Q1 2025 AppFolio Inc Earnings Call
All of your friends crawl down and ask you to get up Let them care for you Everyone's here for you
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Speaker Change: Good afternoon. Thank you for standing by and welcome to AppFolio's Inc. 1st quarter 2025 Financial Results Conference call.
Speaker Change: Please be advised today's conference is being recorded, and a replay will be available on AppFolio's Investor Relations website.
Lori Barker: I would now like to hand the conference over to Lord Barker, Investor Relations. You may begin.
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Lori Barker: Thank you. Good afternoon everyone. 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 2025 financial results.
Lori Barker: With me on the call today is Shane Trigg, AppFolio's President and CEO . This call is being simultaneously broadcast on the Investor Relations section of our website at appfolioinc.com.
Lori Barker: Before we get started, I would like to remind everyone of AppFolio's safe harbor policy.
Lori Barker: Comments made during this conference call and webcast contain four looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks in uncertainties.
Lori Barker: Any statement that refers to expectations, projections, or other characterizations of future events including financial projections, future market conditions, business performance or future product enhancements, or development is a forward-looking statement.
Lori Barker: AppFolio's actual future results could differ materially from those expressed in such forward-looking statements for any reason, including those listed on our FTC5 links.
Lori Barker: AppFolio assumes no obligation to update any such forward-looking statements, except as required by law.
Lori Barker: For greater detail about risk and uncertainties, please see our SEC filings, including our Form 10K for the fiscal year ended December 31, 2024, which was filed with the SEC on February 6, 2025.
In addition, this call includes non-GAAP financial measures.
Lori Barker: Reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures are included in 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.
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Shane Trigg: Thanks, Lori, and welcome to everyone joining us for AppFolio's First Quarter 2025 Financial Results.
Shane Trigg: Revenue grew 15% year-over-year to $218 million in the first quarter as we continue to drive increased customer value in RPU, growth in new customer units, and increased adoption of our services.
Shane Trigg: I'm proud to say that we had a strong start to the year in winning new business.
Shane Trigg: Demonstrating our success in the market as more and more customers choose AppFolio. Also, non-GAAP operating margin was 24% and net cash provided by operating activities was 18% positioning us well to continue investing in differentiated industry leading innovation.
Shane Trigg: Achieving our mission to build the platform where the real estate industry comes to do business requires us to create value for all stakeholders. Last week, we announced a strategic partnership with Second Nature to enhance the resident experience.
Shane Trigg: We're excited about how this combination will create a simpler, more personalized experience for residents. Enhancing the service, our property managers are able to provide while improving their bottom line.
Shane Trigg: In today's competitive market, renters have high expectations when it comes to where they live, making resident satisfaction a priority. Property managers know that meeting resident needs and preferences is key to maintaining high occupancy rates.
Shane Trigg: When choosing a place to live, prospective renters will evaluate properties based on the quality of the rental experience.
Shane Trigg: Increasingly, they're demanding services that save them money and enhance their lives.
Shane Trigg: Our upcoming AppFolio Research report shows that 71% of renters consider resident benefits important when evaluating new rentals, yet only 42% currently have access to them.
Shane Trigg: This highlights the need to meet and exceed resident expectations to stay competitive, supporting our first strategic pillar of differentiating to win.
Shane Trigg: We're redefining how property managers and renters connect throughout the entire resident journey. That starts with attracting residents in eliminating barriers that slow the leasing process.
Shane Trigg: We recently announced that Zillow has joined the Affolio Stack Partner Ecosystem, allowing renters to discover homes faster and property managers to fill vacancies more efficiently.
Shane Trigg: We're also introducing a new, simplified rental application to help property management customers achieve better quality and outcomes with less effort.
Shane Trigg: This application is fully integrated with the templates and customizations customers expect.
Shane Trigg: Streamlining processing times and flowing seamlessly into folio screen trusted renter are comprehensive screening solution announced last fall at future which combines advanced fraud detection tools with fair housing compliance.
Shane Trigg: Once a property manager has qualified the applicant, it's time for the least exciting and here again, we're delivering differentiated innovation.
Shane Trigg: Through our Alliance with Second Nature, AppFolio customers will be able to make available to their residents.
Transparent, Custom Isable, Valuable Services
Shane Trigg: such as group rate internet, pest control, air filter delivery, credit building, and rewards. All with the AppFolio paid conveniently by residents alongside their rent.
Shane Trigg: After the leases signed, our property management customers can focus on onboarding the new resident and ensuring a seamless move-in experience.
Shane Trigg: Through our previously discussed acquisition of LIV-Z, we'll reduce the stress of moving, deliver increased convenience, and save renters time and money.
Shane Trigg: These workflows and more will be delivered to residents through folio space.
Shane Trigg: Our next generation resident interface, enabling AppFolio's property management customers to create a unified and elevated experience for the millions of residents they serve during all the moments that matter, from application to move in through lease renewal.
Shane Trigg: This built-in, fully managed resident experience for property managers gives operators of all sizes the opportunity to seamlessly offer services that their residents are demanding and that deliver exceptional value.
Speaker Change: Take AppFolio customer Franklin Villanueva-Logo, owner of Silver Springs Maryland-based Adonis Property Management, who recently shared, quote, for thrill to see AppFolio innovating in the resident experience.
Speaker Change: Anything that improves lead quality, streamlines the leasing process, and saves time for both applicants and management teams is a big win in our book. Looking forward to offering our renters an even smoother experience.
Speaker Change: Our second strategic pillar is to deliver value efficiently. Our leadership in AI is creating a competitive mode to help us win the market, resulting in significant business growth and a strong influx of new customers.
Speaker Change: We're helping both new and existing customers adopt and grow their use of AppFolio Services, particularly around our AI-powered ROM suite.
Speaker Change: Since the start of 2025, 89% of new customers going live on AppFolio have used one or more of our generative AI-powered AppFolio Relmex capabilities, assistant messages and flows.
Speaker Change: Relmex is maximizing and delivering real performance for these customers who report saving an average of 9.7 hours each week on their reporting tasks.
Speaker Change: More importantly, they're generating an incredible 73% higher lead to showing conversion rate. And as one customer recently told us, lease renewal rates are up 8%.
Speaker Change: We continue to see strong upgrades for AppFolio Property Manager Corps customers to our plus and max plans in order to leverage the powerful automation made possible by Realm
Speaker Change: as well as to take advantage of additional Rome products like smart maintenance, leasing CRM and leasing signals.
Speaker Change: One of these customers is to be living, which manages more than 5,000 multifamily, single family and commercial units across the Bay Area on AppFolio. They've expanded rapidly, adding 1,500 units to AppFolio just last year.
Speaker Change: With 100% of their portfolio on AppFolio Property Manager Max, 2B Living has been able to streamline their operations as they take on more units without needing to add extra headcount.
Speaker Change: As early adopters of relmex, 2B Living is taking advantage of generative AI to transform the way their team manages day-to-day tasks.
Speaker Change: According to Brooks Baskin, founder and CEO , quote, we find Romex to be a great empowerment tool that has helped us with two really important functions. One, we're able to build our processes and workflows in AppFolio, so tasks happen through automation without losing a hands-on touch.
Speaker Change: 2. Romex has allowed us to get tasks done using Romex Assistant. This has really helped us gain efficiency as our business continues to grow. End quote.
Speaker Change: The third pillar of our strategy is great people and culture.
Speaker Change: Since our last call, AppFolio was re-certified as a great place to work for the eighth time.
Speaker Change: Part of what makes AppFolio a great place to work is our ability to recognize AppFolions who exemplify our values, live the AppFolian way, cultivate exceptional teams, and deeply care about customers.
Speaker Change: Our Chief Legal Officer, Matt Mazes' role, has been expanded to Chief Trust Officer. In his new role, he will continue to lead our legal and compliance functions.
while strengthening cross-functional partnerships to enhance data governance and security.
Speaker Change: Protect our software and infrastructure, modernize internal systems and processes and develop an external trust center demonstrating our commitment to data security, transparency and our company value to build trust every day.
Speaker Change: Additionally, Lisa Horner has been promoted to Chief Marketing Officer and Matthew Barrett has been promoted to Chief Technology Officer, evolving our organization as we scale enables our strategy and will continue to cultivate our talent, build a robust pipeline for AppFolio's future and deliver exceptional value to our customers.
Speaker Change: To that end, we're making good progress in recruiting our next CFO .
Speaker Change: With that, let me share more about AppFolio's first quarter financial results.
Speaker Change: In the first quarter, we delivered revenue of $218 million growing 16% year-over-year.
Speaker Change: Course Solutions Revenue was $49.5 million in the first quarter, a 15% year-over-year increase. Driven by more customers choosing our plus and max plans, winning new customers and growth in total units under management.
Speaker Change: At the end of the quarter, we managed approximately 8.8 million units from 21,105 customers compared to 8.3 million units from 19,941 customers a year earlier.
Speaker Change: This represents a 6% increase in ending units and a 6% increase in customers as we continue to emphasize residential portfolios.
Speaker Change: First quarter revenue for value added services grew 16% year over year to $165 million. This increase reflects greater use and adoption of payments, risk mitigation services and screening, as well as growth and units under management.
Speaker Change: These drivers were partially offset by the April 2024 reduction in fees associated with a certain car-based payments.
Speaker Change: Turning to spending, we exited the quarter with 1,648 employees, which is an increase of 1% from the fourth quarter of 2024.
Speaker Change: This reflects modest growth in most functional areas as we continue to invest in go-to-market initiatives and innovation, partially offset by efficiencies in our operations.
Speaker Change: Cost of revenue, exclusive depreciation and anniversation in the first quarter with 36% of revenue compared to 34% last year primarily due to the reduction in fees associated with certain car-based transactions.
Speaker Change: As a percent of revenue in the first quarter combined sales and marketing R&D and G&A expense was flat at 38% compared to last year.
Speaker Change: Sales and marketing expenses as a percentage revenue increase from 12% in the first quarter of last year to 13% this quarter. This includes additional hiring in the impact of the Lizzy acquisition.
Speaker Change: Our R&D expenses as a percentage of revenue were consistent with prior year at 17%.
Speaker Change: Our GNA expenses as a percentage revenue were also comparable to the first quarter of last year at 8%.
Speaker Change: Overall, the first quarter non-GAAP operating margin was 24.3% compared to 25.7% last year and net cash provided by operating activities in this quarter was 17.7% compared to 22.9% in the first quarter last year.
Speaker Change: Our growth and profitability has empowered us to deliver customer value, accelerate our resident strategy and repurchase stock.
Speaker Change: We ended the quarter with $211 million in cash and current investment securities.
Speaker Change: Under a previously approved share repurchase program, during the first quarter, we bought approximately $445,000 shares for $96 million, completing the previously authorized $100 million program.
Speaker Change: In addition, the Board approved a new stock refurges program of $300 million on April 23rd.
Speaker Change: Also, to enhance the resident experience. Early in the second quarter, we announced our strategic partnership with Second Nature and purchased a minority non-controlling equity interest for $75 million. $75 million.
Speaker Change: Our 2025 guidance for annual revenue remains $920 to $940 million for a full-year growth rate of 17% based on the midpoint and fueled by plus and max upgrades, growth in customers and new business units, and increasing adoption of our products and services.
Speaker Change: We expect to deliver non-GAF operating margin between 24.5% and 26.5% and diluted weighted average shares outstanding are anticipated to be approximately 37 million for the full year. Our guidance reflects what we are seeing in today's dynamically changing environment.
Speaker Change: We anticipate 2025 revenue seasonality to be mostly consistent with 2024.
Speaker Change: Cost of revenue, exclusive of depreciation and amortization is expected to remain relatively flat as a percentage of revenue compared to the prior year as we believe the benefit from operational efficiencies will be mostly offset by product mix.
Speaker Change: Our 2025 ending headcount is projected to grow as we continue to invest in high priority initiatives that enable us to achieve our strategic objectives. However, we expect a rate of headcount growth to be less than revenue growth as we maintain our focus on operational efficiency.
Speaker Change: Wrapping up this quarter's results underscore that our ongoing commitment to delivering industry leading innovation and exceptional service is driving new customer adoption of our products and services.
Speaker Change: By connecting our acquisition of LiveEZ with new industry leading partners such as Zillow and Second Nature, all enabled through Folio Space, we have accelerated our residents strategy creating value for our customers.
Speaker Change: We are well positioned to win for all stakeholders as the platform powering the future of the real estate industry.
Speaker Change: Thank you all for joining us today. Operator, this concludes today's call.
Speaker Change: Ladies and gentlemen, the people of today's top's core remain out, locked in it.
Goodbye.