AppFolio, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. AppFolio provides cloud business-management software and services for the real estate industry. It reported 17,550 property-management customers and 6.57 million units under management, up from 5.62 million a year earlier.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $105.3 million | $78.9 million | Up 33% |
| Core solutions revenue | $30.8 million | $24.2 million | Up 27% |
| Value Added Services revenue | $71.5 million | $51.5 million | Up 39% |
| Operating loss | $14.7 million | $5.7 million | Operating margin approximately -13.9%, versus -7.2% |
| Net income (loss) | $(14.3) million | $0.5 million | Basic and diluted loss per share: $0.41 |
| Cash used in operating activities | $2.2 million | $4.4 million | Lower cash use year over year |
Cost of revenue was $43.3 million, or 41.2% of revenue, compared with 42.2% a year earlier. The implied gross margin before depreciation and amortization was approximately 58.8%, versus 57.8%. Operating expenses rose across sales and marketing, research and product development, and general and administrative, driven primarily by personnel-related costs, performance compensation, and growth investments. Stock-based compensation expense increased to $7.4 million from $2.8 million.
Cash, liquidity, and balance sheet
At March 31, 2022, cash and cash equivalents were $49.5 million and investment securities were $124.2 million, totaling approximately $173.8 million. Current assets were $169.6 million and current liabilities $54.0 million. Total liabilities were $111.3 million, including $55.0 million of operating lease liabilities; the filing reports no debt balance. Stockholders’ equity was $288.7 million.
Cash used in investing activities was $5.3 million, mainly reflecting capital spending and software development, compared with $87.2 million in Q1 2021, when investment-security purchases were substantially higher. Cash used in financing was $1.0 million. Cash, cash equivalents, and restricted cash decreased $8.5 million to $49.8 million. Management said existing cash, investments, and expected operating cash flows should meet working-capital and capital-expenditure needs for at least the next 12 months.
Changes, outlook, and notable items
- Revenue growth reflected expansion in customers and users: average units under management increased 18%, and average property-management customers increased 9%.
- Management expects cost of revenue, excluding depreciation and amortization, to increase as a percentage of revenue in 2022, as third-party costs supporting Value Added Services are expected to grow faster than total revenue.
- The filing provides no numerical full-year revenue or earnings guidance. Management expects a full valuation allowance on U.S. federal and state deferred tax assets at year-end 2022; income tax expense is expected to be limited to deferred-tax changes and current minimum state taxes.
- Available-for-sale securities had $1.6 million of gross unrealized losses at quarter-end; the company recorded $1.3 million of other comprehensive loss. Management did not consider the decline other-than-temporary and said it was more likely than not the securities would be held until recovery or maturity. A hypothetical 100-basis-point rate move in either direction was estimated to change fair value by approximately $1.1 million in the opposite direction.
- In April 2022, AppFolio agreed to sublet one office and said it had decided to exit and explore subletting certain other office space.
- The company has authorization to repurchase up to $100 million of Class A shares; $4.2 million had been repurchased under the program to date.
- Management reported no legal proceedings believed likely to have a material adverse effect and no material changes to previously disclosed risk factors. It cautioned that ordinary-course disputes may still entail costs and management distraction.
Most important facts for investors to verify
- Whether Value Added Services growth continues and how its third-party processing and service costs affect margins.
- Whether higher operating expenses and stock-based compensation produce improved operating leverage over time.
- Cash generation and liquidity, including the value and interest-rate sensitivity of available-for-sale securities.
- Progress and costs associated with office exits or subleases, and any effect on lease obligations.
- Future share repurchases and dilution from outstanding RSUs and performance-based awards.