AppFolio, Inc.

Good afternoon, ladies and gentlemen, and welcome to the AppFolio, Inc. Announces Second Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. If anyone should require assistance during the conference, please press star zero on your attached home telephone. As a reminder, this call is being recorded. I would now like to turn the call over to your host, Ms. Erica Abrams. You may begin.

Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us today as we report AppFolio's second quarter 2020 financial results. With me on the call today are Jason Randall, 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 or 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 on AppFolio's business may relate to future plans and financial conditions, results of operations, business forecasts and plans, strategic plans and objectives, product development plans, trends affecting our business and industry and the economy as a whole, capital needs and financing plans, and various commitments and contingencies, including with respect to the outcome of legal proceedings or regulatory matters. Please see our filings with 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. Now, I will turn the call over to Ida King, CFO of Upfolio.

Thank you, Erica, and welcome to everyone joining us on the call today for Upfolio's second quarter of fiscal year 2020 financial results. Before I get started on the financial highlights for the quarter, I wanted to take a moment to thank our over 1,300 employees and their families for their professionalism and dedication during these difficult times. Our upfoliants have remained focused on developing innovative products and providing excellent services and support to our customers, and we are proud of their commitment to our business. We believe our people and culture are the heart of our success, and the current environment has only amplified that belief. Turning to the numbers, we reported total revenue of $81 million during the second quarter, a 27% increase year over year. GAAP net income was $19.3 million, or 54 cents per diluted share for the quarter, including an income tax benefit of $13.5 million, which is attributable to tax benefits associated with stock-based compensation expense and research and development tax credits that follow our forecasted pre-tax results for the year. Also included in our second quarter results are $2.8 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 may find helpful in calculating non-GAAP results on your own. Second quarter revenue from core solutions grew 21% to $26.1 million. are primarily driven by a 17% growth in the average number of property management units under management, resulting from growth in the average number of property management customers. Second quarter Value Plus Services revenue was $51.6 million, a 32% increase year over year, also driven primarily by the increase in property manager customers and units. Majority of our Value Plus Services revenue We ended the second quarter with 15,011 real estate property manager customers, managing an aggregate of 4.9 million units in their portfolios compared to 13,737 customers and 4.23 million units under management reported one year ago. In the legal vertical, we reported 11,305 customers up from 10,631 one year ago. Our software solutions enable the digital transformation that many businesses need to grow, especially today. While we are encouraged by the demand we have seen since our last earnings call, we continue to see some demand variability related to our product and service offerings. We believe the remainder of the year will continue to be dynamic, and it is unclear the extent to which the recent trends will continue. Turning now to expenses. Total costs and operating expenses for the second quarter increased 22% year-over-year on a GAF basis compared to an overall 27% increase in total revenue. Our year-over-year increase in costs is primarily related to our 15% year-over-year growth and headcount to support new offerings and customers we believe will positively impact long-term shareholder value. Included in cost of revenue expense is $2 million of annual During the period from third-party service providers related to programs intended to increase online payments. This was recorded as an offset to cost of revenue during the second quarter. Under this program, we could be eligible for an additional $2 million incentive in 2021. Included in general administrative expense is $4.3 million. to $5 million related to the potential settlement arising out of or related to the previously disclosed FTC investigation into our tenant screening Value Plus service. We believe this is a reasonable estimate based on information currently available to us. For additional information, you can refer to Note 9, Commitments and Contingencies, in our financial statements. During the quarter, we extended our remote workplace timeframe through at least the end of this fiscal year. As I mentioned in the first quarter earnings call, we have significantly reduced both costs associated with running our facilities while our employees are working remotely and non-essential expenditures. In addition, advertising and promotion costs decreased in the second quarter, primarily due to the cancellation or postponement of in-person events and reduced online marketing spend. Offsetting some of those cost reductions is our continued investment in headcount, which we believe will help us continue to make long-term business progress. We also saw an adjustment to performance-based compensation expense of $2.8 million related to increases in estimates for annual performance accruals. We have a limited history of the long-term impact of remote work and the resulting types of investments necessary for our employee base. and could have more variability in our expenses related to this than we would have otherwise expected as we progress through the balance of 2020. Moving to the balance sheet, we closed the quarter with approximately $80.2 million in cash, cash equivalents and investment securities. Including our first quarter of 2020 drawdown on our revolving facility in the amount of $49 million, we ended the second quarter with $97.1 million of total debt. We generated $24.3 million from operating activities in Q2. Our primary uses of cash in the quarter were capital expenditures of $6.3 million related to the build-out of our corporate headquarters in Santa Barbara that was substantially completed during the second quarter of 2020. We also realized capitalized software development costs of $5.9 million in connection with continued investment in our technology and service offerings. Despite the generally positive quarterly results, we continue to proceed with caution given the uncertainty the COVID-19 pandemic could cause on markets we serve and on the broader economy. We are still unable to predict, with any reasonable degree of certainty, the full extent of the potential impact of the pandemic on our business and financial results. As a result, we are not communicating full-year revenue guidance for fiscal year 2020. We 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.