Q1 2024 AppFolio Inc Earnings Call

Operator: Good afternoon. Thank you for standing by, and welcome to AppFolio's first quarter 2024 financial results conference call. Please be advised that today's conference is being recorded and a replay will be available on AppFolio's investor relations website. I would like to hand the conference over to Lori Barker, Investor Relations.

Good afternoon, and thank you for standing by and welcome to the actual yields first quarter 2024 financial results Conference call. Please be advised that today's conference is being recorded and a replay will be available on <unk> Investor Relations website.

Operator: I'll hand, the conference over to Lori Barker Investor Relations.

Lori Barker: Thank you. Good afternoon, everyone.

Lori Barker: Thank you good afternoon, everyone I'm Lory Barker Investor Relations, perhaps folio and I'd like to thank you for joining US today as we report out folios first quarter 'twenty 'twenty four financial results.

Lori Barker: I'm Lori Barker, Investor Relations for AppFolio, and I'd like to thank you for joining us today as we report AppFolio's first quarter 2024 financial results. With me on the call today are Shane Trigg, AppFolio's President and CEO, and Fay Hsien Goon, AppFolio's Chief Financial Officer. This call is being simultaneously webcast on the investor relations section of our website at appfolioinc.com. Before we get started, I would like to remind everyone of AppFolio's Safe Harbor Policy.

Lori Barker: With me on the call today are Shane Trigg, absolutely as president and CEO and face Ian good absolutely as Chief Financial Officer.

Lori Barker: This call is being simultaneously webcast on the Investor Relations section of our website at folio in dotcom.

Lori Barker: Before we get started I would like to remind everyone of at Folio 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. For example, any statement that refers to expectations, projections, or other characterizations of future events, including financial projections, future market conditions, or future product enhancements or developments is a forward-looking statement. AppFolio's 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: 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 statement that refers to expectations projections or other characterizations of future events, including finance.

Lori Barker: Projections future market condition, our future product enhancements or development is a forward looking statement.

Lori Barker: Polio is 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: AppFolio 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 SEC filings, including our form 10-K for the year ended December 31st, 2023, which was filed with the SEC on February 1st, 2024. In addition, this call includes non-GAAP financial measures. Reconciliations of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our third quarter earnings release posted on the Investor Relations section of our website. With that, I will now turn the call over to Shane.

Shane: <unk> assumes no obligation to update any such forward looking statements, except as required by law.

Shane: For greater detail about risks and uncertainties. Please see our SEC filings, including our Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February one 2024.

Shane: In addition, this call includes non-GAAP financial measures reconciliations of these non-GAAP financial measures with the mostly most directly comparable GAAP measures are included in our third quarter earnings release posted on the Investor Relations section of our website.

Shane: With that I will now turn the call over to Shane Trigg Shane. Please go ahead.

Shane Trigg: Thanks, Lori, and welcome to everyone joining us for AppFolio's first quarter 2024 financial results. I am pleased to report that revenue was up 38% year-over-year to $187 million in the first quarter.

Shane Trigg: Thanks, Lori and welcome to everyone joining us for our fully as first quarter 2024 financial results I am pleased to report that revenue was up 38% year over year to $187 million in the first quarter increases in units and customers along with upgrades and further.

Shane Trigg: Increases in units and customers, along with upgrades and further adoption of value-added services, drove revenue growth. At the same time, we improved our margins, driving our non-GAAP operating margin to 26% and non-GAAP free cash flow margin to 22%. AppFolio's first quarter results underscore our ongoing commitment to industry-leading innovation and exceptional service that drives the adoption of our products and services. To that end, I want to highlight progress across the five components of our strategy, the first being how we differentiate to win.

Shane Trigg: Adoption of value added services drove revenue growth.

Shane Trigg: At the same time, we improved our margins driving non-GAAP operating margin to 26% and non-GAAP free cash flow margin to 22%.

Shane Trigg: Our fully as first quarter results underscore our ongoing commitment to industry, leading innovation and exceptional service that drives the adoption of our products and services to that end I want to highlight progress across the five components of our strategy. The first being how we differentiate to win.

Shane Trigg: Innovation is the source of AppFolio's differentiation, inspiring customers to choose and grow with us. The strength of our platform lies in its ability to propel our customers into the future in ways they couldn't achieve on their own. We continue to leverage our Head Start and AI to differentiate ourselves and win new customers, focusing on the highest value priorities that deliver efficient growth for them. Brad Hargraves, a real estate entrepreneur and editor of the popular publication, Thesis Driven, recently had this to say: quote, "AppFolio is the most forward thinking among all the major property management systems when it comes to integrating AI, end quote." One way we're leveraging AI is to more easily onboard new customers. Across the industry, onboarding is a time-intensive, manual process that can bog down owners and property managers and dissuade them from switching technology providers.

Shane Trigg: Innovation is the source of that fully is differentiation inspiring customers to choose and grow with us.

Shane Trigg: Strength of our platform lies in its ability to propel our customers into the future in ways. They could achieve on their own we continue to leverage our head start and AI to differentiate ourselves and win new customers focusing on the highest value priorities that deliver efficient growth for them.

Shane Trigg: Brad Hargreaves, our real estate entrepreneur and editor of the popular publication thesis driven recently had this to say quote at folio is the most forward thinking among all of the major property management systems when it comes to integrating AI and quote.

Shane Trigg: One way, we're leveraging AI is somewhat effortlessly onboard new customers across the industry. Onboarding is a time intensive manual process that can bogged down owners and property managers and dissuade them to switching technology providers in order for us to win in the market.

Shane Trigg: In order for us to win in the market, we need to make it easy for customers to migrate to our platform and quickly achieve value from our products and services. By investing in onboarding, including harnessing the power of AI, we've been able to remove much of the friction from this process and reduce the time it takes new customers to get up and running. We've begun offering a product-led onboarding experience to new customers, enabling them to add the financial information and other foundational data they need to run their business on AppFolio easily and at their own pace.

Shane Trigg: We need to make it easy for customers to migrate on our platform and quickly achieve value from our products and services.

Shane Trigg: By investing in Onboarding, including harnessing the power of AI, we've been able to remove much of the friction from this process and reduce the time it takes new customers to get up and running.

Shane Trigg: We've begun offering a product led onboarding experience to new customers, enabling them to add the financial information and other foundational data they need to run their business on a portfolio easily and at their own pace customers win by quickly achieving success on our platform. In fact these customers are.

Shane Trigg: Customers win by quickly achieving success in our platform. In fact, these customers are completing their data migrations, on average, 22% faster than before, while still enjoying a great customer experience. According to one of these customers, Antonio Buchanan, owner of NextGen Premier Management, quoted, AppFolio excels in providing a superb onboarding experience. The process is structured, informative, and fosters a strong sense of belonging.

Shane Trigg: Completing their data migrations on average 22% faster than before while still enjoying a great customer experience.

Shane Trigg: According to one of these customers and Tony Buchanon owner of Nextgen Premier management quote.

Shane Trigg: Really excels in providing a superb onboarding experience the process is structured informative and foster the strong sense of belonging that offers clear resources mentor ship and open communication, ensuring new users are well prepared to start using up folio and quote.

Shane Trigg: It offers clear resources, mentorship, and open communication, ensuring new users are well-prepared to start using AppFolio. end quote. As we continue to apply AI and other onboarding innovations more broadly to our customers, we simultaneously free up our team to focus on solving higher-value customer challenges. The second component of our strategy is to unlock upmarket customers. We've seen rapid adoption of the newest tier in our product lineup, Folio Property Manager Max, since its launch at the beginning of 2024.

Shane Trigg: As we continue to apply AI and other onboarding innovations more broadly to our customers, we simultaneously free up our team to focus on solving higher value customer challenges.

Shane Trigg: The second component of our strategy.

Shane Trigg: Look upmarket customers, we've seen rapid adoption of the newest here at our product lineup, a folio property manager Max since its launch at the beginning of 'twenty 'twenty four.

Shane Trigg: This plan, designed for large operators with complex and diversified property portfolios, has been well-received and adopted by both new and existing customers, accelerating AppFolio's ability to scale with our growing customer base. One of those customers is Atlas Real Estate, with 6,500 multifamily, single-family, and commercial units across eight states. For Atlas, there were two crucial factors in their decision to upgrade to Mac.

Shane Trigg: This plan designed for large operators with complex and diversified property portfolios has been well received and adopted by both new and existing customers accelerating absolutely is ability to scale with our growing customer base.

Shane Trigg: One of those customers as Atlas real estate was 6500 multifamily single family and commercial units across eight states for Atlas. There were two crucial factors in their decision to upgrade to Max the first was the ability to easily configure the data structure, allowing their team to capture.

Shane Trigg: The first factor was the ability to easily configure the data structure, allowing their team to capture, track, and report on any information they need with user-defined fields. The second factor was full access to their database via API, because for Atlas, the ability to have historical data to enable tracking performance over time is crucial. According to Tony Juliennel, CEO of Atlas Real Estate, quote, "one of the most important things we've done over the last few years is integrating our data warehouse with AppFolio to aggregate the data we need that's in one spot and can be visualized the way our clients need it."

Shane Trigg: Track and report on any information they need with user defined fields. The second factor was full access to their database via API because for Atlas the ability to have historical data to enable tracking performance over time is crucial.

Shane Trigg: According to Tony Julia now CEO of Atlas real estate quote one of the most important things we've done over the last few years is integrating our data warehouse without folio to aggregate the data we need that's in one spot and it can be visualized the way our clients need it it started with.

Shane Trigg: It started with the report builder tool and has moved to the database API within AppFolio Property Manager Max. The opportunity to have a two-way API is going to be revolutionary for our business, end quote. Another success story is Reidman Companies, based in Rochester, New York, with 4,000 single-family and multifamily units.

Shane Trigg: The report builder tool. It has moved to database API would then at folio property manager Max the opportunity to have a two way API is going to be revolutionary for our business and quote.

Shane Trigg: Another success story is read been companies based in Rochester, New York with 4000 single family and multifamily units.

Shane Trigg: For Riedman, upgrading to the MAX plan allows their team to feel like they can operate at the top of their skill sets, enabling them to reach their goals faster and future-proof their business. According to Alec Reidman, Director of Property Management, quote, "We believe that the Max Plan is a new frontier when it comes to what AppFolio is looking to unlock, and we want to have exposure to those for larger property management organizations that may have the misconception that AppFolio is for smaller businesses." I would certainly point to the innovation that AppFolio employs and their ability to scale your operations." Ultimately, companies like Atlas and Riedman are choosing Max for its flexibility and extensibility to power their growth.

Shane Trigg: For Reedmen upgrading to the Max plan allows their team to feel like they can operate at the top of their skill sets, enabling them to reach their goals faster and future proof their business.

Shane Trigg: According to Al agreed been director of property management quote, we believe that the Max plan as a new frontier when it comes towards at Folio is looking to unlock and we want to have exposure to those things for larger property management organizations that may have the misconception that ive folios for smaller businesses I would.

Shane Trigg: Certainly point to the innovation that are fully employees and their ability to scale your operations and to quote.

Shane Trigg: Ultimately companies like Atlas enrichment are choosing Max for its flexibility and extensibility to power their growth.

Shane Trigg: Through our multi-tier product lineup, we create instant upgrade paths so our customers grow, and we have the offerings to grow with them. The third component of our strategy is to elevate our customers by driving their adoption success on our platform. It's easier than ever before for our customers to receive timely support on AppFolio. Our service goal is for every interaction to feel easy, accessible, and trustworthy. Our commitment to excellence in this area now extends to differentiated support with channel options that match our customers' individual needs.

Shane Trigg: Through our multi tier product lineup, we create instant upgrade paths. So our customers grow and we have the offered offerings to grow with them.

Shane Trigg: The third component of our strategy is to elevate our customer by driving the adoption success on our platform, it's easier than ever before for our customers to receive timely support on our folio.

Shane Trigg: Our service school is for every interaction to feel easy accessible and trusted.

Shane Trigg: Our commitment to excellence in this area now extends to differentiated support but channel options that match, our customers' individual needs.

Shane Trigg: For our larger customers, this includes dedicated account management, giving property managers access to experts responsible for understanding their unique goals, expedited support responses, and customized training. Donna Smith, president of Enclave Property Management, with a mixed portfolio of multifamily, commercial, and industrial units on AppFolio, property manager Max, recently shared with us, "We signed up with AppFolio 10 years ago." We had 48 units, but we knew we were going to 4500 units in 10 years.

Shane Trigg: For our larger customers. This includes dedicated account management, giving property managers access to experts responsible for understanding their unique goals expedited support responses and customized training.

Shane Trigg: Smith President of Unclaimed property management with a mixed portfolio of multifamily commercial and industrial units on a polio property manager Max recently shared with US quote we signed up without folio 10 years ago. We had 48 units, but we knew we were going to 4500 units.

Shane Trigg: And that's why we went with AppFolio because their culture, their service, and their goals for growth aligned with our values." Thanks to our investments in both human and digital touch points, including AI-driven self-service, 93% of customers report high satisfaction with our client service. We are achieving remarkable service outcomes. The fourth component of our strategy is to scale the business. As we look to transform our customers' businesses, AppFolio needs to lead by example.

Shane Trigg: And 10 years, and that's why we went without folio because their culture their service.

Shane Trigg: Their goals for growth aligned with our values and quote.

Shane Trigg: Thanks to our investments in both human and digital touch points, including AI, driven self service, 93% of customers report high satisfaction with our client services, we are achieving remarkable service outcomes.

Shane Trigg: The fourth component of our strategy is to scale the business as we look to transform our customers' businesses are folio needs to lead by example.

Shane Trigg: Forward-looking digital transformation builds the infrastructure required for an efficient, nimble organization that can respond to customer demands today and empower the future of the real estate industry. This past quarter, we made progress in modernizing many of AppFolio's internal technologies and systems, including integrating AI into how our teams innovate, collaborate, and go to market. This is an important component in achieving our strategy to scale a safe and sustainable business that our customers value and trust. The final component of our strategy is great people and culture.

Shane Trigg: Forward looking digital transformation build the infrastructure required for efficient nimble organization that can respond to customer demands today and power the future of the real estate industry.

Shane Trigg: This past quarter, we made progress in modernizing many of that fully as internal technologies and systems, including integrating AI into how our teams innovate collaborate and go to market. This is an important component in achieving our strategy to scale, our safe and sustainable business that our customers value.

Shane Trigg: Trust.

Shane Trigg: The final component of our strategy is great people and culture since our last call. Our folio was re certified as a great place to work for the seventh time.

Shane Trigg: Since our last call, AppFolio was re-certified as a great place to work for the seventh time. Part of what makes AppFolio a great place to work is our ability to recognize AppFolians who deliver meaningful work and drive results for our customers and our business. I am delighted to announce that Chris Womack, previously Senior Vice President of AppFolio's FolioGuard Payments and Screening Businesses, has been promoted to Chief Growth Officer. In this expanded role, Chris will continue to lead our value-added services, as well as unlock future growth with new initiatives focused on the resident experience, which is an industry segment we're excited to be investing in.

Shane Trigg: Part of what makes up folio a great place to work is our ability to recognize a full ins who deliver meaningful work and drive results for our customers and our business.

Shane Trigg: I am delighted to announce that Chris Womack previously senior Vice President about folios Folio guard payments and screening businesses has been promoted to chief growth officer.

Shane Trigg: In this expanded role Chris will continue to lead our value added services as well as unlock future growth with the new initiatives focused on the resident experience, which is an industry segment, we're excited to be investing in.

Shane Trigg: Through leading industry innovation in exceptional service, AppFolio is paving the way to power an entire industry. We will continue to leverage our expertise and customer networks to increase our innovation velocity, drive profitable growth, and enhance the lives of the customers and communities we serve. I'll now turn...

Shane Trigg: Through leading industry, leading innovation and exceptional service at folio is paving the way to power an entire industry. We will continue to leverage our expertise and customer networks to increase our innovation velocity drive profitable growth and enhance the lives of the customers and communities.

Shane Trigg: We serve.

Shane Trigg: Now I'll turn the call over to face yen for more details on our fully as first quarter financial results. Thank.

Fay Sien Goon: Thank you, Shane. We are pleased with our continued strong growth in revenue and increase in profitability. The financial results reflect the execution of our strategy focused on delivering profitable growth. In the first quarter, we delivered revenue of $187 million, growing 38% year-over-year. Non-GAAP operating margin expanded to 25.7% from negative 1.6% last year, and we generated free cash flow margin of 21.9% compared to negative 0.3% in the same period last year

Fay Sien Goon: Thank you Shane we are pleased with our continued strong growth in revenue and increase in profitability. The financial results reflect the execution of our strategy focus on delivering profitable growth in the first quarter, we delivered revenue of $187 million growing 38% yeah.

Fay Sien Goon: non-GAAP operating margin expanded to 25, 7% from negative one 6% last year and we generated free cash flow margin of 21, 9% compared to negative to 0.3% in the same period of last year.

Fay Sien Goon: At the end of the quarter, we managed approximately 8.3 million units from 19,941 customers compared to 7.5 million units from 18,834 customers a year earlier, representing a 6% increase in customers and an 11% increase in ending units. As Shane discussed, property managers are improving their operational efficiency through greater use and adoption of our value-added services, such as FolioGuard, Payments, and Screening.

Fay Sien Goon: End of the quarter, we manage approximately eight 3 million units from <unk>.

Fay Sien Goon: 19941 customers to come back to seven 5 million units from 18834 customers a year earlier, representing a 6% increase in customers and an 11% increase in ending units as Shane discussed PREPA.

Fay Sien Goon: Managers are improving their operational efficiency through greater use and adoption of our value added services, such as folio guard payment and screening.

Fay Sien Goon: First quarter revenue from value-added services grew 47% year-over-year to $142 million. This growth primarily resulted from our decision to stop waiving our e-checks and Higher Resident Adoption of Online Payments as Transaction Volume and Card Usage Increases. Turning to spending, we exited the quarter with 1,497 employees, which is down slightly from the prior quarter.

Fay Sien Goon: First quarter revenue from value added services grew 47% year over year to $142 million and growth primarily resulted from our decision to start living a E check fees and higher rest of that adoption of online payments as transaction volume and card usage increased.

Fay Sien Goon: Turning to spending we exited the quarter with 1497 employees, which is down slightly from the prior quarter on a sequential basis, we have strategically added head count in key growth areas to better enable us to deliver innovation and unlock up market.

Fay Sien Goon: On a sequential basis, we strategically added headcounts in key growth areas to better enable us to deliver innovation and unlock upmarket. Meanwhile, we optimized our workforce in other parts of the business to streamline processes and enhance the customer experience. Basic revenue, exclusive of depreciation and amortization, was 34% of total revenue compared to 41% in the first quarter of last year. The decrease was primarily due to e-check fees and internal operational improvements.

Fay Sien Goon: Meanwhile, we optimized our workforce in other parts of the business to streamline processes and enhance the customer experience cost of revenue exclusive of depreciation and amortization was 34% of total revenue compared to 41% in the first quarter of last year.

Fay Sien Goon: The decrease was primarily due to E check fees and internal operational improvements.

Fay Sien Goon: As a percent of revenue, combined sales and marketing, R&D, and G&A fell to 38% from 56% in the same period of last year due to growth in revenue and a collective focus on operational efficiency. Sales and marketing expenses as a percentage of revenue decreased from 20% in the first quarter of last year to 12% this quarter.

Fay Sien Goon: As a percent of revenue combined sales and marketing R&D and G&A fell to 38% from 56% in the same period of last year due to growth in revenue and our collective focus on operational efficiency.

Fay Sien Goon: And marketing expenses as a percentage of revenue decreased from 20% in the first quarter of last year to 12%. This quarter on a sequential basis, we have strategically increased our investment in sales and marketing initiatives to better enable us to win that market.

Fay Sien Goon: On a sequential basis, we strategically increase our investment in sales and marketing initiatives to better enable us to win our market. By optimizing operations and maintaining discipline in our investments, we improved R&D expenses as a percentage of revenue from 24% in the same quarter of last year to 17% this quarter. Our G&A expenses as a percentage of revenue decreased from 13% in the same quarter of last year to 8% this quarter. Overall, our non-GAAP operating margin grew to 25.7% compared to negative 1.6% in the same quarter of last year. Free cash flow margin this quarter was 21.9%, compared to negative 0.3% in the same quarter of last year.

Fay Sien Goon: By optimizing operations and maintaining discipline in our investments we improved R&D expenses as a percentage of revenue from 24% in the same quarter of last year to 17% this quarter.

Fay Sien Goon: Our G&A expenses as a percentage of revenue decreased from 13% in the same quarter of last year to 8%. This quarter overall non-GAAP operating margin grew to 25, 7% compared to a negative one 6% in the same quarter of last year free cash flow margin this quarter was.

Fay Sien Goon: Was 21, 9% compared to negative <unk>, 3% in the same quarter of last year.

Fay Sien Goon: We are raising our projected full-year revenue guidance to $766 to $774 million, which implies an annual growth rate of 24 percent based on the midpoint of the recession. Our updated guidance reflects our expectations for continued customer upgrades to premium product tiers and growing usage and adoption of our value-added services. Our guidance also factors in a modest increase in card adoption and reduced transaction fees associated with card-based payments. Cost of revenue, exclusive of depreciation and amortization, is expected to decrease slightly from the prior year as a percentage of revenue due to e-check fees, product mix, and operational. We are raising our guidance for the full-year non-GAAP operating margin to 23 to 24 percent and raising our guidance on our free cash flow margin to 21 to This reflects our planned investments in high-priority initiatives that enable us to achieve our strategic objectives. Diluted weighted average shares outstanding are expected to be approximately 37 million shares for the full year.

Fay Sien Goon: We are raising our projected full year revenue guidance to $766 million to $774 million, which implies an annual growth rate of 24% based on the midpoint of their age.

Fay Sien Goon: This guidance reflects our expectation for continued customer upgrades to premium product tiers, and growing usage and adoption of our value added services.

Fay Sien Goon: Our guidance also factors in a modest increase in card adoption and we do this transaction with fees associated with card based payments.

Fay Sien Goon: Arthur revenue exclusive of depreciation and amortization.

Fay Sien Goon: Correct. It did decrease slightly from prior year as a percentage of revenue due to E checks vies product mix and operational efficiencies.

Fay Sien Goon: We are raising our guidance for the full year non-GAAP operating margin to 23% to 24% and raising our guy has on our free cash flow margin to 21% to 23%.

Fay Sien Goon: This reflects our planned investment in high priority initiatives that enable us to achieve our strategic objectives.

Fay Sien Goon: The weighted average shares outstanding I expect that to be approximately three 7 million shares for the full year. Our first quarter was a good kick off the 'twenty 'twenty four with.

Shane Trigg: Our first quarter was a good kickoff to 2024, with strong growth in revenue and profitability, all while we continue our industry-leading innovation and exceptional service. We are delivering on our long-term strategy of acquiring and retaining happy customers and driving growth in units, revenue, and process. Thank you all for joining us today. We look forward to seeing you. Operator, this concludes today's call.

Shane Trigg: Strong growth in revenue and profitability all while we continue our industry, leading innovation and exceptional service, we are delivering on our long term strategy of acquiring and retaining happy customers and driving growth in units revenue and profits.

Shane Trigg: Thank you all for joining US today, we look forward to seniors. It operator. This concludes today's call.

Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.

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