UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________


FORM 10-K
_________________




x ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 20172021


o ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from to


Commission File Number 001-37468
_________________
AppFolio, Inc.
(Exact name of registrant as specified in its charter)
_________________

Delaware26-0359894
(State of incorporation or organization)(I.R.S. Employer Identification No.)

50 Castilian Drive
50 Castilian Drive
Santa Barbara, California
California93117
(Address of principal executive offices)(Zip Code)


(805) 364-6093
Registrant’s telephone number, including area code


Securities registered pursuant to Section 12(b) of the Exchange Act:
 
Title of each classTrading Symbol(s)Name of exchange on which registered
Class A common stock, par value $0.0001 per shareAPPFThe NASDAQ Stock Market LLC


Securities registered pursuant to Section 12(g) of the Exchange Act:
None
_________________


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO xYes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES  o NO xYes  ☐No☒



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    YES x NO oYes ☒ No ☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      YES x NO oYes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer¨Accelerated filerx
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company¨
Emerging growth companyx☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  x☐


Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO xYes ☐ No ☒


The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the registrant’s Class A common stock on June 30, 20172021 (the last business day of the registrant’s mostly recently completed second fiscal quarter), as reported on the NASDAQ Global Market on such date, was approximately $398.7 million.$2.963 billion. Shares of the registrant’s Class A common stock and Class B common stock held by each executive officer, director and holder of 10% or more of the registrant’s outstanding Class A common stock and Class B common stock have been excluded from this calculation as such persons may be deemed to be affiliates. This calculationThe determination of affiliate status for this purpose does not reflect a determination that theseany of such persons are affiliatesshall be deemed to be an affiliate of the registrant for any other purpose.


As ofAt February 16, 2018,14, 2022, the number of shares of the registrant’s Class A common stock outstanding was 14,966,51520,003,719 and the number of shares of the registrant’s Class B common stock outstanding was 19,102,408.14,836,256.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the 20182022 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed with the Securities and Exchange Commission (the “SEC”) pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K (this“Annual(this “Annual Report”), are incorporated by reference in Part III, Items 10-14 of this Annual Report. Except for the portions of the Proxy Statement specifically incorporated by reference in this Annual Report, the Proxy Statement shall not be deemed to be filed as part hereof.
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 


 








APPFOLIO, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 20172021




TABLE OF CONTENTS
 
SectionPage No.
Item 1.
1
Item 1A.
Item 1.
Business7
2
Item 1A.1B.
8
Item 1B.
Unresolved Staff Comments
2818
Item 2.
2818
Item 3.
2918
Item 4.
2918
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
3018
Item 6.
3219
Item 7.
3319
Item 7A.
4829
Item 8.
4929
Item 9.
8156
Item 9A.
8157
Item 9B.
8257
Item 9C.
57
Item 10.
8257
Item 11.
8258
Item 12.
8258
Item 13.
8258
Item 14.
8258
Item 15.
8358
8460
Signatures
85
 





CAUTIONARY NOTE REGARDING


PART I

FORWARD-LOOKING STATEMENTS


This Annual Report on Form 10-K for the fiscal year ended December 31, 2017, or Annual Report, includes “forward-looking statements”(this "Annual Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act,federal securities laws, which statements are subject to considerableinvolve substantial risks and uncertainties. Forward-lookingThe forward-looking statements include all statements that are not statements of historical facts containedmade in this Annual Report are based primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and prospects and relate only to events as of the date on which the statements are made. In some cases, you can be identified byidentify forward-looking statements because they contain words such as “may,” “will,” “should,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,“predicts,” “potential,” “predicts, “projects,or “continue,” “should,” “could,” “will,” “would” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. We cannot assure you that the results, events, and circumstances reflected in the negativesforward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. Our forward-looking statements do not reflect the potential impact of those expressions. In particular, forward lookingany future acquisitions, mergers, dispositions, joint ventures, or investments we may make. The outcome of the events described in these forward-looking statements containedis subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report relateReport. As such, you should not rely upon forward-looking statements as predictions of future events. Examples of forward-looking statements include, among others, statements made regarding changes in the competitive environment, responding to among other things, our future or assumed financial condition, results of operations, business forecasts and plans, seasonality and other trends affecting our business, capitalcustomer needs, and financing plans, including our potential repurchase of shares, research and product development plans, services provided, the expansion of thesefuture products and services, growth in the size of our business and number of customers, strategic plans and objectives, acquisitionsbusiness forecasts and investments,plans, our future or assumed financial condition, results of operations and liquidity, trends affecting our business and industry, capital needs and financing plans, capital resource allocation plans, share repurchase plans, and commitments and contingencies, including with respect to the applicationoutcome of accounting guidance. We caution you that the foregoing list may not include all of thelegal proceedings or regulatory matters. Any forward-looking statementsstatement made by us in this Annual Report.

Forward-looking statements represent our management’s current beliefs and assumptionsReport is based only on information currently available. Forward-looking statements involve numerous knownavailable to us and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied byspeaks only as of the forward-looking statements. We discuss these risks and uncertainties in greater detail in the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report, as well as in our other filings with the Securities and Exchange Commission, or SEC. You should read this Annual Report, and the other documents that we have filed with the SEC, with the understanding that our actual future results may be materially different from the results expressed or implied by these forward-looking statements.

Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time anddate on which it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements.

Except as required by applicable law or the rules of the NASDAQ Global Market, we assumemade. We undertake no obligation to update any forward-looking statements publicly,made in this Annual Report to reflect events or circumstances after the date of this Annual Report or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even ifreflect new information becomes available inor the future.occurrence of unanticipated events, except as required by law.


We qualify all of our forward-looking statements by these cautionary statements.



PART I

ITEM 1.BUSINESS
ITEM 1.     BUSINESS
Unless otherwise stated in this Annual Report, references to "AppFolio," "we," "us," and "our" refer to AppFolio, Inc. and its consolidated subsidiaries.
Overview
AppFolio is a leading provider of cloud business management solutions for the real estate industry. Our solutions enable our customers to digitally transform their businesses, automate and streamline critical business operations and deliver a better customer experience.
We were formedfounded in 2006 with athe vision to revolutionize the way that small and medium-sized businesses, or SMBs, grow and compete by enabling their digital transformation. Today we provide industry-specific, cloud-based software solutions to the real estate market, which comprises a significant majority of our revenue, and the legal market, and we intend to enter new vertical markets over time. In 2008, we entered the real estate market with our first product, AppFolio Property Manager, or APM, a property management solution designed to address the unique operational and business requirements of property management companies. Recognizing that our customers would benefit from additional business-critical services that they can purchase as needed, we launched a series of Value+ services beginning in 2009. In 2012, we entered the legal market by acquiring MyCase, a legal practice and case management solution primarily for solo practitioners and small law firms.
SMBs face a common set of challenges that divert limited time and resources away from serving their clients and growing their businesses. Day-to-day operations are often managed through inefficient manual processes and disparate software point solutions. This lack of automation and integrated technology results in a significant administrative burden on these businesses, particularly in industries that involve unique workflows, relationships among multiple industry participants, significant data inputs and management, and compliance or regulatory requirements. While larger enterprises and consumers have been experiencing a transformational shift into the digital age, the legacy systems and manual business processes currently used by many SMBs are lagging behind in terms of technological sophistication and ease of use.
Our mission is to revolutionize vertical industry businesses by providing great software and services. We accomplish thisOur mission by deliveringis even more relevant today, as digital transformation is effectively a requirement for business success in the modern world, and the way we work and live today requires powerful software solutions.
AppFolio solutions are designed to meet that need in the real estate industry, and services that provideassist an increasingly interconnected and growing ecosystem of users, including property managers, property owners, real estate investment managers, rental prospects, residents, and service providers, with critical transactions across the real estate lifecycle, including screening potential tenants, sending and receiving payments and even providing insurance-related risk mitigation services. AppFolio’s intuitive interface, coupled with streamlined and automated workflows, make it easier for our customers withto eliminate redundant and manual processes so they can deliver a great experience for their users while improving financial and operational performance.
Our platform and mobile-optimized solutions are designed for use across multiple devices and operating systems, and to be a system of record to centralize and automate these essential business processes, a system of engagement to enhance business interactions between our customers and their clientsbusiness ecosystems, and vendors, and, increasingly, a system of intelligence to anticipate, influence,leverage data to predict and optimize business workflows in order to enable exceptional customer experiences using data to take action in real time. We have builtand increase efficiency across our softwarecustomers' businesses. Our solutions are offered as a service, and are hosted using a modern cloud-based architecture,architecture.
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We rely on strategic partners and third-party service providers to deliver certain aspects of our mobile-optimized software solutions, and we strive to provide a seamlessly integrated experience for our customers. We believe our customer-centric culture empowers a focus on customer satisfaction that leads to long-term retention and, ultimately, to our long-term success. Our commitment to building innovative products, delivering exceptional customer experiences, and nurturing our company culture has led AppFolio to be listed as a 2020 and 2021 Fortune 100 Fastest Growing Company.
Our Core Solutions
Our Platform
AppFolio’s platform addresses important aspects of workflows common to property management and is frequently updated in response to market trends and customer needs. Further, we believe that partnering and integrating with curated third party solutions to enable important functionality for our customers while maintaining an elevated customer experience will benefit our customer base over time. Core functionality of our services addresses key operational issues, including accounting, business analytics and management, marketing and leasing functionality, maintenance and operational efficiency, as well as communications with key stakeholders.

appf-20211231_g1.jpg
AppFolio Property Manager
AppFolio Property Manager provides the platform upon which property managers can run their business operations. Property management companies choose AppFolio Property Manager to leverage the benefits of process automation, an easy-to-use interface, and the optimization of common workflows. Customers include third-party property managers and owner-operators, who typically manage single- and multi-family residential properties, and others who manage community association, and commercial properties.
AppFolio Property Manager serves as our customers’ system of record with accounting functionality at the core. All critical transactions are completed and recorded in the system and give our customers access to the data they need to run their business. AppFolio Property Manager is also the system of engagement that customers use to interact with the residents living at their properties, the owners and investors owning those properties, and vendors providing products and services to the properties. Both aspects of the system are inherently interconnected so that the day-to-day interactions, such as residents paying rent through the AppFolio Property Manager mobile app, are instantly reflected in the system of record. For our customers, AppFolio Property Manager's mobile capabilities enable their teams to be productive regardless of their location, responding to leasing inquiries, addressing work orders, or completing inspections on the go. Due to their distributed nature, this is especially relevant for our property management customers with a significant portion of single-family or small multi-family properties.
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AppFolio Property Manager Plus
We continue to serve customers with larger and more complex portfolios with AppFolio Property Manager Plus, recognizing the evolving needs these customers have for deeper business insights, automation, and more advanced customer experiences. These customers typically have a more diverse mix of property types, a wider geographical dispersion of their properties, and the larger teams necessary to manage those types of portfolios. AppFolio Property Manager Plus is designed for use acrossto solve these challenges in multiple devices and operating systems.
Although specific functionality varies by product, our core solutions address common business operations and interactions of SMBs in our targeted verticalsways: through customizable workflows that allow customers to digitize their existing processes; by providing key functionality, including accounting, document management, real-time interactive search, data analyticsperformance insights; through intelligent revenue management; through integrations with a set of carefully selected partners; and communication options. In addition tothrough dedicated strategic account managers that help customers realize the full benefit of our core solutions, we offer a range ofsolution.
Value Added Services
AppFolio Property Manager’s optional but often mission-critical Value Added Services are designed to enhance, automate and streamline business-critical Value+processes and workflows. These services build on functionality and workflows in our solutions and generally fall into the categories of marketing and leasing, electronic payment services, business optimization, and risk mitigation (e.g., insurance-related services). Although many of our Value Added Services are enabled by third-party partners, we strive for a seamless experience for our customers that increases their efficiency while not sacrificing ease of use of AppFolio Property Manager and AppFolio Property Manager Plus. Utilization and adoption of our Value Added Services is typically higher for residential properties than community association or commercial properties because of the unique and complex needs of the residential rental lifecycle.
We empower our customers and users with a wide variety of Value Added Services, primarily:
•Electronic Payment Services. Our electronic payment services allow property managers to streamline their receivables and payables through a variety of online payment options. Customers can collect funds through our secure online portal, our mobile application and/or via electronic cash payments from various users, including applicants, residents and property owners. Types of funds that may be collected include rental application fees, security deposits, rent payments, and other tenant charges; contributions from property owners; and periodic dues from those living in community associations. Customers can also electronically send funds to various users, including distributions to property owners; payments to service providers; and payment to their own management company.
•Tenant Screening Services.Our tenant screening services include background screening, credit checks, income verification, and a streamlined rental history verification process for use in connection with the rental application process.
•Insurance. Through partnerships and wholly-owned subsidiaries, we make available certain risk mitigation services. Our Value+ services are available on an as-needed basis and enableliability to landlord insurance product allows our property management customers to adapt our platformenforce insurance coverage requirements within their leases by tracking coverage of their units and adding uncovered units to their specific operational requirements. Over time, we anticipate offering additional Value+ services across our targeted verticals as appropriate for each particular market. We apply our disciplined market validation approach and customer-focused philosophya qualifying liability to select and develop additional Value+ services,landlord insurance policy via a licensed insurance broker, while renters insuranceprotects the personal belongings of renters, as well as new core functionality, and to identify the most suitable adjacent markets and new verticals to target.property itself, from certain unexpected damages.
For the years ended December 31, 2017, 2016 and 2015,We experience some seasonality in our revenue was $143.8 million, $105.6 million and $75.0 million, respectively. During each of these years we have derived more than 90% of our revenue from our solutions serving the real estate market. Our revenue has limited seasonality as discussed inValue Added Services revenue. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional details regarding seasonality of this Annual Report, within the section entitled "Quarterly Revenue and Cost Trends." We have invested, and intend to continue to invest, heavily in our business to capitalize on our market opportunity.
Our Solutions
AppFolio Property Manager - Core Solution

APM is a cloud-based software solution for the real estate market that provides property managers of various sizes (including both third-party managers and owner-operators) innovative tools and services designed to streamline their property management businesses. Our software solution serves a variety of property types, including single- and multi-family residential, commercial, community association, and student housing, and is continuously evolving to help our customers more effectively market, manage and grow their businesses. Core functionality addresses key operational issues, including posting and tracking vacancies, efficiently leasing vacant properties, facilitating tenant, owner and vendor communications, and accounting, among other things.



AppFolio Property Manager - Value+ Services

In addition to our core solution, we offer the following optional Value+ services to our APM customers. These Value+ services are integrated with our software solution and built to support workflows essential to our customers’ businesses.

Website Services. We deliver and maintain professionally designed and architected websites that showcase our customers’ businesses. Our websites are fully-integrated with APM functionality, including vacancy postings, payment options, owner portals, and maintenance requests. Property managers can track and analyze site traffic and lead generation and identify prospects by evaluating guest cards that are completed by prospective tenants who visit the websites in connection with posted vacancies.

Electronic Payment Services. Our payments platform allows property managers to streamline their payables and receivables online. Our customers can collect rental application fees, rent payments, and other tenant charges all through a secure online portal, as well as receive owner contributions. They can quickly and conveniently pay owners, vendors and even their own management companies through APM.

Tenant Screening Services. We offer instant background screening and credit checks for use in connection with the rental application process, leveraging an automated nationwide eviction and criminal records search. Customers also have the option to access and/or contribute to Experian Rent Bureau rental payments history data, updated every 24 hours, to identify quality residents and reduce the risk of bad debts.

Insurance. We offer two insurance products — legal liability to landlord insurance and renters insurance — that can be tailored to help property managers get the maximum protection for their properties and meet renters’ needs, whether proof of insurance is required or not. Customers can instantly enroll residents in legal liability to landlord, which offers owners and investors increased protection against resident-caused damage. Individual renters also have the option to purchase renters insurance to protect their personal belongings, as well as the property itself from unexpected damages.

Contact Center. Our contact center is staffed 24 hours a day, 7 days a week, and serves as an extension of our property manager customers’ offices to resolve or route incoming maintenance requests. Contact center agents are able to enter non-emergency work orders directly into APM’s property maintenance software for a property manager’s approval and dispatch vendors immediately in case of an emergency.

Premium Leads. Our customers have the option to upgrade a property vacancy listing to premium status, thereby instantly syndicating it to dozens of pay-to-list websites, including featured placement on many free sites. Customers also receive advanced call tracking and only pay for verified leads that they receive through the service.

Tenant Debt Collections. Our customers may choose to utilize a nationwide contingency-based debt collection service provided by a nationally-licensed third party provider. Property managers are able to electronically send past due tenant debt from their APM database directly to the collections service for processing. The service also includes reporting unpaid balances to three major credit bureaus.

MyCase - Core Solution

Our legal software solution, MyCase, enables solo practitioners and small law firms to more efficiently administer their practice and manage their caseload. MyCase is continuously evolving to help our customers more effectively market, manage and grow their businesses, and contains core functionality that addresses key operational issues, including managing calendars, contacts and documents, time tracking, billing and collections, communicating with clients and sharing sensitive and privileged materials.

MyCase - Value+ Services

In addition to our core solution for MyCase, we offer the following optional Value+ services to our legal customers.

Website Services. We deliver and maintain professionally designed and architected websites that practitioners and their clients can utilize to access case and matter information, communicate, and manage bills. Our websites are fully-integrated with the MyCase platform and designed to improve the effectiveness of law firm marketing, streamline daily business tasks, and increase mobile presence.



Electronic Payment Services. Our payments platform allows practitioners to streamline billing and receivables online. Our customers can quickly and conveniently bill their clients and receive payments electronically through MyCase's secure online portal.
Our Customers
As of December 31, 2017, we had 11,708 property manager customers that directly and indirectly accounted for more than 90% of our annual revenue. Our property manager customers typically manage portfolios ranging from 50 to 3,000 units, and include third-party managers and owner-operators who manage single- and multi-family residences, commercial properties, community associations and student housing, as well as mixed real estate portfolios.
We also had 9,349 solo practitioners and small law firms - the latter typically with fewer than 20 lawyers - that directly and indirectly accounted for less than 10% of our annual revenue.
We define our customer base as the number of customers subscribing to our core solutions, exclusive of free trial periods with respect to MyCase. No individual customer represented 10% or more of our total revenue for our fiscal year ended December 31, 2017.
Our Culture and Employees
We believe our people are at the heart of our success and our customers’ success, and have worked hard not only to attract and hire quality individuals but also to nurture and develop our valuable human resources. We believe in the strong team we have cultivated, particularly in our deep bench of leaders who continue to execute our strategic plans and encourage innovation across the organization. We further believe that our company culture, driven by a dedication to the following six core values, provides us with a significant competitive advantage:
▪Simpler Is Better
▪Great, Innovative Products Are Key To A Great Business
▪Great People Make A Great Company
▪Listening To Customers Is In Our DNA
▪Small, Focused Teams Keep Us Agile
▪We Do The Right Thing Because It’s Good For Business
As of December 31, 2017, we had 672 employees, and we consider our relationship with them to be very good. We also hire temporary employees and consultants, and feel similarly about our relationships with them. None of our employees is represented by a labor union or covered by a collective bargaining agreement.
Our Growth Strategy
We have managed, and plan to continue to manage, our business towards the achievement of long-term growth that we believe will positively impact long-term stockholder value, rather than the realization of short-term financial or business metrics, or short-term stockholder value. Our growth strategy in the near term is to provide increasingly valuable cloud-based business management software solutions to SMBsnew and existing customers in the real estate industry. We are leveraging this growing footprint to expand both within each specific vertical we choose to target.the property management market as well as into adjacent markets. We define adjacent markets as markets that have both real estate and non-real estate characteristics. Key components of our near and extended term growth strategy include:
Maintain Product and Technology Leadership. We have made and will continue to make significant investments in research and new product development to expand our core functionality and add new Value+ services in existing and/or new vertical markets.platform capabilities. We intend to continue using our market validation techniques and close relationships with our customers and users as a key source of feedback to inform and direct our product roadmap.strategy. We may also choose to acquire rather than build certain technology capabilities, or to partner and integrate with curated third parties to deliver key functionality to serve the needs of our existing verticals or facilitate our entry into adjacent markets or new verticals.customers and their business ecosystems, all while maintaining a superior customer experience.
Keep Our Existing Customers Happy. Customerand Users Happy. We believe customer success is essential to our long-term success.success, and we strive to have loyal and engaged long-term customer relationships. We place significant emphasis on customer serviceexperience to differentiate our software solutions from competing products and thisproducts. This emphasis will continue to be a critical component of our businessgrowth strategy in the future. We believe that maintaining our focus on customer satisfactionsuccess will drivelead to new product innovation, the referral of new customers from existing satisfied customers, and greater adoption and utilization of our software solutions over time.solutions.
Expand Adoption and Use By Existing Customers.
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Acquire New Customers. We have made, and will continuebelieve new customer acquisition is essential to make, significant investments that expand our core functionality and add new Value+ services in existing vertical markets to meet the evolving needs


and requirements of our customers.long-term success. We expect our customers willto continue to use our technology to manage their businesses and increasingly adopt and use additional Value+ services.
Target New Customers. We plan to grow our customer base of customers, and thus the number of units managed on our platform, with ourcontinued investments in the development of increasingly valuable business management solutions across not only the existing property types we currently serve but new ones as well, innovative sales and marketing programs, including evolving real estate industry thought leadership and education, and the referral power of satisfied customers. To continue to attract larger customers, promotingwe may increase our softwareutilization of partnerships and integrations with select third parties to deliver key functionality.
Expand Adoption and Use By Existing Customers. We have made, and will continue to make, significant investments in our solutions withinthat expand functionality and enhance or add new capabilities to meet the current and evolving needs of our targeted verticals.customers. We expect our satisfied customers will expand their adoption and usage of our Value Added Services to adapt our platform to their specific operational requirements. In addition, as our customers grow, we expect they will continue to use our solutions to manage their larger businesses. To facilitate the continued use of our solutions by larger customers, we may increase our utilization of partnerships and integrations with select third parties to deliver key functionality while maintaining an elevated customer experience.
Enter New Adjacent Markets.Markets. We expect to continue to evaluate and expand into adjacent markets (as defined above) based on our market validation strategy and targeted customer feedback. We firmly believe that, whilefeedback in a manner consistent with our strategic plan. While we are continuously developing our software solutionreal estate industry solutions within onea given market, we believe we can apply certain relevant product enhancementsfeatures and key learnings from that market to find synergies and new opportunities as we extend our platformsolutions into each successive adjacent market.markets. An example of our adjacent market expansion effort is AppFolio Investment Management, which we released in April 2019 and is designed to enable real estate investment management organizations to better manage investor relationships by increasing transparency and streamlining certain business processes. By leveraging our knowledge and expertise in the real estate industry to grow AppFolio Investment Management, we may eventually develop investment management solutions for markets in other industries.
Expand into New Verticals. Our Customers
We define customers as those paying for a subscription to our core solutions. As of December 31, 2021, we had 17,215 property management customers. No individual customer represented 10% or more of our total revenue for fiscal 2021.
Customer Service
We believe our success is tied to long-term customer relationships, not a one-time sale. Our team is structured to deliver ongoing service; this includes ongoing live and on-demand training, a library of resources, and personalized account management. We regularly measure NPS and solicit customer feedback in a variety of ways in an effort to continue to review potential opportunitiesbetter serve our customers. Our solutions are designed to expandbe easy to use and manage, and we offer training and support at no extra charge.
Onboarding consists of a dedicated team that works to ensure that customers are prepared to run their businesses on our platform. As a result of our assistance with data migration matters, we are able to provide valuable insights into additional vertical markets. In that regard,data integrity and work with our customers to help resolve any issues in their underlying business processes. We also assist our customers with the configuration of our products for particular property types, as appropriate. We share insights on best practices for the markets we use market validation techniquesserve and dedicate resources to assessguide our customers through the scopeadoption and natureutilization of business challenges in any potential new vertical, as well as the likelihood that our target customers may purchase a cloud-based solution to solve their problems in that vertical, and their potential spend on such solutions. Any new vertical also must fit within our overall business strategy, including our management team's assessment of available alternatives, such as the number and size of potential adjacent market opportunities, and the relative risk and return of these opportunities.Value Added Services.
Sales and Marketing

We leverage a modern and scalable marketing approach along with marketing automation technology to attract and engage prospects and build brand recognition and our reputation as an industry leader in our targeted verticals.

leader. We participate in and drive industry thought leadership and education, with both online and offline activities, andwe use a variety of inbound and outbound marketing techniques to promote our softwareAppFolio solutions.
Our salesbusiness development team acts in partnership with our marketing organizationand sales teams to reach potential customers, generate additional sales opportunities, and speedaccelerate the time from evaluation to close. Our sales representatives then assist prospective property manager customers as they evaluate APM, while prospective law firm customers generally sign up for a 30-day free trial on a self-service basis (with additional support from a live sales development representative as needed).

our products. Our interactive sales methodology allows our sales team to quickly build relationships, assess our customers’ business challenges, and demonstrate the benefits of our core functionality and, Value+ services. Throughout the customer relationship, we continue to promote adoption and usage of our Value+ services through a variety of channels, including email, webinars, training, sales outreach and from within our software solution via in-app messaging.

Customer Service

Our success is based on long-term customer retention, not a one-time sale, and we partner with our customers throughout the life of the relationship to help them navigate their digital transformation. We design our software solutions to be simple and easy to implement, use and manage, and offer unlimited training and support at no extra charge. We pride ourselves on being customer-centric and strive to educate our customers on the additional core functionality and Value+ services they can use to improve business efficiency and productivity.

Our onboarding team strives to ensure that customers are prepared to run their businesses on our platform and provide a seamless onboarding experience. As a result of our assistance with data migration matters, we are able to provide valuable insights into data integrity and work diligently with our customers to help resolve any issues in their underlying business processes. We also assist our customers with the configuration of our platform for particular property types or cases, as appropriate. We provide a dedicated team throughout the onboarding process and beyond, and share insights on best practices in both of our targeted verticals. In addition, certain members of our Value+ teams are focused on guiding our customers through the adoption and utilization of our Value+ services.

where applicable, Value Added Services.
Technology and Operations

Data SecurityOur products are powered by a highly scalable computing platform and Availability

are designed with a strong focus on data security and availability. We use Ruby-on-Rails as our primary web application framework, for both APM and MyCase.we take great care to keep this application framework and the rest of our software stack current in order to mitigate known security vulnerabilities. Our software solutions run on a combination of both publiccomputing platform and private cloud infrastructure consisting of both our own servers and Amazon’sare primarily powered by Amazon Web Services’ Elastic Compute Cloud (EC2) platform. Our serversIn order to ensure that data is not lost and that customer requests can be satisfied, production assets are located in state-of-the-art data centers operated by third-party service providers. Physical securitysecurely replicated and regularly backed up to multiple geographic regions.

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at these facilities includes a variety of access controls, including electronic keycards, pin codes, biometric hand scans and mantraps, and policing by high resolution, motion sensitive video surveillance. These facilities provide redundant power and a system of heating, ventilating and air conditioning, as well as fire-threat detection and suppression. We utilize a system of redundant routers, switches, server clusters and back-up systemsmonitor our production infrastructure to help ensure high availability. Amazon is widely recognized for operating state-of-the-art, highly availableperformance and availability, and our architecture allows our operators significant flexibility in achieving these goals. In particular, we have fine-grained control over the specific server and region on which each customer's data centers.resides, and can move customer data between different geographic regions in order to avoid service disruption or to increase service performance.

With respect to Internet security, sensitiveSensitive customer data, such asincluding passwords, Social Security, and tax identification numbers, areis encrypted during transmission, and before being written to disk. In addition, all sensitive data is encrypted both in transit and at rest. Data is backed up using Amazon’s Simple Storage Service providing high durability, and we also perform regular backups of all customer data. We regularly evaluate our Internetproduct and infrastructure security, regularly, including through third-party penetration testing.

In addition, our software solutionsproducts allow our customers to define roles that provide different levels of access to users, allowing them to view and modify specific items depending on their role. Supervisors can distribute work to on-site staff in a secure and controlled environment, while leadership retains visibility across the entire system.

Some sensitive customer actions require secondary verification via two-factor authentication, and any customer can enable two-factor authentication for logging into their account.
Research and Product Development

We entrust product design, developmentrely heavily on input from our customers and testingprospective customers in developing products that meet their needs and in anticipating developments in their businesses. We perform research and market validation efforts to our team of engineers, who coordinate closely withguide our product management team to launch new core functionality and Value+ services. Our engineers are organized in smaller groups to foster agility and continued innovation in responding to the evolving needs of our customers. We leverage a collaborative, team-based and test-driven approach to engineering in order to release new code frequently.roadmap. We believe that it is easier for our customers to adjust to continuous updates to our software solutions,platform, which incrementally change and improve their user experience than it is to adapt to infrequent, but more drastic, upgrades of legacy on-premise software.

We rely heavily on input from our customers in developing products that meet their needs and in anticipating developments in their respective industries. Our product management team leads our research and market validation efforts and provides guidance to management and our engineering team based on our collective domain expertise and in-depth knowledge and understanding of our customers. As a result, our product management team engages regularly with customers, partners and other industry participants, as well as our customer service and sales and marketing organizations. Our product management team manages our development projects generally and serves to align separate functions within the company with a single strategic vision.
Our research and product development expenses were $16.6 million, $12.6 million and $9.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.upgrades.
Competition
The overall market for business management softwaresolutions in the real estate and other industries is global, highly competitive and continually evolving in responseto respond to changes in technology, operational requirements, and ever-changing laws and regulations. While we focus on providing software solutions to SMBs in each of our targeted verticals, weWe believe our competitors primarily fall into the following primary categories:
• On-premise or cloud-based vertical marketreal estate business management softwareservice providers that serve companies of all sizes in our markets; and
• On-premise or cloud-based horizontal business management softwareservice providers that offer broad solutions across multiple verticals.industries.
We also seeexperience competition from numerous cloud-based solutionsolutions providers that focus almost exclusively on one or more point solutions. For example,solutions in the property management vertical, we compete with listing services, tenant screening applications and specialistsreal estate industry or in lease forms. In the legal vertical, we compete with time tracking, legal billing and payment services.other industries. Continued consolidation among cloud-based solution providers could lead to significantly increasedincrease competition.
We believe the principal competitive factors in each of our vertical markets include the following:
▪ease of deployment and use of software solutions and applications;
▪total cost of ownership;
▪data security and availability;
▪breadth and depth of functionality in software solutions and applications;
▪nature and extent of mobile interface;


▪level of customer satisfaction;
▪size of customer base and level of user adoption and usage;
▪brand awareness and reputation;
▪ability to innovate and respond to customer needs rapidly;
▪domain expertise with respect to our targeted verticals; and
▪ability to leverage a common technology platform and business strategy.
We believe that we compete favorably on the factors described above. However, someSome of our competitors may have greater financial, technical and other resources, greater name recognition and larger sales and marketing budgets; therefore, we may not always compare favorably with respect to some or all of the foregoing factors. Further, the barrier to entry for competition in one or more areas we serve may be low, which could lead to competition from new entrants who solve similar problems in different ways.
Intellectual Property
We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality procedures and contractual restrictions to establish and protect our proprietary rights in our core solutions and Value+ services. As of January 31, 2018, we had twelve issued United States patents that directly relate to our technology and expire between 2026 and 2033.Value Added Services. We intend tomay pursue additional patent protection to the extent we believe it would be beneficial and cost effective.
We registered “AppFolio,” "MyCase" and "RentLinx" and certain other marks as trademarks in the United States and several other jurisdictions. We also filed trademark applications and renewals in the United States and certain other jurisdictions and will pursue additional trademark registrations to the extent we believe it would be beneficial and cost effective. We are the registered holder of a variety of domestic and international domain names that include “appfolioinc.com,” “appfolio.com,” “mycase.com” and similar variations. We also license software from third parties for use in our solutions, including open source software and other software available on standard commercial terms.cost-effective.
We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties. Despite our precautions, it may be possible for unauthorized third parties to copy our software solutionsproducts and use information that we regard as proprietary to create products and services that compete with ours.
SeasonalityHuman Capital


We experience limited seasonalitybelieve our people are at the heart of our success. Our employees’ dedication to and passion for creating and delivering transformative solutions provides us with a competitive advantage and creates long-lasting relationships with our customers. We believe our efforts in creating and maintaining strong connections — with our Value+ services revenue, primarilycustomers, partners, and team members — differentiates AppFolio as a great place to work. This has led to recognition that demonstrates our valued company culture and workplace: Fortune recognized AppFolio as a Great Place to Work for Women in 2021, and the annual Glassdoor Employees’ Choice Awards listed AppFolio as one of the Best Places to Work in 2022.

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Our company culture, driven by the following six core values, fuels our dedication and passion:
•Simpler Is Better
•Great, Innovative Products Are Key To A Great Business
•Great People Make A Great Company
•Listening To Customers Is In Our DNA
•Small, Focused Teams Keep Us Agile
•We Do The Right Thing; It’s Good For Business

As of December 31, 2021, we had 1,600 employees. We routinely engage temporary employees and consultants. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationships with respectour employees and consultants to be strong. To maintain this strong relationship and attract new talent, our human capital management efforts focus on the following initiatives:
Diversity, Equity, and Inclusion. Diversity is core to our values and, we believe, necessary to drive innovation and collective growth. Our commitment to these imperatives starts at the leadership level and cascades to our talented employees, who we look to lead and foster various initiatives. AppFolio’s employee-led resource groups create an environment where everyone is valued for their uniqueness, while also feeling part of the larger whole. We work hard to make sure our employees’ voices are heard, from our practice of small, focused teams to setting annual company initiatives together as an organization.
When we surveyed our workforce in 2021, of those who elected to share, 45.1% identified as women, 54.1% as men, and 0.8% as nonbinary.
Our recruiting practices focus on attracting and hiring employees with diverse backgrounds, experiences, and approaches at all levels of the company. We have key partnerships with universities and professional organizations and provide ongoing education to our hiring teams that are focused on closing the diversity gap and growing our team.
Employee Development. We invest significant resources to develop the talent needed to remain at the forefront of innovation and make us an employer of choice. Employees throughout our organization have access to training and learning programs which include programs for distinct audiences. Our annual engagement survey provides a platform for employees to provide anonymous feedback directly to their managers and our executives. Based on results from our 2021 engagement survey, the overall engagement of employees is greater than the technology industry average.
Societal Impact. Connecting and contributing to our communities is a long-standing tradition and important activity for our employees. Our team members are passionate about many causes and we encourage them to participate in these causes by providing eight hours of volunteer time off annually. In addition, throughout the year, we come together as a company to engage in community service through “AppFolio Gives Back,” where we donate time and funds to several charities that are selected by our employee-led Give Back Committee with AppFolio matching donations.
Compensation and Benefits. Our compensation and benefits programs support the wellness of our employees and their families so they feel they can live their best lives both at work and at home. Our competitive compensation packages may include base salary, commission or annual performance-based bonuses, and stock-based compensation. We also offer family-forming benefits, paid parental leave, paid sabbaticals, paid leave to care for family members, and access to fertility networks and discounts on fertility care. We review our programs periodically to ensure they remain competitive.
Health, Safety, and Wellness. We are committed to providing a safe workplace for our employees and assisting them in maintaining a healthy work-life balance. We regularly solicit feedback to assess the well-being and needs of our employees and offer resources focused on mental health and physical wellness. Specific to the screening servicesCOVID-19 pandemic, we have also taken measures to support the health and safety of our employees and their families. We continue to provide a monthly stipend to our property manager customers. These customers historically have processed fewer applications for new tenants during the fourth quarter holiday season; therefore, revenue associated with our screening servicesemployees in an effort to help ensure each team member has a comfortable and new tenant applications typically declines in the fourth quarter of the year. As a result of this seasonal decline in revenue,functional work-from-home environment and we have typically experienced slower sequential revenue growth oradded training and toolkits focused on helping employees be successful in a sequential decline in revenue inremote work environment. We have enhanced internal lifestyle programs, such as virtual group fitness classes, and increased supplemental time off to create additional space for employees to reset and recharge.
In July 2021, we began transitioning our employees back to the fourth quarter of eachworkplace on a voluntary basis. When the environment allows us to safely do so, we expect to move forward with a hybrid work model, where a majority of our most recent fiscal years.employees work out of one of our offices several days a week. We expect this seasonalitycontinue to continue in the foreseeable future.evolve and upgrade our physical locations to ensure safe and healthy workspaces for our team members.

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Segments


We have one operating and reportable segment consisting of various products and services that are all related to our cloud-based business management software and Value + platforms for various vertical markets. For our revenue, net loss and total assets, see our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
Corporate Information
We were formed in 2006 as a Delaware limited liability company and converted to a Delaware corporation in 2007. Our principal executive offices are located at 50 Castilian Drive, Santa Barbara, California 93117, and our telephone number is (805) 364-6093. Our corporate website is www.appfolioinc.com. The information contained on or accessed through our website does not constitute part of, and is not incorporated by reference into this Annual Report. References to our website address in this Annual Report are inactive textual references only.
“AppFolio,” “MyCase,” "RentLinx," the AppFolio logo, the MyCase logo, and other trademarks and trade names of AppFolio, MyCase and RentLinx appearing in this Annual Report are our property. All other trademarks or trade names appearing in this report are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report


are referred to without the ® and ™ symbols. We do not intend our use or display of the trademarks, trade names or service marks of other parties to imply a relationship with, or endorsement or sponsorship of us by, such other parties.
Available Information
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, as well as amendments to those reports pursuant to Sections 13(a) and 15(d) of the Exchange Act. We also file proxy statements and information statements pursuant to Section 14 of the Exchange Act. The public may obtain these filings at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains the reports, proxy and information statements, and other information that we file with or furnish to the SEC electronically. Copies of the reports, proxy statements and other information may also be obtained, free of charge, electronically through our corporate website, at www.appfolioinc.com, as soon as reasonably practical after we file such material with, or furnish it to, the SEC.
ITEM 1A.     RISK FACTORS


An investment in our Class A common stock involves risks. You should consider carefully consider the risks and uncertainties described below, together with all of the other information included in this Annual Report, as well as in our other public filings with the SEC, before makingin evaluating our business and/or an investment decision.in our Class A common stock. If any of the following risks are realized,actually occur, our business, financial condition, and operating results and future prospects could be materially and adversely affected. In that case, the trading price of our Class A common stock may decline and you couldmight lose all or part of your investment. Furthermore, additionalThe risks and uncertainties of whichdescribed below are not the only ones we are currently unaware, or whichface. Additional risks that we currently considerdo not know about or that we currently believe to be immaterial could have a material adverse effect onmay also impair our business.business, financial condition, operating results and prospects.
Please be advised that certain of the risks and uncertainties described below contain “forward-looking statements.” See the section of this Annual Report entitled “Cautionary Note Regarding “Forward-Looking Statements”Statements” for additional information.
Risks Related to Growing Our Business
If we do not accurately predict and Our Industry
We managerespond promptly to rapidly evolving technological developments and customer needs, the demand for our products and our business towards the achievement of long-term growth, whichand operating results may not be consistent with the short-term expectations of some investors.harmed.
We planCustomer demands are constantly changing in response to continue to manage our business towards the achievement of long-term growth thatnew technology and other market factors. To compete effectively, we believe will positively impact long-term stockholder value,must identify and not towards the realization of short-term financial or business metrics, or short-term stockholder value. If opportunities arise that might cause us to sacrifice our performance with respect to short-term financial or business metrics, but that we believe areinnovate in the best interests of our stockholders, we will take those opportunities.
We focus on growing our customer base by launching new and innovative core functionality and Value+ services to addressright technologies, accurately predict our customers’ evolving business needs, developing new products for adjacent markets and additional verticals, and improving the experience ofcontinually improve our users across our targeted verticals. We prioritize product innovation and user experience over short-term financial or business metrics. We will make product decisions that reduce our short-term operating results if we believe that these decisions are consistent with our strategic objective to achieve long-term growth. These decisions may not be consistent with the short-term expectations of some investors, and may cause significant fluctuations in our operating results from period to period. In addition, notwithstanding our intention to make strategic decisions that positively impact long-term stockholder value, the decisions we make may not produce the long-term benefits we expect.
Our executive officers, directors and principal stockholders control a majority of the combined voting power of our outstanding capital stock. As a result, they are able to exercise significant influence and control over the establishment and implementation of our future business plans and strategic objectives, as well as control all matters submitted to our stockholders for approval. These persons may manage our business in ways with which you disagree and which may be adverse to your interests.
own technology platform. If we fail to manage our growth effectively, it could adversely affect our operating results and preclude us from achieving our strategic objectives.
We have experienced significant growth since our formation in 2006, and we anticipate that we will continue to experience growth and expansion of our operations. This growth in the size, complexity and diversity of our business has placed, and we expect that our growth will continue to place, a significant strain on our management, administrative, operational and financial resources, as well as our company culture. Our future success will depend, in part, on our ability to manage this growth effectively. To manage the expected growth of our operations and personnel, we will need to continue to develop and improve our operational and financial controls and our reporting systems and procedures, and to nurture and build on our company culture. Failure to effectively manage growth could adversely impact our business, including by resulting in errors or delays in deploying new core


functionality to our customers, delays or difficulties in introducing new Value+ services or other products, declines in the quality or responsiveness of our customer service organization, increases in costs and operating expenses, and other operational difficulties. Ifexecute against any of these risks actually occur, it could adversely affect our operating results, and preclude us from achieving our strategic objectives.
We have a limited operating history and limited experience selling our solutions. As a result of continuing investments across our organization to grow our business, we expect our financial results may fluctuate significantly for the foreseeable future.
We were formed in 2006 and in 2008 we entered the real estate market with our first product, APM, to serve property managers. In 2012, we entered the legal vertical through the acquisition of MyCase. As a result, we have a limited operating history and limited experience selling our software solutions in two continually evolving vertical markets, especially within the legal vertical. These and other factors combine to make it more difficult for us to accurately forecast our future operating results, which in turn makes it more difficult for us to prepare accurate budgets and implement strategic plans. We expect that this uncertainty will continue to exist in our business for the foreseeable future, and will be exacerbated to the extent we introduce new functionality, or enter adjacent markets or new verticals.
We have made substantial investments across our organization to develop our software solutions and capitalize on our market opportunity. In order to implement our business strategy, we intend to continue to make substantial investments in, among other things:
▪our research and product development organization to enhance the ease of use and functionality of our software solutions by adding new core functionality, Value+ services and other improvements to address the evolving needs of our customers, as well as to develop new products for adjacent markets and new verticals;
▪our customer service organization to deepen our relationships with our customers, assist our customers in achieving success through the use of our software solutions, and promote customer retention;
▪our sales and marketing organization, including expansion of our direct sales organization and marketing programs, to increase the size of our customer base, increase adoption and utilization of new and existing Value+ services by our new and existing customers, and enter adjacent markets and new verticals;
▪maintaining and expanding our technology infrastructure and operational support, including data center operations, to promote the security and availability of our software solutions, and support our growth;
▪our general and administrative functions, including hiring additional finance, IT, human resources, legal and administrative personnel, to support our growth and assist us in achieving and maintaining compliance with public company reporting and compliance obligations;
▪the expansion of our existing facilities, including leasing and building out additional office space, to support our growth and strategic expansion; and
▪our continued strategic efforts to identify and expand into key adjacent and new vertical markets.
As a result of our continuing investments to grow our business in these and other areas, we expect our expenses to increase significantly, and we may not be consistently profitable. Even if we are successful in growing our customer base and increasing revenue from new and existing customers, we may not be able to generate additional revenue in an amount that is sufficient to cover our expenses. We may incur significant losses in a particular period for a number of reasons, and may experience significant fluctuations in our operating results from period to period, including as a result of the other risks and uncertainties described elsewhere in this Annual Report. We cannot assure you that we will continue to achieve profitability in the near term or that we will sustain profitability over any particular period of time. Any additional operating losses will have a negative impact on our stockholders’ equity.
Actual or perceived security vulnerabilities in our software solutions, breaches of our security controls or other unauthorized access to our customers’ data could result in liability or reputational harm to us, or cause us to lose customers, any of which could harmforegoing, our business and operating results.
In providing our software solutions, we store and transmit large amounts of our customers’ data, including sensitive and proprietary data. Our software solutions are typically the system of record, system of engagement and, increasingly, the system of intelligence for all or a portion of our customers’ businesses, and the data processed through our software solutions is critical to their businesses. Cyber-attacks and other malicious Internet-based activities continue on a regular basis, as evidenced by the recent targeting of a number of high profile companies and organizations. As our business grows, the number of users of our software solutions, as well as the amount of information we store, is increasing, and our brands are becoming more widely


recognized. We believe these factors combine to make us an even greater target for this type of malicious activity. Techniques used to sabotage, or to obtain unauthorized access to, systems or networks change frequently and generally are not recognized until launched against a target. Therefore, despite our significant efforts to keep our systems and networks up to date, weresults may be unable to anticipate these techniques, react in a timely manner, or implement adequate preventive measures, any of which may expose us to a risk of loss, litigation and potential liability.harmed. In addition, some of our third-party partners also collect information from transactions with our customers, and these third parties are subject to similar threats of cyber-attacks and other malicious Internet-based activities.
If our security measures, or the security measures of our third-party partners, are breached as a result of negligence, wrongdoing or malicious activity on the part of our employees, our partners’ employees, our customers’ employees, or any third party, or as a result of any error, product defect or otherwise, and this results in the disruption of the confidentiality, availability or integrity of our customers’ data, we could incur liability to our customers and to individuals or organizations whose information was being stored by our customers, as well as fines from payment processing networks and regulatory action by governmental bodies. If we experience a widespread security breach, we cannot be certain that our insurance coverage will be sufficient to compensate us for liabilities actually incurred or that insurance will continue to be available to us on reasonable terms, or at all. In addition, any breaches of our security controls or other unauthorized access to our customers’ data could result in reputational damage, adversely affect our ability to attract new customers and cause existing customers to reduce or discontinue the use of our software solutions, any of which could harm our business and operating results. Furthermore, the perception by our current or potential customers that our software solutions could be vulnerable to security breaches, even in the absence of a particular problem or threat, could reduce market acceptance of our software solutions and cause us to lose customers.
Service outages due to malicious activities or performance problems associated with our technology infrastructure could harm our reputation, adversely affect our ability to attract new customers and cause us to lose existing customers.
We have experienced significant growth in the number of users and the amount of data that our technology infrastructure supports, and we expect this growth to continue. We seek to maintain sufficient excess capacity in our technology infrastructure to meet the needs of all of our customers, including to facilitate the expansion of existing customer deployments and the provisioning of new customer deployments. In addition, we need to properly manage our technology infrastructure in order to support version control, changes in hardware and software parameters, and the evolution of our software solutions. However, the provision of new hosting infrastructure requires significant lead-time.
We have experienced, and may in the future experience, website disruptions, service outages and other performance problems with our technology infrastructure. These problems may be caused by a variety of factors, including infrastructure changes, power or network outages, fire, flood or other natural disasters affecting our data centers, human or software errors, viruses, security breaches, fraud or other malicious activity, spikes in customer usage and distributed denial of service issues. In some instances, we may not be able to identify the cause or causes of these service outages and performance problems within an acceptable period of time. If our technology infrastructure fails to keep pace with the increased number of users and amount of data, or if we are unable to avoid service outages and performance problems, or to resolve them quickly, this could adversely affect our ability to attract new customers, result in the loss of existing customers and harm our reputation, any or all of which could adversely affect our business and operating results.
We face a number of risks in our payment processing business that could adversely affect our business or operating results.
In connection with our electronic payment services, we process payments and subsequently submit these payments to our customers after varying clearing times established by us. These payments are settled through our sponsoring clearing bank and, in the case of electronic funds transfers, or EFTs, through our Originating Depository Financial Institutions, or ODFIs, pursuant to agreements with one or more national banking institutions that we may contract with from time to time. Our electronic payment services subject us to a number of risks, including, but not limited to:
▪liability for customer costs related to disputed or fraudulent transactions if those costs exceed the amount of the customer reserves we have during the clearing period or after payments have been settled to our customers;
▪electronic processing limits on the amounts that any single ODFI, or collectively all of our ODFIs, will underwrite;
▪our reliance on sponsoring clearing banks, card payment processors and other electronic payment partners to process electronic transactions, especially where those partners are highly scrutinized and regulated themselves;
▪failure by us, our partners or our customers to adhere to applicable laws, regulations and standards that may legally or contractually apply to the provision of electronic payment services;
▪continually evolving and developing laws and regulations governing money transmission and anti-money


laundering, the application or interpretation of which is not clear in some jurisdictions;
▪incidences of fraud, security breaches, errors, defects, failures, vulnerabilities or bugs in our electronic payments platform, or our failure to comply with required external audit standards; and
▪our inability to increase our fees at times when our electronic payment partners increase their transaction processing fees.
If any of these risks related to our electronic payment services were to materialize, our business or operating results could be negatively affected. Although we attempt to structure and adapt our electronic payment services to comply with complex and evolving laws, regulations and standards, our underwriting efforts do not guarantee compliance. In the event that we are found to be in violation of our legal, regulatory or contractual requirements, we may be subject to monetary fines or penalties, cease and desist orders, mandatory product changes, or other liabilities that could have an adverse effect on our operating results.
Additionally, with respect to the processing of EFTs, we are exposed to financial risk. EFTs between our customer and another user may be returned for various reasons such as insufficient funds or stop payment orders. These returns are charged back to the customer by us. However, if we or our sponsoring clearing bank is unable to collect such amounts from the customer’s account (such as if the customer is illegitimate, or if the customer refuses or is unable to reimburse us for the amounts charged back), we bear the risk of loss for the amount of the transfer. While we have not experienced material losses resulting from amounts charged back in the past, there can be no assurance that we will not experience these types of significant losses in the future.
In addition to the foregoing risks associated with our electronic payment services themselves, there is an overarching risk stemming from the potential widespread adoption of quickly evolving financialdisruptive technology products including, for example, blockchain or other distributed ledger technologies, that could materiallysignificantly impact the manner in which paymentsreal estate industry, even if such products are processed. Suchnot specifically designed to apply directly to the real estate industry. The adoption of these new disruptive financial technologies could significantly reduce the volume or demand of payments processed by usour customers and our third party partners or change the transaction costs associated with or potential revenue derived from those payments,users, thereby reducing our revenue, and increasing our associated expenses, which could materially impact our business, financial condition and operating resultsresults.
We participate in an intensely competitive market and ultimately, our stock price.
Evolution and expansion of our electronic payment services may subject us to additional risks and regulatory requirements.
The evolution and expansion of our electronic payment services may subject us to additional risks and regulatory requirements, including laws and regulations governing money transmission and anti-money laundering. These requirements vary throughout the markets in which we operate, and several jurisdictions lack clarity with respect to the application and interpretation of these rules. Our efforts to comply with these rules could require significant management time and effort, as well as significant expenditures, and will not guarantee our compliance with all regulatory requirements, especially given that the applicable regulatory frameworks are constantly changing and subject to evolving interpretation. While we maintain a compliance program focused on applicable laws and regulations throughout our applicable industries, there is no guarantee that we will not be subject to fines, penalties or other regulatory actions in one or more jurisdictions, or be required to adjust our business practices to accommodate future regulatory requirements.
Errors, defects or other disruptions in our software solutions could harm our reputation, cause us to lose customers, and result in significant expenditures to correct the problem.
Our customers use our software solutions to manage critical aspects of their businesses, and any errors, defects or other disruptions in the performance of our software solutions may result in loss of or damage to our customers’ data and disruption to our customers’ businesses, which could harm our reputation. We provide continuous updates to our software solutions and, while our software updates undergo extensive testing prior to their release, these updates may contain undetected errors when first introduced. In the past, we have discovered errors, failures, vulnerabilities and bugs in our software updates after they have been released, and similar problems may arise in the future. Real or perceived errors, failures, vulnerabilities or bugs in our software solutions could result in negative publicity, reputational harm, loss of customers, delay in market acceptance of our software solutions, loss of competitive position, withholding or delay of payment to us, claims by customers for losses sustained by them and potential litigation. In any such event, we may be required to expend additional resources in order to help correct the problem or, in order to address customer service or reputational concerns, we may choose to expend additional resources to take corrective action even where not required. The costs incurred in correcting any material errors, defects or other disruptions could be substantial and there mayharmed if we do not be any corresponding increase in revenue to offset these costs. In addition, we may not carry insurance sufficient to compensate us for any losses that may result from claims arising from errors, defects or other disruptions in our software solutions.compete effectively.


Our quarterly results may fluctuate significantly and period-to-period comparisons of our results may not be meaningful.
Our quarterly results, including the levels of our revenue, costs, operating expenses, and operating margins, may fluctuate significantly in the future, and period-to-period comparisons of our results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of our future performance. In addition, our quarterly results may not fully reflect the underlying performance of our business. Factors that may cause fluctuations in our quarterly results include, but are not limited to:
▪our ability to retain our existing customers, and to expand adoption and utilization of our core solutions and Value+ services by our existing customers;
▪our ability to attract new customers, the type of customers we are able to attract, the size and needs of their businesses, and the cost of acquiring these customers;
▪the mix of our core solutions and Value+ services sold during the period;
▪the timing and impact of security breaches, service outages or other performance problems with our technology infrastructure and software solutions;
▪variations in the timing of sales of our core solutions and Value+ services as a result of trends impacting the verticals in which we sell our software solutions;
▪the timing and market acceptance of new core functionality, Value+ services and other products introduced by us and our competitors;
▪changes in our pricing policies or those of our competitors;
▪the timing of our recognition of revenue;
▪our ability to convert customers who start their accounts on a free trial into paying subscribers;
▪the amount and timing of costs and operating expenses related to the maintenance and expansion of our business, infrastructure and operations;
▪the amount and timing of costs and operating expenses associated with assessing or entering adjacent markets or new verticals;
▪the amount and timing of costs and operating expenses related to the development or acquisition of businesses, services, technologies or intellectual property rights, and potential future charges for impairment of goodwill from these acquisitions;
▪the timing and costs associated with legal or regulatory actions;
▪changes in the competitive dynamics of our industry, including consolidation among competitors, strategic partners or customers;
▪loss of our executive officers or other key employees;
▪industry conditions and trends that are specific to the verticals in which we sell or intend to sell our software solutions; and
▪general economic and market conditions.
Fluctuations in quarterly results may negatively impact the value of our Class A common stock, regardless of whether they impact or reflect the overall performance of our business. If our quarterly results fall below the expectations of investors or any securities analysts who follow our stock, or below any guidance we may provide, the price of our Class A common stock could decline substantially.
Business management software for SMBs is a relatively new and developing market and, if the market is smaller than we estimate or develops more slowly than we expect, our operating results could be adversely affected.
We currently provide cloud-based business management software for SMBs in the real estate and legal markets and, as part of our business strategy, we will assess entry into new verticals. While the overallThe market for cloud-based business management software is rapidly growing, it is not as mature as the market for legacy on-premise software applications. In addition, when


compared to larger enterprises, SMBs have not historically purchased enterprise resource planning or other enterprise-wide software systems to manage their businesses due to the cost and complexity of implementing such systems, which generally did not address their industry-specific needs. Furthermore, a number of widely adopted cloud-based solutions have not traditionally targeted SMBs. As a result, many SMBs still run their businesses using manual processes and disparate software systems that are not web-optimized, while others may have invested substantial resources to integrate a variety of point solutions into their organizations to address one or more specific business needs and, therefore, may be reluctant to migrate to a vertical cloud-based solution designed to apply to their entire business. Because we derive, and expect to continue to derive, substantially all of our revenue from sales of our cloud-based business management software to SMBs in our targeted verticals, our success will depend, to a substantial extent, on the widespread adoption by SMBs in these verticals of cloud computing in general and of cloud-based business management software in particular.
The market for industry-specific, cloud-based business management software for SMBs, both generally, and specifically within the real estate and legal markets, is evolving and, in comparison to the overall market for cloud-based solutions is relatively small. The continued expansion of this market depends on numerous factors, including:
▪the cost and perceived value associated with cloud-based business management software relative to on-premise software applications and disparate point solutions;
▪the ability of cloud-based solution providers to offer SMBs the functionality they need to operate and grow their businesses;
▪the willingness of SMBs to transition from their existing software systems, or otherwise alter their existing businesses practices, to migrate their businesses to a vertical cloud-based business management software solution; and
▪the ability of cloud-based solution providers to address security, privacy, availability and other concerns.
If cloud-based business management software does not achieve widespread market acceptance among SMBs, our revenue may increase at a slower rate than we expectglobal, highly competitive and may even decline, which could adversely affect our operating results. In addition, it is difficult to estimate the rate at which SMBs will be willing to transition to vertical cloud-based business management softwarecontinually evolving in any particular period, which makes it difficult to estimate the overall size and growth rate of the market for cloud-based business management software for SMBs at any given point in time or to forecast growth in our revenue or market share.
Our estimates of market opportunity are subject to significant uncertainty and, even if the markets in which we compete meet or exceed our size estimates, we could fail to increase our revenue or market share.
Market opportunity estimates are subject to significant uncertainty and are based on assumptions and estimates, including our internal analysis and industry experience. Assessing the market for industry-specific, cloud-based business management software for SMBs is particularly difficult dueresponse to a number of factors, including limited available informationchanges in technology, operational requirements, and rapid evolutionlaws and regulations. We compete with both other real estate industry cloud-based solution providers and providers of broad cloud-based solutions across multiple industries. We also face competition from numerous cloud-based solution providers that focus almost exclusively on one or more point solutions. Our competitors include established vendors, as well as newer entrants in the market. If we had made different assumptions, our estimates of market opportunity could be materially different.
In addition, even if the markets inOur established competitors may have greater name recognition, longer operating histories, and significantly greater resources, which we compete meetallows them to respond more quickly and effectively to new or exceed our size estimates, our business could fail to grow in line with our forecasts,changing opportunities or at all, and we could fail to increase our revenue or market share. Our growth, and our ability to serve a significant portion of our target markets, will depend on many factors, including our success in executing our business strategy, which is subject to many risks and uncertainties, including the other risks and uncertainties described elsewhere in this Annual Report.
 If we are unable to introduce successful enhancements, including new and innovative core functionality and Value+ services for our existing markets and verticals, or new products for adjacent markets or additional verticals, our operating results could be adversely affected.
The software industry in general, and our targeted verticals in particular, are characterized by rapid technological advances, changing industry standards, evolving customerchallenges, technologies, operational requirements and intense competition.industry standards. Our abilitycompetitors who are new entrants to attract new customers, increase revenue from our existing customers,the market, and expand into adjacent markets or new verticals depends, in part, on our abilitygenerally smaller, may have more nimble operations due to enhance the functionalityhaving fewer products and less overhead and may be willing to take legal and operational risks, which allows them to launch products and meet customer demand more quickly and efficiently. Regardless of our existing software solutions by introducing new and innovative core functionality and Value+ services that keep pace with technological developments, and provide functionality that addresses the evolving business needs of our customers. In addition, our growth over the long term depends, in part, on our ability to introduce new products for adjacent markets and additional verticals that we identify through our market validation process. Market acceptance ofsize, our current and future softwarepotential competitors may develop, market and sell new technologies with comparable functionality to our solutions, will depend on numerous factors, including:which could cause us to lose customers, slow the rate of growth of new customers and/or cause us to decrease our prices to remain competitive, which could harm our business.
▪the unique functionality of our software solutions and the extent to which our software solutions meet the business needs of our customers;


▪the perceived benefits and security of our cloud-based business management software solutions relative to on-premise software applications or other competitive products;
▪the pricing of our software solutions relative to competitive products;
▪perceptions about the security, privacy and availability of our software solutions relative to competitive products;
▪time-to-market of the updates and enhancements to our core functionality, Value+ services and new products; and
▪perceptions about the quality and responsiveness of our customer service organization.
If we are unable to successfully enhance the functionalityexpand sales of our existing software solutions to new markets and new industries, our business and operating results may suffer.
Our growth strategy includes expanding sales of our solutions to new markets and, potentially, new industries. These new markets and industries, include larger customers within the real estate space, housing types outside of multi-family and single-family residential, and industries other than real estate. Acceptance of our current and future solutions in new markets and industries will depend on numerous factors, including our coreability to provide more sophisticated functionality and features, the pricing of our solutions relative to competitive products, perceptions about the security, privacy and Value+availability of our solutions relative to competitive products, and the time-to-market of updates and enhancements to our services and developproducts. There is no guarantee we will be successful in achieving all or any of the foregoing. Additionally, sales to new products that gain market acceptance in adjacent markets and additional verticals,industries will involve risks that are not present, or are present to a lesser extent, in sales to the markets and industry we currently serve, and such risks may include new regulatory regimes, longer sale cycles, increased chance of litigation with customers, increased risk and impact of reputational harm, and increased competition. We may not be able to sufficiently mitigate such risks, which would impact our ability to successfully expand our business. If we are unable to successfully expand sales of our solutions to new markets and, potentially, industries, our revenue may increase at a slower rate than we expect and may even decline, which could adversely affect our operating results.
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Our business depends substantially on existing customers renewing their subscriptions with us and expanding their use of our Value+ services,Value Added Services, and a decline in customer renewal rates, or failure to convince existing customers to adopt and utilize our Value+ services,either could adversely impactaffect our operating results.
In order forFor us to maintain or increase our revenue and improve our operating results, it is important that our existing customers continue to pay subscription fees for the use of our core solutions, which tend to incrementally rise over time, as well as increase their adoption and utilization of our Value+ services.Value Added Services. Our customers have no obligation tomay not renew their subscriptions with us, upon expiration of their subscription periods, which typically range from one month to one year. We cannot assure you that our customers will renew their subscriptions with us. In addition, our customers that start their accounts using a 30-day free trial have no obligation to begin a paid subscription. Furthermore, although a significant portion of our revenue growth has historically resulted from the adoption and utilization of our Value+ services by our existing customers, we cannot assure you that our existing customers will continue to broaden their adoption and utilization of our Value+ services,Value Added Services, or use our Value+ servicesValue Added Services at all. If our existing customers do not renew their subscriptions and increase their adoption and utilization of our existing or newly developed Value+ services,Value Added Services, our revenue may increase at a slower rate than we expect and may even decline, which could adversely impactaffect our financial condition and operating results.
Word-of-mouth referrals represent a significant source of new customers for us and provide us with an opportunity to cost-effectively market and sell our software solutions. The loss of our existing customers could have a significant impact on our reputation in our targeted verticals and our ability to acquire new customers cost-effectively. A reduction in the number of our existing customers, even if offset by an increase in new customers, could have the impact of reducingreduce our revenue and operating margins.
     In an effort We may need to retain our customers and to expand our customers’ adoption and utilization of our Value+ services, we may choose to useemploy increasingly costly sales and marketing efforts. In addition, we mayefforts and make significant investments in research and product development to introduce Value+ servicesValue Added Services that ultimately are not broadly adopted by our customers. In either of those cases, we could incur significantly increased costs without a corresponding increase in revenue. Furthermore, we may fail to identify Value+ servicesValue Added Services that our customers need for their businesses, in which case we could miss opportunities to increase our revenue.
We expectOur inability to continue to derive a significant portion ofeffectively maintain and promote our revenue from our property manager customers, and factors resulting in a loss of these customersbrands could adversely affect our operating results.
Historically, more than 90% of our revenue has been derived from APM, our property management solution, and we expect that our property manager customers will continue to account for a significant portion of our revenue for the foreseeable future. We could lose property manager customers as a result of numerous factors, including:
▪the expiration and non-renewal of subscriptions or termination of subscription agreements;
▪the introduction of competitive products or technologies;
▪a failure or inability by us to continue to provide high quality, useful products and services to our customers;
▪changes in pricing policies by us or our competitors;
▪acquisitions or consolidations within the property management industry;
▪bankruptcies or other financial difficulties facing our customers; and


▪conditions or trends that are specific to the property management industry such as the economic factors that impact the rental market.
The loss of a significant number of our property manager customers, or the loss of even a small number of our larger property manager customers, could cause our revenue to increase at a slower rate than we expect or even decline. In addition, even if we are able to retain our property manager customers, we may be unable to grow revenue from these property manager customers by increasing their adoption and utilization of our Value+ services. Any of these outcomes could adversely affect our operating results.
Our growth depends in part on the success of our strategic relationships with third parties, and if we are unsuccessful in establishing or maintaining these relationships, our ability to compete in the market place or grow our revenue could be impaired.
In order to grow our business, we anticipate that we will continue to depend on our relationships with third parties, including our data center operators, electronic payment and background and credit check partners, and other third parties that support delivery of our software solutions. Identifying partners, negotiating agreements and maintaining relationships requires significant time and resources. Our competitors may be more effective than us in cost-effectively building relationships with third parties that enhance their products and services, allow them to provide more competitive pricing, or offer other benefits to their customers. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of current and potential strategic partners willing to establish or maintain relationships with us, and could increase the price at which products or services are available to us. If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenue could be impaired, which could negatively impact our operating results. Even if we are successful, we cannot assure you that these relationships will result in increased customer adoption and usage of our software solutions or improved operating results. Furthermore, if our partners fail to perform as expected, we may be subjected to litigation, our reputation may be harmed, and our business and operating results could be adversely affected.  
We depend on data centers and computing infrastructure operated by third parties and any disruption in these operations could adversely affect our operating results.
We currently serve our customers through a combination of our own servers located in third-party data center facilities, and servers and data centers operated by Amazon and other third parties. While we control and have access to our own servers and the other components of our network that are located in our third-party data centers, we do not control the operation of any of these third-party data center facilities. The owners of our data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, or if one of our third-party data center operators is acquired, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and possible service interruptions in connection with doing so. Further, our third-party data center providers could experience significant outages outside of our control that could adversely affect our business.
Problems faced by our third-party data center operators, or with any of the service providers with whom we or they contract, could adversely affect the experience of our customers. Our third-party data center operators could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by our third-party data center operators, or any of the service providers with whom we or they contract, may have negative effects on our business. Additionally, if our data centers are unable to keep up with our growing needs for capacity or any spikes in customer demand, this could have an adverse effect on our business. Any changes in third-party service levels at our data centers could result in loss of or damage to our customers’ stored information and service interruptions, which could hurt our reputation. These issues could also cause us to lose customers, harm our ability to attract new customers and subject us to potential liability, any of which could adverselynegatively affect our operating results.
Our systems are not fully redundant, and we have not yet implemented a complete disaster recovery plan or business continuity plan. Although the redundancies we do have in place will permit us to respond, at least to some degree, to service outages, our third-party data centers are vulnerable in the event of failure. We do not yet have adequate structure or systems in place to recover from a data center’s severe impairment or total destruction, and recovery from the total destruction or severe impairment of any of our third-party data centers could be difficult or may not be possible at all.
We use third-party service providers for important payment processing and reporting functions, and their failure to fulfill their contractual obligations could harm our reputation, disrupt our business and adversely affect our operating results.
We use payment processing organizationsbelieve that maintaining and other service providerspromoting our brands is critical to enable usachieving widespread awareness and acceptance of our solutions, and maintaining and expanding our customer base. We also believe that the importance of brand recognition will increase, as competition for our products and services increases. If we do not continue to build awareness of our brands, we could be placed at a competitive disadvantage compared to companies whose brands are, or become, more recognizable than ours. Maintaining and promoting our brands will depend, in part, on our ability to continue to provide electronic payment services to our customers, including EFT,new and access to various reporting tools, such as backgroundinnovative core functionality and credit checks. As a result, we rely on these organizationsValue Added Services and best-in-class customer service, providers to provide us with accurate and timely information, and we have significantly less


control over these payment processing and reporting functions than if we were to maintain and operate them ourselves. In some cases, functions necessary to our business are performed on proprietary third-party systems and software to which we have no access. We also generally do not have long-term contracts with these organizations and service providers. In addition, some of these organizations and service providers compete with us by directly or indirectly selling payment processing or reporting services to customers. The failure of these organizations and service providers to provide us with accurate and timely information, to fulfill their contractual obligations of us, or to renew their contracts with us, could result in direct liability to us, harm our reputation, result in significant disruptions to our business, and adversely affect our operating results.
Our platform must integrate with a variety of devices, operating systems and browsers that are developed by others, and if we are unable to ensure that our software solutions interoperate with such devices, operating systems and browsers, our software solutions may become less competitive, and our operating results may be harmed.
We offer our software solutions across a variety of operating systems and through the Internet. We are dependent on the interoperability of our platform with third-party devices, desktop and mobile operating systems, as well as web browsers that we do not control. Any changes in such devices, systems or web browsers that degrade the functionalityeffectiveness of our software solutions or give preferential treatment to competitive services could adversely affect adoptionsales and usage of our software solutions. In addition, in ordermarketing efforts. If we fail to deliver high quality software solutions,products and functionality that address our customers’ business needs, or if we will needfail to continuously enhancemeet our customers’ expectations for customer service, it could weaken our brands and modifyharm our functionalityreputation. Maintaining and enhancing our brands may require us to keep pace with changes in Internet-related hardware, mobile operating systems such as iOSmake substantial investments, and Android, browsers and other software, communication, network and database technologies. Wethese investments may not be successfulresult in developing enhancementscommensurate increases in our revenue. If we fail to successfully maintain and modificationspromote our brands, or if we make investments that operate effectively with these devices, operating systems, web browsers and other technologies or in bringing them to market in a timely manner. Furthermore, uncertainties regarding the timing or nature of new network platforms or technologies, and modifications to existing platforms or technologies, could increase our research and product development expenses. In the event that it is difficult for our customers to access and use our software solutions, our software solutions may become less competitive, andare not offset by increased revenue, our operating results could be adversely affected.
The markets in which we participate are intensely competitive and, if we do not compete effectively,We manage our business couldto achieve long-term growth, which may not be harmed.consistent with the short-term expectations of some investors.
The overall market for business management software is global, highly competitiveWe make product decisions and continually evolving in responsepursue opportunities that are consistent with our strategic objective to a numberachieve long-term growth. These decisions may not be consistent with the short-term expectations of factors, including changes in technology, operational requirements,some investors, and laws and regulations. Although relatively early in its development, the market for cloud-based business management software is also highly competitive and subject to similar market factors.
While we focus on providing industry-specific, cloud-based business management software solutions to SMBsmay cause significant fluctuations in our targeted verticals,results of operation and our stock price from period to period. In addition, notwithstanding our intention to make strategic decisions that positively impact long-term value, the decisions we compete withmake may not produce the long-term benefits we expect, which could materially affect our business, financial condition and results of operation.
8

Our acquisition of other vertical cloud-based solution providers that serve companies of all sizes, as well as with horizontal cloud-based solution providers that provide broad cloud-based solutions across multiple verticals. Our competitors include established vertical software vendors, as well as newer entrantsor technologies may subject us to risks.
We have acquired, and may in the market. We also face competition from numerous cloud-based solution providers that focus almost exclusively on onefuture acquire, other companies or more point solutions. Continued consolidation among cloud-based providers could leadtechnologies to significantly increased competition.
Although the domain expertise requiredcomplement or expand our products and solutions, optimize our technical capabilities, enhance our ability to successfully develop, market and sell cloud-based business management software solutions in the real estate and legal verticals may hinder new entrants that are unable to invest the necessary resources to develop and deploy cloud-based solutions with the same level of functionality as ours, many of our competitors and potential competitors are larger and have greater name recognition, longer operating histories, and significantly greater resources than we do. As a result, our competitors may be able to respond more quickly and effectively to newcompete, or changing opportunities, technologies, operational requirements and industry standards. Some of these competitors may have more established customer relationshipsotherwise offer growth or strategic partnerships with third parties that enhance their productsopportunities. We have limited experience acquiring other businesses and services. Other competitors may offer products or services that address one or a number of business functions on a standalone basis at lower prices or bundled as part of a broader product sale, or with greater depth than our software solutions. In addition, our current and potential competitors may develop, market and sell new technologies with comparable functionality to our software solutions, which could cause us to lose customers, slow the rate of growth of new customers and cause us to decrease our prices in order to remain competitive. For all of these reasons, we may not be able to compete effectively againstintegrate acquired assets, technologies, personnel and operations or achieve the anticipated synergies or other benefits from the acquired business due to the inherent risks associated with acquisitions. If an acquisition fails to meet our currentexpectations in terms of its contribution to our overall business strategy or results of operation, or if the costs of acquiring or integrating the acquired business exceed our estimates, our business, results of operation, strategic objectives, and future competitors, which could harm our business.financial condition may suffer.
Pricing pressure may cause usRisks Related to change our pricing model, which could hurt our renewal ratesAttracting and our ability to attract new customers, as well as our ability to increase adoptionRetaining Talent
We depend on highly skilled personnel and, usage of our Value+ services, which could adversely affect our operating results.
As the markets for our existing software solutions mature, or as current and future competitors introduce new products or services that compete with ours,if we may experience pricing pressure and beare unable to renew our subscription agreements with existing customersretain or increase adoption and usage of our Value+ services,hire additional qualified personnel or attract new customers at prices that are consistent


with our current pricing model and operating budget. If this were to occur, it is possible that we would have to change our pricing model, offer pricing incentives, or generally reduce our prices. In addition, our customers are SMBs, which are typically more cost sensitive than larger enterprises. Changes to our pricing model could harm our customer retention rates and our ability to attract new customers, whether in connection with our core solutions or our Value+ services, which could adversely affect our operating results.
Ifif we lose key members of our management team, we may not be able to achieve our strategic objectives and our business may be harmed.
Our success and future growth depend, in part, upon the continued services of our executive officers and other key employees. FromTo execute our growth plan and achieve our strategic objectives, we must continue to attract and retain highly qualified and motivated personnel across our organization. In particular, to continue to enhance our products and solutions, add new and innovative core functionality and/or Value Added Services, as well as develop new products, it will be critical for us to increase the size of our research and product development organization, including hiring highly skilled software engineers. Further, for us to achieve broader market acceptance of our products and solutions, grow our customer base, and pursue new markets consistent with our strategic plan, we will need to continue to increase the size of our sales, marketing and customer service and support organizations. Competition for personnel is intense within our industry and there continues to be upward pressure on the compensation paid to these professionals. Identifying, recruiting, training and retaining qualified personnel is difficult and requires a significant investment of time and resources.
Many of the companies with which we compete for experienced personnel have greater name recognition and financial resources than we have. In addition, our headquarters are located in Santa Barbara, California, which is not generally recognized as a prominent commercial center, and it is challenging to time, thereattract qualified professionals due to our geographic location. As a result, we may be changes inhave even greater difficulty hiring and retaining skilled personnel than our executive officers or other keycompetitors. In addition, prospective and existing employees resulting fromoften consider the hiring or departurevalue of these personnel, which may disrupt our business. Our executive officers and other key employees are generally employed on an at-will basis, which means that these personnel could terminate their employment with us at any time. Additionally, the equity awards held by manythey receive in connection with their employment. If the perceived value of our executive officers and other key employeesequity awards declines, we are closeunable to fully vested, and these employees may not have sufficient financial incentive to stay with us. The loss of oneoffer equity awards in competitive amounts, or moreif the price of our executive officers or other key employees, orClass A common stock experiences significant volatility, this may adversely affect our ability to recruit and retain highly skilled employees. If we are unable to attract and retain the failure bypersonnel necessary to execute our executive teamgrowth plan, we may be unable to work effectively withachieve our employeesstrategic objectives and lead our company, could have an adverse effect on our business.operating results may suffer.
Our corporate culture has contributed to our success and, if we cannot maintaincontinue to foster this culture, as we grow, we could lose the passion, creativity, teamwork, focus and innovation fostered by our culture.
We believe that our culture has been and will continue to be a key contributor to our success. If we do not continue to develop our corporate culture or maintain our core values as we grow and evolve, we may be unable to foster the passion, creativity, teamwork, focus and innovation we believe we need to support our growth. Any failure to preserve our culture could negatively affect our ability to recruit and retain personnel and to effectively focus on and pursue our strategic objectives. Moreover, liquidity available to our employee security holders could lead to disparities of wealth among our employees, which could adversely impact relations among employees and our culture in general. As we grow, and mature as a public company, we may find it difficult to maintain our corporate culture. This difficulty may be exacerbated by remote working conditions, which make it more difficult for employees to interact, communicate and innovate and that may continue indefinitely after COVID-19 pandemic.
We depend
9

Risks Related to Cybersecurity and Data Privacy
Security vulnerabilities in our products or a breach of our security controls could result in the loss, theft, misuse, unauthorized disclosure, or unauthorized access tocustomer or employee data, or other confidential or sensitive information, which could harm our customer and/or employee relationships, expose us to litigation or harm our reputation.
Our business involves the storage and transmission of a significant amount of confidential and sensitive information, including sensitive and proprietary data and personal information collected by or on highly skilled personnelbehalf of our customers, the personal information of our employees, and ifour proprietary financial, operational and strategic information. Like many other businesses, we have experienced, and are unablecontinually at risk of being subject to, retain or hire additional qualified personnel, we may not be able to achievecyber attacks and data security incidents. As our strategic objectives.
To executebusiness grows, the number of users of our growth plan and achieve our strategic objectives, we must continue to attract and retain highly qualified and motivated personnel across our organization. In particular, in order to continue to enhance our software solutions, add new and innovative core functionality and Value+ services,products, as well as develop new products, it will be criticalthe amount of information we collect and store, is increasing, and our brands are becoming more widely recognized, which makes us a greater target for us to increase the size of our research and product development organization, including hiring highly skilled engineers with experience in designing, developing and testing cloud-based software solutions. Competition for software engineers is intense within our industry and there continues to be upward pressure on the compensation paid to these professionals. In addition, in order for us to achieve broader market acceptance of our software solutions, grow our customer base, and pursue adjacent markets and new verticals, we will need to continue to significantly increase the size of our sales and marketing organization. Identifying and recruiting qualified sales personnel and training them in the use of our platform requires significant time and expense, and itmalicious activity. There can be particularly difficult to retain these personnel.
Many ofno assurance that the companies with whichsecurity measures we compete for experienced personnel have greater name recognition and financial resources than we have. If we hire employees from competitorsemploy will prevent malicious or other companies, their former employers may attempt to assert that we or these employees have breached their legal obligations, resulting in a diversion of our time and resources. In addition, our headquarters are located in Santa Barbara, California, which is not generally recognized as a prominent commercial center, and it is challenging to attract qualified professionals dueunauthorized access to our geographic location. As a result, we may have difficulty hiringsystems and retaining suitably skilled personnel withinformation. Furthermore, no security program can entirely eliminate the qualificationsrisk of human error, such as an employee or contractor’s failure to follow one or more security protocols. Therefore, despite our significant efforts to keep our systems, products and motivationnetworks protected and up to expand our business. If we are unable to attract and retain the personnel necessary to execute our growth plan,date, we may be unable to achieveanticipate cyber attacks, detect security incidents or react to them in a timely manner, or implement adequate preventive measures, any of which may expose us to a risk of loss, litigation and potential liability. In addition, some of our strategic objectivesthird-party service providers and partners also collect and/or store our sensitive information and our operatingcustomers’ data on our behalf, and these service providers and partners are subject to similar threats of cyber attacks and other malicious Internet-based activities, which could also expose us to risk of loss, litigation, and potential liability.
If our security measures, or the security measures of our third-party service providers or partners, are breached as a result of wrongdoing or malicious activity on the part of our employees, our partners’ employees, our customers’ employees, or any third party, or as a result of any human error or neglect, product defect or otherwise, and this results in the loss, theft, misuse, unauthorized disclosure, or unauthorized access to customer data or other sensitive information, we could incur liability to our customers and to individuals or organizations whose information was being stored by us or our customers, as well as fines from payment processing networks and regulatory action by governmental bodies. If we experience a widespread security breach, our insurance coverage may suffer.not offset liabilities actually incurred and insurance may not continue to be available to us on reasonable terms, or at all. In addition, security breaches could result in reputational damage, adversely affect our ability to attract new customers and cause existing customers to reduce or discontinue the use of our products and solutions. Furthermore, the perception by our current or potential customers that our products could be vulnerable to exploitation or that our security measures are inadequate, even in the absence of a particular problem or threat, could reduce market acceptance of our products and solutions and cause us to lose customers. The legal and regulatory environment around data security and governance is significantly evolving, and both regulators and consumers are increasingly taking action on data-related matters, which may contribute to increased reputational, economic and other harm in the event of a data security incident.
Privacy and data security laws and regulations could impose additional costs and reduce demand for our solutions.
We store and transmit personal information relating to our employees and other individuals, and our customers use our technology platform to store and transmit a significant amount of personal information relating to their customers, vendors, employees and other industry participants. Federal, state and foreign government bodies and agencies have in the past adopted, and may in the future adopt, laws and regulations regarding the collection, use, processing, storage and disclosure of personal or identifying information obtained from customers and other individuals. These new obligations could increase the cost and complexity of delivering our services.
In addition prospectiveto government regulation, privacy advocates and industry groups may propose various self-regulatory standards that may legally or contractually apply to our business. As new laws, regulations and industry standards take effect, and as we offer new services in new markets, market segments and, potentially, new industries, we will need to understand and comply with various new requirements, which may result in significant additional costs. These laws, regulations and industry standards could have negative effects on our business, including by increasing our costs and operating expenses, and/or delaying or impeding our deployment of new or existing core functionality or Value Added Services. Failure to comply with these laws, regulations and industry standards could result in negative publicity, subject us to fines or penalties, expose us to litigation, or result in demands that we modify or cease existing business practices. In addition, the costs of compliance with, and other burdens imposed by, such laws, regulations and industry standards may adversely affect our customers’ ability or desire to collect, use, process and store personal information using our solutions, which could reduce overall demand for them. Furthermore, privacy and data security concerns may cause our customers’ clients, vendors, employees often considerand other industry participants to resist providing the valuepersonal information necessary to allow our customers to use our applications effectively. Any of these outcomes could adversely affect our business and operating results.
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Risks Related to Our Industry
All of our revenues are presently generated by sales to customers and users in the real estate industry, and factors that adversely affect that industry, or our customers or users within it, could also adversely affect us.
We expect that our real estate industry customers will continue to account for a significant portion or all of our revenue for the foreseeable future. Demand for our solutions and services could be affected by factors that are unique to and adversely affect the real estate industry and our customers within it. If the industry itself declines, our customers may decide not to renew their subscriptions or they may cease using our Value Added Services to reduce costs to remain competitive. Further, we could lose real estate customers as a result of acquisitions or consolidations, bankruptcies or other financial difficulties facing our real estate customers, new or enhanced legal or regulatory regimes that negatively impact the real estate industry, and conditions or trends specific to the real estate industry such as the economic factors that impact the rental market.
Our estimates of market opportunity are subject to significant uncertainty and, even if the markets in which we compete meet or exceed our size estimates, we could fail to increase our revenue or market share.
We determine the level of our investment in various aspects of the equity awardsbusiness, in part, based on our market opportunity estimates. Market opportunity estimates are subject to significant uncertainty and are based on assumptions, including our internal analysis and industry experience. Assessing markets for cloud-based business management solutions in the real estate industry is particularly difficult due to a number of factors, including limited available information and rapid evolution of the industry and markets therein. If we do not accurately estimate our opportunities, we may fail to realize a return on our investment in various aspects of our business, which could lead to a failure to gain market share and negatively impact our long-term growth prospects.
Risks Related to Our Products and Solutions
Errors, defects or other disruptions in our products could harm our reputation, cause us to lose customers, and result in significant expenditures to correct the problem.
Our customers use our products to manage critical aspects of their businesses, and any errors, defects or other disruptions in the performance of our products, including with respect to third party partners upon which certain of our products are dependent, may result in loss of or damage to our customers’ data and disruption to our customers’ businesses, which could harm our reputation. These problems may be caused by a variety of factors, including infrastructure changes, power or network outages, fire, flood or other natural disasters affecting our cloud computing platform providers, human or software errors, viruses, security breaches, fraud or other malicious activity, spikes in customer usage and distributed denial of service attacks. In addition, we provide continuous updates to our products and these updates may contain undetected errors when first introduced. In the past, we have discovered errors, failures, vulnerabilities and bugs in our updates after they receivehave been released, and similar problems may arise in the future. Real or perceived errors, failures, vulnerabilities or bugs in our products could result in negative publicity, reputational harm, loss of customers, delay in market acceptance of our products and solutions, loss of competitive position, withholding or delay of payment to us, claims by customers for losses sustained by them and potential litigation or regulatory action. In any such event, we may be required to expend additional resources to help correct the problem or we may choose to expend additional resources to take corrective action even where not required. The costs incurred in correcting any material errors, defects or other disruptions could be substantial. In addition, we may not carry insurance sufficient to offset any losses that may result from claims arising from errors, defects or other disruptions in our products.
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We face risks in our electronic payment services business that could adversely affect our business and/or results of operation.
In our electronic payments services business, we facilitate the processing of both inbound and outbound payments for our customers. These payments are settled through our sponsoring clearing bank, card payment processors, and other third-party electronic payment services providers that we may contract with from time to time. Our electronic payment services subject us to a number of risks, including, but not limited to, liability for customer costs related to disputed or fraudulent transactions and other incidences of fraud in our electronic payment services ecosystem. Additionally, with respect to the processing of electronic payment transactions by our third-party electronic payment services providers, we are exposed to financial risk. Electronic payment transactions between our customer and another user may be returned for various reasons such as insufficient funds, fraud or stop payment orders. If we or any of our electronic payment services providers are unable to collect such amounts from the customer’s account, we bear the ultimate risk of loss for the transaction amount.
We face risks in our tenant screening services business that could adversely affect our business and/or operating results.
Our tenant screening services business is subject to a number of complex laws that are subject to varying interpretations, including the Fair Credit Reporting Act (the "FCRA"), the Fair Housing Act, and related regulations. The FCRA continues to be the subject of multiple class-based litigation proceedings, as well as numerous regulatory inquiries and enforcement actions. In addition, entities such as the Federal Trade Commission and the Consumer Financial Protection Bureau have the authority to promulgate rules and regulations that may impact our customers and our business and have made various public statements that tenant screening is an area of focus for such agencies. Although we attempt to structure our tenant screening services to comply with relevant laws and regulations, we have previously been accused of not complying with such laws and regulations and may be found to be in violation of them. In addition we have been and expect in the future to be subject to routine regulatory inquiries, enforcement actions, class-based litigation and/or indemnity demands.
As previously disclosed, in January 2021, we entered into a settlement agreement with the Federal Trade Commission (the "FTC") to resolve allegations that we failed to comply with certain sections of the FCRA. In connection with their employment. If the perceived valuesettlement, we paid a fine and agreed to ongoing compliance and reporting obligations. Our failure to comply with these obligations could result in material additional penalties or other actions by the FTC or other agencies, including enjoining our ability to provide screening services.
Due to the large number of tenant screening transactions in which we participate, our equity awards declines,potential liability in any enforcement action or if the pricea class action lawsuit could have a material impact on our business, especially given that certain applicable laws and regulations provide for fines or penalties on a per occurrence basis. The existence of our Class A common stock experiences significant volatility, thisany such enforcement action or class action lawsuit, whether meritorious or not, may adversely affect our ability to recruit and retain highly skilled employees. If we fail to attract new personnel or to retain and motivate our current personnel, we may not be able to achieve our strategic objectives.
If we are unable to enter new verticals, or if our software solution for any new vertical fails to achieve market acceptance, our operating results could be adversely affected and we may be required to reconsider our growth strategy.
Our growth strategy is dependent, in part, on our ability to expand into new verticals, beyond the real estate and legal markets. However, we may be unable to identify new verticals that meet our criteria for selecting industries that cloud-based


solutions are ideally suited to address. In addition, our market validation process may not support entry into selected verticals due to our perception of the overall market opportunity or of the willingness of market participants within those verticals to adopt our software solutions. Further, instead of pursuing new verticals, we may prefer for various reasons to pursue alternative growth strategies, such as entry into markets that are adjacent to the markets in which we currently participate within our existing verticals, or the development of additional products or services for our existing markets.
Even if we choose to enter new verticals, our market validation process does not guarantee our success in any particular vertical. We may be unable to develop a software solution for a new vertical or,customers, result in the event that we enter a new vertical by wayloss of a strategic acquisition, we may be unable to leverage the acquired software solution in time to take advantage of the identified market opportunity, and any delay inexisting customers, harm our time-to-market could expose us to additional competition or other factors that could impede our success. In addition, any software solution we develop or acquire for a new vertical may not provide the functionality required by potential customers and, as a result, may not achieve widespread market acceptance within the new vertical. To the extent we choose to enter new verticals, whether organically or via strategic acquisition, we may invest significant resources to develop and expand the functionality of our software solutions to meet the needs of customers in those verticals, which investments will occur in advance of our realization of revenue from them. 
In addition, while we expedited our entry into the legal vertical through the acquisition of MyCase in 2012, our practice and case management solution is in an earlier stage of development than APM, our property management solution, and we are at an earlier stage in the process of expanding the core functionality and Value+ services associated with our legal software. We face significant competition in the legal market from both vertical software vendors and cloud-based solution providers that offer one or more point solutions. There can be no assurance that we will be able to achieve market acceptance for our legal software at or near the levels achieved by our property management software. The success of our vertical market strategy depends, in part, on our ability to continue to significantly increase the number of our law firm customers and the revenue derived from them, and our failure to achieve these objectives could have an adverse impact on our operating results.
We have acquired, and may in the future acquire, other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations.
We have acquired, and may in the future acquire, other companies or technologies to complement or expand our software solutions, optimize our technical capabilities, enhance our ability to compete in our targeted verticals, provide an opportunity to expand into an adjacent market or new vertical, or otherwise offer growth or strategic opportunities. For example, in 2012, we acquired MyCase and in April 2015, we acquired RentLinx. The pursuit of acquisitions may divert the attention of managementreputation and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.
We have limited experience acquiring other businesses. We may not be able to integrate acquired assets, technologies, personnel and operations successfully or achieve the anticipated synergiesdefense costs or other benefits from the acquired business due to a number of risks associated with acquisitions, including:
▪incurrence of acquisition-related costs;
▪difficulties integrating the assets, technologies, personnel or operations of the acquired business in a cost-effective manner, or inability to do so;
▪difficulties and additional expenses associated with supporting legacy products and services of the acquired business;
▪difficulties converting the customers of the acquired business to our software solutions and contract terms;
▪diversion of management’s attention from our business to address acquisition and integration challenges;
▪adverse effects on our existing business relationships with customers and strategic partners as a result of the acquisition;
▪cultural challenges associated with integrating employees from the acquired organization into our company;
▪the loss of key employees;
▪use of resources that are needed in other parts of our business;
▪use of substantial portions of our available cash to consummate the acquisition; and
▪unanticipated costs or liabilities associated with the acquisition.


If an acquired business fails to meet our expectations in terms of its contribution to our overall business strategy, or if the costs of acquiring or integrating the acquired business exceed our estimates, our business, operating results and financial condition may suffer. In addition, acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could impose restrictions on our ability to operate our business and adversely affect our operating results. Furthermore, a significant portion of the purchase price of companies we may acquire could be allocated to goodwill and other intangible assets, which must be assessed for impairment. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our operating results.expenses.
If our property managermanagement customers stop requiring residents to provide proof of legal liability to landlord insurance coverage for their units, if insurance premiums decline or if insureds experience greater than expected losses, our operating results could be harmed.
We generate a portion of our revenue by offering legal liability to landlord insuranceinsurance-related services through a wholly owned subsidiary. Some of our property manager customers require residents to provide proof of legal liability to landlord insurance and offer to enroll residents in their legal liability to landlord insurance policy.subsidiaries. If demand for rental housing declines, or if our property managermanagement customers believe that it may decline, these customers may reduce their rental rates and stop requiring residents to provide proof of legal liability to landlord insurance in ordercoverage for their units to reduce the overall cost of renting and make their rental offerings more competitive. If our property managermanagement customers stop tracking and requiring residents to provide proof of legal liability to landlord insurance coverage for their units or elect to enroll residents inuse other methods of tracking and acquiring insurance programs offered by competing providers, or if insurance premiums otherwise decline,coverage, demand for our insurance-related products may drop and our revenues from our insurance servicesrelated products could be adversely affected.
Additionally, our legal liability to landlord insurance policies are underwritten by us, and we are required by our insurance partner to maintain a reserve to cover potential claims under the policies. While our policies have a limit of $100,000 per occurrence, there is no limit on the dollar amount of claims that could be made against us in any particular period or in the aggregate.
In the event that claims by the insureds increase unexpectedly, our reserve may not be sufficient to cover our resulting liability under the policies. To the extent we are requiredfound to pay out amountsbe in violation of the legal requirements applicable to insureds that are significantly higher than our current reserves, this could have a material adverse effect onproducts and services, our business and operating results.results may be adversely affected.
Our insurance business is subject to state governmental regulation, which could limit the growthMany of our insurance businessproducts and impose additional costs on us.
Our insurance-related wholly owned subsidiaries and third-party service providers maintain licenses with a number of individual state departments of insurance. Collectively, weservices are subjecthighly regulated or intended to state governmental regulation and supervisionbe used in connection with other highly regulated activities. Some of the operationlaws and regulations to which our products and services are subject include, without limitation:
•the Fair Housing Act;
•the FCRA;
•Title VII of the Civil Rights Act;
•the Telephone Consumer Protection Act;
•the Americans with Disabilities Act;
•the Electronic Signatures in Global and National Commerce Act;
•the Federal Trade Commission Act Section 5; and
•the Federal Trade Commission Act;
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State law equivalents of the foregoing, plus various state regulations related to insurance licensing and solicitation, utility billing practices and privacy also apply to certain of our insurance business, which includes both our legal liability to landlord insuranceproducts and more recent renters insurance businesses. This state governmental supervision could limitservices. In addition, the growthevolution and expansion of our insurance business by increasing the costs of regulatory compliance, limiting or restricting the products orand services we provide or the methods by which we provide them, and subjectingmay subject us to the possibility ofadditional risks and regulatory actions or proceedings. Our continued abilityrequirements. For example, as our electronic payments services business evolves, we may become directly subject to maintain these insurance licenses in the jurisdictions in which we are licensed depends on our compliance with the ruleslimitations, laws and regulations promulgated from time to time by the regulatory authorities in each of these jurisdictions. Furthermore, state insurance departments conduct periodicgoverning money transmission and anti-money laundering.
In addition, we periodically undergo examinations, audits and investigations ofrelated to our services, including those related to the affairs of insurance companies and agencies any of which could result in the expenditure of significant management time or financial resources.
     In all jurisdictions, the applicable laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally, suchelectronic payment services providers.Such examining, auditing, and investigating authorities are generally vested with relatively broad discretion to grant, renew and revoke licenses and approvals, and to implement and interpret rules and regulations. Accordingly,regulations, levy fines and penalties, and bring enforcement actions. While we may be precluded or temporarily suspended from carryinghave implemented various programs, processes and controls focused on some or all of the activities of our insurance business or otherwise be fined or penalized in a given jurisdiction. No assurances can be given that our insurance business can continue to be conducted in any given jurisdiction as it has been conducted in the past or that we will be able to expand our insurance business in the future.


All of our revenues are generated by sales to customers in our targeted verticals, and factors that adversely affect the applicable industry could also adversely affect us.
Currently, all of our sales are to customers in the real estate and legal markets. Demand for our software solutions could be affected by factors that are unique to and adversely affect our targeted verticals. In particular, the real estate and legal markets are highly regulated, subject to intense competition and impacted by changes in general economic and market conditions. For example, changes in applicable laws and regulations could significantly impact the software functionality demanded by our customers and require us to expend significant resources to ensure our software solutions continue to meet their evolving needs. In addition, other industry-specific factors, such as industry consolidation or the introduction of competing or disruptive technology, could lead to a significant reduction in the number of customers that use our software solutions within a particular vertical or the Value+ services demanded by these customers. Further, if the real estate or legal markets decline, our customers may decide not to renew their subscriptions or they may cease using our Value+ services in order to reduce costs to remain competitive. As a result, our ability to generate revenue from our real estate and legal market customers could be adversely affected by specific factors that affect the real estate or legal markets.
In addition to the foregoing risks associated with our targeted verticals themselves, there is an overarching risk stemming from potential widespread adoption of quickly evolving financial or other disruptive technology products that could significantly impact our targeted verticals, even if that technology is not specifically designed to apply directly to our targeted verticals. The adoption of these new technologies could significantly reduce the volume or demand of customers in our targeted verticals, thereby reducing our revenue, which could materially impact our business, financial condition, operating results and, ultimately, our stock price.
Our software solutions address functions within the heavily regulated real estate and legal markets, and our customers’ failure to complycompliance with applicable laws and regulations couldthroughout our business, there is no guarantee that we will not be subject us to litigation.
We sell our software solutions to customers within the real estate and legal markets. Our customers use our software solutions for business activities that are subject to a number of laws and regulations, including without limitation state and local real property laws and legal ethics rules. Any failure by our customers to comply with laws and regulations applicable to their businesses could result in fines, penalties or claims for substantial damages againstother regulatory actions in one or more jurisdictions, or be required to adjust our customers. Tobusiness practices to accommodate future regulatory requirements. In the extent our customers believeevent that our software solutions or our customer service organization caused or contributed to such failures, our customers may make claims for damages against us, regardless of whether we are responsible for the failure. As a result,found to be in violation of our legal, regulatory or contractual requirements, we may be subject to lawsuitsmonetary fines or penalties, cease-and-desist orders, mandatory product changes, or other liabilities that even if unsuccessful, could divert our resources and our management’s attention and adversely affecthave an adverse effect on our business and operating results.
If we fail to maintain relationships with third-party partners that enable certain functionality within our solutions, our business and operating results may be harmed.
Certain functionality of our services is provided or supported by third-parties, including without limitation functions related to cloud computing, texting, emailing, electronic payments, tenant screening, and insurance coveragerelated offerings. If our third-party partners cease providing their products or we are otherwise unable to integrate with such third-party products, our solutions and demand for our solutions could be adversely impacted and business and operating results would be harmed. In addition, our competitors may be more effective than us in cost-effectively building relationships with third parties that enhance their products and services, allow them to provide more competitive pricing, or offer other benefits to their customers. Acquisitions of our partners by our competitors or others could result in a decrease in the number of current and potential strategic partners willing to establish or maintain relationships with us, and could increase the price at which products or services are available to us. If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenue could be impaired, which could negatively impact our operating results.
If we are unable to ensure that our solutions interoperate with third-party devices, operating systems and browsers, our solutions may become less competitive and our operating results may be harmed.
We depend on the interoperability of our platform with third party devices, desktop and mobile operating systems, as well as web browsers that we do not control. Any changes in such devices, systems or web browsers that degrade the functionality of our solutions or give preferential treatment to competitive services could adversely affect the adoption and usage of our solutions. In addition, to deliver high quality solutions, we will need to continuously enhance and modify our functionality to keep pace with technical, contractual, and other changes in Internet-related hardware, mobile operating systems such as iOS and Android, browsers, communication, network and database technologies. We may not be sufficientsuccessful in developing enhancements and modifications that operate effectively with these devices, operating systems, web browsers and other technologies or in bringing them to cover such claims against us.market in a timely manner. Furthermore, uncertainties regarding the timing or nature of new network platforms or technologies, and modifications to existing platforms or technologies, could increase our research and product development expenses. In the event that it is difficult for our customers to access and use our solutions, our solutions may become less competitive, and our operating results could be adversely affected.
If we are unable to deliver effective customer service, it could harm our relationships with our existing customers and adversely affect our ability to attract new customers.customers and our operating results.
Our business depends, in part, on our ability to satisfy our customers both by providing software solutions that address their business needs, and by providing on-boardingonboarding services and ongoing customer service, which contributes to retaining customers and increasing adoption and utilization of our Value+ services by our existing customers.service. Once our software solutions are deployed, our customers depend on our customer service organization to resolve technical issues relating to their use of our solutions. We may be unable to respond quickly to accommodate short-term increases in customer demand for support services or may otherwise encounter a customer issue that is difficult to resolve. If a customer is not satisfied with the quality or responsiveness of our customer service,As we could incur additional costs to address the situation. As wegenerally do not separately charge our customers for support services, increased demand for our support services would increase costs without corresponding revenue, which could adversely affect our operating results. In addition, regardless of the quality or responsiveness ofFurther, our customer service efforts, a customer that is not satisfied with an outcome may choose to terminate, or not to renew, their relationship with us.
     Our sales process is highly dependent on the ease of use of our software solutions, our reputation and positive recommendations from our existing customers. Any failure to maintain high-quality or responsive customer service, or a market perception that we do not maintain high-quality or responsive customer service, could harm our reputation, cause us to lose customers and adversely impact our ability to sell our software solutions to prospective customers.
If we are unableRisks Related to maintain and promote our brands, or to do so in a cost-effective manner, our ability to maintain and expand our customer base will be impaired, and our operating results could be adversely affected.
We believe that maintaining and promoting our brands is critical to achieving widespread awareness and acceptance of our software solutions, and maintaining and expanding our customer base. We also believe that the importance of brand recognition will increase as competition in our targeted verticals increases. If we do not continue to build awareness of our brands, we could be placed at a competitive disadvantage as compared to companies whose brands are, or become, more recognizable than ours. Maintaining and promoting our brands will depend, in part, on our ability to continue to provide new and innovative core


functionality and Value+ services and best-in-class customer service, as well as the effectiveness of our sales and marketing efforts. If we fail to deliver products and functionality that address our customers’ business needs, or if we fail to meet our customers’ expectations for customer service, it could weaken our brands and harm our reputation. Additionally, the actions of third parties which are out of our control may affect our brands and reputation if customers do not have a positive experience using the services of our third-party partners that support our software solutions. Maintaining and enhancing our brands may require us to make substantial investments, and these investments may not result in commensurate increases in our revenue. If we fail to successfully maintain and promote our brands, or if we make investments that are not offset by increased revenue, our operating results could be adversely affected.
If we are unable to increase sales of our software solutions to larger customers while mitigating the risks associated with serving such customers, our business and operating results may suffer.
While we plan to continue to market and sell our software solutions to SMBs, our growth strategy is dependent, in part, upon increasing sales of our software solutions to larger customers within the SMB market. Sales to larger customers may involve risks that are not present, or are present to a lesser extent, in sales to smaller businesses. As we seek to increase our sales to larger customers, we may invest considerably greater amounts of time and financial resources in our sales and marketing efforts. In addition, we may face longer sales cycles and experience less predictability and greater competition in completing some of our sales than we have in selling our software solutions to smaller businesses. Although we generally have not configured our software solutions or negotiated our pricing for specific customers, which has historically resulted in reduced upfront selling costs, our ability to successfully sell our software solutions to larger customers may be dependent, in part, on our ability to develop functionality, or to implement pricing policies, that are unique to particular customers. It may also be dependent on our ability to attract and retain sales personnel with experience selling to larger organizations. Also, because security breaches or other performance problems with respect to larger customers may result in greater economic harm to these customers and more adverse publicity, there is increased financial and reputational risk associated with serving such customers. If we are unable to increase sales of our software solutions to larger customers, while mitigating the risks associated with serving such customers, our business and operating results may suffer.
Because we recognize revenue from subscriptions for our software solutions over the term of each subscription agreement, downturns or upturns in new business may not be immediately reflected in our operating results.
We recognize revenue from customers ratably over the term of each subscription agreement, which typically ranges from one month to one year. As a result, some of the revenue we report in each period is derived from the recognition of deferred revenue relating to subscription agreements entered into during previous periods. Consequently, a decline in new or renewed subscriptions in any one period may not be reflected in our revenue results for that period. However, any such decline will negatively affect our revenue in future quarters. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription period. Accordingly, the effect of downturns or upturns in our sales, the market acceptance of our software solutions, and potential changes in our customer retention rates, may not be apparent in our operating results until future periods.
Because our invoicing is generally for periods less than one year, our revenue growth is heavily dependent on new subscription sales, consumption of our usage-based Value+ services and renewals of our subscription services in the current year.
Our growth is heavily dependent on subscription sales, adoption and consumption of our usage-based Value+ services and renewals of our subscription services in the current year. We offer our core solutions and Value+ subscription services to customers pursuant to subscription agreements with relatively short terms, typically ranging from one month to one year. We generally invoice our customers for subscription services in monthly, quarterly or annual installments, typically in advance of the subscription period. We do not currently intend to extend the typical terms of our subscription agreements with any regularity, or to invoice our customers less frequently, and we expect that we will continue to depend on current-year sales and renewals to drive our growth.Intellectual Property Matters
Failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brands, which could harm our business.
We currently rely on patent, trademark, copyright and trade secret laws, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect our intellectual property rights. Our success and ability to compete depend, in part, on our ability to continue to protect our intellectual property, including our proprietary
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technology and our brands. If we are unable to protect our proprietary rights adequately, our competitors could use the intellectual property we have developed to enhance their own products and services, which could harm our business.
In order to To monitor and protect our intellectual property rights, we may be required to expend significant resources. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to


management, and could result in the impairment or loss of portions of our intellectual property or require us to pay costly royalties. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Accordingly, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our business and operating results.
We may be sued by third parties for alleged infringement of their proprietary rights, which could cause us to incur significant expenses and require us to pay substantial damages.
There is considerable patent, trademark, copyright, trade secret and other intellectual property development activity in our industry. Our success depends, in part, on our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may legally own or claim to own intellectual property relating to our technology or software solutions.solutions, including without limitation technology we develop and build internally and/or acquire. From time to time, our competitors or other third parties may claim that we are infringing upon their intellectual property rights. However, we may be unaware of the intellectual property rights that others may claim cover some or all of our technology or software solutions. Any claims or litigation, regardless of merit, could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages, settlement costs or ongoing royalty payments, require that we comply with other unfavorable license and other terms, or prevent us from offering our software solutions in their current form. Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the attention of our management and key personnel from our business operations and harm our operating results.
Our software solutions contain both third-party and open source software, which may pose risks to our proprietary source code and/or introduce security vulnerabilities, and could have a negativematerial adverse impact on our business and operating results.

We use open source software in our software solutions and expect to continue to do so in the future. The terms of many open source licenses to which we are subject have not been interpreted by United States or foreign courts, and there is a risk that open source licenses could be construed in a manner that imposes unanticipated conditions, restrictions or costs on our ability to provide or distribute our software solutions. Additionally, we may from time to time face claims from third parties alleging ownership of, or demanding release of, the open source software or of derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation, which could be costly for us to defend, and could require us to make our source code freely available, purchase a costly license or cease offering the implicated core functionality and Value+ services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and product development resources, and we may not be able to complete it successfully or in a timely manner. In addition to risks related to license requirements, usage of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. These risks could be difficult to eliminate or manage, and could have a negative impact on our business and operating results.

We also use third-party commercial software in our software solutions and expect to continue to do so in the future. Third-party commercial software is developed outside of our direct control and may introduce security vulnerabilities that may be difficult to anticipate or mitigate. Further, there is no guarantee that third-party software developers or open source software providers will continue active work on the third-party software that we use. Should development of in-use third-party software cease, significant engineering effort may be required to create an in-house solution. These risks could also be difficult to eliminate or manage, and could have a negativematerial adverse impact on our business and operating results.
Changes in laws and regulations relatedRisks Related to the Internet or changes in the Internet infrastructure itself may diminish the demand forOur Financial Results
We expect to make substantial investments across our software solutions, and could have a negative impact on our business.
The future success oforganization to grow our business, depends upon the continued use of the Internetwhich may impact profitability.
To implement our business and growth strategy, we have made and will continue to make substantial investments across our organization and, as a primary medium for commerce, communicationresult, our expenses may increase significantly impacting profitability. For example, we intend to continue to make substantial investments in, among other things: our research and business services. Federal, state or foreign government bodies or agencies have inproduct development organization to enhance the past adopted, and may in the future adopt, laws or regulations affecting the use of the Internet as a commercial medium. Changes in these laws or regulations, including laws impacting net neutrality, could decrease the demand for our software solutions and services and/or increase our cost of doing business, or require us to modify our software solutions to comply with or otherwise address any new or changed laws or regulations.
In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the Internet, or for the commerce conducted via the Internet. These laws or charges could limit the growth of Internet-related commerce or communications generally, result in reductions in the demand for Internet-based business services such as ours, and cause us to incur significant expenses.
The use of the Internet in general could be adversely affected by delays in the development or adoption of new standards


and protocols to handle increased demands of Internet activity, accessibility, reliability, security, cost, ease of use and qualityfunctionality of service. In addition,our solutions and develop new products; our sales and marketing organization, including expansion of our direct sales organization and marketing programs, to increase the usesize of our customer base and increase adoption and utilization of new and existing Value Added Services by our new and existing customers; and maintaining and expanding our technology infrastructure and operational support to promote the Internet as a medium for commerce, communicationsecurity and business servicesavailability of our products and solutions. Even if we are successful in growing our customer base and increasing revenue from new and existing customers, we may have been, and may continuenot be able to be, adversely affected by concerns regarding network outages, software errors, viruses, security breaches, fraud or other malicious activity. If the use of the Internetgenerate additional revenue in an amount that is adversely affected by these issues, demand forsufficient to cover our software solutions could decrease.
Privacy and data security laws and regulations could impose additional costs on us and reduce the demand for our software solutions.expenses.
Our customers storequarterly results may fluctuate significantly and transmit a significant amountperiod-to-period comparisons of personal or identifying information through our technology platform. Privacyresults may not be meaningful.
Our quarterly results, including the levels of our revenue, costs, operating expenses, and data security have become significant issues in the United States and in other jurisdictions where weoperating margins, may offer our software solutions. The regulatory framework relating to privacy and data security worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Federal, state and foreign government bodies and agencies have in the past adopted, and mayfluctuate significantly in the future, adopt, laws and regulations regarding the collection, use, processing, storage and disclosure of personal or identifying information obtained from customers and other individuals. In addition to government regulation, privacy advocates and industry groups may propose various self-regulatory standards that may legally or contractually apply to our business. Because the interpretation and application of many privacy and data security laws, regulations and applicable industry standards are uncertain, it is possible that these laws, regulations and standards may be interpreted and applied in a manner inconsistent with our existing privacy and data management practices. As we expand into new jurisdictions or verticals, we will need to understand and comply with various new requirements applicable in those jurisdictions or verticals.
To the extent applicable to our business or the businessesperiod-to-period comparisons of our customers, these laws, regulations and industry standards could have negative effects onresults may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of our business,future performance. We may experience significant fluctuations in our operating results from period to period, including by increasing our costs and operating expenses, and/or delaying or impeding our deployment of new or existing core functionality or Value+ services. Compliance with these laws, regulations and industry standards requires significant management time and attention, and failure to comply could result in negative publicity, subjectlosses. This may make it difficult for us to fineseffectively allocate our resources to achieve our strategic goals. Furthermore, if our quarterly results fall below the expectations of investors or penalties,any securities analysts who follow our stock, or result in demandsbelow any financial guidance we may provide, the price of our common stock could decline substantially.
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There are risks associated with potential future indebtedness that we modify or cease existing business practices. In addition, the costs of compliance with, and other burdens imposed by, such laws, regulations and industry standards may adversely affect our customers’ ability or desire to collect, use, processfinancial condition and store personal information using our software solutions, which could reduce overall demand for them. Even the perception of privacyfuture financing agreements may contain restrictive operating and data security concerns, whether or not valid, may inhibit market acceptance of our software solutions in certain verticals. Furthermore, privacy and data security concerns may cause our customers’ clients, vendors, employees and other industry participants to resist providing the personal information necessary to allow our customers to use our applications effectively. Any of these outcomes could adversely affect our business and operating results.financial covenants.
We may requireincur additional capitalindebtedness in the future and/or enter into new financing arrangements. Our ability to supportmeet expenses, to remain in compliance with the covenants under any future debt instruments, and to pay fees, interest and principal on our operations or the growth ofindebtedness will depend on, among other things, our business,operating performance and we cannotmarket conditions. Accordingly, our cash flow may not be certain that this capital will be availablesufficient to allow us to pay principal and interest on favorable terms when required, or at all.
We may need additional capital to grow our businessfuture indebtedness and meet our strategic objectives. Our ability to obtain additional capital, if and when required, will depend on numerous factors, including investor and lender demand, our historical and forecasted financial and operating performance, our market position, and the overall condition of the capital markets. We cannot guarantee that additional financing will be available to us on favorable terms when required, or at all. In addition, if we raise additional funds through the issuance of equity securities, those securities may have powers, preferences or rights senior to the rights of our Class A common stock, and our existing stockholders may experience dilution. If we raise additional funds through the issuance of debt securities, we may incur interest expense or other costs to service the indebtedness, or we may be required to encumber certain assets, which could negatively impact our operating results. Furthermore, if we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support the growth of our business and the achievement of our strategic objectives could be significantly impaired and our operating results may be harmed.
Financing agreements that we are party to or may become party to may contain operating and financial covenants that restrict our business and financing activities. Failure to comply with these covenants, or other restrictions, could result in default under these agreements.
Our existing credit agreement with Wells Fargo as administrative agent, and the lenders that are parties thereto, which we refer to as our Credit Agreement, contains certain operating and financial restrictions and covenants, including limitations on dividends, dispositions, mergers or consolidations, incurrence of indebtedness and liens, and other corporate activities. These restrictions and covenants, as well as those contained in any future financing agreements that we may enter into, may restrict our ability to finance our operations, and to engage in, expand or otherwise pursue our business activities and strategic objectives. Our ability to comply with these covenants may be affected by events beyond our control, and breaches of these covenants could result in a default under our existing Credit Agreement and any future financing agreements that we may enter into. If not waived, defaults could cause any outstanding indebtedness under our Credit Agreement and any future financing agreements that we may enter into to become immediately due and payable.


Because our long-term growth strategy involves expansion of our sales to customers outside the United States, our business will be susceptible to the risks associated with international operations.
A component of our growth strategy involves the expansion of our international operations and worldwide customer base. To date, we have realized an immaterial amount of revenue from customers outside the United States. Operating in international markets will require significant resources and management attention and will subject us to regulatory, economic, geographic and political risks that are different from those in the United States. Because of our limited experience with international operations and significant differences between the United States and international markets, our international expansion efforts may not be successful in creating demand for our software solutions outside of the United States or in effectively selling our software solutions in any international markets we may enter. If we invest substantial time and resources to expand our international operations and are unable to do so successfully, our business and operating results could suffer.

If we fail to maintain an effective system of internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
In connection with the audit of our consolidated financial statements for fiscal year 2014, our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. As of December 31, 2015, we completed remediation of these material weaknesses. However, the completion of remediation does not provide assurance that our controls will continue to operate properly or that our financial statements will not contain any material errors. There may be future material weaknesses in our internal control over financial reporting, and as a result we may not detect financial statement errors on a timely basis. Moreover, in the future we may engage in business transactions, such as acquisitions or reorganizations, implement new accounting standards, or adopt other changes to our business processes, any of which could require us to develop and implement new controls or to modify existing controls, which could negatively affect our internal control over financial reporting and result in material weaknesses.
In the event we experience a material weakness in our internal control over financial reporting in the future, we may not detect errors on a timely basis and our financial statements may be materially misstated. Ineffective internal control over financial reporting, failure to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner and the inability to express an opinion as to the effectiveness of our internal control over financial reporting could cause investors to lose confidence in our reported financial statements and other information, which could have a negative effect on the market price of our Class A common stock. Additionally, it could lead to an investigation by the SEC, NASDAQ Global Market or other regulatory authorities, which could require the expenditure of additional financial and management resources.
We are an emerging growth company and our decision to comply with certain reduced reporting and disclosure requirements could make our Class A common stock less attractive to investors.

We qualify as an emerging growth company under the Jumpstart Our Business Startups, or JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements and may be relieved of other significant requirements that are otherwise generally applicable to public companies. These provisions include:
▪an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting;
▪an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
▪reduced disclosure about our executive compensation arrangements; and
▪exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or stockholder approval of any golden parachute arrangements.

We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. However, in this Annual Report, we are taking advantage of the other exemptions discussed above. Accordingly, the information that we provide to our stockholders may be different from the information you receive from other public companies in which you have invested. If some investors find our Class A common stock less attractive as a result of our reliance on these exemptions, there may be a less active trading market for our Class A common stock, the market price of our Class A common stock may be more volatile, and the trading price of our Class A common stock may be lower than that of comparable companies.



obligations.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2017, we had United States federal net operating loss carryforwards of approximately $73.5 million and state net operating loss carryforwards of approximately $48.0 million, which begin to expire in 2027 and 2023, respectively. As of December 31, 2017 we also had federal and state research and development credit carryforwards of $5.0 million and $5.4 million, respectively. The federal credits carryforwards will begin to expire in 2027, while the state credit carryforwards apply indefinitely. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points50% over a rolling three-year period. Similar rules may apply under state tax laws. It is possible that our existing net operating loss and/or credit carryforwards may be subject to limitations arising from previous ownership changes, and future issuances of our stock could cause an ownership change. Furthermore, our ability to utilize net operating loss and/or credit carryforwards of companies that we have acquired or may acquire in the future may be subject to limitations. AnyThere is also a risk that due to legislative changes, such limitationsas suspensions on our ability tothe use ourof net operating loss carryforwards, and other tax assets could adversely impact our business, financial condition and operating results.
Tax laws or regulations could be enacted or changed and existing tax laws or regulations could be applied to us or to our customers in a manner that could increase the costs of our software solutions and adversely impact our operating results.

The application of federal, state, local and foreign tax laws to services provided electronically is continuously evolving. New income, sales, use or other tax laws, statutes, rules, regulationsunforeseen reasons, our existing net operating loss carryforwards could expire or ordinances couldotherwise be enacted or amended at any time, possibly with retroactive effect, and could be applied solely or disproportionatelyunavailable to services provided over the Internet. These enactments or amendments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and could ultimately result in a negative impact on our operating results.

In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, modified or applied adversely to us, possibly with retroactive effect, which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties, as well as interest on past amounts. If we are unsuccessful in collecting such taxes due from our customers, we could be held liable for such costs, thereby adversely impacting our operating results.
We may be subject to additionaloffset future income tax liabilities.

We are subject to income, sales, use, value added and other taxes in the United States and other jurisdictions in which we conduct business, and such laws and rates vary by jurisdiction. Certain jurisdictions in which we do not collect sales, use, value added or other taxes on our sales may assert that such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to pay or collect such taxes in the future. If we receive an adverse determination as a result of an audit or related litigation, or we unilaterally determine that we have misinterpreted provisions of the tax regulations to which we are subject, there could be a material effect on our tax provision, net income or cash flows in the period or periods for which that determination is made.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Generally accepted accounting principles in the United States, are subject to interpretation by the Financial Accounting Standards Board, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant impact on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.
Risks Related to Our Class A Common Stock
The market price of our Class A common stock may be volatile or may decline regardless of our operating performance, which could result in substantial losses for our stockholders.

The market price of our Class A common stock has been, and is likely to continue to be, highly volatile, and fluctuations in the price of our Class A common stock could cause youthe stockholder to lose all or part of yourtheir investment. For example, during 2017, the share price of our Class A common stock on the NASDAQ Global Market fluctuated between $21.63 and $52.25.


There are numerousa wide variety of factors, many of which are outside our control, that could cause fluctuations in the market price of our Class A common stock including:
▪price and, volume fluctuations in the overall stock market from time to time;
▪volatility in the market prices and trading volumes of securities issued by software companies;
▪changes in operating performance and stock market valuations of other software companies generally, and of companies that sell cloud-based solutions within our targeted verticals in particular;
▪sales of shares of our Class A common stock by us or our stockholders, or perceptions that such sales may occur;
▪any future announcements to repurchase our Class A common stock;
▪failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow us, or our failure to meet these estimates or the expectations of investors;
▪the guidance we may provide to the public, any changes in that guidance, and our performance relative to that guidance;
▪announcements by us or our competitors of new products or services;
▪public reaction to our press releases, filings with the SEC and other public announcements;
▪rumors and market speculation involving us or other software companies;
▪actual or anticipated changes in our operating results or fluctuations in our operating results;
▪actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;
▪litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;
▪developments or disputes concerning our intellectual property or other proprietary rights;
▪announced or completed acquisitions of businesses or technologies by us or our competitors;
▪new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
▪changes in accounting standards, policies, guidelines, interpretations or principles;
▪changes in our management; and
▪general economic conditions and trends, including slow or negative growth of our markets.

In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. If instituted against us, any such litigation, regardless of its merit or final outcome, could result in substantial costs and a diversion of our management’s attention, thereby adversely affecting our operating results and, potentially,and/or the price of our Class A common stock.

The dual class structure of our common stock has the effect of concentratingconcentrates voting control with a limited number of stockholders, including our executive officers, directors and principal stockholders, which will limiteffectively limiting your ability to influence corporate matters.
Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. As of December 31, 2017,2021, the holders of the outstanding shares of our Class B common stock, including our executive officers, directors, and principal stockholders, collectively holdheld approximately 93%89% of the combined voting power of our outstanding capital stock. Because of the 10-to-1 voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock collectively control a majority of the combined voting power of our outstanding capital stock and therefore are able to exercise significant influence and control over the establishment and implementationelection of a majority of our future business plansdirectors and thereby have the power to control our affairs and policies, including the appointment of management and strategic objectives,decisions, as well as to control all matters that are submitted to a vote by our stockholders for approval. These persons may manageholders of our business in ways with which you disagree and whichcommon stock.The interests of our principal stockholders may be inconsistent with or adverse to your interests.those of holders of our Class A common stock. This concentrated control may also have the effect of delaying, deterring or preventing a change-in-control transaction, depriving our stockholders of an opportunity to receive a premium for their capital stock or negatively affecting the market price of our Class A common stock.


Transfers In addition, transfers by holders of our Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions. The conversion of our Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of the holders of our Class B common stock who retain their shares over the long term.

We cannot predict the impact that our capital structure may have on our stock price.
In July 2017, S&P Dow Jones, a provider of widely followed stock indices, has announced that companies with multiple share classes such as ours,of stock will not be eligible for inclusion in certain of their indices. As a result, our Class A common stock will likely not be eligible for those stock indices. Additionally, FTSE Russell, another provider of widely followed stock indices, recently stated that it plans to require new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders. As of December 31, 2017, the holders of the outstanding shares of our Class B common stock, including our executive officers, directors, and principal stockholders, collectively hold approximately 93% of the combined voting power of our outstanding capital stock. Many investment funds are precluded from investing in companies that are not included in suchmajor indices, and these funds would be unable to purchase our Class A common stock. We cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future. Exclusion from these and other indices could make our Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected.
Anti-takeover provisions contained in our amended and restated certificate In addition, several shareholder advisory firms have announced their opposition to the use of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could have the effect of rendering more difficult hostile takeovers, change-in-control transactions or changes in our board of directors or management. Among other things, these provisions:
▪authorize the issuance of preferred stock with powers, preferences and rights that may be senior to our common stock, which can be created and issued by our board of directors without prior stockholder approval;
▪provide for the adoption of a staggered board of directors whereby our board is divided into three classes, each of which has a different three-year term;
▪provide that the number of directors will be fixed by our board of directors;
▪prohibit our stockholders from filling vacancies on our board of directors;
▪provide for the removal of a director only for cause and then only by the affirmative vote of the holders of a majority of the combined voting power of our outstanding capital stock;
▪prohibit stockholders from calling special stockholder meetings;
▪prohibit stockholders from acting by written consent without holding a meeting of stockholders;
▪require the vote of at least two-thirds of the combined voting power of our outstanding capital stock to approve amendments to our certificate of incorporation or bylaws;
▪require advance written notice of stockholder proposals and director nominations;
▪provide for a dual-class common stock structure, as discussed above; and
▪require the approval of the holders of at least a majority of the outstanding shares of our Class B common stock, voting as a separate class, prior to consummating a change-in-control transaction.

multiple class structures. As a Delaware corporation, we are also subjectresult, shareholder advisory firms may publish negative commentary about our corporate governance practices or otherwise seek to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which may delay, detercause us to change our capital structure. Any actions or prevent a change-in-control transaction. Section 203 imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or morepublications by shareholder advisory firms critical of our common stock.
Any provision of Delaware law, our amended and restated certificate of incorporation,corporate governance practices or our amended and restated bylaws, that has the effect of rendering more difficult, delaying, deterring or preventing a change-in-control transaction could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock, andstructure could also adversely affect the


price that some investors are willing to pay for value of our Class A common stock.
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Future sales of shares of our Class A common stock, or the perception that these sales could occur, could depress the market price of our Class A common stock.
Sales of a substantial number of shares of our Class A common stock in the public market, or the perception that these sales might occur, could cause the market price of our Class A common stock to decline or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate, and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales, or the perception that our shares may be available for sale, will have on the prevailing market price of our Class A common stock.
As of December 31, 2017,2021, we had an aggregate of 1.70.8 million options outstanding that, if fully exercised, would result in the issuance of additional shares of Class A common stock or Class B common stock, as applicable. Our Class B common stock converts into Class A common stock on a one-for-one basis. In addition, as of December 31, 2017,2021, we had 0.60.8 million restricted stock units, or RSUs, outstanding which, if fully vested and settled in shares, would result in the issuance of additional shares of Class A common stock. All of the shares of Class A common stock issuable upon the exercise of options (or upon conversion of shares of Class B common stock issued upon the exercise of options), or upon the vesting and settlement of RSUs, have been registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance.
Certain In addition, certain holders of our Class A common stock and Class B common stock have rights, subject to certain conditions, to require us to file registration statements for the public resale of such shares (in the case of Class B common stock, the Class A common stock issuable upon conversion of such shares) or to include such shares in registration statements that we may file for us or other stockholders. Any sales of securities by these stockholders could have a material adverse effect on the market price of our Class A common stock.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, our market or our competitors, or if they adversely change their recommendations regarding our Class A common stock, the market price and trading volume of our Class A common stock could decline.
The trading market for our Class A common stock is influenced, to some extent, by the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. If any of the analysts who cover us adversely change their recommendations regarding our Class A common stock or provide more favorable recommendations about our competitors, the market price of our Class A common stock may decline. If any of the analysts who cover us were to cease coverage of us or fail to publish reports on us regularly, visibility of our company in the financial markets could decrease, which in turn could cause the market price or trading volume of our Class A common stock to decline.
We do not expect to declare any dividends in the foreseeable future.future and may repurchase stock in accordance with our Share Repurchase Program.
We have never declared, or paid any cash dividends on our existing common stock. Weand we do not anticipate declaring or paying, any cash dividends to holders of our Class A common stock in the foreseeable future and intend to retain all future earnings for use in the growth of our business.future. In addition, the terms of our Credit Agreementfuture borrowing arrangements we may enter into from time to time may restrict our ability to pay dividends. Consequently, investors may need to rely on sales of our Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors should
Price appreciation, which may never occur, may be further impacted by repurchases of our shares in accordance with our Share Repurchase Program. Repurchases of our shares could increase the volatility of the trading price of our shares, which could have a material adverse impact on the trading price of our shares. Similarly, the future announcement of the termination or suspension of the Share Repurchase Program, or our decision not purchaseto utilize the full authorized repurchase amount under the Share Repurchase Program, could result in a decrease in the trading price of our shares. In addition, the Share Repurchase Program could have the impact of diminishing our cash reserves, which may impact our ability to finance our growth, complete acquisitions and execute our strategic plan. For additional information regarding our Share Repurchase Program, refer to Note 11, Stockholders' Equity.

Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could have the effect of rendering more difficult hostile takeovers, change-in-control transactions or changes in our Board of Directors or management. Among other things, these provisions authorize the issuance of preferred stock with powers, preferences and rights that may be senior to our common stock, provide for the adoption of a staggered three-class Board of Directors, prohibit our stockholders from filling vacancies on our Board of Directors or calling special stockholder meetings, require the vote of at least two-thirds of the combined voting power of our outstanding capital stock to approve amendments to our certificate of incorporation or bylaws, and require the approval of the holders of at least a majority of the outstanding shares of our Class B common stock voting as a separate class prior to consummating a change-in-control transaction. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which may delay, deter or prevent a change-in-control transaction. Section 203 imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock. Any provision of Delaware law, our amended and restated certificate of incorporation, or our amended and restated bylaws that has the effect of rendering more difficult, delaying, deterring or preventing a change-in-control transaction could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our Class A common stockstock.
Risks Related to Macroeconomic Conditions
Health epidemics, including the COVID-19 pandemic, could have a material adverse impact on our operations, employees culture, customers, and business partners.
The COVID-19 pandemic continues to have, and a future public health crisis could have, repercussions across local, regional, and global economies and financial markets. Travel restrictions, quarantines, and similar government orders to control the spread of COVID-19 or a future virus may result in business closures, work stoppages, slowdowns, and cancellation or postponement of events that, among other effects, could negatively impact our operations, as well as the operations of our customers, and business partners. The demand for our products and services, as well as our operating results, could be adversely
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impacted due to customers delaying decisions to adopt our products and services or terminating their use of our products and services, as they seek to reduce or delay spending to mitigate the impact of the COVID-19 pandemic or a future public health crisis on their businesses.
In March of 2020, in an effort to protect our employees and comply with applicable government orders, in response to the expectationCOVID-19 pandemic, we transitioned our employees to a remote work environment. We began transitioning our employees back to the office in 2021; however, our employees have the option to work remotely until further notice. If the COVID-19 pandemic again requires full remote working conditions, it could have a material adverse impact on our products as the disruption to our operations may result in an increase in errors, failures, vulnerabilities, and bugs. Furthermore, the COVID-19 pandemic may have long-term effects on the nature of receiving cash dividends.the office environment and remote working, which may present operational and workplace culture challenges that may adversely affect our business.
Any of the factors described above, or any number of other risks related to the COVID-19 pandemic or a future public health crisis, could disrupt our business, which could have a material adverse impact on our business, operations and financial results.

Global and regional economic conditions could harm our business.

Adverse global and regional economic conditions such as turmoil affecting the banking system or financial markets, including, but not limited to, tightening in the credit markets, extreme volatility or distress in the financial markets, recessionary or inflationary pressures, supply chain issues, reduced consumer confidence or economic activity, government fiscal and tax policies, and other negative financial news or macroeconomic developments could have a material adverse impact on the demand for our products and services.

Natural disasters or other catastrophic events may cause damage or disruption to our operations, commerce and the global economy, and have a negative effect on our business and operations.

Our business operations are subject to interruption by natural disasters, flooding, fire, power shortages, pandemics, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical instability, war, the effects of climate change (such as drought, wildfires, hurricanes, increased storm severity and sea level rise) and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, could decrease demand for our services, and could cause us to incur substantial expense. Our insurance may not be sufficient to cover losses or additional expenses that we may sustain. The majority of our research and development activities, offices, information technology systems, and other critical business operations are located near major seismic faults in California. Customer data could be lost, significant recovery time could be required to resume operations and our financial condition and operating results could be adversely affected in the event of a major natural disaster or catastrophic event. In addition, the impacts of climate change on the global economy and our industry are rapidly evolving. We may be subject to increased regulations, reporting requirements, standards or expectations regarding the environmental impacts of our business.

Government regulations and laws are continuously evolving and unfavorable changes could adversely affect our operating results, subject us to litigation or governmental investigation, or otherwise harm our business.
In addition to regulations and laws directly applicable to our products and services, we are subject to general business regulations and laws. Unfavorable regulations, laws, and administrative or judicial decisions interpreting or applying laws and regulations applicable to our business could subject us to litigation or governmental investigation and increase our cost of doing business, any of which may adversely affect our operating results. In addition, the application of federal, state, local and foreign tax laws to services provided electronically is continuously evolving. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted or amended at any time, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the Internet. These enactments or amendments could adversely affect our sales activity due to the inherent cost increase such taxes would represent and could ultimately result in a negative impact on our operating results. In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, modified or applied adversely to us, possibly with retroactive effect, which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties, as well as interest on past amounts. If we are unsuccessful in collecting such taxes due from our customers, we could be held liable for such costs, thereby adversely impacting our operating results.

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ITEM 1B.     UNRESOLVED STAFF COMMENTS


None.


ITEM 2.PROPERTIES
ITEM 2.         PROPERTIES
Our corporate headquarters is located in two adjacent buildings in Santa Barbara, California. TheCalifornia, where we lease on the first building covers approximately 43,300166,000 square feet and expiresof space in December 2021. The lease on the second building covers approximately 35,900 square feet and expires in November 2020.
three adjacent office buildings. We also lease office space in San Diego, California and Richardson, Texas under leases that expire at various times between 2021 and 2022.


several other U.S. cities. We do not own any real estate.
We intend to procure additional space as we add employees and expand our operations geographically. We believe our current facilities are adequate for our current needs and that, should it be needed, suitable additional or alternative space will be available to us to accommodate any such expansion of our operations.
We lease all of our facilities and do not own any real property.

ITEM 3.LEGAL PROCEEDINGS

ITEM 3.LEGAL PROCEEDINGS

From time to time, we are involved in various investigative inquiries, legal proceedings and other disputes arising from or related to claimsmatters incident to the normalordinary course of our business activities.activities, including actions with respect to intellectual property, employment, regulatory and contractual matters. Although the results of such investigative inquiries, legal proceedings and claimsother disputes cannot be predicted with certainty, we believe that we are not currently a party to any legal proceeding(s)matters which, if determined adversely to us, would, individually or taken together, have a material adverse effect on our business, operating results, financial condition or cash flows. However, regardless of the merit of any claimsmatters raised or the ultimate outcome, investigative inquiries, legal proceedings and other disputes may generally have an adverse impact on us as a result of defense and settlement costs, diversion of management resources, and other factors.
For additional information regarding legal proceedings, refer to Note 10, Commitments and Contingencies of our Consolidated Financial Statements.
ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.




PART II


ITEM 5.
ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information for our Class A Common Stock
Our Class A common stock began trading publiclyis listed on the NASDAQ Global Market under the symbol "APPF" on June 26, 2015. Prior to that date, there was no public trading market for our.
Our Class A common stock. The following table sets forth the high and low intraday sales prices per share of our Class AB common stock as reportedis not listed or traded on the NASDAQ Global Market for the periods indicated:any stock exchange.
 High Low
Year ended December 31, 2017:   
First quarter$27.90
 $21.63
Second quarter$35.20
 $25.05
Third quarter$48.40
 $31.15
Fourth quarter$52.25
 $39.60
    
 High Low
Year ended December 31, 2016:   
First quarter$15.19
 $11.07
Second quarter$15.57
 $12.07
Third quarter$19.98
 $14.12
Fourth quarter$24.50
 $18.27

Holders of Record

As ofAt February 1, 2018,14, 2022, there were 3039 holders of record of our Class A common stock and 11672 holders of record of our Class B common stock. Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Dividend Policy

We have never declared or paid any cash dividends on our capital stock. We have no plansdo not anticipate declaring or paying any cash dividends to declare or pay any dividends onholders of our capital stock in the foreseeable future and intend to retain all future earnings if any, generated by our operations for use in the growth of our business. Any future decision to declare or pay dividends will be made by our board of directors in its sole discretion and will depend upon our financial condition, results of operations, capital requirements, general economic conditions and other factors that our board of directors deems relevant at the time of its decision. Investors should not purchase our Class A common stock with the expectation of receiving cash dividends. In addition, the terms of our Credit Agreement may restrict our ability to pay dividends.

Stock Repurchase Program
Our board of directors may, from time to time, authorize our management to repurchase shares of our Class A common stock in open market transactions, privately negotiated transactions or otherwise.



Stock Performance Graph

The following performance graph compares the cumulative total return on our Class A common stock with that of the S&P 500 Index and the NASDAQ Computer Index. This chart assumes $100 was invested in our Class A common stock at the close of market on June 26, 2015, which was our initial trading day,December 31, 2016, and in our Class A common stock, the S&P 500 Index and the NASDAQ Computer Index, and assumes the reinvestment of any dividends.

The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.

18



    appf-20211231_g2.jpg
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any of our other filings under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Unregistered Sales of Equity Securities and Purchases of Equity Securities
None.

Use of Proceeds
None.



ITEM 6.     SELECTED FINANCIAL DATA[RESERVED]


The following tables provide our historical selected consolidated financial data for the periods indicated. We have derived the selected Consolidated Statements of Operations data for the fiscal years ended December 31, 2017, 2016 and 2015 and the selected Consolidated Balance Sheet data as of December 31, 2017 and 2016 from our audited Consolidated Financial Statements included elsewhere in this Annual Report. We have derived the selected Consolidated Statements of Operations data for the fiscal years ended December 31, 2014 and 2013 and the selected Consolidated Balance Sheet data as of December 31, 2015, 2014 and 2013 from our audited Consolidated Financial Statements, which are not included in this Annual Report. Our historical results are not necessarily indicative of the results we expect in the future.
The following historical selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, the section of this Annual Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report.
 Year Ended December 31,
 2017 2016 2015 2014
 		 2013
 
 (in thousands, except per share data)
Consolidated Statements of Operations Data:         
          
Revenue$143,803
 $105,586
 $74,977
 $47,671
 $26,542
Costs and operating expenses:         
Cost of revenue (exclusive of depreciation and amortization)(1)
55,283
 44,630
 33,903
 22,555
 13,616
Sales and marketing(1)
28,709
 28,827
 26,076
 16,876
 10,337
Research and product development(1)
16,578
 12,638
 9,554
 6,505
 5,057
General and administrative(1)
21,199
 17,979
 14,343
 6,489
 2,286
Depreciation and amortization12,699
 9,935
 6,104
 3,805
 2,850
Total costs and operating expenses134,468
 114,009
 89,980
 56,230
 34,146
Income (loss) from operations9,335
 (8,423) (15,003) (8,559) (7,604)
Other income (expense), net(96) (37) 5
 (121) 287
Interest income (expense), net535
 246
 (595) 59
 12
Income (loss) before provision for income taxes9,774
 (8,214) (15,593) (8,621) (7,305)
Provision for income taxes58
 67
 75
 —
 —
Net income (loss)$9,716
 $(8,281) $(15,668) $(8,621) $(7,305)
Net income (loss) per common share:         
    Basic0.29
 (0.25) (0.73) (0.98) (0.87)
    Diluted0.28
 (0.25) (0.73) (0.98) (0.87)
Weighted average common shares outstanding:         
    Basic33,849
 33,561
 21,336
 8,757
 8,437
    Diluted35,151
 33,561
 21,336
 8,757
 8,437
(1) Includes stock-based compensation expense as follows (in thousands):
      


 Year Ended December 31,
 2017 2016 2015 2014
 		 2013
 
 (in thousands)
Stock-based compensation expense included in Costs and operating expenses:         
Cost of revenue (exclusive of depreciation and amortization)$725
 $471
 $124
 $68
 $63
Sales and marketing723
 442
 115
 48
 39
Research and product development657
 382
 41
 19
 49
General and administrative3,991
 3,006
 727
 757
 96
Total stock-based compensation expense$6,096
 $4,301
 $1,007
 $892
 $247

 December 31,
 2017 2016 2015 2014
 		 2013
 
 (in thousands)
Consolidated Balance Sheet Data:         
Cash and cash equivalents and investment securities(1)
$68,310
 $52,860
 $56,715
 $5,412
 $11,269
Total assets110,248
 92,583
 90,481
 25,434
 27,707
Deferred revenue7,080
 7,638
 4,953
 3,780
 2,943
Convertible preferred stock—
 —
 —
 63,166
 63,166
Total stockholders’ equity (deficit)85,079
 69,682
 72,697
 (51,467) (43,959)
(1) Amounts for the years ended December 31, 2017, 2016 and 2015 include cash and cash equivalents, investment securities-current and investment securities-noncurrent. We held no investment securities during the years ended December 31, 2014 and 2013.

ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that are based on our current expectations and reflect our plans, estimates and anticipated future financial performance. See the section of this Annual Report entitled “Cautionary Note Regarding Forward-Looking Statements” for additional information. These statements involve numerous risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in the section of this Annual Report entitled “Risk Factors.”"Risk Factors". See the section of this Annual Report entitled “Forward-Looking Statements” for additional information.

The following discussion and analysis of our financial condition and results of operations discusses 2021 and 2020 items and year-over-year comparisons between 2021 and 2020. For discussion of 2019 items and year-over-year comparisons between 2020 and 2019, refer to Part II. Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020.
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Overview
AppFolio isWe are a leading provider of industry-specific, cloud-based softwarecloud business management solutions tofor the real estate market, which comprisesindustry. Our solutions enable our customers to digitally transform their businesses, automate and streamline critical business operations and deliver a significant majoritybetter customer experience. Our products assist an interconnected and growing ecosystem of users, including property managers, property owners, real estate investment managers, rental prospects, residents, and service providers with critical transactions across the real estate lifecycle, including screening potential tenants, sending and receiving payments and even providing insurance-related risk mitigation services. AppFolio’s intuitive interface, coupled with streamlined and automated workflows, make it easier for our customers to eliminate redundant and manual processes so they can deliver a great experience for their users while improving financial and operational performance.
We rely heavily on our talented team of employees to execute our growth plans and achieve our long-term strategic objectives. We believe our people are at the heart of our revenue, as well assuccess and our customers' success, and we have worked hard not only to attract and retain talented individuals, but also to provide a challenging and rewarding environment to motivate and develop our valuable human capital. In March 2020, in an effort to protect our employees and comply with applicable government orders in response to the COVID-19 pandemic, we transitioned our employees to a remote work environment. We began transitioning our employees back to the office in 2021; however, our employees have the option to work remotely until further notice.     
During certain periods covered by this Annual Report, we also provided software solutions and services to the legal market, and we intend to enter new vertical markets over time. We were formed in 2006 withindustry via MyCase, a vision to revolutionize the way thatsoftware solution primarily designed for small and medium-sized businesses, or SMBs, grow and compete by enabling their digital transformation.mid-sized law firms. We completed our divestiture of MyCase, Inc. on September 30, 2020 (the "MyCase Transaction"). For additional details, see Note 3, Divestitures, of our Consolidated Financial Statements in this Annual Report.
In 2008, we entered the real estate market withKey Business Metric
Property management units under management. We believe that our first product, AppFolio Property Manager, or APM, a property management solution designedability to address the unique operational and business requirementsincrease our number of property management companies. In 2012, we entered the legal market by acquiring MyCase, a legal practice and case management solution primarily for solo practitioners and small law firms. Recognizing that our customers would benefit from additional business-critical services that they can purchase as needed, we launched a series of Value+ services beginning in 2009. Through our market validation approach and ongoing investment in product development, we continuously update our software solutions with new and innovative core functionality and Value+ services, as well as assess opportunities in adjacent markets and new verticals.
Our solutions are designed to be a system of record to automate essential business processes, a system of engagement to enhance business interactions between our customers and their clients and vendors, and, increasingly, a system of intelligence to anticipate, influence, and optimize customer experiences using data to take action in real time.
We have focused on growing our revenue by increasing the size of our customer base in the markets we serve, increasing the number of units under management introducing new or expanded Value+ services, retaining customers, and increasing the


adoption and utilizationis an indicator of our Value+ services by newmarket penetration, the growth of our business, and existing customers.our potential future business opportunities. We define our customer baseproperty management units under management as the number of customers subscribing toactive units on our core solutions, exclusive of free trials.
Oursolutions. We had 6.35 million and 5.36 million property management software solution forunits under management as of December 31, 2021 and 2020, respectively.
Seasonality
We have historically experienced seasonality in our Value Added Services revenue, primarily in our tenant screening services, due to seasonally higher leasing activities in the real estate market provides property managers of various sizes (including both third-party managers and owner-operators) innovative tools and services designedsecond quarter which increases tenant screening transactions in that period. We generally experience decreased tenant screening revenue in the fourth quarter, when seasonally lower leasing activities occur. Corresponding to streamline their property management businesses. Our software solution serves a variety of property types, including single- and multi-family residential, commercial, community association, and student housing, and is continuously evolving to help our customers more effectively market, manage and grow their businesses. Core functionality addresses key operational issues, including posting and tracking vacancies, efficiently leasing vacant properties, facilitatingthe higher tenant owner and vendor communications, and accounting, among other things.
Todayapplications in the second quarter, our property manager customers directly and indirectly account for more than 90% of our annual revenue. We define our property manager customer base as the number of customers subscribing to our core solutions. Customer count and property manager units under management are summarizedtypically experience an increase in new tenants in the table below:
 Quarter Ended
 2017 2016
 December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
Property manager11,708
 11,258
 10,820
 10,468
 10,038
 9,612
 9,275
 8,816
Property manager units under management (in millions)3.25
 3.08
 2.93
 2.83
 2.68
 2.53
 2.41
 2.30

Our legal software solution, MyCase, enables solo practitioners and small law firms to more efficiently administer their practice and manage their caseload. MyCase is continuously evolving to helpthird quarter, resulting in a higher demand for our customers more effectively market, manage and grow their businesses, and contains core functionalityinsurance-related risk mitigation services in that addresses key operational issues, including managing calendars, contacts and documents, time tracking, billing and collections, communicating with clients and sharing sensitive and privileged materials.
Our legal customers directly and indirectly account for less than 10% of our annual revenue. We define our legal customer base as the number of customers subscribing to our core solutions, exclusive of free trial periods. Law firm customer count is summarized in the table below:
 Quarter Ended
 2017 2016
 December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
Law firm9,349
 
9,128(1)
 8,913
 8,676
 8,135
 7,799
 7,349
 6,834
(1)    This customer count has been corrected from the previously-reported count of 9,214.
To date, we have experienced rapid revenue growth due to our investments in research and product development, sales and marketing, customer service and support, and infrastructure. We intend to continue to invest in growth across our organization as we expand in our current markets, adjacent markets and enter into new verticals. These investments to grow our business will continue to increase our costs and operating expenses on an absolute basis. Many of these investments will occur in advance of our realization of revenue or any other benefit and will make it difficult to determine if we are allocating our resources efficiently. We expect cost of revenue, research and product development expense, sales and marketing expense, and general and administrative expense to decrease as a percentage of revenue over the long term as revenue increases and we gain additional operating leverage in our business.period. As a result of this increased operating leverage, we expect our operating margins will improve over the long term, but this trend may be interrupted from time to time as a resultseasonality of accelerated investment opportunities occurring in advance of realization of revenue.
We have managed,the rental lifecycle and plan to continue to manage, our business towards the achievement of long-term growth that we believe will positively impact long-term stockholder value, and not towards the realization of short-term financial or business metrics, or short-term stockholder value. Accordingly, if opportunities arise that might cause us to sacrifice our performance with respect to short-term financial or business metrics, but that we believe are in the best interests of our stockholders, we will take those opportunities.
Key Components of Results of Operations
Revenue
We charge our customers on a subscription basis for our core solutions and certain of our Value+ services. Our subscription fees are designed to scale to the size of our customers’ businesses. We recognize subscription revenue ratably over the terms of


the subscription agreements, which typically range from one month to one year. We generally invoice our customers for subscription services in monthly, quarterly or annual installments, typically in advance of the subscription period. Revenue from subscription services is impacted by a number of factors, including the change in the number and type of our customers, the size and needs of our customers’ businesses, our customer renewal rates, and the level of adoption of our Value+ subscription services by new and existing customers.
We also charge our customers usage-based fees for using certain Value+ services, although fees for electronic payment processing are paid by either our customers or clients of our customers. Usage-based fees are charged on a flat fee per transaction basis with no minimum usage commitments. We recognize revenue for usage-based services in the period the service is rendered. We generally invoice our customers for usage-based services on a monthly basis for services rendered in the preceding month. Revenue from usage-based services is impacted by a number of factors, including the number of new and existing customers that adopt and utilize our Value+ services, the size and needs of our customers and our customer renewal rates.
We experience some seasonality in our Value+ services revenue, primarily with respect to the screening services we provide to our property manager customers. These customers historically have processed fewer applications for new tenants during the fourth quarter holiday season; therefore, revenue associated with our screening services and new tenant applications typically declines in the fourth quarter of the year. As a result of this seasonal decline in revenue,business, we have typically experienced slowera sequential increase in revenue growth orin the first, second and third quarters and a sequential decline in revenue in the fourth quarter of each of our most recent fiscal years. We expect this seasonalityThese seasonal factors could be heightened or lessened due to continuethe impact of a change in macroeconomic factors that could impact tenant behavior or a change in the foreseeable future.adoption rate of our other less seasonally impacted Value Added Services. Although these seasonal factors are common in the real estate industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance.
Key Components of Results of Operations
Revenue
Our core solutions and certain of our Value Added Services are offered on a subscription basis. Our core solutions subscription fees vary by property type and are designed to scale to the size of our customers’ businesses. We recognize revenue for subscription-based services over time on a straight-line basis over the contract term beginning on the date that our service is made available. We generally invoice monthly or, to a lesser extent, annually in advance of the subscription period.
We also offer assistance toValue Added Services, which are not covered by our subscription fees, on a per use basis. Usage-based fees are charged either as a percentage of the transaction amount (e.g., for certain of our electronic payment services) or on a flat fee per transaction basis with no minimum usage commitments (e.g., for our tenant screening and risk mitigation services). We recognize revenue for usage-based services in the period the service is rendered. Our electronic payments services fees are recorded gross of the interchange and payment processing related fees. We generally invoice our usage-based services on a monthly basis or collect the fee at the time of service. A significant majority of our Value Added Services revenue comes
20

directly and indirectly from the use of our electronic payment services, tenant screening services, and risk mitigation services. Usage-based fees are paid either by customers or by users.
We charge our customers withfor on-boarding assistance to our core solutions as well as website designand certain other non-recurring services. We generally invoice our customers for these other services in advance of the services being completed. Wecompleted and recognize revenue for these other services upon completion of the related service. We also generate revenue from the legacy RentLinx customers of previously acquired businesses by providing services that allow these customers to advertise rental houses and apartments online. Revenue derived from customers using the RentLinx services outside of our property managermanagement core solution platformplatform. Revenue derived from these services is being recorded under other revenue.in Other revenue.
Costs and Operating Expenses
Cost of Revenue.Revenue. Many of our Value Added Services are facilitated by third-party service providers. Cost of revenue consists of fees paid to these third-party service providers includes the cost of electronic interchange and payment processing related services to support our electronic payments services, the cost of credit reporting services for our tenant screening services, and various costs associated with our risk mitigation service providers. These third-party costs vary both in amount and as a percent of revenue for each Value Added Service offering. Cost of revenue also consists of personnel-related costs (including salaries, incentive-based compensation, benefits, and stock-based compensation) for our employees focused on customer service and the support of our operations (including salaries, performance-based compensation, benefits, and stock-based compensation), platform infrastructure costs (such as data center operations and hosting-related costs), payment processing fees, and allocated shared and other costs. We typically allocate shared costs across our organization based on headcount within the applicable part of our organization. Cost of revenue excludes depreciation of property and equipment, and amortization of capitalized software development costs and amortization of intangible assets. We intend to continue to invest in customer service and support and the expansion of our technology infrastructure as we grow the number of our customers and roll out additional Value+ services. We also intend to expand our Value+ offerings over time, which will impact cost of revenue both in absolute dollars and overall percentage of revenue.
Sales and Marketing. Marketing. Sales and marketing expense consists of personnel-related costs (including salaries, sales commissions, incentive-based compensation, benefits, and stock-based compensation) for our employees focused on sales and marketing (including salaries, sales commissions, performance-based compensation, benefits, and stock-based compensation), costs associated with sales and marketing activities, and allocated shared and other costs. Marketing activities include advertising, online lead generation, lead nurturing, customer and industry events, and the creation of industry-related content and collateral. Sales commissions and other incremental costs to acquire customers and grow adoption and utilization of our Value+ servicesValue Added Services by our new and existing customers are expensed as incurred.deferred and then amortized on a straight-line basis over a period of benefit, which we have determined to be three years. We focus our sales and marketing efforts on generating awareness of our software solutions, creating sales leads, establishing and promoting our brands, and cultivating an educated community of successful and vocal customers. We intend to continue to invest in sales and marketing as we grow to increase the size of our customer base and increase the adoption and utilization of Value+ services by our new and existing customers.
Research and Product Development.Research and product development expense consists of personnel-related costs (including salaries, incentive-based compensation, benefits, and stock-based compensation) for our employees focused on research and product development(including salaries, performance-based compensation, benefits, and stock-based compensation), fees for third-party development resources, and allocated shared and other costs. Our research and product development efforts are focused on enhancing functionality and the ease of use and functionality of our existing software solutions by adding new core functionality, Value+ servicesValue Added Services and other improvements, as well as developing new products and services.services for existing and adjacent markets. We capitalize the portion of our software development costs that meetsmeet the criteria for capitalization. Amortization of capitalized software development costs is included in depreciation and amortization expense. We intend to continue to invest in research and product development as we continue to introduce new core functionality, roll out new Value+ services, develop new products and services, and expand into adjacent markets and new verticals.
General and Administrative.General and administrative expense consists of personnel-related costs (including salaries, incentive-based compensation, benefits, and stock-based compensation) for employees in our executive, finance, information technology, or IT, human resources, legal, compliance, corporate development legal and administrative organizations.organizations (including salaries, performance-based cash compensation, benefits, and stock-based compensation). In addition, general and


administrative expense includes fees for third-party professional services (including audit, legal, compliance, tax, and consulting services), transaction costs related to business combinations and divestitures, regulatory fines and penalties, other corporate expenses, and allocated shared costs. We intend to incur incremental general and administrative costs associated with supporting the growth of our business.other costs.
Depreciation and Amortization.Depreciation and amortization expense includes depreciation of property and equipment, amortization of capitalized software development costs, and amortization of intangible assets. We depreciate or amortize property and equipment, software development costs, and intangible assets over their expected useful lives on a straight-line basis, which approximates the pattern in which the economic benefits of the assets are consumed. As we expand
Other Income, Net. Other income, net includes the gain on sale of MyCase during fiscal year 2020, gain on sale of our facilities footprintequity-method investments, and increase our basegains and losses associated with the sale of employees, we expect to have increased property and equipment expenditures and incremental depreciation expense. In addition, as we continue to invest in our research and product development organization and the development or acquisition of new technology, we expect to have increased capitalized software development costs and incremental amortization.investment securities.
Interest Income (Expense)., Net. Interest expense includes interest paid on any outstanding borrowings. Interest income includes interest earned on investment securities, amortization and accretion of the premium and discounts paid from the purchase of investment securities, and interest earned on notes receivable and on cash deposited withinin our bank accounts. Interest expense includes interest paid on outstanding borrowings under our Credit Agreement.
Provision for Income Taxes. Provision for income taxes consists of federal and state income taxes in the United States.
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Results of Operations for the Years Ended December 31, 2017, 2016,2021 and 20152020
The following table sets forthpresents our results of operations for the periods presented in dollars (in thousands) and as a percentage of revenue:
Year Ended December 31,
20212020
Amount%Amount%
Consolidated Statements of Operations Data:
Revenue$359,370 100.0 %$310,056 100.0 %
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)(1)
143,944 40.1 119,029 38.4 
Sales and marketing(1)
73,200 20.4 58,445 18.8 
Research and product development(1)
65,980 18.4 48,529 15.7 
General and administrative(1)
57,279 15.9 47,480 15.3 
Depreciation and amortization30,845 8.6 26,790 8.6 
Total costs and operating expenses371,248 103.3 300,273 96.8 
(Loss) income from operations(11,878)(3.3)9,783 3.2 
Other income, net13,111 3.6 188,897 60.9 
Interest income (expense), net501 0.1 (1,849)(0.6)
Income before provision for income taxes1,734 0.5 196,831 63.5 
Provision for income taxes706 0.2 38,428 12.4 
Net income$1,028 0.3 %$158,403 51.1 %
 Year Ended December 31,
 2017 2016 2015
 Amount % Amount % Amount %
Consolidated Statements of Operations Data:           
Revenue$143,803
 100.0 % $105,586
 100.0 % $74,977
 100.0 %
Costs and operating expenses:           
Cost of revenue (exclusive of depreciation and amortization)(1)
55,283
 38.4
 44,630
 42.3
 33,903
 45.2
Sales and marketing(1)
28,709
 20.0
 28,827
 27.3
 26,076
 34.8
Research and product development(1)
16,578
 11.5
 12,638
 12.0
 9,554
 12.7
General and administrative(1)
21,199
 14.7
 17,979
 17.0
 14,343
 19.1
Depreciation and amortization12,699
 8.8
 9,935
 9.4
 6,104
 8.1
Total costs and operating expenses134,468
 93.5
 114,009
 108.0
 89,980
 120.0
Income (loss) from operations9,335
 6.5
 (8,423) (8.0) (15,003) (20.0)
Other income (expense), net(96) (0.1) (37) —
 5
 —
Interest income (expense), net535
 0.4
 246
 0.2
 (595) (0.8)
Income (loss) before provision for income taxes9,774
 6.8
 (8,214) (7.8) (15,593) (20.8)
Provision for income taxes58
 —
 67
 0.1
 75
 0.1
Net income (loss)$9,716
 6.8 % $(8,281) (7.8)% $(15,668) (20.9)%
(1)IncludesThe following table presents stock-based compensation expense as follows (in thousands):included in each respective expense category:
Year Ended December 31,
20212020
Amount%Amount%
Stock-based compensation expense included in costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)$2,024 0.6 %$1,506 0.5 %
Sales and marketing2,329 0.6 1,415 0.5 
Research and product development5,457 1.5 1,818 0.6 
General and administrative5,531 1.5 4,286 1.4 
Total stock-based compensation expense$15,341 4.3 %$9,025 2.9 %

22
 Year Ended December 31,
 2017 2016 2015
Costs and operating expenses:     
Cost of revenue (exclusive of depreciation and amortization)$725
 $471
 $124
Sales and marketing723
 442
 115
Research and product development657
 382
 41
General and administrative3,991
 3,006
 727
Total stock-based compensation expense$6,096
 $4,301
 $1,007




Revenue
 Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
 2017 2016 2015  
 (dollars in thousands)
Core solutions$57,132
 $43,775
 $32,119
 31% 36 %
Value+ services80,847
 56,965
 37,998
 42% 50 %
Other5,824
 4,846
 4,860
 20% — %
Total revenues$143,803
 $105,586
 $74,977
 36% 41 %
Fiscal 2017 Compared to Fiscal 2016
Year Ended December 31,Change
20212020Amount%
(dollars in thousands)
Core solutions$105,148 $100,938 $4,210 4 %
Value Added Services241,289 195,146 46,143 24 
Other12,933 13,972 (1,039)(7)
Total revenue$359,370 $310,056 $49,314 16 %
Revenue increased $38.2for the years ended December 31, 2021 and 2020, was $359.4 million and $310.1 million, respectively, an increase of $49.3 million, or 36%, in 2017 compared to 2016, the substantial majority due16%. This increase was primarily attributable to the growth in the number of property managermanagement customers and units under management. Wemanagement utilizing our core solutions and Value Added Services. Revenue in 2020 includes $25.4 million attributable to MyCase. Excluding this amount, revenue derived from the real estate industry for the years ended December 31, 2021 and 2020 increased $74.7 million, or 26%.
Core solutions revenue derived from the real estate industry for the years ended December 31, 2021 and 2020 was $105.1 million and $86.5 million, respectively, an increase of $18.6 million or 22%. Value Added Services revenue derived from the real estate industry for the years ended December 31, 2021 and 2020 was $241.3 million and $184.2 million, respectively, an increase of $57.1 million or 31%. These increases in core solutions and Value Added Services revenue for the years ended December 31, 2021 and 2020 were mainly attributable to growth in our base of property management customers and growth in users of our subscription and usage-based services. During the twelve month period ended December 31, 2021, we experienced agrowth of 17% year over year increase in the number of property manager customers and a 21% year over year increase in theaverage number of property management units under management resulting from 9% growth in the average number of property management customers.
Our electronic payment services experienced increased adoption during the comparative periods as residents, property managers, owners and customers transacted more business online. Our tenant screening and risk mitigation services usage also increased during the comparative periods in line with the increase in units under management. RevenueA significant majority of our Value Added Services revenue comes directly and indirectly from our Value+ services increased by $23.9 million, or 42%, in 2017 compared to 2016, mainly driven by increased usagethe use of our electronic paymentspayment services, tenant screening services, and screeningthe risk mitigation services by a larger property manager customer and unit base. We also experienced growth in each of our other Value+ services during that period. Core solutions revenue increased $13.4 million, or 31%, in 2017 comparedwe make available to 2016, mainly attributed to the growth in the number of our property manager customers, units under management, and strong customer renewal rates.
In each of 2017 and 2016, we derived more than 90% of our revenue from our property manager customers.
Fiscal 2016 Compared to Fiscal 2015
Revenue increased $30.6 million, or 41%, in 2016 compared to 2015, mainly reflecting increased revenue from a 22% year over year increase in the number of our property manager customers. The overall increase in revenue was mostly attributable to revenue from Value+ services which increased by $19.0 million, or 50% when compared to the prior year. The increase in Value+ services was mainly driven by increased usage of our electronic payments services and screening services by a larger property manager customer base, and the increase in property manager units under management of 25% year over year. We also had strong growth in our legal liability to landlord insurance programs, customer contact center and website hosting services offered within our Value+ services. In addition, during 2016, we launched Premium Leads as a Value+ services for our property manager customers. The overall increase in revenue was also the result of an increase in revenue from our core solutions of $11.7 million, or 36%, driven by the growth in the number of our customers, units under management, and strong customer renewal rates.
In each of 2016 and 2015, we derived more than 90% of our revenue from our property manager customers.
Cost of Revenue (Exclusive of Depreciation and Amortization)
 Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
 2017 2016 2015  
 (dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization)$55,283
 $44,630
 $33,903
 24% 32%
Percentage of revenue38.4% 42.3% 45.2%    
Fiscal 2017 Compared to Fiscal 2016
Year Ended December 31,Change
20212020Amount%
(dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization)$143,944 $119,029 $24,915 21 %
Percentage of revenue40.1 %38.4 %
Stock-based compensation, included above$2,024 $1,506 $518 34 %
Percentage of revenue0.6 %0.5 %
Cost of revenue (exclusive of depreciation and amortization) increased $10.7related to the real estate industry for the years ended December 31, 2021 and 2020 was $143.8 million and $109.7 million, respectively, an increase of $34.1 million, or 24%, in 2017 compared to 2016 based on31%. For the 36% increase in revenue over the same period. The increase was primarily due to increasedyears ended December 31, 2021 and 2020, expenditures to third partiesthird-party service providers related to the delivery of $7.0our Value Added Services to the real estate industry increased $21.6 million, which was directly associated with the increased adoption and utilization of our Value+ services,Value Added Services, as evidenced by the 42%$57.1 million increase in Value+ services revenues. There was alsoValue Added Services revenue to the real estate industry. Personnel-related costs, including performance-based compensation, necessary to support growth and key investments, increased $9.3 million. Allocated shared and other costs increased by $3.1 million primarily driven by an increase in personnel-related costs of $2.3 million due to an increase in headcount to support the continued growth of our business, as well as increased allocatedsoftware and other costs incurred in support of $1.3 million driven by expanded facilities, IT and other expenses supporting our growth.


As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) improved to 38.4%, from 42.3% for the year ended December 31, 2017 compared to the year ended December 31, 2016. This improvement was primarily driven by our ability to increase revenue with a more moderate increase in personnel-related costs, and a slight improvement in pricing with our third-party service providers as we continue to grow.
Fiscal 2016 Compared to Fiscal 2015
Cost of revenue (exclusive of depreciation and amortization) increased $10.7 million, or 32%, in 2016 compared to 2015. The increase was primarily due to increased third-party costs of $5.0 million driven by increased Value+ services, increased personnel-related costs of $3.9 million due to our headcount growth, as well as increased allocated and other costs of $1.8 million driven by expanded facilities, IT and other shared expenses supporting ouroverall growth.
As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) improved 2.9fluctuates primarily based on the mix of Value Added Services revenue in the period, given the varying percentage points in 2016 comparedof revenue we pay to 2015. The improvement was primarily driven bythird-party service providers. For the year ended December 31, 2021, cost of revenue (exclusive of depreciation and amortization), as a decrease in personnel-related costs duepercentage of revenue, increased to our ability40.0% from 38.5% for the year ended December 31, 2020. We expect the cost of revenues (exclusive of depreciation and amortization) for the year ending December 31, 2022, to increase as a percentage of revenue, with a more moderate increase in headcount, and a decrease in third-party costs dueas we expect expenditures to improved pricing with our third-party service providers related to the delivery of our Value Added Services revenues to increase at a faster rate than total revenues as we continuea result of a higher growth rate related to grow.our Value Added Services revenues.
23

Sales and Marketing
 Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
 2017 2016 2015  
 (dollars in thousands)    
Sales and marketing$28,709
 $28,827
 $26,076
 — % 11%
Percentage of revenue20.0% 27.3% 34.8%    
Fiscal 2017 Compared to Fiscal 2016
Year Ended December 31,Change
20212020Amount%
(dollars in thousands)
Sales and marketing$73,200 $58,445 $14,755 25 %
Percentage of revenue20.4 %18.8 %
Stock-based compensation, included above$2,329 $1,415 $914 65 %
Percentage of revenue0.6 %0.5 %
Sales and marketing expense remained relatively flat year over year as we focused upmarket inrelated to the SMB spacereal estate industry for the years ended December 31, 2021 and acquired fewer yet larger property manager customers. We intend to continue to invest in sales2020 was $73.1 million and marketing as we grow to$52.5 million, respectively, an increase the size of our customer base and increase the adoption and utilization of our Value+ services by our new and existing customers.

Fiscal 2016 Compared to Fiscal 2015
Sales and marketing expense increased $2.8$20.6 million, or 11%, in 2016 compared to 2015. The39%. This increase was primarily due to increaseda $12.6 million increase in personnel-related costs, of $2.6including performance-based compensation, necessary to support growth and key investments in the business. Advertising and promotion costs increased by $6.3 million primarily due to our headcountincreased advertising and promotion spending to support the growth and related commission-based compensation, and increasedkey investments in the business. In addition, there was an increase in allocated shared and other costs of $0.2$1.7 million driven by expanded facilities, ITprimarily related to software and other shared expenses supportingcosts incurred in support of our overall growth.

As a percentage of revenue, sales and marketing expense increased to 20.3% from 18.4% for the year ended December 31, 2021 compared to the year ended December 31, 2020. This increase was due in part to lower advertising and promotion costs in 2020 as a result of fewer events and lower online marketing spend, as well as increased spend in 2021 to support our growth.


Research and Product Development
Year Ended December 31,Change
20212020Amount%
(dollars in thousands)
Research and product development$65,980 $48,529 $17,451 36 %
Percentage of revenue18.4 %15.7 %
Stock-based compensation, included above$5,457 $1,818 $3,639 200 %
Percentage of revenue1.5 %0.6 %
 Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
 2017 2016 2015  
 (dollars in thousands)
Research and product development$16,578
 $12,638
 $9,554
 31% 32%
Percentage of revenue11.5% 12.0% 12.7%    


Fiscal 2017 Compared to Fiscal 2016
Research and product development expense increased $3.9related to the real estate industry for the years ended December 31, 2021 and 2020 was $65.9 million and $43.8 million, respectively, an increase of $22.1 million, or 31%, in 2017 compared to 2016. The50%. This increase was primarily the result of an increase in personnel-related costs, including performance based compensation, net of capitalized software development costs, of $3.7$20.5 million due to investments in headcount growth within our research and product development organizations. We intend to continue to invest in research and product development as we continue to introduce additional core functionality to our existing customers, roll out new Value+ services to attract new customers and expand offerings to existing customers, develop new products to serve new or existing customers and expand into adjacent markets or new verticals.
Fiscal 2016 Compared to Fiscal 2015
Research and product development expense increased $3.1 million, or 32%, in 2016 compared to 2015. The increase was primarily due to increased personnel-related costs, net of capitalized software development costs of $1.9 million, due to our headcount growth and rate of innovation and increased allocatedorganization. Allocated shared and other costs of $1.1increased $1.6 million driven by expanded facilities, ITprimarily related to software and other shared expenses supportingcosts to support our growth.
General and Administrative
Year Ended December 31,Change
20212020Amount%
(dollars in thousands)
General and administrative$57,279 $47,480 $9,799 21 %
Percentage of revenue15.9 %15.3 %
Stock-based compensation, included above$5,531 $4,286 $1,245 29 %
Percentage of revenue1.5 %1.4 %
24
 Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
 2017 2016 2015  
 (dollars in thousands)
General and administrative$21,199
 $17,979
 $14,343
 18% 25%
Percentage of revenue14.7% 17.0% 19.1%    

Fiscal 2017 Compared to Fiscal 2016
General and administrative expense increased $3.2related to the real estate industry and general corporate overhead expenses for the years ended December 31, 2021 and 2020 was $57.3 million and $46.1 million, respectively, an increase of $11.2 million, or 18%, in 2017 compared to 2016.24%. The increase in general and administrative expense was primarily the result of andue to a $14.3 million increase in personnel-related costs due tofor investments in headcount growth and an increase of $4.1 million in incentive-based compensation. The increase in incentive-based compensation is primarily due to the stock option modification of the Company's former Chief Executive Officer who announced his retirement on August 17, 2017.
Fiscal 2016 Compared to Fiscal 2015
General and administrative expense increased $3.6 million, or 25%, in 2016 compared to 2015. The increase was primarily due to increased personnel-related costs of $4.4 million due to headcount growth and incentive-based compensation programs partially off-set by decreased allocated shared and other costs for professional fees, education and training, insurance, software and other costs to support our growth. These increases were offset by a $1.9 million insurance recovery related to our previously disclosed settlement with the Federal Trade Commission (the "FTC") and a decrease in legal costs of $0.7$5.3 million related to certain costs incurredour $4.3 million settlement with the FTC and a decrease in 2015 for our initial public offering, or IPO, and incremental compensation paid to certain RentLinx personnellegal fees of $1.0 million related to the acquisition that did not reoccur in 2016.MyCase Transaction during the year ended December 31, 2020.
Depreciation and Amortization
 Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
 2017 2016 2015  
 (dollars in thousands)
Depreciation and amortization$12,699
 $9,935
 $6,104
 28% 63%
Percentage of revenue8.8% 9.4% 8.1%    
Fiscal 2017 Compared to Fiscal 2016
Year Ended December 31,Change
20212020Amount%
(dollars in thousands)
Depreciation and amortization$30,845 $26,790 $4,055 15 %
Percentage of revenue8.6 %8.6 %
Depreciation and amortization expense increased $2.8related to the real estate industry for the years ended December 31, 2021 and 2020 was $30.8 million and $25.0 million, respectively, an increase of $5.8 million, or 28%, in 2017 compared to 2016.23%. The increase was the result of increased amortization expense associated with higher capitalized software development balances.
Fiscal 2016 Compared to Fiscal 2015
Depreciationin depreciation and amortization expense increased $3.8 million, or 63%, in 2016 compared to 2015. The increase was primarily due to increased amortization expense associated with higher accumulated capitalized software development balances.
Other Income, net
Year Ended December 31,Change
20212020Amount%
(dollars in thousands)
Other income, net$13,111 $188,897 $(175,786)*
Percentage of revenue3.6 %60.9 %
*Percentage not meaningful
Other income, net for the years ended December 31, 2021 and 2020 was $13.1 million and $188.9 million, respectively, a decrease of $2.8$175.8 million. The decrease in other income, net was primarily due to the gain of $187.6 million associated with the MyCase Transaction in September 2020. The decrease was offset by a gain of $12.8 million related to increased capitalized software development balances and increased depreciation expensethe sale of $0.9our investment in SecureDocs, a portion of which relates to the recovery of a $2.0 million from capital purchases and building improvements made during 2016.



Interest Income, net
 Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
 2017 2016 2015  
 (dollars in thousands)
Interest income (expense), net$535
 $246
 $(595) 117% N/A
Percentage of revenue0.4% 0.2% (0.8)%    
Fiscal 2017 Compared to Fiscal 2016
Interest income, net increased by $0.3 million in 2017 compared to 2016. The increase is primarily the result of higher investment security balances in the more recent period.
Fiscal 2016 Compared to Fiscal 2015
Interest income, net increased by $0.8 million in 2016 compared to 2015. The increase is primarily due to holding investment securities for a full year in 2016 versus a few months in 2015, resulting in increased interest income of $0.2 million. In addition, interest expense decreased $0.6 million related to our term loan repaid in 2015 and the associated write-off of deferred financing costs.note receivable which had been previously reserved.
Provision for Income Taxes
Year Ended December 31,Change
20212020Amount%
(dollars in thousands)
Provision for income taxes$706 $38,428 $(37,722)*
Percentage of revenue0.2 %12.4 %
*Percentage not meaningful
25

 Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
 2017 2016 2015  
 (dollars in thousands)
Provision for income taxes$58
 $67
 $75
 (13)% (11)%
Percentage of revenue—% 0.1% 0.1%    
The provision for income taxes relates to minimum state taxes andFor the amortization of tax deductible goodwill from the purchase of RentLinx in 2015 that is not an available source of income to realize the deferred tax asset.


Quarterly Results of Operations
The following table sets forth selected unaudited quarterly consolidated statements of operations data for each of the eight quarters during the yearsyear ended December 31, 2017 and December 31, 2016. We have prepared the unaudited quarterly consolidated statements2021, we recorded income tax expense of operations data on a basis consistent with the audited annual Consolidated Financial Statements included elsewhere in this Annual Report. In the opinion of management, the financial information in this table reflects all adjustments, consisting of normal and recurring adjustments, necessary for the fair statement of this data. This information should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Annual Report.$0.7 million. The results of historical periods are not necessarily indicative of the results for any future period.
 Quarter Ended
 2017 2016
 December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
 (in thousands, except per share data)
Consolidated Statements of Operations Data:            
Revenue$37,897
 $37,903
 $35,877
 $32,126
 $28,010
 $28,162
 $26,203
 $23,211
Costs and operating expenses:               
Cost of revenue (exclusive of depreciation and amortization)(1)
14,536
 14,053
 13,701
 12,993
 11,243
 11,645
 11,212
 10,530
Sales and marketing(1)
7,153
 7,257
 7,192
 7,107
 6,730
 6,979
 7,567
 7,551
Research and product development(1)
4,580
 4,367
 4,002
 3,629
 3,107
 3,464
 3,024
 3,043
General and administrative(1)
5,889
 5,405
 5,101
 4,804
 5,399
 4,642
 4,389
 3,549
Depreciation and amortization3,352
 3,237
 3,114
 2,996
 2,823
 2,636
 2,359
 2,117
Total costs and operating expenses35,510
 34,319
 33,110
 31,529
 29,302
 29,366
 28,551
 26,790
Income (loss) from operations2,387
 3,584
 2,767
 597
 (1,292) (1,204) (2,348) (3,579)
Other income (expense), net(3) (5) (60) (28) (3) (12) 2
 (24)
Interest income, net158
 155
 120
 102
 25
 102
 95
 24
Income (loss) before provision for income taxes2,542
 3,734
 2,827
 671
 (1,270) (1,114) (2,251) (3,579)
Income tax (benefit) provision(35) 52
 30
 11
 19
 11
 13
 24
Net income (loss)$2,577
 $3,682
 $2,797
 $660
 $(1,289) $(1,125) $(2,264) $(3,603)
Net income (loss) per common share:               
    Basic$0.08
 $0.11
 $0.08
 $0.02
 $(0.04) $(0.03) $(0.07) $(0.11)
    Diluted$0.07
 $0.10
 $0.08
 $0.02
 $(0.04) $(0.03) $(0.07) $(0.11)
(1)    Includes stock-based compensation expenseeffective tax rate as follows (in thousands):
 Quarter Ended
 2017 2016
 December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
 (in thousands)
Cost of revenue (exclusive of depreciation and amortization)$198
 $189
 $209
 $129
 $150
 $138
 $138
 $45
Sales and marketing207
 186
 210
 120
 146
 124
 130
 42
Research and product development186
 173
 182
 116
 118
 109
 104
 51
General and administrative1,201
 1,040
 1,018
 732
 1,043
 918
 720
 325
Total stock-based compensation expense$1,792
 $1,588
 $1,619
 $1,097
 $1,457
 $1,289
 $1,092
 $463



The following table sets forth selected consolidated statements of operations data for the specified periods as a percentage of our revenue for those periods:
 Quarter Ended
 2017 2016
 December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
Consolidated Statements of Operations Data:            
Revenue100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Costs and operating expenses:               
Cost of revenue (exclusive of depreciation and amortization)38.4
 37.1
 38.2
 40.4
 40.1
 41.4
 42.8
 45.4
Sales and marketing18.9
 19.1
 20.0
 22.1
 24.0
 24.8
 28.9
 32.5
Research and product development12.1
 11.5
 11.2
 11.3
 11.1
 12.3
 11.5
 13.1
General and administrative15.5
 14.3
 14.2
 15.0
 19.3
 16.5
 16.7
 15.3
Depreciation and amortization8.8
 8.5
 8.7
 9.3
 10.1
 9.4
 9.0
 9.1
Total costs and operating expenses93.7
 90.5
 92.3
 98.1
 104.6
 104.3
 109.0
 115.4
Income (loss) from operations6.3
 9.5
 7.7
 1.9
 (4.6) (4.3) (9.0) (15.4)
Other income (expense), net—
 —
 (0.2) (0.1) —
 —
 —
 (0.1)
Interest income, net0.4
 0.4
 0.3
 0.3
 0.1
 0.4
 0.4
 0.1
Income (loss) before provision for income taxes6.7
 9.9
 7.9
 2.1
 (4.5) (4.0) (8.6) (15.4)
Provision for income taxes(0.1) 0.1
 0.1
 —
 0.1
 —
 —
 0.1
Net income (loss)6.8 % 9.7 % 7.8 % 2.1 % (4.6)% (4.0)% (8.6)% (15.5)%
Quarterly Revenue and Cost Trends
Our quarterly revenue trends generally reflect increased revenue from our property manager customers. The overall increase was primarily a result of a quarter-over-quarter increase in the number of our customers, property manager units under management, as well as strong customer renewal rates, and an increase in Value+ services revenue primarily attributablecompared to the expansionU.S. federal statutory rate of our electronic payments platform and screening services. We experience some seasonality in our Value+ services revenue, primarily with respect to the screening services we provide to our property manager customers. These customers historically have processed fewer applications for new tenants during the fourth quarter holiday season; therefore, revenue associated with our screening services and new tenant applications typically declines in the fourth quarter of the year. As a result of this seasonal decline in revenue, we have typically experienced slower sequential revenue growth or a sequential decline in revenue in the fourth quarter of each of our most recent fiscal years. We expect this seasonality to continue in the foreseeable future.
Overall, total costs and operating expenses as a percentage of revenue have improved during 2017 when compared to 2016, as we continue to realize operating leverage. Cost of revenue (exclusive of depreciation and amortization) fluctuated each quarter based on the mix of Value+ services and related third party costs. Research and product development costs fluctuated each quarter based on the amount of software development costs that were capitalized each quarter. General and administrative expenses fluctuated each quarter21% differs primarily due to the impactsignificance of increasedthe benefits associated with stock-based compensation dueexpense, research and development tax credits, and the change in the valuation allowance against deferred taxes.
For the year ended December 31, 2020 we recorded an income tax expense of $38.4 million. The tax provision for the year ended December 31, 2020 includes tax expense of $51.3 million relating to the MyCase Transaction which includes $52.3 million of current tax expense on the gain on the sale of MyCase, less a $1.0 million benefit on the reversal of deferred tax liabilities relating to MyCase. For tax purposes, we filed an increase in headcount and incentive based compensation.
Our quarter-over-quarter total costs and operating expenseselection to treat the transaction as a percentagesale of revenue for each quarter during 2016 improved, withassets. As such, the exceptiontax impact takes into consideration the tax basis of generalthe assets on the date of sale and administrative expensesthe availability of net operating losses and depreciationresearch and amortization,development tax credits. The effective tax rate as we continuecompared to realize operating leverage. General and administrative expenses fluctuated each quarter during 2016the U.S. federal statutory rate of 21% differs primarily due to state income taxes and the impact of increasedbenefits associated with stock-based compensation due to an increase in headcount.expense and research and development tax credits.

Liquidity and Capital Resources
Cash and Cash Equivalents
As of December 31, 2017 and 2016, ourOur principal sources of liquidity werecontinue to be composed of our cash, cash equivalents, and investment securities, as well as cash flows generated from our operations. At December 31, 2021, our cash and cash equivalents and investment securities-current and investment securities-noncurrent, whichsecurities had an aggregate balance of $68.3 million and $52.9 million, respectively.


Working Capital
As of December 31, 2017, we had working capital of $29.9 million, compared to working capital of $10.9 million as of December 31, 2016. The increase in$183.5 million. We have financed our working capital wasoperations primarily due to an increase in the current portion of investment securities,through cash and cash equivalents, prepaid expenses and accounts receivable and a decline in deferred revenue, offset by increases in our accrued employee expenses and accrued expensesgenerated from the continued growth of our business.
Revolving Facility
As of December 31, 2017, we had a $25.0 million revolving line of credit, which we refer to as our Revolving Facility, under the terms of our Credit Agreement with Wells Fargo, as administrative agent, and the lenders that are parties thereto. As of both December 31, 2017 and 2016, we had no outstanding balance under our Revolving Facility. For additional information regarding our Credit Agreement refer to Note 7, Long-term Debt of our Consolidated Financial Statements included elsewhere in this Annual Report.
Liquidity Requirements
operations. We believe that our existing cash and cash equivalents, investment securities, available borrowing capacity of $25.0 million under our Revolving Facility, and cash generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.
Capital Requirements
Our future capital requirements will depend on many factors, including the continued market acceptance of our software solutions, the changechanges in the number of our customers, the adoption and utilization of our Value+ servicesValue Added Services by new and existing customers, the timing and extent of the introduction of new core functionality, products and Value+ services in our existing markets and verticals,Value Added Services, the timing and extent of our expansion into new or adjacent markets, or new verticals and the timing and extent of our investments across our organization.organization, and the impact of the COVID-19 pandemic (and other actual or potential events outside of our control) on the customers we serve and on our business. Non-cancelable purchase commitments for business operations total $13.2 million as of December 31, 2021, due primarily over the next 3 years. Operating lease obligations totaling $66.6 million associated with leased facilities and have varying maturities with $24.3 million due over the next five years. In addition, we have in the past entered into, and may in the future enter into, arrangements to acquire or invest in new technologies or markets adjacent to those we serve today or entirely new verticals.today. Furthermore, our boardBoard of directors may, from time to time, authorizeDirectors has authorized our management to repurchase up to $100.0 million of shares of our Class A common stock in open market transactions, privately negotiated transactions or otherwise.from time to time. To date, we have repurchased $4.2 million of our Class A common stock under the Share Repurchase Program. For additional information regarding our Share Repurchase Program, refer to Note 11, Stockholders' Equity.
Cash Flows
The following table summarizespresents our cash flows for the periods indicated (in thousands):
  Year Ended
December 31,
  2017 2016 2015
Net cash provided by (used in) operating activities $29,371
 $11,500
 $(6,844)
Net cash used in investing activities (22,828) (13,065) (59,367)
Net cash (used in) provided by financing activities (1,133) 201
 72,862
Net increase (decrease) in cash and cash equivalents $5,410
 $(1,364) $6,651
 Year Ended December 31,
 20212020
Net cash provided by operating activities$35,391 $48,299 
Net cash (used in) provided by investing activities(110,459)146,511 
Net cash used in financing activities(7,348)(70,358)
Net (decrease) increase in cash and cash equivalents$(82,416)$124,452 
Cash Provided by (Used in) Operating Activities
Our primary source of operating cash inflows is cash collected from our customers in connection with their use of our core solutions and Value+ services.Value Added Services. Our primary uses of cash from operating activities are for personnel-related expenditures and third-party costs incurred to support the delivery of our software solutions.
For the year ended December 31, 2017,2021, cash provided by operating activities was $29.4$35.4 million resulting from income of $1.0 million, non-cash charges of $36.7 million and a net decrease in our operating assets and liabilities of $2.4 million. The non-cash charges primarily consist of $29.0 million of depreciation and amortization costs, stock-based compensation expense, including as amortized, of $17.2 million, a decrease in deferred taxes of $0.3 million, and $3.2 million of amortization of operating lease right-of-use ("ROU") assets. The net decrease in our operating assets and liabilities was mostly attributable to a $9.0 million decrease in income taxes payable primarily driven by income taxes paid due to the MyCase Transaction, a $2.2
26

million increase in prepaid expenses and other current assets primarily attributable to increases in tenant improvement allowance receivable, deferred commission costs and prepaid expenses to support our overall growth, a $2.1 million increase in accounts receivable primarily driven by growth of our Value Added Services, and a $1.8 million decrease in accrued expenses which was primarily due to a $4.3 million legal expense accrued during the year ended December 31, 2020 and paid in the three months ended March 31, 2021 related to our settlement with the FTC. These decreases were partially offset by an $11.3 million increase in accrued employee expenses-current primarily due to an increase in short-term incentive compensation, an increase in payroll expense and accrued paid time off due to an increase in headcount, a $1.3 million increase in operating lease liabilities, a $0.6 million increase in accrued employee expenses-noncurrent due to an increase in accrued long-term management bonuses, and a $0.5 million increase in accounts payable.
For the year ended December 31, 2020, cash provided by operating activities was $48.3 million resulting from our net income of $9.7$158.4 million, adjusted by the gain related to the MyCase Transaction of $187.7 million, non-cash charges of $18.9$68.6 million and a net increase in our operating assets and liabilities of $0.7$8.9 million. The non-cash charges primarily consist of $12.7a decrease in deferred taxes of $29.0 million, of depreciation and amortization costs of our property$25.5 million, stock-based compensation expense, including as amortized, of $10.3 million, and equipment and capitalized software and $6.1 millionamortization of stock-based compensation.operating lease right-of-use assets of $3.7 million. The net increase in our operating assets and liabilities was mostly attributable to a $3.2$9.4 million increase in other liabilities primarily driven by income taxes payable due to the MyCase Transaction, a $6.9 million increase in accrued employee expenses which includes a $4.3 million accrual related to an overall increase in personnel-related costs. The increase in our operating assets and liabilities was partially offset by an increase in prepaid expenses and other current assets of $1.0 million,legal loss reserves, a $0.9 million increase in accounts receivable, and a $0.6 million decrease in deferred revenue.
For the year ended December 31, 2016, cash provided by operating activities was $11.5 million resulting from our net loss of $8.3 million, adjusted by non-cash charges of $14.7 million and a net increase in our operating assets and liabilities of $5.0 million. The non-cash charges primarily consist of $9.9 million of depreciation and amortization of our property and equipment and capitalized software and $4.3 million of stock-based compensation. The net increase in our operating assets and liabilities


was mostly attributable to an increase of $2.7 million in deferred revenue in line with our increased revenues, a $2.2$2.8 million increase in accrued employee expenses related to an overall increase in personnel-related costs, and a $1.1$0.5 million increase in accrued expenses primarily due to payment processing fees and fees associated with our resident screening services driven by growth in our Value+ services, and a $0.8 million increase in other liabilities. The increase in our operating assets and liabilities wasdeferred revenue. These increases were partially offset by a $2.8 million increase in accounts receivable primarily driven by growth of our Value Added Services, an increase in prepaid expenses and other current assets of $5.9 million primarily driven by an increase in prepaid expenses to support the growth in our business, an increase in deposits held with a third party related to requirements to maintain collateral for our risk mitigation services, and an increase in deferred costs, and a $0.9 million decrease in accounts payable due to timing of $0.9 million, an increase in accounts receivablepayments.
Cash (Used in) Provided by Investing Activities
Cash (used in) provided by investing activities is generally composed of $0.5 million,purchases of investment securities, maturities and an increase in our prepaid expensessales of investment securities, purchases of property and current assets of $0.4 million, in conjunction with our growthequipment, and expansion during 2016.    additions to capitalized software development.
For the year ended December 31, 2015, cash used in operating activities was $6.8 million resulting from our net loss of $15.7 million, adjusted by non-cash charges of $6.8 million and a net increase in our operating assets and liabilities of $2.1 million. The net increase in our non-cash charges was primarily the result of an increase of $6.1 million of depreciation and amortization of our property and equipment and capitalized software and $1.0 million of stock-based compensation. The net increase in our operating assets and liabilities was mostly attributable to an increase of $1.9 million in accrued employee expenses related to an overall increase in personnel-related costs, a $1.2 million increase in deferred revenue in line with our increased revenues, a $1.1 million increase in accrued expenses mostly attributed to payment processing fees driven by growth in our Value+ services, and a $1.0 million increase in other liabilities. The increase in our operating assets and liabilities was offset by an increase in our prepaid expenses and current assets of $1.9 million, an increase in accounts receivable of $0.7 million in conjunction with our growth and expansion during 2015, and a decrease in accounts payable of $0.4 million.
Cash Used in Investing Activities
Cash used in investing activities is generally comprised of purchases, maturities and sales of investment securities, additions to capitalized software development, cash paid for business acquisitions and capital expenditures.
For the year ended December 31, 2017,2021, investing activities used $22.8$110.5 million in cash primarily as a result of $26.6 milliondue to purchases of investment securities purchased offset by $16.5of $241.2 million, of maturities. In addition, we had an increase in capitalized software development costs of $10.5$24.6 million for the continued investment in our software development, and capital expenditures of $2.2$8.1 million to purchase property and equipment for the continued growth and expansion of our business. These uses of cash were partially offset by maturities and sales of investment securities of $107.4 million and $43.2 million, respectively, and proceeds from the sale of our equity-method investment of $12.5 million.
For the year ended December 31, 2016,2020, investing activities used $13.1provided $146.5 million in cash primarily as a resultdue to net proceeds from the MyCase Transaction of $31.6$191.4 million and the proceeds from maturities and sales of investment securities purchasedof $27.3 million and $16.7 million, respectively. These sources of cash were partially offset by $21.3 million of maturities and $12.6 million of salespurchases of investment securities. In addition, we had an increase insecurities of $43.9 million, capitalized software development costs of $11.2$26.0 million, for the continued investment in our software development, and capital expenditures of $4.2$19.0 million to purchase property and equipment forprimarily related to the continued growth and expansion of our business.headquarters in Santa Barbara, CA, a portion of which was reimbursed through tenant improvement allowances.
Cash Used in Financing Activities
Cash used in financing activities is generally comprised of net share settlements for employee tax withholdings associated with the vesting of restricted stock units ("RSUs"), the payment of contingent consideration under acquisition arrangements, activities associated with our former credit facility, activities related to the repurchase of our Class A common stock offset by proceeds from the exercise of stock options.
For the year ended December 31, 2015, investing activities used $59.4 million in cash primarily as a result of $74.2 million of investment securities purchased offset by $26.1 million of maturities and $4.1 million of sales of investment securities. In addition, we had an increase in capitalized software development costs of $7.7 million for the continued investment in our software development, an increase in capital expenditures of $3.7 million to purchase property and equipment for the continued growth and expansion of our business. We also used $4.0 million of cash for the acquisition of RentLinx.
Cash (Used in) Provided by Financing Activities
Cash (used in) provided by financing activities is generally comprised of proceeds from our IPO, proceeds from the exercise of stock options and restricted stock awards, or RSAs, proceeds from the issuance of debt or draws from our Revolving Facility and principal repayments of our term loan and on our Revolving Facility.
For the year ended December 31, 2017,2021, financing activities used $1.1 million in cash primarily as a result of tax withholdings from RSU net settlements offset by proceeds from stock option exercises.
For the year ended December 31, 2016, financing activities provided $0.2 million in cash primarily as a result of proceeds from stock option exercises offset by tax withholdings from RSU net settlements.
For the year ended December 31, 2015, financing activities provided $72.9$7.3 million in cash primarily as a result of net share settlements for employee tax withholdings associated with the vesting of RSUs of $10.0 million, offset by proceeds from stock option exercises of $2.6 million.
For the IPOyear ended December 31, 2020, financing activities used $70.4 million in cash primarily as a result of the payment of all outstanding amounts due under the former credit facility of $99.6 million, net share settlements for employee tax withholdings associated with the vesting of RSUs of $12.2 million, payment of contingent consideration related to the 2019 acquisition of Dynasty Marketplace, Inc. of $6.0 million, and the repurchase of outstanding shares of Class A common stock in the amount of $75.4 million,$4.2 million. These uses of cash were partially offset by a $2.4 million earnout payment relating to our acquisitionproceeds from the Revolving Facility of MyCase.


Contractual Obligations and Other Commitments

Our principal commitments consist of contractual obligations under our operating leases for office space. The following table summarizes our contractual obligations and other commitments as of December 31, 2017:
 Payments Due by Period
 Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years
 (in thousands)
Operating lease obligations$9,129
 $2,446
 $5,021
 $1,662
 $—
At December 31, 2017, liabilities for unrecognized tax benefits of $2.1 million were not included in our contractual obligations in the table above because, due to their nature, there is a high degree of uncertainty regarding the timing of future cash outflows and other events that would extinguish these liabilities.
For additional information regarding our contractual obligations, commitments and indemnification arrangements refer to Note 8, Commitments and Contingencies of our Consolidated Financial Statements included elsewhere in this Annual Report.
$50.8 million.
Off-Balance Sheet Arrangements
As ofAt December 31, 2017,2021, we did not have any off-balance sheet arrangements.

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Critical Accounting Policies and Estimates


Our financial statementsConsolidated Financial Statements and the related notes included elsewhere in this Annual Report are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statementsConsolidated Financial Statements requires usmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue costs and operating expenses provision for income taxes and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable underduring the circumstances. However, actualreporting period. Actual results could differ significantlymaterially from the estimates made by management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.those estimates.
We believe that the following critical accounting policies involve a greater degree of judgment or complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to a full understanding and evaluation of our Consolidated Financial Statements. For additional information, refer to Note 2, Summary of Significant Accounting Policies of our Consolidated Financial Statements included elsewhere in this Annual Report.
Revenue Recognition
Many of our contracts with customers contain multiple performance obligations. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment. We generate revenue primarily fromaccount for individual performance obligations separately if they are distinct. The performance obligations for these contracts include access and use of our customers for subscriptions to accesscore solutions, implementation services, and customer support. Access and use of our core solutions and Value+implementation services for our cloud-based property management and legal software solutions. Subscription fees for our core solutions are chargedconsidered distinct.
The transaction price is allocated to each performance obligation on a per-unit per-month basisrelative standalone selling price basis. Judgment is required to determine the standalone selling price for our property management software solutioneach distinct performance obligation. We typically have more than one standalone selling price for individual products and on a per-user per-month basis for our legal software solution. We recognize subscription revenue on a straight-line basis over the terms of the subscription agreements, which range from one month to one year. We generally invoice our customers for subscription services in monthly, quarterly or annual installments, typically in advance of the subscription period. Any revenues which are billed in advance are recorded as deferred revenue.
We charge our customers on a subscription basis for our core solutions and many of our Value+ services. Our subscription fees are designed to scaledue to the sizestratification of those products and services by customers and circumstances. In these instances, we determine the standalone selling price based on our customers’ businesses. We also charge usage-based fees for using certain Value+ services, including electronic payment processing. Usage-based fees are charged on a flat fee per transaction basis with no minimum usage commitments. We recognize revenue for usage-based services in the period the service is rendered. We generally invoice our customers for usage-based services on a monthly basis for services rendered in the preceding month with the exception of fees for electronic payment processing, which are generally paid by our customers or the clients of our customers at the time the electronic payment is processed.


Our legal software core solution offers customers a free trial period to try our software. Revenue is not recognized until the free trial period is completeoverall pricing objectives, taking into consideration customer demographics and the customer has entered into a subscription agreement with us.
We recognize revenue when (i) there is persuasive evidence of an arrangement, (ii) our software solutions have been made available or delivered, or services have been performed, (iii) the amount of fees is fixed or determinable, and (iv) collectability is reasonably assured. Evidence of an arrangement generally consists of either a signed customer contract or an online click-through agreement. We consider that delivery of a solution or website has commenced once we provide the customer with access to use the solution or website.other factors. Fees are fixed based on rates specified in the subscription agreements, which do not provide for any refunds or adjustments. If collectability
Capitalized Software Development Costs
We believe there are two key estimates within the capitalized software balance, which are the determination of the useful life of the software and the determination of the amounts to be capitalized.
We determined that a three year life is not considered reasonably assured, revenue is deferred until the fees are collected. Some of our subscription agreements contain minimum cancellation fees in the event that the customer cancels the subscription early.
Internal-Use Software
We accountappropriate for the costs of computer software obtained or developed for internal use in accordance with ASC 350, Intangibles-Goodwill and Other. These include costs incurred in connection with the development of our internal-use software solutions when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completionbased on our best estimate of the projectuseful life of the internally developed software after considering factors such as continuous developments in the technology, obsolescence and (iii) it is probable thatanticipated life of the projectservice offering before significant upgrades. Based on our prior experience, internally generated software will generally remain in use for a minimum of three years before being significantly replaced or modified to keep up with evolving customer and company needs. While we do not anticipate any significant changes to this three year estimate, a change in this estimate could produce a material impact on our financial statements.
We determine the amount of internal software costs to be completed and performed as intended. These capitalized costs include personnel and related expenses for employees who are directlybased on the amount of time spent by our software engineers on projects. Costs associated with building or significantly enhancing our software solutions and who devote time to internal-usenew internally built software projectssolutions are capitalized, while costs associated with planning new developments and when material, interest costs incurred during the development. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Costs incurred for significant upgrades and enhancements tomaintaining our software solutions are also capitalized. Costs incurred for post-configuration training, maintenance and minor modifications or enhancements are expensed as incurred. Capitalized softwareThere is judgment involved in estimating the stage of development costs are amortized usingas well as estimating time allocated to a particular project. A significant change in the straight-line method over an estimated useful life of three years. We do not transfer ownership of our software, or lease our software, to third parties.
Business Combinations
The results oftime spent on each project could have a business acquired in a business combination are included in our consolidated financial statements from the date of acquisition. We allocate the purchase price, including the fair value of contingent consideration, to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price overmaterial impact on the amount allocated to the identifiable assetscapitalized and liabilities, if any, is recorded as goodwill.
Determining the fair value of assets acquired and liabilities assumed requires management to make significant judgments and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies.
Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an operatingrelated amortization expense in the period in which the costs are incurred.
Goodwill and Intangible Assets
Goodwill and intangible assets are evaluated for impairment annually in the fourth quarter or whenever events or circumstances indicate the carrying value of goodwill may not be recoverable or when there is a triggering event. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate or a significant decline in expected cash flows.
When evaluating goodwill for impairment, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform the first of a two-step impairment test.
The first step of the impairment test involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then the carrying amount of the goodwill is compared with its implied fair value. The estimate of implied fair value of goodwill may require valuations of certain internally generated and unrecognized intangible assets. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess above the estimated fair value.
At December 31, 2017, we determined our goodwill was not impaired as the fair value of our reporting unit significantly exceeded its carrying value.


Stock-Based Compensation
We account for stock-based compensation awards granted to employees and directors by recording compensation expense based on each award's grant-date estimated fair value, in accordance with ASC 718, Compensation-Stock Compensation over the vesting period. We estimate the fair value of RSAs, RSUs and performance based RSUs, or PSUs, based on the fair value of our common stock on the date of grant. We estimate the fair value of stock options and performance based stock options, or PSOs, using the Black-Scholes option-pricing model. Determining the fair value of stock options under this model requires highly subjective assumptions, including the fair value of the underlying common stock, the risk-free interest rate, the expected term of the award, the expected volatility of the price of our common stock, and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If we had made different assumptions, our stock-based compensation expense could have been materially different.
Prior to our IPO, there was no public market for our common stock and our board of directors determined the fair value of our common stock at the time of the grant of stock options and RSAs by considering a number of objective and subjective factors, including our actual operating and financial performance, market conditions and performance of comparable publicly traded companies, developments and milestones in our company, the likelihood of achieving a liquidity event and transactions involving our convertible preferred stock, among other factors. The fair value of the underlying common stock was determined by our board of directors in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants Valuation of Privately Held Company Equity Securities Issued as Compensation. In valuing our common stock at various dates, our board of directors determined our equity value generally using the income approach and the market comparable approach valuation methods. Once we determined our equity value, we used an option pricing method or the Probability Weighted Expected Return Method to allocate the equity value to preferred stock and common stock. Application of these approaches and methods involves the use of estimates, judgments and assumptions, such as future revenue, expenses and cash flows, selections of comparable companies, probabilities and timing of exit events, and other factors.
Since our IPO in June 2015, the fair value of our common stock is based on the closing price of our Class A common stock, as quoted on the NASDAQ Global Market,on the date of grant and we utilized the following assumptions and estimates when utilizing the Black-Scholes option-pricing model when calculating the fair value of our options and PSOs:
▪
Risk-Free Interest Rate - The risk free interest rate assumption is based upon observed interest rates on United States government securities appropriate for the expected term of the stock option.
▪
Expected Term - Given that we do not have sufficient exercise history to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, we determine the expected term using the simplified method, which is calculated as the midpoint of the stock option vesting term and the expiration date of the stock option.
▪
Expected Volatility - We determine the expected volatility based on the historical average volatilities of publicly traded industry peers. We intend to continue to consistently apply this methodology using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose stock prices are publicly available would be utilized in the calculation.
▪
Expected Dividend Yield - We have not paid and do not anticipate paying any cash dividends in the foreseeable future and, therefore, we use an expected dividend yield of zero.


Forfeiture Rate
In addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate our stock-based compensation expense for our options and awards. The forfeiture rate is based on an analysis of actual forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and other factors. Changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the estimated forfeiture rate is changed. If a revised forfeiture rate is higher than the previously-estimated forfeiture rate, an adjustment is made that will result in a decrease to our stock-based compensation expense recognized in our consolidated financial statements. If a revised forfeiture rate is lower than the previously-estimated forfeiture rate, an adjustment is made that will result in an increase to our stock-based compensation expense recognized in our consolidated financial statements.
Restricted Stock Units
In September 2015, we began granting RSUs. The RSUs vest in equal tranches over four annualsubsequent periods. The RSUs are expensed on a straight-line basis over the vesting period. The shares underlying the RSU grants are not issued and outstanding until the applicable vesting date.
Performance Based Equity Awards
In 2016, we began granting PSOs and PSUs. The fair values of the PSOs are estimated using the Black-Scholes option-pricing model and the PSUs' fair values are based on the fair value of our common stock on the date of grant. The vesting of the PSOs and PSUs is based on achievement of a pre-established free cash flow performance metric or adjusted gross margin target and continued employment throughout the performance period. We recognize expense for the PSOs and PSUs based on the grant date fair value to the extent vesting of the award is probable. Adjustments to compensation expense are made each period based on changes in our estimate of the number of PSOs and PSUs that are probable of vesting. PSOs and PSUs will vest upon achievement of the relevant performance metric once such calculation is reviewed and approved by our board of directors.
Income Taxes
We account for income taxes in accordance with ASC 740, Income Taxes, which requires the recognition ofrecognize deferred tax assetsliabilities and liabilitiesassets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basisbases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statementsConsolidated Statements of operationsOperations in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, management considers the weighting of all available positive and negative evidence, which includes, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, and the duration of statutory carryforward periods.
Judgment is required to measure the amount of tax benefits that can be recognized associated with uncertain tax positions. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in our consolidated financial statementsConsolidated Financial Statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized. We recognize interest and penalties accrued with respect to uncertain tax positions, if any, in our provision for income taxes in the consolidated statementsConsolidated Statements of operations.Operations.
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Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies of our Consolidated Financial Statements included elsewhere in this Annual Report.
ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk
Investment Securities
At December 31, 2017,2021, we had cash and cash equivalents of $16.1$57.8 million consisting of bank deposits and money market funds, and $52.2$125.7 million of investment securities which consistconsisting of corporate bonds, United States government agency securities, corporate bonds and certificates of deposit.treasury securities. The primary objective of investing in securities is to support our liquidity and capital needs. We did not purchase these investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
Our investment securities are exposed to market risk due to interest rate fluctuations. While fluctuations in interest rates do not impact our interest income from our investment securities as all of these securities have fixed interest rates, changes in interest rates may impact the fair value of the investment securities. Since our investment securities are held as available for sale, all changes in fair value impact our other comprehensive income unless an investment security is considered impaired in which case changes in fair value are reported in other expense. As of December 31, 2017,2021, a hypothetical 100 basis point decrease in interest rates would have resulted in an approximate increase in the fair value of $0.5our investment securities of approximately $0.7 million, and a hypothetical 100 basis point increase in interest rates would have resulted in an approximatea decrease in the fair value of $0.5our investment securities of approximately $1.2 million. This estimate is based on a sensitivity model which measuresmeasured an instant change in interest rates by 1% or 100 basis points at December 31, 2017.
The borrowings under our Revolving Facility are at variable interest rates. However, there was no outstanding balance under our Revolving Facility as of December 31, 2017. Accordingly, a hypothetical change in interest rates would not have impacted our debt service obligations as of December 31, 2017.2021.
Inflation Risk
We do not believe that inflation has had a material effect on our business. However, if our costs, in particular personnel, sales and marketing and hosting costs, were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, operating results and financial condition.
Foreign Currency Exchange Rate Risk
We have not been exposed to, nor do we anticipate being exposed to, material risks duerelating to changes in inflation rates.foreign currency exchange rate fluctuations.



ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
5030
5132
5233
5334
5435
5536
5738
The supplementary financial information required by this Item 8 is included in Item 7 of this Annual Report in the section entitled "Quarterly Results of Operations."

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Tothe Board of Directors and Stockholders of AppFolio, Inc.


OpinionOpinions on the Financial Statements and Internal Control over Financial Reporting


We have audited the accompanying consolidated balance sheets of AppFolio, Inc. and its subsidiaries (the “Company”) as of December 31, 20172021 and 2016,2020, and the related consolidated statements of operations, of comprehensive income, (loss), convertible preferred stock andof stockholders’ equity (deficit), and of cash flows for each of the three years in the period ended December 31, 2017,2021, including the related notes (collectively referred to as the "consolidated“consolidated financial statements"statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172021 and 2016,2020, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.


Basis for OpinionOpinions


TheseThe Company's management is responsible for these consolidatedfinancial statements, are the responsibilityfor maintaining effective internal control over financial reporting, and for its assessment of the Company’s management.effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinionopinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits of these consolidatedfinancial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding offraud, and whether effective internal control over financial reporting but not for the purpose of expressing an opinion on the effectivenesswas maintained in all material respects.

Our audits of the Company's internal control overconsolidated financial reporting. Accordingly, we express no such opinion.

Our auditsstatements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.


Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Uncertain Tax Positions

As described in Notes 2 and 13 to the consolidated financial statements, the Company has recorded reserves for unrecognized tax benefits from uncertain tax positions of $7.8 million as of December 31, 2021. Judgment is required to measure the amount of tax benefits that can be recognized associated with uncertain tax positions. Management recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized.

The principal considerations for our determination that performing procedures relating to uncertain tax positions is a critical audit matter are (i) the significant judgment by management when determining uncertain tax positions and measuring the amount of reserve required to be recognized, (ii) the significant auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s identification of uncertain tax positions and measurement of the amount of tax benefits recognized associated with uncertain tax positions, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the identification and recognition of the reserves for uncertain tax positions. These procedures also included, among others (i) evaluating management’s process for identifying uncertain tax positions and measuring the amount of the reserve required, (ii) testing the completeness of management’s assessment of the identification of uncertain tax positions, and (iii) testing the reasonableness of management’s assessment of the technical merits of the tax positions and estimates of the amount of tax benefit expected to be realized. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s uncertain tax positions related to the application of relevant tax laws. 
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 26, 201828, 2022


We have served as the Company'sCompany’s auditor since 2012.






 
31

APPFOLIO, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par values)
 
 December 31,December 31,
 2017 2016 20212020
Assets    Assets
Current assets    Current assets
Cash and cash equivalents $16,109
 $10,699
Cash and cash equivalents$57,847 $140,263 
Investment securities—current 29,800
 15,473
Investment securities—current64,600 28,256 
Accounts receivable, net 3,387
 2,511
Accounts receivable, net12,595 10,057 
Prepaid expenses and other current assets 4,546
 3,537
Prepaid expenses and other current assets23,553 20,777 
Total current assets 53,842
 32,220
Total current assets158,595 199,353 
Investment securities—noncurrent 22,401
 26,688
Investment securities—noncurrent61,076 6,770 
Property and equipment, net 6,696
 7,077
Property and equipment, net30,479 26,439 
Capitalized software, net 17,609
 15,539
Operating lease right-of-use assetsOperating lease right-of-use assets41,710 30,561 
Capitalized software development costs, netCapitalized software development costs, net41,212 35,459 
Goodwill 6,737
 6,737
Goodwill56,147 56,147 
Intangible assets, net 1,725
 3,105
Intangible assets, net11,711 16,357 
Other assets 1,238
 1,217
Deferred income taxes—noncurrentDeferred income taxes—noncurrent— 12,181 
Other long-term assetsOther long-term assets7,087 6,213 
Total assets $110,248
 $92,583
Total assets$408,017 $389,480 
Liabilities and Stockholders’ Equity    Liabilities and Stockholders’ Equity
Current liabilities    Current liabilities
Accounts payable $610
 $937
Accounts payable$1,704 $1,040 
Accrued employee expenses 10,710
 7,550
Accrued employee expenses—currentAccrued employee expenses—current30,065 18,888 
Accrued expenses 4,289
 4,044
Accrued expenses13,284 14,069 
Deferred revenue 7,080
 7,638
Deferred revenue2,512 2,262 
Income tax payableIncome tax payable136 9,095 
Other current liabilities 1,223
 1,192
Other current liabilities4,941 4,451 
Total current liabilities 23,912
 21,361
Total current liabilities52,642 49,805 
Other liabilities 1,257
 1,540
Accrued employee expenses—noncurrentAccrued employee expenses—noncurrent583 — 
Operating lease liabilitiesOperating lease liabilities55,733 40,146 
Deferred income taxes—noncurrentDeferred income taxes—noncurrent1,678 13,609 
Total liabilities 25,169
 22,901
Total liabilities110,636 103,560 
Commitments and contingencies (Note 8) 
 
Commitments and contingencies (Note 10)Commitments and contingencies (Note 10)00
Stockholders’ equity:    Stockholders’ equity:
Preferred stock, $0.0001 par value, 25,000 authorized and no shares issued and outstanding as of December 31, 2017 and 2016 —
 —
Class A common stock, $0.0001 par value, 250,000 shares authorized as of December 31, 2017 and 2016; 14,879 and 11,691 shares issued and outstanding as of December 31, 2017 and 2016, respectively 1
 1
Class B common stock, $0.0001 par value, 50,000 shares authorized as of December 31, 2017 and 2016; 19,102 and 22,028 shares issued and outstanding as of December 31, 2017 and 2016, respectively 3
 3
Preferred stock, $0.0001 par value, 25,000 shares authorized and no shares issued and outstanding as of December 31, 2021 and December 31, 2020Preferred stock, $0.0001 par value, 25,000 shares authorized and no shares issued and outstanding as of December 31, 2021 and December 31, 2020— — 
Class A common stock, $0.0001 par value, 250,000 shares authorized as of December 31, 2021 and December 31, 2020; 19,836 and 19,148 shares issued as of December 31, 2021 and December 31, 2020, respectively; 19,417 and 18,729 shares outstanding as of December 31, 2021 and December 31, 2020, respectivelyClass A common stock, $0.0001 par value, 250,000 shares authorized as of December 31, 2021 and December 31, 2020; 19,836 and 19,148 shares issued as of December 31, 2021 and December 31, 2020, respectively; 19,417 and 18,729 shares outstanding as of December 31, 2021 and December 31, 2020, respectively2 2 
Class B common stock, $0.0001 par value, 50,000 shares authorized as of December 31, 2021 and December 31, 2020; 15,408 and 15,659 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectivelyClass B common stock, $0.0001 par value, 50,000 shares authorized as of December 31, 2021 and December 31, 2020; 15,408 and 15,659 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively2 2 
Additional paid-in capital 152,531
 146,692
Additional paid-in capital171,930 161,247 
Accumulated other comprehensive loss (209) (51)
Accumulated deficit (67,247) (76,963)
Accumulated other comprehensive (loss) incomeAccumulated other comprehensive (loss) income(194)56 
Treasury stock, at cost, 419 shares of Class A common stock as of December 31, 2021 and December 31, 2020Treasury stock, at cost, 419 shares of Class A common stock as of December 31, 2021 and December 31, 2020(25,756)(25,756)
Retained earningsRetained earnings151,397 150,369 
Total stockholders’ equity 85,079
 69,682
Total stockholders’ equity297,381 285,920 
Total liabilities and stockholders’ equity $110,248
 $92,583
Total liabilities and stockholders’ equity$408,017 $389,480 
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

32


APPFOLIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 
Year Ended December 31, Year Ended December 31,
2017 2016 2015 202120202019
Revenue$143,803
 $105,586
 $74,977
Revenue$359,370 $310,056 $256,012 
Costs and operating expenses:     Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)55,283
 44,630
 33,903
Cost of revenue (exclusive of depreciation and amortization)143,944 119,029 101,642 
Sales and marketing28,709
 28,827
 26,076
Sales and marketing73,200 58,445 51,528 
Research and product development16,578
 12,638
 9,554
Research and product development65,980 48,529 39,508 
General and administrative21,199
 17,979
 14,343
General and administrative57,279 47,480 34,478 
Depreciation and amortization12,699
 9,935
 6,104
Depreciation and amortization30,845 26,790 22,395 
Total costs and operating expenses134,468
 114,009
 89,980
Total costs and operating expenses371,248 300,273 249,551 
Income (loss) from operations9,335
 (8,423) (15,003)
Other income (expense), net(96) (37) 5
(Loss) income from operations(Loss) income from operations(11,878)9,783 6,461 
Other income, netOther income, net13,111 188,897 16 
Interest income (expense), net535
 246
 (595)Interest income (expense), net501 (1,849)(1,654)
Income (loss) before provision for income taxes9,774
 (8,214) (15,593)
Provision for income taxes58
 67
 75
Net income (loss)$9,716
 $(8,281) $(15,668)
Net income (loss) per common share:     
Income before provision for (benefit from) income taxesIncome before provision for (benefit from) income taxes1,734 196,831 4,823 
Provision for (benefit from) income taxesProvision for (benefit from) income taxes706 38,428 (31,459)
Net incomeNet income$1,028 $158,403 $36,282 
Net income per common share:Net income per common share:
Basic0.29
 (0.25) (0.73)Basic$0.03 $4.62 $1.07 
Diluted0.28
 (0.25) (0.73)Diluted$0.03 $4.44 $1.02 
Weighted average common shares outstanding:     Weighted average common shares outstanding:
Basic33,849
 33,561
 21,336
Basic34,578 34,264 34,016 
Diluted35,151
 33,561
 21,336
Diluted35,701 35,713 35,567 
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.




33



APPFOLIO, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)



 Year Ended December 31,
 2017 2016 2015
Net income (loss)$9,716
 $(8,281) $(15,668)
Other comprehensive income (loss):     
Changes in unrealized gains (losses) on investment securities(158) 102
 (153)
Comprehensive income (loss)$9,558
 $(8,179) $(15,821)
 Year Ended December 31,
 202120202019
Net income$1,028 $158,403 $36,282 
Other comprehensive (loss) income:
    Changes in unrealized (losses) gains on investment securities(250)23 211 
Comprehensive income$778 $158,426 $36,493 
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.




34

APPFOLIO, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)

AccumulatedRetained
              Accumulated    AdditionalOtherEarnings/
             Additional Other    Common StockCommon StockPaid-inComprehensiveTreasury(Accumulated
Convertible  Common Stock Common Stock Paid-in Comprehensive Accumulated  Class AClass BCapital (Loss) IncomeStockDeficit)Total
 Preferred Stock  Class A Class B Capital Loss Deficit TotalSharesAmountSharesAmount
Shares Amount  Shares Amount Shares Amount        
Balance at December 31, 201468,027
 $63,166
  —
 $—
 9,042
 $1
 $1,546
 $—
 $(53,014) $(51,467)
Exercise of stock options—
 —
  2
 —
 315
 

 357
 —
   357
Stock-based compensation—
 —
  —
 —
 —
 —
 1,103
 —
   1,103
Conversion of convertible preferred stock in connection with initial public offering(68,027) (63,166)  —
 —
 17,007
 2
 63,164
 —
 —
 63,166
Issuance of common stock in connection with initial public offering, net of offering costs—
 —
  7,130
 1
 —
 —
 75,358
 —
 —
 75,359
Conversion of Class B stock to Class A stock—
 —
  1,848
 —
 (1,848) —
 —
 —
 —
 —
Issuance of restricted stock awards—
 —
  25
 —
 25
 —
 —
 —
 —
 —
Other comprehensive loss—
 —
  —
 —
 —
 —
 —
 (153) —
 (153)
Net loss—
 —
  —
 —
 —
 —
 —
 —
 (15,668) (15,668)
Balance at December 31, 2015—
 —
  9,005
 1
 24,541
 3
 141,528
 (153) (68,682) 72,697
Balance at December 31, 2018Balance at December 31, 201815,789 $2 18,109 $2 $157,898 $(178)$(21,562)$(44,316)$91,846 
Exercise of stock options—
 —
  140
 —
 1
 —
 352
 —
 —
 352
Exercise of stock options120 — — — 553 — — — 553 
Stock-based compensation—
 —
  —
 —
 —
 —
 4,495
 —
 —
 4,495
Stock-based compensation— — — — 8,985 — — — 8,985 
Vesting of restricted stock units, net of shares withheld for taxes

 

  10
 —
 —
 —
 127
 —
 —
 127
Vesting of restricted stock units, net of shares withheld for taxes123 — — — (5,933)— — — (5,933)
Vesting of early exercised shares—
 —
  —
 —
 —
 —
 190
 —
 —
 190
Vesting of early exercised shares— — — — 6 — — — 6 
Conversion of Class B stock to Class A stock—
 —
  2,514
 —
 (2,514)   —
 —
 —
 —
Conversion of Class B stock to Class A stock515 — (515)— — — — — — 
Issuance of restricted stock awards—
 —
  22
 —
 —
 —
 —
 —
 —
 —
Issuance of restricted stock awards5 — — — — — — — — 
Other comprehensive income     —
 —
 —
 —
 —
 102
 —
 102
Other comprehensive income— — — — — 211 — — 211 
Net loss—
 —
  —
 —
 —
 —
 —
 —
 (8,281) (8,281)
Balance at December 31, 2016—
 —
  11,691
 1
 22,028
 3
 146,692
 (51) (76,963) 69,682
Repurchase of common stockRepurchase of common stock— — — — — — — — — 
Net incomeNet income— — — — — — — 36,282 36,282 
Balance at December 31, 2019Balance at December 31, 201916,552 2 17,594 2 161,509 33 (21,562)(8,034)131,950 
Exercise of stock options—
 —
  165
 —
 —
 —
 663
 —
 —
 663
Exercise of stock options106 — 13 — 822 — — — 822 
Stock-based compensation—
 —
  —
 —
 —
 —
 6,618
 —
 —
 6,618
Stock-based compensation— — — — 11,112 — — — 11,112 
Vesting of restricted stock units, net of shares withheld for taxes—
 —
  88
 —
 —
 —
 (1,559) —
 —
 (1,559)Vesting of restricted stock units, net of shares withheld for taxes166 — — — (12,196)— — — (12,196)
Vesting of early exercised shares—
 —
  —
 —
 —
 

 117
 —
 —
 117
Vesting of early exercised shares— — — — — — — — — 
Conversion of Class B stock to Class A stock—
 —
  2,926
 —
 (2,926) 

 —
 —
 —
 —
Conversion of Class B stock to Class A stock1,948 — (1,948)— — — — — — 
Issuance of restricted stock awards—
 —
  9
 —
 —
 

 —
 —
 —
 —
Issuance of restricted stock awards5 — — — — — — — — 
Other comprehensive incomeOther comprehensive income— — — — — 23 — — 23 
Repurchase of common stockRepurchase of common stock(48)— — — — — (4,194)— (4,194)
Net incomeNet income— — — — — — — 158,403 158,403 
Balance at December 31, 2020Balance at December 31, 202018,729 2 15,659 2 161,247 56 (25,756)150,369 285,920 
Exercise of stock optionsExercise of stock options238 — 84 — 2,614 — — — 2,614 
Stock-based compensationStock-based compensation— — — — 18,031 — — — 18,031 
Vesting of restricted stock units, net of shares withheld for taxesVesting of restricted stock units, net of shares withheld for taxes111 — — — (9,962)— — — (9,962)
Conversion of Class B stock to Class A stockConversion of Class B stock to Class A stock335 — (335)— — — — — — 
Issuance of restricted stock awardsIssuance of restricted stock awards4 — — — — — — — — 
Other comprehensive loss—
 —
  —
 —
 —
 

 —
 (158) —
 (158)Other comprehensive loss— — — — — (250)— — (250)
Net income—
 —
  —
 —
 —
 

 —
 —
 9,716
 9,716
Net income— — — — — — — 1,028 1,028 
Balance at December 31, 2017—
 $—
  14,879
 $1
 19,102
 $3
 $152,531
 $(209) $(67,247) $85,079
Balance at December 31, 2021Balance at December 31, 202119,417 $2 15,408 $2 $171,930 $(194)$(25,756)$151,397 $297,381 
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.




35

APPFOLIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year Ended December 31,
 202120202019
Cash from operating activities
Net income$1,028 $158,403 $36,282 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization29,032 25,507 21,639 
Amortization of operating lease right-of-use assets3,199 3,701 4,130 
Deferred income taxes250 29,002 (31,455)
Stock-based compensation, including as amortized17,154 10,308 8,065 
Gain on sale of business(380)(187,658)— 
Gain on sale of equity-method investment and recovery of note receivable(12,767)— — 
Other249 125 32 
Changes in operating assets and liabilities:
Accounts receivable(2,103)(2,782)(2,031)
Prepaid expenses and other current assets(2,168)(5,894)(4,031)
Other assets(1,259)(519)1,376 
Accounts payable497 (903)511 
Accrued employee expenses—current11,264 2,799 4,542 
Accrued expenses(1,773)6,878 55 
Deferred revenue(186)530 1,193 
Income tax payable(8,959)9,095 292 
Accrued employee expenses—noncurrent583 — — 
Operating lease liabilities1,268 (564)(2,662)
Other liabilities462 271 949 
Net cash provided by operating activities35,391 48,299 38,887 
Cash from investing activities
Purchases of available-for-sale investments(241,215)(43,877)(25,198)
Proceeds from sales of available-for-sale investments43,198 16,711 2,750 
Proceeds from maturities of available-for-sale investments107,354 27,330 15,660 
Purchases of property, equipment and intangible assets(8,103)(19,038)(8,084)
Capitalization of software development costs(24,615)(26,042)(20,998)
Cash paid in business acquisition, net of cash acquired— — (54,004)
Proceeds from sale of business, net of cash divested402 191,427 — 
Proceeds from sale of equity-method investment and recovery of note receivable12,520 — — 
Net cash (used in) provided by investing activities(110,459)146,511 (89,874)
Cash from financing activities
Proceeds from stock option exercises2,614 822 553 
Tax withholding for net share settlement(9,962)(12,196)(6,155)
Payment of contingent consideration— (5,977)— 
Proceeds from issuance of debt— 50,752 2,169 
Principal payments on debt— (99,565)(3,419)
Payment of debt issuance costs— — (420)
Purchase of treasury stock— (4,194)— 
Net cash used in financing activities(7,348)(70,358)(7,272)
36

 Year Ended December 31,
 2017 2016 2015
Cash from operating activities     
Net income (loss)$9,716
 $(8,281) $(15,668)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:     
Depreciation and amortization12,699
 9,935
 6,104
Purchased investment premium, net of amortization(39) 245
 (865)
Amortization of deferred financing costs63
 63
 456
Loss on disposal of property, equipment and intangibles97
 41
 67
Stock-based compensation6,096
 4,301
 1,007
Lease abandonment—
 161
 —
Changes in operating assets and liabilities:     
Accounts receivable(876) (463) (746)
Prepaid expenses and other current assets(1,009) (377) (1,893)
Other assets(84) (103) (56)
Accounts payable(100) (904) (439)
Accrued employee expenses3,243
 2,223
 1,887
Accrued expenses271
 1,148
 1,135
Deferred revenue(558) 2,685
 1,173
Other liabilities(148) 826
 994
Net cash provided by (used in) operating activities29,371
 11,500
 (6,844)
Cash from investing activities     
Purchases of property and equipment(2,213) (4,242) (3,694)
Additions to capitalized software(10,455) (11,166) (7,677)
Purchases of investment securities(26,648) (31,551) (74,176)
Sales of investment securities15
 12,559
 4,100
Maturities of investment securities16,474
 21,337
 26,136
Cash paid in business acquisition, net of cash acquired—
 —
 (4,039)
Purchases of intangible assets(1) (2) (17)
Net cash used in investing activities(22,828) (13,065) (59,367)
Cash from financing activities     
Proceeds from stock option exercises663
 352
 357
Proceeds from issuance of restricted stock—
 —
 141
Proceeds from issuance of options—
 —
 208
Tax withholding for net share settlement(1,796) (111) —
Principal payments under capital lease obligations—
 (29) (27)
Proceeds from initial public offering, net of underwriting discounts and commissions—
 —
 79,570
Payments of initial public offering costs—
 —
 (4,213)
Payment of contingent consideration—
 —
 (2,429)
Proceeds from issuance of debt118
 117
 10,253
Principal payments on debt(118) (128) (10,241)
Payment of debt issuance costs—
 —
 (757)
Net cash (used in) provided by financing activities(1,133) 201
 72,862
Net (decrease) increase in cash and cash equivalents(82,416)124,452 (58,259)
Cash, cash equivalents and restricted cash
Beginning of period140,699 16,247 74,506 
End of period$58,283 $140,699 $16,247 
APPFOLIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year Ended December 31,
 202120202019
Supplemental disclosure of cash flow information
Cash paid for interest$— $1,815 $2,169 
Cash paid for income taxes9,324 85 545 
Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows1,618 2,198 5,007 
Right-of-use assets obtained in exchange for operating lease liabilities11,945 6,644 14,986 
Noncash investing and financing activities
Purchases of property and equipment included in accounts payable and accrued expenses$1,526 $370 $3,447 
Capitalization of software development costs included in accrued expenses and accrued employee expenses296 383 1,187 
Stock-based compensation capitalized for software development877 804 1,844 
Purchase consideration for acquisitions included in other current liabilities— — 5,977 



    The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same such amounts shown above (in thousands):
December 31,
202120202019
Cash and cash equivalents$57,847 $140,263 $15,813 
Restricted cash included in other assets436 436 434 
Total cash, cash equivalents and restricted cash$58,283 $140,699 $16,247 
APPFOLIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
      
 Year Ended December 31,
 2017 2016 2015
Net increase (decrease) in cash and cash equivalents5,410
 (1,364) 6,651
Cash and cash equivalents     
Beginning of period10,699
 12,063
 5,412
End of period$16,109
 $10,699
 $12,063
      
Supplemental disclosure of cash flow information     
Cash paid for interest$182
 $191
 $797
Cash paid for taxes30
 27
 91
      
Noncash investing and financing activities     
Purchases of property and equipment included in accounts payable and accrued expenses$21
 $261
 $1,220
Additions of capitalized software included in accrued employee expenses374
 458
 290
Stock-based compensation capitalized for software development759
 431
 166
Conversion of convertible preferred stock into common stock in connection with initial public offering—
 —
 63,166


The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

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APPFOLIO, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
1. Nature of Business
AppFolio, Inc. (“we”,(the "Company," "we," "us" or "our") is a leading provider of cloud business management solutions for the "Company" or “AppFolio”) provides industry-specific, cloud-basedreal estate industry. Our solutions enable our customers to digitally transform their businesses, automate and streamline critical business operations and deliver a better customer experience. We were founded in 2006 with the vision to revolutionize vertical industry businesses by providing great software and services. Our mission is even more relevant today, digital transformation is effectively a requirement for business success in the modern world, and the way we work and live today requires powerful software solutions to enable a more seamless experience.
During the real estate market, which comprises a significant majority of our revenue, as well asyears ended December 31, 2020 and 2019, we also provided cloud-based solutions and services to the legal market, and we intend to enter new vertical markets over time. We serveindustry via MyCase, a solution primarily designed for small and medium-sized businesses (“SMBs”) in the property management industry and solo practitioners and smallmid-sized law firms in the legal industry. We refer to solo practitioners and small law firms as SMBs in connection withfirms. As previously disclosed, we completed our legal vertical in these financial statements. Our solutions are designed to be a systemdivestiture of record to automate essential business processes, a system of engagement to enhance business interactions between our customers and their clients and vendors, and, increasingly, a system of intelligence to anticipate, influence, and optimize customer experiences using data to take action in real time.MyCase, Inc. on September 30, 2020. For additional details, see Note 3, Divestitures.
2. Summary of Significant Accounting Policies
Basis of Presentation and Significant Accounting Policies
The accompanying Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Reclassification
We reclassified certain amounts in our Consolidated Statements of Cash Flows within the cash flows from operating activities section in the prior year to conform to the current year's presentation.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the operations of AppFolio, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Our investment in SecureDocs, Inc. (“SecureDocs”) is accounted for under the equity method of accounting as we have the ability to exert significant influence, but do not control and are not the primary beneficiary of the entity. Our investment in SecureDocs is not material and our share of its losses areany income (loss) activity is not material individually or in the aggregate to our financial position, results of operations or cash flowsConsolidated Financial Statements for any period presented. In December 2021, we sold our interest in SecureDocs. Refer to Note 4, Investments for additional information.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenuesrevenue, expenses, other income, and expensesprovision for income taxes during the reporting period. Assets and liabilities which are subject to judgment and use of estimates include the fair value of financial instruments, capitalized software development costs, period of benefit associated with deferred costs, incremental borrowing rate used to measure operating lease liabilities, the recoverability of goodwill and long-lived assets, income taxes, useful lives associated with property and equipment and intangible assets, contingencies, assumptions underlying performance-based compensation (whether cash or stock-based), and valuation and assumptions underlying stock-based compensation and other equity instruments. Actual results could differ materially from those estimates. On an ongoing basis, management evaluates its estimates basedand any such differences may have a material impact on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.our Consolidated Financial Statements.
Segment Information
Our chief operating decision maker reviews financial information presented on an aggregated and consolidated basis, together with revenue information for our core solutions, Value+Value Added Services, and other service offerings, principally to make decisions about how to allocate resources and to measure our performance. Accordingly, management haswe have determined that we have one1 reportable and operating segment.
Concentrations of Credit Risk
Financial instruments that potentially subject us to credit risk consist principally of cash, cash equivalents, restricted cash, accounts receivable, investment securities and notes receivable. At times, weWe maintain cash balances at financial institutions in excess of amounts insured by United States government agencies or payable by the United States government directly. We
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place our cash with high credit, quality financial institutions. We invest in investment securities with a minimum rating of A by Standard & Poor's andor A-1 by Moody's and regularly monitor our investment security portfolio for changes in credit ratings.
Concentrations of credit risk with respect to accounts receivable and revenue are limited due to a large, diverse customer base. No individual customer represented 10% or more of accounts receivable as ofat December 31, 20172021 and 20162020 or revenue for the years ended December 31, 2017, 20162021, 2020 and 2015.


2019.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the We use of observable inputs and minimize the use of unobservable inputs. Accounting Standard Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”), describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:
Level 1 - Quoted prices in active markets for identical assets or liabilities or funds.liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or otherthe marketplace.
Level 3 - Unobservable inputs that are observablesupported by little or can be corroborated by observableno market data for substantially the full term of the assets or liabilities.activity.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Cash, and Cash Equivalents and Restricted Cash
We consider all highly liquid investments, readily convertible to cash, and which have a remaining maturity date of three months or less at the date of purchase, to be cash equivalents. Cash and cash equivalents are recorded at fair value and consist primarily of bank deposits and money market funds.
Restricted cash of $0.4 million as of December 31, 2017 and 2016, is comprised of certificates of deposits relating to collateral requirements for customer automated clearing house and credit card chargebacks and minimum collateral requirements for our insurance services, which are recorded in other long term assets.
Investment Securities
Our investment securities currently consist of corporate bonds, United States government agency securities ("Agency Securities") and certificates of deposit.treasury securities. We classify investment securities as available-for-sale at the time of purchase and reevaluate such classification as ofat each balance sheet date. All investments are recorded at estimated fair value.value and investments with original maturities of less than one year at the time of purchase are classified as short-term. Unrealized gains and losses for available-for-sale investment securities are included in accumulated other comprehensive income, (loss), a component of stockholders’stockholders' equity. We classify our investments as current when the period of time between the reporting date and the contractual maturity is twelve months
For available-for-sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or less and as noncurrent when the period of time between the reporting date and the contractual maturitywhether it is more likely than twelve months.
We evaluate our investmentsnot that we will be required to assess whether those withsell the security before recovery of its amortized cost basis. If either of these criteria is met, the security’s amortized cost basis is written down to fair value through income. For securities in an unrealized loss positions areposition that do not meet these criteria, we evaluate whether the decline in fair value has resulted from credit loss or other than temporarily impaired. We consider impairments to be other than temporary if they are related to deterioration infactors. If this assessment indicates a credit risk or if itloss exists, the credit-related portion of the loss is likely we will sell the securities before the recovery of their cost basis. Declines in value judged to be other than temporary are determined basedrecorded as an allowance for losses on the specific identification methodsecurity. No allowance for credit losses for available-for-sale investment securities was recorded as of December 31, 2021 and are reported in other income (expense), net in the Consolidated Statements of Operations.2020.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts.credit losses. The allowance for doubtful accountscredit losses is based on historical loss experience, the number of days that receivables are past due, and an evaluation of the potential risk of loss associated with delinquent accounts. Accounts receivable considered uncollectableuncollectible are charged against the allowance for doubtful accountscredit losses when identified. We do not have any off-balance sheet credit exposure related to our customers. As ofAt December 31, 2017, 20162021 and 2015,2020, our allowance for doubtful accountscredit losses was not material.
Property and Equipment
Property and equipment is stated at cost lessnet of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of assets. The estimated useful lives of our property and equipment areassets as follows:
Asset TypeDepreciation Period
Data center and computerComputer equipment3 years
Furniture and fixtures7 years
Office equipment23 to 5 years
Leasehold improvementsShorter of remaining life of lease or asset life


Repair and maintenance costs are expensed as incurred. Renewals and improvements are capitalized. Assets disposed of or retired are removed from the cost and accumulated depreciation accounts and any resulting gain or loss is reflected in our results of operations.
Leases
LeasesWe determine if an arrangement is a lease at inception. Operating lease ROU assets and operating lease liabilities are evaluated and classified as either operating or capital leases. Allrecognized based on the present value of the future minimum lease payments, over the lease term at commencement date. As none of our office space leases areprovide an implicit rate, we use our incremental borrowing rate based on the information available at
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commencement date in determining the present value of future payments. The operating leases.lease ROU assets also include any lease payments made to the lessor before or at the lease commencement date and excludes lease incentives received and initial direct costs incurred. Our lease terms may include options to extend the lease when it is reasonably certain that we will exercise that option.
RentLease expense under operating leasesfor minimum lease payments is recognized on a straight-line basis over the lease term. The difference between recognized rent expenseWe have lease arrangements with lease and the rent payment amount is recorded as an increase or decrease in deferred rent liability. If the lease has tenant allowances from the lessornon-lease components, which are generally accounted for certain improvements made to the leased property, these allowances are capitalized as leasehold improvements. Tenant allowances and rent holidays in lease agreements are recognized as a deferred rent credit, which is amortizedsingle lease component. Leases with an initial term of twelve months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term as a reductionterm.
Capitalized Software Development Costs
Software development costs consist of rent expense.
Internal-Use Software
We account for the costs of computer software obtained or developed for internal use in accordance with ASC 350, Intangibles-Goodwillcertain payroll and Other (“ASC 350”). These includestock compensation costs incurred in connection with the developmentto develop functionality of our internal-use software solutions when (i) the preliminary project stage is completed, (ii) management has authorized further fundingsolutions. We capitalize certain software development costs for the completion of the project and (iii) it is probable that the project will be completed and performednew offerings as intended. These capitalized costs include personnel and related expenses for employees who are directly associated with and who devote time to internal-use software projects and, when material, interest costs incurred during the development. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Costs incurred forwell as significant upgrades and enhancements to our existing software solutions are also capitalized. Costs incurred for post-configuration training, maintenance and minor modifications or enhancements are expensed as incurred.solutions. Capitalized software development costs are amortized using the straight-line method over an estimated useful life of three years. We do not transfer ownership of our software, license, or lease our software to third parties.
Goodwill and Intangible Assets
Goodwill is tested for impairment at least annually at the reporting unit level or at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A qualitative assessment is performed to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount. A quantitative assessment is performed if the qualitative assessment results in a more-likely-than-not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent that the reporting unit’s carrying value exceeds its fair value.
We test for goodwill impairment annually during the fourth quarter of the calendar year. Based on the assessment performed at November 1, 2021, we determined it was unlikely that our reporting unit fair value was less than its carrying value and no quantitative impairment test assessment was required. No impairment losses were recorded for goodwill during the years ended December 31, 2021, 2020 and 2019.
Intangible assets primarily consist of acquired database and technology, non-compete agreements, customer and partner relationships, acquired technology, trademarks and trade names, domain names and patents, which are recorded at cost, less accumulated amortization. We determine the appropriate useful life of our intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized over their estimated useful lives using theon a straight-line method,basis, which approximates the pattern in which the economic benefits of the assets are consumed.
Impairment of Long-Lived Assets
We assess the recoverability of our long-lived assets when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.recoverable or that the useful lives of those assets are no longer appropriate. An impairment charge would be recognized when the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. There were no impairment charges related to the identified long-lived assets for the years ended December 31, 2017, 20162021, 2020 and 2015.
Business Combinations
The results of a business acquired in a business combination are included in our consolidated financial statements from the date of acquisition. We allocate the purchase price, including the fair value of contingent consideration, to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill.
Determining the fair value of assets acquired and liabilities assumed requires management to make significant judgments and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies.
Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an operating expense in the period in which the costs are incurred.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. We test goodwill for impairment in accordance with the provisions of ASC 350. Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired. Events or changes in circumstances which could trigger an impairment review include a significant adverse change in legal factors or in the


business climate, unanticipated competition, loss of key personnel, significant changes in the use of the acquired assets or our strategy, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.
ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform the first of a two-step impairment test.
The first step involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then the carrying amount of the goodwill is compared with its implied fair value. The estimate of implied fair value of goodwill may require valuations of certain internally generated and unrecognized intangible assets. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.
We have one reporting unit and we test for goodwill impairment annually during the fourth quarter of the calendar year. At December 31, 2017 and 2016, we determined our goodwill of $6.7 million was not impaired as the fair value of our reporting unit significantly exceeded its carrying value based on the results of our annual impairment tests.2019.
Revenue Recognition
We generate revenue primarily from our customers primarily for subscriptions to access our core solutions and Value+Value Added Services. Revenue is recognized upon transfer of control of promised services in an amount that reflects the consideration we expect to receive in exchange for those services. We enter into contracts that can include various combinations of services, which are generally capable of being distinct, distinct within the context of the contract, and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We do not disclose the value of unsatisfied performance obligations for contracts with an original expected term of one year or less. We recognize revenue in proportion to the amount we have the right to invoice for certain core solutions and Value Added Services revenue, as that amount corresponds directly with our performance completed to date. Refer to Note 14, Revenue and Other Information for the disaggregated breakdown of revenue between Core solutions, Value Added Services and Other revenue.
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Core Solutions
We charge our customers on a subscription basis for our cloud-based property management and legal softwarecore solutions. Our subscription fees are designed to scale to the size of our customers' businesses. Subscription fees for our core solutions are charged on a per-unit per-month basis for our property management software solution and on a per-user per-month basis for our legal software solution. WeOur customers do not have rights to the underlying software code of our solutions, and, accordingly, we recognize subscription revenue over time on a straight-line basis over the termscontract term beginning on the date that our service is made available to the customer. The term of theour core solutions subscription agreements which rangetypically ranges from one month to one year. We generallytypically invoice our customers for subscription services in monthly quarterly or annual installments, typically in advance of the subscription period. Any revenues which are billed in advance are recorded as deferred revenue until the revenue is earned. Revenue from subscription services is impacted by the change in the number and type of our customers, the size and needs of our customers' businesses and our customer renewal rates.
Value Added Services
We charge our customers on a subscription or usage basis for our Value Added Services. Subscription-based fees are charged on a per-unit basis. We typically invoice our customers for subscription-based services in monthly installments, in advance of the subscription period. We recognize revenue for subscription-based services over time on a straight-line basis over the contract term beginning on the date that our service is made available to the customer. Usage-based fees are charged either as a percentage of the transaction amount (e.g., for certain of our Value+ services. Our subscription fees are designed to scale to the size of our customers’ businesses. Subscription Value+ services include website hosting services and contact center services. We also charge our customers usage-based fees for using certain Value+ services. Usage-based Value+ services include fees for electronic payment processing, applicant screening services, our legal liability to landlord insurance program, collections, online vacancy advertising services and renters insurance. Usage-based fees are chargedservices) or on a flat fee per transaction basis with no minimum usage commitments.commitments (e.g., for our tenant screening and risk mitigation services). We recognize revenue for usage-based services in the period the service is rendered. Our electronic payments services fees are recorded gross of the interchange and payment processing related fees. We generally invoice our customers for usage-based services on a monthly basis for services rendered in the preceding month with the exception ofmonth. In addition, some subscription or usage-based Value Added Services, such as fees for electronic payment processing, whichservices, are generally paid by theeither our customers or clients of our customers at the time the electronic payment is processed. Revenue from Value+ services is impacted by a number of factors, including the number of new and existing customers that adopt and utilize our Value+ service, the size and needsare rendered.
We work with third-party partners to provide certain of our customersValue Added Services. For these Value Added Services, we evaluate whether we are the principal, and ourreport revenue on a gross basis, or the agent, and report revenue on a net basis. In this assessment we consider if we obtain control of the specified services before they are transferred to the customer, renewal rates.as well as other indicators such as whether we are the party primarily responsible for fulfillment, and whether we have discretion in establishing price.
Other Revenue
Other revenue includes revenueinclude fees from one-time services related to on-boardingthe implementation of our software solutions and other recurring or one-time fees related to our customers who are not otherwise using our core solutions. This includes legacy customers of businesses we have acquired where the customers haven't migrated to our core solutions, website designsolutions. The fees for implementation and data migration services are billed upon signing our core subscription contract and online vacancy advertising services offered to legacy RentLinx customers.
Our legal software core solution offers customers a free trial period to try our software. Revenue isare not recognized until the free trial periodcore solution is completeaccessible and fully functional for our customer's use. Other services are billed when the customer has entered into a subscription agreement with us.
Our customers do not have rights to the underlying software code of our solutions,services rendered are completed and accordingly, the Company's revenue arrangements are outside the scope of the software revenue recognition guidance, and are instead recognized in accordance with Staff Accounting Bulletin Topic 13. We recognize revenue when (i) there is persuasive evidence of an arrangement, (ii) our software solutions have been made available or delivered or services have been performed, (iii) the amount of fees is fixed or determinable, and (iv) collectability is reasonably assured. Evidence of an arrangement generally consists of either a signed customer contract or an online click-through agreement. We consider that delivery of a solution or website has commenced once we provide the customer with access to use the solution or website. Fees are fixed based on rates specified in the subscription agreements, which do not provide for any refunds or adjustments. If collectability is not considered reasonably assured, revenue is deferred until the fees are collected. Some of our subscription agreements contain minimum cancellation fees in the event that the customer cancels the subscription early.
For multiple-deliverable arrangements, we first assess whether each deliverable has value to the customer on a standalone basis. We have determined thator billed in advance and deferred over the subscription services related to our core solutions have value on a standalone basis becauseperiod.

Deferred Revenue

once access is provided, they are fully functional and do not require additional development, modification or customization. Our Value+ services have value on a standalone basis as the services are sold separately by other vendors and are not essential to the functionality of the other deliverables. The usage-based services are typically entered into subsequent to the initial customer arrangement. In multiple-deliverable arrangements that contain usage-based services, the customer has the option to purchase the services on an ad hoc basis, andWe record deferred revenue when cash payments are made whenreceived in advance of our performance. During the servicestwelve months ended December 31, 2021 and 2020, we recognized revenue of $2.2 million and $4.5 million, respectively, that were included in the deferred revenue balances at December 31, 2020 and 2019, respectively.
Deferred Costs
Deferred costs, which primarily consist of sales commissions, are rendered.
Based on the standalone valueconsidered incremental and recoverable costs of the deliverables,obtaining a contract with a customer. These costs are deferred and since our customers do not have a general right of return, we allocate revenue among the separate non-contingent deliverables in a multiple-deliverable arrangement under the relative selling price method using the selling price hierarchy within the revenue accounting guidance (ASC Topic 605, Revenue Recognition). The selling price hierarchy requires the selling price of each deliverable in a multiple-deliverable arrangement to be based on, in descending order, (i) vendor-specific objective evidence of fair value ("VSOE"), (ii) third-party evidence of fair value ("TPE"), or (iii) management’s best estimate of the selling price ("BESP").
For our property manager core solution, we have established VSOE based on our consistent historical pricing and discounting practices for customer renewals where the customer only subscribes to our core solutions, and based on the price established by management for elements not yet being sold separately. In establishing VSOE, the substantial majority of the selling prices for our core solutions fall within a reasonably narrow pricing range, and the price once established by management for elements not yet being sold separately are not offered at a discount. For our legal software core solution, we utilize BESP to allocate revenue among the separate non-contingent deliverables, as we have been unable to establish VSOE due to our discounting practices, and we have been unable to obtain TPE.
After the contract value is allocated to each non-contingent deliverable in a multiple-deliverable arrangement based on the relative selling price, revenue is recognized for each deliverable based on the pattern in which the revenue is earned. For subscriptions services, revenue is recognizedthen amortized on a straight-line basis over a period of benefit that we have determined to be three years. We typically do not pay commissions for contract renewals. We determined the subscription period. For usage-based services, revenue is recognized asperiod of benefit by taking into consideration our customer contract term, the services are rendered. For one-time services, revenue is recognized upon completionuseful life of the related services. Sales commissionsour internal-use software, average customer life, and other incrementalfactors. Amortization expense for the deferred costs is allocated based on the employee's department and included withinsales and marketing expense in the accompanying Consolidated Statements of Operations.
Deferred costs were $12.4 million and $10.3 million at December 31, 2021 and 2020, respectively, of which $6.4 million and $5.5 million, respectively, are included in Prepaid expenses and other current assets and $6.0 million and $4.8 million, respectively, are included in Other assets in the accompanying Consolidated Balance Sheets. Amortization expense for deferred costs was $6.8 million, $5.8 million, and $4.2 million for the years ended December 31, 2021, 2020, and 2019, respectively. For the years ended December 31, 2021 and 2020, no impairments were identified in relation to acquire contracts are expensed as incurred.the costs capitalized for the periods presented.
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Cost of Revenue
Many of our Value Added Services are facilitated by third-party service providers. Cost of revenue consists of fees paid to these third-party service providers includes the cost of electronic interchange and payment processing related services to support our electronic payments services, the cost of credit reporting services for our tenant screening services, and various costs associated with our risk mitigation service providers. These third-party costs vary both in amount and as a percent of revenue for each Value Added Service offering. Cost of revenue also consists of personnel-related costs (including salaries, incentive-based compensation, benefits, and stock-based compensation) for our employees focused on customer service and the support of our operations (including salaries, performance-based compensation, benefits, and stock-based compensation), platform infrastructure costs (such as data center operations and hosting-related costs), payment processing fees, and allocated shared and other costs. We typically allocate shared costs across our organization based on headcount within the applicable part of our organization. Cost of revenue excludes depreciation of property and equipment, and amortization of capitalized software development costs and amortization of intangible assets.
Sales and Marketing
Sales and marketing expense consists of personnel-related costs (including salaries, sales commissions, incentive-basedperformance-based compensation, benefits, and stock-based compensation) for our employees focused on sales and marketing, costs associated with sales and marketing activities, and allocated shared and other costs. Marketing activities include advertising, online lead generation, lead nurturing, customer and industry events, and the creation of industry-related content and collateral. Sales commissions and other incremental costs to acquire customers and grow adoption and utilization of our Value+ servicesValue Added Services by our new and existing customers are expensed as incurred.deferred and then amortized on a straight-line basis over a period of benefit, which we have determined to be three years. We focus our sales and marketing efforts on generating awareness of our software solutions, creating sales leads, establishing and promoting our brands, and cultivating an educated community of successful and vocal customers. Advertising expenses were $3.6$9.4 million, $7.0 million and $5.8 million for each of the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively, and are expensed as incurred.
Research and Product Development
Research and product development expense consists of personnel-related costs (including salaries, incentive-basedperformance-based compensation, benefits, and stock-based compensation) for our employees focused on research and product development, fees for third-party development resources, and allocated shared and other costs. Our research and product development efforts are focused on enhancing functionality and the ease of use and functionality of our existing software solutions by adding new core functionality, Value+ servicesValue Added Services and other improvements, as well as developing new products and services.services for new and existing markets. We capitalize the portion of our software development costs that meetswhich meet the criteria for capitalization. Amortization of capitalized software development costs is included in depreciation and amortization expense.
General and Administrative
General and administrative expense consists of personnel-related costs (including salaries, incentive-baseda majority of total performance-based compensation, benefits, and stock-based compensation) for employees in our executive, finance, information technology, human resources, legal, compliance, corporate development legal and administrative organizations. In addition, general and administrative expense includes fees for


third-party professional services (including audit, legal, compliance, tax, and consulting services), transaction costs related to business combinations and divestitures, regulatory fines and penalties, other corporate expenses, and allocated shared costs.
Depreciation and Amortization
Depreciation and amortization expense includes depreciation of property and equipment, amortization of capitalized software development costs, and amortization of intangible assets. We depreciate or amortize property and equipment, software development costs, and intangible assets over their expected useful lives on a straight-line basis, which approximates the pattern in which the economic benefits of the assets are consumed.
Stock-Based Compensation
We account forrecognize stock-based compensation awards granted to employees and directors by recording compensation expense based on each award's grant-date estimated fair value, in accordance with ASC 718, Compensation-Stock Compensation over the vesting period. We estimate the fair value offor restricted stock awards ("RSAs"), and restricted stock units ("RSUs") and performance based RSUs ("PSUs") based on the fair value of our common stock on the date of grant. We estimate the fair value of stock options and performance based stock options ("PSOs") using the Black-Scholes option-pricing model. Determining the fair value of stock options under this model requires highly subjective assumptions, including the fair value of the underlying common stock, the risk-free interest rate, the expected term of the award, the expected volatility of the price of our common stock, and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If we had made different assumptions, our stock-based compensation expense could have been materially different.
Since our IPO in June 2015, the fair value of our common stock is based on the closing price of our Class A common stock, as quoted on the NASDAQ Global Market,on the date of grant and we utilized the following assumptions and estimates when utilizing the Black-Scholes option-pricing model when calculating the fair value of our options and PSOs:
▪
Risk-Free Interest Rate - The risk free interest rate assumption is based upon observed interest rates on United States government securities appropriate for the expected term of the stock option.
▪
Expected Term - Given that we do not have sufficient exercise history to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, we determine the expected term using the simplified method, which is calculated as the midpoint of the stock option vesting term and the expiration date of the stock option.
▪
Expected Volatility - We determine the expected volatility based on the historical average volatilities of publicly traded industry peers. We intend to continue to consistently apply this methodology using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose stock prices are publicly available would be utilized in the calculation.
▪
Expected Dividend Yield - We have not paid and do not anticipate paying any cash dividends in the foreseeable future and, therefore, we use an expected dividend yield of zero.
Forfeiture Rate
In addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate our stock-based compensation expense for our options and awards. The forfeiture rate is based on an analysis of actual forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and other factors. Changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the estimated forfeiture rate is changed. If a revised forfeiture rate is higher than the previously-estimated forfeiture rate, an adjustment is made that will result in a decrease to our stock-based compensation expense recognized in our consolidated financial statements. If a revised forfeiture rate is lower than the previously-estimated forfeiture rate, an adjustment is made that will result in an increase to our stock-based compensation expense recognized in our consolidated financial statements.
Restricted Stock Units
In September 2015, we began granting RSUs. The RSUs vest in equal tranches over four annual periods and are expensedwith only service conditions on a straight-line basis over the vestingrequisite service period. The shares underlying the RSU grants are not issuedFor RSUs with both service and outstanding until the applicable vesting date.
Performance Based Equity Awards


In 2016, we began granting PSOs and PSUs. The fair values of the PSOs are estimated using the Black-Scholes option-pricing model and the PSUs fair values are basedperformance conditions (performance-based RSUs or performance share units ("PSUs")), compensation cost is recorded on the fair value of our common stock on the date of grant. The vesting of the PSOs and PSUsa graded-vesting method, if it is based on achievement of a pre-established free cash flow performance metric or adjusted gross margin target and continued employment throughoutprobable that the performance period. We recognize expense for the PSOs and PSUs based on the grant date fair value to the extent vesting of the award is probable.condition will be achieved. Adjustments to compensation expense are made each period based on changes in our estimate of the number of PSOs and PSUs that are probable of vesting. PSOs and PSUs will vest upon achievement of the relevant performance metric once such calculation is reviewed and approved by our boardBoard of directors.Directors. We estimate a forfeiture rate to calculate our stock-based compensation expense for our stock-based awards.
Income Taxes
We account for income taxes in accordance with ASC 740, which requires the recognition ofrecognize deferred tax assetsliabilities and liabilitiesassets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
42

recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statementsConsolidated Statements of operationsOperations in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.
We recognize In evaluating the tax benefit from an uncertain tax position only if it is more likely than not thatneed for a valuation allowance, management considers the tax position will be sustained on examination byweighting of all available positive and negative evidence, which includes, among other things, the taxing authorities, based onnature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, and the technical meritsduration of the position. The tax benefits recognized in our consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized. We recognize interest and penalties accrued with respect to uncertain tax positions, if any, in our provision for income taxes in the consolidated statements of operations.statutory carryforward periods.
Net Income (Loss) per Common Share
TheBasic net income (loss)per share includes no dilution and is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The dilutive effect of outstanding options and equity incentive awards is reflected in diluted net income per share by application of the treasury stock method. The calculation of diluted net income per share excludes all anti-dilutive common shares.
Net income per common share was the same for shares of our Class A and Class B common sharesstock because they are entitled to the same liquidation and dividend rights and are therefore combined in the table below. The following table presents a reconciliation of ourthe weighted average number of shares of our Class A and Class B common sharesstock used to compute net income (loss) per common share (in thousands):
 Year Ended December 31,
 202120202019
Weighted average common shares outstanding34,583 34,269 34,020 
Less: Weighted average unvested restricted shares subject to repurchase5 5 4 
Weighted average common shares outstanding; basic34,578 34,264 34,016 
Weighted average common shares outstanding; basic34,578 34,264 34,016 
Plus: Weighted average options, restricted stock units and restricted shares used to compute diluted net income per common share1,123 1,449 1,551 
Weighted average common shares outstanding; diluted35,701 35,713 35,567 
 Year Ended December 31,
 2017 2016 2015
Weighted average common shares outstanding33,876
 33,639
 21,486
Less: Weighted average unvested restricted shares subject to repurchase27
 78
 150
Weighted average common shares outstanding; basic33,849
 33,561
 21,336
      
Weighted average common shares outstanding; basic33,849
 33,561
 21,336
Plus: Weighted average options, RSUs and restricted shares used to compute diluted net income per share1,302
 — —
Weighted average common shares outstanding; diluted35,151
 33,561
 21,336
Approximately 548,000For the years ended December 31, 2021, 2020 and 2019, an aggregate of 181,000, 79,000 and 187,000 shares, of PSOsrespectively, underlying performance-based stock options and PSUs arewere not included in the computations of diluted and anti-dilutive shares for the year ended December 31, 2017, as they are considered contingently issuable upon the satisfaction of pre-defined performance measures and their respective performance measures have not been met.
For the years ended December 31, 2016 and 2015, we reported a net loss and therefore all potentially dilutive common shares are RSUs with an anti-dilutive and have been excluded from the calculation of net loss per share. The following table presents the number of anti-dilutive common shareseffect were excluded from the calculation of weighted average number of shares used to compute diluted net income (loss) per common share and they were not material for the years ended December 31, 2017, 2016,2021, 2020 and 2015 (in thousands):


  December 31,
  2017 2016 2015
Options to purchase common stock —
 1,718
 1,171
Unvested RSAs —
 46
 120
Unvested RSUs 21
 496
 17
Contingent RSUs (1)
 6
 34
 49
Total shares excluded from net loss per share attributable to common stockholders 27
 2,294
 1,357
(1) The reported shares are based on fixed price RSU commitments for which the number of shares has not been determined at the grant date. The number of shares have been determined by dividing the fixed price commitment to issue shares in the future by the closing price of our common stock as of the applicable reporting period date.
Recently Adopted Accounting Pronouncements
Under the Jumpstart our Business Startups Act (the “JOBS Act”), we meet the definition of an emerging growth company. We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 781), Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which amends and simplifies the accounting for share-based payment awards in three areas: (i) income tax consequences, (ii) classification of awards as either equity or liabilities, and (iii) classification on the statement of cash flows. ASU 2016-09 also provides an accounting policy election to account for forfeitures as they occur. We adopted this guidance on January 1, 2017. The impact on the Company’s consolidated financial statements was not material due to the full valuation allowance on our deferred tax assets. We have elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized each period.2019.
Recent Accounting Pronouncements Not Yet Adopted in 2021
In May 2014,December 2019, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as amended, which2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). This amendment was issued to simplify the accounting for income taxes by removing certain exceptions for recognizing deferred taxes, performing intraperiod allocation, and calculating income taxes in interim periods. Further, ASU 2019-12 adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax basis goodwill and allocating taxes to members of a consolidated group. This guidance also requires an entity to recognizereflect the amounteffect of revenue to which it expects to be entitled foran enacted change in tax laws or rates in its effective income tax rate in the transferfirst interim period that includes the enactment date of promised goods or services to customers (the “new revenue standard”). Thethe new revenue standard alsolegislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which discusses the deferraleffective date of incremental costs of obtaining a contract with a customer. The new revenue standard will be effectivethe tax law. We adopted ASU 2019-12 on January 1, 2018.2021. The standard permits the use of either a full retrospective or modified retrospective transition method.

The Company will adopt the new revenue standard as of January 1, 2018, using the modified retrospective transition method applied to those contracts which were not completed as of that date. Upon adoption, we will recognize the cumulative effect of adopting this guidance as an adjustment to our opening balance of accumulated deficit. Prior periods will not be retrospectively adjusted.
We do not expect a material impact on our revenue upon adoption. The primary impact of adopting the new revenue standard relates to the deferral of incremental costs of obtaining contracts. We have substantially completed our assessment of the impacts of the new revenue standard on incremental costs of obtaining contracts and we expect to record an adjustment to decrease accumulated deficit as of January 1, 2018 for approximately $3.0 million related to the accounting for the cost of sales commissions. Historically, sales commissions and other incremental costs to obtain contracts are expensed as incurred. Under the new revenue standard, such costs will be deferred and recognized over the period of benefit which we have determined to be three years. The Company is in the process of implementing the necessary changes to its accounting policies, processes, internal controls and information systems that will be required to meet the new revenue standard’s reporting and disclosure requirements.
In February 2016, the FASB issued ASU No. 2016-02, Leases(Topic 842) ("ASU 2016-02"). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. There are additional optional practical expedients that an entity may elect to apply. We anticipate this standard will have a material impact on our consolidated


financial statements. While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impact relates to our accounting and reporting of our operating leases on our balance sheet. We are in the process of implementing changes to our processes in conjunction with our review of existing lease agreements. We will adopt ASU 2016-02 effective January 1, 2019 and expect to elect certain available transitional practical expedients.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which amends the current accounting guidance and requires the measurement of all expected losses based on historical experience, current conditions and reasonable and supportable forecasts. This guidance amends the accounting for credit losses for available-for-sale securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period after December 15, 2018. We do not expect the adoption of this guidance todid not have a material impact on our financial condition, results of operations, cash flows or disclosures.


43

Recent Accounting Pronouncements Not Yet Adopted
In August 2016,October 2021, the FASB issued ASU No. 2016-15, Statement of Cash Flows2021-08, "Business Combinations (Topic 230)805): Classification of Certain Cash ReceiptsAccounting for Contract Assets and Cash Payments ("ASU 2016-15")Contract Liabilities from Contracts with Customers," which provides cash flow statement classification guidance for debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificantrequires contract assets and contract liabilities acquired in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceedscombination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, "Revenue from Contracts with Customers," as if the settlement of insurance claims; proceeds fromacquirer had originated the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.contracts. ASU 2016-152021-08 is effective for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early2022. We will adopt ASU 2021-08 on January 1, 2023 on a prospective basis to business combinations that occur on or after the adoption date. The Company is permitted, including adoption in an interim period. We do not expectcurrently evaluating the effect, if any, the adoption of this guidance towill have a material impact on our statement of cash flows.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16"), which changes the timing of when certain intercompany transactions are recognized within the provision for income taxes. ASU 2016-16 is effective on January 1, 2018. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our financial condition, results of operations, cash flows orand disclosures.

In November 2016, the FASB3. Divestitures
Divestiture of MyCase
On September 30, 2020, we completed our divestiture of 100% of our issued ASU 2016-18, Statementand outstanding equity interests of Cash Flows (Topic 230): Restricted CashMyCase, Inc. ("ASU 2016-18"MyCase"), a former wholly owned subsidiary that provided legal practice and case management software solutions to our legal customers, for $193.0 million, consisting of $192.2 million of cash proceeds, plus a $2.2 million employee retention bonus pool funded by us, less cash divested of $0.8 million and a preliminary working capital adjustment of $0.6 million (the "MyCase Transaction"). The retention bonus pool was refundable to the Company to the extent that MyCase employees were terminated prior to the retention period, which provides amendments to current guidance to addresswas one year from the classification and presentationclosing date of changes in restrictedthe MyCase Transaction.
We recognized a pre-tax gain on the sale of $188.0 million on the MyCase Transaction, consisting of cash proceeds of $192.2 million, less net assets divested of $4.6 million, plus an adjustment in the statementemployee retention bonus pool of cash flows. ASU 2016-18$0.4 million. Net assets divested is effective on January 1, 2018primarily comprised of capitalized software of $3.9 million, deferred revenue of $2.8 million and early adoption is permitted. We expect that adoption will change the current presentation of restricted cash on our statement of cash flows as well as require additional disclosures to reconcile cash and cash equivalents per the balance sheet to cash and cash equivalents on the statement of cash flows.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwillMyCase of $2.3 million. The gain on the carrying amount ofsale was recorded within Other income, net. Income received during the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessmenttwelve months ended December 31, 2021 and if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for public entities for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on dates after January 1, 2017. We do not expect the adoption of this guidance to have a material impact on our financial condition, results of operations, cash flows or disclosures.

In March 2017, the FASB issued ASU No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, ASU 2017-08 requires the premium to be amortized2020 in relation to the earliest call date. ASU 2017-08 does not require an accounting change for securities held at a discount; the discount continuestransition services provided by us to be amortized to maturity. For public companies, ASU 2017-08MyCase was $2.4 million and $1.1 million, respectively, and is effective for fiscal years, and interim periodsincluded within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoptionOther income, net in an interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings asour Consolidated Statements of the beginning of the period of adoption. We do not expect the adoption of this guidance to have a material impact on our financial condition, results of operations, cash flows or disclosures since our current accounting policy is in accordance with ASU 2017-08.Operations.



44


In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU 2017-09"). ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our financial condition, results of operations, cash flows or disclosures.
3. Investment Securities4. Investments and Fair Value Measurements
Investment Securities
Investment securities classified as available-for-sale consisted of the following at December 31, 20172021 and 20162020 (in thousands):
December 31, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$29,080 $— $(11)$29,069 
Agency securities19,753 — (27)19,726 
Treasury securities77,108 2 (229)76,881 
Total available-for-sale investment securities$125,941 $2 $(267)$125,676 
 December 31, 2017
 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Corporate bonds$38,383
 $—
 $(166) $38,217
Agency securities11,045
 —
 (42) 11,003
Certificates of deposit2,982
 1
 (2) 2,981
Total available-for-sale investment securities$52,410
 $1
 $(210) $52,201
 December 31, 2016
 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Corporate bonds$30,492
 $9
 $(56) $30,445
Agency securities6,248
 —
 (20) 6,228
Certificates of deposit5,472
 16
 —
 5,488
Total available-for-sale investment securities$42,212
 $25
 $(76) $42,161
As of December 31, 2017, the unrealized losses on investment securities which have been in a net loss position for twelve months or greater were not material. These unrealized losses are considered temporary and there were no impairments considered to be "other-than-temporary" based on our evaluation of available evidence, which includes our intent to hold these investments to maturity or a recovery of the cost basis.
December 31, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Agency securities$17,104 $29 $(1)$17,132 
Treasury securities17,847 47 — 17,894 
Total available-for-sale investment securities$34,951 $76 $(1)$35,026 
At December 31, 20172021 and 2016,2020, the contractual maturities of our investments did not exceed 36 months. The fair values of available-for-sale investments, by remaining contractual maturity, are as follows (in thousands):
December 31, 2021December 31, 2020
Amortized CostEstimated Fair ValueAmortized CostEstimated Fair Value
Due in one year or less$64,627 $64,600 $28,197 $28,256 
Due after one year through three years61,314 61,076 6,754 6,770 
Total available-for-sale investment securities$125,941 $125,676 $34,951 $35,026 
 December 31, 2017 December 31, 2016
 Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value
Due in 1 year or less$29,850
 $29,800
 $15,475
 $15,473
Due after 1 year through 3 years22,560
 22,401
 26,737
 26,688
Total available-for-sale investment securities$52,410
 $52,201
 $42,212
 $42,161



During the years ended December 31, 20172021 and 2016,2020, we had sales and maturities (which include calls) of investment securities, as follows (in thousands):
Year Ended December 31, 2021
Gross Realized GainsGross Realized LossesGross Proceeds from SalesGross Proceeds from Maturities
Corporate bonds$— $— $— $39,075 
Agency securities— — — 11,575 
Treasury securities6 — 43,198 56,704 
$6 $— $43,198 $107,354 
Year Ended December 31, 2020
Gross Realized GainsGross Realized LossesGross Proceeds from SalesGross Proceeds from Maturities
Corporate bonds$6 $— $4,006 $5,600 
Agency securities25 — 7,878 1,900 
Treasury securities4 (2)4,827 19,830 
$35 $(2)$16,711 $27,330 
45

 Year Ended December 31, 2017
 Gross Realized Gains Gross Realized Losses Gross Proceeds from Sales Gross Proceeds from Maturities
Corporate bonds$—
 $—
 $—
 $10,690
Agency securities1
 —
 15
 3,294
Certificates of deposit—
 —
 —
 2,490
 $1
 $—
 $15
 $16,474
SecureDocs
 Year Ended December 31, 2016
 Gross Realized Gains Gross Realized Losses Gross Proceeds from Sales Gross Proceeds from Maturities
Corporate bonds$7
 $—
 $7,554
 $2,480
Agency securities5
 —
 3,005
 11,557
Certificates of deposit—
 —
 —
 1,245
Treasury bills—
 —
 2,000
 6,055
 $12
 $—
 $12,559
 $21,337
For the years endedIn December 31, 2017, 2016 and 20152021, we receivedsold all of our interest in SecureDocs. A gain of $12.8 million was recognized within Other income, net in our Consolidated Statements of Operations, a portion of which relates to the amortization and accretionrecovery of the premium and discount of $0.7a $2.0 million $0.5 million, and $0.2 million, respectively. note receivable which had been previously reserved.
Fair Value Measurements
Recurring Fair Value Measurements
Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables summarizepresent our financial assets and liabilities measured at fair value on a recurring basis as ofat December 31, 20172021 and 2016,2020, by level within the fair value hierarchy (in thousands):
 December 31, 2021
 Level 1Level 2Level 3Total Fair
Value
Cash equivalents:
Money market funds$6,105 $— $— $6,105 
Available-for-sale investment securities:
Corporate bonds— 29,069 — 29,069 
Agency securities— 19,726 — 19,726 
  Treasury securities76,881 — — 76,881 
Total$82,986 $48,795 $— $131,781 
 December 31, 2017
 Level 1 Level 2 Level 3 Total Fair
Value
Cash equivalents:       
Money market funds$5,524
 $—
 $—
 $5,524
Available-for-sale investment securities:       
Corporate bonds—
 38,217
 —
 38,217
Agency securities—
 11,003
 —
 11,003
Certificates of deposit2,981
 —
 —
 2,981
Total Assets$8,505
 $49,220
 $—
 $57,725



December 31, 2016December 31, 2020
Level 1 Level 2 Level 3 Total Fair
Value		Level 1Level 2Level 3Total Fair
Value
Cash equivalents:       Cash equivalents:
Money market funds$4,849
 $—
 $—
 $4,849
Money market funds$4,749 $— $— $4,749 
Treasury securitiesTreasury securities97,433 — — 97,433 
Available-for-sale investment securities:       Available-for-sale investment securities:
Corporate bonds—
 30,445
 —
 30,445
Agency securities—
 6,228
 —
 6,228
Agency securities— 17,132 — 17,132 
Certificates of deposit5,488
 —
 —
 5,488
Total Assets$10,337
 $36,673
 $—
 $47,010
Treasury securitiesTreasury securities17,894 — — 17,894 
TotalTotal$120,076 $17,132 $— $137,208 
The carrying amounts of cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of these items.
There were no changes to our valuation techniques used to measure asset and liability fair values on a recurring basis during the year ended December 31, 2017.2021. The valuation techniques for the itemsfinancial assets in the tabletables above are as follows:
Cash Equivalents
As ofAt December 31, 20172021 and 2016,2020, cash equivalents include cash invested in money market funds.funds and treasury securities with a maturity of three months or less. Fair value is based on market prices for identical assets.
Available-for-Sale Investment Securities
The fairFair value offor our corporate bonds and agencyLevel 1 investment securities is based on pricing determined using inputs other than quoted prices that are observable either directly or indirectly such as yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures. The fair value of our certificates of deposit is based on market prices for identical assets. Our Level 2 securities were priced by a pricing vendor. The pricing vendor utilizes the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, other observable inputs like market transactions involving comparable securities are used.
Non-Recurring Fair Value Measurements
Certain assets, including goodwill, intangible assets and our note receivable with SecureDocs, are also subject to measurement at fair value on a non-recurring basis using Level 3 measurement, but only when they are deemed to be impaired as a result of an impairment review. For the years ended December 31, 2017 and 2016, no impairments were identified on those assets required to be measured at fair value on a non-recurring basis.
46

4.5. Property and Equipment, net
Property and equipment, net consists of the following as of December 31, 2017 and 2016 (in thousands):
December 31,
December 31,20212020
2017 2016
Data center and computer equipment$5,233
 $4,913
Computer equipmentComputer equipment$4,884 $4,597 
Furniture and fixtures2,415
 2,465
Furniture and fixtures5,167 6,021 
Office equipment763
 726
Office equipment3,285 3,324 
Leasehold improvements5,029
 4,035
Leasehold improvements22,679 22,952 
Construction in processConstruction in process5,227 617 
Gross property and equipment13,440
 12,139
Gross property and equipment41,242 37,511 
Less: Accumulated depreciation(6,744) (5,062)Less: Accumulated depreciation(10,763)(11,072)
Total property and equipment, net$6,696
 $7,077
Total property and equipment, net$30,479 $26,439 
Depreciation expense for property and equipment totaled $2.3$4.7 million, $2.3$4.0 million, and $1.4$3.1 million for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively.


5. Internal-Use6. Capitalized Software Development Costs, net
Internal-useCapitalized software development costs, net were as follows (in thousands):
  December 31,
  2017 2016
Internal use software development costs, gross $44,626
 $33,545
Less: Accumulated amortization (27,017) (18,006)
Internal use software development costs, net $17,609
 $15,539

December 31,
20212020
Capitalized software development costs, gross$115,377 $96,974 
Less: Accumulated amortization(74,165)(61,515)
Capitalized software development costs, net$41,212 $35,459 
Capitalized software development costs were $11.1$27.2 million, $11.8$27.3 million and $8.0$23.6 million for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively. Amortization expense with respect to software development costs totaled $9.0$21.5 million, $6.2$17.9 million and $3.5$14.0 million for the years ended December 31, 2017, 2016,2021, 2020 and 2015,2019, respectively. During the year ended December 31, 2021, we disposed of $8.8 million of fully amortized capitalized software development costs.
Future amortization expense with respect to capitalized software development costs as ofat December 31, 20172021 is estimated as follows (in thousands):
Years Ending December 31,
2022$21,552 
202313,740 
20245,617 
2025303 
Total amortization expense$41,212 
47
Years Ending December 31,  
2018 $9,309
2019 6,061
2020 2,210
2021 29
Total amortization expense $17,609


6.7. Intangible Assets, net
Intangible assets, net consisted of the following as of December 31, 2017 and 2016 (in thousands, except years):
 December 31, 2021
 Gross Carrying
Value		Accumulated
Amortization		Net Carrying
Value		Weighted
Average Useful
Life in Years
Customer relationships$2,840 $(2,006)$834 5.0
Database8,330 (2,620)5,710 10.0
Technology6,539 (5,107)1,432 4.0
Trademarks and trade names1,890 (1,128)762 5.0
Partner relationships680 (680)— 3.0
Non-compete agreements7,400 (4,444)2,956 5.0
Domain names90 (75)15 5.0
Patents252 (250)2 5.0
Total intangible assets, net$28,021 $(16,310)$11,711 6.3
 December 31, 2017
 Gross Carrying
Value		 Accumulated
Amortization		 Net Carrying
Value		 Weighted
Average Useful
Life in Years
Customer relationships$790
 $(538) $252
 5.0
Technology4,811
 (3,871) 940
 6.0
Trademarks930
 (539) 391
 9.0
Partner relationships680
 (623) 57
 3.0
Non-compete agreements40
 (37) 3
 3.0
Domain names273
 (273) —
 5.0
Patents285
 (203) 82
 5.0
 $7,809
 $(6,084) $1,725
 5.9



 December 31, 2016 December 31, 2020
 Gross Carrying
Value		 Accumulated
Amortization		 Net Carrying
Value		 Weighted Average Useful Life in Years Gross Carrying
Value		Accumulated
Amortization		Net Carrying
Value		Weighted
Average Useful
Life in Years
Customer relationships $790
 $(392) $398
 5.0Customer relationships$2,840 $(1,550)$1,290 5.0
DatabaseDatabase8,330 (1,787)6,543 10.0
Technology 4,811
 (3,070) 1,741
 6.0Technology6,539 (3,641)2,898 4.0
Trademarks 930
 (416) 514
 9.0
Trademarks and trade namesTrademarks and trade names1,890 (732)1,158 5.0
Partner relationships 680
 (397) 283
 3.0Partner relationships680 (680)— 3.0
Non-compete agreements 40
 (23) 17
 3.0Non-compete agreements7,400 (2,964)4,436 5.0
Domain names 273
 (241) 32
 5.0Domain names90 (70)20 5.0
Patents 284
 (164) 120
 5.0Patents252 (240)12 5.0
 $7,808
 $(4,703) $3,105
 5.9
Total intangible assets, netTotal intangible assets, net$28,021 $(11,664)$16,357 6.3
Amortization expense with respect to intangible assets totaled $1.4$4.6 million, $1.4$4.9 million and $1.3$5.3 million for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively. AmortizationFuture amortization expense for each of the five fiscal years through December 31, 2022with respect to intangible assets is estimated as follows (in thousands):
Years Ending December 31,
2022$4,605 
20233,060 
2024835 
2025833 
2026833 
Thereafter1,545 
Total amortization expense$11,711 

48
Years Ending December 31,  
2018 $929
2019 352
2020 259
2021 124
2022 61
Total amortization expense $1,725

8. Accrued Employee Expenses
7. Long-term DebtAccrued employee expenses consisted of the following (in thousands):
Credit Agreement
December 31,
20212020
Accrued vacation$10,675 $8,277 
Accrued bonuses13,101 5,638 
Accrued commissions2,048 1,995 
Accrued payroll3,068 1,921 
Accrued payroll taxes and other1,173 1,057 
    Total accrued employee expenses—current$30,065 $18,888 
Accrued employee expenses—noncurrent$583 $— 
On March 16, 2015,
9. Leases
Operating leases for our corporate offices have remaining lease terms ranging from one to eleven years, some of which include options to extend the leases for up to ten years. These options to extend have not been recognized as part of our operating lease right-of-use assets and lease liabilities as it is not reasonably certain that we entered into a credit facility (the “Original Credit Agreement”) comprised of a $10.0 million term loan (the “Term Loan”), and a $2.5 million revolving line of credit (the "Original Revolving Facility") with Wells Fargo, as administrative agent, and the lenderswill exercise these options. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. Certain leases contain provisions for property-related costs that are parties thereto ("Wells Fargo"). In March 2015, we borrowed $10.0 million undervariable in nature for which the Term Loan and on July 16, 2015, we made an optional prepayment in fullCompany is responsible, including common area maintenance, which are expensed as incurred.
The components of the Term Loan.
On October 9, 2015, we entered into Amendment Number One to the Original Credit Agreement, which amended the terms of the Original Credit Agreement with Wells Fargo (as amended, the “Credit Agreement”).
Under the terms of the Credit Agreement, the lenders made available to us a $25.0 million revolving line of credit (the “Revolving Facility”). Subject to customary terms and conditions, we can seek to increase the principal amount of indebtedness available under the Credit Agreement by up to $10.0 million,lease expense recognized in the formConsolidated Statements of revolving commitments or term loan debt, although the lenders are under no obligation to make additional amounts available to us. Borrowings under the Revolving Facility are subject to the satisfaction of customary conditions.
Borrowings under the Revolving Facility bear interest at a fluctuating rate per annum equal to, at our option, (i) a base rate equal to the highest of (a) the federal funds rate plus 1/2 of 1%, (b) the London Interbank Offered Rate (“LIBOR”) for a one-month interest period plus 1% and (c) the rate of interest in effect for such day as publicly announced from time to time by Wells Fargo as its prime rate, in each case plus an applicable margin of 1.5%, or (ii) LIBOR for the applicable interest period plus an applicable margin of 2.5%. Interest is due and payable monthly. We are also required to pay a commitment fee equal to 0.25% per annum of the unused portion of the Revolving Facility if revolver usage is above $10.0 million, or 0.375% per annum of the unused portion of the Revolving Facility if revolver usage is less than or equal to $10.0 million.
The Revolving Facility matures on October 9, 2020; however, we can make payments on the Revolving Facility, and cancel it in full at any time without premium or penalty.


The Credit Agreement contains customary affirmative, negative and financial covenants. The affirmative covenants require us to, among other things, disclose financial and other information to the lenders, maintain our business and properties, and maintain adequate insurance. The negative covenants restrict us from, among other things, incurring additional indebtedness, prepaying certain types of indebtedness, encumbering or disposing of our assets, making fundamental changes to our corporate structure, and making certain dividends and distributions. The financial covenants require us to maintain liquidity of not less than $12.5 million and, to the extent liquidity is determined to be below $25.0 million, to comply with a maximum senior leverage ratio. At December 31, 2017, weOperations were in compliance with the financial covenants of the Credit Agreement.
As of December 31, 2017 and 2016, there was no outstanding balance under the Credit Agreement.
Debt Financing Costs
Debt financing costs are deferred and amortized, using the straight-line method for costs related to the Revolving Facility. In conjunction with the amendment to our Credit Agreement for the Revolving Facility, we incurred costs to process the amendment and we capitalized additional costs of $0.2 million. These additional costs were added to the unamortized debt financing costs from the Original Revolving Facility of $0.1 million and are amortized using a straight-line method over the term of the Revolving Facility's commitment within interest expense. The total unamortized debt financing costs for the amended Revolving Facility of $0.2 million at December 31, 2017 and 2016 were recorded in other assets.
In 2015, we incurred fees to Wells Fargo attributable to the Term Loan of $0.3 million and other third-party debt financing costs of $0.1 million, which were recorded as a reduction of the carrying amount of the Term Loan. Amortization of such costs was included in interest expense. When the Term Loan was repaid prior to the maturity date, the unamortized debt financing costs related to the Term Loan of $0.4 million were expensed as interest expense. Total interest expense for the year ended December 31, 2015 was $0.8 million.
8. Commitments and Contingencies
Lease Obligations
As of December 31, 2017, we had operating lease obligations of approximately $9.1 million through 2022. A summary of our future minimum payments for obligations under non-cancellable operating leases is as follows (in thousands):
Year Ended December 31,
202120202019
Operating lease cost$5,203 $5,272 $5,102 
Variable lease cost1,463 1,443 1,087 
  Total lease cost$6,666 $6,715 $6,189 

    Lease-related assets and liabilities were as follows (in thousands, except years and %):
December 31,
20212020
Assets
Prepaid expenses and other current assets$4,854 $3,972 
Operating lease right-of-use assets41,710 30,561 
Liabilities
Other current liabilities$1,874 $1,845 
Operating lease liabilities55,733 40,146 
Total lease liabilities$57,607 $41,991 
Weighted-average remaining lease term (years)10.310.8
Weighted-average discount rate4.0 %4.5 %

49

Years Ending December 31, 
2018$2,446
20192,509
20202,512
20211,483
2022179
Total lease commitments$9,129
    Future minimum lease payments under non-cancellable leases as of December 31, 2021 were as follows (in thousands):
We recorded rent expense of $2.1 million, $2.0 million and $1.2 million
Years ending December 31,
2022(1)
$(988)
2023(1)
5,281 
2024(1)
6,162 
20256,837 
20267,035 
Thereafter42,281 
Total future minimum lease payments66,608 
Less: imputed interest(13,855)
Total(2)
$52,753 
(1) Future minimum lease payments for the years endedending December 31, 2017, 20162022, 2023 and 2015,2024 are presented net of tenant improvement allowances of $6.0 million, $0.8 million, and $0.2 million, respectively.
Insurance(2) Total future minimum lease payments include the current portion of lease liabilities recorded in Prepaid expenses and other current assets of $4.9 million on our Consolidated Balance Sheets, which relates to certain of our leases for which the lease incentives to be received exceed the minimum lease payments to be paid over the next twelve months.
10. Commitments and Contingencies
Liability to Landlord Insurance
We have a wholly owned subsidiary, Terra Mar Insurance Company, Inc., which was established to provide our customersin connection with the option to purchase legalreinsuring liability to landlord insurance. Ifinsurance policies offered to our customers choose to use our insurance services, they are issued an insurance policy underwritten by our third-party service provider. TheEach policy has a limit of $100,000$100 thousand per incident for each insured residence.incident. We have entered into a reinsurance agreement with our third-party service provider and, as a result, we assume a 100% quota share of the legal liability to landlord insurance provided topolicies placed with our customers throughby our third-party service provider. Included in cost of revenue weWe accrue for reported claims, and include an estimate of losses incurred but not reported by our property manager customers, asin cost of revenue because we bear the risk related to all such claims. Our liability for reported claims and incurred but not reported claims as of December 31, 20172021 and 20162020 was $0.5$1.7 million and $0.3$1.5 million, respectively, and is included in otherOther current liabilities on theour Consolidated Balance Sheets.
Included in Prepaid expenses and other current assets as of December 31, 20172021 and 20162020 are $1.8$3.0 million and $1.2$2.7 million, respectively, of deposits held with a third party related to requirements to maintain collateral for our insurance services.this risk mitigation service.


LitigationLegal Proceedings
From time to time we may become subject to certaininvolved in various legal proceedings, including without limitation claims and/investigative inquiries, and other disputes arising from or litigationrelated to matters arising inincident to the ordinary course of business.our business activities. We are not currently a party to any such legal proceedings, nor are we aware of any pending or threatened litigation,legal proceedings, that would have a material adverse effect on our business, operating results, cash flows or financial condition should such litigationproceedings be resolved unfavorably.
Indemnification
In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, investors, directors and officers with respect to certain matters, including, but not limited to, losses arising out of our breach of any applicable agreements, services to be provided by us, or intellectual property infringement claims made by third parties. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments we could be required to make under these indemnification provisionsclauses and is indeterminable. We have never paidnot incurred any costs as a material claim, norresult of such indemnification obligations and have not recorded any legal claims been brought against us,liabilities related to such obligations in connection with these indemnification arrangements. As of December 31, 2017 and 2016, we had not accrued a liability for these indemnification arrangements because we determined that the likelihood of incurring a payment obligation, if any, in connection with these indemnification arrangements is not probable or reasonably possible, and the amount or range of amounts of any such liability is not reasonably estimable.Consolidated Financial Statements.
50
9.

11. Stockholders’ Equity
Amended and Restated Certificate of Incorporation
Upon the effectiveness of theour Amended and Restated Certificate of Incorporation of the Company on June 25, 2015, the number of shares of capital stock that is authorized to be issued was increased to 325,000,000 shares, of which 250,000,000 shares are Class A common stock, 50,000,000 shares are Class B common stock and 25,000,000 are undesignated preferred stock. The Class A common stock, Class B common stock and preferred stock have a par value of $0.0001 per share.
At December 31, 2017, there were 14,879,000 shares of Class A common stock outstanding, 19,102,000 shares of Class B common stock outstanding and no preferred shares outstanding.
Class A Common Stock and Class B Common Stock
Except for voting rights, or as otherwise required by applicable law, the shares of our Class A common stock and Class B common stock have the same powers, preferences and rights and rank equally, share ratably and are identical in all respects as to all matters. The rights and preferences are as follows:
Dividend Rights. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of outstanding shares of our Class A common stock and Class B common stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our boardBoard of directorsDirectors may determine.
Voting Rights. The holders of our Class A common stock are entitled to one1 vote per share, and holders of our Class B common stock are entitled to 10 votes per share. The holders of our Class A common stock and Class B common stock will vote together as a single class on all matters submitted to a vote of our stockholders, unless otherwise required by Delaware law or our amended and restated certificate of incorporation. Delaware law could require either holders of our Class A common stock or holders of our Class B common stock to vote separately. In addition, our amended and restated certificate of incorporation requires the approval of the holders of at least a majority of the outstanding shares of our Class B common stock, voting as a separate class to approve a change-in-control transaction.
Conversion. Upon the closing of our initial public offering ("IPO"), all shares of our convertible preferred stock and common stock held prior to the offering were converted into shares of Class B common stock. Currently, each share of our Class B common stock is convertible at any time at the option of the holder into one1 share of our Class A common stock. In addition, each share of our Class B common stock will convert into one1 share of our Class A common stock upon any transfer, whether or not for value, except for certain transfers described in our amended and restated certificate of incorporation, including, without limitation, (i) a transfer by a partnership or limited liability company that was a registered holder of our Class B common stock at the “effective time,” as defined in our amended and restated certificate of incorporation, to a partner or member thereof at the effective time or (ii) a transfer to a “qualified recipient,” as defined in our amended and restated certificate of incorporation.
All the outstanding shares of our Class B common stock will convert automatically into shares of our Class A common stock upon the date when the number of outstanding shares of our Class B common stock represents less than 10% of all outstanding


shares of our Class A common stock and Class B common stock. Once converted into our Class A common stock, our Class B common stock may not be reissued.
Right to Receive Liquidation Distributions. Upon our dissolution, liquidation or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the holders of our Class A common stock and Class B common stock, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
Preferred Stock
Effective upon the filingOur Board of our amended and restated certificate of incorporation in June 2015, no shares of preferred stock were outstanding because all outstanding shares of our convertible preferred stock converted into our Class B common stock.
Pursuant to the terms of our amended and restated certificate of incorporation, our board of directors will beDirectors is authorized, subject to limitations prescribed by Delaware law, to issue up to 25,000,000 shares of our preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further action by our stockholders. The number of authorized shares of any series of preferred stock may be increased or decreased, but not below the number of shares of that series then outstanding, by the affirmative vote of the holders of a majority of the voting power of our outstanding capital stock entitled to vote thereon, or such other vote as may be required by the certificate of designation establishing the series.
Convertible Preferred Stock PriorShare Repurchase Program
On February 20, 2019, our Board of Directors authorized a $100.0 million share repurchase program (the "Share Repurchase Program") relating to IPO
Up until our IPO, we had authorized preferred stockoutstanding shares of Class A common stock. Under the Share Repurchase Program, share repurchases may be made from time to time, as directed by a committee consisting of Series A convertible preferred stock, Series B convertible preferred stock, Series B-1 convertible preferred stock, Series B-2 convertible preferred stock and Series B-3 convertible preferred stock (collectively3 directors, in open market purchases or in privately negotiated transactions at a repurchase price that the “preferred stock priormembers of the committee unanimously believe is below intrinsic value conservatively determined. The Share Repurchase Program does not obligate us to IPO”).repurchase any

51

Each preferred stockholder was entitled to the number of votes equal to thespecific dollar amount or number of shares, there is no expiration date for the Share Repurchase Program, which may be modified, suspended or terminated at any time and for any reason.
During the year ended December 31, 2020, we repurchased a total of 48,002 shares of our Class A common stock intothrough open market repurchases, and recorded a $4.2 million reduction to stockholders' equity, which each preferred share was convertible atincludes broker commissions. We have not made any other repurchases under the time of such vote.  The preferred stock was also entitled to receive non-cumulative dividends, when and if declared by our board of directors. No dividends were declared by our board of directors.  In the event of a liquidation, the preferred stock was entitled to receive prior to payment of any amounts to the common stockholders the greater of (i) the original issuance price plus any declared but unpaid dividends or (ii) such amount per share as would have been payable had all shares of preferred stock been converted into common stock immediately prior to such liquidation, dissolution or winding up.  The preferred stock was convertible into common stock at the option of the holder or automatically upon a qualified initial public offering.  The preferred stock automatically converted to Class B common upon the Company's initial public offering.  Share Repurchase Program.
The liquidation preference provisions of the convertible preferred stock prior to IPO are considered contingent redemption provisions because there are certain elements that were not solely within our control, such as a change in control. Accordingly, we presented the convertible preferred stock prior to IPO within the mezzanine portion of the consolidated balance sheets.


10.12. Stock-Based Compensation
Stock Options
2015 Stock Incentive Plan
In conjunction with our IPO in 2015, our boardBoard of directorsDirectors and stockholders adopted the 2015 Stock Incentive Plan (the "2015 Plan"). Upon adoption of the 2015 Plan, 2,000,000 shares of our Class A common stock were reserved and available for grant and issuance. On January 1 of each subsequent calendar year, the number of shares available for grant and issuance under the 2015 Plan increase by the lesser of (i) the number of shares of our Class A common stock subject to awards granted under the 2015 Plan during the preceding calendar year and (ii) such lesser number of shares of our Class A common stock determined by our boardBoard of directors. As ofDirectors. At December 31, 2017,2021, we have reserved an aggregate of 3,441,3554,026,493 shares of our Class A common stock for grant and issuance under the 2015 Plan. The number of shares of our Class A common stock is also subject to adjustment in the event of a recapitalization, stock split, reclassification, stock dividend or other change in our capitalization. The 2015 Plan authorizes the award of stock options, stock appreciation rights, RSAs, RSUs, performance awards and stock bonuses. The 2015 Plan provides for the grant of awards to our employees, directors, consultants and independent contractors, subject to certain exceptions. RSUs, PSUs, PSOs, and RSAs have been issued during 20172021 pursuant to the 2015 Plan.
Stock options may vest based on the passage of time or the achievement of performance conditions at the discretion of our compensation committee. Our compensation committee may provide for stock options to be exercised only as they vest or to


be immediately exercisable with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of stock options granted under the 2015 Plan is 10 years. We began granting stock options with performance conditions in 2016.
RSUs and PSUs represent the right on the part of the holder to receive shares of our Class A common stock at a specified date in the future or the achievement of performance conditions at the discretion of our compensation committee, subject to forfeiture of that right due to termination of employment. If an RSU or PSU has not been forfeited, then, on the specified date, we will deliver to the holder of the RSU or PSU shares of our Class A common stock.
2007 Stock Incentive Plan
On February 14, 2007, our boardBoard of directorsDirectors adopted the 2007 Stock Incentive Plan (the “2007 Plan”) as an amendment and restatement to an original 2006 Equity Incentive Plan and was most recently amended in July 2014.. Following our IPO, our boardBoard of directorsDirectors determined not to make any further awards under the 2007 Plan. The 2007 Plan expired on February 14, 2017. The 2007 Plan will continue to govern outstanding awards granted under the 2007 Plan. As of December 31, 2017, options to purchase an aggregate of 677,417 shares of our Class B common stock remained outstanding under the 2007 Plan. The 2007 Plan is administered by our board of directors, which determines the terms and conditions of each grant. Employees, officers, directors and consultants are eligible to receive stock options and stock awards under the 2007 Plan. The aggregate number of shares available under the 2007 Plan and the number of shares subject to outstanding options automatically adjusts for any changes in the outstanding common stock by reason of any recapitalization, spin-off, reorganization, reclassification, stock dividend, stock split, reverse stock split, or similar transaction. The exercise price of incentive stock options may not be less than the fair value of our common stock at the date of grant. The exercise price of incentive stock options granted to individuals that own greater than 10% of our voting stock may not be less than 110% of the fair value of our common stock at the date of grant. The term of each stock option cannot exceed ten years. Our board of directors will determine the vesting terms of all stock options. Generally, our board of directors has granted options with vesting terms of four years and contractual terms of ten years.
Stock Options
A summary of activity in connection with our stock option activityoptions for the year ended December 31, 20172021 is as follows (number of shares in thousands):
  
Number of
Shares
 
Weighted
Average
Exercise
Price per Share
 
Weighted
Average
Remaining
Contractual Life
in Years
Options outstanding as of December 31, 2016 1,718
 $8.75
 8.2
Options granted 172
 24.77
  
Options exercised (165) 4.02
  
Options cancelled/forfeited (33) 10.17
  
Options outstanding as of December 31, 2017 1,692
 $10.81
 7.3
       
As of December 31, 2017:      
Options vested or expected to vest 1,688
 $10.82
 7.3
Options exercisable(1)
 830
 $7.22
 6.4
(1) Included in the options exercisable is 65,000 shares which have an early exercise option. The weighted average exercise price of these options is $5.64 per share and the weighted average contractual life in years is 7.1 years.

During the year ended December 31, 2017, we granted PSOs to purchase up to 172,000 shares of our Class A common stock. The PSOs have a weighted average exercise price of $24.77 per share. Vesting of the PSOs is based on the achievement of pre-established performance metrics for the year ended December 31, 2019, and continued employment throughout the performance period. Of the PSOs granted during 2017, 132,000 shares would vest based upon the maximum payout of 100% when the 2019 free cash flow performance metric meets the maximum achievement of 150%. For performance at 100% of the targeted 2019 free cash flow metric, approximately 61% of the PSOs would vest. For performance at 80% of the targeted metric, approximately 48% of the PSOs would vest. For performance below 80% of the 2019 targeted metric, no PSOs would vest, all previously recognized compensation expense for the PSOs would be reversed, and no compensation expense would be recognized. The remaining 40,000 PSOs granted during 2017 have a pre-established adjusted gross margin target for 2019. PSOs tied to the gross margin performance metric have two levels of vesting, with 50% vesting based upon the achievement of 110% of the targeted amount and the remaining 50% vesting upon the achievement of 115% of the targeted amount. If the 110% performance target is not met, no shares would vest and all previously recognized expense for those PSOs would be reversed and no compensation expense would be recognized.    



Included in the options outstanding as of December 31, 2017 are 500,000 PSOs granted in 2016, which vest based on the achievement of a pre-established free cash flow performance metric for the years ended December 31, 2017 and 2018. The number of PSOs granted in 2016 related to the performance metrics for the years ended December 31, 2017 and 2018, assumes achievement of the performance metric at the maximum level, which is 150% of the targeted performance metric. For performance at 100% of the targeted metric, approximately 67% of the PSOs would vest. For performance at 80% of the targeted metric, approximately 53% would vest. For performance below 50% of the 2017 targeted metric or 80% of the 2018 targeted metric, no PSOs would vest, all previously recognized compensation expense for PSOs would be reversed, and no compensation expense would be recognized.

During the year ended December 31, 2017, 247,000 of the PSOs vested based on the achievement of 148% of the pre-established free cash flow performance metric for the year ended December 31, 2016, and 3,000 PSOs were cancelled as a result of the PSOs being granted at 150% of the target metric. During the year ended December 31, 2016, $1.0 million of expense was recognized related to the PSOs that vested during the year ended December 31, 2017.

We recognize expense for the PSOs based on the grant date fair value of the PSOs that we determine are probable of vesting. Adjustments to compensation expense are made each period based on changes in our estimate of the number of PSOs that are probable of vesting.

Number of SharesWeighted Average Exercise Price per ShareWeighted Average Remaining Contractual Life in Years
Options outstanding as of December 31, 20201,168 $11.77 5.0
Options granted— — 
Options exercised(322)8.13 
Options cancelled/forfeited— — 
Options outstanding as of December 31, 2021846 $13.15 3.0
At December 31, 2021:
Options vested and expected to vest846 $13.15 3.0
Options exercisable846 $13.15 3.0
Our stock-based compensation expense for stock options were not material for the years ended December 31, 2017, 2016 and 2015 was $2.9 million, $2.4 million, and $0.7 million, respectively.all periods presented.
The fair value ofNo stock options granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following table summarizes information relating to our stock optionswere granted during the years ended December 31, 2017, 2016 and 2015:2021, 2020 or 2019.
52
  Year Ended December 31,
  2017 2016 2015
Stock options granted (in thousands) 172
 750
 359
Weighted average exercise price per share $24.77
 $12.85
 $9.53
Weighted average grant-date fair value per share $9.58
 $4.85
 $6.89
Weighted average Black-Scholes model assumptions:      
Risk-free interest rate 2.02% 1.45% 1.58%
Expected term (in years) 6.4
 5.9
 6.2
Expected volatility 35% 37% 46%
Expected dividend yield —
 —
 —


As of December 31, 2017, the total remaining stock-based compensation expense for unvested stock options was $1.8 million, which is expected to be recognized over a weighted average period of 1.2 years.
The total intrinsic value of options exercised in 2017, 20162021, 2020 and 20152019 was $4.6$39.1 million, $1.9$17.9 million, and $3.1$11.5 million, respectively. This intrinsic value represents the difference between the fair value of our common stock on the date of exercise and the exercise price of each option. Based on the fair value of our common stock as ofat December 31, 2017,2021, the total intrinsic value of all outstanding options, was $51.9 million. The total intrinsic value of exercisable options, as of December 31, 2017 was $28.4 million. The total intrinsic value ofand options vested and expected to vest as of December 31, 2017 was $51.8$91.3 million.
The excess tax benefit realized from option exercises during the year ended December 31, 2017 and 2016 was $5.2 million and $0.2 million, respectively. There were no excess tax benefits realized for the tax deductions from stock options exercised during the year ended December 31, 2015.


Restricted Stock Units
A summary of activity in connection with our RSUs for the year ended December 31, 20172021 is as follows (number of shares in thousands):
Number of SharesWeighted Average Grant Date Fair Value per Share
 Number of Shares Weighted- Average Grant Date Fair Value per Share
Unvested as of December 31, 2016 496
 $13.34
Unvested as of December 31, 2020Unvested as of December 31, 2020483 $80.20 
Granted 315
 26.10
Granted589 132.34 
Vested (150) 13.31
Vested(180)64.34 
Forfeited (63) 16.59
Forfeited(55)110.74 
Unvested as of December 31, 2017 598
 $19.75
Unvested as of December 31, 2021Unvested as of December 31, 2021837 $118.27 


During the year endedUnvested RSUs as of December 31, 2017, we2021 were comprised of 0.6 million RSUs with only service conditions and 0.2 million PSUs with both service conditions and performance conditions. RSUs granted with only service conditions generally vest over a total of 315,000 RSUs and PSUs: 202,000 RSUs vest annually over four years; 100,000 PSUs vest based upon achievement of a pre-established free cash flow performance metric for each of the years ended December 31, 2017, 2018, and 2019, and continued employment throughout the performance period; and 13,000 PSUs were granted and vested as a result of the attainment of the 2016 performance metric.four-year period. The number of PSUs granted, as included in the above table, assumes achievement of the performance metric at 100% of the targeted performance metric. The actual numbertarget. Of the unvested PSUs as of shares to be issued at the end of the performance period will range from 0% to 165% of the initial target awards. For performance at 150% of the targeted metric, 150% to 165% of the PSUs would vest. For performance below 80% of the targeted metric, no PSUs would vest, no compensation expense would be recognized, and all previously recognized compensation expense for PSUs would be reversed.

During the year ended December 31, 2017, 41,000 of the PSUs vested2021, 0.1 million are subject to vesting based on the achievement of 148% of the pre-established free cash flow performance metricmetrics for the year endedending December 31, 2016,2022 and an additional 13,000 PSUs were granted and vested aswill vest over a result of the attainment of the 2016 performance metric as approved by our board of directors. During thethree year ended December 31, 2016, $0.5 million of expense was recognized related to the PSUs that vested during the year ended December 31, 2017.

Included in the unvested RSUs and PSUs as of December 31, 2017 are 56,000 PSUs granted in 2016, which vest based on the achievement of a pre-established free cash flow performance metric for the years ended December 31, 2017 and 2018, andperiod, assuming continued employment throughout the performance period. The number of PSUs granted in 2016 relates to the performance metrics for the years ended December 31, 2017 and 2018, and assumes achievement of the performance metric at 100% of the targeted performance metric. The actual number of shares to be issued at the end of the performance period will range from 0% to 150% of the target number of shares depending on achievement relative to the performance metric over the applicable period. The remaining 0.1 million PSUs unvested as of December 31, 2021 are subject to vesting based on the achievement of pre-established performance metrics for the years ending December 31, 2021, 2022 and 2023, assuming continued employment throughout the performance period. The actual number of shares to be issued at the end of the performance period will range from 0% to 100% of the initial target awards. ForAchievement of the performance atmetric between 100% and 150% of the targeted metric, 150%performance target will result in a performance-based cash bonus payment between 0% and 65% of the PSUs would vest. For performance below 50% of the targeted metric for 2017 or 80% of the targeted metric for 2018, no PSUs would vest, no compensation expense would be recognized, and all previously recognized compensation expense for PSUs would be reversed.initial target awards.
We recognize expense for the PSUs based on the grant date fair value of the PSUs that we determine are probable of vesting. Adjustments to compensation expense are made each period based on changes in our estimate of the number of PSUs that are probable of vesting. Ourrecognized stock-based compensation expense for the RSUs and PSUs of $17.3 million, $10.4 million and $8.3 million for the years ended December 31, 2017, 2016,2021, 2020 and 2015, was $3.62019, respectively. Excluded from stock-based compensation expense is capitalized software development costs of $2.7 million, $2.1 million, and $1.8 million for the years ended December 31, 2021, 2020 and $0.1 million,2019, respectively.
As of December 31, 2017,2021, the total estimated remaining stock-based compensation expense for thesethe aforementioned RSUs and PSUs was $8.3$76.5 million, which is expected to be recognized over a weighted average period of 2.42.7 years.


The total fair value of RSUs and PSUs vested during the years ended December 31, 2021, 2020 and 2019 was approximately $26.6 million, $32.0 million and $16.3 million, respectively.
Restricted Stock Awards
A summary of activity in connection with our RSAs for the year ended December 31, 20172021 is as follows (number of shares in thousands):
Number of SharesWeighted- Average Grant Date Fair Value per Share
 Number of Shares Weighted- Average Grant Date Fair Value per Share
Unvested as of December 31, 2016 46
 $8.55
Unvested as of December 31, 2020Unvested as of December 31, 20205 $153.41 
Granted 9
 33.30
Granted4 144.33 
Vested (39) 9.24
Vested(5)151.10 
Forfeited —
 —
Forfeited— — 
Unvested as of December 31, 2017 16
 $20.93
Unvested as of December 31, 2021Unvested as of December 31, 20214 $144.33 
We have the right to repurchase any unvested RSAs. RSAs subject to certain conditions. Restricted stock awards vest over a four-year periodone-year period. We recognized stock-based compensation expense for employeesrestricted stock awards of $0.7 million and over a one-year period for non-employee directors. Foreach of the years ended December 31, 2017, 20162021, and 2015, we recognized stock-based compensation expense2020 and $0.3 million for RSAs of $358,000, $454,000 and $381,000, respectively.the ended December 31, 2019. During 2017,2021, the grant date fair value of the shares vested was $354,000.$0.7 million.
53

As of December 31, 2017,2021, the total estimated remaining stock-based compensation expense for unvested RSAsrestricted stock awards with a repurchase right was $0.2$0.3 million, which is expected to be recognized over a weighted average period of 0.60.5 years.

11.13. Income Taxes
For the years ended December 31, 2017, 2016 and 2015, we recorded income tax expense of $58,000, $67,000, and $75,000, respectively, associated with state minimum taxes and the amortization of tax deductible goodwill that is not an available source of income to realize the deferred tax asset.
OurThe effective tax rate differs fromas compared to the United StatesU.S. federal statutory rate of 34%21% differs primarily because our losses have been offset by adue to the significance of the benefits associated with stock-based compensation expense, research and development tax credits, and the change in the valuation allowance due to uncertainty as to the realization of the tax benefit of net operating losses ("NOLs". against deferred taxes.
Set forth below is a reconciliation of the components that caused our provision for (benefit from) income taxes to differ from amounts computed by applying the United States federal statutory rate of 34% for the years ended December 31, 2017, 2016 and 2015: :
 
Year Ended December 31,
 202120202019
U.S. federal statutory income tax rate21 %21 %21 %
State and local income taxes, net of federal benefit(214)3 (53)
Stock-based compensation expense(426)(3)(88)
Meals and entertainment3 — 7 
Change in valuation allowance795 — (475)
Other permanent differences67 1 — 
Research and development tax credits(205)(2)(64)
Provision for (benefit from) income taxes41 %20 %(652)%

54

 
Year Ended December 31, 
 2017 2016 2015
Income tax benefit at the statutory rate34 % 34 % 34 %
State and local income taxes, net of federal benefit(14) 7
 3
Stock-based compensation expense(15) (4) (2)
Meals and entertainment2
 (2) (1)
Permanent differences—
 (1) —
Change in valuation allowance(60) (42) (38)
Change in federal rate74
 —
 —
Research and development tax credits(20) 7
 3
Provision for income taxes1 % (1)% (1)%
      
The provision for (benefit from) income tax consists of the following (in thousands):

Year Ended December 31,
202120202019
Current
       Federal$20 $3,982 $— 
       State and local346 5,444 (15)
Total current366 9,426 (15)
Deferred
       Federal(10,966)27,982 (18,761)
       State and local11,306 1,020 (12,683)
Total deferred340 29,002 (31,444)
Total income tax provision (benefit)$706 $38,428 $(31,459)



The components of deferred tax assets (liabilities) were as follows (in thousands):
 
December 31,
 20212020
Deferred income tax assets:  
Net operating loss carryforwards$10,849 $4,112 
Research and development tax credits15,966 9,467 
Stock-based compensation3,965 2,783 
Lease liability13,983 9,992 
Other2,853 2,196 
Total deferred tax assets47,616 28,550 
Valuation allowance(17,217)— 
Deferred tax assets, net of valuation allowance30,399 28,550 
Deferred tax liabilities:  
Property, equipment and software(14,996)(13,412)
Intangible assets(1,558)(2,693)
Capitalized commissions(3,296)(2,708)
State taxes— (2,350)
Lease asset(11,056)(8,064)
Other(1,171)(751)
Total deferred tax liabilities(32,077)(29,978)
Total net deferred tax liabilities$(1,678)$(1,428)
 
December 31, 
 2017 2016
Deferred income tax assets:   
Net operating loss carryforwards$19,519
 $31,436
Research and development tax credits8,278
 4,032
Other2,493
 2,771
Gross deferred tax assets30,290
 38,239
Valuation allowance(23,827) (29,417)
Deferred tax assets, net of valuation allowance6,463
 8,822
Deferred tax liabilities: 
  
Property, equipment and software(4,293) (5,820)
Intangible assets(6) (403)
State taxes(1,693) (2,040)
Other(549) (632)
Total deferred tax liabilities(6,541) (8,895)
Total net deferred tax liabilities$(78) $(73)

As ofAt December 31, 2017,2021, we had federal net operating loss carryforwards of $73.5 million, which will begin to expire in 2027. As of December 31, 2017, we hadand state net operating loss carryforwards of $48.0$23.8 million whichand $69.6 million, respectively. The federal net operating loss carryovers do not expire and the state net operating losses will begin to expire in 2023. As of2028. At December 31, 20172021, we also had federal and state research and development credit carryforwards of $5.0$8.5 million and $5.4$15.2 million, respectively. The federal credit carryforwards will begin to expire in 2027,2040, while the majority of the state credits carryforwardcredit carryforwards apply indefinitely.
The Internal Revenue Code of 1986, as amended (“IRC”), imposes substantial restrictions on the utilization of NOLs and other tax attributes in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use pre-change NOLs andtax attributes may be limited as prescribed under IRC Section 382. Events which may cause limitationlimitations in the amount of the NOLs and creditstax attributes that we utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a rolling three-year period. The Company hasWe have undertaken a NOL/an IRC Section 382 analysis and hashave determined that there are no limitations on the NOL carryforwardstax attributes at December 31, 2016.2021.
Management assesses
55

As of December 31, 2021, we have approximately $1.7 million of net deferred tax liabilities. During the fourth quarter of 2021, to assess the need for a valuation allowance against deferred tax assets, we evaluated all available positive and negative evidenceevidence. Due to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets in the future. A significant pieceamount of objective negative evidence, evaluated wasparticularly the cumulative loss incurred through December 31, 2017. Such objective evidence limits the ability toexpected increase in forecasted expenses, at this time, we consider other subjective positive evidence such as current year taxable income and future income projections. On the basis of this evaluation, as of December 31, 2017, a valuation allowance of $23.8 million has been recorded since it is more likely than not that we may not have sufficient taxable income in the future that will allow us to realize all of our deferred tax assets. As a result,we determined a valuation allowance was necessary against all of the net deferred income tax assets, will not be realized.which primarily consist of state R&D tax credit carryforwards, effective December 31, 2021.

The change in the valuation allowance for the years ended December 31, 2017, 2016 and 2015 wasare as follows (in thousands):
Year Ended December 31, 
Year Ended December 31,
2017 2016 2015 202120202019
Valuation allowance, at beginning of year$29,417
 $25,926
 $19,900
Valuation allowance, at beginning of year$— $— $23,002 
Increase (decrease) in valuation allowance(5,590) 3,491
 6,026
Increase (decrease) in valuation allowance17,217 — (23,002)
Valuation allowance, at end of year$23,827
 $29,417
 $25,926
Valuation allowance, at end of year$17,217 $— $— 
     
 



The following is a reconciliation of the total amounts of reserves for unrecognized tax benefits from uncertain tax positions (in thousands):
Year Ended December 31, 
Year Ended December 31,
2017 2016 2015 202120202019
Unrecognized tax benefit beginning of year$4,032
 $2,867
 $2,014
Unrecognized tax benefit beginning of year$6,141 $4,421 $2,977 
Decreases-tax positions in prior year(2,210) —
 —
Increases-tax positions in current year283
 1,165
 853
Increases-tax positions in current year1,675 1,720 1,444 
Unrecognized tax benefit end of year$2,105
 $4,032
 $2,867
Unrecognized tax benefit end of year$7,816 $6,141 $4,421 
     
The unrecognized tax benefits are recorded as a reduction to the deferred tax assets. Since there is a full valuation allowance recorded against the deferred tax assets the recognition of previously unrecognized tax benefits on uncertain positions would result in no impact to the effective tax rate.and liabilities.
As ofAt December 31, 20172021 and 2016,2020, we had no accrued interest and penalties related to uncertain income tax positions. We do not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.
We are subject to taxation in the United States and various states. Due to the net operating loss carryforwards, the Company'sour federal and state returns are open to examination by the Internal Revenue Service and state jurisdictions for all years since inception. We are not currently under audit by any taxing authorities.

On December 22, 2017, the United States government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act significantly revises the existing tax law by, among other things, lowering the United States corporate income tax rate from 35% to 21% beginning in 2018. The Company reviewed and incorporated the impact of the Tax Act in its tax calculations and disclosures. The primary impact on the Company stems from the re-measurement of its deferred taxes at the new corporate tax rate of 21%, which reduced the Company's net deferred tax assets, before valuation allowance, by $7.2 million. Due to the full valuation allowance, the change in deferred taxes was fully offsetonly by the change in valuation allowance, except for an immaterial amount that is reflected in income tax expense related to the rate re-measurementState of the tax deductible goodwill. The Tax Act did not have a significant impact on the Company's Consolidated Financial Statements for the year ended December 31, 2017.New York.



12.14. Revenue and Other Information
The following table presents our revenue categories for the years ended December 31, 2017, 2016 and 2015 (in thousands):
 Year Ended December 31, Year Ended December 31,
 2017 2016 2015 202120202019
Core solutions $57,132
 $43,775
 $32,119
Core solutions$105,148 $100,938 $88,581 
Value+ services 80,847
 56,965
 37,998
Value Added ServicesValue Added Services241,289 195,146 153,994 
Other 5,824
 4,846
 4,860
Other12,933 13,972 13,437 
Total revenues $143,803
 $105,586
 $74,977
Total revenueTotal revenue$359,370 $310,056 $256,012 
Our revenue is generated primarily from United States customers. All of our property and equipment is located in the United States.
13.15. Retirement Plans
We have a 401(k) retirement and savings plan made available to all employees. The 401(k) plan allows each participant to contribute up to an amount not to exceed an annual statutory maximum. We may, at our discretion, make matching contributions to the 401(k) plan. Cash contributions to the plan were $0.8$4.0 million, $3.2 million, and $1.1$2.5 million for the years ended December 31, 20172021, 2020 and 2016. No cash contributions to the plan were made during the year ended December 31, 2015. Contribution expense recognized for the 401(k) plan was $0.8 million, $0.7 million, and $0.4 million for the years ended December 31, 2017, 2016, and 2015,2019, respectively.

14. Subsequent Events
On February 20, 2018, our board of directors adopted a Long-Term Executive Cash Incentive Plan, pursuant to which it may grant performance awards (“Performance Awards”) that are intended to reward our executive officers for their individual contributions to our achievement of one or more long-term company performance goals and objectives over a specified period of time, and granted Performance Awards to Jason Randall, our Chief Executive Officer, and Ida Kane, our Chief Financial Officer (the “Recipients”). The Performance Awards are being granted in lieu of additional equity incentive awards to the Recipients.



ITEM 9.
ITEM 9.         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
None.
56

ITEM 9A.     CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the supervision and participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as ofat December 31, 2017,2021, the last day of the period covered by this Annual Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and other procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periodperiods specified by the SEC’s rules and forms and that such information is accumulated and communicated to the company’sits management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on our management's evaluation, our principal executive officer and principal financial officer have concluded that, as ofat December 31, 2017,2021, our disclosure controls and procedures were effective at the reasonable assurance level.
Inherent Limitations on Effectiveness of Disclosure Control
In designing and evaluating our disclosure controls and procedures, our management recognizes that no evaluation of controls can provide absolute assurance that all control issues within a company have been detected. In addition, the design of disclosure controls and procedures must reflect the fact that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure controls system are met.
Management’s AnnualManagement's Report on Internal Control over Financial Reporting
We areOur management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
OurAs of December 31, 2021, our management under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, our management usedusing the criteria set forth in the Internal Control – Integrated Framework (2013) as issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment,our evaluation under the COSO criteria, our management concluded that our internal control over financial reporting iswas effective at the reasonable assurance level as of December 31, 2017.2021.

This Annual Report does not include an attestation reportThe effectiveness of our internal control over financial reporting has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, due toas stated in their audit report which expresses an exemption established by rulesunqualified opinion on the effectiveness of the Commission for emerging growth companies.

our internal control over financial reporting at December 31, 2021.
Changes in Internal Control over Financial Reporting
Throughout 2017, in order to facilitate our adoption of the new revenue recognition accounting standard on January 1, 2018, we implemented internal controls to help ensure we properly evaluated our customer contracts and assessed the impact to our consolidated financial statements. We expect to continue to implement additional internal controls related to the adoption of this standard in the first quarter of 2018.


There were no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13(a)-15(d) and 15d-15(d) under the Exchange Act that occurred during the quarter ended December 31, 20172021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.     OTHER INFORMATION
Adoption of Long-Term Cash Bonus PlanNone.
On February 20, 2018, our board of directors, upon recommendation of our compensation committee, adopted the Long-Term Executive Cash Incentive Plan (the "Long-Term Cash Bonus Plan"), which establishes the terms upon which long-term cash incentive bonuses may become payable to our executive officers from time to time as determined by our board of directors. The purpose of the Long-Term Cash Bonus Plan is to align the long-term executive incentive compensation to our long-term goals and objectives.
Pursuant to the Long-Term Cash Bonus Plan, our board of directors has the discretion to grant performance awards ("Performance Awards") that are intended to reward Long-Term Cash Bonus Plan participants for their individual contributions to our achievement of one or more long-term company performance goals and objectives ("Company Performance Objectives") over a specified period of time (the "Performance Period"). Each of the Performance Awards will be granted pursuant to a Long-Term Cash Incentive Award Offer (the "Award Agreement") that will set forth the relevant Company Performance Objectives and Performance Period, as well as the cash bonus amount payable upon achievement of the Company Performance Objectives.ITEM 9C.     DISCLOSURES REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS
The right to receive a Performance Award, and the payment of any cash bonus pursuant to a Performance Award, will be contingent upon a Long-Term Cash Bonus Plan participant remaining continuously employed an our executive officer through the last day of the Performance Period, subject to limited exceptions.Not applicable.
Grant of Long-Term Performance Awards to Chief Executive Officer and Chief Financial Officer
On February 20, 2018, our board of directors granted Performance Awards under the Long-Term Cash Bonus Plan to Jason Randall, our Chief Executive Officer, and Ida Kane, our Chief Financial Officer (the "Recipients"). No Performance Awards have been granted to any other of our executive officers or employees.
The Performance Awards establish our baseline "economic value"on a per share basis ("EVPS"). The Performance Awards then measure growth in EVPS over time. The Performance Awards are generally designed to reward the Recipients for their contributions towards achieving profitable growth that results in increases in EVPS over the next eight years. Pursuant to the Performance Awards, the Recipients will be eligible to earn cash bonuses based on the actual increase in EVPS measured as of the end of three separate Performance Periods, measured as of December 31, 2023, December 31, 2024 and December 31, 2025. If the actual increase in EVPS at the end of any Performance Period reflects the achievement of a low internal rate of return, no cash bonuses will be paid pursuant to the Performance Awards for that year. However, if actual increases in EVPS as of the end of any Performance Period reflect the achievement of a high internal rate of return, and therefore significant economic value added, the cash bonuses paid to the Recipients would be significant. Because the actual amount of the cash bonuses to be paid under the Performance Awards, if any, is dependent on our performance relative to an internal rate of return that results in increases in EVPS over a period of multiple years into the future, the bonus amounts are highly speculative and we are currently unable to predict a reasonable range of the amounts with any degree of certainty.
The Performance Awards are designed to provide long-term incentives for participants to achieve our long-term goals and objectives which we believe will positively impact long-term stockholder value. The Performance Awards are being granted in lieu of the grant of additional equity incentive awards to the Recipients. Accordingly, our compensation committee currently does not intend to issue additional equity awards to the Recipients until the Performance Awards have expired.
The Performance Awards provide that cash bonuses may be accelerated if: (i) we undergo a "change in control" (as determined by our board of directors), (ii) the Participant has been continuously employed by us through the date of the change in control, and (iii) within one hundred and eighty (180) days after the change in control the Participant is either involuntarily terminated by us or voluntarily resigns from his or her employment with us. The amount of the cash bonus to be paid under these circumstances is dependent upon the year in which the change in control occurs (assuming the other conditions are met). If the change in control occurs during 2018, each Recipient will be entitled to a cash bonus of $1,000,000, which amount will increase by $1,000,000 per year for each year thereafter through 2022, with the amount for 2022 then continuing to be payable in 2023 with no additional increase.
PART III
ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be included in theour definitive Proxy Statement or an amendment to this Annual Report, which will be filed with the SEC not later than 120 days after the end of our fiscal year ended December 31, 2017,2021, and is incorporated herein by reference.


57

ITEM 11.     EXECUTIVE COMPENSATION
The information required by this item will be included in theour definitive Proxy Statement or an amendment to this Annual Report, which will be filed with the SEC not later than 120 days after the end of our fiscal year ended December 31, 2021, and is incorporated herein by reference.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item will be included in theour definitive Proxy Statement or an amendment to this Annual Report, which will be filed with the SEC not later than 120 days after the end of our fiscal year ended December 31, 2021, and is incorporated herein by reference.


ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item will be included in theour definitive Proxy Statement or an amendment to this Annual Report, which will be filed with the SEC not later than 120 days after the end of our fiscal year ended December 31, 2021, and is incorporated herein by reference.


ITEM 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES


The information required by this item will be included in theour definitive Proxy Statement or an amendment to this Annual Report, which will be filed with the SEC not later than 120 days after the end of our fiscal year ended December 31, 2021, and is incorporated herein by reference.





PART IV


ITEM 15.     EXHIBITS, FINANCIAL STATEMENTS SCHEDULES


The following documents are filed as part of this Annual Report:


1.Consolidated Financial Statements
1.Consolidated Financial Statements
Our consolidated financial statements are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8, of this Annual Report.


2.Financial Statement Schedules
2.Financial Statement Schedules
All financial statement schedules have been omitted because they are not required or are not applicable, or the required information is shown in our consolidated financial statementsConsolidated Financial Statements or the notes thereto.


3.Exhibits
3.Exhibits
The documents listed in the Exhibit Index of this Annual Report are filed or furnished with, or incorporated by reference withinto, this Annual Report, in each case as indicated therein.







EXHIBIT INDEX
Incorporated by Reference
Exhibit NumberExhibit DescriptionFormFile No.ExhibitFiling DateFiled Herewith
3.110-Q001-374683.18/6/2015
58

    Incorporated by Reference  
Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed Herewith
3.1 
Amended and Restated Certificate of Incorporation of the registrant as currently in effect.
 10-Q 001-37468 3.1 8/6/2015  
3.2 
Amended and Restated Bylaws of the registrant as currently in effect.
 10-Q 001-37468 3.2 8/6/2015  
4.1 
Specimen Certificate for Class A Common Stock.
 S-1/A 333-204262 4.1 6/4/2015  
4.2 
Amended and Restated Investor Rights Agreement, by and among the registrant and the investors named therein, dated November 26, 2013.
 S-1/A 333-204262 4.2 6/4/2015  
10.1 
Multi-Tenant Industrial Lease, by and between the registrant and Nassau Land Company, L.P., dated April 1, 2011 ("2011 Lease"), as amended by First Amendment to 2011 Lease, dated November 11, 2011, Second Amendment to 2011 Lease, dated February 23, 2012, and Third Amendment to 2011 Lease, dated November 5, 2013.
 S-1/A 333-204262 10.1 6/4/2015  
10.2 
Fourth Amendment to 2011 Lease, by and between the registrant and Nassau Land Company, L.P., dated February 22, 2017.
 10-K 001-37468 10.2 2/27/2017  
10.3 
Multi-Tenant Industrial Lease, by and between the registrant and Nassau Land Company, L.P., dated February 17, 2015 ("2015 Lease").
 S-1/A 333-204262 10.2 6/4/2015  
10.4 
First Amendment to 2015 Lease, by and between the registrant and Nassau Land Company, L.P., dated October 5, 2015.
 10-Q 001-37468 10.2 11/9/2015  
10.5 
Second Amendment to 2015 Lease, by and between the registrant and Nassau Land Company, L.P., dated February 22, 2016.
 10-K 001-37468 10.2 2/29/2016  
10.6# 
2007 Stock Incentive Plan, as amended, and related form agreements.
 S-1/A 333-204262 10.3 6/4/2015  
10.7# 
2015 Stock Incentive Plan and related form agreements.
 S-1/A 333-204262 10.4 6/4/2015  
10.8# 
2015 Employee Stock Purchase Plan.
 S-1/A 333-204262 10.5 6/4/2015  
10.9# 
Long-Term Cash Incentive Plan.
         X
10.10# 
Form of Long-Term Cash Incentive Award Offer.
         X
10.11 
Form of Indemnification Agreement by and between the registrant and each of its executive officers and directors.
 S-1 333-204262 10.6 5/18/2015  
10.12 
Credit Agreement, by and among the registrant, Wells Fargo Bank, N.A., as administrative agent, and the lenders that are parties thereto, dated March 16, 2015.
 S-1 333-204262 10.7 5/18/2015  


Incorporated by Reference
Exhibit NumberExhibit DescriptionFormFile No.ExhibitFiling DateFiled Herewith
3.210-Q001-374683.28/6/2015
4.1S-1/A333-2042624.16/4/2015
4.2S-1/A333-2042624.26/4/2015
4.310-K001-374684.33/2/2020
10.18-K001-3746810.112/11/2019
10.28-K001-3746810.212/11/2019
10.38-K001-3746810.312/11/2019
10.4X
10.5X
10.6X
10.7X
10.810-Q001-3746810.18/9/2021
10.9#S-1/A333-20426210.36/4/2015
10.10#S-1/A333-20426210.46/4/2015
10.11#S-1/A333-20426210.56/4/2015
10.12#10-K001-3746810.92/26/2018
10.13#10-K001-3746810.102/26/2018
10.14X
10.15#10-Q001-3746810.1
10.16#X

    Incorporated by Reference  
Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed Herewith
10.13 
Amendment Number One to Credit Agreement, by and among the registrant, Wells Fargo Bank, N.A., as administrative agent, and the lenders that are parties thereto, dated October 9, 2015.
 10-Q 001-37468 10.1 11/9/2015  
10.14 
Resignation Agreement and General Release of Claims by and between the registrant and Brian Donahoo, dated August 3, 2017.
 8-K 001-37468 10.1 8/7/2017  
21.1 
Subsidiaries of the registrant.
         X
23.1 
Consent of independent registered public accounting firm.
         X
24.1 
Power of Attorney (included on the signature page of this report).
         X
31.1 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
         X
31.2 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
         X
32.1* 
Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
         X
101.INS XBRL Instance Document.         X
101.SCH XBRL Taxonomy Extension Schema Document.         X
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.         X
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.         X
101.LAB XBRL Taxonomy Extension Label Linkbase Document.         X
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.         X


Incorporated by Reference
#Exhibit NumberExhibit DescriptionFormFile No.ExhibitFiling DateFiled Herewith
10.17#X
10.18#X
10.19#X
10.20#X
21.1X
23.1X
24.1X
31.1X
31.2X
32.1*X
101.SCHXBRL Taxonomy Extension Schema Document.X
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.X
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.X
101.LABXBRL Taxonomy Extension Label Linkbase Document.X
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.X
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)X
#Indicates a management contract or compensatory plan or arrangement
*The certifications attached as Exhibit 32.1 accompany this Annual Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in any such filing.








SIGNATURES




Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized.

AppFolio, Inc.
Date:February 28, 2022AppFolio, Inc.By:/s/ Jason Randall
Jason Randall
Date:February 26, 2018By:/s/ Ida KaneChief Executive Officer
Ida Kane
Chief Financial Officer
(Principal Financial and AccountingExecutive Officer)



POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Jason Randall and Ida Kane, and each or either of them, acting individually, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or any of them, or their or his or her substitutes, may lawfully do or cause to be done or by virtue hereof.
Pursuant to the requirements of the Exchange Act, as amended, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date:February 28, 2022By:/s/ Fay Sien Goon
Fay Sien Goon
Chief Financial Officer
(Principal Financial Officer)
Date:February 28, 2022By:/s/ Ann Wilson
Ann Wilson
Vice President of Accounting
(Principal Accounting Officer)




SIGNATURE
TITLEDATE
/s/ Jason RandallPresident, Chief Executive Officer and Director

(Principal Executive Officer)		February 26, 201828, 2022
Jason Randall
/s/ Ida KaneFay Sien Goon
Chief Financial Officer

(Principal Financial andOfficer)
February 28, 2022
Fay Sien Goon
/s/ Ann WilsonVice President, Accounting
(Principal Accounting Officer)		February 26, 201828, 2022
Ida KaneAnn Wilson
/s/ Andreas von BlottnitzChairman of the BoardFebruary 26, 201828, 2022
Andreas von Blottnitz
/s/ Timothy BlissDirectorFebruary 26, 201828, 2022
Timothy Bliss
/s/ Agnes Bundy ScanlanDirectorFebruary 28, 2022
Agnes Bundy Scanlan
/s/ Janet KerrDirectorFebruary 26, 201828, 2022
Janet Kerr
/s/ James PetersDirectorFebruary 26, 2018
James Peters
/s/ William RauthDirectorFebruary 26, 2018
William Rauth
/s/ Klaus SchauserChief Strategist and DirectorFebruary 26, 201828, 2022
Klaus Schauser
/s/ Winifred WebbDirectorFebruary 28, 2022
Winifred Webb
/s/ Alexander WolfDirectorFebruary 28, 2022
Alexander Wolf