AppFolio, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This annual filing reports full-year results, not standalone fourth-quarter results. AppFolio provides cloud-based business management software and related services, primarily to the real estate industry.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $359.4 million | $310.1 million |
| Operating income (loss) | $(11.9) million | $9.8 million |
| Operating margin | (3.3)% | 3.2% |
| Net income | $1.0 million | $158.4 million |
| Net cash from operating activities | $35.4 million | $48.3 million |
| Cash, cash equivalents and investments | $183.5 million | $175.3 million |
- Revenue grew 16%. Core solutions revenue increased 4% as reported; Value Added Services revenue rose 24%. Excluding MyCase revenue in 2020, real-estate-industry revenue grew 26%, with core solutions up 22% and Value Added Services up 31%.
- Property management units under management reached 6.35 million, up from 5.36 million; average units grew 17% and average property management customers grew 9% during 2021. The company reported 17,215 property management customers at year-end.
- Cost of revenue, excluding depreciation and amortization, rose to 40.1% of revenue from 38.4%; on that basis, the corresponding gross margin was 59.9%, versus 61.6%. Higher third-party service-provider and personnel costs contributed.
- Operating expenses increased across sales and marketing, research and product development, and general and administrative, reflecting investment in growth. Stock-based compensation expense rose to $15.3 million from $9.0 million.
- Operating cash flow declined to $35.4 million. Cash and cash equivalents decreased to $57.8 million from $140.3 million, while investment securities increased to $125.7 million from $35.0 million. Net cash used in investing was $110.5 million, largely reflecting investment-security purchases.
- The balance sheet reported $110.6 million in total liabilities, including $55.7 million of operating lease liabilities. No outstanding borrowings are shown at year-end; the former credit facility was repaid in 2020.
Changes, outlook and material items
- Net income fell sharply from 2020, when results included a $187.6 million gain on the MyCase divestiture. FY2021 other income included a $12.8 million gain from selling the SecureDocs investment. These transactions make reported earnings comparisons less indicative of underlying operating performance.
- Management expects cost of revenue, excluding depreciation and amortization, to increase as a percentage of revenue in 2022, as third-party costs associated with Value Added Services are expected to grow faster than total revenue. The filing provides no specific revenue or earnings guidance.
- The company says existing cash, investments and operating cash flows should be sufficient for working capital and capital expenditures for at least the next 12 months. It had $13.2 million of non-cancelable purchase commitments and $66.6 million of future minimum lease payments at year-end.
- In January 2021, AppFolio settled FTC allegations concerning compliance with the Fair Credit Reporting Act, paid a fine, and accepted ongoing compliance and reporting obligations. It reported no currently pending legal matter expected to have a material adverse effect.
- Principal risks include competition, customer retention and adoption of Value Added Services, cybersecurity and service disruptions, privacy and regulatory compliance, and dependence on the real estate industry and third-party providers. COVID-19 and broader economic conditions could also affect operations and customer demand.
- The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Underlying revenue and margin trends after separating recurring business performance from the MyCase and SecureDocs transaction gains.
- Whether Value Added Services growth can continue to outpace related third-party costs, and how that affects margins and cash generation.
- Progress on customer and unit growth, retention, and adoption of electronic payments, tenant screening and insurance-related services.
- Compliance with the FTC settlement obligations and any material developments in tenant-screening regulation or litigation.
- Investment portfolio liquidity and valuation exposure, lease commitments, and the effect of continued operating investment on profitability.
- Voting-control implications: Class B shares carry ten votes each, and Class B holders held approximately 89% of combined voting power at year-end 2021.