AppFolio, Inc. (NASDAQ:APPF) Q4 2023 Earnings Call Transcript

AppFolio, Inc. (NASDAQ:APPF) Q4 2023 Earnings Call Transcript January 25, 2024

AppFolio, Inc. beats earnings expectations. Reported EPS is $0.88, expectations were $0.71. AppFolio, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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

Lori Barker: Thank you. 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 fourth 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 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 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 is forward-looking. AppFolio’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. 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-Q for the fiscal year ended September 30th, 2023, and the section entitled Risk Factors in AppFolio’s forthcoming Annual Report on Form 10-K for the fiscal year ended December 31st, 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 fourth quarter earnings release posted on the Investor Relations section of our website. With that, I will turn the call over to Shane Trigg. Shane, please go ahead.

Shane Trigg: Thanks, Lori, and welcome to everyone joining us for AppFolio’s fourth quarter and fiscal year 2023 financial results. I am pleased to announce a successful fourth quarter that caps off a year in which AppFolio increased the pace of innovation while prioritizing profitable growth. Fourth quarter revenue grew 39% year-over-year to $172 million, contributing to an annual 31% increase to $620 million. Units grew 13% for the year to $8.2 million, our customer count expanded, ARPU increased, and payments continued to grow. At the same time, we improved our margins driving non-GAAP operating margin to 24% during the fourth quarter, and non-GAAP free cash flow margin to 20%. AppFolio’s strategy is all about delivering exceptional value for our customers, employees and shareholders.

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Q&A Session

Our strategy has five components and starts with our commitment to differentiate to win. There is no better example of how rapidly we are differentiating ourselves in AppFolio Realm. It unites all of our AI innovation under a common umbrella and touches every single one of our customers’ workflows from leasing to maintenance and accounting. Some of these AI features and services are included in the core product, while others are sold separately or included in our premium product tiers. 93% of our customers now use one or more AI-enabled features or services through AppFolio Realm. That’s twice the adoption of just one year ago, demonstrating the value our customers are realizing from Realm. We announced AppFolio Realm-X, the industry’s first-ever generative AI conversational interface at NAA last year and we’re piloting it with customers right now.

Through Realm-X, customers will be able to interact with AppFolio in plain language. It has three components. First, customers can ask Realm-X to explain how something works. They can ask for information, and they can ask for reports. Second, customers can also tell Realm-X to complete a task on their behalf like drafting a communication. The third component is that customers can teach Realm-X to automate processes and workflows. This is crucial because our customers continue to tell us, their number one challenge is operational efficiency. They have talent and resource constraints and yet, they’re still doing manual, repetitive tasks. In the past, we designed products to help customers do the work. What we’re building today will do the work for them.

That’s what differentiating to win means. The second component of our strategy is to unlock upmarket customers. We are winning larger customers by expanding our coverage of property types, which we accomplished in 2023 through the launch of affordable housing. And by extending the value of our platform to scale with our customers’ complex operations, whether built natively or delivered by our integration partners via AppFolio Stack. As of the end of 2023, we’ve grown the number of units connected to AppFolio Stack partners to 1.5 million. Thanks to initiatives like these, more and more large residential portfolios made the switch to AppFolio in 2023. One of those customers was AMC, which maintains and operates over 11,000 multi-family units in Southern California.

Since going live late last year on AppFolio Property Manager PLUS, they’re leveraging not just our core system functionality, but also AI Leasing Assistant, Lisa, Smart Maintenance, Websites, BillPay, and so much more. AMC’s President, Danielle McCarthy, had this to say and I quote, we see great potential in AppFolio’s current offerings as well as in their constant commitment to innovation and view this partnership as a real investment in our future, end quote. In the fourth quarter, we introduced a third tier in our product line-up at NMHC’s OPTECH Conference. AppFolio Property Manager Max is designed for large operators with complex and diversified property portfolios. This new plan provides everything in PLUS as well as Leasing CRM that puts all lead data in one place for actionable insights.

Leasing Signals that enable property managers to make thoughtful pricing decisions using their own unique pricing strategy and public data. Custom Fields that allow property managers to capture, track, and report on any information with user-defined fields. A Database API that gives property managers full access to their AppFolio database to build analytics, integrations, and data processes, and Max comes with dedicated customer success management. Max has been well-received and adopted by new customers as well as existing ones. Through our product tiers, we create upgrade paths, so as our customers grow, we have offerings that grow with them. The third component of our strategy is to elevate the customer by driving their adoption and success on our platform.

Next month, we’ll publish the second edition of our Annual Research benchmarking more than 5,000 property management employees. The report will show that maintaining high occupancy rates has become top of mind as rental markets become more competitive. And with operational efficiency continuing to be a challenge, reducing costs is key. Property managers tell us they are finding savings by leveraging data to fill vacant units faster, centralizing their teams and resources, and adopting AI. These are areas where AppFolio will continue to innovate in order to deliver an exceptional customer experience. We also heard that despite broader economic challenges, there is reason for optimism. According to the report, 66% of property managers expect their portfolios to grow in 2024 compared to 52% last year.