AppFolio, Inc. (NASDAQ:APPF) Q3 2023 Earnings Call Transcript

AppFolio, Inc. (NASDAQ:APPF) Q3 2023 Earnings Call Transcript October 26, 2023

AppFolio, Inc. beats earnings expectations. Reported EPS is $0.725, expectations were $0.4.

Operator: Good afternoon. Thank you for standing by, and welcome to AppFolio Inc.’s Third Quarter 2023 Financial Results Conference Call. Please be advised today’s conference is being recorded, and a replay will be available on AppFolio’s Investor Relations website. I would now like to hand the conference over to Lori Barker, Investor Relations.

Lori Barker: Thank you, Gigi. 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 Third Quarter 2023 Financial Results. With me on the call today are Shane Trigg, AppFolio’s President and CEO; and Fay Sien Goon, AppFolio’s Chief Financial Officer. This call is simultaneously being webcast on the Investor Relations section of our website at appfolioinc.com. Before we get started, I would like to remind everyone the 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 are subject to risks and uncertainties.

Any statement that refers to expectations projections or other characterizations of future events including financial projections future market conditions or future product enhancements or development is a forward-looking statement. AppFolio’s actual results could differ materially from those expressed in such forward-looking statements for any reason including those listed in our SEC filings. AppFolio 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 SEC filings including our Form 10-K for the fiscal year ended December 31, 2022 which has been filed with the SEC on February 9, 2023. In addition this call includes non-GAAP financial measures.

Reconciliations of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our third quarter earnings release posted on the Investor Relations section of our website. With that, I’d like to turn the call over to Shane Trigg. Shane, please go ahead.

Shane Trigg: Thanks, Lori, and welcome to our third quarter 2023 earnings call. This quarter, we continued to execute our strategy, while delivering profitable growth. I’m pleased to report that, revenue was up 32% year-over-year to $165 million and we now serve more than 7.8 million units. In addition, we improved our margins driving non-GAAP operating margin to 16% and non-GAAP free cash flow margin to 20%. These results are a reflection of our commitment to delivering industry-leading innovation to our customers while being disciplined operators. Since our last call, we reduced the size of our team by nearly 9% a decision that while difficult better positions us to focus on the real estate industry and efficiently execute the opportunity in front of us.

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Q&A Session

Our pursuit of profitable growth is in service of our customers because to be the innovative long-term partner they can rely on to power their businesses we must be a healthy resilient business ourselves. We are accelerating the pace of our innovation with advancing technology like generative AI delivering on our customers’ needs through a wealth of new product functionality and creating exceptional value to help our customers perform through all market conditions and thrive in any environment. Just last month we announced new and meaningful ways to leverage our platform at the sold-out 11th Annual AppFolio customer conference. More than 800 customers representing over 1.4 million units came to customer conference to learn how to put our technology, partnerships and services to work so they can drive more meaningful outcomes for their businesses.

Customers left the conference with a deeper understanding of how we’re innovating to streamline critical workflows and help them operate more efficiently. One of the most exciting innovations announced at the customer conference stage was Realm-X our new conversational interface leveraging generative AI to let users interact with AppFolio in plain language. We are currently piloting Realm-X with a select group of customers ahead of its wider availability in 2024. Realm-X has three components we refer to as ask tell and teach. Customers can ask Realm-X a question. They might ask for a report like a rent roll or can ask questions like, which vendors are available for a maintenance requests. They can tell Realm-X to do something for them like drafting an e-mail to residents or requesting vendor quotes.

And they can teach Realm-X a common workflow automating it, so their teams can focus on higher value work like building resident relationships and driving business performance. Our early investment in AI is paying off. Last quarter we talked about AppFolio Realm representing our full suite of AI capabilities. From traditional AI models we use in capabilities like Smart Bill Entry to new generative AI models employed in Realm-X. We’re now at a point where 85% of customers using one or more of Realm’s capabilities more than twice the adoption we saw just one year ago. Going forward, the generative AI power of Realm-X will increase efficiency for our customers by eliminating repetitive tasks, freeing teams to focus on what matters, people and performance.

We recently surveyed more than 2,300 US property management company employees, an overwhelming 88% agree that technology makes their job easier indicating that almost one-third of their typical work week could be optimized or streamlined through technology. According to one customer conference attendee, Karen Seabrook, owner and realtor at Key Realty and Property Management in Oklahoma City with 500 units on AppFolio. And I quote “AppFolio is always thinking ahead. We are so pleased with the new AI integration that will help propel our business in the future. Our clients will be impressed and we are so excited for the new updates.” We’re grateful to all of our customers for choosing to grow their businesses with AppFolio and trusting us with their future.

In addition to announcing Realm-X, we continue delivering innovation that builds engaging and lasting customer relationships, the first of our three strategic pillars. In fact in the past year, we have deployed more than 300 features that customers directly requested through our user community, demonstrating our commitment to our value that listening to customers is in our DNA. For owners, we provided more transparency and on-demand access to their property data, documents and action items. They can easily see and improved work order estimates and electronically sign and reference important documents like their management agreement. We’re excited about the potential of this innovation to nurture more strategic relationships between property managers and owners.

For residents, we recently upgraded the maintenance intake process. Maintenance intake now uses AI to triage and get to the root of a residence maintenance issue. It helps property management teams quickly identify and understand problems, eliminating the need for follow-up and clarification and speeds up time to resolution. Many times we can troubleshoot and resolve problems without requiring a maintenance tech to come on site. Examples like these demonstrate our focus on delivering elevated differentiated experiences that set us and our customers apart in the market. The second pillar of our strategy is unlocking unit growth by acquiring new customers up market. Customers are looking for ways to grow occupancy and net operating income in the leasing process.