Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark one)
x ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017.March 31, 2022.
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 Drive93117
   Santa Barbara,California
50 Castilian Drive
Santa Barbara, California
93117
(Address of principal executive offices)(Zip Code)
(805) 364-6093
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A common stock, $0.0001 par valueAPPFNASDAQ Global Market
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 Website, 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 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” andfiler,” “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 7(a)(2)(B)13(a) of the SecuritiesExchange Act. x☐


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 ☒


As of October 23, 2017,May 2, 2022, the number of shares of the registrant’s Class A common stock outstanding was 14,506,41220,063,547 and the number of shares of the registrant’s Class B common stock outstanding was 19,440,672.14,836,256.
.


Table of Contents
TABLE OF CONTENTS
 
SectionPage No.
1
2
Item 1. Condensed Consolidated Financial Statements (Unaudited)
2
Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2022 and December 31, 20162021
23
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017March 31, 2022 and 20162021
34
Condensed Consolidated Statements of Comprehensive (Loss) Income (Loss) for the Three and Nine Months Ended September 30, 2017March 31, 2022 and 20162021
45
Condensed Consolidated StatementStatements of Stockholders' Equity for the NineThree Months Ended September 30, 2017March 31, 2022 and 2021
56
Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended September 30, 2017March 21, 2022 and 20162021
67
Notes to Condensed Consolidated Unaudited Financial Statements
89
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2219
Item 3. Qualitative and Quantitative Disclosure about Market Risk
3024
Item 4. Controls and Procedures
3125
3226
Item 1. Legal Proceedings
3226
Item 1A. Risk Factors
3226
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
32
Item 3. Defaults Upon Senior Securities
32
Item 4. Mine Safety Disclosures
32
Item 5. Other Information
32
Item 6. Exhibits
3226
Exhibit Index
 




CAUTIONARY NOTE REGARDING
Table of Contents
FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017, or Quarterly Report, includes “forward-looking statements”March 31, 2022 (this "Quarterly 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-looking statements include all statements that are not statements of historical facts contained in this Quarterly Report and can be identified by words such as “anticipates,” “believes,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts, “projects,” “should,” “could,” “will,” “would” or similar expressions and the negatives of those expressions. In particular, forward looking statements contained in this Quarterly Report relate to, among other things, our future or assumed financial condition, results of operations, business forecasts and plans, capital needs and financing plans, research and product development plans, growth in the size of our business and number of customers, strategic plans and objectives, acquisitions and investments, and the application of accounting guidance. We caution you that the foregoing list may not include all of theThe forward-looking statements made in this Quarterly Report.

Forward-lookingReport 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 representare made. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our management’s current beliefsexpectations, strategy, plans, or intentions. We cannot assure you that the results, events, and assumptions based on information currently available. Forward-lookingcircumstances reflected in the forward-looking statements involve numerous knownwill be achieved or occur, and unknownactual 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 any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. The outcome of the events described in these forward-looking statements is subject to 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 by the forward-looking statements. We discuss these risks and uncertainties in greater detaildescribed in the section entitled “Management’stitled "Management's Discussion and Analysis of Financial Condition and Results of Operations” ofOperations" in this Quarterly Report and
in the section entitled “Risk Factors” "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, or Annual Report,2021 (our "Annual Report"), as well as in ourthe other filingsreports we file with the Securities and Exchange Commission or SEC.(the "SEC"). You should read this Quarterly Report, and the other documents we have filedfile 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 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 an evolving environment. New risksthe competitive environment, responding to customer needs, research and uncertainties emerge from timeproduct development plans, future products and services, growth in the size of our business and number of customers, strategic plans and objectives, business forecasts and 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 timethe outcome of legal proceedings or regulatory matters. Any forward-looking statement made by us in this Quarterly Report is based only on information currently available to us and speaks only as of the date 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 Stock Market, we assumemade. We undertake no obligation to update any forward-looking statements publicly,made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly 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
1
Table of our forward-looking statements by these cautionary statements.Contents


PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

2
Table of Contents
APPFOLIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par values)
 September 30,
2017		 December 31,
2016		 March 31,
2022		December 31,
2021
Assets    Assets
Current assets    Current assets
Cash and cash equivalents $14,781
 $10,699
Cash and cash equivalents$49,536 $57,847 
Investment securities—current 28,396
 15,473
Investment securities—current78,389 64,600 
Accounts receivable, net 3,419
 2,511
Accounts receivable, net16,154 12,595 
Prepaid expenses and other current assets 4,393
 3,537
Prepaid expenses and other current assets25,495 23,553 
Total current assets 50,989
 32,220
Total current assets169,574 158,595 
Investment securities—noncurrent 20,423
 26,688
Investment securities—noncurrent45,851 61,076 
Property and equipment, net 7,005
 7,077
Property and equipment, net30,582 30,479 
Capitalized software, net 17,320
 15,539
Operating lease right-of-use assetsOperating lease right-of-use assets40,570 41,710 
Capitalized software development costs, netCapitalized software development costs, net39,277 41,212 
Goodwill 6,737
 6,737
Goodwill56,147 56,147 
Intangible assets, net 2,054
 3,105
Intangible assets, net10,558 11,711 
Other assets 1,219
 1,217
Other long-term assetsOther long-term assets7,475 7,087 
Total assets $105,747
 $92,583
Total assets$400,034 $408,017 
Liabilities and Stockholders’ Equity    Liabilities and Stockholders’ Equity
Current liabilities    Current liabilities
Accounts payable $1,164
 $937
Accounts payable$4,809 $1,704 
Accrued employee expenses 8,169
 7,550
Accrued employee expenses—currentAccrued employee expenses—current25,151 30,065 
Accrued expenses 5,908
 4,044
Accrued expenses14,470 13,284 
Deferred revenue 7,508
 7,638
Deferred revenue3,692 2,512 
Other current liabilities 1,083
 1,192
Other current liabilities5,898 5,077 
Total current liabilities 23,832
 21,361
Total current liabilities54,020 52,642 
Operating lease liabilitiesOperating lease liabilities54,985 55,733 
Other liabilities 1,238
 1,540
Other liabilities2,286 2,261 
Total liabilities 25,070
 22,901
Total liabilities111,291 110,636 
Commitments and contingencies (Note 6) 
 
Commitments and contingencies (Note 8)Commitments and contingencies (Note 8)00
Stockholders’ equity:    Stockholders’ equity:
Preferred stock, $0.0001 par value, 25,000 authorized and no shares issued and outstanding as of September 30, 2017 and December 31, 2016 —
 —
Class A common stock, $0.0001 par value, 250,000 shares authorized as of September 30, 2017 and December 31, 2016; 14,494 and 11,691 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively; 1
 1
Class B common stock, $0.0001 par value, 50,000 shares authorized as of September 30, 2017 and December 31, 2016; 19,448 and 22,028 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively; 3
 3
Class A common stockClass A common stock2 2 
Class B common stockClass B common stock2 2 
Additional paid-in capital 150,520
 146,692
Additional paid-in capital178,924 171,930 
Accumulated other comprehensive loss (23) (51)Accumulated other comprehensive loss(1,539)(194)
Accumulated deficit (69,824) (76,963)
Treasury stockTreasury stock(25,756)(25,756)
Retained earningsRetained earnings137,110 151,397 
Total stockholders’ equity 80,677
 69,682
Total stockholders’ equity288,743 297,381 
Total liabilities and stockholders’ equity $105,747
 $92,583
Total liabilities and stockholders’ equity$400,034 $408,017 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

3
Table of Contents
APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
 
 Three Months Ended
March 31,
 20222021
Revenue$105,296 $78,921 
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)(1)
43,347 33,298 
Sales and marketing(1)
24,919 16,179 
Research and product development(1)
24,320 14,383 
General and administrative(1)
18,964 13,361 
Depreciation and amortization8,415 7,369 
Total costs and operating expenses119,965 84,590 
Loss from operations(14,669)(5,669)
Other (loss) income, net(10)562 
Interest income107 53 
Loss before benefit from income taxes(14,572)(5,054)
Benefit from income taxes(285)(5,533)
Net (loss) income$(14,287)$479 
Net (loss) income per common share:
Basic$(0.41)$0.01 
Diluted$(0.41)$0.01 
Weighted average common shares outstanding:
Basic34,836 34,409 
Diluted34,836 35,712 
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Revenue$37,903
 $28,162
 $105,906
 $77,576
Costs and operating expenses:       
Cost of revenue (exclusive of depreciation and amortization)14,053
 11,645
 40,747
 33,387
Sales and marketing7,257
 6,979
 21,556
 22,097
Research and product development4,367
 3,464
 11,998
 9,531
General and administrative5,405
 4,642
 15,310
 12,580
Depreciation and amortization3,237
 2,636
 9,347
 7,112
Total costs and operating expenses34,319
 29,366
 98,958
 84,707
Income (loss) from operations3,584
 (1,204) 6,948
 (7,131)
Other expense, net(5) (12) (93) (34)
Interest income, net155
 102
 377
 221
Income (loss) before provision for income taxes3,734
 (1,114) 7,232
 (6,944)
Provision for income taxes52
 11
 93
 48
Net income (loss)$3,682
 $(1,125) $7,139
 $(6,992)
        
Net income (loss) per common share:       
Basic$0.11
 $(0.03) $0.21
 $(0.21)
Diluted$0.10
 $(0.03) $0.20
 $(0.21)
Weighted average common shares outstanding:       
Basic33,905
 33,600
 33,817
 33,529
Diluted35,205
 33,600
 35,091
 33,529
(1) Includes stock-based compensation expense as follows:
Three Months Ended
March 31,
20222021
Stock-based compensation expense included in costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)$358 $471 
Sales and marketing1,460 402 
Research and product development2,806 857 
General and administrative2,794 1,046 
Total stock-based compensation expense$7,418 $2,776 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.



4
Table of Contents

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



 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Net income (loss)$3,682
 $(1,125) $7,139
 $(6,992)
Other comprehensive income (loss):       
Changes in unrealized gains (losses) on investment securities26
 (96) 28
 277
Comprehensive income (loss)$3,708
 $(1,221) $7,167
 $(6,715)
 Three Months Ended
March 31,
 20222021
Net (loss) income$(14,287)$479 
Other comprehensive loss:
    Changes in unrealized losses on investment securities(1,345)(18)
Comprehensive (loss) income$(15,632)$461 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.



5
Table of Contents

APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)

Accumulated
AdditionalOther
Common StockCommon StockPaid-inComprehensiveTreasuryRetained
Class AClass BCapitalLossStockEarningsTotal
SharesAmountSharesAmount
Balance December 31, 202119,417 $2 15,408 $2 $171,930 $(194)$(25,756)$151,397 $297,381 
Exercise of stock options17 — — — 100 — — — 100 
Stock based compensation— — — — 7,967 — — — 7,967 
Vesting of restricted stock units, net of shares withheld for taxes17 — — — (1,073)— — — (1,073)
Conversion of Class B shares to Class A shares572 — (572)— — — — — — 
Other comprehensive loss— — — — — (1,345)— — (1,345)
Net loss— — — — — — — (14,287)(14,287)
Balance March 31, 202220,023 $2 14,836 $2 $178,924 $(1,539)$(25,756)$137,110 $288,743 



Accumulated
          Accumulated    AdditionalOther
        Additional Other    Common StockCommon StockPaid-inComprehensiveTreasuryRetained
Common Stock Common Stock Paid-in Comprehensive Accumulated  Class AClass BCapitalIncomeStockEarningsTotal
Class A Class B Capital (Loss)/Income Deficit TotalSharesAmountSharesAmount
Shares Amount Shares Amount        
Balance at December 31, 201611,691
 $1
 22,028
 $3
 $146,692
 $(51) $(76,963) $69,682
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 options133
 —
 —
   508
 —
 —
 508
Exercise of stock options23 — — — 100 — — — 100 
Stock-based compensation—
 —
 —
 —
 4,674
 —
 —
 4,674
Stock-based compensation— — — — 3,295 — — — 3,295 
Vesting of restricted stock units, net of shares withheld for taxes81
 —
 —
 —
 (1,421) —
 —
 (1,421)Vesting of restricted stock units, net of shares withheld for taxes42 — — — (3,992)— — — (3,992)
Vesting of early exercised shares—
 —
 —
 —
 67
 —
 —
 67
Conversion of Class B stock to Class A stock2,580
 —
 (2,580) —
 —
 —
 —
 —
Conversion of Class B stock to Class A stock108 — (108)— — — — — — 
Issuance of restricted stock awards9
 —
 —
 —
 —
 —
 —
 —
Other comprehensive income—
 —
 —
 —
 —
 28
 —
 28
Other comprehensive lossOther comprehensive loss— — — — — (18)— — (18)
Net income—
 —
 —
 —
 —
 —
 7,139
 7,139
Net income— — — — — — — 479 479 
Balance at September 30, 201714,494
 $1
 19,448
 $3
 $150,520
 $(23) $(69,824) $80,677
Balance at March 31, 2021Balance at March 31, 202118,902 $2 15,551 $2 $160,650 $38 $(25,756)$150,848 $285,784 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.



6
APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
  
 Nine Months Ended
September 30,
 2017 2016
Cash from operating activities   
Net income (loss)$7,139
 $(6,992)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Depreciation and amortization9,347
 7,112
Purchased investment premium, net of amortization(22) 185
Amortization of deferred financing costs48
 48
Loss on disposal of property and equipment94
 33
Stock-based compensation4,304
 2,844
Lease abandonment—
 161
Changes in operating assets and liabilities:
 
Accounts receivable(908) (659)
Prepaid expenses and other current assets(856) (804)
Other assets(54) (163)
Accounts payable369
 (1,109)
Accrued employee expenses846
 (144)
Accrued expenses1,713
 1,354
Deferred revenue(130) 1,674
Other liabilities(334) 1,183
Net cash provided by operating activities21,556
 4,723
Cash from investing activities   
Purchases of property and equipment(1,680) (3,560)
Additions to capitalized software(8,085) (8,554)
Purchases of investment securities(17,597) (24,334)
Sales of investment securities15
 10,016
Maturities of investment securities10,974
 17,112
Purchases of intangible assets(1) (2)
Net cash used in investing activities(16,374) (9,322)
Cash from financing activities   
Proceeds from stock option exercises508
 260
Tax withholding for net share settlement(1,608) (85)
Principal payments under capital lease obligations—
 (24)
Proceeds from issuance of debt88
 87
Principal payments on debt(88) (99)
Net cash (used in) provided by financing activities(1,100) 139
Net increase (decrease) in cash and cash equivalents4,082
 (4,460)
Cash and cash equivalents   
Beginning of period10,699
 12,063
End of period$14,781
 $7,603
    
Table of Contents

APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 Three Months Ended
March 31,
 20222021
Cash from operating activities
Net (loss) income$(14,287)$479 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization7,878 6,971 
Amortization of operating lease right-of-use assets887 662 
Deferred income taxes(342)(5,723)
Stock-based compensation, including as amortized7,955 3,174 
Other427 (157)
Changes in operating assets and liabilities:
Accounts receivable(3,431)(1,896)
Prepaid expenses and other current assets(1,942)47 
Other assets(573)(403)
Accounts payable2,987 870 
Accrued employee expenses—current(5,016)728 
Accrued expenses1,722 (3,804)
Deferred revenue1,052 299 
Operating lease liabilities(631)(672)
Other liabilities1,070 (5,012)
Net cash used in operating activities(2,244)(4,437)
Cash from investing activities
Purchases of available-for-sale investments(23,309)(99,011)
Proceeds from sales of available-for-sale investments— 17,899 
Proceeds from maturities of available-for-sale investments23,343 1,000 
Purchases of property, equipment and intangible assets(1,830)(938)
Capitalization of software development costs(3,484)(6,140)
Net cash used in investing activities(5,280)(87,190)
Cash from financing activities
Proceeds from stock option exercises100 100 
Tax withholding for net share settlement(1,073)(3,992)
Net cash used in financing activities(973)(3,892)
Net decrease in cash, cash equivalents and restricted cash(8,497)(95,519)
Cash, cash equivalents and restricted cash
Beginning of period58,283 140,699 
End of period$49,786 $45,180 
Noncash investing and financing activities
Purchases of property and equipment included in accounts payable and accrued expenses$1,108 $688 
Capitalization of software development costs included in accrued expenses and accrued employee expenses397 817 
Stock-based compensation capitalized for software development549 520 

    The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within our Condensed Consolidated Balance Sheets to the total of the same such amounts shown above (in thousands):
7
Table of Contents
APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
  
 Nine Months Ended
September 30,
 2017 2016
Noncash investing and financing activities   
Purchases of property and equipment included in accounts payable and accrued expenses$271
 $112
Additions of capitalized software included in accrued employee expenses231
 231
Stock-based compensation capitalized for software development548
 308
March 31,
20222021
Cash and cash equivalents$49,536 $44,744 
Restricted cash included in other assets250 436 
Total cash, cash equivalents and restricted cash$49,786 $45,180 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

8
Table of Contents
APPFOLIO, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. Nature of Business
AppFolio, Inc. (“we”("we," "us" or “AppFolio”"our") provides industry-specific, cloud-basedis 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 founded in 2006 with the vision to revolutionize vertical industry businesses by providing great software and services. Our mission is even more relevant today, when digital transformation is effectively a requirement for business success in the modern world, and the way we work and live requires powerful software solutions for small and medium-sized businesses (“SMBs”) in the property management industry and solo practitioners and small law firms in the legal industry. We refer to solo practitioners and small law firms as SMBs in connection with our legal vertical in this Quarterly Report. Our platform is designed to be the system of record to automate essential business processes and the system of engagement to enhance business interactions between our customers and their clients and vendors. We also offer optional, but often mission-critical, Value+ services, which are seamlessly built into our core solutions.enable a more seamless experience.
2. Summary of Significant Accounting Policies
Basis of Presentation and Significant Accounting Policies
The accompanying unaudited Condensed Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these Condensed Consolidated Financial Statements should be read in conjunction with our audited consolidated financial statements and the related notes included in our Annual Report, which was filed with the SEC on February 27, 2017.28, 2022. The year-end condensed balance sheet was derived from our audited consolidated financial statements. Our unaudited interim Condensed Consolidated Financial Statements have been prepared on a basis consistent with that used to prepare our audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of theour Condensed Consolidated Financial Statements. The operating results for the ninethree months ended September 30, 2017,March 31, 2022 are not necessarily indicative of the results expected for the full year ending December 31, 2017.2022.
Changes in Accounting PoliciesReclassification
Except as described below under Recently Adopted Accounting Pronouncements, there have been no significant changesWe reclassified certain amounts in our accounting policiesCondensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows within the cash flows from those disclosedoperating activities section in our annual consolidated financial statements and the related notes included in our Annual Report.prior year to conform to the current year's presentation.
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 expensesbenefit from 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 assumptions underlying stock-based compensation. 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 resultsour Condensed Consolidated Financial Statements.
9
Table of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.Contents

Net (Loss) Income (Loss) per Common Share
The netNet (loss) income (loss) 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 (loss) income (loss) per common share (in thousands):
 Three Months Ended
March 31,
 20222021
Weighted average common shares outstanding34,840 34,414 
Less: Weighted average unvested restricted shares subject to repurchase4 5 
Weighted average common shares outstanding; basic34,836 34,409 
Plus: Weighted average options, restricted stock units and restricted shares used to compute diluted net income per common share— 1,303 
Weighted average common shares outstanding; diluted34,836 35,712 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Weighted average shares outstanding 33,923
 33,668
 33,848
 33,617
Less: Weighted average unvested restricted shares subject to repurchase 18
 68
 31
 88
Weighted average common shares outstanding; basic 33,905
 33,600
 33,817
 33,529
         
Weighted average common shares outstanding; basic 33,905
 33,600
 33,817
 33,529
Plus: Weighted average options, RSUs and restricted shares used to compute diluted net income per share 1,300
 —
 1,274
 —
Weighted average common shares outstanding; diluted 35,205
 33,600
 35,091
 33,529
Approximately 571,000For the three months ended March 31, 2022 and 2021, an aggregate of 202,000 and 109,000 shares, of performance based options ("PSOs") and performance basedrespectively, underlying performance-based restricted stock units ("PSUs") arewere not included in the computations of diluted and anti-dilutive shares for the three and nine month periods ended September 30, 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 three and nine months ended September 30, 2016, we reported a net loss and therefore all potentially dilutive common shares are Restricted stock units ("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 three and nine months ended September 30, 2017March 31, 2021. Because we reported a net loss for the three months ended March 31, 2022, all potentially dilutive common shares are anti-dilutive for that period and 2016 (in thousands):
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Options to purchase common stock —
 1,764
 —
 1,764
Unvested restricted stock awards —
 59
 —
 59
Unvested restricted stock units 13
 480
 13
 480
Contingent restricted stock units (1)
 6
 27
 6
 27
Total shares excluded from net income (loss) per common share 19
 2,330
 19
 2,330
(1) Included in the anti-dilutive shares above are fixed price restricted stock unit (“RSU”) commitments for which the number of shares has not been determined at the grant date. The number of RSU shares with a fixed price included in the table above are 6,000 and 27,000 shares at September 30, 2017 and 2016, respectively. The number of shares have been determined by dividingexcluded from the fixed price commitment to issue shares in the future by the closing pricecalculation of our 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: (1) income tax consequences, (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. ASU 2016-19 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.net loss per share.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014,October 2021, the FASB issued ASU No. 2014-09, 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, "Revenue from Contracts with Customers," as amended which requires an entity to recognizeif the amount of revenue to which it expects to be entitled foracquirer had originated the transfer of promised goods or services to customers ( the “new revenue standard”). The new revenue standard will be effective on January 1, 2018 and early adoption is permitted. 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 and is currently evaluating the expected impact of the adoption on its consolidated financial statements and related disclosures. Under the modified retrospective transition method, we will be required to calculate and record the cumulative effect of adopting the new revenue standard as an adjustment to our opening balance of our retained earnings on January 1, 2018, within our Quarterly Report on Form 10-Q for the first quarter of 2018. Prior periods will not be retrospectively adjusted.
Based on our ongoing assessment, we do not expect there will be a material impact on our revenue upon adoption. While we are continuing to assess all potential impacts of the standard, we believe the most significant impact relates to recognizing the costs of obtaining customer contracts. Under the Company's current policy election under GAAP, sales commissions and other incremental costs to acquire contracts are expensed as incurred. Under the new revenue standard, such costs will be deferred and recognized over a period of time. 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 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. 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.

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 to have a material impact on our financial condition, results of operations, cash flows or disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), 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 insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from 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. ASU 2016-152021-08 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early2022, with early adoption is permitted, including adoption in an interim period.permitted. We have not determined the effect of this guidance on our statement of cash flows.
In October 2016, the FASB issuedexpect to adopt 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 effective2021-08 on January 1, 2018. Early adoption is permitted. We have not determined the effect of this guidance on our financial condition, results of operations, cash flows or disclosures.2023.


In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"), which provides amendments to current guidance to address the classification and presentation of changes in restricted cash in the statement of cash flows. ASU 2016-18 is effective on January 1, 2018 and early adoption is permitted. We are still evaluating the effect of this guidance on our financial statements. 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 goodwill on the carrying amount of 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 assessment 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 amortized to the earliest call date. ASU 2017-08 does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public companies, ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as 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.

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 Securities and Fair Value Measurements
Investment Securities
Investment securities classified as available-for-sale consisted of the following at September 30, 2017as of March 31, 2022 and December 31, 20162021 (in thousands):
March 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$16,678 $— $(23)$16,655 
Agency securities19,753 — (336)19,417 
Treasury securities89,418 — (1,250)88,168 
Total available-for-sale investment securities$125,849 $— $(1,609)$124,240 
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 
10
Table of Contents
 September 30, 2017
 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Corporate bonds$34,558
 $11
 $(19) $34,550
Agency securities11,302
 —
 (17) 11,285
Certificates of deposit2,982
 3
 (1) 2,984
Total available-for-sale investment securities$48,842
 $14
 $(37) $48,819
 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
For available-for-sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or whether it is more likely than not that we will be required to sell 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 position that do not meet these criteria, we evaluate whether the decline in fair value has resulted from credit loss or other factors. If this assessment indicates a credit loss exists, the credit-related portion of the loss is recorded as an allowance for losses on the security.
As of September 30, 2017,March 31, 2022, the unrealized losses on investmentdecline in fair value below amortized cost basis was not considered other than temporary as it is more likely than not we will hold the securities which have been in a net loss position for 12 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 tountil maturity or a recovery of the cost basis. No allowance for credit losses for available-for-sale investment securities was recorded as of March 31, 2022 or December 31, 2021.
At September 30, 2017As of March 31, 2022 and December 31, 2016,2021, the contractual maturities of our investments did not exceed 36 months. The fair values of available-for-sale investments,investment securities, by remaining contractual maturity, are as follows (in thousands):
 September 30, 2017 December 31, 2016
 Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value
Due in 1 year or less$28,398
 $28,396
 $15,475
 $15,473
Due after 1 year through 3 years20,444
 20,423
 26,737
 26,688
Total available-for-sale investment securities$48,842
 $48,819
 $42,212
 $42,161

March 31, 2022December 31, 2021
Amortized CostEstimated Fair ValueAmortized CostEstimated Fair Value
Due in one year or less$78,741 $78,389 $64,627 $64,600 
Due after one year through three years47,108 45,851 61,314 61,076 
Total available-for-sale investment securities$125,849 $124,240 $125,941 $125,676 
During the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, we had sales and maturities (which includesinclude calls) of investment securities, as follows (in thousands):
Three Months Ended March 31, 2022
Gross Realized GainsGross Realized LossesGross Proceeds from SalesGross Proceeds from Maturities
Corporate bonds$— $— $— $12,343 
Treasury securities— — — 11,000 
Total$— $— $— $23,343 
 Nine Months Ended September 30, 2017
 Gross Realized Gains Gross Realized Losses Gross Proceeds from Sales Gross Proceeds from Maturities
Agency securities$1
 $—
 $15
 $1,044
Corporate bonds—
 —
 —
 7,440
Certificates of deposit—
 —
 —
 2,490
 $1
 $—
 $15
 $10,974
 Nine Months Ended September 30, 2016
 Gross Realized Gains Gross Realized Losses Gross Proceeds from Sales Gross Proceeds from Maturities
Agency securities$5
 $—
 $3,005
 $9,557
Corporate bonds1
 —
 5,011
 2,480
Treasury bills—
 —
 2,000
 3,830
Certificates of Deposit—
 —
 —
 1,245
 $6
 $—
 $10,016
 $17,112
Interest income from investment securities, net of the amortization and accretion of the premium and discount, for the three months ended September 30, 2017 and 2016, was $0.2 million and $0.1 million, respectively and $0.5 million and $0.3 million for the nine months ended September 30, 2017 and 2016, respectively.
Three Months Ended March 31, 2021
Gross Realized GainsGross Realized LossesGross Proceeds from SalesGross Proceeds from Maturities
Treasury securities$1 $— $17,899 $1,000 
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 of September 30, 2017March 31, 2022 and December 31, 2016,2021 by level within the fair value hierarchy (in thousands):
11
Table of Contents
September 30, 2017March 31, 2022
Level 1 Level 2 Level 3 Total Fair
Value		Level 1Level 2Level 3Total Fair
Value
Cash equivalents:       Cash equivalents:
Money market funds$3,910
 $—
 $—
 $3,910
Money market funds$5,251 $— $— $5,251 
Treasury securitiesTreasury securities1,000 — — 1,000 
Available-for-sale investment securities:       Available-for-sale investment securities:
Corporate bonds—
 34,550
 —
 34,550
Corporate bonds— 16,655 — 16,655 
Agency securities—
 11,285
 —
 11,285
Agency securities— 19,417 — 19,417 
Certificates of deposit2,984
 —
 —
 2,984
Treasury securities Treasury securities88,168 — — 88,168 
Total$6,894
 $45,835
 $—
 $52,729
Total$94,419 $36,072 $— $130,491 

December 31, 2016December 31, 2021
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$6,105 $— $— $6,105 
Available-for-sale investment securities:       Available-for-sale investment securities:
Corporate bonds—
 30,445
 —
 30,445
Corporate bonds— 29,069 — 29,069 
Agency securities—
 6,228
 —
 6,228
Agency securities— 19,726 — 19,726 
Certificates of deposit5,488
 —
 —
 5,488
Treasury securitiesTreasury securities76,881 — — 76,881 
Total$10,337
 $36,673
 $—
 $47,010
Total$82,986 $48,795 $— $131,781 
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of the short maturity of these items.
There were no changes toFair value for our valuation techniques used to measure asset and liability fair values on a recurring basis during the nine months ended September 30, 2017. The valuation techniques for the items in the table above are as follows:
Cash and Cash Equivalents
As of September 30, 2017 and December 31, 2016, cash and cash equivalents include cash invested in money market funds. Fair valueLevel 1 investment securities 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.
Available-for-Sale Investment Securities
The fair value of our investment securities and certificates of deposit 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.
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 when they are deemed to be impaired as a result of an impairment review. For the nine months ended September 30, 2017 and 2016, no impairments were identified on those assets required to be measured at fair value on a non-recurring basis.
4. Internal-UseCapitalized Software Development Costs, net
Internal-useCapitalized software development costs were as follows (in thousands):
  September 30,
2017		 December 31,
2016
Internal use software development costs, gross $41,902
 $33,545
Less: Accumulated amortization (24,582) (18,006)
Internal use software development costs, net $17,320
 $15,539

March 31,
2022		December 31,
2021
Capitalized software development costs, gross$118,731 $115,377 
Less: Accumulated amortization(79,454)(74,165)
Capitalized software development costs, net$39,277 $41,212 
Capitalized software development costs were $2.9$4.1 million and $3.3$7.1 million for the three months ended September 30, 2017March 31, 2022 and 2016, respectively, and were $8.4 million and $8.8 million for the nine months ended September 30, 2017 and 2016,2021, respectively. Amortization expense with respect to capitalized software development costs totaled $2.3$6.1 million and $1.7$5.0 million for the three months ended September 30, 2017March 31, 2022 and 2016, respectively, and $6.6 million and $4.4 million for2021, respectively. During the ninethree months ended September 30, 2017 and 2016, respectively.March 31, 2022, we disposed of $0.8 million of fully amortized capitalized software development costs.

12

Table of Contents
Future amortization expense with respect to capitalized software development costs as of September 30, 2017, is estimated as follows (in thousands):
Years Ending December 31,
2022$16,583 
202315,002 
20246,878 
2025814 
    Total amortization expense$39,277 
13
Years Ending December 31,
2017 $2,409
2018 8,431
2019 5,153
2020 1,327
    Total amortization expense $17,320

Table of Contents
5. Intangible Assets, net
Intangible assets consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands)thousands, except years):
 March 31, 2022
 Gross Carrying
Value		Accumulated
Amortization		Net Carrying
Value		Weighted Average Useful Life in Years
Customer relationships$2,840 $(2,120)$720 5.0
Database8,330 (2,828)5,502 10.0
Technology6,539 (5,466)1,073 4.0
Trademarks and trade names1,890 (1,227)663 5.0
Partner relationships680 (680)— 3.0
Non-compete agreements7,400 (4,814)2,586 5.0
Domain names90 (76)14 5.0
Patents252 (252)— 5.0
Total intangible assets, net$28,021 $(17,463)$10,558 6.3
 September 30, 2017 December 31, 2021
 Gross Carrying
Value		 Accumulated
Amortization		 Net Carrying
Value		 Gross Carrying
Value		Accumulated
Amortization		Net Carrying
Value		Weighted Average Useful Life in Years
Customer relationships $790
 $(510) $280
Customer relationships$2,840 $(2,006)$834 5.0
DatabaseDatabase8,330 (2,620)5,710 10.0
Technology 4,811
 (3,671) 1,140
Technology6,539 (5,107)1,432 4.0
Trademarks 930
 (508) 422
Trademarks and trade namesTrademarks and trade names1,890 (1,128)762 5.0
Partner relationships 680
 (567) 113
Partner relationships680 (680)— 3.0
Non-compete agreements 40
 (33) 7
Non-compete agreements7,400 (4,444)2,956 5.0
Domain names 273
 (273) —
Domain names90 (75)15 5.0
Patents 285
 (193) 92
Patents252 (250)2 5.0
 $7,809
 $(5,755) $2,054
Total intangible assets, netTotal intangible assets, net$28,021 $(16,310)$11,711 6.3

  December 31, 2016
  Gross Carrying
Value		 Accumulated
Amortization		 Net Carrying
Value
Customer relationships $790
 $(392) $398
Technology 4,811
 (3,070) 1,741
Trademarks 930
 (416) 514
Partner relationships 680
 (397) 283
Non-compete agreements 40
 (23) 17
Domain names 273
 (241) 32
Patents 284
 (164) 120
  $7,808
 $(4,703) $3,105

Amortization expense with respect to intangible assets totaled $1.2 million for the three months ended September 30, 2017March 31, 2022 and 2016 was $0.4 million for each period and for the nine months ended September 30, 2017 and 2016 was $1.1 million for each period.


As of September 30, 2017, estimated future2021. Future amortization ofexpense with respect to intangible assets wasis estimated as follows (in thousands):
Years Ending December 31,
2022$3,452 
20233,060 
2024835 
2025833 
2026833 
Thereafter1,545 
    Total amortization expense$10,558 


14
Years Ending December 31,
2017 $329
2018 929
2019 352
2020 259
2021 124
Thereafter 61
    Total amortization expense $2,054
Table of Contents
6. Accrued Employee Expenses
Accrued employee expenses consisted of the following (in thousands):
March 31,December 31,
20222021
Accrued vacation$11,061 $10,675 
Accrued bonuses4,688 13,101 
Accrued commissions1,614 2,048 
Accrued payroll5,994 3,068 
Accrued severance511 — 
Accrued payroll taxes and other1,283 1,173 
    Total accrued employee expenses—current$25,151 $30,065 
Included in Other liabilities as of March 31, 2022 and December 31, 2021 are $0.9 million and $0.6 million, respectively, of noncurrent accrued employee expenses.
7. 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 will 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 variable in nature for which we are responsible, including common area maintenance, which are expensed as incurred.
The components of lease expense recognized in the Condensed Consolidated Statements of Operations were as follows (in thousands):
Three Months Ended
March 31,
20222021
Operating lease cost$1,447 $1,095 
Variable lease cost123 306 
  Total lease cost$1,570 $1,401 

Lease-related assets and liabilities were as follows:
March 31,
2022		December 31,
2021
Assets
Prepaid expenses and other current assets$4,240 $4,854 
Operating lease right-of-use assets40,570 41,710 
Liabilities
Other current liabilities$1,992 $1,874 
Operating lease liabilities54,985 55,733 
Total lease liabilities$56,977 $57,607 

15
Table of Contents
Future minimum lease payments under non-cancellable leases as of March 31, 2022 were as follows (in thousands):
Years ending December 31,
2022(1)
$(1,565)
2023(1)
5,281 
2024(1)
6,162 
20256,837 
20267,035 
Thereafter42,281 
Total future minimum lease payments66,031 
Less: imputed interest(13,294)
Total(2)
$52,737 
(1) Future minimum lease payments for the years ending December 31, 2022, 2023, and 2024 are presented net of tenant improvement allowances of $5.4 million, $0.8 million, and $0.2 million, respectively.
(2) Total future minimum lease payments include the current portion of lease liabilities recorded in Prepaid expenses and other current assets of $4.2 million on our Condensed 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 12 months.
8. Commitments and Contingencies
Lease Obligations
As of September 30, 2017, we had operating lease obligations of approximately $9.6 million through 2022. We recorded rent expense of $0.5 million for each three month period ended September 30, 2017 and 2016, and $1.5 million for each nine month period ended September 30, 2017 and 2016.
In February 2017, we signed a lease amendment relatingLegal Liability to the property located at 50 Castilian Drive in Santa Barbara, California, our corporate headquarters. This amendment extends the term from February 2018 to December 2021. The total commitment under this lease extension is $3.1 million. All of the other terms and conditions of the lease agreement remain the same.
Line of Credit
We are party to a Credit Agreement with Wells Fargo, as administrative agent, and the lenders that are parties thereto (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”). Borrowings under the Revolving Facility are subject to the satisfaction of customary conditions. The Revolving Facility matures on October 9, 2020; however, we can make payments on, and cancel in full, the Revolving Facility at any time without premium or penalty.
As of September 30, 2017 and December 31, 2016, there was no outstanding balance under the Credit Agreement and we are in compliance with the financial covenants under the Revolving Facility.
Landlord Insurance
We have a wholly owned subsidiary, Terra Mar Insurance Company, Inc. (“Terra Mar”), which was established in connection with reinsuring liability to providelandlord insurance policies offered to our customers with the option to purchase tenant liability insurance. If 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 tenant 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 estimated liability for reported claims and incurred but not reported claims as of September 30, 2017March 31, 2022 and December 31, 20162021 was $0.4$2.2 million and $0.3$1.7 million, respectively, and is included in Other current liabilities on theour Condensed Consolidated Balance Sheets.
Included in OtherPrepaid expenses and other current assets as of September 30, 2017March 31, 2022 and December 31, 2016,2021 are $1.5$2.1 million and $1.2$3.0 million, respectively, of deposits held with a third party related to requirements to maintain collateral for ourthis insurance services.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 we believe would have a material adverse effect on our business, operating results, cash flows or financial condition should such proceedings be resolved unfavorably.

Indemnification
In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, business partners, investors, directors, officers, and officersother parties 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.parties, and other liabilities relating to or arising from our services or our acts or omissions. 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 usliabilities related to such obligations in connection with these indemnification arrangements. Asthe Condensed Consolidated Financial Statements.
16
Table of September 30, 2017 and December 31, 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.Contents
7.9. Stock-Based Compensation
Stock Options
A summary of activity in connection with our stock option activityoptions for the ninethree months ended September 30, 2017,March 31, 2022, 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, 2021846 $13.15 3.0
Options granted— — 
Options exercised(17)5.91 
Options cancelled/forfeited— — 
Options outstanding as of March 31, 2022829 $13.30 2.7
  
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 (133) 3.83
  
Options cancelled/forfeited (29) 9.84
  
Options outstanding as of September 30, 2017 1,728
 $10.70
 7.9
During the nine months ended September 30, 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 165% 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 will 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 September 30, 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 nine months ended September 30, 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 nine months ended September 30, 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. Our stock-based compensation expense for stock options includingwas not material for the PSOs, forperiods presented.
No stock options were granted during the three months ended September 30, 2017 and 2016, was $0.7 million and $0.7 million, respectively, and $2.0 million and $1.6 million for the nine months ended September 30, 2017 and 2016, respectively.
The fair value of 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 options granted during the three and nine months ended September 30, 2017 and 2016: 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Stock options granted (in thousands) —
 —
 172
 750
Weighted average exercise price per share $—
 $—
 $24.77
 $12.85
Weighted average grant-date fair value per share $—
 $—
 $9.58
 $4.85
Weighted average Black-Scholes model assumptions:        
Risk-free interest rate —% —% 2.02% 1.45%
Expected term (in years) —
 —
 6.4
 5.9
Expected volatility —% —% 35% 37%
Expected dividend yield —
 —
 —
 —

As of September 30, 2017, the total estimated remaining stock-based compensation expense for unvested stock options, including the PSOs, was $2.7 million, which is expected to be recognized over a weighted average period of 1.5 years.March 31, 2022 or 2021.
Restricted Stock Units
A summary of activity in connection with our RSUs for the ninethree months ended September 30, 2017,March 31, 2022, is as follows (number of shares in thousands):
Number of SharesWeighted Average Grant Date Fair Value per Share
Unvested as of December 31, 2021837 $118.27 
Granted219 115.12 
Vested(26)108.96 
Forfeited(72)89.10 
Unvested as of March 31, 2022958 $119.99 
  Number of Shares Weighted- Average Grant Date Fair Value per Share
Unvested as of December 31, 2016 496
 $13.34
Granted 307
 25.64
Vested (139) 12.81
Forfeited (46) 16.17
Unvested as of September 30, 2017 618
 $19.36

During the nine months ended September 30, 2017, weUnvested RSUs as of March 31, 2022 were composed of 0.8 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 307,000 RSUs: 194,000 RSUs vest annually over four years; 100,000 PSUs vest based upon achievement of a pre-established free cash flow performance metric for the year ended December 31, 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 sharesMarch 31, 2022, 0.1 million are subject 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 in 2019, 165% of the PSUs would vest. For performance below 80% of the targeted metric in 2019, no PSUs would vest and no compensation expense would be recognized, and all previously recognized compensation expense for PSUs would be reversed.
During the nine months ended September 30, 2017, 41,000 of the PSUs vestedvesting 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, $479,000 of expense was recognized related to the PSUs vested during the nine months ended September 30, 2017.
Included in the unvested RSUs as of September 30, 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 related to the performance metrics for the

years ended December 31, 2017 and 2018, and assumed 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 March 31, 2022 are subject to vesting based on the achievement of pre-established performance metrics for the years ending December 31, 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 and 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 $7.8 million and $3.1 million for the three months ended September 30, 2017March 31, 2022 and 2016, was $1.0 million and $571,000, respectively, and $2.6 million and $1.22021, respectively. Excluded from stock-based compensation expense is capitalized software development costs of $0.5 million for both of the ninethree months ended September 30, 2017March 31, 2022 and 2016, respectively.
2021. As of September 30, 2017,March 31, 2022, the total estimated remaining estimated stock-based compensation expense for the aforementioned RSUs and PSUs was $9.2$89.8 million, which is expected to be recognized over a weighted average period of 2.62.9 years.
17
Table of Contents
Restricted Stock Awards
A summary of activity in connection with our restricted stock awards ("RSAs") for the ninethree months ended September 30, 2017,March 31, 2022 is as follows (number of shares in thousands):
Number of
Shares		Weighted 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, 2021Unvested as of December 31, 20214 $144.33 
Granted 9
 33.30
Granted— — 
Vested (38) 9.33
Vested— — 
Forfeited —
 —
Forfeited— — 
Unvested as of September 30, 2017 17
 $19.79
Unvested as of March 31, 2022Unvested as of March 31, 20224 $144.33 
We have the right to repurchase any unvested restricted stock awards. Restricted stock awardsRSAs subject to certain conditions. RSAs vest over a four-year period for employees and a one-year period for non-employee directors. We recognizedperiod. Our stock-based compensation expense for restricted stock awards of $84,000 and $113,000RSAs was not material for the three months ended September 30, 2017 and 2016, respectively, and $274,000 and $342,000 for the nine months ended September 30, 2017 and 2016, respectively.periods presented.
As of September 30, 2017,March 31, 2022, the total estimated remaining stock-based compensation expense for unvested restricted stock awardsRSAs with a repurchasingrepurchase right was $268,000$0.1 million, which is expected to be recognized over a weighted average period of 0.80.2 years.

8.10. Income Taxes
OurWe calculate our benefit from income taxes on a quarterly basis by applying an estimated annual effective tax rate differsto loss from operations and by calculating the U.S. Federal statutory ratetax effect of 34% primarily because our previously reported losses have been offset by a valuation allowance due to uncertainty as todiscrete items recognized during the realization of those losses.quarter.
For the three and nine months ended September 30, 2017,March 31, 2022, we recorded an income tax expensebenefit of $52,000 and $93,000, respectively, on pre-tax income of $3.7 million and $7.2 million, respectively, for an$0.3 million. The effective tax rate as compared to the U.S. federal statutory rate of 1.4%21% differs primarily due to the significance of the benefits associated with stock-based compensation expense, research and 1.3%, respectively. The incomedevelopment tax expense is based oncredits, offset by the change in the valuation allowance against deferred taxes.
There were no material changes to our payments of state minimum taxes, alternative minimumunrecognized tax ("AMT") (net of available AMT credit), and the amortization of tax deductible goodwill that is not an available source of income to realize the deferred tax asset.
Forbenefits during the three and nine months ended September 30, 2016,March 31, 2022 and we recorded incomedo not expect to have any significant changes to unrecognized tax expensebenefits through the remainder of $11,000 and $48,000, respectively, on pre-tax losses of $1.1 million and $6.9 million, respectively for an effective tax rate of (1.0)% and (0.7)%, respectively. The income tax expense is based on our payments of state minimum taxes and the amortization of tax deductible goodwill that is not an available source of income to realize the deferred tax asset.fiscal year.

9.11. Revenue and Other Information
The following table presents our revenue categories for the three and nine months ended September 30, 2017March 31, 2022 and 20162021 (in thousands):
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Core solutions $14,670
 $11,302
 $41,682
 $31,637
Value+ services 21,752
 15,684
 60,053
 42,338
Other 1,481
 1,176
 4,171
 3,601
Total revenues $37,903
 $28,162
 $105,906
 $77,576

Core solutions revenue includes our subscription fees which 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. 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, and our customer renewal rates. 
Value+ services revenue includes subscriptions and usage-based fees. Subscription Value+ services include website hosting services and contact center services. Usage-based Value+ services include fees for electronic payment processing, applicant screening services, our tenant liability insurance program, collections, and online vacancy advertising services. 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 needs of our customers and our customer renewal rates.

Other revenue includes revenue from one-time services related to on-boarding customers to our core solutions, website design services and online vacancy advertising services offered to legacy RentLinx customers.

 Three Months Ended
March 31,
 20222021
Core solutions$30,809 $24,174 
Value Added Services71,500 51,510 
Other2,987 3,237 
Total revenue$105,296 $78,921 
Our revenue is generated primarily from U.S. customers.customers in the United States. All of our property and equipment is located in the U.S.United States.

Deferred Revenue
During the three months ended March 31, 2022 and 2021, we recognized $1.3 million and $1.2 million of revenue, respectively, which were included in the deferred revenue balances as of December 31, 2021 and 2020, respectively.


12. Subsequent Event
In April 2022, we entered into an agreement to sublet one of our office spaces and have recently made decisions to exit and explore subleasing certain other office space.
18
Table of Contents
Item 2. 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 Condensed Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report and in our 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. 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 entitled “Risk Factors” in Part I, Item 1A of our Annual Report.Report, as well as our other public filings with the SEC. Please also refer to the section of this Quarterly Report entitled "Cautionary Note Regarding Forward-Looking"Forward-Looking Statements" for additional information.
Overview
AppFolio isWe are a leading provider of industry-specific, cloud-based softwarecloud business management solutions for SMBs in 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. 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 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 success 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. As we navigate the challenges of increased competition for talent, we have evolved our compensation and employee reward practices, which has had, and we expect will continue to have, a material impact on our results.
Property management units under management. We believe that our ability to increase our number of property management units under management is an indicator of our market penetration, growth, and legal industries.potential future business opportunities. We were formed in 2006 with a vision to revolutionize the way that SMBs grow and compete by enabling their digital transformation.

Our platform is designed to be the system of record to automate essential business processes and the system of engagement to enhance business interactions between our customers and their clients and vendors. Ourdefine property management software provides small and medium-sized property managers with an end-to-end solution to many of their business needs, enabling them to manage their portfolio of properties quickly and easily in a single, integrated environment. Our legal software provides solo practitioners and small law firms with a streamlined practice and case management solution, allowing them to manage much of their case load within a single system. We also offer optional, but often mission-critical, Value+ services, which are seamlessly built into our core solutions.
We launched our first product, APM, a property management solution, in 2008. Recognizing that our customers would benefit from additional mission-critical services that they can purchase as needed, we launched our first Value+ service in 2009 by offering website design and hosting services to our property manager customers. Our websites give our customers a professional online presence and serve as the hub for our system of engagement. In 2010, we commenced the roll out of our electronic payments platform with the introduction of ACH payment processing and, in 2011, we launched resident screening as additional Value+ services. In 2012, we introduced our tenant liability insurance program as a further Value+ service. Also in 2012, after completing our market validation process, we decided to enter the legal market. We expedited our time-to-market by acquiring MyCase, a legal practice and case management solution, and we leveraged our AppFolio Business System, including our experience gained in the property management vertical, to advance our software solution in the legal vertical. In 2013, we extended our website design and hosting services to our law firm customers and expanded our electronic payments platform for property managers by allowing residents to pay rent by electronic cash payment and credit or debit card. In 2014, we launched an additional Value+ service for our property manager customers with our contact center to resolve or route incoming maintenance requests. In 2016, we launched premium leads and debt collection services as additional Value+ services to our property manager customers to assist with filling vacancies and collecting their tenants' unpaid rent. Also in 2016, we expanded our electronic payments platform in the legal vertical by allowing clients of our legal customers to pay their legal bills by credit card, debit card, or ACH. In September 2017, we announced the upcoming release of a new Value+ service, renters insurance, which expands on our existing tenant liability insurance program and offers additional coverage for tenant’s personal belongings. We also enhanced our electronic payments platform with the addition of same day ACH payments for owner contributions and eCheck payables. Through our disciplined market validation approach and ongoing investment in product development, we continuously update our software solutions through new and innovative core functionality and Value+ services, as well as assess opportunities in adjacent markets and new verticals.
We have focused on growing our revenue by increasing the size of our customer base, retaining customers, introducing new or expanded Value+ services, increasing the adoption and utilization of our Value+ services by new and existing customers, and increasing the number of units under management. We define our customer basemanagement as the number of customers subscribing toactive units in our core solutions, exclusive of free trials.solutions. We intend to continue to invest in revenue growth opportunities over time in our current markets, adjacent markets,had 6.57 million and new verticals.

Customer count and5.62 million property managermanagement units under management are summarized in the table below:as of March 31, 2022 and 2021, respectively.
 September 30, June 30, March 31, December 31, September 30, June 30,
 2017 2016
Property manager11,258
 10,820
 10,468
 10,038
 9,612
 9,275
Property manager units under management (in millions)3.08
 2.93
 2.83
 2.68
 2.53
 2.41
Law firm9,214
 8,913
 8,676
 8,135
 7,799
 7,349
We have invested in growth in a disciplined manner across our organization, and intend to continue to do so. 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. As a result of this increased operating leverage, we expect our operating margins will improve over the long term.
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. During the nine months ended September 30, 2017, we have derived more than 90% of our revenue from our property management solution.
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, and not towards the realization of short-term financial or business metrics, or short-term stockholder value.
Key Components of Results of Operations
Revenue
We charge our customers on a subscription basis for ourOur core solutions and certain of our Value+ services.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 subscription revenue ratablyfor subscription-based services on a straight-line basis over the terms ofcontract term beginning on the subscription agreements, which typically range from one month to one year.date that our service is made available. We generally invoice our customers for subscription services in monthly quarterly or, annual installments, typicallyto a lesser extent, annually 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 chargeoffer certain Value Added Services, which are not covered by our customers usage-basedsubscription fees, for using certain Value+ services, although fees for electronic payment processing are generally paid by the clients of our customers.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.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 inor collect the preceding month. Revenue from usage-based services is impacted by a numberfee at the time of factors, including the number of new and existing customers that adopt and utilize our Value+ services, the size and needsservice. A significant majority of our customersValue Added Services revenue comes directly and indirectly from the use of our customer renewal rates.
We experience some seasonality in our Value+electronic payment 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 ourtenant 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 growthrisk mitigation services. Usage-based fees are paid either by customers or a sequential decline in revenue in the fourth quarter of each of our most recent fiscal years. by users.
We expect this seasonality to continue in the foreseeable future.
We also offer our assistance tocharge our customers withfor on-boarding assistance to our core solutions as well as website designand certain other non-recurring services. These services are generally purchased as part of a subscription agreement, and are typically performed within the first several months of the arrangement. 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 in Other revenue.revenue. As of March 31, 2022, we had 17,550 property management customers.
19
Table of Contents
Costs and Operating Expenses
Cost of Revenue.Revenue. Many of our Value Added Services are facilitated by third-party service providers. Cost of revenue 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), fees paid to third-party service providers, 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, amortization of capitalized software development costs and acquired technology. We intend to continue to invest in customer service and support, and the expansionamortization 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.intangible assets.
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 legalservices), transaction costs related to business combinations and audit services),divestitures, regulatory fees, 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 continue
Other (Loss) Income, Net. Other (loss) income, net includes gains and losses associated with the sale of property and equipment and income from certain post-closing transition services provided by us 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.MyCase during fiscal year 2021.

Interest Income (Expense). Income. 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.

Benefit from Income Taxes. Benefit from income taxes consists of federal and state income taxes in the United States.

20
Table of Contents
Results of Operations
The following table sets forth our results of operations for the periods presented in dollars (in thousands) and as a percentage of revenue:
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
 Amount % Amount % Amount % Amount %
Consolidated Statements of Operations Data:              
Revenue$37,903
 100.0 % $28,162
 100.0 % $105,906
 100.0 % $77,576
 100.0 %
Costs and operating expenses:               
Cost of revenue (exclusive of depreciation and amortization) (1)
14,053
 37.1
 11,645
 41.4
 40,747
 38.5
 33,387
 43.0
Sales and marketing (1)
7,257
 19.1
 6,979
 24.8
 21,556
 20.4
 22,097
 28.5
Research and product development (1)
4,367
 11.5
 3,464
 12.3
 11,998
 11.3
 9,531
 12.3
General and administrative (1)
5,405
 14.3
 4,642
 16.5
 15,310
 14.5
 12,580
 16.2
Depreciation and amortization3,237
 8.5
 2,636
 9.4
 9,347
 8.8
 7,112
 9.2
Total costs and operating expenses34,319
 90.5
 29,366
 104.3
 98,958
 93.4
 84,707
 109.2
Income (loss) from operations3,584
 9.5
 (1,204) (4.3) 6,948
 6.6
 (7,131) (9.2)
Other expense, net(5) —
 (12) —
 (93) (0.1) (34) —
Interest income, net155
 0.4
 102
 0.4
 377
 0.4
 221
 0.3
Income (loss) before provision for income taxes3,734
 9.9
 (1,114) (4.0) 7,232
 6.8
 (6,944) (9.0)
Provision for income taxes52
 0.1
 11
 —
 93
 0.1
 48
 0.1
Net income (loss)$3,682
 9.7 % $(1,125) (4.0)% $7,139
 6.7 % $(6,992) (9.0)%

(1) Includes stock-based compensation expense as follows (in thousands):
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Costs and operating expenses:       
Cost of revenue (exclusive of depreciation and amortization) $189
 $138
 $527
 $321
Sales and marketing 186
 124
 516
 296
Research and product development 173
 109
 471
 264
General and administrative 1,040
 918
 2,790
 1,963
Total stock-based compensation expense$1,588
 $1,289
 $4,304
 $2,844



Comparison of the Three and Nine Months Ended September 30, 2017 and 2016
Revenue
 Three Months Ended
March 31,		Change
 20222021Amount%
 (dollars in thousands)
Core solutions$30,809 $24,174 $6,635 27 %
Value Added Services71,500 51,510 19,990 39 %
Other2,987 3,237 (250)(8)%
Total revenue$105,296 $78,921 $26,375 33 %
  Three Months Ended
September 30,		 Change Nine Months Ended
September 30,		 Change
  2017 2016 Amount % 2017 2016 Amount %
  (dollars in thousands)
Core solutions $14,670
 $11,302
 $3,368
 30% $41,682
 $31,637
 $10,045
 32%
Value+ services 21,752
 15,684
 6,068
 39% 60,053
 42,338
 17,715
 42%
Other 1,481
 1,176
 305
 26% 4,171
 3,601
 570
 16%
Total revenues $37,903
 $28,162
 $9,741
 35% $105,906
 $77,576
 $28,330
 37%


Revenue increased $9.7 million, or 35%,The increase in revenue for the three months ended September 30, 2017 compared to the three months ended September 30, 2016, mainly reflecting a 17% increase in the number of property manager customers. The overall increaseMarch 31, 2022 was mostly attributable to revenue from Value+ services, which increased by $6.1 million, or 39%. The increase in Value+ services was mainly driven by increased usage of our electronic payments platform and screening services by a larger property manager customer base and an increase in units under management of 22%. We also experienced growth in our other Value+ services, including tenant liability insurance, customer contact center, website hosting services and premium lead services within our Value+ services. The overall increase in revenue was alsoprimarily attributable to growth in revenueour base of property management customers and growth in users of our subscription and usage-based services. During the three month period ended March 31, 2022, we experienced growth of 18% in the average number of property management units under management resulting from our Core solutions of $3.4 million, or 30%, driven by9% growth in the number of our customers and units under management.
Revenue increased $28.3 million, or 37%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, mainly reflecting a 17% increase in theaverage number of property managermanagement customers. The overall increase was mostly attributable to revenue from Value+ services, which increased by $17.7 million, or 42%. The increase in Value+ services was mainly driven by increased usage of our electronic payments platform and screening services by a larger property manager customer base and increase in the number of units under management. We also experienced revenue growth in our other Value+ services, including tenant liability insurance, customer contact center, website hosting services and premium lead services within our Value+ services. The overall increase in revenue was also attributable to growth in revenue from our Core solutions of $10.0 million, or 32%, driven by growth in the number of our customers and units under management.
For the nine months ended September 30, 2017 and 2016, we derived more than 90% of our revenue from our property manager customers.
Cost of Revenue (Exclusive of Depreciation and Amortization)
 Three Months Ended
March 31,		Change
 20222021Amount%
 (dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization)$43,347 $33,298 $10,049 30 %
Percentage of revenue41.2 %42.2 %
Stock-based compensation, included above$358 $471 $(113)(24)%
Percentage of revenue0.3 %0.6 %
  Three Months Ended September 30, Change Nine Months Ended
September 30,		 Change
  2017 2016 Amount % 2017 2016 Amount %
  (dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization) $14,053
 $11,645
 $2,408
 21% $40,747
 $33,387
 $7,360
 22%
Percentage of revenue 37.1% 41.4%     38.5% 43.0%    
Cost of revenue (exclusive of depreciation and amortization) increased $2.4 million, or 21%, forFor the three months ended September 30, 2017 comparedMarch 31, 2022, expenditures to third-party service providers related to the three months ended September 30, 2016. The increasedelivery of our Value Added Services increased $7.4 million, which was primarily due to increased expenditures to third parties of $1.6 million directly associated with the increased adoption and utilization of our Value+ services,Value Added Services, as evidenced by the 39%$20.0 million increase in Value+ services revenues. There was also an increase in personnel-relatedValue Added Services revenue. Personnel-related costs, of $0.6 millionincluding performance-based compensation, necessary to support the continued growth of our business.and key investments, increased $2.3 million.
As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) improvedfluctuates primarily based on the mix of Value Added Services revenue in the period, given the varying percentage of revenue we pay to 37.1% from 41.4% for the three months ended September 30, 2017 compared to the three months ended September 30, 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.
Cost of revenue (exclusive of depreciation and amortization) increased $7.4 million, or 22%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase was primarily due to increased third-

party costs of $4.9 million driven by increased Value+ services revenue and an increase in head-count and personnel-related costs of $1.7 million due to the continued growth of our business.
As a percentage of revenue,providers. We expect cost of revenue (exclusive of depreciation and amortization) improved to 38.5% from 43.0% for the nine months ended September 30, 2017 comparedyear ending December 31, 2022, to increase as a percentage of revenue, as we expect expenditures to third-party service providers related to the nine months ended September 30, 2016. This improvement was primarily driven bydelivery of our abilityValue Added Services revenue to increase at a faster rate than total revenue withas a more moderate increase in personnel-related costs, and an improvement in pricing withresult of a higher growth rate related to our third-party services providers as we continue to grow.Value Added Services revenue.
Sales and Marketing
 Three Months Ended September 30, Change Nine Months Ended
September 30,		 Change Three Months Ended
March 31,		Change
 2017 2016 Amount % 2017 2016 Amount % 20222021Amount%
 (dollars in thousands) (dollars in thousands)
Sales and marketing $7,257
 $6,979
 $278
 4% $21,556
 $22,097
 $(541) (2)%Sales and marketing$24,919 $16,179 $8,740 54 %
Percentage of revenue 19.1% 24.8%     20.4% 28.5%    Percentage of revenue23.7 %20.5 %
Stock-based compensation, included aboveStock-based compensation, included above$1,460 $402 $1,058 263 %
Percentage of revenuePercentage of revenue1.4 %0.5 %
Sales and marketing expense increased by $0.3 million or 4% for the three months ended September 30, 2017 comparedMarch 31, 2022 increased primarily due to the three months ended September 30, 2016. This increase was the result of ana $6.4 million increase in personnel-related costs, in our sales and marketing organizationincluding performance-based compensation, necessary to support growth in the business. Allocated shared and other costs increased by $1.7 million, primarily related to software and other costs incurred in support of our revenueoverall growth.
21
Table of Contents
Sales and marketing expense decreased $0.5 million, or 2%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease was the result of a decrease in allocated and other operating costs of $0.3 million and a decrease in personnel related costs of $0.2 million as we gain efficiencies in our expenses relative to revenue growth.
Research and Product Development
 Three Months Ended September 30, Change Nine Months Ended September 30, Change Three Months Ended
March 31,		Change
 2017 2016 Amount % 2017 2016 Amount % 20222021Amount%
 (dollars in thousands) (dollars in thousands)
Research and product development $4,367
 $3,464
 $903
 26% $11,998
 $9,531
 $2,467
 26%Research and product development$24,320 $14,383 $9,937 69 %
Percentage of revenue 11.5% 12.3%     11.3% 12.3%    Percentage of revenue23.1 %18.2 %
Stock-based compensation, included aboveStock-based compensation, included above$2,806 $857 $1,949 227 %
Percentage of revenuePercentage of revenue2.7 %1.1 %
Research and product development expense increased $0.9 million, or 26%, for the three months ended September 30, 2017 comparedMarch 31, 2022 increased primarily due to the three months ended September 30, 2016. The increase was the result of an increase in personnel-related costs, including performance-based compensation, net of capitalized software development costs of $9.5 million, due to headcount growth withininvestments in our research and product development organizations.
Research andorganization to support our strategy to expand the use cases of our product development expense increased $2.5 million, or 26%, for the nine months ended September 30, 2017 comparedcapabilities to the nine months ended September 30, 2016. The increase was primarilylarger customer segment and to continue to strengthen the resultsecurity of an increase in personnel-related costs, net of capitalized software development costs, due to headcount growth within our research and product development organizations.product.
General and Administrative
  Three Months Ended
September 30,		 Change Nine Months Ended
September 30,		 Change
  2017 2016 Amount % 2017 2016 Amount %
  (dollars in thousands)
General and administrative $5,405
 $4,642
 $763
 16% $15,310
 $12,580
 $2,730
 22%
Percentage of revenue 14.3% 16.5%     14.5% 16.2%    
 Three Months Ended
March 31,		Change
 20222021Amount%
 (dollars in thousands)
General and administrative$18,964 $13,361 $5,603 42 %
Percentage of revenue18.0 %16.9 %
Stock-based compensation, included above$2,794 $1,046 $1,748 167 %
Percentage of revenue2.7 %1.3 %
General and administrative expense increased $0.8 million, or 16%, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The increase wasMarch 31, 2022 increased primarily the result of increased personnel-related costs of $0.6 million due to headcount growth and an increase in incentive-based compensation.

General and administrative expense increased $2.7a $3.7 million or 22%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase was primarily the result of an increase in personnel-related costs of $2.8 million due tofor investments in headcount growth and an increase of $1.9 million in incentive-based compensation.allocated shared and other costs for professional fees, education and training, insurance, software and other costs to support our growth.
Depreciation and Amortization
 Three Months Ended September 30, Change Nine Months Ended September 30, Change Three Months Ended
March 31,		Change
 2017 2016 Amount % 2017 2016 Amount % 20222021Amount%
 (dollars in thousands) (dollars in thousands)
Depreciation and amortization $3,237
 $2,636
 $601
 23% $9,347
 $7,112
 $2,235
 31%Depreciation and amortization$8,415 $7,369 $1,046 14 %
Percentage of revenue 8.5% 9.4%     8.8% 9.2%    Percentage of revenue8.0 %9.3 %
Depreciation and amortization expense increased $0.6 million, or 23%, for the three months ended September 30, 2017 comparedMarch 31, 2022 increased primarily due to the three months ended September 30, 2016. The increase was the result of increased amortization expense of $0.6 million associated with higher accumulated capitalized software development balances.

Depreciation and amortization expense increased $2.2 million, or 31%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase was the result of increased amortization expense of $2.2 million associated with higher capitalized software development balances.
InterestOther (Loss) Income, net
Three Months Ended
March 31,		Change
 Three Months Ended September 30, Change Nine Months Ended September 30, Change20222021Amount%
 2017 2016 Amount % 2017 2016 Amount %(dollars in thousands)
 (dollars in thousands)
Interest income $155
 $102
 $53
 52% $377
 $221
 $156
 71%
Other (loss) income, netOther (loss) income, net$(10)$562 $(572)(102)%
Percentage of revenue 0.4% 0.4%     0.4% 0.3%    Percentage of revenue— %0.7 %
InterestOther (loss) income, net remained relatively flat for the three months ended September 30, 2017 comparedMarch 31, 2022 decreased primarily due to $429 thousand in other income recorded during the three months ended September 30, 2016. For the nine months ended September 30, 2017March 31, 2021 related to certain post-closing transition services provided to MyCase.

22
Table of Contents
Benefit from Income Taxes
 Three Months Ended
March 31,		Change
 20222021Amount%
 (dollars in thousands)
Benefit from income taxes$(285)$(5,533)$5,248 *
Percentage of revenue(0.3)%(7.0)%
*Percentage not meaningful
Our effective tax rate as compared to the nine months ended September 30, 2016, interest income increased $0.2 millionU.S. federal statutory rate of 21% differs primarily due to the significance of the benefits associated with stock-based compensation expense and is primarilyresearch and development tax credits, offset by the result of higher investment security balanceschange in the more recent period.valuation allowance against deferred taxes.
We expect to have a full valuation allowance on our U.S. federal and state deferred tax assets at the end of 2022 and therefore we expect income tax expense recorded for the year ended December 31, 2022 to be limited to the change in deferred taxes during the year plus current minimum state taxes.
Liquidity and Capital Resources
Cash and Cash Equivalents
As of September 30, 2017, ourOur principal sources of liquidity werecontinue to be cash, and cash equivalents, and investment securities, which had an aggregate balance of $63.6 million.
Working Capital
As of September 30, 2017, we had working capital of $27.2 million, compared to working capital of $10.9 million as of December 31, 2016. The increase inwell as cash flows generated from our working capital wasoperations. We have financed our operations primarily due to an increase in the current portion of investment securities and inthrough cash and cash equivalents, offset by increases in accrued expenses and accrued employee expensesgenerated from the continued growth of our business.
Revolving Facility
As of September 30, 2017, we had a $25.0 million revolving line of credit, which we refer to as the Revolving Facility, under the terms of the Credit Agreement with Wells Fargo, as administrative agent, and the lenders and parties thereto. As of September 30, 2017 and December 31, 2016, we had no outstanding balance and were in compliance with the financial covenants under the Revolving Facility.

Liquidity Requirements
operations. We believe that our existing cash and cash equivalents, investment securities, available borrowing capacity of $25.0 million under the Revolving Facility, and cash generated from ongoing operationsoperating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12twelve 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. In addition, we have in the past entered into, and may in the future enter into, arrangements to acquire or invest in complementary businesses, services,new technologies or intellectual property rights, althoughmarkets adjacent to those we serve today. Furthermore, our Board of Directors has authorized the repurchase of up to $100.0 million of shares of our Class A common stock from time to time. To date, we have no present plans with respect to any acquisitions or investments.repurchased $4.2 million of our Class A common stock under the share repurchase program.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
 Three Months Ended
March 31,
 20222021
Net cash used in operating activities$(2,244)$(4,437)
Net cash used in investing activities(5,280)(87,190)
Net cash used in financing activities(973)(3,892)
Net decrease in cash, cash equivalents and restricted cash$(8,497)$(95,519)
  Nine Months Ended
September 30,
  2017 2016
Net cash provided by operating activities $21,556
 $4,723
Net cash used in investing activities (16,374) (9,322)
Net cash (used in) provided by financing activities (1,100) 139
Net increase (decrease) in cash and cash equivalents $4,082
 $(4,460)
Cash Provided by Operating Activities
Our primary source of operating cash inflows is cash collected from our customers in connection with their use of our software solutions.core solutions and 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 nine months ended September 30, 2017,Net cash provided byused in operating activities was $21.6$2.2 million resulting fromfor the three months ended March 31, 2022 compared to net incomecash used in operating activities of $7.1$4.4 million adjusted by non-cash charges of $13.8 million and a net increase in our operating assets and liabilities of $0.6 million. The non-cash charges primarily consist of $9.3 million of depreciation and amortization of our property and equipment and capitalized software development and $4.3 million of stock based compensation.for the three months ended March 31, 2021. The net increase in our operating assets and liabilities was mostly attributable to a $1.7 million increase in accrued expenses and a $0.8 million increase in accrued employee expenses. The increase in our operating assets and liabilities was partially offset by a decrease in accounts receivable of $0.9 million, and prepaid expenses and other current assets of $0.9 million.
For the nine months ended September 30, 2016, cash provided byused in operating activities was $4.7 million resulting from
our net loss of $7.0 million, adjusted by non-cash charges of $10.4 million and a net increase in our operating assets and liabilities of $1.3 million. The net increase in our non-cash charges was primarily the result of $7.1 million of depreciation and amortization of our property and equipment and capitalized software and $2.8 million of stock based compensation. The increase in our operating assets and liabilities was mostly attributeddue to an increase in deferred revenue of $1.7 millioncash collections from customers and a decrease in income taxes paid related to our core solutions andthe sale of MyCase during the three months ended March 31, 2021, offset by an increase in accrued expensesloss from operations.
23
Table of $1.4 million and other liabilities of $1.2 million, offset by a decline in accounts payable of $1.1 million.Contents
Cash Used in Investing Activities
Cash used in investing activities is generally comprisedcomposed of purchases of investment securities, maturities and sales of investment securities, purchases of property and equipment, and additions to capitalized software development and purchases and dispositions of capital expenditures.development.
ForNet cash used in investing activities for the ninethree months ended September 30, 2017, investing activities used $16.4March 31, 2022 was $5.3 million in cash primarily as a result of $17.6 million of investment securities purchased, partially offset by $11.0 million of maturities of investment securities. In addition, we incurred capitalized software development costs of $8.1compared to $87.2 million for the continued investment in our software development, and capital expenditures of $1.7 million to purchase property and equipment for the continued growth and expansion of our business.

For the ninethree months ended September 30, 2016,March 31, 2021. The net decrease in cash used in investing activities used $9.3 millionwas primarily due to a decrease in cash primarily as a resultpurchases of
$27.1 million of sales and maturities (which includes calls) of available-for-sale investment securities, offset by $24.3 million of investment securities purchased. In addition, we had an increase in capitalized software development costsproceeds from maturities of $8.6 million and an increase in capital expenditures of $3.6 million to purchase property and equipment to support the growth and expansion.available-for-sale investment securities.
Cash (Used in) Provided by Financing Activities
Cash (used in) provided byused in financing activities is generally comprised of proceeds from the exercise of stock options, net share settlement for employee tax withholdings associated with the vesting of RSUs and activities associated with the Revolving Facility.
For the nine months ended September 30, 2017, financing activities used $1.1 million in cash primarily as a resultcomposed of net share settlements for employee tax withholdings associated with the vesting of RSUs of $1.6 million, partiallyrestricted stock units ("RSUs") offset by proceeds from the exercise of stock option exercises of $0.5 million.options.

ForNet cash used in financing activities for the ninethree months ended September 30, 2016,March 31, 2022 was $1.0 million compared to $3.9 million for the three months ended March 31, 2021. The decrease in cash used in financing activities provided $0.1 millionwas primarily due to decreases in cash primarily as a resulttax withholdings for net share settlements due to fewer RSUs vesting during the three months ended March 31, 2022.
of proceeds from stock option exercises.
Contractual ObligationsCritical Accounting Policies and Other Commitments

In February 2017, we signed a lease amendment relating to the property located at 50 Castilian Drive in Santa Barbara, California, our corporate headquarters. This amendment extends the term from February 2018 to December 2021. The total commitment under this lease extension is $3.1 million. All of the other terms and conditions of the original lease agreement remain the same.

Estimates
There have been no other material changes to our contractual obligationscritical accounting policies and other commitments as disclosedestimates described in our Annual Report.
Off-Balance Sheet Arrangements
As of September 30, 2017, we did notReport that have any off-balance sheet arrangements.
Critical Accounting Policies
Ourhad a material impact on our Condensed Consolidated Financial Statements and the related notes are prepared in accordance with GAAP. The preparation of our Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and operating expenses, provision for income taxes and related disclosures.notes.

We adopted no new critical accounting policies during the nine months ended September 30, 2017. Please refer to our Critical Accounting Policies as included in our Annual Report.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies within our Condensed Consolidated Financial Statements.

Item 3. Qualitative and Quantitative Disclosure about Market Risk
Interest Rate Risk
At September 30, 2017,Investment Securities
As of March 31, 2022, we had cash and cash equivalents of $14.8 million consisting of bank deposits and money market funds, and $48.8$124.2 million of investment securities which are comprisedconsisting of fixed rate debtUnited States government agency securities, corporate bonds, and certificatestreasury securities. The primary objective of deposit.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 (loss) income unless an investment security is considered impaired in which case changes in fair value are reported in other expense. As of September 30, 2017,March 31, 2022, a hypothetical 100 basis point decrease in interest rates would have resulted in an increase in the fair value of our investment securities of approximately $0.5$1.1 million and a hypothetical 100 basis point increase in interest rates would have resulted in a decrease in the fair value of our investment securities of approximately $0.5$1.1 million. This estimate is based on a sensitivity model which measures an instant change in interest rates by 1% or 100 basis points at September 30, 2017.March 31, 2022.
The borrowings under our Revolving Facility are at variable interest rates. However, there was no outstanding balance under our Revolving Facility as
24
Table of September 30, 2017. Accordingly, a hypothetical change in interest rates would not have impacted our debt service obligations as of September 30, 2017.Contents
Inflation Risk
We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in inflation rates.
As of September 30, 2017, there were no other material changes in the market risks described in the section of the Annual Report entitled “Quantitative and Qualitative Disclosure of Market Risk.”

Item 4. 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 of the end of the period covered by this Quarterly 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 accumulated and communicated to the company’s 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 of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness
25
Table of ControlsContents
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.


PART II. OTHER INFORMATION

Item 1. 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.

Item 1A. Risk Factors
An investment in our Class A common stock involves risks. Before making an investment decision, you should carefully consider all of the information in this Quarterly Report, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Condensed Consolidated Financial Statements and related notes. In addition, you should carefully consider the risks and uncertainties described in the section entitled “Risk Factors” in our Annual Report, which was filed with the SEC on February 27, 2017,28, 2022, as well as in our other public filings with the SEC. If any of the identified risks are realized, our business, financial condition, operating results and prospects could be materially and adversely affected. In that case, the trading price of our Class A common stock may decline, and you could lose all or part of your investment. In addition, other risks of which we are currently unaware, or which we do not currently view as material, could have a material adverse effect on our business, financial condition, operating results and prospects. As of the date of this report, there have been no material changes to the risk factors previously disclosed in the Annual Report. We may, however, disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities
None.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
None.

Item 6. Exhibits
See the Exhibit Index immediately following the signature page of this Quarterly Report, which is incorporated herein by reference.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Exhibit
Number		AppFolio, Inc.
Date:November 6, 2017By:/s/ Ida Kane
Ida Kane
Chief Financial Officer
(Principal Financial and Accounting Officer)



EXHIBIT INDEX

Exhibit
Number
Description of Document
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.
31.2
Certification of ChiefPrincipal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1*
Certifications of Chief Executive Officer and ChiefPrincipal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSInline XBRL Instance Document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
*The certifications attached as Exhibit 32.1 accompany this Quarterly 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, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in any such filing.
.



26

Table of Contents

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AppFolio, Inc.
Date:May 9, 2022By:/s/ Jason Randall
Jason Randall
Chief Executive Officer
(Principal Executive Officer)
Date:May 9, 2022By:/s/ Fay Sien Goon
Fay Sien Goon
Chief Financial Officer
(Principal Financial and Accounting Officer)