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

Analysts:.

Good afternoon. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the AppFolio, Inc. Announces First Quarter 2018 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions]. Thank you.

Erica Abrams, you may begin your conference..

Thank you, Cheryl. Good afternoon, ladies and gentlemen. Thank you for joining us today as we report AppFolio's first quarter of fiscal year 2018 financial results. I'm joined today by Jason Randall and Ida Kane of AppFolio to discuss these 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. Ida, please go ahead..

Thanks, Erica, and welcome to everyone joining us on the call today for AppFolio's first quarter 2018 financial results.

We started 2018 strong with first quarter revenue of $42.3 million, a 32% increase year-over-year, and GAAP net income of $4.3 million or $0.12 per diluted share compared to GAAP net income of approximately $700,000 reported one year ago. Included in first quarter results 2018 is $1.3 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 today and includes more detailed financial data points that you might find helpful in calculating non-GAAP results on your own.

In addition, as discussed during our year-end call, we adopted the new revenue recognition standard ASC 606, on January 1st, 2018, using the modified retrospective method.

With the deferral of certain sales commissions, and incremental cost, operating expenses and thus net income were positively impacted by $1.3 million or $0.04 per share in the first quarter. Our Form 10-Q provides a reconciliation of the impact of the adoption of ASC 606 on the first quarter financial results.

Core solution revenue was $16.2 million in the first quarter, up 24% from one year ago; primarily due to a 15% increase in the number of property manager customers combined with 20% more property manager units under management.

In that regard we ended the first quarter with approximately 12,000 property manager customers managing an aggregate 3.4 million units in their portfolios, compared to approximately 10,500 customers and 2.83 million units under management one year ago and the legal vertical customer count increased 12% year-over-year to approximately 9,700.

First quarter Value + services revenue was $24.6 million, up 39% year-over-year. Although each of the Value + services increased, the majority of our related growth was derived from increased usage of electronic payments and screening services by a larger property manager base of customers and units.

During the first quarter we also expanded our Value + insurance services offering with the introduction of a Renters Insurance product made directly to tenants. We now have the option to purchase this product directly through the AppFolio property manager Tenant Portal.

The commission revenue associated with our Renters Insurance services offering will be reflected in our income statement in the period tenants purchase their policies. In addition, as Jason will discuss in a moment, we expanded our applicant screening offering and added a decisioning tool for our property manager.

Turning to expenses, total cost and operating expenses for the first quarter increased 21% year-over-year on a GAAP basis compared to an overall 32% increase in total revenue.

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

As we continue to grow and introduce new or enhanced Value + services, we expect that our cost and operating expenses will fluctuate from quarter-to-quarter especially as we evaluate additional investments to expand into adjacent markets or new vertical markets over time.

Moving to the balance sheet, we closed the first quarter with $67.8 million in cash, cash equivalents, and investment securities and no debt. During the first quarter, we generated $3.3 million in cash and operating activities.

We used approximately $300,000 for capital expenditures during the quarter and invested $2.9 million in additional product innovation via capitalized software. To recap the quarter, total revenue increased 32% year-over-year to $42.3 million and GAAP net income improved to $4.3 million or $0.12 per diluted share.

We are pleased with our first quarter results, which reflects our continued focus on meeting customer needs and represent a strong start to 2018.

With respect to the guidance we previously provided, we continue to expect to generate revenue of $179 million to $182 million in fiscal 2018 and expect our weighted average diluted shares for the full-year to be approximately $36 million. With that, I’ll turn the call over to Jason for some additional comments..

Thanks, Ida. Hello and thank you for joining us today as we report our first quarter results. We continue on our mission to revolutionize vertical industry businesses by providing great cloud-based business management software and services to our customers.

Our success to-date results from our continued focus on delivering value to our customers while maintaining a rapid pace of product innovation and a steadfast focus on our team and culture.

We remain committed to our long-term strategy of sustainable growth as well as finding leverage in our existing business and opportunities to invest back into the business for future growth.

In our real estate vertical which represents a significant majority of our revenue to-date, we continue to see an increase in new and net new unit under management per customer.

We also maintained our pace of product innovation to better serve property managers in the Residential, Commercial, Student Housing, and Community Association segments who have larger performers in the more complex businesses as well as a need for increased mobility. This remains a priority for our business.

To that end, we expanded key product functionality designed for larger community association management portfolios including association rules and regulations tracking, payables enhancements, lockbox integrations, and violation and maintenance workflows. These advancements improve efficiency, risk mitigation, and more communication for our customers.

The team also continued to improve the CAM reconciliation experience for larger commercial portfolios further streamlining this often challenging task.

During the first quarter, we also expanded our screening offering to add a decisioning tool that allows property managers to define specific criteria directly in AppFolio property manager and receive a calculated preliminary screening recommendation. Customers benefit from increased efficiency, decreased risk, and improved compliance.

In line with our strong commitment to helping our customers succeed, we are planning our sixth AppFolio Property Manager Customer Conference which will be held in September, here in Santa Barbara. As a reminder, this is our Annual Conference that brings customers together to network, learn, and deliver hands on experiences with our software and team.

We believe that one of our competitive advantages is staying close to our customers, which in turn contributes to our great company culture. We’re looking forward to spending time with our customers helping them get even more value from our software and service.

Moving now to our software that serves a legal vertical, we also continue to enhance the functionality of MyCase. This quarter we added features that deliver increased flexibility for customers to send and receive payments for their services, which results in an incremental adoption of our Value + payments offering.

In closing, we are pleased with the momentum we built so far this year and remain focused on executing against our long-term strategy and continuing to delight our growing base of customers. Thank you all for joining us today. I will now turn the call back to the operator. Please go ahead..

Thank you for your participating in today's call. If you would like to submit a question, you may request by emailing ir@appfolio.com. A replay for this conference will be available at 4:30 P.M. Pacific Time at 1 (800) 585-8367. This concludes today's conference call. You may now disconnect..