Q4 2021 Appfolio Inc Earnings Call

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Good afternoon. Thank you for standing by and welcome to <unk> Folio incorporated fourth quarter 2021 financial results Conference call. Please be advised today's conference is being recorded and replay information will be given at the end of the broadcast.

I'd now like to hand, the conference over to Lori Banca Investor Relations.

Thank you good afternoon, everyone I'm Lory Barker Investor relations for absolutely ill and I'd like to thank you for joining US today as we report <unk> fourth quarter and fiscal year, 2020 one financial results.

With me on the call today are Jason Randall at Folio, as President and CEO and face Young girls, absolutely as Chief Financial Officer. This call is being simultaneously webcast on the Investor Relations section of our website at Www Dot <unk> Dot com.

Before we get started I would like to remind everyone about the safe Harbor policy comments made during this conference call and webcast contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties any statements that refers to expectations projections or.

Other characterizations of future events, including financial projections or future market conditions is a forward looking statement.

Folios actual future results could differ materially from those expressed in such forward looking statements for any reasons, including those listed on our SEC filings.

So no obligation to update any such forward looking statements, except as required by law.

Please see our filings with the SEC, including our Form 10-K , which was filed earlier today for greater detail about risks and uncertainties with that I will turn the call over to Jason Randall absolutely as President CEO . Jason. Please go ahead. Thank you.

You Lori and welcome to everyone joining us for our fourth.

Fourth quarter and fiscal year, 2020 , one financial results.

I'm pleased to report that in the fourth quarter revenue was up 32% to $95 6 million capping off a year of 26% revenue growth in our real estate business.

Unit expansion per customer shows that our ongoing multiyear strategy in investment markets and customers with more complex portfolio and substantial unit counts is working.

In 2021, as we continued our focus on igniting revenue growth by layering in a new organizational strategy structured around our growing customer base we.

Also increased momentum in our value added services, especially in payments for 2022, our team is energized to continue making traction in areas of ongoing growth.

Against that backdrop I'd like to start today's call with a short discussion about the state of our industry and how <unk> is helping our customers.

Digital transformation is a requirement for many businesses today and the way we work and live requires powerful solutions to enable this transformation.

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Business is small medium and large across the real estate industry.

We are leading customers to the future of our work is done.

This continues to give us purpose as we navigated world in an industry undergoing significant change.

Our customers and the real estate industry as a whole are experiencing the impacts of the changing labor market.

Turnover has increased in staffing vacant positions takes more time and resources.

In fact, the 2021 survey we conducted in partnership with the National apartment Association.

Neil that HR staffing and recruitment is by far the most urgent challenge for property managers.

Led by improving operational efficiencies and maximizing revenue and profits.

What this means is that our customers are doing more with fewer resources, which makes it imperative that automate and standardize their process.

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Our fully owned property manager provides a powerful platform, which real estate property managers and owner operators to run their business.

From initial tenant screening and on boarding to handle the maintenance requests and sending and receiving payments.

While getting actionable business insights that help drive revenue and profits.

In recognition of the evolving needs of customers with larger and more complex.

Deeper business insights automation and more advanced customer experiences, we continue to invest behind <unk> property manager plus.

In 2021, and we continued our ongoing effort to refine the user experience by reducing the time it takes to complete all the workflows and bring customers to focus on higher value tests.

We really substantial improvements throughout the year, including a unit turn board that can shorten the length of time from move out until the unit is ready to be rented and offline inspections, which allows customers to complete a full inspection on a mobile device, even with internet connectivity is unreliable.

We also introduced loan tracking and accounting automation to enable customers to attract existing loans and mortgages to further streamline our accounting processes, making it easier for property owners to assess and optimize their debt financing strategy.

One of the most powerful ways to save our customers' time to eliminate the need for certain tasks altogether.

Last few years.

AI based automation to streamline manual processes.

Got it.

In 2021, and we launched our AI based smart maintenance service smart maintenance automate prioritization and dispatch of maintenance service request automatically creates four quarters in the process, reducing long haul times for maintenance technicians, and reducing the time it takes to resolve issues.

Elevation in real estate and management uses at Ohio property managers to manage a mixed portfolio of 850, plus single family multifamily and commercial units throughout the northwest Arkansas.

They recently turned out polio smart maintenance to help deliver a more robust and user friendly and maintenance solutions.

So producing smart maintenance elevation reported that they have freed up roughly 60 hours a month to do things that normally get on the back burner.

Paasio elevations regional manager serves those quotes.

But the time savings were able to do things like preventive maintenance organizing and cleaning all the things. We normally don't have time to do because you're always chasing down the next maintenance request.

Let me quote.

We believe our customer centric culture and market validation techniques that direct our product strategy are key to our success.

<unk> engaged in long term customer relationships and.

An example of our success in this area is getting properties.

A professional real estate development and property management teams, serving central Iowa, roughly 18, that's currently on our platform.

Since adopting our <unk> property manager early 2021.

<unk> properties is chief growth without adding to the staff.

The property is currently uses a number of our value added services, including screening insurance websites premium leaves smart maintenance in our folio.

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According to the customer Apollo has significantly improved Canadian properties ability to manage cash flow security occupancy lease renewals rent increases and overall operations.

As we enter 2022 yards, we will continue to work on or interrelated elements of our multiyear strategy all of which focus on serving a broader swath of the real estate market and meeting the complex needs of both SMB and larger customers with mixed real estate portfolios.

First expand our markets, we are leveraging our folio as experienced in our core SMB market as we add capabilities focused on growing higher unit count customers.

I've organized sales marketing and customer support to residential community Association property types.

At the same time, we have created the main teams to address or capabilities and workflows across those various customers and property types.

By year end, we were clearly seeing the impact of a shift this go to market strategy.

Going forward, our existing customer base will enable us to continue diversifying the number of property types. We serve within our customer portfolio is eventually touching almost every aspect of modern real estate operations.

At the end of 2021, we had approximately 17200 customers at 635 million property management units on our platform.

This is a key metric for us we have thousands of customers serve millions of residents every day.

Second expand our average revenue per unit and grow customer retention by adding expanding value added services.

For several years, we've been investing in value added services, including payments screening insurance.

All of these are designed to enhance automate and streamline processes and workflows that are central to our customers' business and to enable us to increase our attach rate per unit.

Looking ahead, we will continue our value added services investments and are working to expand our use of key partnerships integration.

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Third make our products easier to use our software delivers efficiency gains by automating workflows to free staff and increased productivity.

As part of this strategy, we will continue to invest in AI is a transformational technology to address real world real estate industry problems by enabling a folio customers to act with greater speed.

Understand performance report accuracy and bring more consistency to their operations.

All of which we believe will ultimately improve our customers' business.

Fourth continue to modernize and streamline our onboarding processes to ensure that our customers are well prepared to run their business on our platform.

Polio Onboarding include a dedicated team that goes above and beyond to help customers realize value from our solutions.

After we assist with data migration are able to provide valuable insights into data integrity and work with our customers to help improve their underlying business processes.

Our team can share insights on best practices, and we dedicate resources to guide our customers through the adoption and utilization of our value added services.

All four elements of our multiyear strategy focus on serving a broader swath of the real estate market and meeting the complex needs of both SMB and larger customers with mixed real estate portfolios.

These investments support our ultimate goal to make our customers businesses and lives better.

As I have mentioned in previous calls we believe our people are at the heart of our success and our customer success and we continue to make investments in growing and developing our team throughout 2021, and even more recently, we've invested significant resources to develop the talent needed to remain at the forefront of innovation and make us an employer of choice.

We've also brought in new external leadership from such market, leading companies of Salesforce C. III Marine central data Q to lead our product sales and engineering organizations.

All of this focus has led to the recognition that demonstrates our value company culture and workplace portion recognized that polio is a great place to work for women in 2021, and the Glassdoor employees Choice Awards listed that polio is one of the best places to work in 2022.

In summary, I'm pleased with our results in the fourth quarter and we will continue to invest in the key foundations of our success our customers are innovative products and services, our employees and our revenue generating go to market strategy.

I will now turn the call over to <unk> for more detail on <unk> financial results.

Thank you Jason on the call today to enhance comparability I will discuss the results of our continuing real estate business, excluding the impact of our former my case business.

We divested in the third quarter of 2020 .

We are pleased with our strong fourth quarter revenue growth rate of 32% year over year or $95 $6 million.

For the full year, 2020 , one revenue from our continuing real estate business grew 26% to $359 million. This increase is primarily due to growth.

Usage based value added services, which are designed to enhance automate and streamline processes and workflows that are essential to our customers' businesses.

So our revenue growth due to increasing unit counts and growth in the number of property management customers we serve.

The migration of customers to folio a company manager plus is an excellent example of our land and expand strategy.

We continue to drive increased revenue from existing customers, who realize the value in our products.

Core solutions revenue, which are revenues derived from subscription to customers based on units on our platform was $29 million in Q4, representing an increase of 26% year over year.

Fully a core solutions revenue from continuing real estate business grew 22%.

At the end of the fourth quarter, we manage 635 million company management units compared to 536 million a year earlier.

This represents an 18% increase in D S.

Average annual company management units under management the growth rate in the number of property management unit is a key performance metric that drives how we manage our revenue.

Residential units continue to be the largest part of our business Community Association has also contributed nicely. This year, so our unit count.

In addition, the number of units we serve it is important to note that core revenue also grew as we continue to support customers with larger unit portfolios and drive higher adoption rate.

Folio company major pods.

Additionally, the focus on the sales marketing and customer support efforts is showing good traction with.

With regard to value added services Q4 revenue.

We experienced a strong 39% yoga yoga to $63 $8 million and our full year value added services grew 31%.

This is revenue from our continuing operations.

This year over year increase is due not only to the increase in company management units under management, but also increased adoption and utilization for electronic payment services tenant screening and insurance services offerings.

And company managers continue to take advantage of the services as more business is being transacted online relative to last year.

The sequential quarterly decrease in value added services of 3% is primarily due to the seasonality in our tenant screening business, which generally experienced declines in the fourth quarter when silver leasing activities typically occurs, thereby reducing the demand for us.

Seven.

Gross margin excluding stock compensation was 59, 6% consistent with the fourth quarter of last year.

Annual 2021 gross margin from continuing operations, excluding stock compensation was down about 140 basis points.

Product mix shifted due to the higher annual growth rate off of any kind of services revenue.

Now turning to spending.

Yeah about your increase in operating expenses for Q4, and full year 2021, primarily related to additional headcount needed to feel growth additional marketing spend and then increase in third party cost of revenues combined with the increase in rather than value added.

This revenue.

Also as many businesses are experiencing the costs associated with hiring and retaining talent continues to increase more than in prior years, particularly in specialized areas such as R&D.

We are targeting in <unk> 2022 revenue of $447 million to $457 million.

Midpoint of the range represents full year growth of 20.

26% in terms of seasonality in a typical second quarter tenant application increase and our property managers than experienced new tenant expansion in the third quarter. This results in high end demand for insurance services in the third quarter as we mentioned earlier we have.

<unk> typically seen a sequential decline in revenue in the fourth quarter with tenant screening and reductions due to seasonality.

Leasing activities.

We expect that caused our revenue exclusive of depreciation and amortization for 2022 to increase slightly as a percentage of revenue due to changing product mix.

And it services revenues are increasing faster than total revenues and we forecast an increase in expenditures to third party service providers.

Although our year over year percentage increase in head count will be a little more moderate in 2022.

Cost of attracting and retaining talent.

Expected to continue increasing at or above inflation rates. That's all we expect some growth in operating expenses.

And found new CFO I'm looking forward to working with Jason and the leadership team.

We focus on growing profitability and building a scalable long term growth model I'm glad to have John actually was doing this exciting growth phase.

Focus in 2022 is growing the number of units under management, moving up market and providing our thousands of customers with an exceptional customer experience and dynamic technology.

Hum managing millions.

Thank you all for joining us today.

This concludes today's call. Thank you for joining you may now disconnect your lines.

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