Thank you. Good afternoon, everyone. I'm Lori Barker, Investor Relations for AppFolio, and I'd like to thank you for joining us today as we report AppFolio's First Quarter 2024 Financial Results. With me on the call today are Shane Trigg, AppFolio's President and CEO; and Fay Sien Goon, AppFolio's Chief Financial Officer. This call is being simultaneously webcast on the Investor Relations section of our website at appfolioinc.com. Before we get started, I would like to remind everyone of AppFolio's safe harbor policy. Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Any statement that refers to expectations, projections or other characterizations of future events, including financial projections, future market conditions or future product enhancements or development is a forward-looking statement. AppFolio's actual future results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in our SEC filings. AppFolio assumes no obligation to update any such forward-looking statements, except as required by law. For greater detail about risks and uncertainties, please see our SEC filings, including our Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 1, 2024. In addition, this call includes non-GAAP financial measures. Reconciliations of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our third quarter earnings release posted on the Investor Relations section of our website. With that, I will now turn the call over to Shane Trigg. Shane, please go ahead.
Thanks, Lori, and welcome to everyone joining us for AppFolio's First Quarter 2024 Financial Results. I am pleased to report that revenue was up 38% year-over-year to $187 million in the first quarter. Increases in units and customers, along with upgrades and further adoption of value-added services drove revenue growth. At the same time, we improved our margins, driving non-GAAP operating margin to 26% and non-GAAP free cash flow margin to 22%. AppFolio's first quarter results underscore our ongoing commitment to industry-leading innovation and exceptional service that drives the adoption of our products and services. To that end, I want to highlight progress across the five components of our strategy, the first being how we differentiate to win. Innovation is a source of AppFolio's differentiation, inspiring customers to choose and grow with us. The strength of our platform lies in its ability to propel our customers into the future in ways they couldn't achieve on their own. We continue to leverage our head start and AI to differentiate ourselves and win new customers, focusing on the highest value priorities that deliver efficient growth for them. Brad Hargreaves, a real estate entrepreneur and editor of the popular publication Thesis Driven, recently had this to say: 'AppFolio is the most forward-thinking among all the major property management systems when it comes to integrating AI.' One way we're leveraging AI is to more effortlessly onboard new customers. Across the industry, onboarding is a time-intensive manual process that can bog down owners and property managers and dissuade them from switching technology providers. In order for us to win in the market, we need to make it easy for customers to migrate to our platform and quickly achieve value from our products and services. By investing in onboarding, including harnessing the power of AI, we've been able to remove much of the friction from this process and reduce the time it takes new customers to get up and running. We've begun offering a product-led onboarding experience to new customers, enabling them to add the financial information and other foundational data they need to run their business on AppFolio easily and at their own pace. Customers win by quickly achieving success on our platform. In fact, these customers are completing their data migrations on average, 22% faster than before, while still enjoying a great customer experience. According to one of these customers, Antonio Buchanan, owner of NextGen Premier Management, 'AppFolio excels in providing a superb onboarding experience. The process is structured, informative and fosters a strong sense of belonging. It offers clear resources, mentorship and open communication, ensuring new users are well prepared to start using AppFolio.' As we continue to apply AI and other onboarding innovations more broadly to our customers, we simultaneously free up our team to focus on solving higher-value customer challenges. The second component of our strategy is to unlock upmarket customers. We've seen rapid adoption of the newest tier in our product lineup, AppFolio Property Manager Max, since its launch at the beginning of 2024. This plan, designed for large operators with complex and diversified property portfolios, has been well-received and adopted by both new and existing customers, accelerating AppFolio's ability to scale with our growing customer base. One of those customers is Atlas Real Estate, with 6,500 multifamily, single-family, and commercial units across eight states. For Atlas, there were two crucial factors in their decision to upgrade to Max. The first was the ability to easily configure the data structure, allowing their team to capture, track, and report on any information they need with user-defined fields. The second factor was full access to their database via API because, for Atlas, having historical data to enable tracking performance over time is crucial. According to Tony Julianelle, CEO of Atlas Real Estate, 'One of the most important things we've done over the last few years is integrating our data warehouse with AppFolio to aggregate the data we need that's in one spot and can be visualized the way our clients need it. It started with a report builder tool. It has moved to database API with an AppFolio Property Manager Max. The opportunity to have a two-way API is going to be revolutionary for our business.' Another success story is Riedman Companies, based in Rochester, New York, with 4,000 single-family and multifamily units. For Riedman, upgrading to the Max plan allows their team to feel like they can operate at the top of their skill sets, enabling them to reach their goals faster and future-proof their business. According to Alec Riedman, Director of Property Management, 'We believe that the Max plan is a new frontier when it comes to what AppFolio is looking to unlock and we want to have exposure to those things. For larger property management organizations that may have the misconception that AppFolio is for smaller businesses, I would certainly point to the innovation that AppFolio employs and their ability to scale your operation.' Ultimately, companies like Atlas and Riedman are choosing Max for its flexibility and extensibility to power their growth. Through our multi-tier product lineup, we create instant upgrade paths, so our customers grow and we have the offerings to grow with them. The third component of our strategy is to elevate our customer by driving their adoption and success on our platform. It's easier than ever before for our customers to receive timely support on AppFolio. Our service goal is for every interaction to feel easy, accessible, and trusted. Our commitment to excellence in this area now extends to differentiated support with channel options that match our customers' individual needs. For our larger customers, this includes dedicated account management, giving property managers access to experts responsible for understanding their unique goals, expedited support responses, and customized training. Donna Smith, President of Enclave Property Management with a mixed portfolio of multifamily, commercial, and industrial units on AppFolio Property Manager Max, recently shared with us, 'We signed up with AppFolio 10 years ago. We had 48 units, but we knew we were going to 4,500 units in 10 years. And that's why we went with AppFolio because their culture, their service, and their goals for growth aligned with our values.' Thanks to our investments in both human and digital touch points, including AI-driven self-service, 93% of customers report high satisfaction with our client services. We are achieving remarkable service outcomes. The fourth component of our strategy is to scale the business. As we look to transform our customers' businesses, AppFolio needs to lead by example. Forward-looking digital transformation builds the infrastructure required for an efficient, nimble organization that can respond to customer demands today and power the future of the real estate industry. This past quarter, we made progress in modernizing many of AppFolio's internal technologies and systems, including integrating AI into how our teams innovate, collaborate, and go to market. This is an important component in achieving our strategy to scale a safe and sustainable business that our customers value and trust. The final component of our strategy is great people and culture. Since our last call, AppFolio was recertified as a Great Place To Work for the seventh time. Part of what makes AppFolio a Great Place To Work is our ability to recognize AppFolians who deliver meaningful work and drive results for our customers and our business. I am delighted to announce that Chris Womack, previously Senior Vice President of AppFolio's FolioGuard, payments, and screening businesses has been promoted to Chief Growth Officer. In this expanded role, Chris will continue to lead our value-added services as well as unlock future growth with new initiatives focused on the resident experience, which is an industry segment we're excited to be investing in. Through industry-leading innovation and exceptional service, AppFolio is paving the way to power an entire industry. We will continue to leverage our expertise and customer networks to increase our innovation velocity, drive profitable growth, and enhance the lives of the customers and communities we serve. I'll now turn the call over to Fay Sien for more details on AppFolio's first quarter financial results.
Thank you, Shane. We are pleased with our continued strong growth in revenue and increase in profitability. The financial results reflect the execution of our strategy focused on delivering profitable growth. In the first quarter, we delivered revenue of $187 million, growing 38% year-over-year. Non-GAAP operating margin expanded to 25.7% from negative 1.6% last year and we generated a free cash flow margin of 21.9% compared to negative 0.3% in the same period of last year. At the end of the quarter, we managed approximately 8.3 million units from 19,941 customers compared to 7.5 million units from 18,834 customers a year earlier, representing a 6% increase in customers and an 11% increase in ending units. As Shane discussed, property managers are improving their operational efficiency through greater use and adoption of our value-added services, such as FolioGuard, payments, and screening. First quarter revenue from value-added services grew 47% year-over-year to $142 million and growth primarily resulted from our decision to stop waiving our eCheck fees and higher resident adoption of online payments as transaction volume and card usage increased. Turning to spending. We exited the quarter with 1,497 employees, which is down slightly from the prior quarter. On a sequential basis, we strategically added headcount in key growth areas to better enable us to deliver innovation and unlock upmarket customers. Meanwhile, we optimized our workforce in other parts of the business to streamline processes and enhance the customer experience. Cost of revenue, exclusive of depreciation and amortization was 34% of total revenue compared to 41% in the first quarter of last year. The decrease was primarily due to eCheck fees and internal operational improvements. As a percentage of revenue, combined sales and marketing, R&D, and G&A, 12% to 38% from 56% in the same period of last year due to growth in revenue and a collective focus on operational efficiency. Sales and marketing expenses as a percentage of revenue decreased from 20% in the first quarter of last year to 12% this quarter. On a sequential basis, we strategically increased our investment in sales and marketing initiatives to better enable us to win our market. By optimizing operations and maintaining discipline in our investments, we improved R&D expenses as a percentage of revenue from 24% in the same quarter of last year to 17% this quarter. Our G&A expenses as a percentage of revenue decreased from 13% in the same quarter of last year to 8% this quarter. Overall, non-GAAP operating margin grew to 25.7% compared to negative 1.6% in the same quarter of last year. Free cash flow margin this quarter was 21.9% compared to negative 0.3% in the same quarter of last year. We are raising our projected full-year revenue guidance to $766 million to $774 million, which implies an annual growth rate of 24% based on the midpoint outreach. Our updated guidance reflects our expectations for continued customer upgrades to premium product tiers and growing usage and adoption of our value-added services. Our guidance also factors in a modest increase in card adoption and reduced transaction fees associated with card-based payments. Cost of revenue, exclusive of depreciation and amortization, is expected to decrease slightly from prior year as a percentage of revenue due to eCheck fees, product mix, and operational efficiencies. We are raising our guidance for the full-year non-GAAP operating margin to 23% to 24% and raising our guidance on our free cash flow margin to 21% to 23%. This reflects our planned investment in high priority initiatives that enable us to achieve our strategic objectives. Diluted weighted average shares outstanding are expected to be approximately 37 million shares for the full year. Our first quarter was a good kickoff to 2024 with strong growth in revenue and profitability. All while we continue our industry-leading innovation and exceptional service. We are delivering on our long-term strategy of acquiring and retaining happy customers and driving growth in units, revenue, and profits. Thank you all for joining us today. We look forward to seeing you soon.
