Erica Abrams - IR Ida Kane - CFO Brian Donahoo - President and CEO.

Analysts:.

Good day, ladies and gentlemen, and welcome to the AppFolio Incorporated First Quarter 2017 Earnings Conference Call. I would now like to introduce your host for today's conference, Ms. Erica Abrams. Ma'am, you may begin..

Thank you, James. Good morning, ladies and gentlemen. Thank you for joining us today as we report AppFolio's first quarter 2017 financial results. I'm joined today by Brian Donahoo, CEO; and Ida Kane, CFO of AppFolio to discuss results. This call is being simultaneously webcast on the Investor Relations section of our Web site at www.appfolioinc.com.

Before we get started, I would like to call everyone's attention to our Safe Harbor policy. Please note that certain statements made on this call will be forward-looking statements which are subject to considerable risks and uncertainties.

These forward-looking statements may relate to future plans and financial conditions, results of operations, business forecasts and plans, strategic plans and objectives, and product development plans.

Forward-looking statements involve numerous risks and uncertainties that may cause actual results or performance to be materially different from any results or performance expressed or implied by the forward-looking statements. We discuss risks and uncertainties in greater detail in the Risk Factors section of our filings with the SEC.

Forward-looking statements are based on assumptions as of today, and we assume no obligation to update any forward looking statements after today even if new information becomes available in the future. With that, I'll turn the call over to Ida. Ida, please go ahead..

Thanks, Erica. Welcome to AppFolio's first quarter 2017 financial results conference call. Today, I'm joined by Brian Donahoo, AppFolio's CEO. As I review our financial results today, I will refer to GAAP-based financial numbers only.

For those of you who track various non-GAAP results, our Form 10-Q, which we filed on Friday, May 5, includes financial data points that you may find helpful in calculating non-GAAP results on your own. Customer-related metrics are also included in our 10-Q filing for your reference.

Total revenue for the quarter was $32.1 million, up 38%, from $23.2 million reported one year ago. We also reported GAAP net income of $660,000 or net income of $0.02 per diluted share, compared to our year-ago loss of $3.6 million, and an $0.11 loss per share.

For those of you wanting to understand the impact of stock-based compensation on our results, included in our costs and operating expenses for the first quarter of 2017, is $1.1 million of non-cash stock-based compensation.

Our core solution revenue was $13.1 million in the first quarter, up 34% from one year ago, primarily due to a 19% increase in property management customers. Property manager units under management increased 23%, to 2.83 million units year-over-year.

We ended the quarter with approximately 10,500 property manager customers managing 2.83 million units in their portfolios. Legal customers increased 27% year-over-year, which also contributed to the growth in core solution revenue. First quarter Value+ services revenue was $17.8 million, up 45% year-over-year.

The growth in Value+ services was mainly driven by increased usage of our electronic payment platform and resident screening services by our larger customer base, with increased units under management.

We also saw strong year-over-year growth in other Value+ services, including tenant liability insurance, maintenance contact center, Web site hosting services and premium leads. We continue to derive more than 90% of our revenue from our property manager customers.

Turning to expenses, total cost and operating expenses for the first quarter increased 18% year-over-year on a GAAP basis compared to the overall 38% increase in total revenue.

We gained significant operating leverage primarily from increased revenue in our two verticals, with a more moderate increase in headcount, and through a lesser extent from improved pricing with various third-party service providers.

As we continue to grow and introduce new or enhanced Value+ services, we do expect our period [ph] cost to fluctuate from quarter-to-quarter. We ended the quarter with $52.2 million in cash, cash equivalents, and investment securities, and no debt.

We generated $3.8 million in cash from operating activities; we used $400,000 for capital expenditures during the quarter, and invested $3 million for additional product innovations via capitalized software. To recap the quarter, total revenue grew 38%, to $32.1 million, and we achieved GAAP net income of $660,000 or $0.02 per share.

At this time, we are reiterating our annual guidance for fiscal 2017, which we will continue to revisit as we progress through the year. We expect revenue from our property management and legal verticals to be in the range of $136 million to $138 million, which represents year-over-year revenue growth of 30% at the midpoint of the range.

We expect weighted average diluted shares for the full year to be approximately 35 million shares. In closing, we continue to expect that our strategic approach to create measured growth over time will deliver value to our long-term shareholders. With that, I would like to turn the call over to Brian for additional comments..

Thanks, Ida. And as you just heard from our financial results, we ended the first quarter of 2017 with positive net income on a GAAP basis for the first time in the company's history, while also growing our top line 38% year-over-year.

Our continued progress is the result of our focus on our customers, our team, and our product and technology innovation. Each quarter, we continue to leverage our AppFolio Business System or ABS playbook, which is our approach to addressing similar business needs across different verticals.

Today, our playbook enables us to systematize and scale our product development processes, marketing, sales and customer interactions across our different verticals. ABS is at the core of our business.

In our property management vertical in the first quarter, we increased total customer accounts and expanded units under management, reflecting our ongoing strategy to attract and better serve larger SMB customers.

We maintained our steady pace of product innovation releasing enhancements that improve the mobile experience for maintenance technicians who work in the field, streamlining their workflow so they can accomplish tasks faster.

Faster response and completion of maintenance work has a direct impact on resident satisfaction, which is important to our customers. We also continue to enhance email and texting feature sets that allow customers to efficiently communicate with their resident and furthers the value of AppFolio Property Manager as the system of engagement.

Today, our customers typically manage a mix portfolio of property types including residential, commercial, and HOA. Our team is always looking for ways to get even closer to customers in order to better understand their daily workflows.

Recently, several engineers spent time in Austin, Texas working alongside our commercial property manager; these engineers indentified new opportunities for feature [ph] enhancements that were quickly released.

We believe that bringing our engineers close to customers allows us to have an even faster impact on improving the experience with AppFolio Property Manager. Turning to our progress in the legal vertical, small and solo practitioners continue to adopt MyCase.

In the first quarter, we released several enhancements to our client portal, which is a vehicle through which attorneys engage and securely communicate online with their clients.

One of MyCase customer recently commented, "The client portal cuts down on the amount of phone calls I received, and this is how I keep my billing rates competitive." In short, our system of record and system of engagement are key drivers for attorneys to improve their efficiency, increase billable hours, and drive total cost down.

The MyCase team also released new enhancements to drive continued growth and adoption of the MyCase Payments Value+ Service, including making the entire payments process mobile-friendly.

As part of our mobile strategy in 2017, we unveiled the new MyCase mobile app at the ABA Tech Show in March, using its early release as an opportunity to gain valuable feedback from customers. In Q1, the South Coast Business & Technology Awards recognized AppFolio as the 2017 Company of the Year.

We are honored to receive this award as it not only highlights the great innovative product we develop for our customers, but it's also a testament to our commitment to our local community. And in summary, we posted a strong quarter marking a good start to 2017.

As we move along in the year, we will remain focused on our long-term objectives of building a sustainable business that delivers value for customers, employees, and shareholders. That concludes our call for today. Thanks for joining us. We invite you to submit your question to ir@appfolio.com or through our IR Web site and expect to respond regularly.

And now, I will turn the call back over to James..

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation. If you would like to listen to a replay of today's conference, the number is 855-859-2056 with a pass code of 14582305. Once again, the number is 855-859-2056 with a pass code of 14582305.

Once again, thank you very much for your participation. You may all disconnect. Have a wonderful day..

End of Q&A:.