APPFOLIO INC Q1 FY2024 earnings

AppFolio's fiscal 2024 first quarter, ended March 31, 2024, delivered a sharp swing to profitability. Revenue reached $187.4 million, up 37.7% from the prior-year quarter. GAAP operating income was $34.1 million, or 18.2% of revenue, compared with an operating loss a year earlier. Net income was $38.7 million and diluted EPS was $1.05, both reversing prior-year losses. Operating margin moved from negative to positive territory. Cost discipline did much of the work. Sales and marketing expense fell 17% and general and administrative expense fell 33%, largely because the prior-year quarter carried severance costs tied to the former chief executive's separation. Research and product development expense was relatively flat.

Growth came from Value Added Services. Usage of payments, tenant screening, and risk mitigation services rose during the quarter, and that mix lifted revenue. Units under management grew 11% year over year to 8.3 million, up from 7.5 million. Property management customers increased to 19,941 from 18,834. Non-GAAP operating income was $48.2 million, or 25.7% of revenue. That non-GAAP measure strips out stock-based compensation, amortization of purchased intangibles, and other items, including a gain on lease modification in the prior-year period. The gap between GAAP and non-GAAP results is narrower than a year ago because stock-based compensation is a smaller share of revenue.

Cash generation improved markedly. Operating cash flow was $43.0 million, up from $1.6 million in the prior-year quarter, on stronger customer collections. Capital expenditures were $1.4 million, up from the prior-year quarter. Non-GAAP free cash flow was $41.0 million, compared with negative $0.4 million a year earlier, and the free cash flow margin was 21.9%. Operating cash flow and free cash flow are separate measures; the company defines free cash flow as operating cash flow less purchases of property and equipment, capitalized software development costs, and severance payments for workforce reduction. Cash, cash equivalents, and investment securities totaled $243.5 million at March 31, 2024, and the company states that this is sufficient to meet working capital and capital expenditure requirements for at least the next twelve months.

Guidance points to continued expansion for the full fiscal year. AppFolio expects full year revenue to increase compared with the year ended December 31, 2023, and it projects a full year non-GAAP operating margin of 23% to 24% plus a full year non-GAAP free cash flow margin of 21% to 23%. Diluted weighted average shares outstanding are expected to be approximately 37 million for the full year. All of these targets are for the full fiscal year, not the next quarter. The company cannot provide GAAP equivalent guidance for the non-GAAP margin measures because items such as stock-based compensation expense are uncertain, outside its control, or cannot be reasonably predicted, and the effect of those items may be significant.

Several risks temper the outlook. AppFolio leans on third-party providers to deliver many Value Added Services, and those costs vary in amount and as a percentage of revenue. Competition for talent shapes compensation practices. The company also depends on adding customers and units, plus deeper adoption of Value Added Services, to hit its full year targets. It expects cost of revenue, sales and marketing, research and product development, and general and administrative expenses to each decrease as a percentage of revenue for the full year, which places weight on operating leverage. The board has authorized repurchases of up to $100.0 million of Class A common stock, and $4.2 million has been repurchased to date. Forward-looking statements in the filing are subject to risks and uncertainties that could cause actual results to differ materially.