AppFolio (APPF) Q1 2025 Earnings Call

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DATE

Thursday, Apr 24, 2025

CALL PARTICIPANTS

Shane Trigg: President and CEO

Lori Barker: Investor Relations

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Q1 Revenue: $218 million, up 16% year-over-year

GAAP Operating Margin: 24% for Q1 2025

Units Under Management: 8.8 million, a 6% increase from Q1 2024

Customer Base: 21,105, representing 6% growth year-over-year

Value-Added Services Revenue: $165 million, up 16% year-over-year

Employee Count: 1,648, a 1% increase from Q4 2024

Non-GAAP Operating Margin: 24.3%, compared to 25.7% in Q1 2024 (non-GAAP)

Cash and Investments: $211 million at Q1 2025 quarter-end

Share Repurchase: Approximately 445,000 shares for $96 million in Q1 2025

SUMMARY

AppFolio reported solid Q1 2025 results, driven by increased customer value, new customer acquisition, and service adoption. The company announced strategic partnerships with Second Nature and Zillow to enhance resident experiences and streamline property management processes.

89% of new customers have utilized AppFolio's generative AI-powered Rev X capabilities since the start of 2025, reporting 9.7 hours saved weekly on reporting tasks and a 73% higher lead-to-showing conversion rate.

The board approved a new $300 million stock repurchase program on April 23, 2025.

AppFolio invested $75 million for a minority non-controlling equity interest in Second Nature in early Q2 2025.

Full-year revenue guidance maintained at $920 million to $940 million., implying 17% growth at the midpoint.

Non-GAAP operating margin guidance for 2025 set at 24.5%-26.5%, with diluted weighted average shares outstanding expected to be approximately 37 million for the full year.

INDUSTRY GLOSSARY

ARPU: Average Revenue Per Unit, a metric measuring revenue generation per managed property unit

AppFolio Stack Partner: Ecosystem of integrated third-party services enhancing AppFolio's property management platform

Realmex: AppFolio's suite of AI-powered tools including Assistant, Messages, and Flows

FolioSpace: AppFolio's next-generation resident interface for property management customers

Full Conference Call Transcript

Operator: Good afternoon. Thank you for standing by and welcome to AppFolio, Inc.'s First Quarter 2025 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. You may begin.

Lori Barker: Thank you. Good afternoon, everyone. I am Lori Barker, Investor Relations for AppFolio, and I would like to thank you for joining us today as we report AppFolio's first quarter 2025 financial results. With me on the call today is Shane Trigg, AppFolio's President and CEO. This call is being simultaneously 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, 2024, which was filed with the SEC on February 6, 2025. 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 first quarter 2025 financial results. Revenue grew 16% year over year to $218 million in the first quarter as we continue to drive increased customer value in ARPU, growth in new customer units, and increased adoption of our services. I am proud to say that we had a strong start to the year in winning new business, demonstrating our success in the market, as more and more customers choose AppFolio. Also, GAAP operating margin was 24% and net cash provided by operating activities was 18%, positioning us well to continue investing in differentiated industry-leading innovation. Achieving our mission to build the platform where the real estate industry comes to do business requires us to create value for all stakeholders. Last week, we announced a strategic partnership with Second Nature to enhance the resident experience. Through the AppFolio Stack Partner ecosystem, our property management customers will have the ability to offer Second Nature's robust suite of services to their residents. I am excited about how this combination will create a simpler, more personalized experience for residents, enhancing the service our property managers are able to provide while improving their bottom line. In today's competitive market, renters have high expectations when it comes to where they live, making resident satisfaction a priority. Property managers know that meeting residents' needs and preferences is key to maintaining high occupancy rates. When choosing a place to live, prospective renters will evaluate properties based on the quality of the rental experience. Increasingly, they are demanding services that save them money and enhance their lives. Our upcoming AppFolio research report shows that 71% of renters consider resident benefits important when evaluating new rentals, yet only 42% currently have access to them. This highlights the need to meet and exceed resident expectations to stay competitive, supporting our first strategic pillar of differentiate to win. We are redefining how property managers and renters connect throughout the entire resident journey. That starts with attracting residents and eliminating barriers that slow the leasing process. We recently announced that Zillow has joined the AppFolio Stack Partner ecosystem, allowing renters to discover homes faster and property managers to fill vacancies more efficiently. We are also introducing a new simplified rental application to help property management achieve better quality and outcomes with less effort. This application is fully integrated with the templates and customizations customers expect, streamlining processing time and flowing seamlessly into Folio's Screen Trusted Renter, our comprehensive screening solution announced last fall at Future, which combines advanced fraud detection tools with fair housing compliance. Once a property manager has qualified the applicant, it is time for the lease signing. And here again, we are delivering differentiated innovation. Through our alliance with Second Nature, AppFolio customers will be able to make available to their residents transparent, customizable, valuable services such as group rate Internet, pest control, air filter delivery, credit building, and rewards, all within AppFolio, paid conveniently by residents alongside their rent. After the lease is signed, our property management customers can focus on onboarding the new resident and ensuring a seamless move-in experience. Through our previously discussed acquisition of LiveEasy, we will reduce the stress of moving, deliver increased convenience, and save renters time and money. These workflows and more will be delivered to residents through Folio Space, our next-generation resident interface, enabling AppFolio's property management customers to create a unified and elevated experience for the millions of residents they serve during all the moments that matter, from application to move-in through lease renewal. This built-in, fully managed resident experience for property managers gives operators of all sizes the opportunity to seamlessly offer services that their residents are demanding and that deliver exceptional value. AppFolio customer Franklin Villanueva, owner of Silver Springs, Maryland-based Adonis Property Management, recently shared, "We are thrilled to see AppFolio innovating the resident experience. Anything that improves lead quality, streamlines the leasing process, and saves time for both applicants and management teams is a big win in our book. Looking forward to offering our renters an even smoother experience." Our second strategic pillar is to deliver value efficiently. Our leadership in AI is creating a competitive moat to help us win the market, resulting in significant business growth and a strong influx of new customers. We are helping both new and existing customers adopt and grow their use of AppFolio services, particularly around our AI-powered Realm suite. Since the start of 2025, 89% of new customers going live on AppFolio have used one or more of our generative AI-powered AppFolio Rev X capabilities: Assistant, Messages, and Flows. Realmex is maximizing and delivering real performance for these customers, who report saving an average of 9.7 hours each week on reporting tasks. More importantly, they are generating an incredible 73% higher lead-to-showing conversion rate. As one customer recently told us, lease renewal rates are up 8%. We continue to see strong upgrades for AppFolio Property Manager core customers to our Plus and Max plans in order to leverage the powerful automation made possible by Realmex Flows, as well as to take advantage of additional Realm products like Smart Maintenance, Leasing CRM, and Leasing Signals. One of these customers is 2B Living, which manages more than 5,000 multifamily, single-family, and commercial units across the Bay Area on AppFolio. They have expanded rapidly, adding 1,500 units to AppFolio just last year. With a significant percentage of their portfolio on AppFolio Property Manager Max, 2B Living has been able to streamline their operations as they take on more units without needing to add extra headcount. As early adopters of Realmex, 2B Living is taking advantage of generative AI to transform the way their team manages day-to-day tasks. According to Brooke Brooks Baskin, founder and CEO, "We find Realmex to be a great empowerment tool that has helped us with two really important functions. One, we are able to build our processes and workflows in AppFolio so tasks happen through automation without losing a hands-on touch. Two, Realmex has allowed us to get tasks done using Realmex Assistant. This has really helped us gain efficiency as our business continues to grow." The third pillar of our strategy is great people and culture. Since our last call, AppFolio was recertified as a great place to work for the eighth time. Part of what makes AppFolio a great place to work is our ability to attract AppFolians who exemplify our values, live the AppFolio way, cultivate exceptional teams, and deeply care about customers. Our Chief Legal Officer, Matt Mazza's role has been expanded to Chief Trust Officer. In his new role, he will continue to lead our legal and compliance functions while strengthening cross-functional partnerships to enhance data governance and security, protect our software and infrastructure, modernize internal systems and processes, and develop an external trust center demonstrating our commitment to data security transparency and our company value to build trust every day. Additionally, Lisa Horner has been promoted to Chief Marketing Officer, and Matthew Baird has been promoted to Chief Technology Officer. Evolving our organization as we scale enables our strategy, and we will continue to cultivate our talent, build a robust pipeline for AppFolio's future, and deliver exceptional value to our customers. To that end, we are making good progress in recruiting our next CFO. With that, let me share more about AppFolio's first quarter financial results. In the first quarter, we delivered revenue of $218 million, growing 16% year over year. Core solutions revenue was $49.5 million in the first quarter, a 15% year-over-year increase, driven by more customers choosing our Plus and Max plans, winning new customers, and growth in total units under management. At the end of the quarter, we managed approximately 8.8 million units from 21,105 customers compared to 8.3 million units from 19,941 customers a year earlier. This represents a 6% increase in ending units and a 6% increase in customers as we continue to emphasize residential portfolios. First quarter revenue from value-added services grew 16% year over year to $165 million. This increase reflects greater use and adoption of payments, risk mitigation services, and screening, as well as growth in units under management. These drivers were partially offset by the April 2024 reduction in fees associated with certain card-based payments. Turning to spending, we exited the quarter with 1,648 employees, which is an increase of 1% from the fourth quarter of 2024. This reflects modest growth in most functional areas as we continue to invest in go-to-market initiatives and innovation, partially offset by efficiencies in our operations. Cost of revenue, exclusive of depreciation and amortization in the first quarter, was 36% of revenue compared to 34% last year, primarily due to the reduction in fees associated with certain card-based transactions and the mix of revenue as the adoption of credit cards for payments increased. As a percent of revenue in the first quarter, combined sales and marketing, R&D, and G&A expense was flat at 38% compared to last year. Sales and marketing expenses as a percentage of revenue increased from 12% in the first quarter of last year to 13% this quarter. This includes additional hiring and the impact of the LiveEasy acquisition. Our R&D expenses as a percentage of revenue were consistent with the prior year at 17%. Our G&A expenses as a percentage of revenue were also comparable to the first quarter of last year at 8%. Overall, the first quarter non-GAAP operating margin was 24.3% compared to 25.7% last year, and net cash provided by operating activities this quarter was 17.7% compared to 22.9% in the first quarter last year. Our growth and profitability have empowered us to deliver customer value, accelerate our resident strategy, and repurchase stock. We ended the quarter with $211 million in cash and current investment securities. Under a previously approved share repurchase program, during the first quarter, we bought approximately 445,000 shares for $96 million, completing the previously authorized $100 million program. In addition, the board approved a new stock repurchase program of $300 million on April 23. Also, to enhance the resident experience, early in the second quarter, we announced our strategic partnership with Second Nature and purchased a minority non-controlling equity interest for $75 million. Our 2025 guidance for annual revenue remains $920 million to $940 million for a full-year growth rate of 17% based on the midpoint and fueled by Plus and Max upgrades, growth in customers and new business units, and increasing adoption of our products and services. We expect to deliver a 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. Our guidance reflects what we are seeing in today's dynamically changing environment. 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 pending headcount 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. Wrapping up, this quarter's results underscore that our ongoing commitment to delivering industry-leading innovation and exceptional service is driving new customer adoption of our products and services. By connecting our acquisition of LiveEasy with new industry-leading partners such as Zillow and Second Nature, all enabled through FolioSpace, we have accelerated our resident strategy, creating value for our customers. We are well-positioned to win for all stakeholders as the platform powering the future of the real estate industry. Thank you all for joining us today. Operator, this concludes today's call.

Operator: Ladies and gentlemen, that concludes today's conference call. You may now disconnect. Goodbye.

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