RealPage Off to a Solid Start for 2014

RealPage’s first quarter came in above management’s guidance provided on last quarter’s call in late February, and 2014 annual guidance remains the same—a fairly surprising event, given that we believe many investors expected a modest downward revision to annual revenue and profit targets. Management also reiterated its confidence in returning on demand revenue growth to 20% to 25%, again in fairly significant contrast to what we believe investors were expecting. Second-quarter guidance was basically in line with Street expectations heading into the quarter, with revenue guidance of $106 million to $108 million, compared to consensus of $108 million and our $105 million estimate.

Adjusted EPS guidance implies $0.16, matching our estimate and consensus into the print. We made very minor adjustments to our 2014 and 2015 estimates; our 2014 EPS estimate moves up by $0.01, to $0.67 (in the middle of the guided range), and our 2015 EPS estimate remains $0.79.

We remain a bit skeptical of the sequential ramp-up in revenues from the second to third and third to fourth quarters this year, although a material part of the acceleration story (sales headcount) showed some progress, up 18% versus last year and management seemed confident in the headwinds from late 2013 continuing to abate while implementation timelines continue to improve. We maintain our Outperform rating, given the opportunity for management to make good on its targets, which we believe still stand in contrast to investor expectations for less growth than management is expecting this year.

The $50 million share-repurchase program announced in the release is also a minor positive, in our view, with the potential to reduce the share count by 2% to 3%, but a positive for sentiment nonetheless. Shares closed Thursday, May 6 at 11.8 times our 2014 adjusted EBITDA estimate of $106.1 million (versus guidance of $105 million to $110 million) and 10 times our 2015 adjusted EBITDA estimate of $125.2 million. We view the valuation as reasonable if the company doesn’t accelerate the growth rate to above 20% and relatively inexpensive if growth gradually accelerates this year and next to over 20%.