APPFOLIO INC Q1 FY2022 earnings

AppFolio crossed the $100 million mark in quarterly revenue for the first time in the first quarter of fiscal 2022. Revenue reached $105.3 million, up 33.4% from the prior-year quarter. Adoption kept pace: 6.57 million property management units were under management as of March 31, 2022, versus 5.62 million a year earlier, and the company ended the quarter with 17,550 property management customers. Management calls out 18% growth in the average number of units under management and 9% growth in the average number of property management customers. CEO Jason Randall framed the result as evidence that a multi-year investment strategy is working, pairing core software subscriptions with value-added services designed to raise revenue per unit served.

Profitability moved in the opposite direction. GAAP loss from operations widened 158.8% to $14.7 million, and operating margin slipped to -13.9% from -7.2% in the prior-year quarter. The company posted a net loss of $14.3 million and a diluted loss per share of $0.41, against diluted earnings of $0.01 a year earlier. On a non-GAAP basis, loss from operations was $5.6 million, or 5% of revenue, compared with $1.3 million, or 2% of revenue, in the first quarter of 2021. The gap between GAAP and non-GAAP results reflects stock-based compensation, amortization of stock-based compensation capitalized in software development costs, and purchased intangible amortization.

Cash performance was uneven. Net cash used in operating activities was $2.2 million, an improvement over the prior-year quarter, and capital expenditures rose 95.1% to $1.83 million. Current deferred revenue was $3.69 million, up 17.8%. Free cash flow, which AppFolio reports as a non-GAAP measure separate from operating cash flow, was negative $7.6 million, or 7% of revenue, compared with negative $4.8 million, or 6% of revenue, in the same quarter of 2021. Cash, cash equivalents and investment securities totaled $173.8 million as of March 31, 2022.

Guidance applies to the full fiscal year 2022. AppFolio expects revenue of $452 million to $460 million. Full year non-GAAP operating margin as a percentage of revenue is expected to be in line with the first quarter of 2022. Weighted average shares outstanding are expected to be approximately 35 million for the full year. Management also expects cost of revenue to increase as a percentage of revenue for the year ending December 31, 2022, because third-party costs tied to value-added services are growing faster than total revenue.

Two balance sheet items deserve attention. AppFolio expects to carry a full valuation allowance against its U.S. federal and state deferred tax assets at the end of 2022, which would hold income tax expense for the year ended December 31, 2022 to the change in deferred taxes plus current minimum state taxes. Separately, the board has authorized share repurchases of up to $100.0 million of Class A common stock, and $4.2 million has been repurchased to date.

The tension for the rest of the year is straightforward. Revenue is compounding quickly, but the GAAP operating loss widened to $14.7 million as spending on hiring, product development and value-added services outran the top line. Non-GAAP losses are smaller but also growing. The company points to heightened competition for talent, and to compensation and reward practices that have had and are expected to continue having a material impact on results. It also flags the risk factors in its annual report for the year ended December 31, 2021. Investors get a business that is winning units and customers at a solid clip while still deciding where the spending curve flattens.