Erica Abrams – Investor Relations Ida Kane – Chief Financial Officer Jason Randall – President and Chief Executive Officer.

Analysts:.

Good afternoon. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the AppFolio Fourth Quarter and Fiscal Year 2017 Results Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] Thank you. Mr. Erica Abrams, you may begin your conference..

Thank you, Chris. Good afternoon, ladies and gentlemen. Thank you for joining us today as we report AppFolio's fourth quarter and fiscal year 2017 financial results. I'm joined today by Jason Randall and Ida Kane of AppFolio to discuss results.

This call is being simultaneously 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 Factor sections 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. Please go ahead..

Thanks, Erica, and welcome to everyone joining us on the call today for AppFolio's fourth quarter and fiscal year 2017 financial results.

We finished 2017 strong with full year revenue of $143.8 million, a 36% increase year-over-year, and full year GAAP net income of $9.7 million, or $0.28 per diluted shared, compared to a net loss of $8.3 million reported one year ago. Included in our full year results is $6.1 million of non-cash charges related to stock-based compensation.

For those of you who track non-GAAP results, our Form 10-Q will be filed later today and includes more detailed financial data points that you may find helpful in calculating non-GAAP results on your own. Turning to our fourth quarter, we reported total revenue of $37.9 million, which represents year-over-year increase of 35%.

We’ve reported GAAP net income of $2.6 million, or $0.07 per diluted share, compared to a net loss of $1.3 million, or $0.04 per share reported one year ago. Included in fourth quarter financial results are $1.8 million of non-cash charges related to stock-based compensation.

Core solution revenue was $15.5 million in the fourth quarter, up 27% from one year ago, primarily due to a 17% increase in the number of property manager customers combined with 21% higher property manager units under management.

We ended the quarter with approximately 11,700 property manager customers managing in aggregate 3.25 million units in their portfolios, up from approximately 10,000 customers and 2.68 million units under management one year ago and the legal vertical customer count increased 15% year-over-year to approximately 9,350.

Fourth quarter Value + services revenue was $20.8 million, up 42% year-over-year. Although each of the value-added services increased, the majority of the growth was derived from increased usage of electronic payments and screening services by a larger property manager base of customers and units. Turning to expenses.

Total cost and operating expenses for the fourth quarter increased 21% year-over-year on a GAAP basis compared to an overall 35% increase in total revenue.

The improved operating leverage was driven by our ability to increase revenue coupled with a more moderate increase in headcount and to a lesser extent from improved pricing from various third-party service providers related to Value + services.

We intend to continue to invest back into the business with the operating leverage we have gained as we continue to focus on attracting and servicing larger customers in the property manager market. Further, we may make additional investments to expand into adjacent markets on new vertical markets over time.

Moving to the balance sheet, we closed the fourth quarter with $68.3 million in cash, cash equivalents and investment securities and no debt. During the fourth quarter, we generated $7.8 million in cash from operating activities.

We used approximately $500,000 for capital expenditures during the quarter and invested $2.4 million in additional product innovations via capitalized software. To recap the quarter, total revenue for 2017 was a $143.8 million, representing 36% growth year-over-year and GAAP net income was $9.7 million, or $0.28 per diluted share.

We are pleased with our results and continue to focus on our customers needs as we look forward. Turning to guidance, on January 1, 2018, we adopted the new revenue recognition standard, ASC 606, using the modified retrospective method and do not expect the impact on 2018 revenues to be material.

With that said, the primary impact will be a change in the timing of when we recognize certain sales commissions and other incremental costs to obtain new sales contracts. Historically, we recognize these expenses in the quarter they were incurred. Going forward, these costs will be deferred and expensed over a three year period.

We provided additional information about the adoption of ASC 606 in the Form 10-K that will be filed with the SEC today. We currently expect full year revenue for fiscal 2018 to be in the range of $179 million to $182 million, which represents year-over-year growth of 26% at the mid-point of the range.

We expect weighted average diluted shares for the full year to be approximately $36 million. We invite you to submit your questions via our Investor Relations website at www.appfolioinc.com under the Investor Relations tab. With that, I'll turn the call over to Jason for some additional comments..

Thanks, Ida. Our financial results in 2017 reflects our continued dual focus on gaining operating leverage in our existing business and reinvesting back into the business for future growth.

We attribute our progress in that regard not only to our emphasis on delighting our customers, but also to our consistent pace of product and technology innovation and our unwavering dedication to our talented and engaged team.

AppFolio remains committed to mission of revolutionizing vertical industry businesses by providing great cloud-based business management software and services. As you know from our public filings in previous calls, the vast majority of our revenue to date is derived from our AppFolio property manager products and services.

In that regard, we have attracted new customers with expanded units under management by evolving our software and service offerings.

Over the past year, we have invested in our APM products and services with an increased focus on better serving customers managing larger portfolios and as a result have grown net new units under management per customer. We are pleased with our success to date and expect to continue these efforts into the future.

Our growth strategy in property management includes among other things capturing a broader set of customers with each of the sub-markets we serve. Today, those are residential, commercial, student housing and community associations.

To further our growth, we intend to continue to introduce new Value + services to our existing customers in expanding to additional adjacent markets. In the last quarter of 2017, we made enhancements to our core APM solution including new features and functionality in our web-based owner portal used for engagement with property owners.

We further invested in our mobile capabilities and made enhancements to our electronic payment services to drive increased adoption. We also expanded the feature set for our community association customers including the ability to manage board approval, assess buying and track architectural changes.

For our commercial clients, we added functionality to our CAM reconciliation features to better meet their needs. Listening to our customers is one of our core values and we intend to continue to invest behind customer feedback to expand our products and services.

We have also further invested in our products and services in the legal vertical to help solo and law firm customers to drive productivity in their businesses with enhancements to our mobile application and improvements to payments functionality designed to increase adoption and ease of use.

As we look ahead, our company culture remains a key area of focus. We know that engaged and happy employees deliver outstanding customer experiences. Our team is at the very core of our success and we believe our culture along with our values will continue to provide us with a competitive advantage.

Going forward, we remain focused on long-term sustainable growth while continuing to serve our happy and growing base of customers. Thank you all for joining us. That concludes our call for today. And with that I will turn the call back to the operator. Please go ahead..

Thank you. A replay will be made available after today’s conference about 2 hours after. You can access it by dialing 800-585-8367 and enter conference ID 1675569. This concludes today's conference call and you may now disconnect..

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