completed in 2014 totaled $3.9 million and $6.2 million, respectively. During the years ended December 31, 2016 and 2015, the Company paid deferred cash obligations totaling $2.5 million and $1.2 million, respectively, related to these acquisitions. The aggregate fair value of contingent cash obligations related to acquisitions completed in 2014 was estimated to be zero at December 31, 2015. During the twelve months ended December 31, 2015, we recognized a net gain of $1.8 million related to changes in fair value and made payments totaling $0.5 million related to these acquisitions. There were no outstanding contingent cash obligations related to these acquisitions at December 31, 2016. Acquisition Activity prior to 2014 We completed acquisitions in the years prior to 2014 for which deferred and contingent consideration obligations were included in the purchase consideration. The aggregate carrying value of deferred cash obligations related to these acquisitions was $0.1 million and $1.0 million at December 31, 2016 and 2015, respectively. During the years ended December 31, 2016 and 2015, the Company paid deferred cash obligations related to these acquisitions totaling $0.9 million and $1.4 million, respectively. The estimated fair value of contingent cash obligations related to these acquisitions was zero at December 31, 2015. The Company made payments totaling $0.7 million and recognized a net gain of $1.1 million related to changes in the fair value of these obligations during the year ended December 31, 2015. There were no outstanding contingent cash obligations related to acquisitions completed prior to 2014 at December 31, 2016. Pro Forma Results of Acquisitions The following table presents unaudited pro forma results of operations for the years ended December 31, 2016 and 2015 as if the aforementioned acquisitions had occurred at the beginning of each period presented. The pro forma financial information includes the business combination accounting effects resulting from these acquisitions, including $1.4 million and $7.3 million of amortization charges from acquired intangible assets as of December 31, 2016 and 2015, respectively. We prepared the pro forma financial information for the combined entities for comparative purposes only, and it is not indicative of what actual results would have been if the acquisitions had occurred at the beginning of the periods presented, or of future results. Total revenue Net income (loss) Net income (loss) per share: Basic and diluted 88 Year Ended December 31, 2016 Pro Forma 2015 Pro Forma (in thousands, except per share amounts) (unaudited) 578,985 16,065 0.21 $ $ $ 534,625 (12,075) (0.16) $ $ $ 4. Accounts Receivable and Other Current Assets Accounts receivable consisted of the following at December 31, 2016 and 2015: Trade receivables from clients Insurance commissions receivable Accounts receivable, gross Less: Allowance for doubtful accounts Accounts receivable, net December 31, 2016 2015 (in thousands) $ $ 82,094 12,741 94,835 (2,468) 92,367 $ $ 66,839 9,671 76,510 (2,318) 74,192 Trade receivables include amounts billed to our clients, primarily under our on demand subscription solutions. Trade receivables also includes amounts invoiced to clients prior to the period in which the service is provided and amounts for which we have met the requirements to recognize revenue in advance of invoicing the client. Insurance commissions receivable consists of commissions derived from the sale of insurance products to individuals and contingent commissions related to those policies. Other current assets consisted of the following at December 31, 2016 and 2015: December 31, 2016 2015 Lease-related receivables Inventory Indemnification asset Other current assets Total other current assets $ $ $ (in thousands) 449 2,110 1,220 1,933 5,712 $ 20,683 548 — 1,854 23,085 Lease-related receivables at December 31, 2015 consisted primarily of incentives related to the lease executed in 2015 for our new corporate headquarters and data center in Richardson, Texas. The decrease in this balance during 2016 is attributable to reimbursement payments received from the landlord related to completed leasehold improvements. The indemnification asset and the increase in inventory between the periods arose from our acquisition of NWP Services Corporation, which was completed in the first quarter of 2016. 5. Property, Equipment, and Software Property, equipment, and software consisted of the following at December 31, 2016 and 2015: Leasehold improvements Data processing and communications equipment Furniture, fixtures, and other equipment Software Property, equipment, and software, gross Less: Accumulated depreciation and amortization Property, equipment, and software, net December 31, 2016 2015 (in thousands) $ $ 51,242 76,773 26,513 86,983 241,511 (111,083) 130,428 $ $ 26,138 67,871 18,253 68,972 181,234 (99,036) 82,198 Depreciation and amortization expense for property, equipment, and purchased software was $24.5 million, $20.6 million, and $18.9 million for the years ended December 31, 2016, 2015, and 2014, respectively. The gross amount of capitalized software development costs was $55.4 million and $41.2 million and was carried net of accumulated amortization of $19.8 million and $14.0 million at December 31, 2016 and 2015, respectively. The weighted average amortization period for capitalized software development costs was 4.7 years at December 31, 2016. During the years ended December 31, 2016, 2015, and 2014, we capitalized $13.7 million, $10.5 million, and $10.9 million of software 89 development costs, respectively. Amortization expense related to capitalized software development costs totaled $5.8 million, $3.3 million, and $1.7 million during the years ended December 31, 2016, 2015, and 2014, respectively. We review in-progress software development projects on a periodic basis to ensure completion is assured and the development work will be placed into service as a new product or significant product enhancement. During the year ended December 31, 2015, we identified certain projects for which software development work had ceased and it was determined the projects would be discontinued. Our analysis of the capitalized costs resulted in the conclusion that they had no value outside of the respective projects for which they were originally incurred. As a result, we recognized a loss of $1.4 million during the year ended December 31, 2015, related to the disposal of these assets. During the years ended December 31, 2016 and 2015, we modified or terminated certain operating lease agreements for office space prior to the end of the applicable lease term. We recognized an impairment charge of $1.5 million during the year ended December 31, 2015, related to leasehold improvements associated with a modified lease. No impairments of leasehold improvements associated with a modified lease were identified during 2016. Related to these lease modifications, we also disposed of fixed assets with a net carrying value of $0.6 million and $1.3 million, and recognized a net loss on disposal of $0.6 million and $0.2 million during 2016 and 2015, respectively. The above loss and impairment charge are included in the line "General and administrative" in the accompanying Consolidated Statements of Operations. 6. Goodwill and Identified Intangible Assets Changes in the carrying amount of goodwill during the years ended December 31, 2016 and 2015, were as follows, in thousands: Balance at January 1, 2015 Goodwill acquired Balance at December 31, 2015 Goodwill acquired Other Balance at December 31, 2016 $ $ 193,378 26,719 220,097 39,890 (49) 259,938 There was no impairment of goodwill recorded in 2016, 2015, or 2014. Changes in identified intangible assets during the years ended December 31, 2016 and 2015 were as follows: December 31, 2015 Additions Dispositions Impairments Transfers / Other December 31, 2016 (in thousands) Finite-lived intangible assets: Developed technologies Client relationships Vendor relationships Trade names Total finite-lived intangible assets Less: Accumulated amortization Indefinite-lived intangible assets: $ 69,379 $ 6,538 $ — $ — $ 96,523 5,650 5,149 176,701 (110,882) 15,331 — 750 22,619 (24,489) (3,386) — — (3,386) 1,904 — — — — — Trade names Intangible assets, net 15,461 $ 81,280 $ — (1,870) $ (2,212) (3,694) $ (750) (750) $ 7 — — — 7 — 3 10 $ 75,924 108,468 5,650 5,899 195,941 (133,467) 12,502 74,976 $ 90 December 31, 2014 Additions Dispositions Impairments Transfers / Other December 31, 2015 (in thousands) Finite-lived intangible assets: Developed technologies Client relationships Vendor relationships Trade names Total finite-lived intangible assets Less: Accumulated amortization Indefinite-lived intangible assets: Trade names Intangible assets, net $ 55,212 $ 14,194 $ — $ — $ 86,753 5,650 — 147,615 (88,880) 9,770 — 83 24,047 (22,002) 41,350 — — — — — — — $ 100,085 $ 2,045 $ — $ — — — — — (27) $ — — 5,066 5,039 — 69,379 96,523 5,650 5,149 176,701 (110,882) (20,801) (20,801) $ (5,088) (49) $ 15,461 81,280 Amortization expense for finite-lived intangible assets totaled $24.5 million, $22.0 million, and $20.7 million during the years ended December 31, 2016, 2015, and 2014, respectively. The following table sets forth the estimated amortization of intangible assets for the years ending December 31, in thousands: 2017 2018 2019 2020 2021 $ 18,797 13,380 9,860 8,159 5,545 In March 2015, the Company completed the integration of the InstaManager and Kigo platforms into a single solution marketed under the Kigo name. Subsequent to this integration, the Company discontinued the use of the InstaManager trade name to market or identify the software. Due to this change in circumstance, the Company evaluated the InstaManager trade name for impairment and concluded an impairment in the amount of $0.5 million existed at March 31, 2015. In connection with the preparation of the third quarter 2015 financial statements, the Company identified indicators requiring the assessment of certain indefinite-lived trade names for impairment, primarily associated with the Company's 2011 acquisition of MyNewPlace. Identified indicators included declines in actual and anticipated lead-generation revenues and a change in the Company's long-term marketing strategy. As a result, the Company analyzed these intangible assets and recorded a $20.3 million impairment charge during the third quarter of 2015, representing the amount by which the carrying value of the indefinite-lived trade names exceeded their estimated fair value. Given the change in the Company's long-term marketing strategy and anticipated use of the trade names, the remaining balance was reclassified to finite-lived intangible assets as of September 30, 2015. The trade names were assigned an estimated useful life of seven years, amortized on a straight-line basis. The $3.7 million of net dispositions shown above reflect our sale of certain assets associated with our senior living referral services in the fourth quarter of 2016. Based on the status of the sale negotiations at the end of the third quarter, we determined there was a possibility that certain of the assets could be impaired and performed an impairment analysis. As a result of that analysis we recorded an impairment of the associated trade names at September 30, 2016, in the amount of $0.8 million, the amount by which the carrying value of the trade names exceeded their estimated fair value on the date of analysis. The above impairment charges are included in "Impairment of identified intangible assets" in the accompanying Consolidated Statements of Operations. See Note 12 for discussion of the methodology and inputs utilized by the Company to estimate the fair value of these indefinite-lived trade names. 7. Debt On September 30, 2014, we entered into an agreement for a secured revolving credit facility (as amended by the Amendment discussed below, the “Credit Facility”) to refinance our outstanding revolving loans. The Credit Facility provides an aggregate principal amount of up to $200.0 million of revolving loans, with sublimits of $10.0 million for the issuance of letters of credit and $20.0 million for swingline loans ("Revolving Facility"). The Credit Facility also allowed us, subject to certain conditions, to request additional term loans or revolving commitments up to an aggregate principal amount of $150.0 million, plus an amount that would not cause our consolidated net leverage ratio, as defined below, to exceed 3.25 to 1.00. At our option, amounts outstanding under the Credit Facility accrued interest at a per annum rate equal to either LIBOR, plus a 91 margin ranging from 1.25% to 1.75%, or the Base Rate, plus a margin ranging from 0.25% to 0.75% ("Applicable Margin"). The base LIBOR rate is, at our discretion, equal to either one, two, three, or six month LIBOR. The Base Rate is defined as the greater of Wells Fargo's prime rate, the Federal Funds Rate plus 0.50%, or one month LIBOR plus 1.00%. In each case, the Applicable Margin is determined based upon our consolidated net leverage ratio. In February 2016, we entered into an amendment to the Credit Facility (the “Amendment”). The Amendment provides for an incremental term loan in the amount of $125.0 million (“Term Loan”) that is coterminous with the existing Credit Facility, reducing the amount of additional term loans or revolving commitments available under the Credit Facility to $25.0 million, plus an amount that would not cause us to exceed the consolidated net leverage ratio limitation. Under the terms of the Amendment, an additional tier was added such that the Applicable Margin now ranges from 1.25% to 2.00% for LIBOR loans, and 0.25% to 1.00% for Base Rate loans. We incurred debt issuance costs in the amount of $0.7 million in conjunction with the execution of the Amendment. Revolving loans under the Credit Facility may be voluntarily prepaid and re-borrowed. Principal payments on the Term Loan are due in quarterly installments that began in June 2016 and such amounts may not be re-borrowed. Accumulated interest on amounts outstanding under the Credit Facility is due and payable quarterly, in arrears, for loans bearing interest at the Base Rate and at the end of the applicable interest period in the case of loans bearing interest at the adjusted LIBOR. All outstanding principal and accumulated interest is due upon the Credit Facility's maturity on September 30, 2019. The Term Loan is subject to mandatory repayment requirements in the event of certain asset sales or if certain insurance or condemnation events occur, subject to customary reinvestment provisions. The Company may prepay the Term Loan in whole or in part at any time, without premium or penalty, with prepayment amounts to be applied to remaining scheduled principal amortization payments as specified by the Company. The Credit Facility is secured by substantially all of our assets, and certain of our existing and future material domestic subsidiaries are required to guarantee obligations under the Credit Facility. We are also required to comply with customary affirmative and negative covenants, as well as a consolidated net leverage ratio and a consolidated interest coverage ratio. The consolidated net leverage ratio, which is the ratio of funded indebtedness on the last day of each fiscal quarter to the four previous consecutive fiscal quarters' consolidated EBITDA, cannot be greater than 3.50 to 1.00, provided that we can elect to increase the ratio to 3.75 to 1.00 for a specified period following a permitted acquisition. The Amendment permits the Company to elect to increase the maximum permitted consolidated net leverage ratio on a one-time basis to 4.00 to 1.00 following the issuance of convertible or high yield notes in an initial principal amount of at least $150.0 million. The consolidated interest coverage ratio, which is a ratio of our four previous fiscal consecutive quarters' consolidated EBITDA to our interest expense, cannot be less than 3.00 to 1.00 as of the last day of any fiscal quarter. As of December 31, 2016, we were in compliance with the covenants under our Credit Facility. The Credit Facility contains customary events of default, subject to customary cure periods for certain defaults, that include, among others, non-payment defaults; covenant defaults; material judgment defaults; bankruptcy and insolvency defaults; cross-defaults to certain other material indebtedness; ERISA defaults; inaccuracy of representations and warranties; and a change in control default. In the event of a default on our Credit Facility, the obligations under the Credit Facility could be accelerated, the applicable interest rate under the Credit Facility could be increased, the loan commitments could be terminated, our subsidiaries that have guaranteed the Credit Facility could be required to pay the obligations in full, and our lenders would be permitted to exercise remedies with respect to all of the collateral that is securing the Credit Facility, including substantially all of our and our subsidiary guarantors’ assets. Any such default that is not cured or waived could have a material adverse effect on our liquidity and financial condition. Future maturities of principal under the Term Loan are as follows for the years ending December 31, in thousands: 2017 2018 2019 $ $ 5,469 6,250 110,918 122,637 We had $122.6 million outstanding under our Term Loan at December 31, 2016. As of December 31, 2016, we had no balance outstanding under our Revolving Facility, and we had a $40.0 million outstanding balance as of December 31, 2015. The weighted-average interest rate of short-term borrowings during the years ended December 31, 2016 and 2015, was 1.75% and 1.58%, respectively. As of December 31, 2016, $200.0 million was available under our Revolving Facility, of which $10.0 million was available for the issuance of letters of credit and $20.0 million for swingline loans. We had unamortized debt issuance costs of $1.3 million and $1.0 million at December 31, 2016 and 2015, respectively. At December 31, 2016, the Term Loan was carried net of unamortized debt issuance costs of $0.5 million in the accompanying Consolidated Balance Sheets. 92 On March 31, 2016, the Company entered into two interest rate swap agreements (“Swap Agreements”), which are designed to mitigate our exposure to interest rate risk associated with a portion of our variable rate debt. The Swap Agreements cover an aggregate notional amount of $75.0 million from March 2016 to September 2019 by replacing the obligation’s variable rate with a blended fixed rate of 0.89%. The Company designated the Swap Agreements as cash flow hedges of interest rate risk. See additional information related to the Swap Agreements at Note 14. We entered into an amendment of the Credit Facility in February 2017 which, among other changes, provides for an incremental $200.0 million delayed draw term loan that is available to be drawn until May 31, 2017, extends the maturity of the Credit Facility to February 24, 2022, and amends the amortization schedule for the Term Loan. Under the amended amortization schedule, the Company will make quarterly principal payments of 0.6% of the Term Loan's and Delayed Draw Term Loan's respective outstanding balances beginning June 30, 2017. The quarterly payment amounts increase to 1.3% of their respective outstanding balances beginning on June 30, 2018, and to 2.5% beginning on June 30, 2020. Any remaining principal balance on Term Loan and Delayed Draw Term Loan is due on the date of maturity, February 24, 2022. With the new delayed draw term loan, the existing Term Loan, and the Revolving Facility, the Credit Facility now includes $522.6 million of drawn or available credit. See additional discussion of the amendment in Note 20, Subsequent Events. 8. Stock-based Expense Our Amended and Restated 1998 Stock Incentive Plan (“Stock Incentive Plan”) provided for awards which could be granted in the form of incentive stock options, non-qualified stock options, restricted stock, stock appreciation rights, and performance restricted stock. In August 2010, we discontinued issuance of new awards under the Stock Incentive Plan and concurrently adopted the 2010 Equity Incentive Plan ("Equity Incentive Plan"). The Equity Incentive Plan, as amended, provides for awards which may be granted in the form of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, and performance shares under substantially the same terms as the Stock Incentive Plan. We also grant awards to our directors in accordance with the Board of Directors Policy (“Board Plan”). Prior to 2010, these awards were generally in the form of stock options. Beginning in 2010, the awards granted to our directors are generally in the form of restricted stock. The awards granted to directors generally vest ratably over a period of four quarters; however, should a director leave the board, we have the right to repurchase shares as if the awards vested on a pro rata basis. In connection with our acquisition of Multifamily Technology Solutions, Inc. ("MTS"), on August 24, 2011, we assumed 349,693 non-qualified and incentive stock options granted from MTS’s 2005 Equity Incentive Plan (“MTS Plan”) for 96 employees. Assumed options were converted to equivalent stock-based awards of RealPage based on the ratio of our fair market value of stock to the fair market value of MTS’s stock on the acquisition date. The number of shares and ratio of exercise price to market price were equitably adjusted to preserve the intrinsic value of the awards as of immediately prior to the acquisition. The conversion was accounted for as a modification, which did not result in an incremental increase in the fair value of the assumed option awards. The majority of assumed options vest over a four-year period at a rate of 25% or 20% after one year and then monthly on a straight-line basis thereafter while others vest ratably over a four-year period. Options granted generally are exercisable up to ten years. No further options will be granted under the MTS Plan. Our board of directors periodically approves increases to the number of shares of common stock reserved for issuance under the Equity Incentive Plan. At December 31, 2016 and 2015, there were 27,634,259 and 25,634,259 shares of the Company's common stock reserved for awards under the Equity Incentive Plan, respectively. The exercise of stock options and grants of restricted stock are fulfilled through the issuance of previously authorized but unissued common stock shares. Total compensation expense related to our stock-based expense plans was $36.9 million, $38.1 million, and $37.1 million for the years ended December 31, 2016, 2015, and 2014, respectively. During the years ended December 31, 2016, 2015, and 2014, we recognized a tax benefit of $13.9 million, $14.4 million, and $14.0 million, respectively. Total unrecognized compensation expense related to our stock-based expense plans was $42.9 million at December 31, 2016, and is expected to be recognized over a weighted average period of 1.8 years. Cash proceeds related to stock-based expense transactions totaled $28.5 million, $12.1 million, and $9.9 million during the years ended December 31, 2016, 2015, and 2014, respectively. Stock Option Awards Stock options granted prior to February 2014 generally vest over a period of sixteen quarters, with 75% vesting ratably over fifteen quarters and the remaining 25% vesting in the sixteenth quarter. Beginning in February 2014, stock options granted generally vest ratably over a period of twelve quarters. Expense is recognized over the requisite service period in a manner that reflects the vesting of the related awards. Awards under the plan generally expire ten years from the date of the grant. All outstanding options were granted at exercise prices equal to or exceeding our estimate of the fair market value of our common stock at the date of grant. 93 The following table summarizes stock option transactions under our Stock Incentive Plan, Equity Incentive Plan, Board Plan, and MTS Plan: January 1, 2014 Granted Exercised Forfeited/cancelled Expired Balance at December 31, 2014 Granted Exercised Forfeited/cancelled Balance at December 31, 2015 Exercised Forfeited/cancelled Expired Balance at December 31, 2016 Number of Shares 5,914,802 1,934,031 (907,765) (1,336,894) (37,286) 5,566,888 2,434,198 (809,303) (1,389,910) 5,801,873 (1,568,699) (625,431) (654) 3,607,089 Range of Exercise Prices $ 0.91 – $ 29.50 21.54 15.19 – 21.60 0.91 – 29.50 4.28 – 24.64 19.78 – 29.50 0.91 – 23.10 18.79 – 21.60 0.91 – 29.50 5.04 – 29.50 0.91 – 27.18 1.68 – 29.50 4.28 – 0.91 0.91 – 29.50 2.55 – Weighted Average Exercise Price $ 18.56 17.68 10.92 20.93 24.02 18.89 19.81 14.97 20.54 19.43 18.16 21.77 0.91 19.58 The below table provides information regarding outstanding stock options which were fully vested and expected to vest and exercisable options at December 31: Number of options Weighted-average remaining contractual term (in years) Weighted-average exercise price Aggregate intrinsic value, in thousands 2016 2015 Options Fully Vested and Expected to Vest 3,606,462 6.5 19.58 37,581 $ $ Options Exercisable 2,477,474 5.9 19.24 26,659 $ $ Options Fully Vested and Expected to Vest 5,795,711 7.5 19.43 21,080 $ $ Options Exercisable 2,843,655 6.4 18.67 13,316 $ $ The aggregate intrinsic value of options exercised during the years ended December 31, 2016, 2015, and 2014, was $11.3 million, $5.0 million, and $8.5 million, respectively. The fair value of each stock option grant was estimated as of the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions and resulting weighted-average fair value per share for the years ended December 31, 2015 and 2014. There were no stock options awarded during the year ended December 31, 2016. Risk-free interest rate Expected option life (in years) Expected volatility Weighted-average grant date fair value 2015 2014 1.5% 4.6 42.3% 7.42 $ 1.3% 4.4 42.8% 6.44 $ Risk-free interest rate. This is the average U.S. Treasury rate (having a term that most closely approximates the expected life of the option) for the period in which the option was granted. Expected option life. This is the period of time that the options granted are expected to remain outstanding. This estimate is primarily based on the historical experience of the plans. Forfeiture rate. This is the projected annual rate at which we expect awards to be forfeited in the future. We used a forfeiture rate of zero to value the awards granted during 2015 and 2014 due to the timing of when our shares vest and the expense is recorded. Expected volatility. Volatility is a measure of the amount by which a financial variable, such as a share price, has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. During 2015, we began estimating expected volatility based solely on the Company's historic and expected volatility. In previous years, we estimated expected volatility using a blend of the Company's historic and expected volatility and that of publicly traded peers. 94 Dividend yield. This metric indicates how much the Company is expected to pay out in dividends relative to its share price during a period. We utilized a dividend yield of zero in estimating the fair value of stock options awarded in 2015 and 2014, as we do not anticipate paying dividends in the foreseeable future. Restricted Stock Awards Restricted stock awards entitle the holder to receive shares of our common stock as the award vests. Grants of restricted stock are classified as time-based, market-based, or performance-based depending on the vesting criteria of the award. Time-based restricted stock awards: Time-based restricted stock awards granted prior to February 2014, generally vest ratably over sixteen quarters following the date of grant. Awards granted during 2014 and 2015, generally vest ratably over a period of twelve quarters beginning on the first day of the quarter immediately following the grant date. Beginning in 2016, awards granted generally vest ratably over a period of twelve quarters beginning on the first day of the second calendar quarter immediately following the grant date. The fair value of time-based restricted stock awards is based on the closing price of our common stock on the date of grant. Compensation expense for time-based restricted stock awards is recognized over the vesting period on a straight-line basis. During the years ended December 31, 2016, 2015, and 2014, the Company issued time-based restricted shares with an aggregate grant-date fair value of $16.9 million, $21.5 million, and $23.3 million vested, respectively. A summary of time-based restricted stock award activity is presented in the table below. Non-vested shares at January 1, 2014 Granted Vested Forfeited/cancelled Non-vested shares at December 31, 2014 Granted Vested Forfeited/cancelled Non-vested shares at December 31, 2015 Granted Vested Forfeited/cancelled Non-vested shares at December 31, 2016 Market-based restricted stock awards: Number of Shares 2,090,803 1,238,226 (1,101,143) (603,367) 1,624,519 913,077 (1,077,102) (391,788) 1,068,706 1,793,257 (841,983) (386,479) 1,633,501 $ Weighted Average Grant- Date Fair Value 22.10 17.69 21.18 20.36 20.01 19.84 19.78 18.65 20.05 20.79 20.14 20.21 20.78 Market-based restricted stock awards become eligible for vesting upon on the achievement of specific market-based conditions based on the per share price of the Company's common stock. Shares that become eligible to vest, if any, become Eligible Shares. Eligible Shares generally vest ratably over a period of four quarters, beginning on the first day of the quarter immediately after they become Eligible Shares. Vesting is conditional upon the recipient remaining a service provider, as defined in the plan document, to the Company through each applicable vesting date. 95 A summary of market-based restricted stock award activity is presented in the table below. Balance at January 1, 2014 Granted Balance at December 31, 2014 Granted Forfeited/cancelled Balance at December 31, 2015 Granted Vested Forfeited/cancelled Balance at December 31, 2016 Number of Shares — $ 520,000 520,000 691,165 (196,070) 1,015,095 794,025 (51,250) (193,710) 1,564,160 Weighted Average Grant- Date Fair Value — 11.26 11.26 11.59 9.39 11.85 13.58 12.52 11.61 12.73 We estimate the fair value of market-based restricted stock awards using a discrete model to analyze the fair value of the subject shares. The discrete model utilizes multiple stock price-paths, through the use of Monte Carlo simulation, which are then analyzed to determine the fair value of the subject shares. The weighted average of assumptions used to value awards granted during 2016 and 2015, were as follows: Risk-free interest rate Expected volatility 2016 2015 2014 1.1% 41.5% 1.1% 38.7% 1.1% 43.6% Risk-free interest rate. We estimated the risk-free rate from the three year U.S. Treasury strip note yield curve as of the valuation date. Expected volatility. Similar to the methodology for stock options described above, the Company now estimates expected volatility based solely on the Company's historic and expected volatility rate. In previous years, we estimated expected volatility using a blend of the Company's historic and expected volatility and that of publicly traded peers. Expense related to the market-based restricted stock awards is recognized over the requisite service period using the graded-vesting attribution method. The requisite service period is a measure of the expected time to achieve the specified market condition plus the time-based vesting period. The expected time to achieve the market condition is estimated utilizing a Monte Carlo simulation, considering only those stock price-paths in which the market condition was achieved. The estimated requisite service period for market-based restricted stock shares issued in 2016 ranged from seven to nine quarters. Market- based restricted stock awards granted in 2015 had requisite service periods ranging between five to eleven quarters. Performance-based restricted stock awards: The Company has also granted performance-based restricted stock awards. These awards become eligible to vest if specified performance targets are achieved prior to the performance deadline. Subsequent to achievement of the performance target the awards vest quarterly over a one-year service period. The performance-based restricted stock awards are forfeited if the performance targets are not achieved prior to the performance deadline. Compensation expense for performance-based restricted stock awards is recognized on a straight-line basis over the requisite service period, which includes both the performance period and the subsequent time-based vesting period. Expense is only recognized if it is determined that achievement of the performance condition is probable. The fair value of performance-based restricted stock awards is based on the closing price of our common stock on the date of grant. 96 A summary of performance-based restricted stock award activity is presented in the table below: Non-vested shares at January 1, 2014 Forfeited/cancelled Non-vested shares at December 31, 2014 Granted Non-vested shares at December 31, 2015 Forfeited/cancelled Non-vested shares at December 31, 2016 9. Commitments and Contingencies Lease Commitments Number of Shares 70,000 (70,000) — 20,000 20,000 (20,000) — $ Weighted Average Grant- Date Fair Value 18.10 18.10 — 18.79 18.79 18.79 — The Company leases office facilities and equipment for various terms under long-term, non-cancellable operating lease agreements. The leases expire at various dates through 2028 and provide for renewal options. The agreements generally require the Company to pay for executory costs such as real estate taxes, insurance, and repairs. In connection with our 2016 acquisitions, the Company assumed non-cancellable operating leases for equipment and office space. Office leases assumed include locations in Costa Mesa, California; Tampa, Florida; Ann Arbor, Michigan; and Bloomington, Minnesota. The office leases expire at various dates through 2020 and have terms substantially similar to our other office leasing arrangements. Equipment leases assumed by the Company include leases for equipment used in the general operation of the business and have lease terms expiring through 2020. These agreements have terms substantially similar to our other equipment leasing arrangements. In May 2015, the Company entered into a lease agreement for office space located in Richardson, Texas to serve as our new corporate headquarters and data center. The lease is for a term of twelve years, beginning in 2016, and includes optional extension periods. The lease agreement contains provisions for rent escalations over the term of the lease and leasehold improvement incentives. In July 2015, the Company entered into an amendment to the lease agreement which increased the amount of leased space. The lease was again amended in July 2016, which permitted an increase in our tenant improvement allowance. We completed the move of our corporate headquarters and data center to this new facility in the third quarter of 2016. Our lease for our previous corporate headquarters expired in December 2016. At December 31, 2016 and 2015, we had a receivable for incentives under this lease of zero and $19.4 million, respectively. The decrease in the lease incentives receivable balance between the periods is attributable to reimbursements received from the landlord for completed leasehold improvements. The lease receivable is included in "Other current assets" in the accompanying Consolidated Balance Sheets. Rent expense was $14.7 million, $10.9 million, and $11.1 million for the years ended December 31, 2016, 2015, and 2014, respectively. Minimum annual rental commitments under non-cancellable operating leases were as follows at December 31, 2016: 2017 2018 2019 2020 2021 Thereafter Minimum Lease Commitments (in thousands) $ $ 11,195 11,160 9,864 7,911 7,271 48,640 96,041 Guarantor Arrangements We have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The term of the indemnification period is for the officer or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a director and officer insurance policy that limits our exposure and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the 97 estimated fair value of these indemnification agreements is minimal. Accordingly, we had no liabilities recorded for these agreements as of December 31, 2016 or 2015. In the ordinary course of our business, we include standard indemnification provisions in our agreements with our clients. Pursuant to these provisions, we indemnify our clients for losses suffered or incurred in connection with third-party claims that our products infringed upon any U.S. patent, copyright, trademark, or other intellectual property right. Where applicable, we generally limit such infringement indemnities to those claims directed solely to our products and not in combination with other software or products. With respect to our products, we also generally reserve the right to resolve such claims by designing a non-infringing alternative, by obtaining a license on reasonable terms, or by terminating our relationship with the client and refunding the client’s fees. The potential amount of future payments to defend lawsuits or settle indemnified claims under these indemnification provisions is unlimited in certain agreements; however, we believe the estimated fair value of these indemnification provisions is minimal, and, accordingly, we had no liabilities recorded for these agreements as of December 31, 2016 or 2015. Litigation From time to time, in the normal course of our business, we are a party to litigation matters and claims. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and our view of these matters may change in the future as the litigation and events related thereto unfold. We expense legal fees as incurred. Insurance recoveries associated with legal costs incurred are recorded when they are deemed probable of recovery. In March 2015, we were named in a purported class action lawsuit in the United States District Court for the Eastern District of Pennsylvania, styled Stokes v. RealPage, Inc., Case No. 2:15-cv-01520. The claims in this purported class action relate to alleged violations of the Fair Credit Reporting Act (“FCRA”) in connection with background screens of prospective tenants of our clients. On January 25, 2016, the court entered an order placing the case on hold until the United States Supreme Court issued its decision in Spokeo, Inc. v. Robins, which case addressed issues related to standing to bring claims related to the FCRA. On May 16, 2016, the U.S. Supreme Court issued its opinion in the Spokeo litigation, vacating the decision of the United States Court of Appeals for the Ninth Circuit, and remanding the case for further consideration by the U.S. Court of Appeals. Following the Supreme Court’s decision in Spokeo, the judge in the Stokes case lifted the stay. On June 24, 2016, we filed a motion to dismiss certain claims made in the case based upon the Spokeo decision. On October 19, 2016, the U.S. District Court denied the motion to dismiss. We intend to defend this case vigorously. In November 2014, we were named in a purported class action lawsuit in the United States District Court for the Eastern District of Virginia, styled Jenkins v. RealPage, Inc., Case No. 3:14cv758. The claims in this purported class action relate to alleged violations of the FCRA in connection with background screens of prospective tenants of our clients. This case has since been transferred to the United States District Court for the Eastern District of Pennsylvania. On January 25, 2016, the court entered an order placing the case on hold until the United States Supreme Court issued its decision in the Spokeo case. Following the Supreme Court’s decision in Spokeo, the judge in the Jenkins case lifted the stay. On June 24, 2016, we filed a motion to dismiss certain claims made in the case based upon the Spokeo decision. On October 19, 2016, the U.S. District Court denied the motion to dismiss. We intend to defend this case vigorously. On February 23, 2015, we received from the Federal Trade Commission ("FTC") a Civil Investigative Demand consisting of interrogatories and a request to produce documents relating to our compliance with the FCRA. We have responded to the request and requests for additional information by the FTC. At this time, we do not have sufficient information to evaluate the likelihood or merits of any potential enforcement action, or to predict the outcome or costs of responding to, or the costs, if any, of resolving this investigation. During 2014, we expensed $4.7 million, inclusive of the settlements and other associated costs, related to litigation settled during that period. The litigation related to reimbursement claims made against us, each by a primary and an excess layer errors and omissions insurance carrier. The carriers were seeking reimbursement of claims formerly funded by them relating to a litigation matter settled in 2012. At December 31, 2016 and 2015, we had accrued amounts for estimated settlement losses related to legal matters. The Company does not believe there is a reasonable possibility that a material loss exceeding amounts already recognized may have been incurred as of the date of the balance sheets presented herein. We are involved in other litigation matters not described above that are not likely to be material either individually or in the aggregate based on information available at this time. Our view of these matters may change as the litigation and events related thereto unfold. 10. Net Income (Loss) per Share Basic net income (loss) per share was computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share was computed by using the weighted 98 average number of common shares outstanding, including potential dilutive shares of common stock assuming the dilutive effect of outstanding stock options and restricted stock using the treasury stock method. Weighted average shares from common share equivalents in the amount of 220,473, 912,257, and 1,273,889 were excluded from the dilutive shares outstanding because their effect was anti-dilutive for the years ended December 31, 2016, 2015, and 2014, respectively. The following table presents the calculation of basic and diluted net income (loss) per share attributable to common stockholders: Numerator: Net income (loss) Denominator: Basic: Year Ended December 31, 2016 2015 2014 (in thousands, except per share amounts) $ 16,650 $ (9,218) $ (10,274) Weighted average shares used in computing basic net income (loss) per share: 76,854 76,689 76,991 Diluted: Weighted average shares used in computing basic net income (loss) per share: Add weighted average effect of dilutive securities: 76,854 76,689 76,991 Stock options and restricted stock 989 — — Weighted average shares used in computing diluted net income (loss) per share: Net income (loss) per share attributable to common stockholders: Basic Diluted 11. Income Taxes 77,843 76,689 76,991 $ $ 0.22 0.21 $ $ (0.12) $ (0.12) $ (0.13) (0.13) The domestic and foreign components of income (loss) before income taxes were as follows: Domestic Foreign Total Year Ended December 31, 2016 2015 (in thousands) 2014 $ $ 23,817 3,669 27,486 $ $ (15,777) $ 2,713 (13,064) $ (18,768) 2,161 (16,607) Our income tax expense (benefit) consisted of the following components: Current: Federal State Foreign Total current income tax expense Deferred: Federal State Foreign Total deferred income tax expense (benefit) Total income tax expense (benefit) Year Ended December 31, 2016 2015 (in thousands) 2014 $ $ 401 756 449 1,606 9,055 235 (60) 9,230 10,836 $ $ $ 162 797 414 1,373 (5,075) 156 (300) (5,219) (3,846) $ — 437 550 987 (6,611) (460) (249) (7,320) (6,333) 99 The reconciliation of our income tax expense (benefit) computed at the U.S. federal statutory tax rate to the actual income tax expense (benefit) is as follows: Year Ended December 31, 2016 2015 2014 (in thousands) Expense derived by applying the Federal income tax rate to income (loss) before income taxes $ 9,620 $ State income tax, net of federal benefit Foreign income tax Benefit of assets not previously recognized Nondeductible expenses Fair value adjustment on stock acquisition Stock-based expense Reduction in available Federal NOL Other 735 (922) — 545 150 285 255 168 Total income tax expense (benefit) $ 10,836 $ (4,572) $ 561 (813) — 418 (52) 209 350 53 (3,846) $ (5,813) (177) (477) (516) 454 (28) 223 — 1 (6,333) Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of our assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows: December 31, 2016 2015 (in thousands) Deferred tax assets: Reserves, deferred revenue and accrued liabilities $ 22,518 $ Stock-based expense Net operating loss carryforwards and tax credits Total deferred tax assets Deferred tax liabilities: Property, equipment, and software Intangible assets Other Total deferred tax liabilities Net deferred tax assets 17,184 16,193 55,895 (25,626) (10,514) (4,090) (40,230) 15,665 $ $ 8,107 15,112 13,733 36,952 (10,041) (11,563) (3,297) (24,901) 12,051 We periodically evaluate the realizability of our deferred tax assets. If we determine that it is more likely than not that all or a portion of such assets are not realizable, we provide a valuation allowance against the assets. We determined that no valuation allowance was required at December 31, 2016 or 2015. The determination of the level of valuation allowance, if any, required at any time is based on a forecast of future taxable income that includes many judgments and assumptions. Accordingly, it is at least reasonably possible that future changes in one or more assumptions may lead to a change in judgment regarding the level of valuation allowance required in future periods. The acquisition of the stock of NWP in March 2016 resulted in an additional net deferred tax asset of $11.2 million. This net asset includes approximately $9.6 million related to additional deferred tax assets from federal NOLs and $0.3 million related to state NOLs; $3.3 million related to property, equipment, and software; inventory and accrued expenses; and $2.0 million of deferred tax liability related to intangibles. The acquisition of the stock of AssetEye in May 2016 resulted in additional deferred tax liabilities of $0.9 million related to intangibles. The company had no federal or state NOL carryovers. Our tax-effected federal and state NOL carryforwards of $13.4 million and $1.5 million, respectively, and our combined federal and state tax credits of $1.3 million comprise a major component of our deferred tax assets. If not used, the underlying gross federal NOLs totaling $38.3 million will begin to expire in 2022 and the underlying state NOLs totaling $19.4 million 100 will begin to expire in 2017, with less than $5.0 million expiring in the next five years. Approximately $0.1 million of our credits expire in 2026, and the balance has no expiration date. In addition to the NOLs just described, we also have gross federal and state NOLs of $120.6 million and $41.2 million, respectively, for which we have not recognized benefit for financial reporting purposes. These unrecognized NOLs result from the excess of stock-based compensation deductions for tax return purposes over the expense recognized for financial reporting purposes that has not yet been realized in actual tax returns. The benefit from these excess stock compensation federal and state NOLs of approximately $42.2 million and $1.9 million, respectively, less any valuation reserve determined to be required, will be credited to retained earnings upon the Company's adoption of ASU 2016-09 effective January 1, 2017. We use the "with- and-without" method, as described in ASC 740, for purposes of determining when excess tax benefits have been realized. In 2016 and 2015, we recognized excess stock compensation benefits from NOLs of $3.1 million and $0.4 million, respectively. Net operating losses that we have generated are not currently subject to the Section 382 limitation; however, $37.6 million of net operating losses generated by our subsidiaries prior to our acquisition of them are subject to the Section 382 limitation. The limitation on these pre-acquisition net operating loss carryforwards will fully expire in 2035. A cumulative change in ownership among material shareholders, as defined in Section 382 of the Internal Revenue Code, during a three years period also may limit utilization of the federal net operating loss carryforwards. Our subsidiary in Hyderabad, India benefited from a tax holiday granted under the Software Technology Parks of India program that began upon commencement of business operations in 2008 and continued through March 31, 2011. During this holiday period, we were required to pay a minimum alternative tax which was available to reduce our post-holiday tax liability. Effective July 8, 2013, this subsidiary began to benefit from a tax holiday under the Special Economic Zone program. This benefit was initially granted for a five years period and applies to a portion of our operations in this location. The expiration of this tax holiday will increase our effective income tax rate. As a result of this tax holiday, the Company realized tax savings of $0.2 million, $0.4 million, and $0.2 million for the years ended December 31, 2016, 2015, and 2014, respectively. Our subsidiary in Manila, Philippines has benefited from Philippines income tax holiday incentives pursuant to registration with the Philippine Economic Zone Authority ("PEZA"). We have four PEZA projects that have their own income tax holiday, and applications had to be made for each project. Each PEZA project has an income tax holiday that extends past December 31, 2016, except for one that expired on November 30, 2016. This project application was not renewed; therefore, we have to pay Philippine income tax on the net income for the month of December 2016. The expiration of this tax holiday will increase our effective tax rate in 2017 approximately 0.2%. Tax savings realized under the Philippine tax holiday incentives were $0.4 million, $0.3 million, and $0.2 million for the years ended December 31, 2016, 2015, and 2014, respectively. We have recognized no provision for U.S federal and state income taxes on undistributed earnings of our foreign subsidiaries totaling approximately $9.5 million as such earnings are expected to be reinvested and are considered permanent in duration. If these earnings were ultimately distributed to the U.S. in the form of dividends or otherwise, or if the shares of the subsidiaries were sold or transferred, we would likely be subject to additional U.S. income taxes, net of the impact of any available foreign tax credits of up to $2.4 million. Uncertain Tax Positions At December 31, 2016 and 2015, we had no unrecognized tax benefits. Our policy is to include interest and penalties related to unrecognized income tax benefits in income tax expense, and as of December 31, 2016 and 2015, there were no accrued interest and penalties. We file consolidated and separate tax returns in the U.S. federal jurisdiction and five foreign jurisdictions. We are no longer subject to U.S. federal income tax examinations for years before 2013 and are no longer subject to state and local income tax examinations by tax authorities for years before 2012; however, net operating losses from all years continue to be subject to examinations and adjustments for at least three years following the year in which the attributes are used. Our subsidiary, RealPage India Private Limited ("RealPage India"), is currently undergoing an income tax examination for the fiscal years beginning April 1, 2011 and April 1, 2012. The India income tax authorities have assessed RealPage India additional tax and interest of $0.2 million in total for both years. We believe the assessments are incorrect and plan to appeal the decision to the India Commissioner of Income Tax. RealPage India is also under audit for the financial year beginning April 1, 2013, but no assessment has been made at this time. In July 2015, the Company filed amended 2012 and 2013 income tax returns for selected states to correct certain items that were improperly deducted, as determined by the Company subsequent to the initial filings. The primary effect of the amended returns was an immaterial increase in our current state income tax liability and a reduction of our state net operating loss deferred tax asset, net of federal benefit, of approximately $0.6 million. 101 12. Fair Value Measurements The Company records certain financial liabilities at fair value on a recurring basis. The Company determines fair values based on the price it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The prescribed fair value hierarchy is as follows: Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, and market-corroborated inputs which are derived principally from or corroborated by observable market data. Level 3 - Inputs are derived from valuation techniques in which one or more of the significant inputs or value drivers are unobservable. The categorization of an asset or liability within the fair value hierarchy is based on the inputs described above and does not necessarily correspond to the Company’s perceived risk of that asset or liability. Moreover, the methods used by the Company may produce a fair value calculation that is not indicative of the net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments and non-financial assets and liabilities could result in a different fair value measurement at the reporting date. Assets and liabilities measured at fair value on a recurring basis: Interest rate swap agreements: The fair value of the Company’s interest rate derivatives are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate swaps. As a result, the Company determined that its interest rate swap valuation in its entirety is classified in Level 2 of the fair value hierarchy. Contingent consideration obligations: Contingent consideration obligations consist of potential obligations related to our acquisition activity. The amount to be paid under these obligations is contingent upon the achievement of stipulated operational or financial targets by the business subsequent to acquisition. The fair value of contingent consideration obligations is estimated using a probability weighted discount model which considers the achievement of the conditions upon which the respective contingent obligation is dependent. The probability of achieving the specified conditions is assessed by applying a Monte Carlo weighted-average model. Inputs into the valuation model include a discount rate specific to the acquired entity, a measure of the estimated volatility, and the risk free rate of return. In addition to the inputs described above, the fair value estimates consider the projected future operating or financial results for the factor upon which the respective contingent obligation is dependent. The fair value estimates are generally sensitive to changes in these projections. We develop the projected future operating results based on an analysis of historical results, market conditions, and the expected impact of anticipated changes in our overall business and/or product strategies. Significant unobservable inputs used in the contingent consideration fair value measurements included the following at December 31, 2016 and 2015: Discount rates Volatility rates Risk free rate of return 2016 2015 14.8 - 27.8% 15.8 - 60.0% 29.9% 0.7% 37.0 - 53.5% 0.5 - 0.9% 102 The following tables disclose the assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 and 2015, by the fair value hierarchy levels as described above: Assets: Interest rate swap agreements $ 1,098 $ — $ 1,098 $ — Fair value at December 31, 2016 Total Level 1 Level 2 Level 3 (in thousands) Liabilities: Contingent consideration related to the acquisition of: Indatus AssetEye Total liabilities measured at fair value Liabilities: Contingent consideration related to the acquisition of: Indatus VRX Total liabilities measured at fair value 2 539 541 — — — — $ — $ — $ Fair value at December 31, 2015 Total Level 1 Level 2 Level 3 (in thousands) 814 27 841 $ $ — $ — — $ — $ — — $ 2 539 541 814 27 841 $ $ $ There were no assets measured at fair value on a recurring basis at December 31, 2015. There were no transfers between Level 1 and Level 2, or between Level 2 and Level 3 measurements during the years ended December 31, 2016 and 2015. Changes in the fair value of Level 3 measurements for the reporting periods were as follows during the years ended December 31, 2016 and 2015, in thousands: Balance at January 1, 2015 Initial contingent consideration Settlements through cash payments Net gain on change in fair value Balance at December 31, 2015 Initial contingent consideration Net gain on change in fair value Balance at December 31, 2016 $ $ 4,150 1,414 (1,179) (3,544) 841 245 (545) 541 Gains and losses resulting from changes in the fair value of the above liabilities are included in "General and administrative" expense in the accompanying Consolidated Statements of Operations. Assets and liabilities measured at fair value on a non-recurring basis: During 2015, the Company identified triggering events which required the assessment of impairment for certain trade names related to prior acquisitions. The fair value of the trade names was determined through an income approach utilizing projected discounted cash flows. This method is consistent with the method the Company has employed in prior periods to value other indefinite-lived assets. Impairments of the trade names were determined by comparing the estimated fair value to the related carrying value. The inputs utilized in the discounted cash flow analysis are classified as Level 3 inputs within the fair value hierarchy. Significant unobservable inputs used in deriving the fair value included the royalty rate applied to the projected revenue stream and the discount rate used to determine the present value of the estimated future cash flows. Through the application of this approach, we concluded the aggregate fair value of the trade names was $5.1 million at September 30, 2015. The Company believes that the method used to determine the fair value of the assets was reasonable. 103 In October 2016, the Company entered into an agreement with A Place for Mom whereby we sold certain assets associated with our senior living referral services, including certain indefinite-lived trade names. Based on the status of the negotiations, we concluded there was a possibility that the negotiated assets could be impaired and performed an impairment analysis as of September 30, 2016. We estimated the aggregate fair value of the negotiated assets to be $5.0 million at September 30, 2016, based on the price at which they were sold in October 2016 in an arms-length transaction with an unrelated party. The method utilized incorporated significant unobservable inputs and the Company concluded that the measurement should be classified within Level 3. There were no liabilities measured at fair value on a non-recurring basis at December 31, 2016 and 2015. Financial Instruments The financial assets and liabilities that are not measured at fair value in our Consolidated Balance Sheets include cash and cash equivalents, restricted cash, accounts receivable, cost-method investments, accounts payable and accrued expenses, acquisition-related deferred cash obligations, and obligations under the Credit Facility. The carrying values of cash and cash equivalents; restricted cash; accounts receivable; and accounts payable and accrued expenses reported in our Condensed Consolidated Balance Sheets approximates fair value due to the short term nature of these instruments. Acquisition-related deferred cash obligations are recorded on the date of acquisition at their estimated fair value, based on the present value of the anticipated future cash flows. The difference between the amount of the deferred cash obligation to be paid and its estimated fair value on the date of acquisition is accreted over the obligation period. As a result, the carrying value of acquisition-related deferred cash obligations approximates their fair value. The Company concluded that the fair value estimates described above should be categorized within Level 3. Due to its short-term nature and market-indexed interest rates, we concluded that the carrying value of the Revolving Facility approximates its fair value at December 31, 2015. The estimated fair value of our obligations under the Term Loan was $122.5 million at December 31, 2016. The fair value of the Term Loan was estimated by discounting future cash flows using prevailing market interest rates on debt with similar creditworthiness, terms, and maturities. The Company concluded that the fair value of the Company's debt should be categorized within Level 2. 13. Stockholders' Equity On May 6, 2014, our board of directors approved a share repurchase program authorizing the repurchase of up to $50.0 million of our outstanding common stock for a period of up to one year after the approval date. Shares repurchased under the plan are retired. In May 2015, our board of directors approved an extension of the share repurchase program through May 6, 2016, permitting the repurchase of up to $50.0 million of our common stock during the period commencing on the extension date and ending on May 6, 2016. On April 26, 2016, our board of directors approved another one year extension of the share repurchase program. The terms of the extension permit the repurchase of up to $50.0 million of our common stock during the period commencing on the extension day and ending on May 6, 2017. Repurchase activity during the years ended December 31, 2016, 2015, and 2014 was as follows: Number of shares repurchased Weighted-average cost per share Total cost of shares repurchased, in thousands 14. Derivative Financial Instruments Year Ended December 31, 2016 1,012,823 20.98 21,244 $ $ 2015 1,798,199 $ $ 19.51 $ 35,083 $ 2014 966,595 16.06 15,521 On March 31, 2016, the Company entered into two Swap Agreements, which are designed to mitigate our exposure to interest rate risk associated with a portion of our variable rate debt. The Swap Agreements cover an aggregate notional amount of $75.0 million from March 2016 to September 2019 by replacing the obligation’s variable rate with a blended fixed rate of 0.89%. The Company designated the Swap Agreements as cash flow hedges of interest rate risk. The effective portion of changes in the fair value of Swap Agreements is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in the fair value of the Swap Agreements is recognized directly in earnings. During the fiscal year ended December 31, 2016, we recognized a gain on the ineffective portion of the Swap Agreement of $0.2 million. Amounts reported in accumulated other comprehensive loss related to the Swap Agreements will be reclassified to interest expense as interest payments are made on our variable-rate debt. The Company estimates that an additional $0.1 million will be reclassified as a decrease to interest expense during the twelve-month period ending December 31, 2017. The table below presents the notional and fair value of the Swap Agreements as well as their classification on the Consolidated Balance Sheet as of December 31, 2016: 104 Balance Sheet Location Notional Fair Value (in thousands) Derivatives designated as cash flow hedging instruments: Swap Agreements Other assets $ 75,000 $ 1,098 The Company does not offset the fair value of the Swap Agreements in an asset position against the fair value of the Swap Agreements in a liability position on the Consolidated Balance Sheet. As of December 31, 2016, the Company has not posted any collateral related to the Swap Agreements. If the Company had breached any of the Swap Agreement’s default provisions at December 31, 2016, it could have been required to settle its obligations under the Swap Agreements at their termination value of $1.1 million. The table below presents the amount of gains and/or losses related to the effective and ineffective portions of the Swap Agreements and their location on the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income (Loss) for the fiscal year ended December 31, 2016: Derivatives Designated as Cash Flow Hedges Gain Recognized in OCI Location of Gain Recognized in Income Gain Recognized in Income Location of Gain Recognized in Income Gain Recognized in Income Effective Portion Ineffective Portion (in thousands) Swap Agreements $ 946 Interest expense and other $ 226 Interest expense and other $ 152 15. Comprehensive Income (Loss) The following table presents the changes, and related tax effects, of each component of accumulated other comprehensive income (loss) for the fiscal years ended December 31, 2016, 2015, and 2014: Balance at January 1, 2014 Other comprehensive loss, net Balance at December 31, 2014 Other comprehensive loss, net Balance at December 31, 2015 Other comprehensive income, net Reclassifications into earnings Income tax provision Balance at December 31, 2016 16. Funds Held for Others Foreign Currency Swap Agreements Total (in thousands) $ $ (162) $ (47) (209) (337) (546) (43) — — (589) $ — $ — — — — 720 226 (410) 536 $ (162) (47) (209) (337) (546) 677 226 (410) (53) In connection with our payment processing services, we collect tenant funds and subsequently remit these tenant funds to our clients after varying holding periods. These funds are settled through our Originating Depository Financial Institution (“ODFI”) custodial accounts at major banks. The ODFI custodial account balance was $76.4 million and $83.0 million, and the related client deposit liability was $76.4 million and $83.0 million at December 31, 2016 and 2015, respectively. The ODFI custodial account balances are included in our Consolidated Balance Sheets as restricted cash. The corresponding liability for these custodial balances is reflected as client deposits. In connection with the timing of our payment processing services, we are exposed to credit risk in the event of nonperformance by other parties, such as returned checks. We utilize credit analysis and other controls to manage the credit risk exposure. We have not experienced any material credit losses to date. Any expected losses are included in our allowance for doubtful accounts. The ODFI custodial accounts are in the name of RealPage Payment Processing Services, Inc. (“RPPS”), a bankruptcy- remote, special-purpose entity, that is a wholly owned subsidiary of the Company. We provide processing and administrative services to RPPS through a services agreement. The obligations of RPPS under the ODFI custodial account agreements are guaranteed by us. In connection with our renter insurance products, we collect premiums from policy holders and subsequently remit the premium, net of our commission, to the underwriter. We maintain separate accounts for these transactions. We had $1.5 million and $1.3 million in restricted cash related to these renter insurance products at December 31, 2016 and 2015, respectively. 105 Related to these renter insurance products, we had $1.5 million and $1.3 million in client deposits at December 31, 2016 and 2015, respectively. Additionally, we had $5.8 million and $1.2 million in restricted cash and $5.7 million and $1.1 million in client deposits related to our utility management solutions at December 31, 2016 and 2015, respectively. 17. Employee Benefit Plans In 1998, our board of directors approved a defined contribution plan that provides retirement benefits under the provisions of Section 401(k) of the Internal Revenue Code. Our 401(k) Plan (“Plan”) covers substantially all employees who meet a minimum service requirement. Contributions of $2.4 million, $1.9 million, and $1.3 million were made by us under the Plan for the years ended December 31, 2016, 2015, and 2014, respectively. The Company sponsors various retirement plans for its non-U.S. employees. Accrued liabilities related to obligations under these plans totaled $0.9 million, $0.7 million, and $0.6 million as of December 31, 2016, 2015, and 2014, respectively, and are included in current liabilities in the accompanying Consolidated Balance Sheets. 18. Cost Method Investments In August 2016, we acquired a minority interest in an unrelated company that specializes in the aggregation of commercial lease data (“Investee”). The shares we acquired represent an ownership interest of less than 20%. We evaluated our relationship with the Investee and determined we do not have significant influence over the operations of the Investee nor is it economically dependent upon us. The carrying value of this investment at December 31, 2016, was $3.0 million and is included in “Other assets” in the accompanying Consolidated Balance Sheets. 19. Selected Quarterly Financial Data (unaudited) The following is unaudited quarterly financial information for the years ended December 31, 2016 and 2015 (in thousands, except per share amounts). December 31, 2016 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015 Three Months Ended $ 141,627 695 6,749 149,071 87,707 7,361 $ 140,883 682 6,390 147,955 83,844 4,210 $ 136,610 687 5,422 142,719 80,641 2,083 $ 123,411 772 4,200 128,383 73,635 2,996 $ 117,090 669 3,941 121,700 70,882 3,900 $ 116,772 834 3,982 121,588 69,848 (8,192) $ 110,640 726 3,396 114,762 66,269 (3,318) $ 106,460 741 3,269 110,470 62,908 (1,608) Revenue: On demand On premise Professional and other Total revenue Gross profit Net income (loss) Net income (loss) per share attributable to common stockholders: Basic and Diluted $ 0.09 $ 0.05 $ 0.03 $ 0.04 $ 0.05 $ (0.11) $ (0.04) $ (0.02) The above quarterly financial information should be read in conjunction with the consolidated financial statements and notes thereto included herein. 20. Subsequent Events Acquisition Activity In January 2017, the Company acquired substantially all of the assets of Axiometrics LLC ("Axiometrics"), a leading provider of data and analytics services for the multifamily industry. This acquisition expanded our multifamily data analytics platform and will be integrated with MPF Research, our market research database. Purchase consideration was comprised of a cash payment at closing of $67.5 million, a deferred cash obligation of up to $7.5 million, and contingent cash payments of up to $5.0 million. The deferred cash obligation serves as security for the benefit of the Company against the sellers' indemnification obligations. Subject to any indemnification claims made, the deferred cash obligation will be released over a period of 24 months following the acquisition date. Payment of the contingent cash obligation is dependent upon the achievement of certain revenue targets during the twelve months period ending December 31, 2018. In February 2017, we entered into an agreement to acquire Lease Rent Options ("LRO") and related assets from The Rainmaker Group Holdings, Inc. The acquisition of LRO will extend our revenue management footprint, augment our repository of real-time lease transaction data, and increase our data science talent and capabilities. We expect the acquisition of LRO to increase the market penetration of our YieldStar solution and drive additional revenue growth in our asset optimization solutions. Pursuant to the asset purchase agreement, purchase consideration will be comprised of a cash payment at closing of approximately $298.5 million, subject to reduction for outstanding indebtedness, unpaid transaction expenses and a working capital adjustment, and a deferred cash obligation of up to $1.5 million. The deferred cash obligation serves as security for the 106 benefit of the Company against the sellers' indemnification obligations. Subject to any indemnification claims made, the deferred cash obligation will be released approximately twelve months following the acquisition date. The completion of the acquisition remains subject to certain standard conditions, and is expected to close during the second quarter of 2017. Due to the timing of the acquisitions, certain disclosures required by ASC 805, including the allocation of the purchase price, have been omitted because the initial accounting for the business combinations was incomplete as of the filing date of this report. Such information will be included in the Company's subsequent Form 10-Q. Amendment of the Credit Facility In February 2017, the Company entered into the Third Amendment to Credit Agreement and Incremental Amendment ("Third Amendment") to the Credit Facility with each of the lenders party thereto and Wells Fargo Bank, National Association, as the administrative agent. The Third Amendment modifies certain terms of the Credit Facility to, among other things, provide for an incremental $200.0 million delayed draw term loan ("Delayed Draw Term Loan") that is available to be drawn until May 31, 2017, extend the maturity of the Credit Facility to February 24, 2022, and amend the amortization schedule for the Term Loan. Under the amended amortization schedule, the Company will make quarterly principal payments of 0.6% of the Term Loan's and Delayed Draw Term Loan's respective outstanding balances beginning June 30, 2017. The quarterly payment amounts increase to 1.3% of their respective outstanding balances beginning on June 30, 2018, and to 2.5% beginning on June 30, 2020. Any remaining principal balance on Term Loan and Delayed Draw Term Loan is due on the date of maturity, February 24, 2022. With the new Delayed Draw Term Loan, the existing Term Loan, and the Revolving Facility, the Credit Facility now includes $522.6 million of drawn or available credit. Except as amended, all of the existing terms of the Credit Facility remain in effect. All of the obligations under the Credit Facility, including the Delayed Draw Term Loan once drawn, are secured by substantially all of the Company's assets and by its existing and future domestic subsidiaries, except certain excluded subsidiaries, as provided in the Credit Facility. Proceeds from the Delayed Draw Term Loan will be used to finance our anticipated acquisition of LRO. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Pursuant to Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, with the participation of our management, and under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10- K. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management’s assessment of the effectiveness of our disclosure controls and procedures is expressed at the level of reasonable assurance because management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Management’s Report on Internal Control over Financial Reporting and Attestation Report of the Independent Registered Public Accounting Firm Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree or compliance with the policies or procedures may deteriorate. Under supervision and with participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2016. In conducting this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework (2013 framework). Management’s assessment 107 of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of NWP Services Corporation, which is included in the 2016 consolidated financial statements of the Company and constituted approximately 14% and 19% of total and net assets, respectively, as of December 31, 2016, and approximately 9% and 12% of total revenues and net income, respectively, for the year then ended. Based on our evaluation using criteria set by COSO, management concluded internal control over financial reporting was effective as of December 31, 2016. The effectiveness of internal control over financial reporting as of December 31, 2016 has been audited by Ernst & Young LLP, our independent registered public accounting firm, which is stated in their report included in Part II Item 8 of this Annual Report on Form 10-K. Changes in Internal Controls There were no significant changes in our internal control over financial reporting during the three months ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations of Internal Controls Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Item 9B. Other Information None. Item 10. Directors, Executive Officers and Corporate Governance PART III The information required by this item is incorporated by reference to RealPage’s Proxy Statement for its 2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2016. Item 11. Executive Compensation The information required by this item is incorporated by reference to RealPage’s Proxy Statement for its 2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2016. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated by reference to RealPage’s Proxy Statement for its 2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2016. Item 13. Certain Relationships, and Related Transactions, and Director Independence The information required by this item is incorporated by reference to RealPage’s Proxy Statement for its 2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2016. Item 14. Principal Accounting Fees and Services The information required by this item is incorporated by reference to RealPage’s Proxy Statement for its 2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2016. 108 PART IV Item 15. Exhibits and Financial Statement Schedules (a) Financial Statements (1) The financial statements filed as part of this Annual Report on Form 10-K are listed on the index to financial statements. (2) Any financial statement schedules required to be filed as part of this Annual Report on Form 10-K are set forth in section (c) below. (b) Exhibits See Exhibit Index at the end of this Annual Report on Form 10-K, which is incorporated by reference. (c) Financial Statement Schedules The following schedule is filed as part of this Annual Report on Form 10-K: All other schedules have been omitted because the information required to be presented in them is not applicable or is shown in the financial statements or related notes. SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS REALPAGE, INC. December 31, 2016 (in thousands) Allowance for Doubtful Accounts Year ended December 31: 2014 2015 2016 Balance at Beginning of Year Additions Charged to Income Deductions (1) Balance at End of Year $ 914 $ 3,676 $ 2,363 2,318 3,377 4,786 (2,227) $ (3,422) (4,636) 2,363 2,318 2,468 (1) Uncollectible accounts written off, net of recoveries, and administrative corrections 109 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Richardson, State of Texas, on this 1st day of March, 2017. SIGNATURES REALPAGE, INC. By: /s/ Stephen T. Winn Stephen T. Winn Chairman of the Board of Directors, Chief Executive Officer, President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Date 3/1/2017 3/1/2017 3/1/2017 3/1/2017 3/1/2017 3/1/2017 3/1/2017 3/1/2017 3/1/2017 Signature Title /s/ Stephen T. Winn Stephen T. Winn Chairman of the Board of Directors, Chief Executive Officer, President and Director (Principal Executive Officer) /s/ W. Bryan Hill W. Bryan Hill Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) /s/ Alfred R. Berkeley Alfred R. Berkeley /s/ Peter Gyenes Peter Gyenes /s/ Scott S. Ingraham Scott S. Ingraham /s/ Charles F. Kane Charles F. Kane /s/ Jeffrey T. Leeds Jeffrey T. Leeds /s/ Kathryn V. Marinello Kathryn V. Marinello /s/ Jason A. Wright Jason A. Wright Director Director Director Director Director Director Director 110 EXHIBIT INDEX Exhibit Number 2.1 Exhibit Description Agreement and Plan of Merger, dated February 23, 2016, among the Registrant, RP Newco XVIII Inc., NWP Services Corporation and Ronald Reed, as Shareholder Representative Incorporated by Reference Form 8-K Date 2/23/2016 Number 2.1 Filed Herewith 3.1 3.2 4.1 4.2 4.3 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.2A, 10.2B, 10.2C, 10.2D 10.2E, 10.2F, 10.2H 10.3 Amended and Restated Certificate of Incorporation of the Registrant Amended and Restated Bylaws of the Registrant Form of Common Stock certificate of the Registrant Shareholders’ Agreement among the Registrant and certain stockholders, dated December 1, 1998, as amended July 16, 1999 and November 3, 2000 Second Amended and Restated Registration Rights Agreement among the Registrant and certain stockholders, dated February 22, 2008 S-1 S-1 S-1 S-1 7/26/2010 7/26/2010 7/26/2010 4/29/2010 3.2 3.4 4.1 4.2 S-1 4/29/2010 4.3 Form of Indemnification Agreement entered into between the Registrant and each of its directors and officers S-1 4/29/2010 10.1 Amended and Restated 1998 Stock Incentive Plan (June 2010) + Forms of Stock Option Agreements and Restricted Share Agreements approved for use under the 1998 Stock Incentive Plan+ S-1 S-1 6/7/2010 10.2G 4/29/2010 Forms of Stock Option Agreements and Restricted Share Agreements approved for use under the 1998 Stock Incentive Plan+ S-1 6/7/2010 Form of Director's Nonqualified Stock Option Agreement+ Form of Notice of Grant of Restricted Shares (Outside Directors) + 2010 Equity Incentive Plan, as Amended and Restated June 4, 2014+ S-1 S-1 DEF -14A 4/29/2010 6/7/2010 10.49 4/17/2014 Appendix A First Amendment to the Amended and Restated 2010 Equity Incentive Plan+ 8-K 1/21/2015 10.1 Second Amendment to the Amended and Restated 2010 Equity Incentive Plan+ 8-K 4/7/2015 10.1 Third Amendment to the Amended and Restated 2010 Equity Incentive Plan+ 10-Q 5/6/2016 10.1 Forms of Stock Option Award Agreements and Restricted Stock Award Agreements approved for use under the 2010 Equity Incentive Plan+ S-8 8/17/2010 4.6, 4.7, 4.8, 4.9 Stand-Alone Stock Option Agreement between the Registrant and Peter Gyenes, dated February 25, 2010+ S-1 4/29/2010 10.7 Form of Stock Bonus Agreement between the Registrant and Stephen T. Winn, dated as of February 24, 2014+ 8-K 2/24/2014 10.2 Amendment No. 1 to Stock Bonus Agreement between the Registrant and Stephen T. Winn, dated as of July 31, 2014+ 8-K 8/4/2014 10.1 Form of Stock Bonus Agreement between the Registrant and each of W. Bryan Hill and William Chaney, dated as of July 31, 2014+ 8-K 8/4/2014 10.2 111 Exhibit Number 10.16 Exhibit Description Form of Stock Option Award Agreement between the Registrant and Stephen T. Winn approved for use under the 2010 Equity Incentive Plan, as amended and restated June 4, 2014, as amended+ Incorporated by Reference Form 8-K Date 3/5/2015 Number 10.1 Filed Herewith 10.17 10.18 10.19 10.20 10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 10.30 10.31 10.32 Form of Stock Option Award Agreement between the Registrant and certain executive officers approved for use under the 2010 Equity Incentive Plan, as amended and restated June 4, 2014, as amended+ 8-K 3/5/2015 10.2 Form of Restricted Stock Award Agreement for time-based awards between the Registrant and Stephen T. Winn approved for use under the 2010 Equity Incentive Plan, as amended and restated June 4, 2014, as amended+ Form of Restricted Stock Award Agreement for time-based awards between the Registrant and certain executive officers approved for use under the 2010 Equity Incentive Plan, as amended and restated June 4, 2014, as amended+ Form of Restricted Stock Award Agreement for market-based awards between the Registrant and Stephen T. Winn approved for use under the 2010 Equity Incentive Plan, as amended and restated June 4, 2014, as amended+ Form of Restricted Stock Award Agreement for market-based awards between the Registrant and certain executive officers approved for use under the 2010 Equity Incentive Plan, as amended and restated June 4, 2014, as amended+ Form of Restricted Stock Award Agreement for time-based awards between the Registrant and certain executive officers approved for use under the 2010 Equity Incentive Plan, as amended and restated June 4, 2014, as amended+ Form of Restricted Stock Award Agreement for market-based awards between the Registrant and certain executive officers approved for use under the 2010 Equity Incentive Plan, as amended and restated June 4, 2014, as amended+ Form of Restricted Stock Award Agreement for market-based awards between the Registrant and Stephen T. Winn approved for use under the 2010 Equity Incentive Plan, as amended and restated June 4, 2014, as amended+ 8-K 3/5/2015 10.3 8-K 3/5/2015 10.4 8-K 3/5/2015 10.5 8-K 3/5/2015 10.6 10-Q 5/6/2016 10.4 10-Q 5/6/2016 10.5 10-Q 5/6/2016 10.6 Form of 2016 Management Incentive Plan+ 10-Q 5/6/2016 10.3 RealPage, Inc. Management Incentive Plan+ Employment Agreement between the Registrant and W. Bryan Hill, dated March 24, 2014+ DEF -14A 8-K 4/17/2014 Appendix 3/24/2014 B 10.1 Amended and Restated Employment Agreement between the Registrant and Stephen T. Winn dated as of March 1, 2015+ 8-K 3/5/2015 10.11 Amended and Restated Employment Agreement between the Registrant and Stephen T. Winn dated as of October 26, 2016+ Amended and Restated Employment Agreement between the Registrant and W. Bryan Hill dated as of March 1, 2015+ 8-K 10/31/2016 10.1 8-K 3/5/2015 10.12 Amended and Restated Employment Agreement between the Registrant and William Chaney dated as of March 1, 2015+ 8-K 3/5/2015 10.13 Employment Agreement between the Registrant and Daryl Rolley, dated February 9, 2015+ 10-Q 5/8/2015 10.16 112 Exhibit Number 10.33 10.34 10.35 10.36 10.37 10.38 10.39 10.40 10.41 10.42 10.43 10.44 10.45 10.46 10.47 10.48 10.49 10.50 10.51 Exhibit Description Employment Agreement between the Registrant and David Monk, dated May 1, 2015+ Form 10-Q Date 8/7/2015 Number 10.18 Filed Herewith Incorporated by Reference Employment Agreement between the Registrant and Ashley Chaffin Glover, dated August 3, 2016+ 10-Q 11/8/2016 10.2 Exhibit I to the Employment Agreement between the Registrant and Ashley Glover referenced herein as Exhibit 10.34+ 8-K 3/5/2015 10.4 Exhibit II to the Employment Agreement between the Registrant and Ashley Glover referenced herein as Exhibit 10.34+ 8-K 3/5/2015 10.6 Separation Agreement between the Registrant and Daryl Rolley, dated July 31, 2016 10-Q 11/8/2016 10.5 Lease Agreement between the Registrant and CB Parkway Business Center V, Ltd., dated July 23, 1999 S-1 4/29/2010 10.39 First Amendment to Lease Agreement between the Registrant and CB Parkway Business Center V, Ltd., dated November 29, 1999 S-1 4/29/2010 10.40 Second Amendment to Lease Agreement between the Registrant and CB Parkway Business Center V, Ltd., dated January 30, 2006 S-1 4/29/2010 10.41 Third Amendment to Lease Agreement between the Registrant and CB Parkway Business Center V, Ltd., dated August 28, 2006 S-1 4/29/2010 10.42 Fourth Amendment to Lease Agreement between the Registrant and ARI-Commercial Properties, Inc., dated November 2007 S-1 4/29/2010 10.43 Fifth Amendment to Lease Agreement between the Registrant and ARI-Commercial Properties, Inc., dated February 4, 2009 S-1 4/29/2010 10.44 Sixth Amendment to Lease Agreement between the Registrant and ARI-Commercial Properties, Inc., dated March 30, 2009 S-1 4/29/2010 10.45 Lease Agreement between the Registrant and Savoy IBP 8, Ltd., dated August 28, 2006 S-1 4/29/2010 10.46 First Amendment to Lease Agreement among the Registrant, ARI- International Business Park, LLC, ARI-IBP 1, LLC, ARI-IBP 2, LLC, ARI-IBP 3, LLC, ARI-IBP 4, LLC, ARI-IBP 5, LLC, ARI- IBP 6, LLC, ARI-IBP 7, LLC, ARI-IBP 8, LLC, ARI-IBP 9, LLC, ARI-IBP 11, LLC and ARI-IBP 12, LLC, dated December 28, 2009 S-1 4/29/2010 10.47 Lease Agreement dated June 2, 2015 by and between the Registrant and Lakeside Campus Partners, LP 8-K 6/4/2015 10.1 First Amendment to the Lease Agreement dated July 27, 2015 by and between the Registrant and Lakeside Campus Partners, LP 10-Q 8/7/2015 10.20 Second Amendment to the Lease Agreement dated July 8, 2016 by and between the Registrant and Lakeside Campus Partners, LP 10-Q 11/8/2016 10.10 Credit Agreement by and among the Registrant, the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent, dated September 30, 2014 10-Q 11/10/2014 10.1 First Amendment to Credit Agreement and Incremental Amendment among the Registrant, certain subsidiaries of the Registrant party thereto, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent, dated February 26, 2016 10-Q 5/6/2016 10.2 113 Exhibit Description Collateral Agreement by and among the Registrant, certain of its subsidiaries from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent, dated as of September 30, 2014 Incorporated by Reference Form 10-Q 11/10/2014 Date Number 10.2 Filed Herewith Guaranty Agreement made by certain domestic subsidiaries of Registrant in favor of Wells Fargo Bank, National Association, as administrative agent, dated as of September 30, 2014 10-Q 11/10/2014 10.3 Exhibit Number 10.52 10.53 21.1 23.1 31.1 31.2 32.1 32.2 Subsidiaries of the Registrant Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002* 101.INS Instance 101.SCH Taxonomy Extension Schema 101.CAL Taxonomy Extension Calculation 101.LAB Taxonomy Extension Labels 101.PRE Taxonomy Extension Presentation 101.DEF Taxonomy Extension Definition + * Indicates management contract or compensatory plan or arrangement. Furnished herewith 114 X X X X X X X X X X X X List of Subsidiaries of the Registrant Exhibit 21.1 Subsidiary 43642 Yukon Inc. Active Building, LLC A.L. Wizard LLC AssetEye Inc. Credit Interfaces, Inc. eReal Estate Integration, Inc. Kigo, Inc. Kigo Rental Systems, S.L. LeaseStar LLC Level One LLC MTS Connecticut, Inc. MTS Minnesota, Inc. MTS New Jersey, Inc. Multifamily Internet Ventures, LLC MyBuilding LLC NWP Acquisition Corporation NWP Installation Company NWP Services Corporation Open-C Solutions, Inc. Propertyware LLC RealPage Equipment Services LLC RealPage Forms LLC RealPage India Holdings, Inc. RealPage India Private Limited RealPage Middle East Holdings LLC RealPage ME DMCC RealPage Payment Processing Services, Inc. RealPage Payments Services LLC RealPage Payments UK Ltd. RealPage Philippines Holdings LLC RealPage (Philippines) Inc. RP Storage LLC RealPage UK Ltd. RealPage Vendor Compliance LLC RP ABC LLC RP Newco V LLC RP Newco VIII LLC RP Newco XIII LLC RP Newco XV LLC RP Newco XVII LLC Starfire Media, Inc. Velocity Utility Solutions LLC Windsor Compliance LLC Jurisdiction Yukon Territory, Canada Washington Delaware Delaware California California Delaware Spain Delaware Delaware Delaware Delaware Delaware California Delaware Delaware California Delaware Delaware California Delaware Delaware Delaware India Delaware Dubai Nevada Texas United Kingdom Delaware Philippines Texas United Kingdom Delaware Delaware Delaware Texas Texas Texas Delaware Delaware Texas Texas Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-168878), Registration Statement on Form S-8 (No. 333-172573), Registration Statement on Form S-8 (No. 333-179773), Registration Statement on Form S-8 (No. 333-186964), Registration Statement on Form S-8 (No. 333-202462), and the Registration on Form S-8 (No. 333-210189) each pertaining to the RealPage, Inc., 2010 Equity Incentive Plan, and the Registration Statement on Form S-8 (No. 333-176742) pertaining to Multifamily Technology Solutions, Inc., 2005 Equity Incentive Plan, of our reports dated March 1, 2017, with respect to the consolidated financial statements and schedule of RealPage, Inc. and the effectiveness of internal control over financial reporting of RealPage, Inc. included in this Form 10-K for the year ended December 31, 2016. /s/ Ernst & Young LLP Dallas, Texas March 1, 2017 CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Stephen T. Winn, certify that: Exhibit 31.1 1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2016 of RealPage, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 1, 2017 /s/ Stephen T. Winn Stephen T. Winn Chairman of the Board of Directors, Chief Executive Officer, President and Director CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, W. Bryan Hill, certify that: Exhibit 31.2 1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2016 of RealPage, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 1, 2017 /s/ W. Bryan Hill W. Bryan Hill Executive Vice President, Chief Financial Officer and Treasurer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.1 In connection with the Annual Report of RealPage, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2016 (the “Report”), I, Stephen T. Winn, Chairman of the Board of Directors, Chief Executive Officer, President and Director of RealPage Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of RealPage, Inc. Date: March 1, 2017 /s/ Stephen T. Winn Stephen T. Winn Chairman of the Board of Directors, Chief Executive Officer, President and Director A signed original of this written statement required by Section 906 has been provided to RealPage, Inc. and will be retained by RealPage, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.2 In connection with the Annual Report of RealPage, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2016 (the “Report”), I, W. Bryan Hill, Executive Vice President, Chief Financial Officer and Treasurer of RealPage, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of RealPage, Inc. Date: March 1, 2017 /s/ W. Bryan Hill W. Bryan Hill Executive Vice President, Chief Financial Officer and Treasurer A signed original of this written statement required by Section 906 has been provided to RealPage, Inc. and will be retained by RealPage, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. Boardd of DDirectors Stockkholder Information Stephen T. Winn Chairman & Chief Executive Officer Alfred R. Berkeley, III Chairman Princeton Capital Management, Inc. Peter Gyenes Non-Executive Chairman Sophos Group PLC Scott S. Ingraham Principal Zuma Capital Charles Kane Adjunct Professor MIT Sloan Graduate Business School of Managment Jeffrey T. Leeds Co-Founder Leeds Equity Partners Jason A. Wright Partner Apax Partners Managemeent Team Stephen T. Winn Chairman, Chief Executive Officer & President W. Bryan Hill Executive Vice President Chief Financial Officer & Treasurer Andrew Blount Executive Vice President Consumer Solutions William P. Chaney Executive Vice President Enterprise Solutions Ashley Glover Executive Vice President Chief Revenue Officer David G. Monk Executive Vice President Chief Legal Officer & Secretary Information about RealPage, Inc. and a copy of this 2016 Annual Report can be found online at http://investor.realpage.com, and a copy of the 2016 Annual Report may be obtained from RealPage at no charge, by request to Investor Relations at our corporate office, by phone at 972-820-3773 or by email to: ir@realpage.com. RealPage has filed with the Securities and Exchange Commission the Chief Executive Officer and Chief Financial Officer certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as exhibits to its Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Transfer Agent & Registrar Computershare Trust Company, N.A. 250 Royall Street Canton, MA 02021 800-962-4284 www.computershare.com Independent Registered Public Accounting Firm Ernst & Young LLP Annual Shareholder Meeting June 1, 2017, 10:00 AM LDT 2201 Lakeside Blvd. Richardson, Texas 75082 Corporatee Headquarters Headquarters 2201 Lakeside Blvd. Richardson, Texas 75082 Toll-Free 1-87-REALPAGE www.realpage.com Stockk Listing NASDAQ Global Select Market Symbol: RP This document contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on our management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to certain factors, including those set forth under the caption “Risk Factors” contained herein. 2201 Lakeside Blvd., Richardson, TX 75082 | 1-87-REALPAGE | www.realpage.com ©2017 RealPage, Inc. 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