Q2 2022 Appfolio Inc Earnings Call
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Good afternoon. Thank you for standing by and welcome to our Folio Inc's second quarter 2022 financial results Conference call. Please be advised that today's conference is being recorded and a replay will be available on Apollo Investor Relations website.
I would now like to hand, the conference over to Lori Parker Investor Relations Ms. Barker. Please go ahead.
Thank you good afternoon, everyone on Lori Barker Investor Relations for AB Folio and I'd like to thank you for joining US today as we report absolutely is second quarter 2022 financial results with me on the call today are Jason Randall.
He is president and CEO and fish Yangon, absolutely I was chief financial Officer.
This call is being simultaneously webcast on the Investor Relations section of our website at Www Dot absolutely Oh, Inc. Dotcom.
Before we get started I would like to remind everyone of absolutely as 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.
Statement that refers to expectations projections or other characterizations of future events, including financial projections future market conditions or future product enhancements or development is a forward looking statement.
Polio is actual future results could differ materially from those expressed in such forward looking statements for any reasons, including those listed on our SEC filings.
Absolutely 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 31st 2021, which was filed with the SEC on February 28, 2022 might too as well as the company's other filings with the SEC.
With that I will turn the call over to Jason Randall.
He is president and CEO , Jason. Please go ahead.
Thank you Lori and welcome to everyone joining us for our second quarter 2022 financial results.
I'm pleased to report that revenue was up 32% to $117 million in the second quarter.
Now served more than $6 8 million units.
This is the first time, we've added more than $1 million million units on a year over year basis.
Results reflect our continued focus on delivering a powerful property management solution and exceptional experiences to our growing base of real estate industry customers.
Our long term investments customer focus innovative products and dedicated team at <unk>.
Deliver sustained revenue growth and resilience even during times of constant change in the rental market.
I'll highlight two specific second quarter execution highlights.
Start with our June announcement about polio stack, our new integration marketplace and how it reinforces our strategy to move up market.
I'll dig deeper into workflows, and how we've recently developed new and innovative ways to make it easier for property managers to automate their workflows and increase productivity.
Increasing productivity is an ongoing challenge for all of our customers as we continue to extend beyond our residential SMB routes.
Adding new upmarket customers, we continue to focus carefully on their unique needs.
The rise of SaaS providers like Apple Youll accelerated that centralization of workflows onto a single platform.
Now we are offering customers the choice and the ability to integrate into a single system of record, which is especially important to larger property management customers.
To address getting the best of both at the National Apartment Association Annual conference in June Departmentalize, we announced that for you.
Stack, our new integration marketplace designed to seamlessly integrate our customers preferred software applications without polio property manager.
Apollo stack allows our certified partners to design and build their integrations around a variety of API end points using our modern architecture to provide our customers with the reliable experience.
Integrations are particularly important to the midmarket and corporate segments to enable users to manage complex portfolios and run their entire business from a centralized hub.
He was that gives our customers more choices as they focus on boosting productivity and improving restaurant experiences.
New stack partnerships include butterfly Amex service happy go knock lows and property milk.
Last quarter, we talked about how customers can streamline maintenance tasks.
Partner Bose help solve this challenge now we have many more examples of integrations.
Our new partnership with can service provides residents with the ability to pay the utilities and automate the utility billing process freeing up property management teams to handle utility management reduce costs and meet sustainability goals, all while focusing on regulatory compliance.
I think they'll provides apollo property manager customers access to property unit and resident data to simplify and improve the average turn time and inspection process and create a better staff and resident experience.
Data is automatically Shane some move in and move out inspections and make ready workflows are triggered based on those moving dates in our folio a property manager.
Another integration examples Apple he was a partner chip with Nox.
Knox user friendly CRM.
Integration helps our customers to facilitate a bidirectional record for each of their prospective residents.
Intuitive workflow helps prospective residents submit inquiries and it generates a lead and once the prospect is ready the system provides a link to the online application and Apple Youll property manager.
All of these trusted partner integration choices use Apple iOS API to enable streamlined and simplified workflows that mirror each customer's process.
Our partners are required to pass some readiness certification checks and all integrations are tested and validated to deliver a seamless experience for our customers.
We are just getting started with integration partnerships and I, probably missed that gives our customers a choice to continue using familiar tools.
Here's what customer Michael Krauss partnered atrium management company in Orlando with approximately 3000 units on that property manager says well we have always use best in class software for specific functions and we are so excited that folio is integrating with more partners. This is truly a sign of applegate is dedicated to partnering with property managers at best.
In class software vendors to provide the end user with the best experience possible.
Michael is correct. The primary goal of these new Apple your stack integrations is to provide our customers with access to best in class point solutions.
I'll follow a property manager remains their system of record customer is using the base at folio property manager product upgrade to apply them.
Property manager plus or they can pay an incremental 50 per connected unit per month for Apple you stack.
I'll probably go stack is one way that we are investing to differentiate ourselves it's easy for customers to add partner connections with certified integrations backed by our dedicated customer support.
We believe stack is one of if not the best integrated customer experiences and real estate property management, and we see strong early interest from customers and other potential partnerships.
Look for more announcements.
In addition to rolling out Apple here stack, we took important steps in the second quarter on our mission to make our products easier to use.
One recent example is our new capability for property managers to return renters security deposits fee check by reducing manual check writing we've simplified them about process.
And improved the property managers ability to be efficient residents can get their funds faster and track the status of the return and the tenant portal, thereby reducing time, considering back and forth communications for our property manager customers.
Another example of our progress here is a modernized automated bank reconciliation functionality.
Reconciling banking counts as a core accounting task for property managers and completing the task manually each month is time consuming and error prone, particularly for large companies with complex banking structures are.
Our goal is to make it easy for property managers to securely connect their bank accounts at folio and automate their bank reconciliations.
Enabling them to eliminate the manual work and associated risk of air inherent in many of the completing bank reconciliations.
We are now integrated with Plaid, a leading fintech known for helping people securely connect consumer bank accounts to financial applications supporting more than 12000 financial institutions.
There's new integration plan allows customers to link bank accounts to a fully up with a higher success rate. So they can go on to use our auto bank reconciliation functionality.
Another new ease of use enhancement I want to highlight is our liabilities land North insurance program.
In the future our customers can set it and forget it as the system automatically verifies tenant provided insurance documents to ensure they're properly approved and that there is adequate liability coverage. This task was previously a manual burden for property managers.
Our AI powered technology scanned uploaded insurance documents saving property managers valuable time.
Giving them access to this critical workflow. This program will be included with absolutely no property manager and there's another milestone in the area of automated workflows.
Customer support is a crucial part of making our products easier to use and continuing to grow and refine our wealth of on demand self service resources to help customers more quickly receive and access customer support when needed.
One area of recent focus is evolving our chat support request intake strategy from ticket based alive interactions.
This allows us to resolve simple issues in a moment, which reserves the follow up to you from our advanced issues that require research and troubleshooting.
Capabilities designed to decrease our response times and improve customer sentiment.
As we head into the second half of 2022 and beyond and grateful for our employees' dedication to serving our customers evolving needs.
We're committed to creating a diverse inclusive and equitable workplace rapidly ends of all backgrounds that entities and thrive.
So it's particularly exciting are fully has been selected as one Unfortunately best places for millennials based on feedback from our own people.
In summary in addition to moving up market with differentiated solutions and separately a stack.
We continue to invest in developing innovative ways to streamline customer workflows like E check for rent or security deposits and additional automation of bank statements and renters insurance. These are the types of strategies that have resulted in our revenue growth in more than $1 million year over year unit increase.
This is what has propelled Apollo team and our growth through constantly changing economic conditions.
Now I'll turn the call over to <unk> for more detail on that for the second quarter financial results.
Thank you Jason we are pleased with our continued strong revenue growth rate at $117 $4 million seafood revenue, 32% year over year in the second quarter cause another quarterly strong growth in core solutions and our usage based value added services, especially as they are.
Electronic payments. So this is streamlining workflows to improve productivity has never been more critical to property management customers, who are now dealing with staffing shortages in inflation.
Additionally, as Jason mentioned, we are steadily increasing unit costs and the number of property management customer base their core solution revenue derived from subscriptions to customer base.
Platform was $32 $4 million in Q2 was another strong quarter and a 28% year over year increase in EPS.
In the second quarter, we managed $6 8 million property management units from 17878 property management customers compared to five 8 million property management units from 16532 property management customers.
This represents a 17% increase in our ending annual property management units under management demonstrating success as they move up market residential units continues to be the most significant part of our business and community associations had also contributed nicely to our unit.
During the first half of this year. In addition to the number of units. We serve it is important to note that all revenue also grew as we continue to focus on customers with larger <unk>.
<unk> portfolios that drive higher adoption rates.
Absolutely <unk> property manager plus a taller stack integration marketplace is an excellent example of the types of initiatives that overtime. We believe will continue to propel our growth in larger customers and our revenue per unit.
Regarding value added services revenue in Q2, we experienced a strong 35% year over year growth to $81 $4 million.
Did continue year over year increase is due primarily to the rise in property management units under management, the expansion of our offerings and increase adoption and utilization of our value added services.
Especially our electronic payment services.
As is typically the case in the second quarter, we saw a solid sequential quarterly increase in our screening business as tenants begin filling out applications before they move.
Before addressing our expenses I would like to refer you to the GAAP to non-GAAP reconciliations in our press release.
Going forward, all costs and operating expense commentary will refer to non-GAAP cost and operating expenses.
In Q2, the cost of revenue exclusive of depreciation and amortization was 40% of revenue compared with last year's second quarter of 36%.
Half of this variance is due to a prior year nonrecurring two by $1 million benefit from a payment service provider.
Their annual incentives related to all my payment programs.
Most of the other half of that variance is associated with a higher mix of value added services as a percent of overall revenue and they're related to expenses for third party service providers.
Turning now to operating expenses.
But youre increasing operating expenses for Q2 is primarily related to additional headcount growth of 17% to 1771 employees.
As a percent of revenue sales and marketing expenses grew from 19% in Q2, 2021 to.
21% in Q2, 2022, primarily due to personnel related costs necessary to support growth.
R&D expenses as a percentage of revenue increased from 16% in Q2 last year to 19%. This year, primarily due to expanding our product capabilities for the larger customer segment, including projects like stuck making products easier to use and continuing to strengthen our product security.
Meanwhile, our G&A expenses as a percentage of revenue decreased from 15% in the same quarter last year to 13%. This year as we continued to scale and find efficiencies.
In our GAAP to non-GAAP reconciliation you will see in 19 4 billion dollar G&A impairment charge as we move to be more flexible in the way we work, we reassessed our real estate needs and we will be exiting certain leased office spaces.
non-GAAP income from operations in the second quarter was 1% compared to 7% in the second quarter of 2021 free cash flow was negative $1 million or negative 1% of revenue in Q2 compared to $10 million 11.
11% in the same quarter last year.
Turning to the balance sheet, we ended the second quarter with $168 million in cash cash equivalents and investment securities.
Yeah.
The increasing our projected full year 2022 revenue guidance range to 455.
Two $461 million the make buy off the range represents full year growth rate of 27%. Let me remind you about value added services and the typical seasonality in the back half of the year, which impacts both the revenue and cost of revenue.
Starting in the third quarter.
Thirdly seen sequential declines in revenue due to seasonally lower tenant screening and leasing activities payments pick up a higher percentage of value added services revenue mix and this becomes slightly more pronounced in the fourth quarter.
As we mentioned in our last calls.
Can you expect the cost of revenues exclusive of depreciation and amortization for 2022 to increase slightly as a percentage of revenue due to changing product mix, partially offset by some cost efficiencies.
And modest price increase for credit card payments.
While our year over year percentage increase.
Hey, Kyle will be a little more moderate this year compared to last year, the cost of attracting and retaining talent are expected to continue increasing as a percent of revenues. Our total operating expenses for the full year and I expect it to remain broadly in line with past guidance.
And higher than the prior year.
Continuing to evaluate efficiencies and increased scale to reduce the growth of expenditures.
It'll take more time before we see material changes to our trends.
Full year non-GAAP operating margins are expected to be in line with prior guidance and lower than in 2021, as we move through the year and value added services grow as a person.
Age of a revenue mix weighted average shares outstanding I expect it to be approximately 35 million shares for the full year unit served and revenues are growing nicely and we are pleased to be increasing our full year revenue guidance 'twenty 'twenty. Two is a year of continued investment in our pillars.
Gross as we focus on our land and expand strategy make our products, even more available to our customers and continue our journey to scale our business.
You all for joining us today.
This concludes today's conference call.
Thank you all for participating you may now disconnect and have a pleasant day.
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