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

AppFolio, Inc. (NASDAQ:APPF) Q4 2024 Earnings Call Transcript January 30, 2025

AppFolio, Inc. reports earnings inline with expectations. Reported EPS is $0.92 EPS, expectations were $0.92.

Operator: Good afternoon, and thank you for standing by. Welcome to AppFolio Inc.’s Fourth Quarter 2024 Financial Results Conference Call. Please be advised that 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. 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 and full year 2024 financial results. With me on the call today are Shane Trigg, AppFolio’s President and CEO. 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, business performance or future product enhancements or development is a forward-looking statement.

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-K for the fiscal year ended December 31, 2023, which was filed with the SEC on February 1, 2024. In addition, this call includes non-GAAP financial measures. Reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our fourth quarter earnings release, which is posted on our 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 2024 financial results. Our fourth quarter caps off a transformative year of delivering value to our customers through differentiated industry leading innovation and strong execution of our financial strategy. Fourth quarter revenue grew 19% year-over-year to $204 million, resulting in a 28% annual increase to $794 million. Non-GAAP operating margin during the fourth quarter was 20%. And for the full year we more than doubled operating margin from 12% to 25%. These financial results along with our continued growth in customers, units and ARPU strengthen our position as the real estate innovation leader and allow us to unlock even more value for our customers.

Q&A Session

That leadership was evident at AppFolio’s inaugural future conference in San Diego when we brought together 2,200 customers, prospects, partners and AppFolians plus industry leaders from NAA, NMHC, NARCAN and more. We showed how we’re building the platform where the real estate industry comes to do business through our investments in industry-leading innovation and how we’re delivering real meaningful customer impact across investors, property managers, residents and vendors. We heard from one attendee, Dom Beveridge, the principal of multifamily industry resource 20for20 “This show is now on par for attendance and content with the largest user conferences in our industry. More impressively FUTURE presented the broadest and most cohesive vision I have seen of how AI may change property management.” I left FUTURE with gratitude for our customers and a sense of pride in our team and how we’re showing up as a voice of trust and leadership for our industry.

One of the exciting announcements we made in the days leading up to FUTURE was our acquisition of LiveEasy to accelerate the potential we see in the resident industry segment. We talked last quarter about how FolioSpace will enable AppFolio’s property management customers to create a unified and elevated experience for the millions of residents they serve from application to renewal. By integrating LiveEasy and offering its services as FolioSpace resident onboarding will reduce the stress of moving, deliver increased convenience and save renters time and money. The integration of our teams and technology is progressing well, and I’m confident that the combination will drive significant value for resident and property managers through our platform.

The outcomes we’ve achieved and the momentum we’ve built, demonstrate that our strategy is working. I want to share how the pillars of this strategy are powering success for both our customers and our business. Our first strategic pillar is differentiate to win. Leveraging advanced AI technologies is creating better experiences and performance for our customers. The generative AI-powered capabilities of Realm-X, automate routine tasks and key workflows, streamline communications and enable property managers to transform their operational performance. Since launching Realm-X to every customer following FUTURE, over 1 million actions have been completed in Realm-X Assistant. And users are rapidly automating their processes in Realm-X Flows, which is available to customers on our AppFolio Property Manager Plus and Max plans.

Our legacy workflow capability took four years to reach the adoption level Realm-X Flows has reached in only three months. We’re accelerating the pace of AI innovation across our customers’ day-to-day workflows in accounting, leasing and maintenance. At FUTURE, we showcased two updates to our AI-powered smart maintenance offering. First is the smart maintenance scheduling, an in-app calendar that allows teams to schedule and assign work orders in a single step. Second is smart maintenance billing allowing users to set strategic billing rules and automate bill creation. Through our recent integration of AppFolio’s stack partner Lula, we can now connect smart maintenance customers with the Lula vendor network, a community of qualified local vendors.

This integration enables our customers to automatically dispatch a Lula vendor to ensure work gets done even after hours. According to Jesi Watts, Principal Broker and owner of Aspire Realty Group with 208 units on AppFolio “Smart Maintenance assigns the work order and notifies the vendor via text and email. The vendor can accept it all before I wake up. It’s been a lifesaver.” Our second strategic pillar is deliver value efficiently. Customers of all sizes are switching to and growing their businesses with AppFolio as their trusted partner. In May, we won our largest customer to-date. In September we won our largest customer to-date. And again in November we won our largest customer to-date. More customers are choosing our Plus and Max plans for their flexibility and extensibility to power their growth.

In fact, one in five of our customer units is now on one of these premium plans. One of our many new customers in 2024 is the Breeden company in Virginia Beach, Virginia with 9,800-plus units spanning multifamily and commercial. Breeden evaluated and ultimately chose AppFolio for our shared commitment to innovation. After seamlessly migrating their entire portfolio, Breeden is now live on our Max plan and has adopted many of our services from payments to AppFolio’s stack FolioGuard; AI leasing assistant Lisa; smart maintenance; screening; and websites. According to Bonnie Moore, Breeden’s President of Property Management, “We built such a wonderful partnership with AppFolio and that partnership means everything to us. Their team truly listens to everything we have to say and values our input to help us improve.” Along with innovation, another way we’re standing out in the market is by delivering exceptional service at scale which is a top priority for our customers.

We exited 2024 with a 361% year-over-year increase in instant support case resolutions and a service satisfaction score of 92%. Throughout the year, we consistently earn top recognition from peer-to-peer software marketplace G2, thanks to the feedback from the people who matter most, our customers. The third pillar of our strategy is great people and culture. You’ve heard about the innovative ways we’re differentiating ourselves to win and delivering value efficiently to our customers and it’s all made possible through our people. We’re honored to be recognized in two new lists from Forbes; America’s Best Companies for 2025 and Most Trusted Companies in America for 2025. Forbes evaluated the nation’s largest public companies and considered factors such as financial performance, trust, and customer and employee satisfaction.

Across the organization, we’re operating with a sense of urgency and focus and it shows in our results and the value we’re delivering to our customers. With that, I’ll now share more about AppFolio’s fourth quarter financial results. In the fourth quarter, we delivered revenue of $204 million, growing 19% year-over-year. Full year revenue was $794 million, representing 28% growth year-over-year. Core solutions revenue was $47.6 million in the fourth quarter, a 15% year-over-year increase driven by growth in new customers and total units under management. In addition as I mentioned earlier, we continue to win larger customers and more customers are choosing our Plus and Max plans. At the end of the year, we managed approximately 8.7 million units from 20,784 customers compared to 8.2 million units from 19,737 customers a year earlier.

This represents a 6% increase in ending units and a 5% increase in customers as we continue to emphasize residential portfolios. For the full year, core solutions grew 15% year-over-year. Fourth quarter revenue from value-added services grew 20% year-over-year to $153 million. As expected in 2024, we had sequential increases and value-added services revenue in the first, second and third quarters, and a sequential decline in revenue in the fourth quarter, due to the seasonal nature of revenue associated with leasing activities. Full year value-added services revenue growth was 33%, primarily resulting from our decision to stop waiving eCheck fees in August of 2023, higher resident usage of online payments, increased adoption of risk mitigation services, and growth in units under management, partially offset by reduced fees associated with certain card-based payments.

Other revenue includes revenue from the LiveEasy acquisition, which was completed in October. Turning to spending. We exited the quarter with 1,634 employees, which is an increase of 9% compared to the fourth quarter of 2023, and up 5% from the prior quarter. This reflects employee growth, primarily due to our acquisition of LiveEasy, and also continued investment in innovation, including strategic initiatives such as Realm-X, the resident experience, and expanding into new property types. Cost of revenue exclusive of depreciation and amortization in the fourth quarter was 37% of revenue compared to 35% last year, primarily due to increased adoption of credit cards for payments and the reduction in fees associated with certain card-based transactions.

For the full year, cost of revenue declined more than 200 basis points as growth from our decision to stop waiving eCheck fees and operational efficiencies were partially offset by the impact of increased adoption of credit cards for payments and the reduction in fees associated with certain card-based transactions. The sequential quarterly increase reflects typical seasonality due to the decline in revenue associated with leasing activities. As a percent of revenue in the fourth quarter, combined sales and marketing R&D and G&A expense grew to 41% from 37% last year. For the full year, operating expenses as a percentage of revenue declined from 46% in 2023 to 38% in 2024. Sales and marketing expenses as a percentage of revenue increased from 12% in the fourth quarter of last year to 15% this quarter.

This includes increased investment in our future conference, which shifted from the third quarter to the fourth quarter this year, additional hiring and the impact of the LiveEasy. For the full year sales and marketing decreased from 16% to 13%. Our R&D expenses as a percentage of revenue increased from 17% in the fourth quarter last year to 18% this quarter. This includes additional hiring to resource strategic initiatives. On a full year basis R&D declined from 21% to 17%. Our G&A expenses, as a percentage of revenue were comparable in the fourth quarter of last year at 8%. For the full year, G&A declined from 10% to 8%. Overall in the fourth quarter, non-GAAP operating margin was 20.2% compared to 24.3% last year. Through disciplined execution of our financial strategy, we expanded non-GAAP operating margin to 25% for the full year, which was a significant improvement from 12.2% in 2023.

Free cash flow margin this quarter was 17.3% compared to 19.9% in the fourth quarter of last year, and expanded to 23% in 2024, a significant increase from 12% in 2023. The acquisition of LiveEasy for $79 million, exemplifies how creating investment flexibility is enabling us to deliver on our strategy. Even with this investment, our cash and investment securities grew to $278 million from $212 million at the end of 2023. Our 2025 guidance for annual revenue is $920 million to $940 million, which implies a full year growth rate of 17% based on the midpoint of this range. We expect to deliver non-GAAP operating margin between 24.5% and 26.5% and diluted weighted average shares outstanding are anticipated to be approximately 37 million for the full year.

We expect to continue growing our customers and units under management. We also believe we will continue growing ARPU as we increase adoption of our Plus and Max plans and our value-added services and a small but growing contribution from the resident segment. Consistent with 2024, we believe the high interest rate environment will continue to limit our current customers’ ability to expand their portfolios. We anticipate 2025 revenue seasonality to be mostly consistent with 2024. Cost of revenue, exclusive of depreciation and amortization is expected to remain relatively flat as a percentage of revenue, compared to the prior year as we believe the benefit from operational efficiencies will be mostly offset by product mix. Our 2025 ending head count is projected to grow as we continue to invest in high priority initiatives that enable us to achieve our strategic objectives.

However, we expect the rate of headcount growth to be less than revenue growth as we maintain our focus on operational efficiency. In summary, I’m proud of our strong performance in 2024. We are acquiring, growing and retaining customers, while delivering exceptional service and our investments in AI and the resident experience are translating into meaningful outcomes for our customers. As we continue the process of selecting a new CFO, I want to thank Tim Eaton, our Interim CFO and the rest of our team for their commitment during this transition. We are truly building the platform where the real estate industry comes to do business in creating a resilient and sustainable future for growth. Thank you all for joining us today. Operator this concludes today’s call.

Operator: Thank you, everyone for participating in today’s conference, and you may now disconnect.

End of Q&A: