Q3 2022 Appfolio Inc Earnings Call
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Thank you.
Good day, and thank you for standing by and welcome to apply our Q3 2022 earnings conference call. At this time all participants are in a listen only mode. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Louis Barker.
That's the relations. Please go ahead.
Yeah.
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 at Folio is third quarter 2022 financial results with me on the call today are Jason Randall, absolutely as president and CEO and face Sheahan, good absolutely as Chief Financial Officer.
This call is simultaneously being webcast on the Investor Relations section.
Website at Www Dot absolutely L Inc. Dot com.
Before we get started I would like to remind everyone about folio 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 future market condition, our future product enhancements or development is support looking statements.
Absolutely it was actual future results could differ materially from those expressed in such forward looking statements for any reason, including those listed in our SEC filings.
Folio assumes no obligation to update any such forward looking statements, except as required by law for greater detail about our risks and uncertainties. Please see 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 2020.
Two as well as the company's other filings with the SEC.
With that I will turn the call over to Jason Randall absolutely as President and CEO . Jason. Please go ahead.
Thank you Lori and welcome to everyone joining us for Apple iOS third quarter 2022 financial results.
I'm pleased to report that revenue was up 31% to $125 million in the third quarter and we now serve approximately $7 1 million units.
This marks two sequential quarters, where you added more than 1 million units on a year over year basis.
We delivered growth across the business and revenue from payments continues to be especially strong.
Inflationary pressures and is an important time for our customers to continue investing in our core solutions to save costs and increase efficiency.
I'd like to thank our investors and customers for meeting two weeks ago in Santa Barbara for investors unable to attend our Investor meeting, we have posted a video and slides on our IR website.
For those who did attend you heard <unk> talk about how we are focused on returning to profitability and in this third quarter, we delivered positive free cash flow.
We are pleased that our 10th annual Apollo customer conference sold out as we welcomed about 850 customers from 250 cities.
This three day event with an excellent opportunity for customers to get a pulse on real estate trends.
Industry insights connect and learn from each other and deepen their understanding of what <unk> offers.
Customers told us they appreciate at the time for learning and networking and we heard important feedback that will drive continued product and service innovation.
Anthony Luna Chief Executive officer of coastline equity.
Nearly 8000 units throughout California automobile property manager plus or APM, plus told us quote.
Credible how far Apollo has come over the last 10 years, a significant part of coastline equities success, just because of the tools, we use and without a doubt Apollo has been a pillar of our growth during.
<unk> customer conference, we learned about the innovations that will be added to their platform and how prop tech will continue to see professional property management companies in the industry and quote.
This customer is a perfect endorsement of keeping customers happy one of them.
The key elements of our long term strategy.
We believe our customer success is essential to our long term success and we place significant emphasis on our customers' experience differentiate our solutions from competing products.
The two things we had heard we've heard our customers talk about time and again, our centralization and automation.
Centralizing labor intensive tasks across accounting leasing and maintenance helps free up the front office staff.
So they can focus on the residents.
Automation on the other hand and eliminate busy works.
We have delivered a significant amount of innovation is what we call our AI factories are.
Polio is focused on creating a solid foundation that allows us to rapidly deploy and apply machine learning to help add value to any customer segment in many aspects of their business.
We are at a stage now where we're able to leverage AI in every single one of our customers primary workflows.
Bank feed is a new AI feature we announced at our customer conference that is designed to enable automatic reconciliations of our customers bank transactions with their accounting records.
Reconciliations usually involve a lot of manual data entry and analysis.
We can help make that work largely disappear, which we believe will drive value to customers of all sizes.
Also at the customer conference, we introduced a new capability called smart ensure smart ensure it uses AI to detect when an insurance policy no longer covers a unit.
What's your results in that unit being automatically added to the customer's liability insurance policy.
Early results from our rollout show increased insurance coverage and usage of the tool across active users.
Smart insurance designed to reduce risk for our property management customers customers by helping ensure coverage without any manual intervention.
We've also introduced another new capability report builder for our larger customers with more complex reporting requirements.
Turning a demo of report builder in our recent Investor meeting is another example of a product innovation influenced by customer feedback.
It also supports our goal to have customers centralize their accounting and reporting on our platform.
[noise] report builder Bank data is as Martin share just a few ways, we keep our customers happy and were constantly evaluating new and innovative opportunities to continue doing so.
Yeah.
Another element of our long term strategy of acquiring new customers, we ended the quarter with more than 18000 customers.
The corporate segment was yet again, our fastest growing residential segment this quarter and a key driver behind our expected if you could share Arco grows.
Would that push up market and we will continue to position physician APM plus to corporate customers and also to the upper end of mid market for those customers poised to take advantage of this platform is purpose built capabilities.
We are also driving growth up market by expanding our capabilities through additional property types and through integration partnerships. We've got polio stack, which is seeing strong and immediate adoption in our customer base.
Several hundred thousand units have begun to leverage stack in the four months since we launched.
Do you believe that this adoption will enable up market growth with mixed portfolio of customers. We are just getting started with integration partnerships and stack. It gives our customers a choice to continue using familiar tolls.
Affordable housing is another significant multiyear expansion opportunity for us up market, we are focusing significant development efforts on expanding the foundational product capabilities and subsidy programs and light tech capabilities, we already have in place to better support customers needs and our corporate segment.
Affordable housing is another example of an opportunity to provide a purpose built solution to enable our customers to manage their entire business in one place on one powerful platform.
In addition to our customer acquisition gains we continue to make progress on our long term strategy to expand adoption of news we've.
We are becoming increasingly competitive in the corporate segment as we expand adoption through our value added services and ATM plus.
One of our new value added service offerings as a security deposit alternatives.
At our customer conference, we unveiled fully yogurt security deposit alternative as partner fuel innovation allows our customers to seamlessly integrate the security deposit alternative into APAC.
And this is the type of service, where a single platform gives us the ability to quickly rollout new powerful solutions to a large customer base.
We are also adding another payments offering apple pay.
The addition of Apple pay is designed to simplify the customer experience and reduce friction and the time for property managers to get paid.
It works with any credit or debit card linked to our restaurants, Apple pay wallet versus manually typing in the card details.
After a successful pilot earlier this year, we expect to add this new payment method to our online portal for all customers.
The economics for Apollo or the same as our credit card and debit card model. In addition to incremental revenue generation and our payments value added service Apple pay adds additional convenience to the payment process, helping us achieve greater adoption and usage for the entire platform, while contributing to growth and retention.
Short term rentals, which we announced at our customer conference is another.
Many of our customers have short term rental units and they're mixed portfolios and this new future capability allows us to expand the types of customers we target.
We're currently validating this new product with a select number of charter customers.
Our long term growth strategy is rooted in keeping our customers happy acquiring new customers, expanding adoption and usage and moving into adjacent markets.
We are building a scaled foundation of operational excellence in all of these areas people are the core of our success.
In that regard congratulations to the entire Apollo team on becoming one of fortune.
Fortunately 40, best large workplaces in technology.
This is a fully was debuted on the list, marking a big win for our organization and bolstering our reputation among customers as well as among current and future team members as the innovation leader.
It's an exciting time at that folio are long term strategies and investments are showing traction as we continue our leadership in SMB went up market and grow value added services.
I'll now turn the call over to <unk> for more detail on that fully as third quarter financial results.
Thank you Jason we are pleased with our continued strong revenue growth rate and returned to positive free cash flow.
Jason.
<unk> hundred $25 $1 million in revenue, we grew revenue 31% year over year in the third quarter. This growth is an excellent example of how <unk> is landing new customers expanding our unit, there and growing our pool through APM plus and value added services.
Let's review the numbers for the third quarter call solutions revenue was $33 $9 million in Q3, another strong quarter and a 26% year over year increase.
The end of the second quarter, we manage approximately seven 1 million in property management units from 18109 property management customers cut back too.
6 million property management units from 16844 property management customers see Oh, yeah.
This represents a 17% increase in our ending property management units in there.
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 unit whatsoever that drive higher adoption rate. Okay P M plus.
In a recent investor meeting I pointed out the strategy importance of APM.
These units have more than a 60% higher ARPA versus APM car and a penetration in our corporate segment is more than six times greater.
Regarding value added services revenue in Q3, we experienced a strong 35% year over year growth to $88 $4 million. This continue year over year increase.
It's primarily due to the rise in property management units under management.
The expansion of our offering and the increased adoption and utilization of our.
Value added services, especially our electronic payment services.
Typically the case in the third quarter, our screening business declined slightly in Q3 on a sequential quarterly basis, and we expect another sequential decline in Q4. These sequential quarterly decline is typical and for the leasing season, which began in the summer months.
Before I do I think I expenses I would like to refer you to the GAAP to non-GAAP reconciliation in our press release call earlier today.
Going forward, all costs and operating expenses commentary will refer to non-GAAP costs and operating expenses.
In Q3 of 2022, and 2021 the cost of revenue exclusive of depreciation and amortization was 40% of revenue, while our mix, while the higher mix of value added services and related expenses for third party service providers are increasing our cost of revenue added.
Oh, hey call efficiencies offset that in the current quarter.
Turning now to operating expenses.
Over a year increase in operating expenses for Q3 is primarily related to additional head count growth of 13% to 1758 employees feel.
Sales and marketing expenses as a percentage of revenue remained comparable to the prior year at 19%.
R&D expenses as a percentage of revenue increased from 16% in Q3 last year to 20%. This year as they continue to expand our product capabilities, including projects like stocks stay manager affordable housing and the other capabilities that make our products easier.
So to us.
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 continue to scale and find efficiencies.
non-GAAP income from operations in both the third quarter of this year in the third quarter of last year was approximately 4% free.
Free cash flow will turn positive, but was $11 $9 million or approximately 10% of revenue in Q3.
Compared to $6 8 million or 7% in the same quarter last year.
Turning to the balance sheet, we ended the third quarter with $184 $5 million in cash cash equivalents and investment securities.
We are increasing our projected full year 2022 revenue guidance range to.
$462 million to $466 million.
Part of the range represents a full year growth rate of 29%.
Please note as mentioned earlier, we typically see a sequential decline in value added services revenue in the fourth quarter as fewer residents move during the winter months impacting tenant screening insurance and payment for security deposits in 2020, one given the easing of Covid.
Typical movie pattern didn't occur, but by all indications this year, we expect normal pre COVID-19 seasonality.
We continue to expect full year 2022 cost of revenue exclusive of depreciation and amortization to increase slightly as a percentage of revenue compared to prior year due to a changing product mix.
Cost efficiencies, partially offsetting changes in the mix.
Full year non-GAAP operating margins are expected to be a loss of one five to two 5% basic weighted average shares spending are expected to be approximately 35 million.
For the full year.
In a recent investor meeting I outlined a goal to get to positive free cash flow as a start to a healthy free cash flow margin. We now expect full year 2020 to be about breakeven for free cash flow.
Yeah.
As many of you know I became a theatrical one year ago and I can tell you. It has gone by really fast our foundation for long term growth is paying off with substantial new units added to the platform and growth in ARPA driving revenue expansion and the recent investor meeting.
You heard the underpinnings of our success, keeping our customers happy acquiring new customers expanding adoption unused entering and expanding into adjacent markets and building a scaled foundation of operational excellence. We believe our long term strategy is resilient and will continue to see with <unk>.
Thank you all for joining us today.
Yeah.
And thank you and this concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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