Q1 2022 Appfolio Inc Earnings Call
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Good evening. Thank you for attending today's <unk>, Inc. First quarter 2022, you financial results Conference call. My name is Erin and I will be your moderator for today's call.
I would now like to pass the conference over to our host Laurie Barker Investor Relations. Thank you Lori you May proceed.
Thank you Erin and good afternoon, everyone I'm Lory Barker Investor Relations for AB Folio and I'd like to thank you for joining US today as we report it absolutely is first quarter 2022 financial results with me on the call today are Jason Randall at fully as President and CEO and face Yang.
He is chief financial Officer.
Call is being simultaneously webcast on the Investor Relations section of our website at Www Dot absolute Inc. Dotcom.
Before we get started I would like to remind everyone of absolutely no 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 they are subject to risks and uncertainties any statement that refers to expectations projections or other characteristics.
Actions of future events, including financial perceptions future market conditions, our future product enhancements, where development is a forward looking statement.
Folios actual future results could differ materially from those expressed in such forward looking statements for any reason, including those listed in our SEC filings.
<unk> assumes no obligation to update any such forward looking statements, except as required by law.
For greater detail about risks and uncertainties. Please see our filings with the SEC, including our Form 10-K for the year ended December 31, 2021 which was filed with the SEC on February 28, 2022 as well as the company's other filings with the SEC.
With that I'll turn the call over to Jason Randall, absolutely as President and CEO .
Jason Please go ahead.
Okay.
Thank you Lori and welcome to everyone joining us for our folio is first quarter 2000.
<unk> results.
I am pleased to report that revenue was up 33% to $105 $3 million in the first quarter.
Reaching the scale is a key milestone for our portfolio I would like to thank our employees for their customer focus innovation and dedication.
Together our team has built a powerful property management solution to continue to invest the growing needs of our customers across more than $6 $5 7 million units.
In 2022, we are focused on growing our customer base and increasing revenue per unit serves as we continue our multi year investments to further develop our core platform deliver additional value added services and make all of our product even easier to use.
The current challenging macroeconomic conditions directly impact certain industries more than others inflation the cost of human capital the pandemic in a fast changing work environment are just a few.
Spacing domestic businesses.
As we have throughout our history, we have continuously evaluated these issues and their impact not only on our business, but also on our customers employees and shareholders.
We have made ongoing adjustments, particularly around our team and culture.
To navigate the current environment, our long term focus remains as it always has a maintaining and evolving our resilient business model built to thrive in a variety of market conditions demonstrated by our continued multiyear investments and delivering valuable products and services to our customers.
With respect to sustained effort to grow our customer base. Our dedicated sales team continues to expand beyond our roots of residential SMB, which we categorize as property management companies with between 50 and 500 units under management.
We are driving growth in the mid market, which we categorize as between 500 to 500 units as well as the corporate segment with 500 plus units.
The community associations market also continues to grow as we expand our capabilities.
A recent example of growth in our corporate segment, it's got Tony Real estate, an 86 year old multi generational business based in San Francisco with approximately 4700 units.
<unk> complete product vision ease of use customer service, but okay, Tony to abandon one of our competitor systems after three decades.
<unk> property manager, plus which is specifically designed for our larger and more complex customers.
According to Paul Qahtani Khatami's principal quote Apollo truly feels like a partnership which is refreshing coming from our previous solution, where we felt like just a number where you are in the middle of the Onboarding process and I can say that from day, one our team has been blown away by the professionalism clarity and accountability as shown by the team assisting us in this complex transition.
And quote.
As you'll hear from faith began in a moment, we continue to make headway in our initiatives to attract larger customers at a growing rate why that acceleration.
This has been the focus of an important multiyear investment that has been a number of large customers on that fully <unk> property manager plus has increased so too has our opportunity to learn how to provide even more value.
Let me give you two examples.
First as cost centers or large customers want to analyze the performance of individual departments locations property types and more.
In the first quarter, we realized cost centers in a simple way for them to do just that.
<unk> are automatically tagged with the right cost center, rather than requiring manual labeling.
It is an excellent example of how we continue to automate time intensive and manual tasks. So our customers can focus on what matters.
My Second example, how solving large customers' challenges helps us accelerate our unit growth is project budgeting.
Project budgeting allows our customers to confidently forecast track and report expenses on remodeling projects within our portfolio. So they can stay organized aligned and on budget.
We will continue to bring out <unk> focus on innovation to the challenges of our large customers to grow our market share.
And we remain committed to investing in our SMB base as well, ensuring that our products and services net market segments stay relevant valuable and easy to use.
Here's what customer Darren <unk>, Vice President of Goldfinch, Inc. In Green Bay, Wisconsin, with approximately 500 units from Apollo property manager has to say.
Hello, Apollo property manager has improved our business efficiencies towards intuitive interface and streamline processes.
I'm, an operations perspective, Apollo property manager allowed us to easily adapt to a more technical logically advanced customer.
Providing online solutions for marketing revenue collection and payment processing has been a significant improvement and we continue to deploy new technology that positions US ahead of the market.
Compared to other property management platforms, and <unk> continues to be leaps and bounds ahead of the competition with its easy to use system that doesn't require the hassle of waiting on hold to make a simple change in quote.
We also continue to move upmarket by expanding our capabilities through our curated partner integrations to deliver key functionality, while maintaining a more elevated customer experience.
As we integrate with leading point solutions, our platform will serve as our customer system of record system of engagement and system of intelligence, giving them actionable performance insights in helping them unlock more value in their businesses and came up with the pace of digital transformation across the real estate industry.
We will remain focused on delivering solutions that are easy to set up and use a core tenant for us that's embodied in our values.
I will share one very early integration example, we are expanding our maintenance solutions by integrating with a well known home improvement retailer and centralizing the functionality in our folio a property manager.
Our customers maintenance teams can stock and monitor items needed for repairs in unit terms, then when inventory runs low they can easily see what is required and restock by directly linking with that home improvement retailer.
This capability has simplified the procurement process and insurers maintenance tasks do not get delayed due to missing materials.
The team is working hard on delivering additional curated integrations designed to provide valuable solutions with elevated service experiences.
And we're looking forward to discussing more partner integration details at the NAA apartments <unk> conference in June .
In addition to our efforts to increase our customer base. We are also focused on growing revenue per unit and increasing customer retention by adding and expanding our value added services, which are designed to enhance automate and streamline business critical processes and workflows.
Our strategy has been particularly successful in the electronic payment services area.
Our electronic payments services business provides the most significant piece of revenue within value added services.
And in this last quarter. It was the fastest growing of any of our services and have reached scale.
Our payments capabilities allow property managers to streamline the receivables and payables through various online payment options, including debit cards credit cards.
Chronic cash payments and automated clearinghouse or ACTH Custer.
Customers can collect funds through our secure online portal, our mobile application and via electronic cash payments from applicants residents and property owners for transactions like rental applications security deposits monthly rental rent payments and periodic dues.
Customers can also electronically send funds to various users, including property owners service providers and their own management company.
We recently heard from Stacy circuit, the owner of Mountain Valley property management based in Michigan with approximately 1900 units managed by Apollo property manager.
She shows that Apollo because of our Differentiators first our integrations for payment processing and second our willingness to work with our team to improve our services and solutions in different ways that benefit users. She says quote I believe was made payment processing easier for our residents and quote.
We believe there is continued room for growth in this part of our business and are working to build on our momentum by expanding the breadth and scope of our various offerings to facilitate the saving them money for all the constituents on the platform.
We also continue to focus on evolving and improving our services organization, which is a key aspect of our total value proposition.
This quarter for example, we added a new self service tool to simplify multifamily property onboarding.
The tool is designed to give our customers the easing convenience of adding new properties in one go in on their own time without engaging a polio support.
Not only does this make adding units easier for our customers. It also simplifies onboarding on our side and helps us scale with our growth in another key area of focus.
I'll wrap up with a few other highlights from a busy quarter that are worth mentioning.
First as part of that folios ongoing mission to be a trusted long term partner to customers. We hosted the Apple the old virtual way of selling.
April .
Bringing together technology education and service. This conference was available at no charge at both existing and potential customers, creating a digital space with industry leaders to discuss the latest trends technologies and innovations at the forefront of the real estate.
We had excellent current and prospective customer attendants with nearly 3400 registrations, representing almost 1 million total units.
As you've heard me talk about quarter after quarter, we know that our folios company culture and employees are central to our success.
In that regard I am pleased to announce that Apollo was recognized for the first time by comparably is one of a number of large employee employers with the best company outlook for 2022.
Companies were selected based on how competent employees feel about their company's future success and how likely they are to recommend working at their company to a friend.
This type of recognition as meaningful to us as leaders to our teams and to the new talent, we hope to attract a folio.
Finally in March we launched together without fully over the last few years have redefined how and where we think about our team's doing their best work and have taught us some very important lessons about our capabilities expectations and results.
Together without folio is our plan to embrace today's flexible personal and connected work environment and turn that into a core cultural competency.
We believe this will be important for retention and recruiting. It is just one more example, about how fully his team and culture are an important element of our strategy.
In summary, I'm pleased with growing to this $100 million milestone and we'll continue to invest in the strategic foundations of our success our customers are innovative products and services, our employees and a revenue generating go to market strategy.
I will now turn the call over to <unk> for more detail on that fully this first quarter financial results.
Jason We are pleased with our continued strong revenue growth rate and surpassing the $100 million milestone and $105 $3 million. We grew revenue 33% year over year in first quarter. This increase is consistent with what we have seen in the last few quarters with growth in our user.
Each based value added services, such as to electronic payments services business, Jason just highlighted.
We are steadily increasing unit pounds and a number of property management customers we serve COO.
<unk> solutions revenue, which is derived from subscriptions to customers based on units on our platform was $31 million in Q1, representing a solid increase of 27% year over year.
At the end of the first quarter, we manage 657 million property management from.
17550 property management customers compared to five 6 million property management units from 16178 property management customers.
Earlier this represents an 18% increase in our average annual property management units under management, demonstrating our early sales success, two largest property management companies.
Property management units is a key performance metric that drives how we manage our revenue growth residential units continues to be the largest part of our business and community associations have also contributed nicely to our unique context here.
In addition to 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 that drive higher adoption rates of absolutely <unk> property manager plus.
Additionally, the focus on the sales marketing and innovation is demonstrating traction.
With regard to value added services revenue in Q1.
Very strong 39% year over year growth to $71 $5 million. This year over year increase due to the rise in property management units under management, the expansion of our offerings and increase adoption and utilization of our value added services.
Actually our electronic payments services 10 minutes and property managers continue to take advantage of these services as small business is being transacted online relative to prior years.
Before addressing expenses I would like to point out that we have had a GAAP to non-GAAP reconciliation.
Our press release going forward, all my cost and operating expense commentary.
Two non-GAAP costs and operating expenses.
In Q1 cost of revenue exclusive of depreciation and amortization was 41% of revenue. This is a modest decrease compared with last year's Q1 of 42% primarily due to operational efficiencies and use of more automation in our custom.
Our support organization.
Turning now to operating expenses.
The increase in operating expenses for Q1 is primarily related to additional head count growth of 17% to 1660, <unk> as a percent of revenue.
Sales and marketing expenses grew from 20% <unk> COO.
Q1, 'twenty 'twenty, 1% to 22% in Q1, 2022 primarily due to personnel related costs necessary to support growth and a modest increase in advertising and promotions related expenses.
R&D expenses as a percentage of revenue also increased from 17% in Q1 last year to 20%. This year, primarily due to expanding our capabilities for the larger customer segment and the continuing.
<unk> products security. Meanwhile, our G&A expenses as a percentage of revenue.
<unk> decreased from 16% in the same quarter last year to 15% this year as it continues to scale.
Our non-GAAP loss from operations in the first quarter was negative 5% compared to a negative 2% in the first quarter 2021 free cash flow was negative $7 $6 million of negative 7% of revenue in Q1 compared to negative $4 8 million.
On negative 6% in the same quarter last year.
Turning to the balance sheet, we ended the first quarter with $173 $8 million in cash cash equivalents and investment securities compared to $159 $9 million in the same quarter last year.
We are increasing our projected full year 2022 revenue guidance range to $450 million to $460 million. The midpoint of the range represents a full year growth rate of 27% in terms of seasonality and then applications increased in the typical second quarter.
Imagine that experience new tenant expansion in the third quarter, resulting in higher demand.
Insurance related risk mitigation services also we have historically seen a sequential decline in revenue in the fourth quarter, the tenant screening of reductions due to seasonally lower leasing activity.
As we mentioned in our last call. We continue to expect the cost of revenues exclusive of depreciation and amortization for Q2.
2020, due to increased slightly as a percentage of revenue due to changing product mix, partially offset by efficiencies.
Value added services revenues are growing faster than total revenues and we forecast a corresponding increase in expenditures to third party service providers.
Also with regard to expense modeling you can now use our newly presented non-GAAP Q1 as a baseline.
Well I'll give you a percentage increase in head count will be a little more moderate this year compared to last year the cost of it.
Correcting and retaining talent I expect them to continue increasing at all above inflation rates as a percentage of revenues. Our total operating expenses for the full year are now expected to remain broadly in line with Q1 <unk>.
We continue to evaluate efficiencies and increase scale to reduce the growth of expenditures, but they will take more time before we see material changes to our traps.
Only on non-GAAP operating margins are expected to be in line with the first quarter of 2022.
Weighted average shares outstanding are expected to be approximately 35 million shares for the full year.
We are excited about achieving our first quarter of more than $100 million in revenue.
Units and revenues are growing nicely and we are pleased to be increasing our full year revenue guidance.
Turning to lease a year of continued investment in our pillars of growth as we focus on our land and expand strategy make our products, even more valuable to our customers and continue our journey to scale our business. Thank you all for joining us today.
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That concludes the conference call. Thank you for your participation you may now disconnect your line.
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