Yahoo Finance RealPage (RP) Q2 2019 Earnings Call Transcript
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RealPage (NASDAQ: RP)
Q2 2019 Earnings Call
Aug 01, 2019, 5:00 p.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Greetings. Welcome to the RealPage second-quarter 2019 conference call. [Operator instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Rhett Butler, VP of investor relations.
Mr. Butler, you may begin.
Rhett Butler -- Vice President of Investor Relations
Thanks, Jeremy. Good afternoon, and welcome to the RealPage financial results conference call for the second quarter ended June 30, 2019. With me on the call today are Steve Winn, our chairman and chief executive officer; and Tom Ernst, our chief financial officer and treasurer. In our remarks today, we will include statements that are considered forward-looking within the meaning of federal securities laws.
In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today, August 1, 2019, and are subject to certain risks and uncertainties that may cause actual results to differ materially from forward-looking statements. A detailed discussion of such risks and uncertainties is contained in our annual report on Form 10-K previously filed with the SEC on February 27, 2019, and our quarterly report on Form 10-Q filed with the SEC on May 8, 2019, as well as our earnings release and materials distributed today. RealPage undertakes no obligation to update any forward-looking statements except as required by law.
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Finally, please note that on today's call, we may use or discuss non-GAAP financial measures as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure are included in today's earnings press release. In addition, please reference the Explanation of Non-GAAP Financial Measures section of today's earnings press release for more information. With that, I'll hand the call over to Steve.
Steve Winn -- Chairman and Chief Executive Officer
Thanks, Rhett. Welcome, everyone, and thank you for joining us. Today, I'd like to review second-quarter results and discuss an expanded mission for RealPage targeted at growing overall technology spend in the rental housing industry, as well as increasing our share of that spend. During the second quarter, total revenue was $244 million, reflecting growth of 13% compared to the prior year.
Adjusted EBITDA grew nearly 20% to $68 million. Financial performance was solid, notwithstanding significant increases in investment to support new product launches that are designed to drive penetration of our platform and help our clients expand overall yields for their rental housing real estate assets. As we have spoken about previously, innovation is a core focus for RealPage during 2019 and beyond. Innovation was on full display at RealWorld, our user conference held in Orlando a couple of weeks ago.
We asked our clients to reimagine how renters will experience, utilize and monetize space for working, living and vacationing in the future. We asked them to consider technology disruption that is changing the way space in their buildings is being monetized by third parties, not by them. We gave an example of an innovative company called Sonder that recently completed another capital raise at a valuation of over $1 billion. Their business model is a long/short arbitrage of short-term rentals, and they manage about 8,500 units, which works out to about $117,000 per unit.
The market capitalization of many multifamily REITs is only $200,000 to $300,000 per unit by comparison. We highlighted the market capitalization of Airbnb and WeWork, which is many times larger than the core real estate assets that these companies exploit. We showcased how e-commerce is now transacting through the tenant and resident portals that real estate owners provide to their clients. But most of the yield on this e-commerce goes to someone else.
We asked our clients to reimagine how they could optimize the yield on space because they're the rightful owner of it, but they need to invest in technology to make this happen. The rental housing market generates about $560 billion in revenue annually, and we estimate this industry spends only 1% of that amount on technology. 1% of revenue is dramatically lower than the technology spend of almost every other industry that makes up the gross domestic product in the U.S. We believe there is a significant opportunity to capture incremental yield from real estate through investments in advanced technology, and this can be achieved simply by shifting yield generated by third-party companies back to the rightful owners of the yield, which we believe are the owners of the real estate themselves.
We estimate that yields on rental housing real estate could increase by as much as 300 to 400 basis points if owners simply did two things: first, obtain greater transparency into how their properties are performing relative to peers, with information at a level of granularity that can inform better decision-making and that supports appropriate incremental investments in existing technology to enable increasing yield; and second, to capture yield leakage that is already happening as other companies siphon off bottom-line dollars that could belong to real estate owners. Our goal is to deliver technology solutions that can drive incremental yield for our industry by $17 billion to $22 billion while increasing technology spend by the industry from about 1% of revenue to 1.5% of revenue. Today, we estimate that RealPage captures about 17% of the overall technology spend in the rental housing industry, and we believe that we should garner a disproportionate share of the increased tax spend if we lead the pack with innovation. We believe our value proposition to the industry is pretty compelling: invest another $3 billion or $4 billion per year in technology and gain $17 billion to $22 billion in incremental yield.
We are their partner here to help them identify and drive this yield. At RealWorld 2019, we announced many new capabilities that underscore our status as an innovation leader. While we don't have time to cover everything here today, I'd like to highlight some of the biggest innovations that we announced. One of our largest investments capitalizes on the enormous data advantage that RealPage has built.
With over 13 million units of real-time transaction data, we are capable of benchmarking performance of similar assets on detailed metrics of performance. Our benchmarking compares like-for-like properties with separate benchmarks for each submarket in the U.S. because, for example, a property in New York cannot be usefully compared to a property in Houston, for the -- for most purposes. We have sufficient data to categorize benchmarking data by asset classes such as student property, conventional A, B and C, class properties, high-rises versus garden-style and on and on.
These benchmarks are included in the capability we brought to market a couple of years ago called Performance Analytics, which is part of our Business Intelligence platform that is driving significant growth for RealPage. A new extension of Performance Analytics is the STAR report that enables owners of properties to quickly see how they are performing relative to their peers across 25 metrics of performance based on a simple STAR rating of one through five. We believe STARs will introduce an unprecedented new level of transparency into performance, something that the rental housing industry has historically lacked. We had the opportunity to unveil STARs in sessions with customers at RealWorld, including some of our very largest clients.
The feedback was exciting and our clients wanted to see more. One client said, "We want to start using this as soon as possible." Another stated, "This is exactly the way we need to start thinking about our operations." Both clients were large 20,000-unit-or-greater owner-operators. At RealWorld, we also introduced vastly expanded capabilities in our Market Analytics solution, combining the power of MPF Research, Axiometrics and the real-time transaction data from RealPage. Market Analytics targets asset managers and developers who were trying to understand granular submarket and property performance in order to make buy, sell or hold recommendations.
We were excited to announce in July of this year that we had acquired a company called Hipercept. Hipercept has developed a set of capabilities called FUEL, which collectively enable comprehensive valuation analytics for all real estate asset classes, including multifamily. While new, FUEL is a powerful SaaS-based alternative to Argus, which is still primarily an on-premise solution and does not address multifamily asset valuation. FUEL will be integrated into Market Analytics so that asset managers can rapidly evaluate properties for potential investment and drill down into the specific rent rolls and detailed transactions needed to prepare comprehensive valuations.
In our Asset Investment Management suite, we launched a new capability called portfolio investment management, or PIM for short, that enables institutions and general partners to manage the complex administration of reports, distributions, capital calls and water -- return waterfalls. To continue, we announced a vast expansion of our Leasing and Marketing suite, including Contact Center 3.0, which features an omnichannel platform that can comprehensively manage various forms of prospect or resident contact, be it voice, email or chat, and a new omni-agent platform that enables all voice, chat or email from prospects and residents, regardless of who they are talking to, be it a client contact center, a client leasing office or the RealPage contact center, providing a complete journal of all touch points through the life cycle of a renter. Contact Center 3.0 also includes an optional artificial intelligence front end that can save cost for our clients, as well as customize landing pages that are sent to prospects at the conclusion of each contact with website content tailored to the specific demographic of the prospect. We've also introduced a new Renter Engagement Suite integrated with a popular third-party property management systems that opens up a much larger market for all of our Leasing and Marketing and Resident Services capabilities.
The Renter Engagement Suite includes LeaseLab websites with a new flex capability that enables clients to expand or contract lead flow, matching supply and demand in near real time. Flex uses triggers that are received from our revenue management platform to increase or decrease lead flow from important direct lead channels. Next, we announced a major upgrade to our ActiveBuilding Resident Portal, enabling clients to monetize e-commerce opportunities through the Resident Portal. We believe very significant increases in yield are possible if owners of multifamily properties can capture revenue from parking, conference rooms, on-site self-storage, short-term rental, shared amenities and other services that they can offer to the resident.
Finally, we announced the success we are experiencing with AI Screening that was released last quarter and has now been deployed over 2.4 million units. This is an example of a capability that can be self-provisioned by our clients without requiring any assistance from RealPage. And this is also a glimpse into the future direction that we are pursuing for all of the capabilities RealPage offers as part of our strategic platform. It is not only this type of innovation that is driving go-to-market success but also deep segment-specific real estate innovation.
For example, the commercial side of real estate requires a unique set of complex requirements that cater to a broad range of stakeholders. Ghan & Cooper, a commercial property manager in Fort Smith, Arkansas, has been gearing up to grow at scale. And they were ready to shed their legacy system in favor of a cloud-based platform that would enable expansion and simplified reporting. This was a highly competitive deal that we won during the quarter, but Ghan & Cooper purchased our commercial suite because of its ease of use and robust functionality.
Throughout the first half of 2019, we've outlined our focus on Yes-To-Success as an important aspect of our strategic platform evolution. As we've highlighted, our traction in selling more strategic platform deals to our customers has resulted in an expanding backlog as the average time to revenue has been growing, modestly depressing our revenue growth, which on an organic basis was 9% in the second quarter. Our work on Yes-To-Success cycle will continue, but we've made some early traction. We believe that the negative impact on our revenue growth has seen its peak level this summer as we expect growth to be stable to improving from here forward.
Ultimately, through people, process and technology enhancements, we're working to trim a day here or two days there, all with an eye toward near-term implementation efficiency. We are also focusing on two long-term opportunities: accelerating the speed and improving the efficiency by which clients from implementation to full value realization; and second, enabling our clients to self-provision capabilities within our platform. We are executing on these initiatives and expect the combination to increase client satisfaction, reduce complexity and encourage option with the resulting effect of improving revenue growth. Supporting our efforts on Yes-To-Success, we are becoming an easier company to do business with, and our go-to-market traction is accelerating.
For example, Seldin Company is an Omaha-based multifamily property manager with more than 15,000 units in the conventional and affordable markets. They are also a longtime RealPage client that pivoted to a competitor's offering in 2017 due to the promise of significant cost savings. Over the course of two years, Seldin invested heavily on this competitor's solution only to find it couldn't adequately handle the complexities of their business. Our sales team closely followed this relationship and invited the client back to explore our transformation into a true strategic platform: robust functionality in the affordable, conventional markets but also streamlined, unified, integrated and innovative.
We quickly recaptured Seldin back into our ecosystem in what would be one of the largest deals of the second quarter. And we did so largely because of our flexibility and ease of partnership. I'm grateful for the guidance of clients like Seldin, and we are a better partner for all of our clients because of it. Go-to-market traction is underscored not only by the Seldin deal during the quarter but also by strong new sales booking growth.
Booking strength was fairly evenly spread across all product family capabilities. In conclusion, these are incredibly exciting times for RealPage. We remain firmly committed to our more STAR focus, on our long-term platform strategy, our innovation investments and a simplified client journey. We believe we're well positioned to achieve our 2022 goal of generating $1.5 billion in annual revenue with at least $500 million of adjusted EBITDA.
I'm incredibly grateful to our teammates at RealPage for tirelessly executing on our strategy and to our clients and shareholders for their ongoing support. With that, I'll turn the call over to Tom.
Tom Ernst -- Chief Financial Officer and Treasurer
Thanks, Steve, and good afternoon, everyone. Second-quarter financial performance reflects continued execution against our 2019 goals, as well as our long-term strategic platform vision. Total revenue grew 13% year over year, which is 9% on an organic basis, and adjusted EBITDA grew 19%. As Steve highlighted, 2019 is a year in which we are unveiling a wave of innovations.
Along with our focus on simplicity in driving Yes-To-Success, we believe we are well positioned for long-term growth. Let's start today by diving a little deeper to look at specific products that are driving revenue traction now and how innovation can leverage current traction. As a reminder, our strategy is to leverage product strength to drive larger adoption across the platform. We continue to see increased traction with strategic suite sales.
However, we believe our analysis in allocating traction for product families gives an accurate picture of contribution to our revenue and growth. In the quarter, Property Management grew 10%, extensively organic. During the quarter, the biggest revenue growth drivers include accounting and commercial, spend manager, enabling property owners to optimize NOI through expense management and our Kigo vacation rental platform. Innovation in these areas is also driving significant new bookings momentum.
Resident Services grew 19% during the quarter, and organic growth continues to be healthy in the mid-teens. We launched an enhanced ActiveBuilding functionality, which is a key enabler of property owner and resident communication. Importantly, this is an area we believe has significant opportunity as property owners begin to monetize transactions around driving a compelling resident experience to create additional yield. During the quarter, revenue growth was driven by payments, renter's insurance and rental portal, which includes ActiveBuilding.
Payments in particular continues to be the primary growth driver, showing success penetrating our installed base, and with ClickPay, continuing to exhibit strong growth. Innovation in this product family is also a driver of significant new sales booking momentum, particularly within Resident Utility Management, which we expect to accelerate with the acquired innovation from the recent purchase of SimpleBills, which although small, has strong market momentum. Leasing and Marketing grew 9% in the quarter. During the quarter, revenue was driven by LeaseLabs and property websites.
Growth here continues to be extensively inorganic. However, some of our biggest innovations have been released here and are already building the early pipeline. Contact Center 3.0, Go Direct and enhanced ActiveBuilding are core innovations just released on our Renter Engagement Suite, which bridges capabilities across Resident Services and Leasing and Marketing. While it's early in the release, our efforts here have produced a very strong early sales funnel expansion across the suite.
Asset Optimization grew 12%, which is mostly organic, hitting a couple points of inorganic left. We launched enhanced Market Analytics. The industry's only lease transaction-driven market research platform that provides 100% visibility into true submarket performance data critical to making the right investment decisions. During the quarter, revenue growth was primarily related to our revenue management and BI, both driven by our massive repository of data.
Innovation around data transparency and extracting insights out of data drove solid new sales booking momentum. So backing up to the big picture view, innovation is happening across the platform, and we expect innovation to leverage current functionality traction to drive increased suite adoption across these product families throughout the rental housing market segments, and most importantly, across the entire platform. From a profitability perspective, in Q2, we expanded adjusted EBITDA margins to approximately 28%. Looking at the drivers, we saw operating leverage we expected with an expansion of nearly 160 basis points.
This was driven primarily by operating leverage in G&A and product development more than offsetting the 1-point decline in gross margins. Gross margins are down year over year, primarily due to the impact of our second-half '18 acquisitions and our investments in several of our Yes-To-Success initiative this year. Operating leverage in G&A was driven by scale advantages along with our ongoing focus on operational excellence, producing 120-basis-point improvement. Product development cost is down 230 basis points year on year and continued to be driven by the centralization of our product development efforts and our migration to the plan, run, grow, agile framework.
We continue to be very excited about our opportunity to significantly expand our new capability development productivity with the same resources. In the quarter, this framework change yielded over 200-basis-point shift from capability, maintenance/enhancement efforts to the focused delivery of new capabilities and major disruptive initiatives. That represents over $3 million of resource realignment to strategic initiatives. We are making improvements across the platform with this effort.
For example, OneSite improved maintenance in half of the mix by over 800 basis points, leading to run rate impact of 0.5 million that is reallocated toward accelerated delivery of our unified platform. As a result of this success, in the quarter, our capitalized development increased $2 million year over year. And given our early success in pivoting development efforts, we anticipate that we will see further productivity gains over the course of the year, and then we may see capitalized development continue to grow through the back half of 2019. From a sales and marketing perspective, cost in the quarter are up 80 basis points.
Our investments were in three primary areas: first, headcount-related compensation and infrastructure costs; second, incremental marketing costs; and third, additional costs from acquisitions. Head count investments were targeted toward solution sales reps that help drive platform adoption and marketing costs related to supporting the rollout of new innovation. During the quarter, we generated nearly $66 million of operating cash, excluding the impact from change in restricted cash related to accounting treatment changes. Our leverage ratio is now down to 1.2 times, and we have sharpened our pencils on tax credits and exceptions.
We are no longer expecting to be subject to the BEAT tax for our forecast horizon, reducing by several million dollars our expected cash taxes this year and more in future years. We are also working toward qualifying for several other credits, while we have not yet changed our non-GAAP effective tax rate pending qualification and full analysis of the long-term impact of these initiatives. From an acquisition perspective, so far this year, we have invested approximately $70 million for the three small acquisitions. These acquisitions are focused on early stage innovation with the potential for market disruption.
Most of the deals are structured to embed and incent outside entrepreneurial talent within RealPage and to complement and synergize with our own organic innovation efforts. These acquisitions all include long-term growth incentives that increase the potential total cash consideration to approximately $100 million if aggressive growth targets are realized. Turning to guidance for the third quarter of 2019, we expect non-GAAP revenue of $253 million to $255 million, representing 9% organic growth at the midpoint. Adjusted EBITDA is expected to be $71 million to $73 million, representing 210 basis points of expansion to midpoint, and non-GAAP diluted earnings per share is expected to be $0.44 to $0.46.
For the full-year 2019, we expect non-GAAP revenue of $987 million to $995 million. We have raised the lower end of our range, primarily for the growth contributions we expect from the two acquisitions closed this quarter, and lowered the upper end of the range to have a more modest assumption of 10% organic growth for the full year at the midpoint. Adjusted EBITDA is expected to be $278 million to $283 million, representing 180-basis-points expansion to midpoint. And non-GAAP diluted earnings per share is expected to be $1.73 to $1.77.
This concludes our prepared remarks. Operator, let's open the call for questions.
Questions & Answers:
Operator
[Operator instructions] Our first question comes from the line of John Campbell from Stephens. Please proceed with your question.
John Campbell -- Stephens Inc. -- Analyst
Places where we've been the longest had the highest share, but because it's a retail business combined with an online business. There are markets that [Technical difficulty]
Operator
Our next question comes from the line of Sterling Auty from J.P. Morgan. Please proceed with your question.
Jackson Ader -- J.P. Morgan -- Analyst
Hey, guys. This is Jackson Ader on for Sterling tonight. Our first question, I guess, Tom, we'll just start with -- right where you left off there, the lowering the top end of the guidance range due to maybe some lower organic growth assumptions. What, I guess, happened in the second quarter that made you think maybe the organic growth is going to have maybe a tighter lid on it than you thought?
Tom Ernst -- Chief Financial Officer and Treasurer
Thanks for the question, Jackson. So I think as we've exited the second quarter, we're encouraged that we were able to outexecute the low end of our range and feel like we've seen the peak of the negative impact of the stretching of time to revenue with our Yes-To-Success initiative. So we feel comfortable narrowing the range from the low-end perspective. And as we look with our momentum here exiting the second quarter, the 9% organic growth, we feel comfortable with a 10% organic growth at the midpoint.
Jackson Ader -- J.P. Morgan -- Analyst
OK. Got it. And then just a follow-up. Steve, I guess on a very high level, we often hear that RealPage would likely benefit from an increase in demand, from maybe slowing rent growth and decreasing occupancy rates.
It seems like rent growth is slowing a bit. Occupancy, not so much. But are you seeing at all increased demand from those kinds of cross-wins, I guess?
Steve Winn -- Chairman and Chief Executive Officer
It's a surprisingly strong market. Q2 was, on a seasonal basis, always one of the strongest quarters. But occupancy climbed up to nearly 96% and overall rentals were up about 3% annually, which has really topped our expectations. So we're seeing continued very strong demand for rental housing.
And of course, when there's stronger demand, there's less need for marketing products. There are some markets that are softening. We are seeing some fairly material softening in A product. So particularly, merchant builders that are trying to lease up these newer properties are spending considerably more money on marketing solutions because of the softness in the A market because that's where most of new supply is coming in.
But if you look at B and C product, it's still very, very strong. At this point, we're hesitant to call a change here. It looks like it's going to stay strong as long as the economy is good as it is.
Operator
Our next question comes from the line of John Campbell from Stephens. Please proceed with your question.
John Campbell -- Stephens Inc. -- Analyst
Hey, guys. Sorry about that Steve. I think have misheard you or maybe misunderstood you, but did you say the implementation times have grown? I guess just for context, where you seeing that, that extension was relative to last year? Or has it grown throughout kind of the balance of this year?
Steve Winn -- Chairman and Chief Executive Officer
No. We think we've turned the quarter, and you should start to see this -- what has been a little bit of headwind turn in the back half of the year. We are making improvements in the way we implement on short-term changes that are fairly relevant and are helping. So I did not imply -- I didn't mean to imply it was getting worse.
It's not. It's just not getting better at the rate we'd like.
Tom Ernst -- Chief Financial Officer and Treasurer
Yes. To be clear, John, what we saw was an extension of time to revenue looking backwards. So not in this quarter, but as we look back over the close out to last year and into the first half of this year. And as we look at our initiatives and efforts to compress that Yes-To-Success cycle, we feel like we're gaining traction.
And as each month goes by, we were able to identify initiatives that are turning the tide. So we think that we've seen the peak of the negative impact on our growth. And our goal here is to make gains and begin to beat that back as we roll each month forward this year.
John Campbell -- Stephens Inc. -- Analyst
And Tom, I guess with the guidance, I guess you're just being prudent with your assumptions. You want to see more meaningful, I guess, more sustainable lift or improvement out of the implementations. But I guess the 10% for the full year includes no kind of major improvements from here?
Tom Ernst -- Chief Financial Officer and Treasurer
So as we've gotten here to the midpoint of the year, we're narrowing our range. I think if we had seen a faster acceleration in Q2 than we anticipated, we'd have more confidence toward a higher range. But we're encouraged that we have, in fact, absorbed the peak of the impact that we told you about earlier this year in Yes-To-Success. And we're very excited about the wave of innovation that we've announced and have coming out of the course of this year and in particular, what sets us up for next year.
So I think that choosing the 10% organic growth for the midpoint this year, that's consistent with effectively what we posted in the first half. Q2 is a little less than that. It feels comfortable to us as a good point now that we're here at the midpoint of the year.
John Campbell -- Stephens Inc. -- Analyst
OK. That's helpful. And then on the commercial business, that hasn't gotten a whole lot of airtime, I guess, in the past. It appears as though you guys are getting some traction of late.
Maybe if you guys could talk to kind of what's changed, where the source of the momentum is. And then maybe a higher-level question, if you guys could -- as you think about your kind of near- to medium-term order of priorities, where does commercial fall?
Steve Winn -- Chairman and Chief Executive Officer
The product has been under development for years. And it finally in -- particularly in the middle market of midsized commercial operators, is, in our view, a more contemporary, more comprehensive offering than anyone else in the market. And we are getting confirmation of that through the sales that we're seeing in the middle market. From a relative priority perspective, while we are happy about the growth in commercial, it does pale in comparison to the opportunities we see in, for example, monetization of the e-commerce in the ActiveBuilding platform and some of the other innovations that I've talked to you about.
John Campbell -- Stephens Inc. -- Analyst
Thanks, guys.
Operator
Our next question comes from the line of Matt Hedberg from RBC. Please proceed with your question.
Matt Hedberg -- RBC Capital Markets -- Analyst
Oh, hey. Thanks, guys. I wanted to ask about the implementation times as well. And I believe on the prepared remarks, I think, Steve, you mentioned, or maybe it was Tom, that bookings were solid.
I wanted to dig into that a little bit more. Can you help us with just sort of the relative growth rate of bookings relative to the 9% organic growth? I think in prior quarters, you mentioned backlog at an all-time high, but maybe just a little bit more color on earnings growth would be helpful.
Tom Ernst -- Chief Financial Officer and Treasurer
Yes. I would say the backlog is still at an all-time high as a percentage basis. There's definitely some volatility on a monthly basis, but I think as we look over the first half, we are still producing bookings that should correlate with a higher revenue growth. So we still have an extended time to revenue.
But what I think we've gotten comfortable with is that we've identified where many of those pockets are and bottlenecks are, and we're attacking them. And I think we walked you through kind of and plan on how we're going to attack that. So we have people, process and technology, and I can back up and kind of go where we're at on that. But big picture, I think we made successes across the board, including, a highlighter, too, we have centralized more of our implementation efforts to where we're now 40% centralized with an engagement manager.
We've also brought on a greatly experienced new chief customer officer, Trevor Bunker, who comes over from CA, who's really gotten involved in the process to help us continue their efforts on the whole client journey all the way from sourcing the implementation, lining up engagement managers all the way through customer success. And so I'll pause there, but we can probably take it off-line and talk to you what are the things we've done from a process technology perspective, etc., to really attack the whole issue.
Matt Hedberg -- RBC Capital Markets -- Analyst
That's great. And then maybe, Tom, as a follow-up to that, sort of the whole concept of backlog, could you talk about how you're thinking about sales capacity? I think we've talked maybe a little bit ago about increasing new reps, sort of trying to build more capacity. Could you talk about sort of where your head's at right now from a sales force capacity perspective?
Tom Ernst -- Chief Financial Officer and Treasurer
So we do have a strong sales force capacity to produce growth at our target levels. And I think as we highlighted last quarter, we wanted to begin the hiring again. We did, in fact, do that and have expanded the sales organization. The hires have been focused on solution reps, which are experts on specific products and in particular some of the area such as our effort in elevating the sales cycle to the owners and the institutions.
We've made some hires there. We've made some hires really to elevate the whole platform sale with these types of extensions and anticipate that we will continue to expand modestly the sales organization over the course of the year.
Matt Hedberg -- RBC Capital Markets -- Analyst
That's great. Thanks guys.
Operator
Our next question comes from the line of Pat Walravens from JMP Securities. Please proceed with your question
Joey Marincek -- JMP Securities -- Analyst
Hi, guys. This is Joey on for Pat. Are you making any additional investments in the lower end of the market to compete with AppFolio?
Steve Winn -- Chairman and Chief Executive Officer
We do think the low end of the market is attractive primarily because it is so underpenetrated. And we are making investments in that area. We have not announced any of this work, but it is an area of investment focus for us.
Tom Ernst -- Chief Financial Officer and Treasurer
We did actually have some good traction in the quarter as well. We had one of our biggest deals in the SMB space in the quarter. Nice win in the -- down at the LYND market. And I think to Steve's point as well, we've perhaps been a bit less focused on the SMB market.
SMB for us is under 5,000 units, and we tend to compete more at the upper end of the range.
Operator
Our next question comes from the line of Stephen Sheldon from William Blair. Please proceed with your question.
Stephen Sheldon -- William Blair -- Analyst
Hi, guys. Thanks for taking my question. I guess just first, can you maybe provide some updated thoughts on trends in Leasing and Marketing over the next few years and your level of confidence in terms of accelerating there? You rolled out a lot of new products, Go Direct Marketing Suite with AI Screening, some other products. So just how should we be thinking about that business as we look out over the next few years?
Steve Winn -- Chairman and Chief Executive Officer
Leasing and Marketing, given the investments we've made, should accelerate revenue growth while strong demand that we're experiencing in the industry inhibits marketing a little bit. You got to put this in perspective. Almost half the units turn over every year and we're building 400,000 new units every year. So there's still a substantial need for sophisticated tools.
We believe that indirect channels are generating leads that are not very high quality and that the best leads are those that come directly to the website and that there are techniques you can use to drive traffic to the website and convert two to three times higher. The real beneficiary of that is the leasing staff, which doesn't have to actually work as many leads that will never produce leases. This is an area that we're committed to pursue. And I think Go Direct is the right answer, and I'm most encouraged by the changes that Google is making in their emphasis on pushing leads direct -- they now have a window that appears typically on the first page that directs consumers to our website.
So they are clearly moving to disintermediate the traditional aggregators of indirect leads, and we believe we will be the beneficiaries of that through continued focus on Go Direct Marketing strategies.
Tom Ernst -- Chief Financial Officer and Treasurer
Stephen, you asked about AI Screening in that I think Steve said in his remarks that we now have 2.4 million units live on AI Screening. So that's one of our fastest, if not our fastest, major product launch that we've had in getting new product out to market. And I think it is prototypical to the kind of things we're trying to do both from a technology and a go-to-market perspective that we want to emulate across the suite. So what we did different there is we engineered the technology to be much more self-provisioned.
So the change management, in order to adopt and implement and use the technology, is designed to be more user-intuitive and require little coaching from us. Self-provision is goal. Also, we didn't roll it out to the sales organization and make it a new contract, a new booking. It's an account management automatic type of roll it out, if you like it, take the price rate; if you don't, you can cancel.
We're early in it but the adoption rate is great. It's great to see that it's up and working well. And hopefully, at the end of the year, we'll have a big success story to talk about.
Stephen Sheldon -- William Blair -- Analyst
Got it. That's helpful. And then just as a follow-up, as we think through the implementations and the self-provisioning, I guess is there a way to frame how many products clients can self-provision at this point or just the progress you've made building out this self-provisioning capabilities?
Steve Winn -- Chairman and Chief Executive Officer
The first phase is all enhancements that are priced separately we require to be self-provisioned. And we have only waived that on one that I'm aware of. So on a go-forward basis, everything has got to go self-provisioned. And the key is, again, to work our way back into the mainstream products and change the provisioning methodologies that they all use.
I think this is a long-term initiative to retrofit self-provisioning and everything RealPage does. But it is part of our unity investment. And it's important to get through this because it radically simplifies the customer experience, it accelerates revenue and it also makes the cost of onboarding and supporting customers much lower, which helps us continue to drive EBITDA margin expansion. So this is a very high priority and one that is not a hockey stick change.
It's going to be every quarter, you're going to see additional movement in this area.
Stephen Sheldon -- William Blair -- Analyst
Got it. And then just one last follow-up. Can you guys provide any detail on how you layered Hipercept in the guidance?
Tom Ernst -- Chief Financial Officer and Treasurer
Yes, absolutely. So the two acquisitions we made in the quarter, the low end of the range bump that we made, $5 million, is about the low range of what we expect those two to contribute.
Stephen Sheldon -- William Blair -- Analyst
Thank you.
Operator
Our next question comes from the line of Ryan Tomasello from KBW. Please proceed with your question.
Ryan Tomasello -- KBW -- Analyst
Hi, everyone. Thanks for taking the question this evening. Just setting the implementation issues aside, what levers do you think have the most potential to materially accelerate revenue growth over the intermediate term? It seems like some of these recent new product announcements have some strong potential, and this recent Hipercept acquisition also has some strong cross-sell opportunities into a new client base. So I'm just trying to get a sense of if you're focused on maintaining the current organic growth profile in the low double digits or if you see achievable opportunities to bring that a step higher over the next one or two years.
Steve Winn -- Chairman and Chief Executive Officer
Well, we think the monetization of space is the key driver of increased technology spend by our industry. Today, most revenue is generated through base rent. The industry has an opportunity to monetize amenities and rentables and drive 300 to 400 basis points of improved yield on their properties. RealPage has announced and is deploying the technology that enables them to do this.
And I think that is the area that you will see the most significant change. The second area that I'm most enthusiastic about is our STARs program where we can, for the first time, in literally five minutes, show an owner how well they are performing on 25 metrics of performance relative to their peers. This level of transparency will cause owners to invest in technology because they will see the statistical evidence that these investments have a very high IRR. I've had customers that -- owners that in the past did not consider technology investments at all.
They would invest $10,000 in a unit rehab and try to measure, say, a mid-teens IRR on that. But they didn't involve themselves at all in technology investments that could drive IRRs much higher than the mid-teens. And so once you make them aware that they're leaving money on the table, owners will act, owners and institutions. And ultimately, whoever controls the money is going to drive the market.
And so we think the STAR program will introduce transparency, and we will be the indirect beneficiary of that because I think most of what RealPage does is about yield enhancement.
Tom Ernst -- Chief Financial Officer and Treasurer
Yes. Just to put an exclamation point on that, Ryan, Steve and I had the CEO of a large public REIT in Steve's office, showing him the STARs platform for the first time and actually walking him through his property's performance. And the guy couldn't have been more excited. He was asking Steve to pull this property, pull up that one he wanted to see, who he knows -- who he knew has best performers were.
And Steve showed him and then he flipped and showed him his lowest performers. And as we went through them, some of them were known to the CEO and others weren't. And he was intrigued by that. But I think what's exciting him the most is when he looked at those one- and two-STAR performers, the couple he had, was seeing the quantification of what a one or two STAR bump meant to the yield on that specific property.
And so he told Steve, "This is exactly what I need. You need to give this to me so I can show it to the managers and get them to adopt the technology the way we want them to do it to move them up."
Ryan Tomasello -- KBW -- Analyst
I appreciate that colorful commentary. I guess just boiling it all down, do you see this renewed focus on accelerating organic growth initiatives as more so putting a floor to the 10% to 12% organic guide that you're forecasting over the next few years? Or is it really going to be more gravy on top of that, that could potentially accelerate organic growth if any of these initiatives really gain some traction?
Tom Ernst -- Chief Financial Officer and Treasurer
Well, I think we shouldn't get ahead of ourselves. So I think what we're clear about is that there's a huge opportunity to drive improved yield in our industry and that we are the strategic platform partner to our customers to make that happen. And we'll talk about higher growth levels as we start to execute to them. So yes, we are focused on innovating and driving growth.
And let's not make promises until we start producing the acceleration.
Ryan Tomasello -- KBW -- Analyst
Fair enough. And just one last one if I could. On the Hipercept acquisition, I was just hoping to get a bit more of the strategic rationale on that a bit more. It seems like now with the more fully built-out institutional solution, you now have a product you can sell into a customer channel that you historically haven't had a meaningful focus on or hasn't really been a meaningful contributor to the business, I should say.
So can you say how much revenue that the company is generating from the Hipercept-type client base of these asset management type clients and what type of cross-selling opportunities that this might present down the road?
Steve Winn -- Chairman and Chief Executive Officer
We didn't disclose the revenue on Hipercept.
Tom Ernst -- Chief Financial Officer and Treasurer
Well, he's talking about how much we sell to their customers so...
Steve Winn -- Chairman and Chief Executive Officer
We're already selling to the institutional market. What Hipercept brought us was an asset valuation system similar to what Argus has marketed for years. But it's a SaaS-based platform, very contemporary. We're plugging that into our Market Analytics product and selling it now into the institutional customers.
We also got a very large, what's called, data aggregation services platform with the Hipercept acquisition that allows us to manage the consolidation of thousands or tens of thousands of different files that these large institutions have to manage in order to consolidate portfoliowide reports. And Hipercept was -- really had a very powerful and effective platform for that. We're really pleased with this acquisition because I think it positions RealPage as a clear market leader in addressing the reporting and the cash management waterfall needs of large institutional investors and GPs that need to report to LPs. By the way, that's where the biggest growth in our sales force is occurring, is in that particular segment of the market where we want to become much more active.
Ryan Tomasello -- KBW -- Analyst
Got it.
Operator
Our next question is from the line of Peter Heckmann from D.A. Davidson & Co. Please proceed with your question.
Alexis Huseby -- D.A. Davidson -- Analyst
Hi. This is Alexis Huseby on for Pete. So I know that AppFolio was brought up earlier, but I'm hoping from a more broader view, can you provide any insight on changes and competitive dynamics year to date?
Steve Winn -- Chairman and Chief Executive Officer
With AppFolio?
Alexis Huseby -- D.A. Davidson -- Analyst
Or with others and so on.
Steve Winn -- Chairman and Chief Executive Officer
Well, AppFolio competes in the lower end of the SMB market. They're trying to move up. We still are not seeing a lot of competitive activity with AppFolio. But they clearly have their sights on larger customers.
Where RealPage wins is property management is a commodity. That's what AppFolio sells. They also sell what they'll call value-added services, which are comparable to all of the services that RealPage offers. RealPage is a much stronger provider of ancillary services, be it screening, websites, contact center, renters' insurance, spend management.
These are all claims that we have done extraordinarily well and have created a very defensible barrier to a movement up by a provider of basically a very strong property management solution and less competitive value-added services than RealPage has. I do think AppFolio has done a good job in the lower end of the market, and candidly, we have taken notice of that and believe this is an area that RealPage should be investing more energy and time and money on. And that's where we're headed.
Alexis Huseby -- D.A. Davidson -- Analyst
OK. And last one quickly, do you have any plans to offset dilution from the convertible notes as the share price continues to move up?
Tom Ernst -- Chief Financial Officer and Treasurer
We don't have any plans at this time.
Operator
Our next question comes from the line of Jason Celino from KeyBanc. Please proceed with your question.
Jason Celino -- KeyBanc Capital Markets -- Analyst
Just one quick one, actually. When I think about the back-half improvement that you're targeting for Yes-To-Success, is it more of a continuation of efforts that you've already made so far in the first half? Or is it more additional areas that you've identified and targeting?
Tom Ernst -- Chief Financial Officer and Treasurer
Well, I think we have a little bit of both, Jason. So we definitely put initiative into place such as that expanded centralization of the engagement manager, as I mentioned earlier. That should carry momentum, so it's seeing those through. We have launched into at least some early usage unified data collection capability.
We expect that to get more powerful over the course of the year. So that's about extending that. And there are initiatives that I think we've identified through our overall data study and Business Intelligence efforts that we've been putting into place that have uncovered opportunities that we want to put programmatically in place over the course of the year.
Jason Celino -- KeyBanc Capital Markets -- Analyst
Great. Thank you.
Operator
[Operator signoff]
Duration: 60 minutes
Call participants:
Rhett Butler -- Vice President of Investor Relations
Steve Winn -- Chairman and Chief Executive Officer
Tom Ernst -- Chief Financial Officer and Treasurer
John Campbell -- Stephens Inc. -- Analyst
Jackson Ader -- J.P. Morgan -- Analyst
Matt Hedberg -- RBC Capital Markets -- Analyst
Joey Marincek -- JMP Securities -- Analyst
Stephen Sheldon -- William Blair -- Analyst
Ryan Tomasello -- KBW -- Analyst
Alexis Huseby -- D.A. Davidson -- Analyst
Jason Celino -- KeyBanc Capital Markets -- Analyst
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