APPFOLIO INC Q3 FY2022 earnings

AppFolio grew revenue 31% in the third quarter of fiscal 2022, reaching $125.1 million from $95.8 million a year earlier. Growth is coming from a larger and busier customer base. Property management units under management rose 17% to 7.08 million from 6.04 million, and the number of property management customers rose 8% to 18,109. Value Added Services revenue grew 35% while core solutions revenue grew 26%, so payments, screening and other usage-based products are carrying more of the mix. Other revenue, which covers services outside the core platform, declined 17%. Nine-month revenue was $347.8 million, up 32% from the comparable period.

Profitability moved the other way. GAAP loss from operations was $7.8 million, or about 6% of revenue, versus GAAP break-even in the prior-year quarter. Operating margin for the quarter was -6.3%, down from -0.0% a year earlier, and the net loss was $4.16 million, or -$0.12 per diluted share, compared with a loss of $0.14 million and $0.00 per diluted share. For the nine months, the net loss was $48.4 million.

The expense lines show why. Research and product development expense increased 76% to $29.0 million, general and administrative expense increased 44% to $19.3 million, sales and marketing increased 32% to $25.6 million, and cost of revenue increased 31% to $50.7 million. Stock-based compensation rose to $10.8 million from $4.1 million. Management points to hiring and compensation, and says the evolving reward practices will keep affecting results. Non-GAAP income from operations was $4.7 million, or 4% of revenue, against $3.8 million, also 4%, a year earlier.

Cash flow held up better than earnings. Operating cash flow was $16.0 million in the quarter, up 1.3% from $15.8 million, while the nine-month figure of $19.3 million was down 27.1% from $26.5 million. Capital expenditures fell 64.3% to $0.8 million in the quarter, but rose 15% to $5.9 million over the nine months. Non-GAAP free cash flow was $11.9 million, or 10% of revenue, compared with $6.8 million, or 7%, a year earlier. Cash, cash equivalents and investment securities totaled $184.5 million at September 30, 2022. Current deferred revenue was $1.1 million, down 59.8% from a year earlier.

The outlook covers the full fiscal year 2022, not the next quarter. Full-year revenue is guided to $462 million to $466 million, with a full-year non-GAAP operating margin of a loss of 1.5% to 2.5%, and weighted average shares of roughly 35 million for the full year. AppFolio expects cost of revenue to rise as a percentage of revenue for the year, because spending with third-party providers behind Value Added Services is growing faster than total revenue. Sales and marketing and research and product development are also expected to grow as a percentage of revenue, and general and administrative expense is expected to increase as a percentage of revenue excluding the impairment charge.

Two items make comparisons noisier. The nine-month general and administrative expense of $76.3 million, up 86%, includes a $19.8 million lease-related impairment tied to office space the company decided to exit and sublease. In August 2022 AppFolio completed the sale of AppFolio Utility Management, which produced a $4.2 million gain recorded in other income, net. The prior-year quarter also carried a $1.9 million insurance recovery tied to the FTC settlement. On capital allocation, the board has authorized up to $100.0 million of Class A share repurchases, and $4.2 million has been repurchased to date. With personnel costs still climbing and the full-year non-GAAP operating margin guided to a loss, the cost structure is the pressure point to watch.