AppFolio, Inc.

Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the AppFolio, Inc. announces fourth quarter and fiscal year 2018 financial results conference call. All lines have been placed on mute to prevent any background noise. If you should need assistance during the call, please press star and then zero on your telephone keypad, and an operator will come back to assist you. Thank you. Erica Abrams, you may begin your conference.

Thank you, Chris. Good afternoon, ladies and gentlemen. Thank you for joining us today as we report AppFolio's fourth quarter and fiscal year 2018 financial results. I'm joined today by Jason Randall, CEO, and Ida Kane of AppFolio to discuss these results. This call is being simultaneously webcast on the investor relations section of our website at www.appfolioinc.com. Before we get started, I would like to call everyone's attention to our safe harbor policy. Please note that certain statements made on this call will be forward-looking and are subject to considerable risks and uncertainties. These forward-looking statements may relate to future plans and financial conditions, results of operations, business forecasts and plans, strategic plans and objectives, and product development plans. Forward-looking statements involve numerous risks and uncertainties that may cause actual results performance to be materially different from any results or performance expressed or implied by the forward-looking statements. We discussed risks and uncertainty in greater detail in the risk factor sections of our filing with the SEC. Forward-looking statements are based on assumptions as of today, and we assume no obligation to update any forward-looking statements after today Even if new information becomes available in the future. With that, I'll turn the call over to Ida. Ida, please go ahead.

Thank you, Erica, and welcome to everyone joining us on the call today for Folio's fourth quarter and fiscal year 2018 financial results. We had a strong fiscal year 2018 with full year total revenue of $190.1 million, a 32% increase year over year, and full year GAAP net income of $20 million or 56 cents per diluted share compared to $9.7 million and 28 cents per diluted share in fiscal 2017. Included in our 2018 results is revenue of $400,000 and net loss of $1.4 million attributed to the acquisition of WeGoWise. Also included in our fiscal year 2018 results is $6.3 million of non-cash charges related to stock-based compensation. For those of you who track non-GAAP results, our Form 10-K was filed today and includes more detailed financial data points that you may find helpful in calculating non-GAAP results on your own. In addition, as previously disclosed, we adopted ASC 606 using the modified retrospective method on January 1, 2018, and our Form 10-K provides the reconciliation of the impact of the adoption on our current year results, which may be helpful when comparing to prior year results. We ended the year with approximately 13,050 real estate property manager customers managing an aggregate of 3.91 million units in their portfolios. compared to approximately 11,700 customers and 3.25 million units under management reported a year ago. The year-over-year increase in average size of net new customers acquired is the result of our continued efforts and success acquiring higher unit count customers. As a reminder, we define our real estate property manager customer base As of December 31, 2018, our annual dollar-based net expansion was 116%, for our property manager customers, and 113% for our law firm customers. This compares to 112% and 113% respectively in fiscal 2017. I encourage you to visit our 8-K filing today for more information on how we calculate annual dollar-based net expansion. Turning to the fourth quarter, we reported total revenue of $50.4 million which represents a 33% increase year-over-year and GAAP net income of $2.6 million or 7 cents per diluted share. Included in these fourth quarter results is $1.9 million of non-cash charges related to stock-based compensation and approximately $800,000 of net loss related to the WegoWise legacy business. As a reminder, We expect the acquisition of Legalize will serve as a building block for a utility analytics and management value plus service that will be offered to Folio real estate customers in the future. Core Solutions revenue was $19.4 million in the fourth quarter, a 26% increase year over year, primarily due to a 20% increase in property manager units under management related to 11% increase in the number of property manager customers. Fourth quarter value plus services revenue was $28.8 million, a 38% increase year over year. Revenue from each of our value plus services increased year over year with the majority of growth derived from increased usage of electronic payments, screening, and insurance services by a larger base of property manager customers and a higher number of units under management. Turning to expenses, total costs and operating expenses for the fourth quarter increased 34% year-over-year on a gap basis compared to an overall 33% increase in total revenue. Our year-over-year increase in costs is primarily related to incremental third-party costs associated with the delivery of our Value Plus services, additional headcount growth in support of our growing product offering and customer base, performance-based incentive compensation recorded during the period, increased professional service fees associated with expanded audit services, due diligence, and acquisition-related activities, and increased facilities expenses and other costs to support our overall 36% increase in headcount year-over-year, which includes employees that join the Upfolio team via acquisition. We continue to expect that costs and operating expenses will fluctuate from period to period as we evaluate and invest in growth opportunities, including expanded product offerings, new value-plus services, adjacent markets, or new vertical markets. Moving to the balance sheet, we closed the fiscal year with approximately $102 million in cash, cash equivalents, and investment securities, and $48.6 million of long-term debt. During the fourth quarter, we generated $11.7 million from operating activities, drew $50 million from a term loan issued late in the quarter, and used $21.6 million to repurchase shares of our Class A common stock. We also used $400,000 to purchase property and equipment and invested $3.3 million in additional product innovation via capitalized software. Following the close of the year, we used approximately $54 million in cash for the acquisition of Dynasty Marketplace, a leading provider of advanced artificial intelligence solutions for the real estate market. We believe the acquisition of Dynasty strengthens our system of intelligence capabilities and lays the foundation for AI-based ValuePlus services over time. Like WeGoWise, Dynasty-related revenue will be included in other revenue unless our customer is using a Folio Property Manager or at Folio Property Manager Plus as their system of record, at which time we would include the related revenue as part of our Value Plus Services revenue. On February 20th of this year, our Board of Directors authorized a $100 million share repurchase program. The program allows for repurchases at prices that are below intrinsic value conservatively determined but does not obligate the company to repurchase any specific dollar amount or number of shares and may be modified or suspended at any time. We have not initiated any repurchases under this program as of today. The $100 million repurchase program includes any remaining amounts available under our prior repurchase program. To recap our results for the fiscal year, total revenue increased 32% year-over-year to $190.1 million and gap net income of $20 million or 56 cents per diluted share. We are pleased with our results and continue to focus on delivering great software and services that meet the needs of our growing base of customers. As we look to 2019, we expect full year revenue in the range of $250 to $255 million which represents year-over-year revenue growth of 33% at the midpoint of the range. We expect our weighted average diluted shares for the full year to be approximately $36 million. We expect to continue to invest in growth opportunities that we believe will positively impact long-term stockholder value, including APM+, utility management, and real estate-related artificial intelligence services. In addition, In support of our growing employee base, we expect an increase in facilities-related capital expenditures. As a reminder, investors are invited to submit questions via the investor Q&A form located on the investor overview section of our website. With that, I will turn the call over to Jason for additional comments.