Good afternoon. Thank you for standing by, welcome to the AppFolio, Inc.'s fourth quarter 2022 financial results conference call. Please be advised today's conference is being recorded, a replay will be available on AppFolio's investor relations website. I would now like to hand the conference over to Lori Barker, Investor Relations.
Thank you. Good afternoon, everyone. I'm Lori Barker, investor relations for AppFolio, I'd like to thank you for joining us today as we report AppFolio's fourth quarter 2022 financial results. With me on the call today are Jason Randall, AppFolio's President and CEO, and Fay Sien Goon, AppFolio's Chief Financial Officer. This call is being simultaneously webcast on the investor relations section of our website at www.appfolioinc.com. Before we get started, I'd like to remind everyone of AppFolio's safe harbor policy. Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Any statement that refers to expectations, projections, or other characterizations of future events, including financial projections, future market conditions, or future product enhancements or developments, is a forward-looking statement.
AppFolio's actual future results could differ materially from those expressed in such forward-looking statements for any reason, including those listed on our SEC filing. AppFolio assumes no obligation to update any such forward-looking statements except as required by law. For greater detail about risks and uncertainties, please see our SEC filing, including our to-be-filed Form 10-K for the fiscal year ended December 31, 2022. In addition, this call includes non-GAAP financial measures. Reconciliations of those non-GAAP financial measures with the most directly comparable GAAP measures are included in our fourth quarter earnings release posted on our investor relations section of our website. With that, I will turn the call over to Jason Randall, AppFolio's president and CEO. Jason, please go ahead.
Thank you, Lori, welcome to everyone joining us for AppFolio's fourth quarter and fiscal year 2022 financial results. I'm pleased to report that AppFolio continued to show resilience in the changing real estate industry in evolving macroeconomic environment. Fourth quarter revenue grew 30% year-over-year to $124 million, capping off an annual 31% increase to $472 million. Units grew 15% for the year to 7.3 million. The total number of our customers expanded, ARPU increased, payments continued to grow, and we were pleased with the adoption of AppFolio Property Manager Plus focused on larger unit count customers. Our continued focus on delivering innovation that positively impacted our customers resulted in continued high retention as customers continued to recognize the value of AppFolio to drive operational excellence in their business.
One recent example of innovative solutions you've heard us talk about is the AppFolio Stack Partner Integrations Marketplace. Another important case in point is our investment in AI. As of the end of 2022, 40% of our customers now use one or more AI-enabled features or services, including our newest ones like Smart Insure, to help property managers enforce their insurance lease requirements, and Bank Feed, a smart accounting tool that automatically imports bank transactions and simplifies reconciliations. These examples reflect our continued efforts to help our customers save time and money and drive operational efficiency. Driving operational efficiency is also important within AppFolio as we look to scale our business. Our path to increasing profitability is focused on growing revenue while executing a company-wide initiative to be more efficient. We are always evaluating how various businesses meet both our customers' needs and AppFolio's strategic priorities.
In 2022, we divested and wound down a non-core asset to drive focus in our business. We are continually working to identify areas where we can improve our cost structure, such as transforming our sourcing and procurement capability, right-sizing our real estate footprint, and migrating certain roles to third-party resource providers. In addition, we have been moderating and will continue to moderate our headcount growth rate. We are pleased with the early progress from these efforts and look forward to continuing them in 2023. From a macro perspective, it is an important time for our customers to continue investing in AppFolio to save costs and add operational efficiency. Earlier this week, we published the inaugural AppFolio Property Management Benchmark Report of nearly 5,000 property management employees. The report found that the growth outlook is positive among property management organizations despite broader economic challenges.
More than 80% expect their organization's revenue to increase in 2023, and nearly three-quarters expect net operating income to grow. They reported their top priorities are as adding new units to their portfolio, increasing revenue, improving customer service, and growing their staff. They also expressed a desire to leverage data to make faster, better decisions and to make financial interactions easier for both residents and the businesses they work with through processing more rent payments online and improving their accounts payable process. These are all priorities that AppFolio has been and will continue to help with. AppFolio's long-term strategy is, at its core, all about helping our customers solve problems in innovative ways. Our goal is to keep our customers happy, resulting in low churn, growing ARPU, and added new customers and units. In 2023, we will continue to innovate at a fast pace.
For example, we are building on our one powerful platform for mixed portfolios as we expand support for property types and capture new revenue streams. Another example is accounting and reporting. This functionality is at the core of our product offering, and we will focus R&D efforts around the themes of automation, centralization, and flexibility. These are the pipes of each customer's business, and it is critical that we remain the source of record for property-level accounting. We are delivering service excellence at scale by enabling an intuitive onboarding process and leveraging technology to make it easier for customers to get the help they need when and how they need it. These are just a few of our long-term projects. There's more in the pipeline for 2023 and beyond. Also core to our long-term strategy are our sustained efforts and investments behind acquiring and supporting larger customers.
Our corporate segment is quickly growing and is a major contributor to our increasing ARPU. The strategic bets we made in 2022 drove success with more than a 60% growth rate in our AppFolio Property Manager Plus or APM Plus tier. These units are fueling our go-to-market efforts and improving our ability to win upmarket. Large customers are increasingly coming to us to partner on their current and future needs, and our team is introducing new and creative ways to help our fastest-growing customers organize around their future residential portfolio expansions. Let me share an example. Evernest is an APM Plus customer managing a mixed portfolio of 30,000 units across the U.S., and they have a goal of six-figure unit growth through a focused organic growth and acquisition strategy.
They are heavily invested in the AppFolio technology platform. Together, we have worked closely to maximize their adoption and performance. As a testament to the strength of this partnership, Evernest recently early renewed a multiyear agreement with AppFolio. According to Matthew Whitaker, CEO at Evernest, "We are growing rapidly. AppFolio technology helps Evernest accelerate growth. We're happy to be working closely with the AppFolio team to achieve our growth goals." We will continue to deliver differentiated experiences to meet the needs of more customers like Evernest. Large and small customers alike are embracing Stack, our partner integrations marketplace that launched in June 2022. Stack seamlessly integrates our customers' preferred software applications with our platform, giving customers more choices as they focus on boosting productivity and improving their resident experiences.
More than 800,000 of our customers' units are now connected on Stack, and the number of partners we've onboarded has more than doubled since Stack's launch, spanning marketing and leasing, smart home technologies, utility management, inspections and maintenance, and our newest category, compliance. J.T. Morrison, President of Horizons Asset Management LLC of Columbus, Ohio, a customer since 2016 with just under 1,000 units on APM Plus, recently said, quote, "Our AppFolio integrations experience has helped Horizons focus on our team's enjoyment of their duties, introducing more mobile and user-friendly software that removes many daily administrative burdens, allows our teams to concentrate on maintaining the asset, closing on active renters, and heading home to their families more energized." End quote. Large customers are also looking for functionality to serve their mixed-use housing portfolios. We've previously shared our plan to deliver purpose-built features for the affordable housing segment.
In 2022, we partnered with charter customers to deliver meaningful affordable housing capabilities, such as tools to manage subsidy programs more easily. This year, we plan to go further to support customers' needs through a focus on building integrated workflows to differentiate our product in the market. Payments continues to be the fastest-growing of our value-added services. We are working to find additional creative ways to deliver customer value to our growing ecosystem of end users. One example is our integrated security deposit return feature announced at our October customer conference. No longer is it necessary to write a check, mail it out, then make residents go and take it to a bank for deposit. The whole process is now done electronically. We have seen meaningful adoption of this new offering, helping more than 4,000 customers automatically return funds to nearly 75,000 residents.
Another customer conference announcement was Apple Pay. Now when a resident wants to pay their rent, they don't need to type in their credit card information. They can just click twice on their phone and pay. For property managers, this removes friction in the payment process, improves on-time payment, and delights their customers. Early indications show that resident card transactions have increased by approximately 6% when our customers adopt AppFolio's link with Apple Pay. Based on these early results, we plan to expand Apple Pay capabilities and use cases, and we anticipate the full rollout to be complete in the first half of 2023. While we are making meaningful strides in achieving upmarket growth, we remain committed to growing our SMB customer base by adding capabilities, simplifying the service experience, and driving deep adoption across the leasing, accounting, and maintenance domains.
In 2023, our SMB efforts will focus on improving the owner experience, increasing self-service rates, and reducing the rate of effort to achieve success. You've just heard about the innovative ways we are expanding, and it is all made possible through our people. At our annual employee kickoff event earlier this month, we discussed the importance of sharp execution and the focus on the actions that will deliver the greatest customer impact. As I've already mentioned this year, we are looking to improve our internal efficiency. We will continue to invest in our current team and simplify AppFolio to create an environment built for meaningful impact that's powered by performance. We also continue to embrace the hybrid workplace, and I'm proud that our team and culture are recognized as an employer of choice.
In 2022, we were selected among Glassdoor's Best Places to Work and Fortune's Best Workplaces in Technology. Great people make a great company, and I'm confident in our nearly 1,800 AppFolians' ability to achieve our goals. As we enter 2023, we are well-aligned on growing the business and increasing our focus on profitability. During 2022, our payments business achieved an exceptional growth rate fueled by increased adoption and usage of electronic payments. For 2023, we expect that card usage growth rates will naturally moderate. While we are becoming more efficient, we also need to continue to invest in R&D to support our move upmarket. The result of our estimates for revenue growth and expenses is a moderate level of free cash flow, and Fay Sien will take you through more details shortly. Over and over, AppFolio's business has delivered consistent resilient results in various market conditions.
We are growing steadily by driving efficiencies for owners, property managers, residents, and vendors, and we have a debt-free balance sheet and a healthy cash position. I'm proud of our accomplishments and believe in our ability to drive continued success through our committed focus on innovative products and services, trusted customer partnerships, and a strong team and culture. I will now turn the call over to Fay Sien for more details on AppFolio's fourth quarter financial results.
Thank you, Jason. We are pleased to report that in the fourth quarter, revenue was up 30% year-over-year to $124.1 million. This marks five quarters in a row of 30% or better growth, evidence that we are driving success by making it increasingly easy for our customers to manage their business in an ever-changing world. Core Solutions revenue was $35.4 million in Q4, another strong quarter and a 23% year-over-year increase. Full year Core Solutions revenue grew 26% year-over-year. At the end of the fourth quarter, we managed approximately 7.3 million property management units from 18,441 property management customers, compared to 6.3 million property management units from 17,216 property management customers a year earlier.
This represents a 15% increase in our ending property management units. In addition to the number of units we serve, it is important to note that core revenue also grew as we continued to focus on customers with larger unit portfolios that drive higher ARPU through increased adoption rates of APM Plus and additional value-added services. Regarding value-added services revenue in Q4, we experienced a stronger than expected growth of 35% year-over-year to $86.3 million. Our full year value-added services grew 36%. During 2022, revenue from both payments and value-added services benefited from the rise in property management units under management, the expansion of our offerings in addition to increased adoption and utilization. The sequential quarterly decrease of 2% in value-added services is typical and follows the leasing season, which peaks in the summer months.
In Q4 of 2022 and 2021, the non-GAAP cost of revenue, exclusive of depreciation and amortization, was 40% of revenue. Full year 2022 cost of revenue, exclusive of depreciation and amortization, was also comparable with the 2021 full year. Our product mix shifted due to the higher annual growth rate of value-added services revenue. The related increase in expenses for third-party service providers was largely offset by additional headcount efficiencies. Turning now to non-GAAP operating expenses. Our year-over-year increase in operating expenses for Q4 is primarily related to headcount growth of 12% to 1,785. Employee costs associated with hiring and retaining talent continued to increase more than in prior years, particularly in specialized areas such as R&D.
As compared to the third quarter, expenses also increased to accrue for performance bonuses, and there was some incremental marketing expense for advertising related to recent product launches. Sales and marketing expenses as a percentage of revenue increased from 20% in the prior year to 21% in both the fourth quarter and full year. R&D expenses as a percentage of revenue increased from 18% in Q4 last year to 21% this year. During the year, we continued to invest in expanding our product offerings, including projects like Stack, affordable housing, and some other capabilities that make our products easier to use. For the full year, R&D increased from 17% to 20%. Our G&A expenses as a percentage of revenue remained comparable with the same quarter last year at 15%.
For the full year, G&A decreased from 15% to 14% as we continued to scale and find efficiencies. Putting all this together, our non-GAAP operating margin in the fourth quarter of this year was a 2.7% loss, compared to a fourth quarter loss last year of approximately 0.4%. For the full year, our non-GAAP operating margin was slightly better than expected at a loss of 0.6%. We exceeded our guidance for revenue, expenses were in line with our forecasts. The full year loss of 0.6% compares to income of 2.2% in 2021. Free cash flow was a positive $1.3 million, approximately 1% of revenue in Q4, compared to a loss of 2.1% in the same quarter last year.
This marks the second quarter in a row of positive free cash flow. For the full year, our free cash flow margin was 0.9% compared to 3.6%. Turning to the balance sheet, we ended the fourth quarter with $185 million in cash equivalents, and investment securities. We are targeting annual 2023 revenue of $565 million-$575 million. The midpoint of this range represents a healthy full-year growth rate of 21%. While we have been delivering a higher revenue growth rate and we have conviction of our strategy, in this economic environment, we also want to make sure we are being prudent in our outlook. Our guidance assumes that high growth in the use of cards will normalize in 2023.
In terms of the seasonality in our value-added services, in a typical second quarter, tenant applications increase, and our property managers experience an expansion of new tenants in the third quarter. This results in higher demand for our insurance and screening services in the third quarter. In the fourth quarter, the business is seasonally slower. We expect such seasonality to continue in 2023. We expect that 2023 cost of revenues, exclusive of depreciation and amortization, will decrease slightly as a % of our revenue due to changing product mix with value-added services revenue now growing at a more normalized rate. Our 2023 % increase in headcount is projected to be very modest. As you heard from Jason, we are working on various projects to increase efficiency and reduce operating expenses on a % of revenue basis.
Bringing all this together, full year non-GAAP operating margins are expected to be above breakeven, and non-GAAP free cash flow is projected to grow to 2%-3% of revenue. Basic weighted average shares outstanding are expected to be approximately 35 million for the full year. Thank you all for joining us today. We believe our long-term strategy is resilient and will continue to fuel success. We look forward to speaking with all of you in future calls. Operator, this concludes our call today.
Thank you. Ladies and gentlemen, this does conclude today's conference. You may all disconnect. Have a great day.