Q3 2020 Appfolio Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome for you Inc. announces third quarter 2020 financial results.

This time, all participants are in a listen only mode.

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I would now with the hand the conference over to Erica Abrams. Thank you. Please go ahead.

Thank you, Chris good afternoon, ladies and gentlemen, and thank you for joining US today as we report out fully as third quarter 2020 financial results.

With me on the call today are Jason Randall I, probably as president and CEO and eat became fully as Chief Financial Officer. This call is simultaneously being webcast on the Investor Relations section of our website at Www Dot App fully up Inc. dot com before.

Before we get started I would like to call everyone's attention to our safe Harbor policy. Please note that certain statements made on this call may be forward looking statements within the meaning of the federal securities laws that are subject to considerable risks and uncertainties.

Actual results or performance may be materially different from any results or performance expressed or implied by the forward looking statements.

Forward looking statements, including any such statements, referring to the <unk> potential effects or impacts of the COVID-19 pandemic on Apple iOS business.

They relate to future plans and financial condition results of operations business forecasts and plans strategic plans and objectives product development plans trends affecting our business and industry and the economy as a whole capital needs and financing plans and various commitments and contingencies, including with respect.

The outcome of legal proceedings or regulatory matters.

Please see our filings with the FCC, including our form 10-Q, which was filed earlier today, the greater detail about risks and uncertainty.

Forward looking statements are based on reasonable assumptions as of today and we assume no obligation to update any forward looking statements. After today, even if new information becomes available in the future unless required by law.

With that I will turn the call over to you to King.

CFO Peter Please go ahead.

Thank you Erica and welcome to everyone joining us on the call today for a fully third quarter of fiscal year 2020 financial result.

First I want to thank all Apple yeah for their continued dedication to our business and customer success. During these challenging times.

We believe our people and culture or the heart of our six that in the current environment has only amplified that belief.

Commitment of our workforce to developing and supporting our product and service offering is reflected in the numbers and morale and focus of our team remain high even while working remotely.

Turning to the numbers, we reported total revenue of $84.1 million for the third quarter.

24% increase year over year.

GAAP net income for the quarter was $137.7 million or $3.86 per diluted share.

This includes the pretax gain of $187.6 million related to the sale of my kids.

Offset by a net tax expense of $48.9 million.

Also included in GAAP net income is $3.1 million of non cash charges related to stock based compensation.

For those of you who try to non-GAAP results. Our form 10-Q was filed today and include more details then you may find helpful. In calculating non-GAAP results on your own.

Total third quarter revenue from core solutions increased 21% to $27.1 million, primarily driven by 16% growth in the average number of property management units under management.

Good thing from a 9% increase in the average number of property management customers.

Third quarter value plus services revenue was $53.4 million, a 28% increase year over year also driven by the increase in property management customers and.

The majority of our value plus services come directly and indirectly from our customers use the.

Of our electronic payments services.

In screening services and insurance services.

Our electronic payments services continue to experience increased demand as residents property managers owners and customers transacted more business online.

We closed the third quarter with 15352 real estate property management customers managing an aggregate of 5.12 million units in their portfolio.

This compares to 14034 customers and 4.41 million units under management reported one year ago.

Turning to expenses total cost and operating expenses for the third quarter increased 27% year over year on a GAAP basis.

Compared to an overall, 24% increase in total revenue.

This year over year increase in costs, primarily related to our 17% year over year growth in headcount.

Furthermore included in general and administrative expenses are one time professional fees and other costs related to the my kids transaction of $2.3 million.

During the third quarter, we continue to operate as a remote workforce and expects to continue to do so at least through the end of the first quarter of 2021.

As a result, we have experienced reduced costs associated with running our facilities lack of travel and in person the event.

Another downstream effect of the remote work environment.

As a reminder, on September Thirtyth 2020, we completed the divestiture of my kids or former wholly owned subsidiary that provided legal practice and case management software solutions toward legal customers.

The transaction was executed for $193 million or.

For more information about my kids transaction. Please refer to note three divestitures business combination of our two then consolidated financial statement.

For the three month period ended September 30, 2020, My Kids total revenue was $9.5 million.

Of which $5.2 million core revenue and $4.3 million related to value plus services.

In addition, our total headcount as of September 32020.

We did 118 my case employee that left up fully in connection with the transaction.

Moving to the balance sheet as of.

September 30, our principal sources of liquidity or cash and cash equivalents and investments security.

Which had an aggregate balance of $181.9 million.

Our cash and cash equivalents increased during the quarter, primarily as a result of the proceeds from the my key transaction.

We also repaid a total of $97.2 million under our then existing credit agreement, leaving us debt free today.

We generated $17.8 million from operating activities in the third quarter.

Our primary uses of cash in the quarter were capital expenditures of $2.2 million.

We also realized capitalized software development costs of $7 million in connection with continued investment in our technology and service offerings.

We are pleased with our performance in the third quarter and year to date and continues to look ahead with caution given the uncertainty related to closing team.

The potential impacts of the pin demichele neat amplified by the length of time, they affect our customers and the broader economy.

As a result, you're not really getting revenue guidance for the remainder of the fiscal year.

We continue to expect the diluted weighted share count for the year to be approximately 36 million shares.

With that I will turn the call over to deepen for additional comments.

Thank you either and thanks to everyone for joining us today.

Throughout the year one of the most important goals has been to continue to find new and it basically I suspect you want to engage with our customers in the current environment.

In the third quarter, we hosted our eighth annual at Folio customer conference.

With over 5400 customers Register.

The first time completely virtually calling lawn.

The conference was available at no charge to all Appfolio property manager Appfolio property manager plus and investment management customers provide.

Regarding your digital space for Insperity, keynotes networking and training sessions, ranging in scope for an industry best practices to trends and technology.

We received positive messages from customers, who appreciated the opportunity to learn in network and we heard an important feedback that will drive continued product and service innovation going forward.

'cause COVID-19 accelerated the need for digital transformation across the real estate industry.

Folio customers have been well equipped to navigate these challenging times with our software is the foundation of their business.

Frankly, senior Vice President of Red Rock Realty Group.

Recently said Appfolio has completely revolutionize our processes and moved all operations digital.

COVID-19 has been positive for us because we weren't completely digital invoice approvals in especially with leasing where 99% of Russian supply online pay online and find the digital lease.

Leasing was huge in Copenhagen, and help push us to do that.

Our technology helps ensure that customers can successfully operate in this new normal working remotely are serving their customers virtually and maximizing the use of technology.

And our last call I discussed the release of virtual showroom is in three d. tours that can enable our customers to show you that can fill vacancies without in person contract.

Not only have a positive impact on property managers, but ventures as well.

We recently conducted a survey of our interest across the U.S. became their perspective on the virtual leasing your experience.

Based on the survey, 80% of respondents who signed a new lease during the pandemic and viewed a unit virtually so the virtual Wheeling option was high quality with a comprehensive view of everything they wanted to see in the unit.

Additionally, 40% of ownership they would still like virtual options for viewing units post pandemic.

To that end in the third quarter, we added resident screening and lease renewal functionality to fully as virtual leasing experiences.

We also released on a limited basis income verification screening and expanded option for our tenant screening starters holidays applicants income online savings.

Saving time and minimizing the need for in person contact.

We continue to expand capability to sign for resident retention and new lease renewals.

Giving property managers the ability to automatically update lease states recurring rent charges conversant status at lease expiration all completely online through Appfolio property manager.

Remote work in dispersed teams require even more visibility and oversight business operations for our customers.

Is especially true for our larger fully a property manager plus customers managing more complex portfolios across multiple regions.

Hey, Dan plus includes Configurable workflows functionality, allowing customers to implement and manage consistent processes and services across their entire portfolio.

In the third quarter, we expanded the work flow dashboard and reporting capabilities to allow for increased management insight and oversight of efficiency metrics and opportunities for improvement.

Additionally, we updated user rules and conditions to allow customers to further pay their their access and permission settings for increased control and operational efficiency.

We further expanded functionality related to the automation of manual and repetitive tasks to drive increased productivity allow teams to focus on higher value work.

Accounting is a key area that can be transformed through.

Intuitive automation and in the third quarter, we launched new functionality designed to enable a more streamlined accounts payable process.

The automated accounts payable value added service collection pace invoices on their customer's behalf.

So they don't have to manually print scan and meal invoices from the office saving time and freeing up teams.

Turning to our full year investment management, we continue to prioritize functionality that enables investment management customers to grow their portfolios.

Drive efficiency and engage their investors.

During the quarter.

We released new capabilities to manage capital and grow investment portfolio, including tracking assuming capital calls for investment funds a single asset suddenly review.

Dividend distribution reinvestment plans to allow investors to reinvest distributions.

Additionally, the release about fully Investor web sites the first.

All your investment management value added service provides customers with a got polio, but website that integrates with the appfolio investor portal, providing investors marketing opportunities and customer insights.

Before I wrap up I'd like to express my appreciation for our team and its hard work and dedication to providing excellent experience for our customers in a challenging year.

I'm proud of that oil was recently recognized with several awards highlighting our commitment to delivering innovative technology solutions to our customers and building a thriving culture.

The AI Tech awards, focusing on technical innovation and adoption of AI machine learning industry, Inc. polio AI leasing assistant Lisa best in industry vertical applications.

Great place to work I recognize it's already in global work place culture, just about fully with the best workplaces for women for the third consecutive year.

Adding to the Colter Agnes Bondi Scanlin, who was appointed to the Appfolio Board of directors effective November Onest 2020.

Hi, This is a global leader in the governors regulatory and compliance risk and data information security fields.

She has also experienced attorney in advisor to industry and government.

And this will serve on the board to risk and compliance oversight Committee in audit Committee.

In summary, we remain focused on our long term growth strategy as we work to deliver innovative technology solutions delight, our customers and build on our strong company culture.

We will continue to partner closely with our customers. During this time to help ensure they are well equipped for the challenges I'm not only today, but tomorrow too.

Thank you all for joining us today I will now turn the call back to the operator. Please go ahead.

Thank you the recording of this call will be available two hours. After the call has ended to listen please dial eight 005 each 537.

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This concludes today's conference call. Thank you for your participation and you may now disconnect.

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