AppFolio, Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This filing reports annual results; standalone Q4 financial figures are not provided in the supplied text.
Business context
AppFolio provides cloud-based business management software for real estate property managers. Its platform combines subscription-based core software with usage-based Value Added Services, including payments, tenant screening, and insurance-related services. At year-end, it served 18,441 property-management customers and had 7.3 million units under management.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $471.9 million | $359.4 million |
| Core solutions revenue | $132.5 million | $105.1 million |
| Value Added Services revenue | $327.6 million | $241.3 million |
| Operating loss | $(72.4) million | $(11.9) million |
| Net income (loss) | $(68.1) million | $1.0 million |
| Operating cash flow | $25.4 million | $35.4 million |
- Revenue increased 31% year over year. Value Added Services grew 36%, and core solutions grew 26%. Units under management rose 15%; customer count increased 7%.
- Cost of revenue, excluding depreciation and amortization, was 40.7% of revenue, implying a 59.3% gross margin on that basis, versus 40.1% cost and 59.9% implied gross margin in 2021.
- Operating margin was approximately (15.3%), compared with (3.3%) in 2021; net margin was approximately (14.4%), compared with 0.3%.
- Operating expenses rose substantially: sales and marketing increased 47%, research and product development 68%, and general and administrative 76%. Stock-based compensation totaled $40.9 million, up from $15.3 million.
- Cash and cash equivalents were $70.8 million; investment securities were $114.5 million, for combined cash and investments of $185.2 million. Current assets were $201.5 million and current liabilities $61.3 million.
- Operating cash flow declined 28% year over year. Investing activities used $6.5 million and financing activities used $6.2 million. The company reported no off-balance-sheet arrangements and no debt outstanding in the presented balance sheet.
- Total liabilities were $115.7 million, including $53.6 million of lease liabilities. Non-cancelable purchase commitments were $23.4 million.
Material changes, outlook, and notable items
- The company recorded a $22.0 million net impairment charge related to leased office space it decided to exit and offer for sublease. This was the primary stated driver of the increase in general and administrative expense.
- AppFolio sold WegoWise in August 2022 for $5.2 million and recorded a $4.2 million pretax gain. Other income was $4.5 million, down from $13.1 million in 2021, which included a $12.8 million gain on the SecureDocs investment sale.
- Management expects 2023 cost of revenue and sales and marketing to decline as a percentage of revenue, while research and product development expense is expected to increase as a percentage of revenue. General and administrative expense, excluding the 2022 impairment, is expected to remain flat as a percentage of revenue. The filing provides no specific revenue or earnings guidance.
- Management believes existing cash, investments, and operating cash generation will fund working capital and capital expenditure needs for at least the next 12 months. The board has authorized up to $100 million in share repurchases; $4.2 million had been repurchased cumulatively under the program.
- Revenue is seasonal: tenant screening activity generally rises with leasing in Q2, while insurance-related services typically see higher demand in Q3; revenue has historically declined sequentially in Q4.
- Key disclosed risks include competition, customer retention and adoption of Value Added Services, real estate market and interest-rate sensitivity, cybersecurity and privacy, regulation of payments and tenant screening, and reliance on third-party providers. The company also disclosed a $2.7 million estimated liability for reported and incurred-but-not-reported landlord insurance claims.
- The 2021 FTC settlement regarding tenant screening included a fine and continuing compliance and reporting obligations. Management reported no current legal proceeding it believed would have a material adverse effect. The independent auditor issued unqualified opinions on the financial statements and internal controls; a critical audit matter concerned the lease-related impairment estimate.
Important facts for investors to verify
- Whether customer and unit growth, particularly Value Added Services usage, continues to support revenue growth and customer retention.
- Whether operating expenses, stock-based compensation, and the lease impairment’s continuing effects allow operating margins and operating cash flow to recover.
- How much of the $185.2 million cash-and-investment balance is available for operations, and how lease obligations and purchase commitments affect future liquidity.
- Whether planned office subleases achieve management’s assumptions for timing and income, and whether additional impairments or costs arise.
- Developments in FTC compliance, tenant-screening regulation, payment processing risks, and the $2.7 million insurance-claims estimate.
- The impact of AppFolio’s dual-class shares: Class B shares carry 10 votes each, and their holders controlled approximately 88% of combined voting power at year-end.