IPO Report: AppFolio (APPF)

Francis Gaskins |

AppFolio (APPF) provides industry-specific, cloud-based software solutions for SMBs in the property management and legal industries. It is based in Goleta, CA.

Twelve other companies are scheduled for the week of June 22.  The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Morgan Stanley, Credit Suisse
Co-managers: Pacific Crest Securities, William Blair

End of lockup (180 days): Tuesday, December 22, 2015
End of 25-day quiet period: Tuesday, July 21, 2015

APPF scheduled an $81 million IPO with a market capitalization of $420 million at a price range midpoint of $13 for Friday, June 26, 2015 on Nasdaq.

APPF Summary

APPF provides industry-specific, cloud-based software solutions for SMBs in the property management and legal industries.

APPF’s platform is designed to be the system of record to automate essential business processes and the system of engagement to enhance business interactions between APPF’s customers and their clients

In 2013 and 2014, APPF derived more than 90% of revenue from property manager customers.

APPF Valuation

Glossary

Accumulated deficit (mm)

.

.

-$57

     

Per share dilution

.

.

-$10.81

     
             

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

AppFolio (APPF)

$420

6.6

-29.2

5.3

5.9

19%

RealPage (RP)

$1,590

3.9

-248.4

4.8

41.8

 
             
             

APPF Conclusion

Neutral pllus

Q1 rev +61% to $16mm

P/E of -29 indicating moderate cash burn rate relative to market cap

55% gross margin

'14 rev +80% to $48mm

Price to sales 6.6

Q1 loss on rev -23%, -$3.6mm

Price to bk 5.3

APPF Business

APPF provides industry-specific, cloud-based software solutions for SMBs in the property management and legal industries.

APPF’s platform is designed to be the system of record to automate essential business processes and the system of engagement to enhance business interactions between APPF’s customers and their clients

In 2013 and 2014, APPF derived more than 90% of revenue from property manager customers.

Property management

APPF’s property management software provides small and medium-sized property managers with an end-to-end solution to their business needs, enabling them to manage properties quickly and easily in a single, integrated environment.

Legal

APPF’s legal software provides solo practitioners and small law firms with a streamlined practice and case management solution, allowing them to manage their practices and case load within a flexible system. APPF also offers optional, but often mission-critical, Value+ services, such as APPF’s professionally designed websites and electronic payment services, which are seamlessly built into its core solutions.

Business management software

Business management software, which initially served to differentiate competitors, is now critical to any business’s survival and success in an increasingly connected and online world.

The ability of SMBs to capitalize on the power of software to interact with their clients, vendors and other industry participants, and to mine the data and insights gleaned from these relationships, is integral to their ability to compete more effectively in commerce today, not only with other SMBs but also with larger enterprises. SMBs need an intuitive, reliable and fully integrated software solution that brings superior technology and services to their specific industry workflows and meets their key operational requirements.

Intellectual property

As of March 31, 2015, APPF had eight issued U.S. patents that directly relate to APPF’s technology that expire between 2026 and 2031, and APPF had three pending patent applications in the United States and two pending patent applications internationally. APPF intends to pursue additional patent protection to the extent APPF believes it would be beneficial and cost effective.

APPF registered “AppFolio” and certain other marks as trademarks in the United States and several other jurisdictions. APPF also filed trademark applications in the United States and certain other jurisdictions and will pursue additional trademark registrations to the extent APPF believes it would be beneficial and cost effective.

Competition

In the property management vertical, APPF’s competitors include established vertical software vendors, such as RealPage and Yardi. In the property management vertical, APPF also competes with cloud-based solution providers whose services are geared toward individual landlords with smaller portfolios than those of APPF’s targeted customers. In the legal vertical, APPF’s competitors include established vertical software vendors, such as Thompson-Reuters and LexisNexis, and newer market entrants, such as Clio.

APPF also sees competition from numerous cloud-based solution providers that focus almost exclusively on one or more point solutions.

For example, in the property management vertical, APPF competes with listing services, tenant screening applications and specialists in lease forms. In the legal vertical, APPF competes with time tracking, legal billing and payment services. Continued consolidation among cloud-based solution providers could lead to significantly increased competition.

5% shareholders pre-IPO

Entities affiliated with IGSB        33.9%

Entities affiliated with BV Capital            14.5%

Timothy Bliss    36.5%

William Rauth    6.9%

Klaus Schauser  18.0%

Jonathan Walker            7.3%

Dividends

No dividends are planned.

Use of proceeds

APPF expects to receive $71 million from its IPO and use it for the following:

(i) to expand research and product development, customer service, and sales and marketing, including hiring new personnel across its organization, (ii) to maintain and expand its technology infrastructure and operational support, and (iii) for general corporate and working capital purposes. APPF also intends to repay $10.0 million of the indebtedness outstanding under its credit facility with Wells Fargo Bank, N.A. APPF’s credit facility requires APPF to pay a prepayment premium of 2% of the amount prepaid in the event of prepayment from the proceeds of an initial public offering.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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