UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34846

RealPage, Inc.

Delaware		75-2788861
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
4000 International Parkway
Carrollton, Texas		75007-1951
(Address of principal executive offices)		(Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at November 5, 2010
Common Stock, $0.001 par value		63,213,290

 

 

INDEX

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Operations			2
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity			3
Condensed Consolidated Statements of Cash Flows			4
Notes to the Condensed Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
Item 4. Controls and Procedures			29
PART II—OTHER INFORMATION
Item 1. Legal Proceedings			29
Item 1A. Risk Factors			30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 5. Other Information			49
Item 6. Exhibits			50
Signatures			50
Exhibit 2.1
Exhibit 4.4
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Exhibit 10.9
Exhibit 10.10
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

REALPAGE, INC.

Condensed Consolidated Balance Sheets
At September 30, 2010 (unaudited) and December 31, 2009

		September 30,				December 31,
(in thousands, except share data)		2010				2009
Assets
Current assets:
Cash and cash equivalents		$	39,394			$	4,427
Restricted cash			12,941				14,886
Accounts receivable, less allowance for doubtful accounts of $2,464 and $2,222 at September 30, 2010 and December 31, 2009, respectively			24,948				25,841
Deferred tax asset, net of valuation allowance			1,799				3,110
Other current assets			6,595				2,739
Total current assets			85,677				51,003
Property, equipment and software, net			21,048				20,749
Goodwill			37,380				27,366
Identified intangible assets, net			34,571				22,891
Deferred tax asset, net of valuation allowance			16,628				17,803
Other assets			2,398				2,301
Total Assets		$	197,702			$	142,113
Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
Current liabilities:
Accounts payable		$	6,523			$	3,705
Accrued expenses and other current liabilities			11,449				10,830
Current portion of deferred revenue			43,459				39,976
Current portion of long-term debt			6,281				8,412
Customer deposits held in restricted accounts			12,857				15,127
Total current liabilities			80,569				78,050
Deferred revenue			7,493				9,452
Revolving credit facility			2,040				—
Long-term debt, less current portion			32,453				43,449
Other long-term liabilities			5,307				5,806
Total liabilities			127,862				136,757
Commitments and contingencies (Note 9)
Redeemable convertible preferred stock, Series A and A1, $0.001 par value: zero and 25,906,250 shares authorized, issued and outstanding at September 30, 2010 and December 31, 2009, respectively (liquidation value zero and $51,823 at September 30, 2010 and December 31, 2009, respectively)			—				51,786
Redeemable convertible preferred stock, Series B, $0.001 par value: zero and 1,625,000 shares authorized, issued and outstanding at September 30, 2010 and December 31, 2009, respectively (liquidation value zero and $6,500 at September 30, 2010 and December 31, 2009, respectively)			—				6,491
Redeemable convertible preferred stock, Series C, $0.001 par value: zero and 1,512,498 shares authorized, issued and outstanding at September 30, 2010 and December 31, 2009, respectively (liquidation value zero and $13,613 at September 30, 2010 and December 31, 2009, respectively)			—				13,555
Stockholders’ equity (deficit):
Common stock, $0.001 par value: 125,000,000 and 67,500,000 shares authorized, 63,365,592 and 26,667,319 shares issued and 63,156,549 and 26,460,781 shares outstanding at September 30, 2010 and December 31, 2009, respectively			63				27
Additional paid-in capital			160,298				24,232
Treasury stock, at cost: 209,043 and 206,538 shares at September 30, 2010 and December 31, 2009, respectively			(958	)			(938	)
Accumulated deficit			(89,544	)			(89,797	)
Accumulated other comprehensive loss			(19	)			—
Total stockholders’ equity (deficit)			69,840				(66,476	)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)		$	197,702			$	142,113

See accompanying notes.

REALPAGE, INC.

Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2010 and 2009
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands, except per share data)		2010				2009				2010				2009
Revenue:
On demand		$	43,097			$	33,069			$	120,393			$	93,185
On premise			2,127				468				6,419				3,346
Professional and other			2,804				2,117				7,403				6,234
Total revenue			48,028				35,654				134,215				102,765
Cost of revenue (1)			20,203				15,201				56,595				42,804
Gross profit			27,825				20,453				77,620				59,961
Operating expense:
Product development (1)			9,127				6,675				26,431				20,273
Sales and marketing (1)			9,428				7,363				25,793				20,376
General and administrative (1)			6,969				4,552				20,230				13,275
Total operating expense			25,524				18,590				72,454				53,924
Operating income			2,301				1,863				5,166				6,037
Interest expense and other, net			(1,822	)			(1,123	)			(4,749	)			(3,106	)
Net income before income taxes			479				740				417				2,931
Income tax expense			187				64				164				218
Net income		$	292			$	676			$	253			$	2,713
Net loss attributable to common stockholders
Basic		$	(327	)		$	(715	)		$	(2,691	)		$	(1,559	)
Diluted		$	(327	)		$	(715	)		$	(2,691	)		$	(1,559	)
Net loss per share attributable to common stockholders
Basic		$	(0.01	)		$	(0.03	)		$	(0.08	)		$	(0.07	)
Diluted		$	(0.01	)		$	(0.03	)		$	(0.08	)		$	(0.07	)
Weighted average shares used in computing net loss per share attributable to common stockholders
Basic			43,636				23,904				31,878				23,856
Diluted			43,636				23,904				31,878				23,856

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Cost of revenue		$	140			$	103			$	407			$	255
Product development			627				277				1,664				775
Sales and marketing			201				135				541				350
General and administrative			391				211				1,133				524

See accompanying notes.

REALPAGE, INC.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity
For the Nine Months Ended September 30, 2010
(Unaudited)

		Redeemable																				Accumulated																Total
		Convertible																Additional				Other				Accumulated												Stockholders’
		Preferred Stock								Common Stock								Paid-in				Comprehensive				(Deficit)				Treasury Shares								(Deficit)
(in thousands, except share data)		Shares				Amount				Shares				Amount				Capital				Loss				Equity				Shares				Amount				Equity
Balance as of December 31, 2009			29,044			$	71,832				26,667			$	27			$	24,232			$	—			$	(89,797	)			(206	)		$	(938	)		$	(66,476	)
Issuance of common stock through initial public offering, net of issuance costs											6,000				6				57,682																				57,688
Accretion of redeemable convertible preferred stock dividends							3,030												(3,030	)																			(3,030	)
Exercise of stock options											266								664																				664
Common stock warrants converted											8																												—
Conversion of redeemable convertible preferred stock							(1,161	)			343								726																				726
Conversion of redeemable convertible preferred stock due to initial public offering			(29,044	)			(73,701	)			29,568				30				73,005																				73,035
Issuance of restricted stock											513								3,274																				3,274
Treasury stock purchase, at cost																															(3	)			(20	)			(20	)
Foreign currency translation																							(19	)															(19	)
Net income																											253												253
Stock-based compensation																			3,745																				3,745
Balance as of September 30, 2010			—				—				63,365			$	63			$	160,298			$	(19	)		$	(89,544	)			(209	)		$	(958	)		$	69,840

See accompanying notes.

REALPAGE, INC.

Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2010 and 2009
(Unaudited)

		Nine Months Ended
		September 30,
(in thousands)		2010				2009
Cash flows from operating activities:
Net income		$	253			$	2,713
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			14,856				10,703
Deferred tax benefit			(162	)			—
Stock-based compensation			3,745				1,904
Loss on disposal of assets			57				192
Acquisition-related contingent consideration			39				—
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
Accounts receivable			1,840				3,488
Customer deposits			(325	)			(79	)
Other current assets			(3,870	)			80
Other assets			(72	)			(888	)
Accounts payable			1,621				600
Accrued compensation, taxes and benefits			(427	)			(882	)
Deferred revenue			(3,041	)			(969	)
Other current and long-term liabilities			227				679
Net cash provided by operating activities			14,741				17,541
Cash flows from investing activities:
Purchases of property, equipment and software			(7,427	)			(6,334	)
Acquisition of businesses, net of cash acquired			(17,231	)			(3,787	)
Net cash used by investing activities			(24,658	)			(10,121	)
Cash flows from financing activities:
Proceeds from initial public offering, net underwriting discount and offering costs			57,688				—
Proceeds from notes payable			10,000				35,000
Payments on notes payable			(23,562	)			(15,540	)
Proceeds from (payments on) revolving credit facility, net			2,040				(10,000	)
Payments on capital lease obligations			(1,241	)			(5,050	)
Preferred stock dividend			(666	)			—
Issuance of common stock			664				270
Purchase of treasury stock			(20	)			(436	)
Net cash provided by financing activities			44,903				4,244
Net increase in cash and cash equivalents			34,986				11,664
Effect of exchange rate on cash			(19	)			—
Cash and cash equivalents:
Beginning of period			4,427				4,248
End of period		$	39,394			$	15,912
Supplemental cash flow information:
Cash paid for interest		$	4,288			$	2,696
Cash paid for income taxes, net of refunds		$	227			$	191
Non-cash financing activities:
Fixed assets acquired under capital leases		$	—			$	2,462
Accrued dividends and accretion of preferred stock		$	3,030			$	4,403
Conversion of preferred stock and related dividend to common shares		$	73,732			$	—
Accrued property and equipment		$	1,154			$	(260	)

See accompanying notes.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

1. The Company

RealPage, Inc., a Delaware corporation, and its subsidiaries, (the “Company” or “we” or “us”) is a provider of property management solutions that enable owners and managers of single-family and a wide variety of multi-family rental property types to manage their marketing, pricing, screening, leasing, accounting, purchasing and other property operations. Our on demand software solutions are delivered through an integrated software platform that provides a single point of access and a shared repository of prospect, resident and property data. By integrating and streamlining a wide range of complex processes and interactions among the rental housing ecosystem of owners, managers, prospects, residents and service providers, our platform optimizes the property management process and improves the experience for all of these constituents. Our solutions enable property owners and managers to optimize revenues and reduce operating costs through higher occupancy, improved pricing methodologies, new sources of revenue from ancillary services, improved collections and more integrated and centralized processes.

Reverse Stock Split

On July 22, 2010, the board of directors approved an amended and restated certificate of incorporation that effected a reverse stock split of every two outstanding shares of preferred stock and common stock into one share of preferred stock or common stock, respectively. The par value of the common and convertible preferred stock was not adjusted as a result of the reverse stock split. All issued and outstanding common stock, restricted stock, redeemable convertible preferred stock, warrants for common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. The reverse stock split was effected on July 23, 2010.

Initial Public Offering

On August 11, 2010, our registration statement on Form S-1 (File No 333-166397) relating to our initial public offering (the “Offering”) was declared effective by the Securities and Exchange Commission (“SEC”). We sold 6,000,000 shares of common stock in the Offering. Our common stock began trading on August 12, 2010 on the NASDAQ Global Select Stock Market under the symbol “RP,” and the Offering closed on August 17, 2010. Upon closing of the Offering, all outstanding shares of our preferred stock, including a portion of accrued but unpaid dividends on our outstanding shares of Series A, A1 and B Preferred Stock, were converted into 29,567,952 shares of common stock.

In connection with the consummation of the Offering, our Board of Directors and stockholders approved our Amended and Restated Certificate of Incorporation (the “Restated Certificate”), which was filed with the Delaware Secretary of State and became effective on August 17, 2010. The Restated Certificate provides for two classes of capital stock to be designated, respectively, Common Stock and Preferred Stock. The total number of shares which the Company is authorized to issue is 135,000,000 shares. 125,000,000 shares are Common Stock, par value $0.001 per share, and 10,000,000 shares are Preferred Stock, par value $0.001 per share.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make the information not misleading.

The condensed consolidated financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year.

It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in our prospectus filed pursuant to Rule 424(b) under the Securities Act with the SEC on August 12, 2010 (“Prospectus”).

Segment and Geographic Information

Our chief operating decision maker is our Chief Executive Officer, who reviews financial information presented on a company-wide basis. As a result, we determined that the Company has a single reporting segment and operating unit structure.

Principally, all of our revenue for the three and nine months ended September 30, 2010 and 2009 was in North America.

Net long-lived assets held were $20.5 million and $20.3 million in North America and $0.6 million and $0.5 million in our international subsidiaries at September 30, 2010 and December 31, 2009, respectively.

Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with GAAP requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant accounting policies and estimates include: the allowance for doubtful accounts; the useful lives of intangible assets and the recoverability or impairment of tangible and intangible asset values; purchase accounting allocations and related reserves; deferred revenue; stock-based compensation; and our effective income tax rate and the recoverability of deferred tax assets, which are based upon our expectations of future taxable income and allowable deductions. Actual results could differ from these estimates. For greater detail regarding these accounting policies and estimates, refer to our Prospectus.

Revenue Recognition

We derive our revenue from three primary sources: our on demand software solutions; our on premise software solutions; and professional and other services. We commence revenue recognition when all of the following conditions are met:

	•		there is persuasive evidence of an arrangement;
	•		the solution and/or service has been provided to the customer;
	•		the collection of the fees is probable; and
	•		the amount of fees to be paid by the customer is fixed or determinable.

For multi-element arrangements that include multiple software solutions and/or services, we allocate arrangement consideration to all deliverables that have stand-alone value based on their relative selling prices. In such circumstances, we utilize the following hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows:

	•		Vendor specific objective evidence (VSOE), if available. The price at which we sell the element in a separate stand-alone transaction;
	•		Third-party evidence of selling price (TPE), if VSOE of selling price is not available. Evidence from us or other companies of the value of a largely interchangeable element in a transaction; and
	•		Estimated selling price (ESP), if neither VSOE nor TPE of selling price is available. Our best estimate of the stand-alone selling price of an element in a transaction.

Our process for determining ESP for deliverables without VSOE or TPE considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable. Key factors primarily considered in developing ESP include prices charged by us for similar offerings when sold separately, pricing policies and approvals from standard pricing and other business objectives.

From time to time, we sell on demand software solutions with professional services. In such cases, as each element has stand alone value, we allocate arrangement consideration based on our estimated selling price of the on demand software solution and VSOE of the selling price of the professional services.

On Demand Revenue

Our on demand revenue consists of license and subscription fees, transaction fees related to certain of our software-enabled value-added services and commissions derived from us selling certain risk mitigation services.

License and subscription fees are comprised of a charge billed at the initial order date and monthly or annual subscription fees for accessing our on demand software solutions. The license fee billed at the initial order date is recognized as revenue on a straight-line basis over the longer of the contractual term or the period in which the customer is expected to benefit, which we consider to be four years. Recognition starts once the product has been activated. Revenue from monthly and annual subscription fees is recognized on a straight-line basis over the access period.

We recognize revenue from transaction fees derived from certain of our software-enabled value-added services as the related services are performed.

As part of our risk mitigation services to the rental housing industry, we act as an insurance agent and derive commission revenue from the sale of insurance products to individuals. The commissions are based upon a percentage of the premium that the insurance company charges to the policyholder and are subject to forfeiture in instances where a policyholder cancels prior to the end of the policy. If the policy is cancelled, our commissions are forfeited as a percent of the unearned premium. As a result, we recognize the commissions related to these services ratably over the policy term as the associated premiums are earned.

On Premise Revenue

Revenue from our on premise software solutions is comprised of an annual term license, which includes maintenance and support. Customers can renew their annual term license for additional one-year terms at renewal price levels. We recognize the annual term license on a straight-line basis over the contract term.

In addition, we have arrangements that include perpetual licenses with maintenance and other services to be provided over a fixed term. We allocate and defer revenue equivalent to the VSOE of fair value for the undelivered elements and recognize the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue. We have determined that we do not have VSOE of fair value for its customer support and professional services in these specific arrangements. As a result, the elements within its multiple-element sales agreements do not qualify for treatment as separate units of accounting. Accordingly, we account for fees received under multiple-element arrangements with customer support or other professional services as a single unit of accounting and recognize the entire arrangement ratably over the longer of the customer support period or the period during which professional services are rendered.

Professional and Other Revenue

Professional & other revenue is recognized as the services are rendered for time and material contracts. Training revenues are recognized after the services are performed.

Concentrations of Credit Risk

Our cash accounts are maintained at various financial institutions and may, from time to time, exceed federally insured limits. The Company has not experienced any losses in such accounts.

Concentrations of credit risk with respect to accounts receivable result from substantially all of our customers being in the multi-family rental housing market. Our customers, however, are dispersed across different geographic areas. We do not require collateral from customers. We maintain an allowance for losses based upon the expected collectability of accounts receivable. Accounts receivable are written off upon determination of non-collectability following established Company policies based on the aging from the accounts receivable invoice date.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income is comprised of foreign currency translation gains and losses. Our comprehensive income was as follows for the periods presented:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2010				2009				2010				2009
Net income		$	292			$	676			$	253			$	2,713
Foreign currency translation			(6	)			—				(19	)			—
Comprehensive income		$	286			$	676			$	234			$	2,713

3. Acquisitions

2010 Acquisitions

In July 2010, we purchased 100% of the outstanding stock of eReal Estate Integration, Inc. (“eREI”) for approximately $8.6 million, net of cash acquired, which included a cash payment of $3.8 million and an estimated cash payment payable upon the achievement of certain revenue targets (acquisition-related contingent consideration) and the issuance of 499,999 restricted common shares, which vest as certain revenue targets are achieved as defined in the purchase agreement. At the acquisition date, we recorded a liability for the estimated fair value of the acquisition-related contingent consideration of $0.8 million. In addition, we recorded the fair value of the restricted common shares of $3.3 million. These fair values were based on managements’ estimate of the fair value of the cash and the restricted common shares using a probability weighted discounted cash flow model on the achievement of certain revenue targets. The cash payment and the related restricted common shares have a maximum value of $1.8 million and $4.4 million, respectively.

This acquisition was financed from proceeds from our revolving line of credit and cash flows from operations. The acquisition of eREI improved our lead management and lead syndication capabilities. Acquired intangibles were recorded at fair value based on assumptions made by us. The acquired developed product technologies have a useful life of three years amortized on a straight-line basis. Acquired customer relationships have a useful life of ten years which will be amortized proportionately to the expected discounted cash flows derived from the asset. The tradenames acquired have an indefinite useful life as we do not plan to cease using the tradenames in the marketplace. All direct acquisition costs were approximately $0.1 million and expensed as incurred. We included the results of operations of this acquisition in our condensed consolidated financial statements from the effective date of the acquisition.

We allocated the purchase price for eREI as follows:

(in thousands)		eREI
Intangible assets:
Developed product technologies		$	5,279
Customer relationships			498
Tradenames			844
Goodwill			5,055
Net other assets			(3,053	)
Total purchase price, net of cash acquired		$	8,623

The liability established for the acquisition-related contingent consideration will continue to be re-evaluated and recorded at an estimated fair value until all of the targets have been met or terms of the agreement expire. As of September 30, 2010, our liability for the estimated cash payment was $0.9 million. During the three months ended September 30, 2010, we recognized costs of $39 thousand due to changes in the estimated fair value of the cash acquisition-related contingent consideration. There was no change to the estimated fair value of the restricted common stock.

In February 2010, we acquired the assets of Domin-8 Enterprise Solutions, Inc. (“Domin-8”). The acquisition of these assets improved our ability to serve our multi-family clients with mixed portfolios that include smaller, centrally-managed apartment communities. The aggregate purchase price at closing was $12.9 million, net of cash acquired, which was paid upon acquisition of the assets. We acquired deferred revenue as a contractual obligation, which was recorded at its assessed fair value of $4.5 million. The fair value of the deferred revenue was determined based on estimated costs to support acquired contracts plus a reasonable margin. The acquired intangibles were recorded at fair value based on assumptions made by us. The customer relationships have useful lives of approximately six years and are amortized in proportion to the estimated cash flows derived from the relationship. Acquired developed product technologies have a useful life of three years and are amortized straight-line over the estimated useful life. We have determined that the tradename has an indefinite life, as we anticipate keeping the tradename for the foreseeable future given its recognition in the marketplace. Approximately $0.2 million and $0.7 million of transaction costs related to this acquisition were expensed as incurred during 2010 and 2009, respectively. We included the operating results of this acquisition in our consolidated results of operations from the effective date of the acquisition. This acquisition was financed from the proceeds from the amended credit agreement (see Note 6) and cash flow from operations.

We made this acquisition because of the immediate availability of product offerings that complemented our existing products. We accounted for this acquisition by allocating the total consideration to the fair value of assets received and liabilities assumed. Goodwill associated with this acquisition is deductible for tax purposes.

We allocated the purchase price for Domin-8 as follows:

(in thousands)		Domin-8
Intangible assets:
Developed product technologies		$	3,678
Customer relationships			6,418
Tradenames			1,278
Goodwill			4,896
Deferred revenue			(4,502	)
Net other assets			1,155
Total purchase price, net of cash acquired		$	12,923

2009 Acquisitions

In September 2009, we purchased substantially all of the assets of Evergreen Solutions, Inc. (“Evergreen”). The acquisition of Evergreen further advanced our ability to offer open access to our products for clients and certified partners, and improves our ability to offer integration of our products and services with third-party solutions. The aggregate purchase price at closing was $0.9 million, which included a cash payment of $0.7 million and the fair value of contingent consideration of $0.2 million, which was paid in March 2010 and is based on the collection of pre-acquisition accounts receivable balances from customers. The $0.2 million is recorded within the current portion of acquisition related liabilities on the balance sheet at December 31, 2009. The customer relationships have useful lives of four years and are amortized in proportion to the estimated cash flows derived from the relationship. We have determined that the tradename has an indefinite life, as we anticipate keeping the tradename for the foreseeable future given its recognition in the marketplace. All direct acquisition costs were immaterial and expensed as incurred. We included the operating results of this acquisition in our consolidated results of operations from the effective date of the acquisition.

In September 2009, we purchased 100% of the outstanding stock of A.L. Wizard, Inc. (“ALW”). The acquisition of ALW immediately provided us with an application of on demand software and services for residential property management customers who manage senior living properties. The aggregate purchase price at closing was $2.8 million, net of cash acquired of $0.2 million, which included a cash payment of $2.5 million upon acquisition and additional cash payments of $0.5 million, half of which is due on the first anniversary of the acquisition date, with the remaining amount due 18 months from the acquisition date. The $0.5 million is recorded in acquisition-related liabilities on the balance sheet. We acquired deferred revenue as a contractual obligation, which was recorded at its assessed fair value of $0.5 million. The fair value was determined by incorporating the total cost to service the revenue and a normal profit margin for the industry. The customer relationships have useful lives of seven years and are amortized in proportion to the estimated cash flows derived from the relationship. Acquired developed product technologies have a useful life of three years and are amortized straight-line over the estimated useful life. We have determined that the tradename has an indefinite life, as we anticipate keeping the tradename for the foreseeable future given its recognition in the marketplace. All direct acquisition costs were immaterial and expensed as incurred. We included the operating results of this acquisition in our consolidated results from the effective date of the acquisition.

In November 2009, we purchased 100% of the outstanding stock of Propertyware, Inc. (“Propertyware”). The acquisition of Propertyware provided an entry into the single-family and small, centrally managed multi-family property markets. The acquisition also expanded the breadth of products Propertyware will make available to its residential property management customers. The aggregate purchase price at closing was $11.9 million, net of cash acquired, which included a cash payment of $9.0 million and additional cash payments of $0.5 million payable on the first anniversary of the acquisition date and $0.5 million payable 18 months after the acquisition date. The $1.0 million is recorded in acquisition-related liabilities on the balance sheet. In addition, the purchase price included the issuance of 500,000 restricted common shares which vest as certain revenue targets are achieved as defined in the purchase agreement. The fair value of these shares is estimated to be $2.2 million and is based on our management’s estimate of the fair value of the stock and the probability of the achievement of these revenue targets. These shares have a maximum value of $2.5 million. We acquired deferred revenue as a contractual obligation, which was recorded at its assessed fair value of $0.5 million. The acquired intangibles were recorded at fair value based on assumptions made by us. The customer relationships have useful lives of ten years and are amortized in proportion to the estimated cash flows derived from the relationship. Acquired developed product technologies have a useful life of three years and are amortized straight-line over the estimated useful life. We have determined that the tradename has an indefinite life, as we anticipate keeping the tradename for the foreseeable future given its recognition in the marketplace. All direct acquisition costs were immaterial and expensed as incurred. We included the operating results of this acquisition in our consolidated results of operations from the effective date of the acquisition.

We made each of these acquisitions because of the immediate availability of product offerings that complemented our existing products. We accounted for the Evergreen, ALW and Propertyware acquisitions by allocating the total consideration, including the fair value of contingent consideration to the fair value of assets received and liabilities assumed. Goodwill associated with the Evergreen acquisition is deductible for tax purposes; however, the goodwill associated with the ALW and Propertyware acquisitions is not deductible for tax purposes.

We allocated the purchase prices for Evergreen, ALW and Propertyware as follows:

(in thousands)		Evergreen				ALW				Propertyware
Intangible assets:
Developed product technologies		$	—			$	1,192			$	7,427
Customer relationships			154				964				1,050
Tradenames			34				373				1,080
Goodwill			470				1,287				6,144
Deferred revenue			—				(585	)			(451	)
Deferred tax (liability)			—				(863	)			(3,407	)
Net other assets			227				415				78
Total purchase price, net of cash acquired		$	885			$	2,783			$	11,921

Pro Forma Results of Acquisitions

The following table presents unaudited pro forma results of operations for the three and nine months ended September 30, 2009 and 2010 as if the aforementioned acquisitions, including Domin-8 and eREI, had occurred at the beginning of each period presented. We prepared the pro forma financial information for the combined entities for comparative purposes only, and it is not indicative of what actual results would have been if the acquisitions had taken place at the beginning of the periods presented, or of future results.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
(in thousands)		Pro Forma				Pro Forma				Pro Forma				Pro Forma
Revenue:
On demand		$	43,097			$	35,530			$	121,693			$	99,945
On premise			2,127				2,757				7,169				10,268
Professional and other			2,804				3,137				7,431				8,779
Total revenue			48,028				41,425				136,293				118,992
Net (loss) income		$	292			$	(200	)		$	48			$	2,155
Net (loss) income attributable to common stockholders:
Basic and diluted			(327	)			(1,591	)			(2,896	)			(2,117	)
Net (loss) income per share attributable to common stockholders:
Basic		$	(0.01	)		$	(0.07	)		$	(0.09	)		$	(0.09	)
Diluted		$	(0.01	)		$	(0.07	)		$	(0.09	)		$	(0.09	)

The acquisitions in 2009 and 2010 were financed with cash flows from operations and financing activities.

4. Property, Equipment and Software

Property, equipment and software consist of the following:

		September 30,				December 31,
(in thousands)		2010				2009
Leasehold improvements		$	7,194			$	6,039
Data processing and communications			29,404				26,969
Furniture, fixtures, and other equipment			6,883				6,251
Software			25,276				21,807
			68,757				61,066
Less: Accumulated depreciation and amortization			(47,709	)			(40,317	)
Property, equipment and software, net		$	21,048			$	20,749

Depreciation and amortization expense for property, equipment and software was $2.9 million, $2.7 million, $8.5 million and $7.7 million for the three months ended September 30, 2010 and 2009 and the nine months ended September 2010 and 2009, respectively. This includes depreciation for assets purchased through capital leases.

5. Goodwill and Other Intangible Assets

The change in the carrying amount of goodwill for the nine months ended September 30, 2010 is as follows:

(in thousands)		Amount
Balance at December 31, 2009		$	27,366
Goodwill acquired in 2010			9,951
Other			63
Balance at September 30, 2010		$	37,380

Other intangible assets consisted of the following at September 30, 2010 and December 31, 2009:

						September 30, 2010												December 31, 2009
		Amortization				Carrying				Accumulated								Carrying				Accumulated
(in thousands)		Period				Amount				Amortization				Net				Amount				Amortization				Net
Finite-lived intangible assets
Developed technologies		3 years				$	20,385			$	(5,908	)		$	14,477			$	11,421			$	(1,870	)		$	9,551
Customer relationships		1-10 years					16,623				(5,804	)			10,819				9,707				(4,301	)			5,406
Vendor relationships		7 years					5,650				(2,265	)			3,385				5,650				(1,500	)			4,150
Non-competition agreement		4-5 years					120				(105	)			15				120				(83	)			37
Total finite-lived intangible assets							42,778				(14,082	)			28,696				26,898				(7,754	)			19,144
Indefinite-lived intangible assets
Tradenames							5,875				—				5,875				3,747				—				3,747
Total intangible assets						$	48,653			$	(14,082	)		$	34,571			$	30,645			$	(7,754	)		$	22,891

Amortization of finite-lived intangible assets was $2.5 million, $1.0 million, $6.3 million and $3.0 million for the three months ended September 30, 2010 and 2009 and the nine months ended September 2010 and 2009, respectively.

6. Debt

The following table summarizes the components of debt as of:

		September 30,				December 31,
(in thousands)		2010				2009
Revolver		$	2,040			$	—
Term loan			38,734				33,688
Promissory notes issued to preferred stockholders			—				8,173
Secured promissory notes			—				10,000
		$	40,774			$	51,861

In September 2009, we entered into a Credit Agreement (“Credit Agreement”) with two lenders, which provided for $35.0 million term loan and a $10.0 million revolving line of credit. A portion of the proceeds from the Credit Agreement was used to repay the balance outstanding under our prior credit agreement. The term loan and revolving line of credit bear interest at rates of the greater of 7.5%, a stated rate of 5.0% plus LIBOR or a stated rate of 5.0% plus the bank’s prime rate (or, if greater than 3.5%, the federal funds rate plus 0.5% or three month LIBOR plus 1.0%). The term loan and revolving line of credit were collateralized by all of our personal property and are subject to financial covenants, including meeting certain financial measures.

In February 2010, we entered into an amendment to the Credit Agreement. Under the terms of the amendment, the original term loan was increased by an additional $10.0 million. The related interest rates and maturity periods remained consistent with the terms of Credit Agreement.

In June 2010, we entered into a subsequent amendment to the Credit Agreement. Under the terms of the June 2010 amendment, an additional $30 million in delayed draw term loans was made available for borrowing until December 22, 2011. After the June 2010 amendment, the term loan and revolving line of credit bear interest at a stated rate of 3.5% plus LIBOR, or a stated rate of 0.75% plus Wells Fargo’s prime rate (or, if greater, the federal funds rate plus 0.5% or three month LIBOR plus 1.0%). Under the terms of the June 2010 amendment, principal payments on the term loan will be paid in quarterly installments equal to 3.75% of the principal amount of term loans, with the balance of all term loans and the revolver due on June 30, 2014. In June and July 2010, we borrowed a total of $7.6 million from our revolving line of credit in order to partially facilitate an acquisition. Using the proceeds from the Offering, we repaid the outstanding balance of the revolver loan. As of September 30, 2010, we were in compliance with our debt covenants.

In August 2010, the lenders under our Credit Agreement consented to our using proceeds from the Offering to repay the Notes and the Stockholder Notes (each as defined below) and to pay cash dividends due upon conversion of our preferred stock. In September 2010, we entered into an amendment to the Credit Agreement. Under the terms of the September 2010 amendment, the repayment of the Notes and Stockholder Notes and the payment of the cash dividends due upon conversion of our preferred stock were excluded from the definition of “fixed charges” under the Credit Agreement.

In August 2008, we entered into a note purchase agreement with a separate lender. Under the terms of the agreement, we issued secured promissory notes (“Notes”) in the amount of $10.0 million with an interest rate of 13.75%, payable quarterly. The Notes were collateralized by all of our personal property and are subordinated to the Credit Agreement. In August 2010, with the proceeds from the Offering, we repaid the $10.0 million balance on the Notes.

On December 30, 2008 and April 23, 2010, in connection with a declaration of a dividend for all holders of our redeemable convertible preferred stock, we issued promissory notes to the holders of our convertible preferred stock (“Stockholder Notes”) in an aggregate principal amount of $11.1 million and $0.4 million, respectively. The Stockholder Notes bore an interest at a rate of 8% and were payable in 16 consecutive quarterly payments of principal and interest. Upon closing of the Offering, we repaid the $6.5 million balance on our Stockholder Notes with the proceeds from the Offering.

7. Redeemable Convertible Preferred Stock

At December 31, 2009, we had outstanding Series A Preferred, Series A1 Preferred and Series B Preferred Stock in which the holders of the stock were entitled to receive cumulative cash dividends at the rate of 8% per annum of the original issue price if and when declared out of funds legally available by the board of directors. Upon conversion, the holders elected to convert an amount equal to 62.5% of all then accrued and unpaid dividends into common stock at the applicable conversion rate. In addition, we had outstanding Series C Preferred in which the holders of Series C Preferred were entitled to receive cumulative cash dividends at the rate of 8% per annum of the original issue price if and when declared by the board of directors, for the first 18 months after issuance. On December 31, 2009, dividends of $5.5 million were declared by the board of directors. These dividends were distributed through the issuance of 1,418,669 common shares and payment of $2.5 million in cash. On April 23, 2010, dividends of $1.2 million were declared by the board of directors. These dividends were distributed through the issuance of 342,632 common shares and subordinated notes of $0.4 million.

Each share of preferred stock was convertible at the option of the holder at the liquidation preference divided by the original issue price. Conversion was mandatory upon consent of the holders of the Series A Preferred, immediately prior to the closing of a qualified initial public offering, as defined in our certificate of incorporation. On August 17, 2010, upon closing of the Offering, all outstanding shares of Series A, A1, B and C Preferred Stock, including a portion of accrued but unpaid dividends on our outstanding shares of Series A, A1 and B Preferred Stock, were converted into 29,567,952 shares of common stock and a dividend of $0.7 million was paid in cash.

8. Share-based Compensation

On August 17, 2010, we granted 6,500 options with an exercise price of $16.21 under our 2010 Equity Incentive Plan. In July 2010, we granted 569,250 options to purchase shares of common stock under our Amended and Restated 1998 Stock Incentive Plan. The exercise price for these options was $9.00 per share. The options and restricted stock vest over four years with 75% vesting ratably over 15 quarters and the remaining 25% vesting on the 16^th quarter.

9. Commitments and Contingencies

Guarantor Arrangements

We have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The term of the indemnification period is for the officer or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a director and officer insurance policy that limits our exposure and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, we had no liabilities recorded for these agreements at September 30, 2010 or December 31, 2009.

In the ordinary course of our business, we enter into standard indemnification provisions in our agreements with our customers. Pursuant to these provisions, we indemnify our customers for losses suffered or incurred in connection with third-party claims that our products infringed upon any U.S. patent, copyright, trademark or other intellectual property right. Where applicable, we generally limit such infringement indemnities to those claims directed solely to our products and not in combination with other software or products. With respect to our products, we also generally reserve the right to resolve such claims by designing a non-infringing alternative, by obtaining a license on reasonable terms, or by terminating our relationship with the customer and refunding the customer’s fees.

The potential amount of future payments to defend lawsuits or settle indemnified claims under these indemnification provisions is unlimited in certain agreements; however, we believe the estimated fair value of these indemnity provisions is minimal, and, accordingly, we had no liabilities recorded for these agreements at September 30, 2010 or December 31, 2009.

Litigation

We are involved in various lawsuits and claims in the ordinary course of business. We believe that the ultimate disposition of these matters will not have a material adverse effect on its liquidity or financial position; however, losses from these matters or changes in estimates of losses for these matters may result in income or expense in any one accounting period that is material in comparison to the earnings of that period.

10. Net Income (Loss) Per Share

Net income (loss) per share is presented in conformity with the two-class method required for participating securities. Upon consummation of the Offering, all outstanding shares of Series A Preferred, Series A1 Preferred, Series B Preferred and Series C Preferred Stock, including a portion of accrued but unpaid dividends on outstanding shares of Series A Preferred, Series A1 Preferred and Series B Preferred, were converted into shares of common stock. Prior to the conversion, holders of Series A Preferred, Series A1 Preferred and Series B Preferred were each entitled to receive 8% per annum cumulative dividends. In addition, prior to conversion, the holders of Series C Preferred were entitled to receive cumulative cash dividends at the rate of 8% per annum of the original issue price if and when declared by the board of directors, for the first 18 months after issuance and were entitled to noncumulative dividends thereafter. All dividends were payable prior and in preference to any dividends on any other shares of our capital stock. In the event a dividend was paid on common stock, holders of Series A Preferred, Series A1 Preferred, Series B Preferred, Series C Preferred and non-vested restricted stock were entitled to a proportionate share of any such dividend as if they were holders of common shares (on an as-if converted basis). Holders of Series A Preferred, Series A1 Preferred, Series B Preferred, Series C Preferred and non-vested restricted stock do not share in loss of the Company.

Under the two-class method, basic net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted average number of common shares outstanding during the period. Net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income less current period Series A Preferred, Series A1 Preferred, Series B Preferred and Series C Preferred cumulative dividends, between the holders of common stock and Series A Preferred, Series A1 Preferred, Series B Preferred and Series C Preferred. Diluted net income per share attributable to common stockholders is computed by using the weighted average number of common shares outstanding, including potential dilutive shares of common stock assuming the dilutive effect of outstanding stock options using the treasury stock method. Weighted average shares from common share equivalents in the amount of 3,476,622 shares, 456,677 shares, 2,036,796 shares and 815,462 shares were excluded from the dilutive shares outstanding because their effect was anti-dilutive for the three months ended September 30, 2010 and 2009 and the nine months ended September 30, 2010 and 2009, respectively.

The following table presents the calculation of basic and diluted net income per share attributable to common stockholders:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands, except per share data)		2010				2009				2010				2009
Numerator:
Net (loss) income		$	292			$	676			$	253			$	2,713
8% cumulative dividends on participating preferred stock			(619	)			(1,391	)			(2,944	)			(4,272	)
Undistributed earnings allocated to participating preferred and restricted stock			—				—				—				—
Net (loss) income attributable to common stockholders — basic and diluted		$	(327	)		$	(715	)		$	(2,691	)		$	(1,559	)
Denominator:
Basic:
Weighted average common shares used in computing basic net income (loss) per share			43,636				23,904				31,878				23,856
Diluted:
Weighted average common shares used in computing basic net income (loss) per share			43,636				23,904				31,878				23,856
Add weighted average effect of dilutive securities:
Stock options			—				—				—				—
Stock warrants			—				—				—				—
Weighted average common shares used in computing diluted net income (loss) per share			43,636				23,904				31,878				23,856
Net (loss) income per common share:
Basic		$	(0.01	)		$	(0.03	)		$	(0.08	)		$	(0.07	)
Diluted		$	(0.01	)		$	(0.03	)		$	(0.08	)		$	(0.07	)

11. Related Party Transactions

In connection with the residential relocation of one of our executives, in June 2010, we paid approximately $0.9 million to an independent third-party relocation company to cover payment of equity proceeds to the executive and costs associated with marketing and selling the executive’s residence. This arrangement was entered into pursuant to the standard home-sale assistance terms utilized by us in the ordinary course of business. In July 2010, we paid an additional $1.2 million to the independent third-party relocation company to acquire the executive’s residence.

12. Income Taxes

We make estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

Our tax provision for interim periods is derived using an estimate of our annual effective rate, adjusted for any material items.

13. Subsequent Event

In November 2010, we acquired substantially all of the assets of Level One, LLC and L1 Technology, LLC (collectively “Level One”) for approximately $62.0 million, which included a cash payment of $54.0 million at closing and a deferred payment of up to approximately $8.0 million, payable in cash or the issuance of our common stock eighteen months after the acquisition date. The acquisition of Level One further expanded our ability to provide on demand leasing center services. To facilitate the acquisition, we borrowed $30.0 million on our delayed draw term loans and utilized $24.0 million of the net proceeds from the Offering. Due to the timing of this acquisition, the purchase price allocation was not complete as of the date of this filing due to the pending completion of the valuation of intangible assets. In addition, we amended our Credit Agreement to modify certain financial covenants to consider the impact of the acquisition.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Statements preceded by, followed by or that otherwise include the words “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms are generally forward-looking in nature and not historical facts. These forward looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any anticipated results, performance or achievements. Except as required by law, we disclaim any intention, and undertake no obligation, to revise any forward-looking statements, whether as a result of new information, a future event, or otherwise. For risks and uncertainties that could impact our forward-looking statements, please see Part II Item 1A, “Risk Factors” herein, and also our prospectus filed pursuant to Rule 424(b) under the Securities Act with the U.S. Securities Exchange Commission (“SEC”) on August 12, 2010 (“Prospectus”) which includes, but is not limited to, the discussion under “Risk Factors” therein, which you may view at www.sec.gov.

Overview

We are a leading provider of on demand software solutions for the rental housing industry. Our broad range of property management solutions enable owners and managers of single-family and a wide variety of multi-family rental property types to manage their marketing, pricing, screening, leasing, accounting, purchasing and other property operations. We deliver our on demand software solutions via the Internet through an integrated software platform that provides a single point of access and a shared repository of prospect, resident and property data.

Our company was formed in 1998 to acquire Rent Roll, Inc., which marketed and sold on premise property management systems for the conventional and affordable multi-family rental housing markets. In June 2001, we released OneSite, our first on demand property management system. Since 2002, we have expanded our on demand software solutions to include a number of software-enabled value-added services that provide complementary sales and marketing, asset optimization, risk mitigation, billing and utility management and spend management capabilities. In connection with this expansion, we have allocated greater resources to the development and infrastructure needs of developing and increasing sales of our suite of on demand software solutions. In addition, since July 2002, we have completed 15 acquisitions (including our three 2010 acquisitions) of complementary technologies and to supplement our internal product development and sales and marketing efforts, enabling us to expand the scope of our solutions, the types of rental housing properties served by our solutions and our customer base. As of September 30, 2009, we had approximately 1,311 employees.

On July 22, 2010, the board of directors approved an amended and restated certificate of incorporation that effected a reverse stock split of every 2 outstanding shares of preferred stock and common stock into 1 share of preferred stock or common stock, respectively. The par value of the common and convertible preferred stock was not adjusted as a result of the reverse stock split. All issued and outstanding common stock, restricted stock, redeemable convertible preferred stock, and warrants for common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. The reverse stock split was effected on July 23, 2010.

On August 11, 2010, our registration statement on Form S-1 (File No 333-166397) relating to our initial public offering (the “Offering”) was declared effective by the Securities and Exchange Commission (“SEC”). We sold 6,000,000 shares of common stock in the Offering. Our common stock began trading on August 12, 2010 on the NASDAQ Global Select Stock Market under the symbol “RP,” and the Offering closed on August 17, 2010. Upon closing of the Offering, all outstanding shares of our preferred stock, including a portion of accrued but unpaid dividends on our outstanding shares of Series A, A1 and B Preferred Stock, were converted into 29,567,952 shares of common stock.

Recent Acquisitions

In July 2010, we acquired 100% of the outstanding stock of eReal Estate Integration, Inc. (“eREI”). eREI’s core products provide phone and Internet lead tracking and lead management services, as well as syndication services that push property content to search engines, Internet listing services and classified listed websites. The addition of these products improved our lead management and lead syndication capabilities within our CrossFire product family. The purchase price of eREI was approximately $8.6 million, which included a cash payment of $3.8 million at close, an estimated cash payment payable upon the achievement of certain revenue targets and the issuance of 499,999 restricted common shares, which vest as certain revenue targets are achieved, as defined in the purchase agreement.

In November 2010, we acquired substantially all of the assets of Level One, LLC and L1 Technology, LLC (collectively “Level One”). Level One services property management companies by providing centralized lead capture services enabling owners to lease more apartments, reduce overall marketing spend and free up on-site leasing staff. Level One and its 420 employees will be combined with our CrossFire product family and will be marketed under the Level One brand. Level One’s services are utilized in the management of approximately 1 million rental property units. We estimate a range of 30% to 50% of these units to be additive to the 5.6 million rental property units, as of September 30, 2010, managed with one or more of our on demand software solutions. The purchase price of Level One was approximately $62.0 million, which included a cash payment of $54.0 million and a deferred payment of up to approximately $8.0 million, payable in cash or the issuance of our common stock eighteen months after the acquisition date.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances. We reconsider and evaluate our estimates and assumptions on an on-going basis. Accordingly, actual results may differ significantly from these estimates

We believe that the following critical accounting policies involve our more significant judgments, assumptions and estimates, and therefore, could have the greatest potential impact on our consolidated financial statements:

	•		Revenue recognition;
	•		Accounts receivable;
	•		Business combinations;
	•		Goodwill and other intangible assets with indefinite lives;
	•		Impairment of long-lived assets
	•		Intangible assets;
	•		Stock-based compensation;
	•		Income taxes; and
	•		Capitalized product development costs.

A full discussion of our critical accounting policies, which involve significant management judgment, appears in our Prospectus under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” For further information regarding our business, industry trends, accounting policies and estimates, and risks and uncertainties, refer to the Prospectus.

Key Components of Our Results of Operations

Revenue

We derive our revenue from three primary sources: our on demand software solutions; our on premise software solutions; and our professional and other services.

On demand revenue. Revenue from our on demand software solutions is comprised of license and subscription fees for accessing our on demand software solutions, typically licensed for one year terms, commission income for sales of renter’s insurance policies, and transaction fees for certain on demand software solutions, such as payment processing, spend management and billing services. We typically price our on demand software solutions based primarily on the number of units the customer manages with our solutions. For our insurance and transaction-based solutions, we price based on a fixed commission rate of earned premiums or a fixed rate per transaction, respectively.

On premise revenue. Our on premise software solutions are distributed to our customers and maintained locally on the customers’ hardware. Revenue from our on premise software solutions is comprised of license fees under term and perpetual license agreements. Typically, we have licensed our on premise software solutions pursuant to term license agreements with an initial term of one year that includes maintenance and support. Customer can renew their term license agreement for additional one-year terms at renewal price levels. In February 2010, we completed a strategic acquisition of assets that include on premise software solutions that were historically marketed and sold pursuant to perpetual license agreements and related maintenance agreements.

We no longer actively market our on premise software solutions to new customers, and only license our on premise software solutions to a small portion of our existing on premise customers as they expand their portfolio of rental housing properties. While we intend to support our recently acquired on premise software solutions, we expect that many of the customers who license these solutions will transition to our on demand software solutions over time.

Professional and other revenue. Revenue from professional and other services consists of consulting and implementation services, training and other ancillary services. Professional and other services engagements are typically time and material based.

Cost of Revenue

Cost of revenue consists primarily of personnel costs related to our operations, support services, training and implementation services, expenses related to the operation of our data center and fees paid to third-party service providers. Personnel costs include salaries, bonuses, stock-based compensation and employee benefits. Cost of revenue also includes an allocation of facilities costs, overhead costs and depreciation, as well as amortization of acquired technology related to strategic acquisitions and amortization of capitalized development costs. We allocate facilities, overhead costs and depreciation based on headcount.

Operating Expenses

We classify our operating expenses into three categories: product development, sales and marketing, and general and administrative. Our operating expenses primarily consist of personnel costs, which include compensation, employee benefits and payroll taxes, costs for third-party contracted development, marketing, legal, accounting and consulting services and other professional service fees. Personnel costs for each category of operating expenses include salaries, bonuses, stock-based compensation and employee benefits for employees in that category. In addition, our operating expenses include an allocation of our facilities costs, overhead costs and depreciation based on headcount for that category, as well as amortization of purchased intangible assets resulting from our acquisitions.

Product development. Product development expense consists primarily of personnel costs for our product development employees and executives and fees to contract development vendors. Our product development efforts are focused primarily on increasing the functionality and enhancing the ease of use of our on demand software solutions and expanding our suite of on demand software solutions. In 2008, we established a product development and service center in Hyderabad, India to take advantage of strong technical talent at lower personnel costs compared to the United States.

Sales and marketing. Sales and marketing expense consists primarily of personnel costs for our sales, marketing and business development employees and executives, travel and entertainment and marketing programs. Marketing programs consist of advertising, tradeshows, user conferences, public relations, industry sponsorships and affiliations and product marketing. Additionally, sales and marketing expense includes amortization of certain purchased intangible assets, including customer relationships and key vendor and supplier relationships obtained in connection with our acquisitions.

General and administrative. General and administrative expense consists of personnel costs for our executive, finance and accounting, human resources, management information systems and legal personnel, as well as legal, accounting and other professional service fees and other corporate expenses.

Key Business Metrics

In addition to traditional financial measures, we monitor our operating performance using a number of financially and non-financially derived metrics that are not included in our condensed consolidated financial statements. We monitor the key performance indicators as follows:

On demand revenue. This metric represents the license and subscription fees for accessing our on demand software solutions, typically licensed for one year terms, commission income from sales of renter’s insurance policies and transaction fees for certain of our on demand software solutions. We consider on demand revenue to be a key business metric because we believe the market for our on demand software solutions represents the largest growth opportunity for our business.

On demand revenue as a percentage of total revenue. This metric represents on demand revenue for the period presented divided by total revenue for the same period. We use on demand revenue as a percentage of total revenue to measure our success in executing our strategy to increase the penetration of our on demand software solutions and expand our recurring revenue streams attributable to these solutions. We expect our on demand revenue to remain a significant percentage of our total revenue although the actual percentage may vary from period to period due to a number of factors, including the timing of acquisitions, professional and other revenue and on premise perpetual license sales and maintenance fees resulting from our February 2010 acquisition.

Ending on demand units. This metric represents the number of rental housing units managed by our customers with one or more of our on demand software solutions at the end of the period. We use ending on demand units to measure the success of our strategy of increasing the number of rental housing units managed with our on demand software solutions. Property unit counts are provided to us by our customers as new sales orders are processed. Property unit counts may be adjusted periodically as information related to our customers’ properties is updated or supplemented, which could result in adjusting the number of units previously reported.

On demand revenue per average on demand unit. This metric represents on demand revenue for the period presented divided by average on demand units for the same period. For interim periods, the calculation is performed on an annualized basis. We calculate average on demand units as the average of the beginning and ending on demand units for each quarter in the period presented. We monitor this metric to measure our success in increasing the number of on demand software solutions utilized by our customers to manage their rental housing units, our overall revenue and profitability. On demand revenue per average on demand unit for the interim periods presented are annualized.

Annual Customer Value (ACV). ACV represents the product of ending on demand units multiplied by annualized on demand revenue per average on demand unit for the quarter and is our estimate of the run-rate of recurring on demand revenue.

Adjusted EBITDA. We define this metric as net (loss) income plus depreciation and asset impairment; amortization of intangible assets; interest expense, net; income tax expense (benefit); stock-based compensation expense, acquisition-related expense and purchase accounting adjustment. We believe that the use of Adjusted EBITDA is useful in evaluating our operating performance because it excludes certain non-cash expenses, including depreciation, amortization and stock-based compensation. Adjusted EBITDA is not determined in accordance with accounting principles generally accepted in the United States, or GAAP, and should not be considered as a substitute for or superior to financial measures determined in accordance with GAAP. For further discussion regarding Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, refer to “Reconciliation of Quarterly Non-GAAP Financial Measures” below. Our Adjusted EBITDA grew from approximately $6.3 million and $18.9 million for the three and nine months ended September 30, 2009 to approximately $9.1 million and $24.3 million for the three and nine months ended September 30, 2010 as a result of our efforts to expand market share and increase revenue.

Results of Operations

The following tables set forth our results of operations for the specified periods. The period-to-period comparison of financial results is not necessarily indicative of future results.

Condensed Consolidated Statements of Operations

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands, except per share data)		2010				2009				2010				2009
Revenue:
On demand		$	43,097			$	33,069			$	120,393			$	93,185
On premise			2,127				468				6,419				3,346
Professional and other			2,804				2,117				7,403				6,234
Total revenue			48,028				35,654				134,215				102,765
Cost of revenue (1)			20,203				15,201				56,595				42,804
Gross Profit			27,825				20,453				77,620				59,961
Operating expense:
Product development (1)			9,127				6,675				26,431				20,273
Sales and marketing (1)			9,428				7,363				25,793				20,376
General and administrative (1)			6,969				4,552				20,230				13,275
Total operating expense			25,524				18,590				72,454				53,924
Operating income			2,301				1,863				5,166				6,037
Interest expense and other, net			(1,822	)			(1,123	)			(4,749	)			(3,106	)
Income before income taxes			479				740				417				2,931
Income tax expense			187				64				164				218
Net income		$	292			$	676			$	253			$	2,713

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Cost of revenue		$	140			$	103			$	407			$	255
Product development			627				277				1,664				775
Sales and marketing			201				135				541				350
General and administrative			391				211				1,133				524

The following table sets forth our results of operations for the specified periods as a percentage of our revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Revenue:
On demand			89.7	%			92.7	%			89.7	%			90.7	%
On premise			4.4				1.3				4.8				3.3
Professional and other			5.8				5.9				5.5				6.1
Total revenue			100.0				100.0				100.0				100.0
Cost of revenue			42.1				42.6				42.2				41.7
Gross Profit			57.9				57.4				57.8				58.3
Operating expense:
Product development			19.0				18.7				19.7				19.7
Sales and marketing			19.6				20.7				19.2				19.8
General and administrative			14.5				12.8				15.1				12.9
Total operating expense			53.1				52.1				54.0				52.5
Operating income			4.8				5.2				3.8				5.9
Interest expense and other, net			(3.8	)			(3.1	)			(3.5	)			(3.0	)
Income before income taxes			1.0				2.1				0.3				2.9
Income tax expense			0.4				0.2				0.1				0.2
Net income			0.6	%			1.9	%			0.2	%			2.6	%

Three and Nine Months Ended September 30, 2010 compared to Three and Nine Months Ended September 30, 2009

Revenue

		Three Months Ended																Nine Months Ended
		September 30,																September 30,
(in thousands, except dollar per unit data)		2010				2009				Change				% Change				2010				2009				Change				% Change
Revenue:
On demand		$	43,097			$	33,069			$	10,028				30.3	%		$	120,393			$	93,185			$	27,208				29.2	%
On premise			2,127				468				1,659				354.5				6,419				3,346				3,073				91.8
Professional and other			2,804				2,117				687				32.5				7,403				6,234				1,169				18.8
Total revenue		$	48,028			$	35,654			$	12,374				34.7			$	134,215			$	102,765			$	31,450				30.6
On demand unit metrics:
Ending on demand units			5,567				4,265				302				30.6				5,567				4,265				1,302				30.5
Average on demand units			5,387				4,186				1,201				28.7				5,059				4,035				1,024				25.4
Annualized on demand revenue per average on demand unit:		$	32.00			$	31.60			$	0.40				1.3			$	31.73			$	30.79			$	0.94				3.1
Annual customer value:		$	178,144			$	134,774			$	43,370				32.2

On demand revenue. Our on demand revenue increased $10.0 million, or 30.3%, for the three months ended September 30, 2010 as compared to same period in 2009, primarily due to an increase in rental property units managed with our on demand solutions and an increase in the number of our on demand solutions utilized by our existing customer base.

Our on demand revenue increased $27.2 million, or 29.2%, for the nine months ended September 30, 2010 as compared to same period in 2009, primarily due to an increase in rental property units managed with our on demand solutions and an increase in the number of our on demand solutions utilized by our existing customer base.

On premise revenue. On premise revenue increased $1.7 million, or 354.5%, for the three months ended September 30, 2010 as compared to the same period in 2009, primarily as a result of our February 2010 acquisition. During February 2010, we completed a strategic acquisition of assets that included on premise software solutions that have been historically marketed and sold pursuant to perpetual license agreements and related maintenance agreements. While we intend to continue to support our recently acquired on premise software solutions, we expect that many of the customers who license these solutions will over time transition to our on demand software solutions.

On premise revenue increased $3.1 million, or 91.8%, for the nine months ended September 30, 2010 as compared to the same period in 2009, primarily as a result of our February 2010 acquisition. During February 2010, we completed a strategic acquisition of assets that included on premise software solutions that have been historically marketed and sold pursuant to perpetual license agreements and related maintenance agreements. For the nine months ended September 30, 2010, the February 2010 acquisition contributed $5.0 million of revenue related to maintenance agreements and perpetual license sales. The revenue increase from the February 2010 acquisition was partially offset by our decision to cease actively marketing our legacy on premise solutions in 2003 and our efforts to migrate customers of our on premise solutions to our on demand solutions. While we intend to continue to support our recently acquired on premise software solutions, we expect that many of the customers who license these solutions will over time transition to our on demand software solutions.

Professional and other revenue. Professional and other services revenue increased $0.7 million, or 32.5%, for the three months ended September 30, 2010 as compared to the same period in 2009, primarily due to an increase in revenue from consulting services.

Professional and other services revenue increased $1.2 million, or 18.8%, for the nine months ended September 30, 2010 as compared to the same period in 2009, primarily due to an increase in revenue from consulting services.

Total revenue. Our total revenue increased $12.4 million, or 34.7%, for the three months ended September 30, 2010 as compared to the same period in 2009, primarily due to an increase in rental property units managed with our on demand solutions and improved penetration of our on demand solutions into our customer base.

Our total revenue increased $31.5 million, or 30.6%, for the nine months ended September 30, 2010 as compared to the same period in 2009, primarily due to an increase in rental property units managed with our on demand solutions and improved penetration of our on demand solutions into our customer base.

On demand unit metrics. As of September 30, 2010, one or more of our on demand solutions was utilized in the management of 5.6 million rental property units, representing an increase of 1.3 million units, or 30.5% as compared to September 30, 2009. The increase in the number of rental property units managed by one or more of our on demand solutions was due to new customer sales and marketing efforts and our 2009 and 2010 acquisitions in the second half of 2009 and the first half of 2010 contributing approximately 12.4% of ending on demand units as of September 30, 2010.

For the three months ended September 30, 2010, our annualized on demand revenue per average on demand unit was $32.00, representing an increase of $0.40, or 1.3%, as compared to the three months ended September 30, 2009, primarily due to improved penetration of our on demand solutions into our customer base.

For the first nine months of 2010, our annualized on demand revenue per average on demand unit was $31.73, representing an increase of $0.94, or 3.1%, as compared to the nine months ended September 30, 2009, primarily due to improved penetration of our on demand solutions into our customer base.

Cost of Revenue

		Three Months Ended September 30,																Nine Months Ended September 30,
(in thousands)		2010				2009				Change				% Change				2010				2009				Change				% Change
Cost of revenue		$	16,895			$	13,434			$	3,461				25.8	%		$	47,683			$	37,748			$	9,936				26.3	%
Depreciation and amortization			3,308				1,767				1,541				87.2				8,912				5,056				3,855				76.2
Total cost of revenue		$	20,203			$	15,201			$	5,002				32.9			$	56,595			$	42,804			$	13,791				32.2