AppFolio, Inc. Announces Fourth Quarter and Fiscal Year 2023 Financial Results
Press Releases

AppFolio, Inc. Announces Fourth Quarter and Fiscal Year 2023 Financial Results

SANTA BARBARA, Calif., Jan. 25, 2024 (GLOBE NEWSWIRE) — AppFolio, Inc. (NASDAQ: APPF) ("AppFolio" or the "Company"), a technology leader powering the future of the real estate industry, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2023.

"I am pleased to announce a successful fourth quarter that caps off a year in which AppFolio increased the pace of innovation while prioritizing profitable growth," said Shane Trigg, President and CEO, AppFolio. "Through our disciplined investments, relentless focus on our customers, passion to deliver industry-leading innovation, and great people and culture, we are truly building the platform where the real estate industry comes to do business."

Financial Highlights for Fourth Quarter of 2023

  • Revenue grew 39% year-over-year to $171.8 million.
  • Total units under management grew 13% year-over-year to 8.2 million.
  • GAAP operating income was $28.2 million, or 16.4% of revenue, compared to an operating loss of ($20.0 million), or (16.1%) of revenue, in Q4 2022.
  • Non-GAAP operating income was $41.8 million, or 24.3% of revenue, compared to an operating loss of ($3.4 million), or (2.7%) of revenue, in Q4 2022.
  • Non-GAAP free cash flow was $34.3 million, or 19.9% of revenue, compared to $1.3 million, or 1.0% of revenue, in Q4 2022.

Financial Highlights for Fiscal Year 2023

  • Revenue grew 31% year-over-year to $620.4 million.
  • GAAP operating income was $1.0 million, or 0.2% of revenue, compared to an operating loss of ($72.4 million), or (15.3%) of revenue, in fiscal year 2022.
  • Non-GAAP operating income was $75.8 million, or 12.2% of revenue, compared to an operating loss of ($2.7 million), or (0.6%) of revenue, in fiscal year 2022.
  • Non-GAAP free cash flow was $73.6 million, or 11.9% of revenue, compared to $4.1 million, or 0.9% of revenue in fiscal year 2022.

Financial Outlook
Based on information available as of January 25, 2024, AppFolio’s outlook for fiscal year 2024 follows:

  • Full year revenue is expected to be $755 million to $765 million.
  • Full year non-GAAP operating margin as a percentage of revenue is expected to be 21% to 23%.
  • Full year non-GAAP free cash flow margin as a percentage of revenue is expected to be 17% to 19%.
  • Diluted weighted average shares outstanding are expected to be approximately 37 million for the full year.

Conference Call Information
As previously announced, the Company will host a conference call today, January 25, 2024, at 2:00 p.m. Pacific Time (PT), 5:00 p.m. Eastern Time (ET), to discuss the company’s fourth quarter and year ended 2023 financial results. A live webcast of the call will be available at: https://edge.media-server.com/mmc/p/s8eddhkz. To access the call by phone, please go to the following link: https://register.vevent.com/register/BIec41f32791a04dabac50dd68f4303504, and you will be provided with dial in details. A replay of the webcast will also be available for a limited time on AppFolio’s Investor Relations website at https://ir.appfolioinc.com/news-events/events.

The Company also provides announcements regarding its financial results and other matters, including SEC filings, investor events, and press releases, on its Investor Relations website at https://ir.appfolioinc.com/, as a means of disclosing material nonpublic information and for complying with AppFolio’s disclosure obligations under Regulation FD.

About AppFolio, Inc.
AppFolio is a technology leader powering the future of the real estate industry. Our innovative platform and trusted partnership enable our customers to connect communities, increase operational efficiency, and grow their business. For more information about AppFolio, visit ir.appfolioinc.com.

Investor Relations Contact:
Lori Barker
ir@appfolio.com

Use of Non-GAAP Financial Measures
Reconciliations of non-GAAP financial measures to AppFolio’s financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled “Statement Regarding the Use of Non-GAAP Financial Measures.”

Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements are subject to considerable risks and uncertainties. Forward-looking statements include all statements that are not statements of historical fact contained in this press release, and can be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those expressions. In particular, forward-looking statements contained in this press release relate to future operating results and financial position, including the Company’s fiscal year 2024 financial outlook, anticipated future expenses and investments, the Company’s business opportunities, and the impact of the Company’s strategic actions and initiatives.

Forward-looking statements represent AppFolio’s current beliefs and assumptions based on information currently available. Forward-looking statements involve numerous known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Some of the risks and uncertainties that may cause the Company’s actual results to materially differ from those expressed or implied by these forward-looking statements are described in our Form 10-Q for the quarter ended September 30, 2023 filed with the SEC on October 27, 2023 and the section entitled “Risk Factors” in AppFolio’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 to be filed with the SEC, as well as in the Company’s other filings with the SEC. You should read this press release with the understanding that the Company’s actual future results may be materially different from the results expressed or implied by these forward-looking statements.

Except as required by applicable law or the rules of the NASDAQ Global Market, AppFolio assumes no obligation to update any forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)

    December 31,
2023
  December 31,
2022
Assets        
Current assets        
Cash and cash equivalents   $ 49,509   $ 70,769
Investment securities—current     162,196     89,297
Accounts receivable, net     20,709     16,503
Prepaid expenses and other current assets     39,943     24,899
Total current assets     272,357     201,468
Investment securities—noncurrent         25,161
Property and equipment, net     28,362     26,110
Operating lease right-of-use assets     19,285     23,485
Capitalized software development costs, net     21,562     35,315
Goodwill     56,060     56,060
Intangible assets, net     2,357     4,833
Other long-term assets     8,906     8,785
Total assets   $ 408,889   $ 381,217
Liabilities and Stockholders’ Equity        
Current liabilities        
Accounts payable   $ 1,141   $ 2,473
Accrued employee expenses     35,567     34,376
Accrued expenses     21,723     15,601
Other current liabilities     11,335     8,893
Total current liabilities     69,766     61,343
Operating lease liabilities     41,114     50,237
Other liabilities     697     4,091
Stockholders’ equity     297,312     265,546
Total liabilities and stockholders’ equity   $ 408,889   $ 381,217


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)
(in thousands, except per share amounts)

  Three Months Ended
December 31,
  Twelve Months Ended
December 31,
   2023    2022     2023    2022 
Revenue(1) $ 171,830   $ 124,058     $ 620,445   $ 471,883  
Costs and operating expenses:              
Cost of revenue (exclusive of depreciation and amortization)(2)   61,275     50,342       238,076     191,826  
Sales and marketing(2)   21,501     29,840       107,602     107,398  
Research and product development(2)   34,847     31,152       151,364     111,118  
General and administrative(2)   19,035     24,534       93,452     100,792  
Depreciation and amortization   6,933     8,142       28,988     33,119  
Total costs and operating expenses   143,591     144,010       619,482     544,253  
Income (loss) from operations   28,239     (19,952 )     963     (72,370 )
Other income (loss), net   286     213       3     4,469  
Interest income, net   2,404     552       7,031     1,184  
Income (loss) before provision for income taxes   30,929     (19,187 )     7,997     (66,717 )
Provision for income taxes   661     513       5,295     1,402  
Net income (loss) $ 30,268   $ (19,700 )   $ 2,702   $ (68,119 )
Net income (loss) per common share              
Basic $ 0.85   $ (0.56 )   $ 0.08   $ (1.95 )
Diluted $ 0.83   $ (0.56 )   $ 0.07   $ (1.95 )
Weighted average common shares outstanding              
Basic   35,812     35,229       35,629     35,010  
Diluted   36,596     35,229       36,417     35,010  


(1)
The following table presents our revenue categories:

  Three Months Ended
December 31,
  Twelve Months Ended
December 31,
  2023   2022   2023   2022
Core solutions $ 41,252   $ 35,378   $ 156,692   $ 132,541
Value Added Services   127,990     86,287     454,098     327,636
Other   2,588     2,393     9,655     11,706
Total revenue $ 171,830   $ 124,058   $ 620,445   $ 471,883

(2) Includes stock-based compensation expense as follows:

  Three Months Ended
December 31,
  Twelve Months Ended
December 31,
  2023   2022   2023   2022
Costs and operating expenses:              
Cost of revenue (exclusive of depreciation and amortization) $ 798   $ 767   $ 3,703   $ 2,640
Sales and marketing   1,081     3,185     5,983     8,681
Research and product development   5,123     4,870     20,974     16,030
General and administrative   5,430     3,904     21,704     13,584
Total stock-based compensation expense $ 12,432   $ 12,726   $ 52,364   $ 40,935

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)

  Three Months Ended
December 31,
  Twelve Months Ended
December 31,
  2023   2022   2023   2022
Cash from operating activities              
Net income (loss) $ 30,268     $ (19,700 )   $ 2,702     $ (68,119 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:              
Depreciation and amortization   6,385       7,525       26,500       30,820  
Amortization of operating lease right-of-use assets   514       689       2,132       3,187  
Gain on lease modification               (4,281 )      
Impairment, net         2,230             22,022  
Stock-based compensation, including as amortized   12,980       13,343       54,852       43,234  
Gain on sale of business                     (4,156 )
Gain on sale of equity-method investment and recovery of note receivable                     (40 )
Other   (2,084 )     620       (3,598 )     (818 )
Changes in operating assets and liabilities:              
Accounts receivable   (349 )     (1,619 )     (4,206 )     (4,198 )
Prepaid expenses and other assets   (12,781 )     (2,493 )     (13,493 )     (7,281 )
Accounts payable   (80 )     945       (1,565 )     1,176  
Accrued expenses and other liabilities   (4,246 )     5,317       3,744       12,062  
Operating lease liabilities   576       (776 )     (2,504 )     (2,524 )
Net cash provided by operating activities   31,183       6,081       60,283       25,365  
Cash from investing activities              
Purchases of available-for-sale investments   (86,821 )     (8,845 )     (195,740 )     (79,279 )
Proceeds from sales of available-for-sale investments         994       1,013       994  
Proceeds from maturities of available-for-sale investments   58,130       11,285       152,382       87,883  
Purchases of property and equipment   (3,109 )     (597 )     (9,041 )     (6,540 )
Capitalization of software development costs   (1,431 )     (4,220 )     (4,825 )     (14,688 )
Proceeds from sale of business, net of cash divested                     5,124  
Proceeds from sale of equity-method investment               629       40  
Net cash used in investing activities   (33,231 )     (1,383 )     (55,582 )     (6,466 )
Cash from financing activities              
Proceeds from stock option exercises   410       1,895       2,595       4,474  
Tax withholding for net share settlement   (8,790 )     (3,056 )     (28,556 )     (10,637 )
Net cash used in financing activities   (8,380 )     (1,161 )     (25,961 )     (6,163 )
Net (decrease) increase in cash and cash equivalents   (10,428 )     3,537       (21,260 )     12,736  
Cash, cash equivalents and restricted cash              
Beginning of period   60,187       67,482       71,019       58,283  
End of period   49,759       71,019       49,759       71,019  

RECONCILIATION FROM GAAP TO NON-GAAP RESULTS
(UNAUDITED)
(in thousands, except per share data)

      Three Months Ended
December 31,
  Twelve Months Ended
December 31,
       2023     2022     2023     2022 
Costs and operating expenses:          
  GAAP cost of revenue (exclusive of depreciation and amortization) $ 61,275     $ 50,342     $ 238,076     $ 191,826  
    Stock-based compensation expense   (798 )     (767 )     (3,703 )     (2,640 )
    Workforce reduction costs               (2,135 )      
  Non-GAAP cost of revenue (exclusive of depreciation and amortization) $ 60,477     $ 49,575     $ 232,238     $ 189,186  
  GAAP cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue   36 %     41 %     38 %     41 %
  Non-GAAP cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue   35 %     40 %     37 %     40 %
                   
  GAAP sales and marketing $ 21,501     $ 29,840     $ 107,602     $ 107,398  
    Stock-based compensation expense   (1,081 )     (3,185 )     (5,983 )     (8,681 )
    Workforce reduction costs               (3,401 )      
  Non-GAAP sales and marketing $ 20,420     $ 26,655     $ 98,218     $ 98,717  
  GAAP sales and marketing as a percentage of revenue   13 %     24 %     17 %     23 %
  Non-GAAP sales and marketing as a percentage of revenue   12 %     21 %     16 %     21 %
                   
  GAAP research and product development $ 34,847     $ 31,152     $ 151,364     $ 111,118  
    Stock-based compensation expense   (5,123 )     (4,870 )     (20,974 )     (16,030 )
    Workforce reduction costs               (2,635 )      
  Non-GAAP research and product development $ 29,724     $ 26,282     $ 127,755     $ 95,088  
  GAAP research and product development as a percentage of revenue   20 %     25 %     24 %     24 %
  Non-GAAP research and product development as a percentage of revenue   17 %     21 %     21 %     20 %
                   
  GAAP general and administrative $ 19,035     $ 24,534     $ 93,452     $ 100,792  
    Stock-based compensation expense   (5,430 )     (3,904 )     (21,704 )     (13,584 )
    Gain on lease modification               4,281        
    CEO separation costs, net               (11,520 )      
    Impairment, net         (2,230 )           (22,022 )
    Workforce reduction costs               (2,106 )      
  Non-GAAP general and administrative $ 13,605     $ 18,400     $ 62,403     $ 65,186  
  GAAP general and administrative as a percentage of revenue   11 %     20 %     15 %     21 %
  Non-GAAP general and administrative as a percentage of revenue   8 %     15 %     10 %     14 %
                   
  GAAP depreciation and amortization $ 6,933     $ 8,142     $ 28,988     $ 33,119  
    Amortization of stock-based compensation capitalized in software development costs   (548 )     (618 )     (2,489 )     (2,299 )
    Amortization of purchased intangibles   (619 )     (977 )     (2,476 )     (4,373 )
  Non-GAAP depreciation and amortization $ 5,766     $ 6,547     $ 24,023     $ 26,447  
  GAAP depreciation and amortization as a percentage of revenue   4 %     7 %     5 %     7 %
  Non-GAAP depreciation and amortization as a percentage of revenue   3 %     5 %     4 %     6 %

      Three Months Ended
December 31,
  Twelve Months Ended
December 31,
      2023   2022   2023   2022
Income (loss) from operations:              
  GAAP income (loss) from operations $ 28,239     $ (19,952 )   $ 963     $ (72,370 )
    Stock-based compensation expense   12,432       12,726       52,364       40,935  
    Amortization of stock-based compensation capitalized in software development costs   548       618       2,489       2,299  
    Amortization of purchased intangibles   619       977       2,476       4,373  
    Impairment, net         2,230             22,022  
    Gain on lease modification               (4,281 )      
    CEO separation costs, net               11,520        
    Workforce reduction costs               10,278        
  Non-GAAP income (loss) from operations $ 41,838     $ (3,401 )   $ 75,809     $ (2,741 )
                   
Operating margin:              
  GAAP operating margin   16.4 %     (16.1 )%     0.2 %     (15.3 )%
    Stock-based compensation expense as a percentage of revenue   7.2       10.3       8.4       8.7  
    Amortization of stock-based compensation capitalized in software development costs as a percentage of revenue   0.3       0.5       0.4       0.5  
    Amortization of purchased intangibles as a percentage of revenue   0.4       0.8       0.4       0.9  
    Impairment, net as a percentage of revenue         1.8             4.7  
    Gain on lease modification as a percentage of revenue               (0.7 )      
    CEO separation costs, net as a percentage of revenue               1.9        
    Workforce reduction costs               1.8        
  Non-GAAP operating margin   24.3 %     (2.7 )%     12.2 %     (0.6 )%
                   
Net income (loss):              
  GAAP net income (loss) $ 30,268     $ (19,700 )   $ 2,702     $ (68,119 )
    Stock-based compensation expense   12,432       12,726       52,364       40,935  
    Amortization of stock-based compensation capitalized in software development costs   548       618       2,489       2,299  
    Amortization of purchased intangibles   619       977       2,476       4,373  
    Impairment, net         2,230             22,022  
    Gain on lease modification               (4,281 )      
    CEO separation costs, net               11,520        
    Workforce reduction costs               10,278        
    Gain on sale of business                     (4,156 )
    Gain on sale of equity-method investment                     (40 )
    Income tax effect of adjustments   (11,556 )     1,363       (15,415 )     2,087  
  Non-GAAP net income (loss) $ 32,311     $ (1,786 )   $ 62,133     $ (599 )
                   
Net income (loss) per share, basic:              
  GAAP net income (loss) per share, basic $ 0.85     $ (0.56 )   $ 0.08     $ (1.95 )
    Non-GAAP adjustments to net income (loss)   0.05       0.51       1.66       1.93  
  Non-GAAP net income (loss) per share, basic $ 0.90     $ (0.05 )   $ 1.74     $ (0.02 )
                   
Net income (loss) income per share, diluted:              
  GAAP net income (loss) per share, diluted $ 0.83     $ (0.56 )   $ 0.07     $ (1.95 )
    Non-GAAP adjustments to net income (loss)   0.05       0.51       1.64       1.93  
  Non-GAAP net income (loss) per share, diluted $ 0.88     $ (0.05 )   $ 1.71     $ (0.02 )
                   
  Weighted-average shares used in GAAP per share calculation              
    Basic   35,812       35,229       35,629       35,010  
    Diluted   36,596       35,229       36,417       35,010  
                   
  Weighted-average shares used in non-GAAP per share calculation              
    Basic   35,812       35,229       35,629       35,010  
    Diluted   36,596       35,229       36,417       35,010  

      Three Months Ended
December 31,
  Twelve Months Ended
December 31,
       2023    2022    2023    2022
Free cash flow:        
  GAAP net cash provided by operating activities $ 31,183     $ 6,081     $ 60,283     $ 25,365  
    Purchases of property and equipment   (3,109 )     (597 )     (9,041 )     (6,540 )
    Capitalized software development costs   (1,431 )     (4,220 )     (4,825 )     (14,688 )
    CEO separation costs payment               14,926        
    Partial lease termination payment               2,851        
    Severance payments for workforce reduction   7,624             9,425        
  Non-GAAP free cash flow $ 34,267     $ 1,264     $ 73,619     $ 4,137  
                   
Free cash flow margin:            
  GAAP net cash provided by operating activities as a percentage of revenue   18.1 %     4.9 %     9.7 %     5.4 %
    Purchases of property and equipment as a percentage of revenue   (1.8 )     (0.5 )     (1.4 )     (1.4 )
    Capitalized software development costs as a percentage of revenue   (0.8 )     (3.4 )     (0.8 )     (3.1 )
    CEO separation costs payment               2.4        
    Partial lease termination payment               0.5        
    Severance payments for workforce reduction   4.4             1.5        
  Non-GAAP free cash flow margin   19.9 %     1.0 %     11.9 %     0.9 %


Statement Regarding the Use of Non-GAAP Financial Measures

We disclose the following non-GAAP financial measures in this press release: non-GAAP income (loss) from operations, non-GAAP operating expenses (cost of revenue (exclusive of depreciation and amortization), sales and marketing, research and product development, general and administrative, and depreciation and amortization), non-GAAP net income (loss), non-GAAP net income (loss) per share, and free cash flow.

  • Non-GAAP presentation of income (loss) from operations, operating expenses, net income (loss), and net income (loss) per share. These measures exclude certain non-cash or non-recurring items, including stock-based compensation expense, amortization of stock-based compensation capitalized in software development costs, amortization of purchased intangibles, impairment, CEO separation costs, net, gain on lease modification, workforce reduction costs and the related income tax effect of these adjustments, as applicable and described below.
  • Free cash flow. Free cash flow is defined as net cash from operating activities, less purchases of property and equipment, capitalization of software development costs, payments for separation costs, lease termination payments and severance payments for workforce reduction. We use free cash flow to evaluate our generation of cash from operations that is available for purposes other than capital expenditures and capitalized software development costs. Additionally, we believe that information regarding free cash flow provides investors with a perspective on the cash available to fund ongoing operations, because we review cash flows generated from operations after taking into consideration capital expenditures and the capitalization of software development costs due to the fact that these expenditures are considered to be a necessary component of ongoing operations.

We use each of these non-GAAP financial measures internally to assess and compare operating results across reporting periods, for internal budgeting and forecasting purposes, and to evaluate our financial performance. We believe these adjustments also provide useful supplemental information to investors and facilitate the analysis of our operating results and comparison of operating results across reporting periods.

In particular, we believe these non-GAAP financial measures are useful to investors and others in assessing our operating performance due to the following factors:

  • Stock-based compensation expense and amortization of stock-based compensation capitalized in software development costs. We utilize stock-based compensation to attract and retain employees. It is principally aimed at aligning their interests with those of our stockholders while ensuring long-term retention, rather than to address operational performance for any particular period. As a result, stock-based compensation expenses, which include costs related to our workforce reduction, vary for reasons that are generally unrelated to financial and operational performance in any particular period.
  • Amortization of purchased intangibles. We view amortization of purchased intangible assets as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are evaluated for impairment regularly, amortization of the cost of purchased intangibles is an expense that is not typically affected by operations during any particular period.
  • Impairment. We believe that impairment charges do not reflect future operating expenses, and are generally unrelated to financial and operational performance in any particular period.
  • CEO separation costs, net. We incurred one-time separation costs associated with our former Chief Executive Officer’s Transition and Separation Agreement, dated March 1, 2023 ("Separation Agreement"). We have excluded these costs, as we do not consider such amounts to be part of the ongoing operation of our business.
  • Gain on lease modification. In January 2023 and June 2023 we amended our San Diego lease. We have excluded any gain related to the remeasurement of the lease liability, as we do not consider such amounts to be part of the ongoing operation of our business.
  • Workforce reduction costs. We incurred one-time severance and related personnel costs associated with our workforce reduction in the third quarter of 2023. We have excluded these costs as we do not consider such amounts to be part of the ongoing operation of our business.
  • Income tax effects of adjustments. We utilize a fixed long-term projected tax rate in our computation of non-GAAP income tax effects to provide better consistency across interim reporting periods. In projecting this long-term non-GAAP tax rate, we utilize a financial projection that excludes the direct impact of other non-GAAP adjustments. The projected rate, which we have determined to be 25%, considers other factors such as our current operating structure, existing tax positions in various jurisdictions, and key legislation in major jurisdictions where we operate. We periodically re-evaluate this tax rate, as necessary, for significant events, based on relevant tax law changes, and material changes in the forecasted geographic earnings mix.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because non-GAAP financial measures are not prepared in accordance with GAAP and can exclude expenses that may have a material impact on our reported financial results. As such, non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. A reconciliation of the historical non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the tables above. We encourage investors to review the reconciliation of these historical non-GAAP financial measures to their most directly comparable GAAP financial measures.

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