AppFolio, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. AppFolio provides cloud business-management software and services for the real estate industry. Financial amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $117.5 | $89.0 | $222.7 | $168.0 |
| Operating income (loss) | $(29.9) | $1.1 | $(44.6) | $(4.5) |
| Net income (loss) | $(30.0) | $2.0 | $(44.3) | $2.5 |
| Net cash from operations | Not presented quarterly | $3.3 | $10.7 |
- Q2 revenue grew 32% year over year; six-month revenue grew 33%. Core solutions revenue increased 28% in both periods, while Value Added Services revenue rose 35% in Q2 and 37% year to date.
- Q2 gross margin, using revenue less cost of revenue before depreciation and amortization, was approximately 59.6%, down from 63.1% a year earlier. Operating margin was approximately (25.5%), versus 1.3% in Q2 2021.
- Q2 basic and diluted loss per share was $0.86; six-month loss per share was $1.27. Dilutive shares were excluded because the company reported losses.
- Stock-based compensation was $10.0 in Q2 and $17.4 for the first half, compared with $3.2 and $6.0, respectively, in 2021.
- At June 30, cash and cash equivalents were $42.6; current and noncurrent investment securities totaled $125.3. Current assets were $156.4 and current liabilities $54.7. The company reported no borrowings; operating lease liabilities totaled $54.0, with total lease liabilities including current amounts of approximately $57.5.
- First-half investing cash outflow was $13.7, mainly reflecting investment purchases, property and equipment, and software development. Cash, cash equivalents and restricted cash decreased $15.4 to $42.9.
Changes and notable items
- Revenue growth reflected customer and usage expansion: property management units under management increased 17% year over year to 6.83 million, and property management customers increased 8% to 17,878.
- Costs grew faster than revenue in several areas. Cost of revenue rose 45% in Q2, sales and marketing 52%, and research and product development 72%. Management attributed increases largely to service-provider costs, employee-related costs, growth investments, and higher stock-based compensation.
- Q2 included a $19.4 impairment charge in general and administrative expense after AppFolio decided to exit and seek subleases for certain office space. The charge included $15.7 related to right-of-use assets and $3.7 related to property and equipment; first-half impairment was $19.8.
- Available-for-sale securities had $2.0 of unrealized losses at June 30. Management stated the decline was not considered other-than-temporary and recorded no credit-loss allowance.
Outlook, risks and contingencies
- Management said cash, investments, and expected operating cash flows should be sufficient for working capital and capital expenditure needs for at least the next 12 months.
- For 2022, management expected cost of revenue to rise as a percentage of revenue due to faster growth in Value Added Services-related third-party costs; sales and marketing and research and development were also expected to increase as a percentage of revenue. Excluding impairment charges, general and administrative expense was expected to rise slightly as a percentage of revenue.
- Management cited competition for talent and evolving compensation practices as factors that have materially affected, and may continue to affect, results. The filing also highlights investment-security fair-value exposure to interest-rate changes; a hypothetical 100-basis-point move was estimated to change fair value by approximately $1.0 in either direction.
- The company reported no known legal proceedings it believed would have a material adverse effect, while noting ordinary-course disputes can entail costs and management distraction. It reported no material changes to the risk factors in its 2021 Form 10-K.
- After quarter-end, CEO Jason Randall entered an employment agreement with a $0.5 annual base salary, a $0.5 target cash bonus for 2022, and long-term cash incentives. Specified qualifying termination scenarios include a $5.0 cash payment if occurring in fiscal 2022.
- The board had authorized up to $100.0 of share repurchases; $4.2 had been repurchased to date.
Key facts for investors to verify
- Whether strong revenue and unit growth can continue while Value Added Services costs and operating expenses rise faster than revenue.
- The scale and timing of future stock-based compensation, and its effect on reported profitability and dilution.
- Sublease progress and whether the office-space impairment assumptions, including expected sublease income and timing, remain reasonable.
- Cash generation relative to planned investments, lease commitments, and any further share repurchases.
- The final terms and potential cost of the CEO’s long-term incentive and termination provisions.