AppFolio, Inc. Announces Third Quarter Financial Results

Revenue grows 32%; profitability expands

SANTA BARBARA, Calif., Oct. 26, 2023 (GLOBE NEWSWIRE) — AppFolio, Inc. (NASDAQ: APPF) (“AppFolio” or the “Company”), a cloud-based technology platform built for the real estate industry, today announced its financial results for the third quarter ended September 30, 2023.

“AppFolio’s third quarter profitable revenue growth reflects our commitment to delivering industry leading innovation, while being disciplined in our execution,” said Shane Trigg, President and CEO, AppFolio. “We continue to be focused on creating exceptional value that powers the future of the real estate industry and sets our customers apart from the rest.”

Financial Highlights

Revenue: Total revenue was $165.4 million in Q3 2023, a 32% increase from $125.1 million in the Q3 2022.Units Served: Total units on the AppFolio Property Manager platform increased to approximately 7.8 million in Q3 2023 from approximately 7.1 million at the end of Q3 2022.Income (Loss) from Operations: GAAP loss from operations in Q3 2023 was ($0.1 million), or (0%) of revenue, compared to a loss from operations of ($7.8 million), or (6.3%) of revenue, in the same quarter of 2022. Non-GAAP income from operations in Q3 2023 was $26.7 million, or 16.1% of revenue, compared to $4.7 million, or 3.7% of revenue, in Q3 2022.Cash Flow: Non-GAAP free cash flow was $33.6 million, or 20.3% of revenue, in Q3 2023, compared to $11.9 million, or 9.5% of revenue, in the same quarter of 2022.

Financial Outlook
Based on information available as of October 26, 2023, AppFolio’s outlook for fiscal year 2023 follows:

Full year revenue is expected to be in the range of $608 million to $612 million.Full year non-GAAP operating margin as a percentage of revenue is expected to be in the range of 10.5% to 11.0%.Full year non-GAAP free cash flow margin as a percentage of revenue is expected to be in the range of 10.5% to 11.5%.Weighted average shares outstanding are expected to be approximately 36 million for the full year.

Conference Call Information
As previously announced, the Company will host a conference call today, October 26, 2023, at 2:00 p.m. Pacific Time (PT), 5:00 p.m. Eastern Time (ET), to discuss the company’s third quarter 2023 financial results. A live webcast of the call will be available at: https://edge.media-server.com/mmc/p/y8bj2sxd. To access the call by phone, please go to the following link: https://register.vevent.com/register/BIf07eb38911d14309a2004ff019fac57f, and you will be provided with dial in details. A replay of the webcast will also be available for a limited time on AppFolio’s Investor Relations website at https://ir.appfolioinc.com/news-events/events.

The Company also provides announcements regarding its financial results and other matters, including SEC filings, investor events, and press releases, on its Investor Relations website at https://ir.appfolioinc.com/, as a means of disclosing material nonpublic information and for complying with AppFolio’s disclosure obligations under Regulation FD.

About AppFolio, Inc.
AppFolio is a cloud-based technology platform built for the real estate industry. Our solutions enable our customers to digitally transform their businesses, address critical business operations and deliver a better customer experience. For more information about AppFolio, visit ir.appfolioinc.com.

Investor Relations Contact:
Lori Barker
ir@appfolio.com

Use of Non-GAAP Financial Measures
Reconciliations of non-GAAP financial measures to AppFolio’s financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled “Statement Regarding the Use of Non-GAAP Financial Measures.”

Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements are subject to considerable risks and uncertainties. Forward-looking statements include all statements that are not statements of historical fact contained in this press release, and can be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts, “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those expressions. In particular, forward-looking statements contained in this press release relate to future operating results and financial position, including the Company’s fiscal year 2023 financial outlook, anticipated future expenses and investments, the Company’s business opportunities, and the impact of the Company’s strategic actions and initiatives.

Forward-looking statements represent AppFolio’s current beliefs and assumptions based on information currently available. Forward-looking statements involve numerous known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Some of the risks and uncertainties that may cause the Company’s actual results to materially differ from those expressed or implied by these forward-looking statements are described in the section entitled “Risk Factors” in AppFolio’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 9, 2023, as well as in the Company’s other filings with the SEC. You should read this press release with the understanding that the Company’s actual future results may be materially different from the results expressed or implied by these forward-looking statements.

Except as required by applicable law or the rules of the NASDAQ Global Market, AppFolio assumes no obligation to update any forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)

  September 30,
2023 December 31,
2022Assets    Current assets    Cash and cash equivalents $59,937 $70,769Investment securities—current  131,589  89,297Accounts receivable, net  20,359  16,503Prepaid expenses and other current assets  27,992  24,899Total current assets  239,877  201,468Investment securities—noncurrent  —  25,161Property and equipment, net  27,132  26,110Operating lease right-of-use assets  19,799  23,485Capitalized software development costs, net  24,021  35,315Goodwill  56,060  56,060Intangible assets, net  2,976  4,833Other long-term assets  8,735  8,785Total assets $378,600 $381,217Liabilities and Stockholders’ Equity     Current liabilities    Accounts payable $1,350 $2,473Accrued employee expenses  42,093  34,376Accrued expenses  19,979  15,601Other current liabilities  10,725  8,893Total current liabilities  74,147  61,343Operating lease liabilities  41,108  50,237Other liabilities  689  4,091Stockholders’ equity  262,656  265,546Total liabilities and stockholders’ equity $378,600 $381,217       

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)(in thousands, except per share amounts)

 Three Months Ended
September 30, Nine Months Ended
September 30, 2023
 2022
 2023
 2022
Revenue(1)$165,440  $125,079  $448,615  $347,825 Costs and operating expenses:       Cost of revenue (exclusive of depreciation and amortization)(2) 62,739   50,707   176,801   141,484 Sales and marketing(2) 29,701   25,644   86,101   77,558 Research and product development(2) 41,592   28,959   116,517   79,966 General and administrative(2) 23,907   19,347   74,417   76,258 Depreciation and amortization 7,568   8,241   22,055   24,977 Total costs and operating expenses 165,507   132,898   475,891   400,243 Loss from operations (67)  (7,819)  (27,276)  (52,418)Other (loss) income, net (249)  4,221   (283)  4,256 Interest income, net 1,788   374   4,627   632 Income (loss) before provision for income taxes 1,472   (3,224)  (22,932)  (47,530)(Benefit from) provision for income taxes (24,973)  938   4,634   889 Net income (loss)$26,445  $(4,162) $(27,566) $(48,419)Net income (loss) per common share       Basic$0.74  $(0.12) $(0.78) $(1.39)Diluted$0.72  $(0.12) $(0.78) $(1.39)Weighted average common shares outstanding       Basic 35,691   35,043   35,567   34,936 Diluted 36,482   35,043   35,567   34,936                 

(1) The following table presents our revenue categories:

 Three Months Ended
September 30, Nine Months Ended
September 30, 2023 2022 2023 2022Core solutions$39,756 $33,940 $115,440 $97,163Value Added Services 123,188  88,399  326,108  241,349Other 2,496  2,740  7,067  9,313Total revenue$165,440 $125,079 $448,615 $347,825            

(2) Includes stock-based compensation expense as follows:

 Three Months Ended
September 30, Nine Months Ended
September 30, 2023 2022 2023 2022Costs and operating expenses:       Cost of revenue (exclusive of depreciation and amortization)$1,149 $789 $2,905 $1,873Sales and marketing 2,041  2,023  4,902  5,496Research and product development 6,064  4,330  15,851  11,160General and administrative 6,003  3,688  16,274  9,680Total stock-based compensation expense$15,257 $10,830 $39,932 $28,209            

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)(in thousands)

 Three Months Ended
September 30, Nine Months Ended
September 30, 2023 2022 2023 2022Cash from operating activities       Net income (loss)$26,445  $(4,162) $(27,566) $(48,419)Adjustments to reconcile net income (loss) to net cash provided by operating activities:       Depreciation and amortization 6,980   7,658   20,115   23,295 Amortization of operating lease right-of-use assets 509   689   1,618   2,498 Gain on lease modification —   —   (4,281)  — Impairment, net —   —   —   19,792 Deferred income taxes (5)  158   4   (1,392)Stock-based compensation, including as amortized 15,845   11,413   41,872   29,891 Gain on sale of business —   (4,156)  —   (4,156)Other (801)  (92)  (1,518)  (86)Changes in operating assets and liabilities:       Accounts receivable (327)  345   (3,857)  (2,579)Prepaid expenses and other current assets 1,666   (507)  (763)  (3,159)Other assets (312)  (321)  51   (1,629)Accounts payable (496)  214   (1,485)  231 Accrued employee expenses 10,534   2,395   7,815   (822)Accrued expenses 2,237   809   4,407   3,991 Taxes payable (28,112)  (188)  (2,960)  (136)Operating lease liabilities 1,558   (437)  (3,080)  (1,748)Other liabilities 1,036   2,185   (1,272)  3,712 Net cash provided by operating activities 36,757   16,003   29,100   19,284 Cash from investing activities       Purchases of available-for-sale investments (35,322)  (25,494)  (108,919)  (70,394)Proceeds from sales of available-for-sale investments —   —   1,013   — Proceeds from maturities of available-for-sale investments 44,635   33,100   94,252   76,598 Purchases of property and equipment (3,761)  (844)  (5,932)  (5,943)Capitalization of software development costs (1,243)  (3,275)  (3,394)  (10,468)Proceeds from sale of business, net of cash divested —   5,124   —   5,124 Proceeds from sale of equity-method investment —   —   629   — Net cash provided by (used in) investing activities 4,309   8,611   (22,351)  (5,083)Cash from financing activities       Proceeds from stock option exercises 683   1,976   2,185   2,579 Tax withholding for net share settlement (6,510)  (1,984)  (19,766)  (7,581)Net cash used in financing activities (5,827)  (8)  (17,581)  (5,002)Net increase (decrease) in cash and cash equivalents and restricted cash 35,239   24,606   (10,832)  9,199 Cash, cash equivalents and restricted cash       Beginning of period 24,948   42,876   71,019   58,283 End of period$60,187  $67,482  $60,187  $67,482                 

RECONCILIATION FROM GAAP TO NON-GAAP RESULTS(UNAUDITED)(in thousands, except per share data)

   Three Months Ended
September 30, Nine Months Ended
September 30,    2023   2022   2023   2022 Costs and operating expenses:      GAAP cost of revenue (exclusive of depreciation and amortization)$62,739  $50,707  $176,801  $141,484   Less: Stock-based compensation expense 1,149   789   2,905   1,873   Less: Workforce reduction costs 2,135   —   2,135   —  Non-GAAP cost of revenue (exclusive of depreciation and amortization)$59,455  $49,918  $171,761  $139,611  GAAP cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue 38%  41%  39%  41% Non-GAAP cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue 36%  40%  38%  40%           GAAP sales and marketing$29,701  $25,644  $86,101  $77,558   Less: Stock-based compensation expense 2,041   2,023   4,902   5,496   Less: Workforce reduction costs 3,401   —   3,401   —  Non-GAAP sales and marketing$24,259  $23,621  $77,798  $72,062  GAAP sales and marketing as a percentage of revenue 18%  21%  19%  22% Non-GAAP sales and marketing as a percentage of revenue 15%  19%  17%  21%           GAAP research and product development$41,592  $28,959  $116,517  $79,966   Less: Stock-based compensation expense 6,064   4,330   15,851   11,160   Less: Workforce reduction costs 2,635   —   2,635   —  Non-GAAP research and product development$32,893  $24,629  $98,031  $68,806  GAAP research and product development as a percentage of revenue 25%  23%  26%  23% Non-GAAP research and product development as a percentage of revenue 20%  20%  22%  20%           GAAP general and administrative$23,907  $19,347  $74,417  $76,258   Less: Stock-based compensation expense 6,003   3,688   16,274   9,680   Less: Impairment, net —   —   —   19,792   Less: Gain on lease modification —   —   (4,281)  —   Less: CEO separation costs, net —   —   11,520   —   Less: Workforce reduction costs 2,106   —   2,106   —  Non-GAAP general and administrative$15,798  $15,659  $48,798  $46,786  GAAP general and administrative as a percentage of revenue 14%  15%  17%  22% Non-GAAP general and administrative as a percentage of revenue 10%  13%  11%  13%           GAAP depreciation and amortization$7,568  $8,241  $22,055  $24,977   Less: Amortization of stock-based compensation capitalized in software development costs 589   584   1,857   1,682   Less: Amortization of purchased intangibles 617   1,093   1,940   3,396  Non-GAAP depreciation and amortization$6,362  $6,564  $18,258  $19,899  GAAP depreciation and amortization as a percentage of revenue 5%  7%  5%  7% Non-GAAP depreciation and amortization as a percentage of revenue 4%  5%  4%  6%                 

   Three Months Ended
September 30, Nine Months Ended
September 30,   2023
 2022
 2023
 2022
Income (loss) from operations:        GAAP loss from operations$(67) $(7,819) $(27,276) $(52,418)  Less: Stock-based compensation expense 15,257   10,830   39,932   28,209   Less: Amortization of stock-based compensation capitalized in software development costs 589   584   1,857   1,682   Less: Amortization of purchased intangibles 617   1,093   1,940   3,396   Less: Impairment, net —   —   —   19,792   Less: Gain on lease modification —   —   (4,281)  —   Less: CEO separation costs, net —   —   11,520   —   Less: Workforce reduction costs 10,278   —   10,278   —  Non-GAAP income from operations$26,674  $4,688  $33,970  $661           Operating margin:         GAAP operating margin —%  (6.3)%  (6.1)%  (15.1)%  Stock-based compensation expense as a percentage of revenue 9.2   8.7   8.9   8.1   Amortization of stock-based compensation capitalized in software development costs as a percentage of revenue 0.4   0.5   0.4   0.5   Amortization of purchased intangibles as a percentage of revenue 0.4   0.9   0.4   1.0   Impairment, net as a percentage of revenue —   —   —   5.7   Gain on lease modification as a percentage of revenue —   —   (1.0)  —   CEO separation costs, net as a percentage of revenue —   —   2.6   —   Less: Workforce reduction costs 6.1   —   2.4   —  Non-GAAP operating margin 16.1%  3.7%  7.6%  0.2%          Net income (loss):        GAAP net income (loss)$26,445  $(4,162) $(27,566) $(48,419)  Less: Stock-based compensation expense 15,257   10,830   39,932   28,209   Less: Amortization of stock-based compensation capitalized in software development costs 589   584   1,857   1,682   Less: Amortization of purchased intangibles 617   1,093   1,940   3,396   Less: Impairment, net —   —   —   19,792   Less: Gain on lease modification —   —   (4,281)  —   Less: CEO separation costs, net —   —   11,520   —   Less: Workforce reduction costs 10,278   —   10,278   —   Less: Gain on sale of business —   (4,156)  —   (4,156)  Less: Income tax effect of adjustments 31,642   234   3,859   (724) Non-GAAP net income$21,544  $3,955  $29,821  $1,228           Net income (loss) per share, basic:        GAAP net income (loss) per share, basic$0.74  $(0.12) $(0.78) $(1.39)  Non-GAAP adjustments to net income (loss) (0.14)  0.23   1.62   1.42  Non-GAAP net income per share, basic$0.60  $0.11  $0.84  $0.03           Net income (loss) income per share, diluted:        GAAP net income (loss) per share, diluted$0.72  $(0.12) $(0.78) $(1.39)  Non-GAAP adjustments to net income (loss) (0.13)  0.23   1.60   1.39  Non-GAAP net income per share, diluted$0.59  $0.11  $0.82  $—            Weighted-average shares used in GAAP per share calculation         Basic 35,691   35,043   35,567   34,936   Diluted 36,482   35,043   35,567   34,936            Weighted-average shares used in non-GAAP per share calculation         Basic 35,691   35,043   35,567   34,936   Diluted 36,482   35,710   36,345   35,695                   

   Three Months Ended
September 30, Nine Months Ended
September 30,    2023   2022   2023   2022 Free cash flow:     GAAP net cash provided by operating activities$36,757  $16,003  $29,100  $19,284   Purchases of property and equipment (3,761)  (844)  (5,932)  (5,943)  Capitalized software development costs (1,243)  (3,275)  (3,394)  (10,468)  CEO separation costs payment —   —   14,926   —   Partial lease termination payment —   —   2,851   —   Severance payments for workforce reduction 1,801   —   1,801   —  Non-GAAP free cash flow$33,554  $11,884  $39,352  $2,873           Free cash flow margin:       GAAP net cash provided by operating activities as a percentage of revenue 22.2%  12.8%  6.5%  5.5%  Purchases of property and equipment as a percentage of revenue (2.3)  (0.7)  (1.3)  (1.7)  Capitalized software development costs as a percentage of revenue (0.8)  (2.6)  (0.8)  (3.0)  CEO separation costs payment —   —   3.4   —   Partial lease termination payment —   —   0.6   —   Severance payments for workforce reduction 1.2   —   0.4   —  Non-GAAP free cash flow margin 20.3%  9.5%  8.8%  0.8%                 


Statement Regarding the Use of
Non-GAAP Financial Measures

We disclose the following non-GAAP financial measures in this press release: non-GAAP income (loss) from operations, non-GAAP operating expenses (cost of revenue (exclusive of depreciation and amortization), sales and marketing, research and product development, general and administrative, and depreciation and amortization), non-GAAP net income (loss), non-GAAP net income (loss) per share, and free cash flow.

Non-GAAP presentation of income (loss) from operations, operating expenses, net income (loss), and net income (loss) per share. These measures exclude certain non-cash or non-recurring items, including stock-based compensation expense, amortization of stock-based compensation capitalized in software development costs, amortization of purchased intangibles, impairment, CEO separation costs, net, gain on lease modification, workforce reduction costs and the related income tax effect of these adjustments, as applicable and described below.

Free cash flow. Free cash flow is defined as net cash from operating activities, less purchases of property and equipment, capitalization of software development costs, payments for separation costs, lease termination payments and severance payments for workforce reduction. We use free cash flow to evaluate our generation of cash from operations that is available for purposes other than capital expenditures and capitalized software development costs. Additionally, we believe that information regarding free cash flow provides investors with a perspective on the cash available to fund ongoing operations, because we review cash flows generated from operations after taking into consideration capital expenditures and the capitalization of software development costs due to the fact that these expenditures are considered to be a necessary component of ongoing operations.

We use each of these non-GAAP financial measures internally to assess and compare operating results across reporting periods, for internal budgeting and forecasting purposes, and to evaluate our financial performance. We believe these adjustments also provide useful supplemental information to investors and facilitate the analysis of our operating results and comparison of operating results across reporting periods.

In particular, we believe these non-GAAP financial measures are useful to investors and others in assessing our operating performance due to the following factors:

Stock-based compensation expense and amortization of stock-based compensation capitalized in software development costs. We utilize stock-based compensation to attract and retain employees. It is principally aimed at aligning their interests with those of our stockholders while ensuring long-term retention, rather than to address operational performance for any particular period. As a result, stock-based compensation expenses, which include costs related to our workforce reduction, vary for reasons that are generally unrelated to financial and operational performance in any particular period.

Amortization of purchased intangibles. We view amortization of purchased intangible assets as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are evaluated for impairment regularly, amortization of the cost of purchased intangibles is an expense that is not typically affected by operations during any particular period.

Impairment. We believe that impairment charges do not reflect future operating expenses, and are generally unrelated to financial and operational performance in any particular period.

CEO separation costs, net. We incurred one-time separation costs associated with our former Chief Executive Officer’s Transition and Separation Agreement, dated March 1, 2023 (“Separation Agreement”). We have excluded these costs, as we do not consider such amounts to be part of the ongoing operation of our business.

Gain on lease modification. In January 2023 and June 2023 we amended our San Diego lease. We have excluded any gain related to the remeasurement of the lease liability, as we do not consider such amounts to be part of the ongoing operation of our business.

Workforce reduction costs. We incurred one-time severance and related personnel costs associated with our workforce reduction in the third quarter of 2023. We have excluded these costs as we do not consider such amounts to be part of the ongoing operation of our business.

Income tax effects of adjustments. We utilize a fixed long-term projected tax rate in our computation of non-GAAP income tax effects to provide better consistency across interim reporting periods. In projecting this long-term non-GAAP tax rate, we utilize a financial projection that excludes the direct impact of other non-GAAP adjustments. The projected rate, which we have determined to be 25%, considers other factors such as our current operating structure, existing tax positions in various jurisdictions, and key legislation in major jurisdictions where we operate. We periodically re-evaluate this tax rate, as necessary, for significant events, based on relevant tax law changes, and material changes in the forecasted geographic earnings mix.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because non-GAAP financial measures are not prepared in accordance with GAAP and can exclude expenses that may have a material impact on our reported financial results. As such, non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. A reconciliation of the historical non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the tables above. We encourage investors to review the reconciliation of these historical non-GAAP financial measures to their most directly comparable GAAP financial measures.

 

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