RealPage (RP) Q4 2019 Earnings Call Transcript

RealPage (RP)
Q4 2019 Earnings Call
Feb 27, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the RealPage fourth-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 of investor relations.

Please go ahead, sir.

Rhett Butler -- Vice President of Investor Relations

Thank you. Good afternoon, and welcome to the RealPage Financial results conference call for the fourth quarter and year ended December 31, 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, February 27, 2020, 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, as amended on November 5, 2019, and our quarterly report on Form 10-Q previously filed with the SEC on November 8, 2019, and 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 will hand the call over to Steve.

Steve Winn -- Chairman and Chief Executive Officer

Thanks, Rhett. Welcome, everyone, and thank you for joining us. Q4 was a strong quarter for RealPage, and I'm pleased that we exceeded the high end of our revenue and EBITDA guidance. 2019 was a pivotal year for RealPage as we released more internal innovations and acquired more external innovators than any time in our history.

Our platform is thinly penetrated across the $580 billion rental housing market in the U.S. We estimate this market only spends about 1% of that amount on technology, excluding telecom. As part of our 2019 investments, we expanded our strategic platform to provide enhanced benchmarking transparency to help owners identify yield leakage. We believe our industry can capture 300 to 400 basis points of incremental yield by increasing technology spend, and our benchmarking platform enables them to zero in on where to find this yield opportunity.

The pace of new product innovation for resident services, our largest and fastest-growing product category, continue to increase. In December, we deployed ActiveBuilding e-commerce, a solution that is purpose-built to enhance the resident experience and drive incremental yield from amenities like spaces, services and events. A radically redesigned custom branded mobile app enables residents to reserve and pay for amenity spaces and events directly including such things as parking, guest suites, self-storage, clubhouses, conference rooms, yoga classes, dog walkers and more. So far, clients monetized 25 different amenities and rentables, with guest suites and parking generating the most incremental revenue.

We expect ActiveBuilding to become an even more powerful resident engagement platform with our acquisition of Modern Message, which provides loyalty and reward programs for residents and proactively helps properties improve their online reputation assessment score called ORA. Modern Message is being tightly integrated into ActiveBuilding. In January, we enhanced our contact center to capture all prospect communications at every touch point on every channel via text, chat, email or phone in a single integrated guest card. And we deployed dynamic landing pages that personalize the follow-up to the prospect with visual email and message content that matches the prospect's stated interest.

We're now testing a new AI contact center scheduled for release in Q2 that activates an AI bot we call Simon, who's smart enough to handle most questions without the need for a human agent. However, if a prospect ever gets frustrated with Simon, for example, try changing a reservation using a bot on an airline, the prospect will be automatically routed to a live agent, or the prospect can request a live agent at any time. Simon will be available for chat, text, email and phone calls. Because we will augment our AI bots with humans, we expect that our new offering will drive up the quality of the experience for consumers, while simultaneously driving down the cost of our contact center for our clients, all with absolutely no decline in the already great conversion rates that we deliver.

We continue to integrate our acquisition of LeaseLabs into our marketing suite and are now offering a full range of Go Direct services and award-winning LeaseLab designs on top of the RealPage website platform. Holly Residential, a midsize operator with over 40 properties, implemented LeaseLabs and in the first six months realized 139% organic traffic increase, a 219% direct lead increase and a 229% increase in appointments scheduled. Clients are excited about our leasing and marketing suite powered by LeaseLabs because they can shift lead volume from expensive Internet listing services to direct channels. Clients like Olympus Property, managing over 17,000 units, were able to reduce ILS spend by 31%.

Cost per lead was reduced significantly by 70%, and the average annual leads per property increased by 104% using LeaseLabs. Earlier today, we announced AI Revenue Management, a multidimensional tool that harmonizes the optimization of price, demand, credit and leasing agent behavior, producing even more yield than price optimization alone. The timing is perfect since some markets are beginning to soften and clients seek ways to achieve the maximum yield on their assets. There are two capabilities within AI Revenue Management that I'm particularly excited about.

The first is a just-in-time demand optimizer that flexes marketing activity to either spend up or spend down based on the occupancy risk. This allows our customers to get the leads they need for at-risk floor plans and fill their vacancies as an alternative to lowering price. The second capability within AI Revenue Management, which is even more exciting, is a new amenity price optimizer that uses statistical analysis of internal and external benchmarks to dynamically set the price of a major amenity such as parking, storage or guest suites. This is an area that clients are not typically focusing on, and we've seen yield improvements of as much as 100 basis points achieved by early beta users by simply charging the right price at the right time for all the amenities and an apartment that residents are willing to pay for.

This, by the way, ties directly into ActiveBuilding. Another innovation released last year is AI Screening, one of our first self-provision solutions launched from learnings derived out of our massive repository of data. During the back half of 2019, we seamlessly provisioned AI Screening to nearly 1.7 million units. Our data is showing some pretty interesting client insights.

For example, a top 10 REIT is experiencing an 11% decrease in their default rate within the first four months of deploying AI Screening. Another 10,000-unit client has saved $23 per unit per year for an estimated total of $230,000 worth of savings over just six months post implementation of AI Screening. Another area where we're gaining traction with innovation is our asset and investment management platform, known in the market as AIM. AIM provides a 360-degree view across the investment life cycle, empowering general and limited partners to collect, validate, consolidate and visualize real estate and alternative investment performance data with global reach.

Launched in October of 2019, early successes show enormous excitement over this platform. Additionally, our acquisition of Investor Management Services, also known as IMS, in December makes AIM even more powerful because we can now mark to market real estate assets every month and push the valuation through the IMS waterfall engine to all limited partners. Since the acquisition, 39 general partners signed on to add investment management capabilities provided by the IMS solution. Now our inorganic innovation efforts, also known as M&A, have focused on bolstering our SMB, leasing and marketing, renters' insurance and institutional capabilities with the acquisition of Buildium, LeaseTerm Solutions, SimpleBills, Modern Message, Hipercept and Investor Management Services.

These acquisitions are in varying stages of integration, but we're very excited about early success. For example, we already brought RealPage pricing power to Buildium, with expected savings of $2 million in their cost of sales over the next 12 months. Buildium was a great acquisition for RealPage. It turned profitable in the fourth quarter of last year, and we expect accelerating revenue gains as we integrate powerful RealPage value-added services into the Buildium platform.

From a simplification perspective, we've recently promoted Mike Britti as the leader of our Emerging Markets division. Mike was formerly our Head of M&A and is returning to his operational roots. Mike will oversee our institutional, SMB and vacation businesses. Mike is well versed in the integration of over 40 acquisitions at RealPage, so his experience will be important as we continue integrating Buildium.

In connection with this move, Ashley Glover is also promoted to president of RealPage, responsible for every aspect of our multifamily business in addition to sales, marketing and client success. Ashley has been pivotal in driving our sales and marketing strategy and reengineering Yes-To-Success processes to speed up mean time to implementation We are now activating as fast as we are booking and expect to see more acceleration in 2020. We believe the elevation of Ashley and Mike streamline our organizational structure, enabling accelerated innovation and continued platform traction. In closing, we have reevaluated our total addressable market, or TAM, which is not updated for nearly 10 years.

We believe our ARPU estimates have become stale and do not reflect the reality of what some clients are buying from RealPage today. Overall, we believe our TAM is over $20 billion, up from $13 billion, which has been our estimate for several years. There are nearly 21 million multifamily units in the U.S. From a product perspective, we are now projecting an aggregate RPU for multifamily of over $400 per unit adjusted for proper take rates of each category of apartments, such as conventional, affordable, student, etc.

Single-family represents another 24 million units with an average ARPU opportunity of over $300. And HOA now has an ARPU opportunity of about $100, thanks to the Buildium acquisition. This is a good time to be in the real estate technology space. We believe that the market will expand dramatically as owners become more aware of the potential 300 to 400 basis points of incremental yield that is possible with technology solutions on the market today.

We believe the market is way under-penetrated with less than a third of the total addressable market monetized today. And we believe RealPage is positioned better than any other proptech solution provider to garner more share than others because of the breadth of our platform, the depth of our sales force and our commitment to our north star of innovation and simplification. Thanks for joining us on today's call. With that, I'll turn the call over to Tom.

Tom Ernst -- Chief Financial Officer and Treasurer

Thank you, Steve, and good afternoon, everyone. During 2019, we launched one of the largest waves of innovation in the company's history, made six strategic acquisitions including one in January and implemented a comprehensive program that is yielding returns and driving our Yes-To-Success client journey. Our strong results for 2019 reflect these efforts and put us on favorable footing as we enter 2020. We closed three of these acquisitions since we reported earnings last quarter: Buildium, IMS and Modern Message.

We are very excited about the combined go to market and infusion of talent to drive growth in our SMB, institutional and leasing and marketing business areas. Collectively, these acquisitions did $71 million of revenue in 2019, including $54 million from Buildium. We believe there is significant potential for organic revenue growth especially if the cross-selling and integration efforts Steve highlighted can take root. Financial performance for 2019 reflects strong revenue growth of 13%, compared to the prior-year adjusted EBITDA growth of 22%.

We generated approximately $240 million of operating cash flow, reflecting 28% growth compared to the prior year, excluding the impact from changes in restricted cash relating to accounting treatment changes and excluding the $12 million working capital impact related to the Buildium acquisition. Moving on to the quarter. Fourth-quarter financial performance exceeded our guidance. Total revenue grew 12% year over year, which was 9% on an organic basis.

The acquisitions of Buildium and IMS contributed approximately $2.5 million of revenue during the quarter. And adjusting for this, our total revenue performance exceeded the high end of guidance by approximately $700,000. Adjusted EBITDA grew 25% and exceeded the high end of our guidance range by nearly $200,000 despite a slight negative impact from Buildium and IMS. Payment processing, when combined with renters' insurance, continued to be the biggest drivers of growth compared to the prior year.

Other drivers of growth included asset investment management, business intelligence, property management capabilities such as ops solutions in addition to our vacation rental platform. From a product family perspective, property management grew 10% year over year; leasing and marketing grew 8%; and asset optimization grew 13% year over year. We did experience headwinds in leasing and marketing related primarily to the contact center, where prices are declining as new AI bots replace what humans used to do. Steve addressed our strategy in this area, and we remain very bullish on leasing and marketing growth in all other areas, especially in our LeaseLabs outperformance.

From a profitability perspective, in Q4, we expanded adjusted EBITDA margins by over 300 basis points to nearly 30% compared to the prior-year period. Overall profitability was driven primarily by operating leverage and product development and G&A. Adjusted gross margins were flattish compared to the prior year driven by acquisition integration and Yes-To-Success process improvement efforts. Product development cost as a percentage of revenue decreased 230 basis points year over year and continues to be primarily driven by our centralization efforts that are increasing the efficiency of our development.

Leverage in G&A of 60 basis points continues to benefit from scale efficiencies and our focus on simplification across the business. During the quarter, we generated approximately $58 million of operating cash, excluding the impact from changes in restricted cash relating to accounting treatment changes and excluding a working capital impact due to the Buildium acquisition of approximately $12 million. Our leverage ratio is now 3.1 times, reflecting the close of the Buildium and IMS acquisitions. This is comfortably within our two x to four x range we believe is optimal operationally.

During the quarter, we repurchased $8.5 million worth of RealPage stock at an average price of $53.39, retiring 159,000 shares. We have approximately $91.5 million left on our authorization. Our strategic platform vision continues to gain traction. Excluding impact from acquisitions, we continue to see a healthy mix of growth in the new units and RPU expansion.

From a unit perspective, we grew total units by 2.3 million units, compared to the prior year, which includes 1.7 million unique units added from the Buildium acquisition. Bookings growth continued at healthy levels, supportive of our plans for 2020. We are entering 2020 with a larger sales team. The team is 10% larger than in Q3 and 19% larger than exiting 2018, ending the year with 557 sales team members.

This growth was driven by expansion in SMB and institutional teams primarily due to the Buildium and IMS acquisitions and also includes expansion across the rest of the team. We are well-positioned to drive the growth in our plan with the investments we're making. Turning to our outlook for the first quarter of 2020. We expect non-GAAP revenue of $277 million to $281 million.

Adjusted EBITDA is expected to be between $70 million to $72 million, reflecting the typical Q1 step-up in payroll taxes, as well as our investment posture to drive growth as we enter 2020. Non-GAAP diluted earnings per share is expected to be $0.41 to $0.43. For the full year, we expect non-GAAP revenue of $1.165 billion to $1.185 billion, which reflects an organic revenue growth between 10% to 12% representing an acceleration of 100 to 300 basis points and total revenue growth of 18% to 20%. Adjusted EBITDA is expected to be $320 million to $324 million.

This reflects a solid 14% to 15% growth in absolute adjusted EBITDA dollars and includes an impact from acquisitions and strategic investments that results in a margin of 27% to nearly 28%. In line with the framework we laid out on last quarter's call, that gives us flexibility to prioritize growth. As a reminder, organic contribution margins on a year-over-year revenue growth for RealPage continued to be in the mid- to high 40s or greater, which speaks to the long-term profitability potential of our company. Non-GAAP diluted earnings per share is expected to be $1.95 to $2.

We believe our full-year expectations prudently reflect current momentum in the business and highlight our intention to significantly lift our performance. Our full-year expectations also significantly exceed consensus estimates fully adjusted for the acquisitions. In 2018, we set an ambitious goal. We discussed the goal of $1.5 billion in revenue in 2022, with a run rate of $500 million in EBITDA.

We continue to believe these are good goals for us. Last quarter, we discussed how we wanted to target revenue acceleration in the near term, and that would come with the trade-off of less margin expansion. As we look over the next three years, we see more upside potential to the $1.5 billion in revenue goal as we may continue to target some revenue growth acceleration beyond our 2020 plan. Despite that, we continue to feel that a $500 million EBITDA goal is ambitious, but one we are driving to achieve.

Lastly, we are announcing our intention to hold our Analyst Day during the RealWorld User Conference in July. We believe a deeper dive into our strategy, combined with access to a significant portion of our client base, will be compelling for investors and will help explain our view on why we believe RealPage represents a significant investment opportunity. We look forward to seeing everyone there. This concludes our prepared remarks.

Operator, let's open the call for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Your first question comes from the line of Matt Hedberg with RBC Capital. Please proceed with your question.

Dan Bergstrom -- RBC Capital Markets -- Analyst

Hey, guys. It's Dan Bergstrom for Matt Hedberg here. Thanks for taking our questions. See, the initial organic growth rate outlook for 2020 is impressive, I think 10% to 12%, 100- to 300-basis-point acceleration, as you mentioned.

Could you just highlight a couple of things here that have changed over the last several quarters that really have you in a better position to execute on that 10% to 12% growth rate here versus previously?

Steve Winn -- Chairman and Chief Executive Officer

Thanks, Dan. I'll take that. We, first and foremost, have made some acquisitions that will drive some organic revenue growth. And just as important, we've introduced so many new innovations into the market that are driving significant incremental yield to our customers that we are very confident that organic revenue growth is going to a company that -- or the launch of those products.

2019 was a year of heavy investment for us, and 2020 is the year that we expect to start to reap the benefit of some of that investment.

Dan Bergstrom -- RBC Capital Markets -- Analyst

That's great, Steve. Thanks. And maybe more specifically on one of those potential organic drivers, in the prepared remarks, you talked about Buildium traditionally purchasing outside value-added services. I think those would be things such as payment, screening, things like that.

I'm assuming those haven't contributed much from a financial perspective? And it sounds like you're expecting more profitability with the attach of RealPage value-added services. Is there any way to get a sense of the potential magnitude of that opportunity? Is there a way to measure it as potential ARPU uplift per unit or building or something like that?

Steve Winn -- Chairman and Chief Executive Officer

Well, Buildium was underpenetrated in value-added services compared to RealPage. So we clearly see an opportunity to accelerate the penetration of all the products you just mentioned. We also candidly have a much higher profit margin on our value-added services than Buildium had primarily because they were buying them through third parties. And so this is one of the reasons why Buildium was such an attractive acquisition.

We see a lot of revenue synergy opportunity. And just as important, we see the expense efficiencies that we can achieve, just simply by using RealPage products that are better and because they've been around a lot longer and are less expensive to operate because of our size.

Tom Ernst -- Chief Financial Officer and Treasurer

Yeah. I'll add one more thought there, Dan. We also bring on just over 1.6 million in unique units to our SMB marketplace, which bring on that rich data pool, right, so that we can have even stronger value-added services and bring more innovation to market over time. So the combination here has some pretty incredible firepower as we look down the road.

Operator

Your next question comes from the line of John Campbell with Stephens. Please proceed with your question.

John Campbell -- Stephens Inc. -- Analyst

Hey, guys. Great close to the year. Congrats.

Steve Winn -- Chairman and Chief Executive Officer

Thank you.

John Campbell -- Stephens Inc. -- Analyst

It seems like you've got the stage set for a kind of new and exciting year on the, I guess, on the SMB front. I'm guessing you guys are going to attack that market hard this year. I mean, you have Buildium in place. It sounds like you're gearing up the investments as well.

You talked about some of the sales, the headcount increases sequentially versus the Q. But could you maybe just talk through what else you need to do to better position yourself for that SMB opportunity? I mean, is it a continuation of sales team growth? Do you need to adapt some of your, I guess, legacy offerings from the ancillary offerings to better serve the SMB market? Any kind of update would be great.

Steve Winn -- Chairman and Chief Executive Officer

I think the plan is exactly as I explained it. We're focused on improving the capabilities of all of the value-added services that Buildium offers. We're going to, for example, be pushing our website technology into Buildium, which is much better than any other competitive offering in the SMB space. And we're pushing our renters' insurance platform into Buildium.

Our AI Screening will be pushed into Buildium. Our payment engine, which is much more profitable than theirs, will be pushed into Buildium, so.

John Campbell -- Stephens Inc. -- Analyst

Bill sharing?

Steve Winn -- Chairman and Chief Executive Officer

Oh, I missed maybe the most important, SimpleBills, which is a product or a company we bought mid-2019 is just dead-on the best solution for managing utility bills. And we're seeing immense interest in the owners and operators of single-family properties in deploying the SimpleBills platform. By the way, the resident pays for that, not the owner. So it's kind of cost-neutral, but it dramatically reduces the cost the owners incur to manage utilities as their resident base turns over.

John Campbell -- Stephens Inc. -- Analyst

OK, that's helpful. And then, Steve, I'm gonna try to get your high-level thoughts on CoStar, the pending acquisition of RentPath and how that might alter the ILS landscape?

Steve Winn -- Chairman and Chief Executive Officer

Well, Andy is nothing if he's not gutsy. He couldn't buy RentPath before because the DOJ would have tied him up in court probably forever. So he just waited until their high-yield lenders forced them into bankruptcy. Of course, now he can argue that the failed firm defense should allow him to move forward with this acquisition.

I think this is a chapter right out of the Robert Baron playbook. RentPath is a good company, and it would be fine if their lenders didn't smother them with high-yield debt. And I certainly understand why CoStar wants to buy them. It's the last piece of the puzzle they need to dominate the ILS lead aggregation space in multifamily.

Based on our analysis, over about 16 million guest cards submitted in the last 12 months, CoStar and RentPath together represent approximately 70% of all leases generated through ILS channels. So this is extreme concentration. I don't think lead aggregators are the friends of our industry. Once they control who shows up at the front door, they control our client.

CoStar is a great company and I admire the management, but they have a market capitalization of $25 billion. And after this acquisition, should it go through, I think that will continue to grow kind of following in the footsteps of the hotel aggregators who have essentially seized a huge amount of the equity stack out of that industry. I hope the DOJ, and more importantly, I hope the industry figures out what's happening here and stops it.

John Campbell -- Stephens Inc. -- Analyst

OK, that's helpful. Thanks, guys.

Operator

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

Ryan Tomasello -- KBW -- Analyst

Hi. Good evening, everyone. Thanks for taking my questions. I was wondering if you can talk about how you expect the organic revenue growth and margin performance to ramp throughout the year, and perhaps what the 1Q guidance suggests for organic growth, if you didn't already give that in your prepared remarks, considering we're already close -- about to close out the first quarter here.

And perhaps you can give us some real-time insight on how the reacceleration is performing, and how Buildium is performing in the early stages so far.

Tom Ernst -- Chief Financial Officer and Treasurer

Sure. Absolutely, Ryan. So our Q1 guidance includes a range of 10% to 11% on organic growth on the top line. And as we highlighted on the call as well, our organic growth for the year is a 10% to 12% range, our EBITDA margin ramps through the course of the year.

As we look at our margin expansion in Q1, we're expecting about 200- to 250-basis-point year-on-year decline in EBITDA margin. There's a couple of factors here at play. First, we are expecting about 100-basis-point decline in gross margin. This is primarily due to acquisition integration in the mix, along with the continued investment we've been talking about and Yes-To-Success.

The rest is growth investment for the year. And as we think about that growth investment, the growth investment is front-end loaded on the sales and marketing side and we ramped a little bit more smooth on the product development side as we look across.

Ryan Tomasello -- KBW -- Analyst

Got it. That's helpful. And I was wondering if you can provide us with an update on AI Screening. I know you've provided some color in your prepared remarks.

From my understanding, this is one of the first large new product launches where you took the free trial type of approach with a push-button, self-configure product. So I was wondering if you can say how many units are actually paying for that tool today? And what kind of take rate that represents of the 1.7 million units that you mentioned opted into the product so far? And is this free trial method something that you plan to utilize more going forward to encourage adoption of new products?

Steve Winn -- Chairman and Chief Executive Officer

Well, we're going to use it in the future, but 90% of the clients that opted into that so-called free trial, it wasn't a free trial on screening, it was a free trial on the price increase that was associated with the AI Screening product. 90% of the 1.7 million units that we deployed it on have passed their date when they could make a decision not to continue to use it. I might add, we have not turned this on yet with the on-site screening customers because we're just finishing the integration of AI Screening into on site. So we're expecting another fairly significant lift when this deploys in the next quarter or two.

Although we do it again, it's just going to be on a case-by-case basis. So I think any time we can self-provision a feature like this, the benefit of turning it on for everybody and telling them that you can turn it off, and we won't -- you don't have to pay for the increase, or you just let it run, is a way to drive adoption very quickly of these new features. So we like the concept, and I wouldn't be surprised if you see it again.

Tom Ernst -- Chief Financial Officer and Treasurer

And Ryan, the impact on 2019 was just under $1 million in revenue. I think you identified correctly that we launched this first as a free product for the first three months and then a money-back guarantee for the next three months in last year, and rolled this out to customers in a remote push button, self-configured launch over the course of Q3 and Q4. So the run rate of business as we entered 2020 is a little bit higher than that. I called about 40 basis points lift plus to our growth in revenue for 2020.

And one of the exciting things about this product, too, is that's the installed base growth. So I think the sales organization, account management organization is excited about the opportunity to go out and win new business with this product as we look forward.

Ryan Tomasello -- KBW -- Analyst

Great. And then just if I can squeeze one last one in, a large competitor that was just alluded to earlier also recently launched a suite of digital tools for owners at the low end of the rental market, primarily screening and online leasing and payments. I think it seems the focus of that push is actually even at a lower point than Buildium initially. But Steve and Tom, I was wondering if you had any thoughts around that? And if you think that this might, in some way, increase the competitive pressure on Buildium's cross-selling strategy?

Steve Winn -- Chairman and Chief Executive Officer

Look, I think CoStar is who we're talking about is doing what they should do. I think that a bundled package to the low end of the market makes a lot of sense. But I also think if you're a Buildium customer and RealPage offers the same thing, tightly integrated with their system of record, the clients are going to use that and not a stand-alone product that's not tightly integrated, particularly on the payments. I mean, you may get a screening payment through that platform, but I can't imagine that anybody would pay their rent through Costar.

Ryan Tomasello -- KBW -- Analyst

Thanks for taking the questions.

Operator

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

Matt Walravens -- JMP Securities -- Analyst

Great. Thank you. I guess, the question is Tom, one for you, which is the operating cash flow came in way above what we've modeled, so love to get some color there. And then I'll just throw the second one out.

Steve, I would love some more color on how you think only Buildium will change the competitive dynamics with Yardi and with AppFolio.

Tom Ernst -- Chief Financial Officer and Treasurer

Yeah. Thanks, Matt. I'll take the cash flow question first. So we do continue to be encouraged by our operating cash flow leverage.

I think we continue to see that tracking well with our EBITDA expansion. I think we're applying good discipline to our investment in terms of CapEx that enables those two to track quite well. So I think we are happy with the expansion of operating cash flow and levered free cash flow. I think as we look into next year, you should be expecting that we'll pick up a little bit more interest expense associated with the acquisitions.

But otherwise, I would continue to expect that relationship to track between cash flow and EBITDA.

Steve Winn -- Chairman and Chief Executive Officer

With respect to the SMB market, AppFolio and Yardi, a product called Breeze are the two primary competitors in that space. There are a bunch of other smaller ones, but those are the two primary competitors. By combining all of the value-added services that RealPage offers into our Buildium and property ware solution, I think we have a clear product leadership position against both these competitors. Please recognize this is a huge market.

I think if you take SMB, there's north of 50 million units there. So there's a lot of opportunity for all of us to continue to grow in that space. If you look at our revenue breakdown now, we've got about $320 million, $325 million of revenue in SMB coming out of 2019. And I clearly believe that segment will be the fastest-growing category or segment of the market that we compete in.

Is that the color you're looking for?

Matt Walravens -- JMP Securities -- Analyst

Yeah, that's good. And what would also be helpful just to sort of to just simplify it a little bit for us, Steve, in terms of the number of units, like how do we think about where Buildium's real sweet spot is, where AppFolio's sweet spot is, and where Yardi's might be in the SMB?

Steve Winn -- Chairman and Chief Executive Officer

Well, I think Buildium is slightly below AppFolio. They tend to sell to owner operators that manage a fewer number of properties. Now that's changing because as we surround Buildium with all of the capabilities that RealPage has, then there's really no constraint on our ability to move upmarket with Buildium. I think AppFolio's average unit count's about 300 on their customers, and Buildium's about 90.

So that's how -- that's clearly, we want to move up in the market, and that's Buildium's focus. And where I think we're going to really win is in the service levels that Buildium offers and the self-provisioning capabilities that Buildium provides. The accounting solution that RealPage brings to the table is far superior to AppFolio. I just think we've got a good run here, but again it's a huge market.

So I wouldn't -- everybody is going to win.

Tom Ernst -- Chief Financial Officer and Treasurer

Yeah, I'll add to that. That we're closing in on 10 million total units in the SMB market at RealPage. Obviously, we're stronger before the Buildium acquisition in the upper end of that SMB market. But it certainly feels to me like the combination of Buildium and RealPage doesn't leave a sweet spot in the middle anywhere.

Matt Walravens -- JMP Securities -- Analyst

OK, great. Thank you.

Operator

Your next question comes from the line of Joe Vruwink with Robert W. Baird and Company. Please proceed with your question.

Joe Vruwink -- Robert W. Baird and Company -- Analyst

Hi. Good afternoon. I just wanted to follow up. I think it was said in the prepared remarks that maybe the end markets are changing a little bit, be it slower rent growth or higher vacancy rates.

No question the market is still healthy, but has some of the more recent changes maybe helped drive increased engagement with prospective customers, maybe more so than was the case throughout most of '19?

Steve Winn -- Chairman and Chief Executive Officer

The multifamily rental housing market is still robust. I mean, rents are growing, occupancies are at near-record highs. But you are seeing some weakness in certain markets, particularly in the Class A new construction area because of the amount of supply that's coming in concentrated in that particular asset class. As markets loosen a little bit, that's really good news for RealPage because our products become more and more important, at least from the perception of the buyer.

I personally think our products are important, notwithstanding what markets you're in. But as markets soften a little bit, I think people all want to start using revenue management. The idea of monetizing amenities that they've heretofore given away for free is a big deal. The efficiency of the way they generate leases is very important.

If they can improve conversion rates, it helps soften the blow of lowering price if you're not getting enough demand. So we like where we are. And candidly, I hope these markets just continue to move along the way they have been. We're really, I think, in sort of a perfect spot right now from a macroeconomic perspective.

Joe Vruwink -- Robert W. Baird and Company -- Analyst

That's great. And if I can squeeze one more in, just on Buildium. I think I heard it exited the year at $54 million. And I think a quarter ago, the thought was maybe $52 million.

I know, kind of small numbers, but anything you'd point out that maybe helped Buildium finish ahead of the original plan in 2019?

Tom Ernst -- Chief Financial Officer and Treasurer

Sure. Absolutely, Joe. And thank you, and congratulations for launching coverage, by the way, as well. So yes, Buildium exceeded what we thought would be $52 million.

Yes, I think they had a healthy close to the year, and I think that's just natural momentum. I think we highlighted that the business has seen some accelerating performance throughout the course of last year. So that trend did continue, but there's nothing exceptional about it, just a healthy close to the quarter.

Joe Vruwink -- Robert W. Baird and Company -- Analyst

OK, great.

Steve Winn -- Chairman and Chief Executive Officer

It turned profitable. It turned profitable, guys. I think that's --

Tom Ernst -- Chief Financial Officer and Treasurer

That's a big deal, yeah.

Steve Winn -- Chairman and Chief Executive Officer

And I would like to highlight that.

Joe Vruwink -- Robert W. Baird and Company -- Analyst

That's great. Steve, Tom, thank you very much.

Operator

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

Devin Au -- KeyBanc Capital Markets -- Analyst

Hi. Thanks for taking on the questions. This is actually Devin on for Jason. Another question on Buildium, if I may.

So I know that you guys have laid out some of the integration plans for Buildium, but just wondering if you can give us a little bit of comment on the feedbacks from the customers on Buildium?

Steve Winn -- Chairman and Chief Executive Officer

We've only owned it since the -- what, December '18 or something like that?

Tom Ernst -- Chief Financial Officer and Treasurer

Right.

Steve Winn -- Chairman and Chief Executive Officer

So it's a little early for us to start quoting success stories, but I expect we're going to have a bunch of them to talk to you about if you come to Analyst Day in July. Generally, the market is absolutely thrilled to see what they perceive to be a great company now having access to value-added services that are best of class. So generally, I think this market is highly receptive to this combination. And I think it's going to be a good space for us.

Tom Ernst -- Chief Financial Officer and Treasurer

Yeah, I'll add to that, Jason. I mean, what would -- excuse me, Devin, what we have seen is the teams that have come together. So the RealPage SMB teams that is now integrated into the Buildium team to form one unit. And the excitement out of the Buildiums and the RealPages that have come together is palpable.

So they are not only working on the things that Steve talked about, but the things that we're not ready to talk about yet, which is what's in their future road map and kind of the big things they're looking to tackle. So I think you're going to hear -- you'll hear a lot more about that. And I certainly expect that we'll be able to expose some of that theme to you at the Analyst Day. When you come to RealWorld, you'll be able to hear from some customers directly there as well.

Devin Au -- KeyBanc Capital Markets -- Analyst

Great. Definitely looking forward to these success stories. Another question I have is looking at your sales and marketing line, which is around 16% kind of total revenue, which is kind of like flat year over year. Just wondering if you can elaborate on that, and were there like any major changes that happened? And should we expect this trend to continue?

Tom Ernst -- Chief Financial Officer and Treasurer

Absolutely. So we did ramp investment in the sales and marketing line, particularly as Q4 progressed. So we are entering the year on a bit more of an aggressive posture in terms of the way we invest. We've also been continuing that investment expansion here in January.

So relative to last year, I would say that the expansion in sales and marketing is coming a lot more around the December, January time frame. And strategically, we plan on doing the bulk of the expansion here earlier in the year than I think we did last year.

Devin Au -- KeyBanc Capital Markets -- Analyst

Great. Thanks.

Operator

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

Jackson Ader -- J.P. Morgan -- Analyst

Thank you. This is Jackson Ader on for Sterling tonight. Our question -- our first question, I should say, Steve, you mentioned a couple of times now the SMB market being large enough to where it's going to allow multiple winners. So if you think about maybe that 15 million unit total addressable market, how much of that do you perceive to be a greenfield where you can basically go up against no incumbent or very little competition?

Steve Winn -- Chairman and Chief Executive Officer

I think the bulk of it if you look at that market, it includes apartments or multifamily with under 5,000 units. That's pretty heavily penetrated at this point. Its single-family is about 24 million units, and that's got a lot of upside. It's not very penetrated at this point, particularly in the value-added services area, I mean, they just -- it's just backwards and it needs technology.

And then the last category is HOA, which we entered through the acquisition of ClickPay. They had, I believe, a couple of million HOA units that they were selling payments through. And it turns out Buildium offers the other half of the suite that HOAs need, which is all the management functionality. And so we now have a complete solution for HOA.

We believe the ARPU potential opportunity in HOA is about $100 a unit. So that's how it breaks down, but it's all mostly greenfield if you look at it from a dollar perspective.

Jackson Ader -- J.P. Morgan -- Analyst

OK, yeah. And then a quick follow-up. I guess, sticking with the HOA market and ClickPay, any material overlap there that we should be aware of in that space?

Tom Ernst -- Chief Financial Officer and Treasurer

You mean with Buildium?

Jackson Ader -- J.P. Morgan -- Analyst

Yes.

Tom Ernst -- Chief Financial Officer and Treasurer

Yes. In terms of the user count, so Buildium brings on a significant HOA base as well. It's about -- sorry, 700,000 units coming in from Buildium in HOA that get added on. And I don't know if we've solved for the full overlap on that.

Perhaps the team has. I think a lot of those are unique units as well. But what's most important is that the combination of those two make up a very powerful platform that no competitor has, right? The underlying property management, plus the payments RealPage is bringing as a first in one platform to the market.

Jackson Ader -- J.P. Morgan -- Analyst

OK, great. Thank you.

Operator

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

Stephen Sheldon -- William Blair and Company -- Analyst

Thanks, and congrats on the results and momentum. First, I wanted to ask about progress integrating different products like ClickPay, SimpleBills, AI Screening into Buildium. How complicated is that integration? How long do you foresee that taking, where you could start to see, I guess, strong uptick in attach rates for those products within Buildium's existing unit base?

Steve Winn -- Chairman and Chief Executive Officer

In the grand scheme of things, it's not that big a deal. We're building APIs now that essentially link all of those products. And the good news about the products we're linking in is they're generally self-provisioned already. So they fit right into the Buildium model of click a button and turn it on.

So I think you're going to see beginning -- look literally in -- by the end of this quarter, you'll start to see some of it. And throughout the year, you're going to see this move pretty quickly. I think we've already sold our first SimpleBills deal into Buildium. So this is not that hard.

Tom Ernst -- Chief Financial Officer and Treasurer

It's not that hard, Stephen. And I will add though, that we're making sure that we ensure we have a seamless customer experience on this, and that's important. I know we talked about last quarter, and I know you understand that part of what really differentiates Buildium is how easy it is to use and how just seamless the -- our customers' experience is. So we want to make sure that we have it engineered just watertight as we launch.

So you'll probably see us do this in a phased approach over the course of the year to ensure that that customer experience stays absolutely best in class.

Stephen Sheldon -- William Blair and Company -- Analyst

Got it. That's great. And then you clearly talked about taking Buildium more upmarket relative to their current average unit count by client. I guess, do you also envision taking that down market as well at some point to go after the even bigger unit opportunity there? I know that there'd likely need to be a different go-to-market strategy, but do you see that as an opportunity at some point?

Steve Winn -- Chairman and Chief Executive Officer

Well, I don't see us going down to the owner of a single-family home, at least not anytime soon. I think we really look at 20 units or more as the target market for Buildium. That may change, but right now, we need to focus on the low-hanging fruit, and I don't think that's at that extreme low end.

Tom Ernst -- Chief Financial Officer and Treasurer

Yes. Right now, Steve, there's just so much opportunity to penetrate above that target market that we have far more growth than we can handle by doing that. But over the long run, obviously, we're building software that's self-configured and will be able to penetrate the full range of the market. It's not the focus now.

Stephen Sheldon -- William Blair and Company -- Analyst

Makes sense. And one last one, if I could. Good to hear that Buildium turned profitable. Any rough ballpark on what you've included for adjusted EBITDA for Buildium in 2020?

Tom Ernst -- Chief Financial Officer and Treasurer

I don't know that I'll break it down in detail, but we are expecting some margin expansion from Buildium. The focus is on growth in our single-family business as we're bringing all these products to market together. But we will see them expand comfortably into the single digits of margin this year as a percentage.

Stephen Sheldon -- William Blair and Company -- Analyst

Thank you.

Operator

Ladies and gentlemen, that was our final question.[Operator signoff]

Duration: 61 minutes

Call participants:

Rhett Butler -- Vice President of Investor Relations

Steve Winn -- Chairman and Chief Executive Officer

Tom Ernst -- Chief Financial Officer and Treasurer

Dan Bergstrom -- RBC Capital Markets -- Analyst

John Campbell -- Stephens Inc. -- Analyst

Ryan Tomasello -- KBW -- Analyst

Matt Walravens -- JMP Securities -- Analyst

Joe Vruwink -- Robert W. Baird and Company -- Analyst

Devin Au -- KeyBanc Capital Markets -- Analyst

Jackson Ader -- J.P. Morgan -- Analyst

Stephen Sheldon -- William Blair and Company -- Analyst

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