RealPage (RP) Q3 2019 Earnings Call Transcript

RealPage (RP)
Q3 2019 Earnings Call
Nov 06, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the RealPage third-quarter 2019 conference call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Rhett Butler, Vice President, investor relations.

Please go ahead, sir.

Rhett Butler -- Vice President, Investor Relations

Good afternoon, and welcome to the RealPage financial results conference call for the third quarter ended September 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 security 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, November 6, 2019, and are subject to certain risks and uncertainties that may cause actual results to differ materially from the 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 as amended on November 5, 2019, and our quarterly report on Form 10-Q previously filed with the SEC on August 9, 2019, and as amended on November 5, 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. 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, we announced that we have entered into an agreement to acquire Buildium, one of the largest and most successful property management Software-as-a-Service platform, selling into the SMB rental housing market. This is the largest acquisition in our history, intended to help us accelerate organic revenue growth in the large underpenetrated SMB market.

I'll discuss the significance of this acquisition, review third-quarter results and provide an update on innovations and initiatives to make RealPage an easier company to do business with in the call. During the third quarter, total revenue was $255 million, reflecting growth of 13% compared to the prior year. Adjusted EBITDA grew nearly 22% to 72 million. This was a strong quarter for RealPage, and I'm pleased that we exceeded the high-end of our revenue guidance, coupled with strong cash flow that will support future growth and M&A activity.

We announced today an agreement to acquire Buildium subject to Hart-Scott-Rodino approval and other standard closing conditions. Buildium is the most innovative, easy-to-deploy property management platform in the SMB rental housing market, representing multifamily owners and operators with less than 5,000 units, single-family, associations or HOAs and vacation rental owners and operators. Buildium currently supports approximately 2 million units in the SMB space. Buildium's customers love the product, and the company's revenue growth is strong and accelerating.

We see an opportunity to significantly increase Buildium revenue per unit through deeper adoption of value-added services and continue to grow the SMB units, given the underpenetration we see in the market. Today, Buildium offers basic screening, payments and Renters Insurance to its property management clients. One of our immediate priorities will be to expand these basic offerings with more complete and powerful RealPage value-added capabilities, which we believe are highly differentiated from other competitors in the SMB space. For example, we expect to integrate our SimpleBills utility billing solution into Buildium by the end of the year.

SimpleBills pays all utility bills for the owner, eliminating any late fees; recovers utility fees before a tenant moves out; eliminates utility carrying costs; and provides a much better resident experience. One of our larger single-family clients estimates that they are carrying nearly $12 million in unpaid utility bills. Our offering eliminated this cost for them. We are achieving solid early adoption of SimpleBills within our Propertyware installed base and expect that Buildium clients will embrace this new innovation from RealPage in a big way.

Buildium also fulfills a promise we made to the HOA market segment when we acquired ClickPay, which serves approximately 2 million HOA units. Buildium gives us a comprehensive platform designed for HOA operators, and we intend to aggressively expand Buildium coupled with ClickPay in the HOA space. The Buildium acquisition also advances our data strategy. Our repository of resident data is unrivaled in the industry.

We have been archiving transaction details throughout the renter life cycle across many areas of real estate for the better part of the last two decades. With approximately 2 million units on their platform, we expect that Buildium will add significant depth to our competitive advantage in data. This step not only extends to lease transaction data emanating from over 50,000 leases per month but also from a diverse mix of real estate classes. We see many developing opportunities to leverage our data strategy in the SMB space, including more robust revenue management and better monetization of services that residents need and buy through our Resident Portal.

What sealed the deal with Buildium was our shared vision for the opportunity in the SMB space and our common customer-focused culture. As we came together to discuss the potential for a combination over the last several months, we quickly identified that we had similar views on the changing demands for mixed-use platform in the future and how we could help each other realize that vision. We both believe in an open strategy with open APIs enabling industry innovation to incubate on top of our platform. This is in stark contrast to our larger competitors in the SMB space who have elected to offer closed platforms that stifle innovation and result in higher prices to clients because their choices for add-on services are limited to only those offered by the platform provider.

In our view, closed solutions are a thing of the past, and we are pleased that RealPage is the only major open platform provider that gives our SMB clients choice. Finally, as we spent time with the Buildium team, we are both -- we were both consistent on a cultural commitment to building a great company. We articulate this in the RealPage promise, a commitment to stress service to our clients above all other priorities. The team at Buildium and Propertyware share these priorities, and that gives us confidence in our partnership.

Needless to say, I'm extremely excited about the Buildium acquisition, their management team and the collective opportunities, only some of which I've outlined, that we believe are within our grasp. We highlighted last quarter that 2020 represented a significant wave of innovation -- or 2019 represents a significant wave of innovation for RealPage. In the third quarter, we launched a number of leasing and marketing innovations that include Contact Center 3.0, enhanced digital marketing that flexes dynamically based on triggers received from Yieldstar and LRO, and most important, e-commerce enabling our Resident Portal called ActiveBuilding. We demonstrated these innovations at our RealPage user conference in July and have received very strong positive reviews from early adopters of these solutions.

For example, Douglas Elliman, a large and very well-established property management company in New York, prides itself on putting the resident experience at the forefront of service delivery. Therefore, they naturally chose technology solutions that reflect their commitment to providing a best-in-class customer experience and were thrilled to be an early adopter of RealPage's new leasing and marketing innovations and have been especially impressed with the seamless ways they integrate with each other and with Douglas Elliman's long-established third-party system of record. The innovations in RealPage leasing and marketing suite are key to enabling us to accelerate organic revenue growth in this product family. While we're pleased with the early feedback we're receiving, we think it will take longer than originally projected for clients to adopt these new solutions.

And we've reduced our assumptions around speed to revenue of these products in the short term, which is reflected in our revised outlook, which Tom will describe in the call. In addition, we've experienced some pressure in our resident utility management business where we have higher expectations for revenue growth. As you know, we made several acquisitions in this area and, generally, are very pleased with the results. We are in the second phase of integrating these platforms, consolidating invoice and payment processing into a single unified platform, which will reduce our cost and improve customer experience.

However, with changes come customer anxiety that caused us not to land as many new units as we expected, which translated into a revenue shortfall in Q3 that will carry over to Q4. While utility billing was slightly under plan, some of this was offset by other areas of our business-like payments, which is performing beyond our expectations. We also announced Market Analytics at RealWorld in July and talked about it in the last earnings call. Market Analytics uses our vast repository of real-time lease transaction data to provide highly accurate market and submarket performance unavailable from competing platforms.

According to Jay Denton, senior vice president of Bell Partners, "Now that we have visibility into resident retention rates, renewal rents and trade-out, we're hooked, and use Market Analytics for underwriting, asset management and property management." We've seen significant new subscription traction, subscription traction since launch, and expect continued success here, especially after we link Market Analytics to our new valuation tool called FUEL. We also announced the acquisition of Hipercept during this quarter, and I couldn't be happier with the market endorsement of our new asset investment management platform called AIM that integrates with Hipercept. We recently closed a private equity real estate firm with $4 billion in assets under management on the entire AIM platform and held an AIM launch conference in New York where over $2 trillion of real estate managers were represented and were enthusiastic about what they saw. Now let's take a step back and review progress on our Yes-To-Success efforts.

We've made some gains, particularly in implementation speed. However, our overall time to revenue is still at an expanded level compared to 2018, driven by larger deals and an increased mix of bookings that have an adoption ramp to full booking value and present a large opportunity for improvement. I'd like to discuss some of the bigger things we have accomplished with our Yes-To-Success initiative. First, we launched Phase 1 of our unified platform, Unity, at RealWorld in 2018.

Currently, over 30% of our ACV is on this platform, which we believe is a major accomplishment roughly one year after launch. We continue to add features to this platform, so client adoption is continuing at a brisk pace. We launched our process optimization initiative at the beginning of this year to improve the efficiency and effectiveness of our services at every stage of the journey. This project has touched the entire enterprise, and we are seeing gains based on delivery of functionality in Q2 and Q3 against this project.

In Q3, we hired a new chief customer officer and gave him responsibility for unifying implementations and customer success teams in a single organization. Finally, we want to give -- we wanted to give the customers a unified implementation journey, and this required in building a unified implementation workflow tool. At the end of Q3, we've moved over 70% of our backlog into our new unified implementation workflow. This tool will allow our teams to work together in a more cohesive way and reduce both the number of handoffs and the time between handoffs.

Overall, I'm excited about the future for RealPage. The Buildium acquisition, along with our focus on innovation and simplification will continue to create expanding opportunity for RealPage as we move forward. Thank you for joining us on the call today. With that, I'll turn the call over to Tom.

Tom Ernst -- Chief Financial Officer and Treasurer

Thanks, Steve, and good afternoon, everyone. As Steve mentioned, we are really excited about the Buildium acquisition due to the significant market opportunity we can attack together, the strength of their platform and customer experience, the complementary nature of our platforms and our shared customer-focused culture. Let's start by discussing some of the details around Buildium and our SMB plans. The purchase price is expected to be 580 million or roughly 10 times the annual run rate of revenue exiting 2019.

For the trailing 12 months ending September 30, 2019, Buildium generated $50 million in revenue, which reflects 28% growth, and posted a $1.4 million adjusted EBITDA loss. Revenue growth has been accelerating in 2019, and we expect Buildium to turn EBITDA positive in the fourth quarter. Commensurate with the large growth opportunity in the SMB market, our intentions are to continue to invest. We plan to direct cost and upsell revenue synergy growth to fund product innovation and accelerate go-to-market plans.

Moving on to the quarter. Third-quarter financial results were solid. Total revenue grew 13% year over year, which is 9% on an organic basis and adjusted EBITDA grew 22%. Our platform vision continues to resonate with clients with healthy booking levels supported by 33 incremental sales reps year over year and trailing 12-month productivity gains.

Let's review some platform capabilities that have been enriched with recent innovation that were the primary drivers of platform adoption and revenue growth during the quarter. Our payment processing capabilities continue to drive and benefit from platform adoption across multifamily and our single-family verticals. At just over 6 million units utilizing these capabilities, there is significant room for adoption in our enterprise, corporate and SMB markets. Some of our stronger drivers of organic momentum include spend management, business intelligence, accounting capabilities and our vacation rental platform.

From a product family perspective, property management grew 11% year over year. Resident services grew 17%; leasing and marketing, 8%; and asset optimization grew 15% year over year. From a profitability perspective, in Q3, we expanded adjusted EBITDA margins by over 200 basis points to 28.3%. Looking at the drivers of overall profitability, we achieved -- this was driven primarily by operating leverage in product development and G&A, offset by less than half of a point of gross margin contraction and an investment in sales and marketing.

Gross margins continued to be impacted by recent acquisitions and our Yes-To-Success initiatives this year. Product development cost as a percentage of revenue decreased 170 basis points year over year and continues to be driven by our centralization efforts as we are gaining more productivity and directing a greater portion of work efforts for its major new project work. As a consequence, we continue to expect capitalized software expense to increase. Leverage and G&A continues to benefit from scale efficiencies and our focus on simplification in everything we do.

From a sales and marketing perspective, we made an investment of 40 basis points in the third quarter. This consisted of adding additional sales reps in our SMB and corporate segments. In addition, we also added solution sales reps that continue to focus on driving platform adoption. In preparation of the Buildium acquisition and to organize for 2020 innovation and growth, we took action that incurred nearly 700,000 of onetime costs.

These costs, which, as you can see in the press release reconciliation, were removed from our adjusted EBITDA calculation. These organizational design efforts are expected to have a similar impact in the fourth quarter. During the quarter, we generated over 67 million of operating cash, excluding the impact from changes in restricted cash relating to accounting treatment changes. Our leverage ratio is now down to 1.1 times.

And with the close of Buildium, we expect to leverage ratio of approximately three times. As we think about guidance for the fourth quarter, last quarter, we discussed that we are focused on our resting organic or revenue growth deceleration that occurred in the first half of 2019 and saw an opportunity to reverse that and drive an acceleration. We had discussed a range of scenarios that can make those goals possible. As Steve mentioned, we've achieved some early returns from Yes-To-Success and had some great product launches albeit we now expect less opportunity for revenue in 2019 from some of the key launches.

In addition, we experienced some pressure from business areas where we had higher expectations for revenue growth, as Steve had highlighted in his prepared comments. On balance, we're encouraged that we have the right strategy to drive organic revenue growth and are well positioned to enter 2020 on strong footing. At the same time, we are not confident that we are executing innovation and Yes-To-Success efforts fast enough to drive the range of organic revenue growth acceleration in the second half that we discussed on our last call. Our outlook for the fourth quarter of 2019 is non-GAAP revenue of 250 million to 252 million, representing 8 to 9% organic on-demand revenue growth.

Adjusted EBITDA is expected to be 74 to 76 million, and non-GAAP diluted earnings per share is expected to be $0.47 to $0.49. That translates for full-year 2019, we expect non-GAAP revenue between 984 million and 986 million, adjusted EBITDA expected to be 280 million to 282 million, and non-GAAP diluted earnings per share is expected to be $1.74 to $1.76. A few thoughts on our financial strategy for 2020. We are setting internal goals to drive annual Rule of 40 performance improvements.

We calculate our Rule of 40 performance as the sum of organic growth and adjusted EBITDA margin. For example, based on the midpoint of our guidance for the fourth quarter, we expect our Rule of 40 performance to be 37.5% for the full year. This is 9% organic revenue growth plus 28.5% EBITDA margin. While we're not providing guidance for 2020 today, we plan on achieving our Rule of 40 performance by targeting organic revenue growth acceleration as our first priority.

We expect that we will gain HSR approval and close the Buildium acquisition in December. We will update the guidance when we report the fourth quarter. Big picture, we plan to invest revenue and operating synergies back into our SMB strategy to fund both innovation and go-to market. On a combined basis, we expect that the acquisition will add approximately 150 basis points of organic revenue growth for the overall business in 2020 based on Buildium's existing momentum.

We expect the acquisition to be nondilutive to pro forma EBITDA in 2020. And on an EBITDA margin basis, this would be dilutive by approximately 150 basis points, making the plan neutral to our Rule of 40 target. In other words, 150 basis points lift in revenue growth offset by 150 basis points contraction in EBITDA margin. We believe this positions us well for long-term growth and operating leverage.

When we close the Buildium acquisition, we plan to schedule an analyst day during the first quarter of 2020 where we will look forward and discuss our SMB strategy, along with all the exciting things we have planned for 2020. This concludes our prepared remarks. Operator, let's open the call for questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of John Campbell with Stephens. Please proceed with your question.

Unknown speaker

Hey, guys. This is Carter on for John. Thanks for taking my questions. On the acquisition, I believe the press release said that Buildium manages 2 million residential units.

Can you provide the mix of those units? How many are single-family, multifamily, HOA, etc.?

Tom Ernst -- Chief Financial Officer and Treasurer

Unfortunately, we can't. We will, definitely, once we close the acquisition, and we will do a deeper dive on the business. What we're authorized to say now is that it's approximately 2 million units.

Unknown speaker

OK. OK. Got you. And one more, kind of a bigger picture question around rent controls.

I wanted to get your thoughts on that and whether you expect that to hurt potential technology spend? Or is it positive drivers as managers and owner ought to recover the loss yields from that?

Steve Winn -- Chairman and Chief Executive Officer

Well, rent controls is a concern, particularly on the West Coast, New York. I don't think it's going to have a large impact on RealPage. We actually have products now that are designed to enable owners and operators to generate incremental revenue through monetization of the resident in other ways. So I'm not discouraged by rent controls.

But rent controls generally are not healthy for our economy and certainly not healthy for the markets that implement them.

Unknown speaker

Got it. That's all for me. Thanks, guys.

Steve Winn -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Sterling Auty with JP Morgan. Please proceed with your question.

Sterling Auty -- J.P. Morgan -- Analyst

Yeah, thanks. Hi, guys. I wanted to start with the comments that you made about the investment into 2020, if you were -- and I know you're not giving guidance for 2020. But if you set the acquisition aside, would we think that the margin patterns that you've displayed over the last couple of years would continue? Or is there additional investment that you're putting into place? So in other words, potential for margin compression to, as you talked about, help stabilize and eventually reaccelerate organic growth.

Tom Ernst -- Chief Financial Officer and Treasurer

Yes, thanks for the question, Sterling. So before Bruin -- before Buildium -- that was our builder code name, sorry. I guess that's not a secret anywhere. Before the Buildium acquisition, we would -- yes, it does mark a bit of a shift.

So we have previously entered prior years, targeting 150 basis points plus of margin expansion. We want to drive performance improvement every year. And while we haven't set the target for 2020 yet, we will -- we anticipate that when we talk about targets, we will be talking about a Rule of 40 performance improvement, which is the combination of organic growth plus EBITDA margin. And as we highlighted in our prepared remarks, we see the organic revenue growth as our first priority.

So we will be -- we are planning right now to try to strive for faster growth rather than margin expansion. So you should expect to hear a plan from us on an organic basis that is tilted toward revenue growth. That being said, I don't think you should plan for an organic revenue compression -- or excuse me, EBITDA margin compression from us.

Steve Winn -- Chairman and Chief Executive Officer

But we certainly plan to grow the Rule of 40.

Tom Ernst -- Chief Financial Officer and Treasurer

Correct.

Steve Winn -- Chairman and Chief Executive Officer

Moving into 2020.

Sterling Auty -- J.P. Morgan -- Analyst

Got you. Got you. And then together, the different moving parts. So implementation timing, some of the areas you mentioned that underperformed, some that overperformed, etc., is it fair to say that you're probably going to take at least a couple more quarters before we see that turn in growth because it's going to take time for some of these changes to basically take effect?

Tom Ernst -- Chief Financial Officer and Treasurer

Yes. Thanks, Sterling. So we entered -- we entered Q3, really, I think, seeing organic growth stabilize as we kind of looked at the linearity of the quarter in Q2. And we're encouraged with seeing a stable 9% organic growth into Q3.

And I think we felt encouraged that we had a lot of reasons why we could see acceleration. Well, really, what we saw as Q3 progressed is stability in that metric. And so, a lot of the things we're excited about have actually launched to market. And Steve highlighted just a couple of the things we launched at RealWorld from the new product standpoint.

I think he highlighted some of the things that we've done on the Yes-To-Success that are in the market. The blend overall of execution, in particular when taken into account the Utility Management business, that has us at kind of a stable 9%. So it's prudent to talk about an 8 to 9% growth for Q4. But certainly, we believe that we're invested, and we have a whole bunch of innovation to do better than that.

And when we're executing to better growth, we'll start talking about higher numbers. But right now, we're growing at 9%.

Sterling Auty -- J.P. Morgan -- Analyst

Got it. Thank you.

Operator

Your next question comes from the line of Pat Walravens with JMP Securities. Please proceed with your question.

Joey Marincek -- JMP Securities -- Analyst

Hi. This is Joey on for Pat. Thanks for taking our questions. First, we are wondering how does Buildium compare to competitors like AppFolio and Propertyware?

Steve Winn -- Chairman and Chief Executive Officer

Buildium is a -- probably has a lower average units per client in the Buildium customer base. Buildium is -- got just an unbelievably easy user interface and self-provisioning capability that supports multiple asset classes. And they have accomplished what we are striving to accomplish with some of our products. They are moving up market.

And so, if you look at the AppFolio installed base, they're larger, and Buildium is competing from the bottom. Propertyware addresses a larger single-family holders and operators with trust accounting needs and more sophisticated requirements, and they're competing with the RealPage OneSite installed base above AppFolio. So we're encouraged because we're going to be able to plug capabilities into Buildium that Propertyware and OneSite already have. The good thing about these capabilities, and we've already reengineered them to be self-provisioned, and they can be clicked on by the Buildium customer base.

So we're going to give Buildium customers a much richer AI Screening capability of a complete suite of leasing and resident experience that they don't have. They'll have a better Renters Insurance, a much more powerful payment processing platform. And probably most significant from an ARPU standpoint, we're plugging in an extraordinary utility billing capability called SimpleBills that we acquired earlier in the year that has just a huge ROI for single-family owners and operators. So we think there's a big opportunity here for Buildium to become a much more formidable competitor and continue to -- they're tracked to move up in the market.

Joey Marincek -- JMP Securities -- Analyst

And then my last question is what impact does the settlement between Yardi and property solutions have on RealPage? Thank you.

Steve Winn -- Chairman and Chief Executive Officer

We're told that they have settled, but we've not heard anything more than that. So in terms of the -- what we're seeing in the market, there is no change. And I think that the -- whatever settlement they reached was confidential, so we'll probably never know.

Joey Marincek -- JMP Securities -- Analyst

Thank you.

Operator

Your next question comes from the line of Matt Hedberg with RBC Capital. Please proceed with your question.

Dan Bergstrom -- RBC Capital Markets -- Analyst

Hey, it's Dan Bergstrom for Matt Hedberg. Thanks for taking our questions. Congrats on Buildium. Could you talk a little bit about the timing there, why it makes sense now? I know recently you've talked somewhat about -- a somewhat underappreciated opportunity at the lower end of the market and around single-family? Is it simply that?

Steve Winn -- Chairman and Chief Executive Officer

Well, if we look at the three segments that we compete in: enterprise, which is 20,000 units and above; corporate, which is five to 20; and SMB, which is under 5,000 multifamily units, plus all of the single-family HOA market. That's about 50 million units in SMB. We're generating about 306 million out of that space. And I believe that it is, by far, the most underpenetrated area of the market.

And so, it just made a lot of sense to us to acquire a very successful competitor in that space and really double down, if you will, on SMB. We think there's a lot more growth opportunity there than anywhere else in the market right now.

Dan Bergstrom -- RBC Capital Markets -- Analyst

Great. And then could you talk a little bit about their presence in student housing? I believe there is some. You, yourself, you've had a lot of activity there this year, top 10 student housing leader win press released recently. You acquired SimpleBills.

You hosted a student summit earlier this year. Just a little bit more around that combined opportunity could be helpful.

Steve Winn -- Chairman and Chief Executive Officer

You know a lot about what we're doing. We do think student is an interesting market. It's clearly not the size of conventional or affordable or SMB. But it's interesting because the revenue -- instead of calculating revenue based on the unit, you calculate it based on the bed.

So you generate more revenue out of a student's property than you do a conventional property. So it is a focus of ours. We've, I think, played a little catch-up with one of our other competitors who focused on this area. And we've -- we now have what we believe is a compelling offering for the student market.

SimpleBills was originally designed for students. So that's been a home run for us. But it's a good important market, and then we're focused on it.

Dan Bergstrom -- RBC Capital Markets -- Analyst

Thanks, Steve.

Operator

Your next question comes from the line of Ryan Tomasello with KBW. Please proceed with your question.

Ryan Tomasello -- KBW -- Analyst

Good evening, everyone. Thanks for taking my questions. Just first, parsing through the 4Q guidance, can you perhaps rank the drivers of the reduction from what, I believe, was previously a 10% organic guide in the fourth quarter to revise 8 to 9%? How much of that relates to -- specifically to these ongoing implementation issues versus the other headwinds that you laid out in the leasing and marketing rollout and the resident utility management customer base? And then secondly, absent Buildium, would you have expected otherwise to be operating within your target 10 to 12% organic revenue growth range in 2020?

Tom Ernst -- Chief Financial Officer and Treasurer

Thanks, Ryan. I'll take those questions in reverse order. So I would say that right now, we're executing toward 9% organic growth. That's what we did in Q1, coming off 10 in Q -- what we did in Q2 coming off 10% in Q1, 9% in Q3 and the mid -- our range for Q4 implies 8 to 9%.

So I think to score where we're at fairly, we have about 9% organic growth momentum. So as we think about looking forward, we're looking to drive a Rule of 40 improvement on that 9% plus our margin of 20 -- at the midpoint, again, would be 28.5%, which would score out of 37.5%.

Ryan Tomasello -- KBW -- Analyst

And then just on the other part of the question on how much of the 9% -- of the 8 to 9% for the fourth quarter relates to the invitation versus these other issues that you laid out?

Tom Ernst -- Chief Financial Officer and Treasurer

Right. So I would say that the bigger two effects were the -- our revenue timing on a couple of the new product initiatives that Steve talked about, along with the resident utility management billing business. And those are roughly equivalent in terms of the impact when we think about our second half projection. So you look at the midpoint of our guidance range, and we did end up reducing our outlook for the second half by about 6 million, the bigger two of those, and they're about equal.

Ryan Tomasello -- KBW -- Analyst

OK. And then on Buildium, realizing you're limited in what you can say, but can you help us understand what the potential revenue and cost synergies for that business will be in 2020 and beyond? You mentioned the deal will be 150 bps accretive to organic growth before any cross-selling and investment. So just wondering where do you see that 28% top line organic growth potentially going and what the potential EBITDA contribution might be in 2020? I think in the past, you've given stabilized EBITDA multiple targets for some of your acquisitions. So I'm not sure if you're able to give that.

And I know that's a pretty loaded question, but any color you can give would be helpful.

Tom Ernst -- Chief Financial Officer and Treasurer

Absolutely, Brian. Thanks. Unfortunately, we can't hard quantify or give you guidance on the close for the combination. We did try to give some insight.

So Steve talked in his prepared remarks about how we believe that with the limited overlap in the market today between Buildium and RealPage that we have a big opportunity to go to -- together jointly with cross-selling of products and also bringing new products together that are just -- are enabled by our market presence. So there certainly are things that we're going to look to do that are going to create revenue synergies and are certainly operating synergies as well. So what I tried to highlight on the call is our plan is to take both of those and apply the synergies to investing for growth. We're expecting Buildium to turn EBITDA positive in Q4.

And what our plan today is that we want Buildium to be nondilutive to our EBITDA next year, so all upside to synergies we want to imply and reinvest back in the business. So before synergies, looking at Buildium and just adding their momentum today, it would add about 150 basis points on the way we calculate organic growth to our organic growth momentum. And it would be dilutive to EBITDA margin by 150 basis points, so effectively neutral to our overall Rule of 40 score.

Ryan Tomasello -- KBW -- Analyst

And then just one last one, if I could. The RPU for Buildium looks to be around $30 today based on the 60 million run rate. Is there a TAM for that RPU that you see over time?

Tom Ernst -- Chief Financial Officer and Treasurer

Yes. Good question. We do plan on walking you through in detail -- or some TAM announced that we are evaluating and want to evaluate jointly when the deal closes. So there is a significant expansion.

We do expect in the TAM as we go to market jointly and as we revise our look in the SMB market. I think we talked a little bit about our view on the TAM in this market expanding as the market is more and more ready and, frankly, just as our software and software from best-in-class platform of Buildium has come to market with its push buttons configured, low cost of support. The product is strong, and the market's ready. So we'll go through that in detail when we close the deal and have our analyst day.

Ryan Tomasello -- KBW -- Analyst

Thanks for taking my questions.

Tom Ernst -- Chief Financial Officer and Treasurer

Thank you.

Operator

Your next question comes from the line of Stephen Sheldon with William Blair. Please proceed with your question.

Stephen Sheldon -- William Blair and Company -- Analyst

Hey.  I guess, first, can you talk some about what Buildium gives you that you couldn't have tried to build out yourself? And then secondly, just maybe on the timing, why this was the right time to complete an acquisition of some magnitude, especially as you're still working through some areas where you've talked about trying to improve execution?

Steve Winn -- Chairman and Chief Executive Officer

Well, Buildium is the catalyst for expanding our investment in the SMB space. It's a $300-plus million business for us, and we think we can grow it at a substantially faster rate. So we want to invest in this area that is so underpenetrated. Could we have built the same thing that Buildium has? Yes.

It would take time. And more important, we wouldn't have 2 million more units, which matters.

Tom Ernst -- Chief Financial Officer and Treasurer

I'll add one more thing on top of that. One thing that we're particularly excited about is bringing on the team and the culture of Buildium. So the leadership team is bubbling with excitement about this as we've talked about the opportunity for things we can bring to market. The team of Buildium right now is having a town hall with some of our RealPage leaders that are joining to form a joint leadership of our go-to-market plans.

And I think we're excited about the people and the culture we're bringing together.

Stephen Sheldon -- William Blair and Company -- Analyst

OK. And then, I guess, you've talked about investing more in the Propertyware business. Can you maybe just talk about what those investments could look like in terms of the product and the go-to-market strategy?

Steve Winn -- Chairman and Chief Executive Officer

I wouldn't characterize it as Propertyware-specific. It's SMB-specific. Everything from a value-add service perspective, which represents the lion's share of the revenue opportunity that we integrate into Propertyware, will also be integrated into Buildium.

Stephen Sheldon -- William Blair and Company -- Analyst

OK, thanks.

Operator

Your next question comes from the line of Jason Celino with KeyBanc. Please proceed with your question.

Jason Celino -- KeyBanc Capital Markets -- Analyst

Hey, guys. Thanks for taking my questions. I kind of have two related to Buildium. The first one is if we just take an average from the press release, it comes out to about 120-ish units per customer for Buildium.

Do you see an opportunity for that to get larger? And then second related question, as we think about the growth opportunities in SMB in Buildium with 2 million units, potential TAM of 50, is this more of -- how do you think of growth between units and ARPU expansion for SMB?

Tom Ernst -- Chief Financial Officer and Treasurer

Yes. Thanks, Jason. So one of the more exciting things about Buildium is that they have engineered the products to work so well. They offer 24/7 phone support as a normal course of business.

So it's something that none of the other competition does because their products just don't work so well. So the phone support is expensive, and they make a part of a premium package. As a result, Buildium has had tremendous success selling to customers with 30, 40, 50 units, 100 units, 200 units. And so that segment of the market, they serve it efficiently and effectively like no one else can.

The platform gets stronger every year. And I think there was a previous question on why now. Buildium really has a rich platform that is ready to take them to mixed-use asset class. And as we've talked with Buildium over time, we share kind of a vision for where the market is going and how we can engineer the best of what we have in our products with the best of what they're having to bring out more products.

So certainly, we project that Buildium can scale well beyond this. And we'll talk a little bit more about the state of the business when we can get more details, but there's a bright future for that platform as there's a bright future for the Propertyware platform, which today serves typically much larger, more complex customers. And as Steve highlighted as well, the development that we're going to build together with the combined installed base and the data that can fuel the capabilities we can develop really unlocks the SMB opportunity. Operator? Jason, are you there?

Operator

Your next question comes from the line of Peter Heckmann with Davidson. Please proceed with your question.

Peter Heckmann -- D.A. Davidson -- Analyst

Good afternoon, gentlemen. Could you talk a little bit more about bookings year to date, where you've seen strength? And if possible, can you quantify in terms of the percentage year over year, how bookings have looked and if possible, by segment and by tier?

Tom Ernst -- Chief Financial Officer and Treasurer

So I'll give you some qualitative comments. We -- as you know, we don't disclose our overall bookings growth. But we are seeing healthy bookings growth. Our bookings growth, I think as I commented in my prepared remarks, are growing because we've expanded the capacity of our sales organization.

So that's up about 6% year on year. And we are also seeing productivity lift on top of that. At the same time, I would say there's a couple of the issues that Steve pointed out. In particular, we're not -- our bookings on the back of some of our new innovations we've launched this year, our timing out later, along with -- we've seen some marginal weakness in our utility management business.

So on net, I would say that our bookings are healthy and certainly supportive of our outlook for 9% to 10% growth in Q4.

Peter Heckmann -- D.A. Davidson -- Analyst

OK. And then if you may defer this to your analyst day, but any thoughts on how Buildium helps you achieve the 2020 goals you laid out?

Tom Ernst -- Chief Financial Officer and Treasurer

Yes. I think let us finish our strategic planning process and get past the HSR and give you a combined plan. But before we talk about synergies and go-to-market plans, Buildium itself does change the model a little bit. It accelerates our organic growth.

It has an equivalent negative impact, the EBITDA margin percentage. And we are certainly going to outline a plan for you on how we plan for long-term growth and what we're going to do in 2020 at the analyst day.

Peter Heckmann -- D.A. Davidson -- Analyst

OK, thanks.

Operator

Your next question comes from the line of Mark Schappel with The Benchmark Company. Please proceed with your question.

Mark Schappel -- The Benchmark Company -- Analyst

Hi. Thanks for taking my questions. Most of my questions have been answered. Just one though.

Tom, with respect to the extended implementations that you're addressing through your Yes-To-Success programs, I was wondering if you could just give us a little better idea of when the company expects those issues to largely be resolved.

Tom Ernst -- Chief Financial Officer and Treasurer

Well, I think we're putting in place the things to attack it with rigor. And Steve highlighted a few of them. And to put an exclamation point on, we're getting much more sophisticated with tracking the whole Yes-To-Success process and the customer journey through that process. And so I think to the extent we have more time in that mapping through all phases of it, we can get better and better.

So we've been saying this all along that there's certainly short-term things that we think we're going to improve, but we recognize we're in a long-term game. And as we think about where we want to be over the very long term, we want to drive dramatic reductions in time from the time a customer decides they want to buy our services to the time they're fully successful. So we think there's a huge opportunity there. So it's a little -- it's a mix, continues to be a mix of a short- and long-term game.

And we're going to send modest expectations for what we do as we think about the immediate future.

Mark Schappel -- The Benchmark Company -- Analyst

Thank you.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Rhett Butler -- Vice President, Investor Relations

Steve Winn -- Chairman and Chief Executive Officer

Tom Ernst -- Chief Financial Officer and Treasurer

Unknown speaker

Sterling Auty -- J.P. Morgan -- Analyst

Joey Marincek -- JMP Securities -- Analyst

Dan Bergstrom -- RBC Capital Markets -- Analyst

Ryan Tomasello -- KBW -- Analyst

Stephen Sheldon -- William Blair and Company -- Analyst

Jason Celino -- KeyBanc Capital Markets -- Analyst

Peter Heckmann -- D.A. Davidson -- Analyst

Mark Schappel -- The Benchmark Company -- Analyst

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