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spk01: Good evening, thank you for attending today's Apsolio Inc's first quarter 2022 financial results conference call. My name is Erin and I will be your moderator for today's call. I would now like to pass the conference over to our host Lori Barker, investor relations. Thank you Lori, you may proceed.
spk03: Thank you, Erin. 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 2022 financial results. With me on the call today are Jason Randall, AppFolio's President and CEO, and Fei-Hsien Nguyen, AppFolio's Chief Financial Officer. 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 remind everyone of AppFolio's safe harbor policy. 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 they are subject to risks and uncertainties. Any statement that refers to expectations, projections, or other characterizations of future events, including financial perceptions, future market conditions, or future product enhancements or development, is a forward-looking statement. Abfolio'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. Abfolio 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 filings with the SEC, including our Form 10-K for the year ended December 31, 2021. which was filed with the SEC on February 28, 2022, as well as the company's other filings with the SEC. With that, I'll turn the call over to Jason Randall, AppFolio's president and CEO. Jason, please go ahead.
spk02: Thank you, Lori, and welcome to everyone joining us for AppFolio's first quarter 2022 financial results. I'm pleased to report that revenue is up 33% to $105.3 million in the first quarter. Reaching this scale is a key milestone for Appfolio, and I'd like to thank our employees for their customer-focused innovation and dedication. Together, our team has built a powerful property management solution that continues to address the growing needs of our customers across more than 6.57 million units. In 2022, we are focused on growing our customer base and increasing revenue per unit served as we continue our multi-year investments to further develop our core platform, deliver additional value-added service here to use. The current challenging macroeconomic conditions directly impact certain industries more than others. Inflation, the cost of human capital, the pandemic, and a fast-changing work environment are just a few issues facing domestic businesses. As we have throughout our history, we have continuously evaluated these issues and their impact not only on our business, but also on our customers, employees, and shareholders. We have made ongoing adjustments, particularly around our team culture and in an effort to navigate the current environment. Our long-term focus remains, as it always has, on maintaining and evolving a resilient business model built to thrive in a variety of market conditions, demonstrated by our continued multi-year investments in delivering valuable products and services to our customers. With respect to sustained efforts to grow our customer base, our dedicated sales team continues to expand beyond our roots of residential SMB, which we categorize as property management companies with between 50 and 500 units under management. We are driving growth in the mid-market, which we categorize as between 500 to 1,500 units, as well as the corporate segment with 1,500 plus units. The community associations market also continues to grow as we expand our capabilities. A recent example of growth in our corporate segment is Gaitani Real Estate, an 86-year-old multi-generational business based in San Francisco with approximately 4,700 units. Abfolio's complete product vision, ease of use, and customer service led Kitani to abandon one of our competitor systems after three decades and choose Abfolio Property Manager Plus, which is specifically designed for our larger and more complex customers. According to Paul Kitani, Kitani's principle is, or we felt like just a number. We are in the middle of the onboarding process, and I can say that from day one, our team has been blown away by the professionalism, clarity, and accountability shown by the team assisting us in this complex transition." As you'll hear from face in in a moment, we continue to make headway in our initiative to attract larger customers at a growing rate. Why that acceleration? This has been the focus of an important multi-year investment, and as the number of large customers on Atfolio Property Manager Plus has increased, so too has our opportunity to learn how to provide even more value. Let me give you two examples. The first is cost centers. Our large customers want to analyze the performance of individual departments, locations, property types, and more. In the first quarter, we released cost centers, a simple way for them to do just that. Transactions are automatically tagged with the right cost center rather than requiring manual labeling. It is an excellent example of how we continue to automate time-intensive and manual tasks so our customers can focus on what matters. My second example of how solving large customers' challenges helps us accelerate our unit growth is project budgeting. Project budgeting allows our customers to confidently forecast, track, and report expenses on remodeling projects within that folio so they can stay organized, aligned, and on budget. We will continue to bring Outfolio's focus on innovation to the challenges of our large customers to grow our market share. And we remain committed to investing in our SMB base as well, ensuring that our products and services in that market segment stay relevant, valuable, and easy to use. Here's what customer Jared Fink, Vice President at Goldfinch Inc. in Green Bay, Wisconsin, with approximately 1,500 units on Outfolio Property Manager, has to say. Quote, Appolio Property Manager has improved our business efficiencies through its intuitive interface and streamlined processes. From an operations perspective, Appolio Property Manager allowed us to easily adapt to a more technologically advanced customer. Providing online solutions for marketing, revenue collection, and payment processing has been a significant improvement, and we continue to deploy new technology that positions us ahead of the market. Compared to other property management platforms, Appolio continues to be leaps and bounds ahead of the competition with its easy-to-use system that doesn't require the hassle of waiting on hold to make a simple change, end quote. We also continue to move upmarket by expanding our capabilities through our curated partner integrations that deliver key functionality while maintaining a more elevated customer experience. As we integrate with leading point solutions, our platform will serve as our customer system of record, system of engagement, and system of intelligence giving them actionable performance insights and helping them unlock more value in their businesses and keep up with the pace of digital transformation across the real estate industry. We will remain focused on delivering solutions that are easy to set up and use, a core tenant for us that's embodied in our values. I will share one very early integration example. We are expanding our maintenance solutions by integrating with a well-known home improvement retailer and centralizing the functionality in Appolio Property Managers. Our customers' maintenance teams can stock and monitor items made for repairs and unit turns. Then when inventory runs low, they can easily see what is required and restock by directly linking with that home improvement retailer. This capability simplifies the procurement process and ensures maintenance tasks do not get delayed due to missing materials. The team is working hard on delivering additional curated integrations designed to provide valuable solutions with elevated service experiences. And we are looking forward to discussing more partner integration details at the NAA Apartmentalize Conference in June. In addition to our efforts to increase our customer base, we also focus on growing revenue per unit and increasing customer retention by adding and expanding our value-added services, which are designed to enhance, automate, and streamline business-critical processes and workflows. Our electronic payment services business provides the most significant piece of revenue within value-added services. And in this last quarter, it was the fastest growing of any of our services of every scale. Our payments capabilities allow property managers to streamline their receivables and payables through various online payment options, including debit cards, credit cards, electronic cash payments, and automated clearinghouse, or ACH. Customers can collect funds through our secure online portal, our mobile application, and via electronic cash payments from applicants, residents and property owners for transactions like rental application fees, security deposits, monthly rental rent payments, and periodic dues. Customers can also electronically send funds to various users, including property owners, service providers, and their own management company. We recently heard from Stacy Serget, the owner of Fountain Valley Property Management based in Michigan. that benefit users. She says, quote, Appolio has made payment processing easier for our residents, end quote. We believe there is continued room for growth in this part of our business and are working to build on our momentum by expanding the breadth and scope of our various offerings to facilitate the safe movement of money for all the constituents on the platform. We also continue to focus on evolving and improving our services organization, which is a key aspect of our total value proposition. This quarter, for example, we added a new self-service tool to simplify multifamily property onboarding. The tool is designed to give our customers the ease and convenience of adding new properties in one go and on their own time without engaging that volume of support. Not only does this make adding units easier for our customers, it also simplifies onboarding on our side and helps us scale with our growth, another key area of focus. I'll wrap up with a few other highlights from a busy quarter that are worth mentioning. First, as part of AppFolio's ongoing mission to be a trusted long-term partner to customers, we hosted the AppFolio Virtual Wave Summit in April, bringing together technology, education, and service. This conference was available at no charge of both existing and potential customers, creating a digital space for industry leaders to discuss the latest trends, technologies, and innovations at the forefront of real estate. We had excellent current and prospective customer attendance with nearly 3,400 registrations representing almost a million total units. As you've heard me talk about quarter after quarter, we know that at Folio's company culture and employees are essential to our success. In that regard, I'm pleased to announce that Folio was recognized for the first time by Comparably as one of a number of large employers with the best company outlook for 2022. Companies were selected based on how confident employees feel about their company's future success and how likely they are to recommend working at their company to a friend. This type of recognition is meaningful to us as leaders, to our teams, and to the new talent we hope to attract at Appfolio. Finally, in March, we launched Together at Appfolio. The last two years have redefined how and where we think about our teams doing their best work and have taught us some very important lessons about our capabilities, expectations, and results. Together at Appfolio is our plan to embrace today's flexible, personal, and connected work environment and turn that into a core cultural competency. We believe this will be important for retention and recruiting. It is just one more example of how Folio's team and culture are an important element of our strategy. In summary, I'm pleased with growing to this $100 million milestone. We will continue to invest in the strategic foundations of our success, our customers, our innovative products and services, our employees, and a revenue-generating go-to-market strategy. I will now turn the call over to Basie and for more detail on that Folio's first quarter financial results.
spk04: Thank you, Jason. We are pleased with our continued strong revenue growth rate and surpassing the $100 million mark. At $105.3 million, we grew revenue 33% year-over-year in the first quarter. This increase is consistent with what we have seen in the last few quarters with growth in our usage-based value-added services, such as the electronic payment services business Jason just highlighted. Additionally, we are steadily increasing unit counts and the number of property management customers we serve. Cost solutions revenue, which is derived from subscriptions to customers based on units on our platform, was $31 million in Q1, representing a solid increase of 27% year over year. At the end of the first quarter, we managed 6.57 million property management units from 17,550 property management customers compared to 5.62 million property management units from 16,178 property management customers a year earlier. This represents an 18% increase in our average annual property management units under management, demonstrating our early sales success to larger property management companies. The number of property management units is a key performance metric that drives how we manage our revenue growth. Residential units continue to be the largest part of our business, and community associations have also contributed nicely to our unit count this year. In addition to the number of units we serve, it is important to note that core revenue also grew as we continue to support customers, with larger unit portfolios that drive higher adoption rates of Adfolio Property Manager Plus. Additionally, the focus on our sales, marketing, and innovation is demonstrating good traction. With regard to value added services revenue in Q1, we experienced strong 39% year-over-year growth to $71.5 million. This year-over-year increase is due to the rise in property management units under management. the expansion of our offerings, and increased adoption and utilization of our value-added services, especially our electronic payment services. Tenants and property managers continue to take advantage of these services as more business is being transacted online relative to prior years. Before addressing expenses, I would like to point out that we have added gap to non-gap reconciliations in our price release. Going forward, all my cost and operating expense commentary will refer to non-GAAP cost and operating expenses. In Q1, cost of revenue, exclusive of depreciation and amortization, was 41% of revenue. This is a modest decrease compared with last year's Q1 of 42%, primarily due to operational efficiency and our use of more automation in our customer support organization. Turning now to operating expenses. Our year-over-year increase in operating expenses for Q1 is primarily related to additional headcount growth of 17% to 1,660. As a percent of revenue, sales and marketing expenses grew from 20% in Q1 2021 to 22% in Q1 2022. primarily due to personnel related costs necessary to support growth and a modest increase in advertising and promotions related expenses. R&D expenses as a percentage of revenue also increased from 17% in Q1 last year to 20% this year, primarily due to expanding our product capabilities for the larger customer segments and the continuing to strengthen our product security.
spk00: Meanwhile,
spk04: Our G&A expenses as a percentage of revenue slightly decreased from 16% in the same quarter last year to 15% this year as we continue to scale. Our non-GAAP loss from operations in the first quarter was negative 5% compared to negative 2% in the first quarter of 2021. Free cash flow was negative $7.6 million on negative 7% of revenue in Q1. compared to negative $4.8 million or negative 6% in the same quarter last year. Turning to the balance sheet, we ended the first quarter with $173.8 million in cash, cash equivalents, and investment securities compared to $159.9 million in the same quarter last year. We are increasing our projected full year 2022 revenue guidance range to $452 to $460 million. The midpoint of the range represents a full year growth rate of 27%. In terms of seasonality, tenant applications increase in the typical second quarter. Our property managers then experience new tenant expansion in the third quarter, resulting in higher demand for insurance-related risk mitigation services. also we have historically seen a sequential decline in revenue in the fourth quarter with tenant screening reductions due to seasonally lower leasing activities as we mentioned in our last call we continue to expect the cost of revenues exclusive of depreciation and amortization for q2 for 2022 to increase slightly as a percentage of revenue due to changing product mix partially offset by efficiency. Value-added services revenues are growing faster than total revenues, and we forecast a corresponding increase in expenditures to third-party service providers. Also, with regard to expense modeling, you can now use our newly presented non-GAAP Q1 as a baseline. While our year-over-year percentage increase in headcount will be a little more moderate this year compared to last year, the cost of attracting and retaining talent are expected to continue increasing at or above inflation rates. As a percentage of revenues, our total operating expenses for the full year are now expected to remain broadly in line with Q1. We continue to evaluate efficiencies and increase scale to reduce the growth of expenditures, but they will take more time before we see material changes to our trends. Full year non-GAAP operating margins are expected to be in line with the first quarter of 2022. Rated average shares outstanding are expected to be approximately 35 million shares for the full year. We are excited about achieving our first quarter of more than $100 million in revenue. units served and revenues are growing nicely and we are pleased to be increasing our full year revenue guidance 2022 is a year of continued investment in our pillars of growth as we focus on our land and expand strategy make our products even more valuable to our customers and continue our journey to scale our business thank you all for joining us today
spk01: That concludes the conference call. Thank you for your participation. You may now disconnect your line.
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