Erica Abrams - IR Ida Kane - CFO Jason Randall - President and CEO.

Analysts:.

Good afternoon, my name is Mike, and I'll be your conference operator today. At this time, I would like to welcome everyone to at AppFolio Inc., announces Third Quarter 2017 Financial Results. All lines have been placed on mute to prevent any background noise. [Operator Instructions] I will now turn the call over Erica Abrams.

You may begin your conference..

Thank you, Mike. Good afternoon, ladies and gentlemen. Thank you for joining us today as we report AppFolio's third quarter 2017 financial results. I'm joined today by Jason Randall, President and CEO, and Ida Kane, CFO of AppFolio to discuss results.

This call is simultaneously being webcast on the Investor Relations section of our website 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 third quarter 2017 financial results conference call. As you know from our press release today, we reported total revenue of $37.9 million for the quarter which represents a year-over-year increase of 35% and also saw continued gains in operating leverage.

We reported GAAP net income of $3.7 million or $0.10 per diluted share compared to a loss of $1.1 million or $0.03 per share reported in the same quarter one year ago. Included in our third quarter financial results as a reminder is $1.6 million of non-cash charges related to stock-based compensation.

For those of you who track non-GAAP results, our Form 10-Q which will be filed later today also include more detailed 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 filings for you reference.

Our core solution revenue was $14.7 million in the third quarter, up 30% from one year ago primarily due to a 17% increase in the number of property manager customers. Property manager units under management also increased by 22%, versus the prior year, to nearly 3.1 million units.

We ended the quarter with approximately 11,250 property manager customers. In our legal vertical, customer count increased 18% year-over-year to over 9,200, which also contributed to the growth in the core solution revenue. Third quarter value plus services revenue was $21.8 million, up 39% year-over-year.

This strong growth in value plus services was mainly driven by increased usage of our electronic payments platform and screening services by a larger property manager customer base and an increase in units under management of 22%.

We also experienced growth in our other value plus services including tenant liability insurance, maintenance contact center, website hosting services and premium lease services. We continue to derive more than 90% of our revenue from property manager customers.

Turning to expenses, total cost and operating expenses for the third quarter increased 17% year-over-year on a GAAP basis, compared to the overall 35% increase in total revenue.

We gained significant operating leverage over the last year, primarily from increased revenue with a more increase in headcount and to a lesser extent from improved pricing from various third party service providers related to our value plus services revenue.

We expect to continue to invest in our business for the long-term best interest of the company. And this may result in increased expenses in a particular quarter or quarters, which may not result in revenue until subsequent periods. We closed the third quarter with $63.6 million in cash, cash equivalents and investment securities and no debt.

During the third quarter, we generated $9.7 million in cash from operating activities. We used approximately $800,000 for capital expenditures during the quarter and invested $2.8 million for additional product innovations via capitalized software.

As a reminder, we experienced seasonality in the property management business during the fourth quarter of the calendar year. In prior years we have noted that there is a tendency for fewer people to move during this quarter, resulting in less screening revenue and less payment revenue attributable to the rental applications of new tenants.

We expect this seasonality to continue to exist this year. To recap the quarter, we reported strong revenue growth of 35% or $37.9 million. We achieved GAAP net income of $3.7 million or $0.10 per share.

Given our performance to-date, we are raising our revenue outlook for the full year 2017 to range of $140 million to $141 million, which represents year-over-year growth of 33% at the midpoint of the range. We expect weighted average diluted shares for the full year to remain at approximately 35 million shares.

We invite you to submit your IR related questions via our Investor Relations website. With that, I’ll turn the call over to Jason for additional comments..

Thanks, Ida. As you heard from our financial results, we continue to build on our long-term strategy of sustainable growth, finding leverage and efficiency across our business as both opportunities to reinvest back into the business for future growth.

We remained focused on our customer success, product and technology innovations and our talented and committed team. As a reminder our growth strategy is to provide valuable cloud based business management software to customer within legal protocol market we serve today, property management and legal.

Reflecting on the past quarter’s accomplishments towards our long-term goal, we spend time in person with our customers at our 5th Annual AppFolio Property Manager Conference. We also continue to develop new offerings and features, reflecting the commitment from all AppFolio to deliver value to our customers.

We hosted over 800 customers at our conference in Santa Barbara in September, where our team led three days of industry and technology education, networking and hands on experiences, all with the ultimate goal of helping our customers successfully grow and management their businesses and make the most of their investment in our software.

Each year we feel this event is the best yet, but this year it truly was. Watching our team in action and listening to customer feedback reinforces the value our software and service delivers to our customer. It’s clear that our customers consider us their partner to the future and I am very proud of that.

During the quarter, we announced the new value plus service, Renters Insurance, which expands in our existing tenant liability insurance offering and provides coverage for a tenant’s personal belonging.

We also enhanced the electronic payments value plus service offering with the addition of same day ACH payments for owner contribution, as well as announced an upcoming integration with Alexa Amazon’s cloud based voice service.

We continue to expand on our features designed for larger mix portfolios, we made improvements to the web based owner portal, used for engagement with property owners and incorporated the ability to schedule a property showing right firm within AppFolio Property Manager.

One year after announcing two way texting, we continue to see increased usage of our texting features. These enhancements and the strong customer adoption in usage of these features further our strategy as an all in one software solution that enables seamless engagement within the ecosystem we serve.

In the third quarter we also continue to enhance the functionality of our software serving the legal vertical, with the release of features that drive productivity and efficiency for attorneys such as the ability to build clients in batches, both management of task and cases and improvements to event and document management.

Our company culture continues to be an important area of focus for all of us and I am consistently impressed with our drive of our team has to serve our communities and customers.

During the quarter our employees came together with fund raising and volunteer activities to help those affected by the recent natural disasters since, as well as our annual all company get back event. What’s most impressive to me is that all of these activities are employee driven, providing a great example of our culture in action.

In closing, we remain confident in our strategic approach and business plans to deliver long-term shareholder value, while delighting our customers with technology and services that enable growth in their businesses. Thank you for joining us. That concludes our call for today. And with that I’ll turn the call back to the operator. Please go ahead..

Thank you for joining today’s call. To access the replay, call toll free at 855-859-2056 or internationally at 404-537-3406 and enter the conference ID number, 97-17-81-63. This call will be available for replay starting two hours after the conclusion of the call, until November 8, 2017 at 8:59 PM, Pacific Time. This concludes today’s conference call.

You may now disconnect..

End of Q&A:.