Q4 2023 AppFolio Inc Earnings Call
Okay.
Okay.
Good afternoon. Thank you for standing by and welcome to Apple, Inc. Fourth quarter 2023 financial results Conference call.
Please be advised today's conference is being recorded and the replay will be available on Apple iOS Investor Relations website.
I'd now like to hand, the conference I'll bet, you Laurie Bakr Investor Relations you may begin.
Lori Barker: Thank you good afternoon, everyone I'm worried Barker Investor relations for Apple Ale and I'd like to thank you for joining US today as we report out fully owns fourth quarter 'twenty to 'twenty three financial results.
Lori Barker: With me on the call today are Shane Trigg, absolutely as president and CEO and face and absolutely as Chief Financial Officer. This call is simultaneously being webcast on the Investor Relations section of our website at Folio, Inc. Dot com.
Lori Barker: Before we get started I would like to remind everyone of absolutely our safe Harbor policy.
Lori Barker: 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.
Lori Barker: Any statement that refers to expectations projections or other characterizations of future events, including financial projections future market.
Lori Barker: Our future product enhancements.
Lori Barker: Is for Lucky.
Lori Barker: 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.
Lori Barker: Absolutely awesome no obligation to update any such forward looking statements, except as required by law for greater detail about risks and uncertainties. Please see our SEC filings, including our Form 10-Q for the quarter ended September 30th 2023, and the section entitled Risk factors in absolutely no sports.
Lori Barker: <unk> annual report on Form 10-K for the fiscal year ended December 31st 2023. In addition, this call includes non-GAAP financial measures reconcile the issuance of these non-GAAP financial measures with mostly most directly comparable GAAP measures are included in our.
Lori Barker: Our fourth quarter earnings release posted on the Investor Relations section of our website with that I will turn the call over to Shane Trigg Shane. Please go ahead.
Shane Trigg: Thanks, Lori and welcome to everyone joining us from fully its fourth quarter and fiscal year 2023 financial results I.
Shane Trigg: I am pleased to announce a successful fourth quarter caps off a year in which our portfolio increase the pace of innovation, while prioritizing profitable growth.
Shane Trigg: First quarter revenue grew 39% year over year to $172 million contributing to an annual 31% increase to $620 million.
Shane Trigg: Units grew at 13% for the year to $8 2 million or customer count expanded our two increased and payments continue to grow.
At the same time, we improved our margins driving non-GAAP operating margin to 24% during the first quarter and non-GAAP free cash flow margin to 20%.
Shane Trigg: Absolutely our strategy is all about delivering exceptional value for our customers employees and shareholders. Our strategy has five components and it starts with our commitment to differentiate to win.
Shane Trigg: There is no better example of how rapidly we are differentiating ourselves they're not fully around.
Shane Trigg: It unites all of our AI innovation under a common umbrella and touches every single one of our customers workflows from leasing to maintenance and accounting.
Some of these AI features and services are included in our core product, while others are sold separately or included in our premium product tiers.
93% of our customers now use one or more AI enabled features or services through our portfolio ROE. That's twice the adoption of just one year ago, demonstrating the value our customers are realizing for morale.
Shane Trigg: We announced a fully owned <unk> the industry's first ever generative AI conversational interfaces N a last year and were piloting it with customers right now.
Shane Trigg: Through row next customers will be able to interact with that folio in plain language. It has three components.
Shane Trigg: First customers can ask <unk> to explain how something works. They can ask for information or they can ask for reports second customers can also tell roll next to complete a task on their behalf like drafting a communication.
Shane Trigg: The third component is that customers can teach walnuts to automate processes and workflows. This is crucial because our customers continue to tell us their number one challenge is operational efficiency.
Lori Barker: We have talent and resource constraints and yet they're still doing manual repetitive tasks.
Lori Barker: In the past, we design products to help customers do the work what we're building today, we'll do the work for them that's for differentiating to win means.
Lori Barker: The second component of our strategy is to unlock upmarket customers.
Lori Barker: We are winning larger customers by expanding our coverage of property types, which we accomplished in 2023 through the launch of affordable housing.
Lori Barker: By extending the value of our platform to scale with our customers complex operations, whether built natively or delivered by our integration partners via our folio stack.
Lori Barker: As of the end of 2023 we have grown the number of units connected top fully in stock partners to $1 5 million.
Lori Barker: Thanks to initiatives like these more and more large residential portfolios made the switched out folio in 'twenty two 'twenty three one.
Lori Barker: One of those customers was AMC, which maintains and operates over 11000 multifamily units in southern California.
Shane Trigg: Since going live late last year are not folio property manager plus they're leveraging not just our core system functionality, but also AI leasing assistant Lisa smart maintenance websites bill pay and so much more.
Amc's President Daniel Mccarthy had this to say and I quote we see great potential in our polio is current offerings as well as in their constant commitment to innovation and view this partnership as a real investment in our future and quote.
In the fourth quarter, we introduced a third tier and our product lineup at N. M. H C is a tech conference.
Fully a property manager Max is designed for large operators with complex and diversified property portfolios. This new plan provide everything and plus as well as leasing CRM that puts all the data in one place for actionable insights we see.
Shane Trigg: [laughter] signals that enable property managers to make thoughtful pricing decisions using their own unique pricing strategy and public data.
Shane Trigg: <unk> feels that a lot of property managers to capture track and report on any information with user defined fields.
Shane Trigg: Database API that gives property managers full access to their app fully a database to build analytics integrations and data processes.
Shane Trigg: And Max comes with dedicated customer success management.
Shane Trigg: That's that's been well received and adopted by new customers as well as existing ones.
Shane Trigg: Through our product tiers, we create upgrade paths so as our customers grow we have offerings that grow with them.
Shane Trigg: The third component of our strategy is to elevate the customer by driving their adoption and success on our platform.
Shane Trigg: Next month, we'll publish the second edition of our annual research benchmarking more than 5000 property management employees.
Shane Trigg: The report will show that maintaining high occupancy rates has become top of mind as rental markets become more competitive and with operational efficiency continuing to be a challenge reducing costs is key.
Property managers tell us, they're finding savings by leveraging data to fill vacant units faster centralizing their teams and resources and adopting AI.
Shane Trigg: These are areas, where at folio will continue to innovate in order to deliver an exceptional customer experience.
Shane Trigg: We also heard that despite broader economic challenges, there's a reason for optimism.
Shane Trigg: According to the report 66% of property managers expect their portfolios to grow in 2024 compared to 52% last year.
Shane Trigg: Last quarter, we talked about our new bulk actions functionality available to users of folio property manager plus and Max that supports customer needs around managing move ins and move outs at scale.
Shane Trigg: It's valuable toy upmarket customers, particularly those with student housing and their portfolio given the seasonal patterns of the residential lifecycle.
Shane Trigg: This past quarter, we expanded this functionality to bulk lease renewals.
Shane Trigg: We recently heard from one customer goes then Hartman CEO of Champagne, Illinois based fair a lot of real estate, which manages more than 5000 units on a fully a property manager plus that our bulk lease renewal tool has reduced the time her team spends sending out lease renewals by 75.
Shane Trigg: Your son.
Shane Trigg: According to go then and I quote it turns something that was looming and difficult into being easier and not ultimately enabled most of our team to continue leasing apartments, and providing great customer service and quote.
Shane Trigg: That's the kind of improvement that makes a difference to people every day, that's how we elevate our customers.
The fourth component of our strategy is to scale the business our pursuit of profitable growth is in service of our customers because to be the innovative long term partner. They can rely on to power their businesses, we must be a healthy resilient business ourselves.
Shane Trigg: In 2023, we made a commitment to operational efficiency, we sharpened our focus on the closest to home initiatives that drive efficient growth and deliver extraordinary customer value right.
Shane Trigg: Or rightsize, our team and real estate footprint, and we drove meaningful improvement in our infrastructure spend.
Shane Trigg: Ongoing discipline in our execution will allow us to reinvest in our platform reach new customers and drive efficient growth.
Shane Trigg: At the same time, we will continue to add and enhance our capabilities to grow our <unk>, particularly in the upmarket segment.
Shane Trigg: The final component of our strategy is great people and culture.
Shane Trigg: I'm inspired by our team's ability to rise to every challenge and deliver customer innovation and value at an exceptional pace.
Shane Trigg: Earlier this month, we presented a polio strategic priorities to our employees about folio kick off 'twenty 'twenty four.
Shane Trigg: During the event, we had a chance to meet several customers who are using up folio in meaningful ways hearing how our innovations are sparking productivity and helping communities thrive are powerful reminders of the impact we're making.
Shane Trigg: One of those customers Neil Cadman, President of El Segundo, California, based Cadman group managing 1100 units on at Folio property manager plus had this to say and I quote I'm way past understanding a lot of the extra that knows about folio I just know when I turn on my computer.
Neil Cadman: When I look at my phone tenants can pay rent we can lease units. It all works we view at folio as Cadman group and Cadman group is up folio, it's why we keep coming back and quote.
Neil Cadman: Everything our team does is in service of customers like meal, and our great people and culture are creating these experiences.
I'm grateful to every one of our customers.
Neil Cadman: Out of our accomplishments and deeply believe in the direction of our company.
Neil Cadman: Through our relentless focus on our customers our disciplined investments our passion to deliver industry, leading innovation and our great people and culture. We are truly building the platform or the real estate industry comes to do business.
Neil Cadman: I'll now turn the call over to face yen for more details on our folios fourth quarter financial results.
Shane Trigg: Thank you Shane the fourth quarter marked an excellent end to a successful year, where we achieved strong revenue growth and accelerated profitability of 2023 results lay the foundation for financial flexibility to help us achieve our goals in 2024.
Shane Trigg: The fourth quarter, we delivered revenue of $172 million growing 39% year over year, and we generated free cash flow of 19, 9% of revenue compared to 1% in the same period last year.
Shane Trigg: Car solutions revenue was $41 million in the fourth quarter, a 17% year over year increase driven by new customers additional units our platform and continued adoption of absolutely a property manager plus.
Face Yen: At the end of the year, we manage approximately 8.2 million units from 19737 customers compared to $7 3 million units from 18441 customers a year earlier.
Shane Trigg: This represents a 7% increase in customers and a 13% increase in ending yet growth in units was primarily driven by the timing of units added by new customers and existing customers expanded their portfolios.
Shane Trigg: The higher rate than prior quarters during 2023 for the full year car solutions revenue grew 18% year over year.
Shane Trigg: Fourth quarter value added services revenue grew 48% year over year to $128 million, resulting in full year revenue growth of 39%.
Shane Trigg: Annual growth was fueled by unit growth.
Shane Trigg: The strength in card adoption or rent payments.
And our decision to stop waving the E check fee.
Shane Trigg: Card adoption for Orion payments continue to exceed our expectations.
Shane Trigg: Turning to spending we exited the quarter with 50.
Shane Trigg: 1500, four employees, which is a decline of 16% compared to the fourth quarter.
Shane Trigg: 2022.
Speaker Change: The result of our efforts to alliance structure to strategy.
Speaker Change: non-GAAP cost of revenue exclusive of depreciation and amortization was 35% of total revenue compared with 40% in the fourth quarter of last year. The full year, it was 37% compared to 40% in the prior year.
Speaker Change: Gross margin increase was primarily due to our decision to stop waving the E check fee and two and.
Speaker Change: And operational improvements.
Speaker Change: As a percent of revenue combined sales and marketing R&D and G&A fell to 37% in the fourth quarter of 2023 from 58 per se in the fourth quarter of 2022 due to growth in revenue and our collective focus on operational efficiency.
Speaker Change: Full year operating expenses as a percentage of revenue declined to 46% from 55% in 2020 two.
Speaker Change: Sales and marketing expenses as a percentage of revenue decreased from 21% in Q4, 'twenty 'twenty, 2% to 12% this quarter.
Lori Barker: Full year sales and marketing decreased from 21% to 16%.
Lori Barker: By optimizing operations and maintaining discipline in our investment.
Lori Barker: We improved R&D expenses as a percentage of revenue from 21% in the fourth quarter of the prior year to 17% this quarter for the full year R&D increased from 20% to 21%.
Lori Barker: Our G&A expenses as a percentage of revenue decreased from 15% in the fourth quarter of the prior year to 8% this quarter.
Lori Barker: Full year G&A decreased from 14% to 10%, reflecting our sustained focus on streamlining operations for greater efficiency.
Lori Barker: Overall, our non-GAAP operating margin in the fourth quarter of this year close to 24, 3% compared to a loss of two 5% in the same quarter of last year.
Lori Barker: Through disciplined execution of our plans strategies, we delivered non-GAAP operating margin of 12, 2% for the full year, which was a significant improvement from the operating loss of zero by 6% in 2022.
Lori Barker: Free cash flow margin. This quarter was 19, 9% compared to 1% in the same quarter last year full year free cash flow margin was 11, 9% compared to a loss of 0.9% in 2020 two.
Lori Barker: In 'twenty 'twenty four we expect growth in card usage for rent payments to normalize and total payments revenue to moderate in the second half of the year with the anniversary of our decision to stop giving E check fees. Additionally, beginning in the second quarter, we plan to reduce <unk>.
Lori Barker: Action fees associated with card base rent payments.
Lori Barker: We will further impact revenue growth.
Lori Barker: For all other value added services, we expect seasonality to remain consistent with historical trends.
Lori Barker: <unk> 2024 guidance for annual revenue is $755 million to $765 million.
Lori Barker: Which implies a full year growth rate of 23% based on the midpoint of this range, we expect full year cost of revenue.
Neil Cadman: As a percentage of revenue to be slightly lower than 2023 as we continue to drive additional efficiencies.
Neil Cadman: 'twenty 'twenty four ending head count is projected to grow as we continue to invest in high priority initiatives that enable us to achieve our strategic objectives. However, we expect the rate of head count growth to be less than revenue growth as we maintain our focus on operational excellence.
Neil Cadman: In 'twenty 'twenty four they expect to deliver non-GAAP operating margin between 21% and 23% of revenue, while generating free cash flow of between 17% and 19% net revenue.
Neil Cadman: Weighted average shares outstanding are expected to be approximately three 7 million shares for the full year.
Neil Cadman: Our fourth quarter and full year results demonstrate our continued commitment to being a healthier more focused business fueling our ability to serve customers and power the future of their real estate industry.
Neil Cadman: Thank you all for joining US today, we look forward to seeing is an operator. This concludes today's call.
Neil Cadman: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Neil Cadman: Yeah.
Neil Cadman: [music].
Neil Cadman: Okay.
Neil Cadman: [music].