AppFolio, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the At Folio, Inc. First Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Erica Abrams. Please go ahead.

Thank you, Josh. Good afternoon, ladies and gentlemen, and thank you for joining us today as we report At Folio's First Quarter 2020 Financial Results. With me on the call today are Jason Vandal, AppFolio's President and CEO, and Ida Kane, AppFolio's Chief Financial Officer. This call is simultaneously being 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 may be forward-looking statements. within the meaning of the federal securities laws that are subject to considerable risks and uncertainties. Actual results of performance may be materially different from any results or performance expressed or implied by the forward-looking statements. Forward-looking statements, including any such statements referring to the potential effects or impacts of the COVID-19 pandemic upon Folio's business, may relate to future plans and financial conditions, results of operations, Business Forecasts and Plans, Strategic Plans and Objectives, and Product Development Plans. Please see our filings at the SEC, including our Form 10-Q, which was filed earlier today, for greater detail about risks and uncertainty. Forward-looking statements are based on reasonable 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, unless required by law. 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 Upfolio's first quarter of fiscal year 2020 financial results. First and foremost, with regards to the COVID-19 pandemic, we hope all of you and your families are staying safe during this unprecedented time. We continue to work hard to best ensure the health and welfare of our employees, our customers, and our surrounding communities. To mitigate the adverse impact COVID-19 may have on our business and operations, we have implemented a number of measures to protect the health and safety of our employees as well as to strengthen our financial position. These efforts include increasing our available cash position, and eliminating, reducing, or deferring non-essential expenditures, as well as adopting local and state government recommendations to protect our workforce. Beginning in mid-March, we transitioned all 1,300 employees to remote work environments, restricted non-essential employee travel, and minimized costs associated with running our facilities. We continue to closely monitor trends in our business and the broader markets to determine what additional steps may be necessary for our employees, customers, and operations. In addition, we've taken strategic steps designed not only to protect Folio in this period of uncertainty but also to ensure that we are able to capitalize on new and existing opportunities as we move forward. Turning to the first quarter, We had healthy demand for our products and services. We reported total revenue of $72.5 million, a 27% increase year over year. Gap net income was $2 million, or $0.06 per diluted share during the quarter, compared to gap net income of $3.7 million, or $0.11 per diluted share in the first quarter of last year. Also included in our first quarter results is $1.9 million in non-cash charges related to stock-based compensation. For those of you who track non-GAAP results, our Form 10-Q was filed today and includes more details that you might find helpful in calculating non-GAAP results on your own. Revenue from Core Solutions in the first quarter was $24.9 million, up 20% year-over-year. First quarter ValuePlus services revenue was $44.1 million, a 31% increase year-over-year. Growth in revenue was driven primarily by an 18% increase in property manager units under management and a 10% increase in the number of property manager customers we serve. Revenue from each of our ValuePlus services increased year-over-year, The majority of growth in these areas continues to be driven by increased usage of our electronic payments, screening, and insurance services by a larger base of property manager customers, as well as a high number of units under management. During the three months ended March 31, 2020, we did experience some variability, both positive and negative, in demand for certain value-plus services after government restrictions were put in place in the U.S. Turning to expenses, total costs and operating expenses for the first quarter increased 22% year-over-year on a GAAP basis compared to an overall 27% increase in total revenue. Our year-over-year increase in costs is primarily related to our 26% increase year-over-year in headcount to support new offerings and customers and to enable future growth that we believe will positively impact long-term shareholder value. Partially offsetting the growth in operating expenses for the first quarter is an adjustment to incentive-based compensation expense of $2.6 million, reflecting changes in accruals due to the potential impact of COVID-19. As we progress through the balance of 2020, We could have more variability in this expense than we would have otherwise expected given the uncertainty. We ended the first quarter with 14,729 real estate property manager customers managing an aggregate of 4.8 million units in their portfolios compared to 13,409 customers and 4.08 million units under management reported one year ago. In the legal vertical, we closed the quarter with 11,115 customers, up from 10,485 one year ago. Moving to the balance sheet, we closed the quarter with approximately $71.4 million in cash, cash equivalents, and investment securities, and $97.4 million of total debt. This includes $49 million that we drew down from our revolving facility during the quarter. We generated $3.1 million from operating activities in the first quarter. Our primary uses of cash in the quarter were capital expenditures of $8 million to purchase property and equipment for the continued growth and expansion of our facilities, the majority of which relates to the build-out of our corporate headquarters in Santa Barbara, that is expected to be substantially completed during the second quarter of 2020. We also realized capitalized software development costs of $6.8 million in connection with continued investments in our technology and services offering. Finally, we paid contingent consideration related to the Dynasty acquisition of $6 million and spent $4.2 million for the repurchase of shares under our current share repurchase program. In summary, we began fiscal year 2020 with healthy demand for our products and services, many of which are designed to enable our customers to manage their businesses virtually. We expect demand variability for our products and services could continue as a result of the COVID-19 pandemic, although it is presently unclear whether the cumulative impacts will be positive or negative. We continue to stay close with and listen to our customers to best ensure that we are responding to their needs in the current environment with innovative solutions. While we are encouraged by the results of our first quarter and the more recent demand for our products and services, we are unable to predict with any reasonable degree of certainty the full extent of the potential impact of the COVID-19 pandemic on our business and financial results. As a result, we are withdrawing our previously communicated full-year revenue outlook for fiscal year 2020. We do continue to expect our diluted weighted average share count for the year to be approximately 36 million shares. With that, I'll turn the call over to Jason for additional comments.