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~~June 30, ~~2017.~~2023.

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)

Delaware

26-0359894

(State of incorporation or organization)

(I.R.S. Employer Identification No.)

70 Castilian Drive

93117

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 class	Trading Symbol	Name of each exchange on which registered
Class A common stock, $0.0001 par value	APPF	NASDAQ 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” and~~filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

~~Large accelerated filer~~

~~Accelerated filer~~

~~Non-accelerated filer~~

¨ ~~(Do not check if a smaller reporting company)~~

~~Smaller reporting company~~

Emerging growth company

x☐

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 ~~Securities~~Exchange 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,~~July 20, 2023, the number of shares of the registrant’s Class A common stock outstanding was ~~14,506,412~~20,925,280 and the number of shares of the registrant’s Class B common stock outstanding was ~~19,440,672.~~14,719,225.

Table of Contents

TABLE OF CONTENTS



~~Section~~	Page No.
~~Cautionary Note Regarding~~ Forward-Looking Statements			1
Part I. Financial Information			2
Item 1. Condensed Consolidated Financial Statements (Unaudited)			2
Condensed Consolidated Balance Sheets as of ~~September~~June 30 ~~2017~~, 2023 and December 31, ~~2016~~2022			23
Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ a nd Si x Months Ended ~~September~~June 30 ~~2017~~, 2023 and ~~2016~~2022			34
Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the Three ~~and Nine~~ an d Six Months Ended ~~September~~June 30 ~~2017~~, 2023 and ~~2016~~2022			45
Condensed Consolidated ~~Statement~~Statements of Stockholders' Equity for the ~~Nine~~ Three and Six Months Ended ~~September~~June 30 ~~2017~~, 2023 and 2022			56
Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30 ~~2017~~, 2023 and ~~2016~~2022			68
Notes to Condensed Consolidated Unaudited Financial Statements			89
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2218
Item 3. Qualitative and Quantitative Disclosure about Market Risk			3025
Item 4. Controls and Procedures			3125
Part II. Other Information			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		3226
Item 6. Exhibits			3227
Signatures
~~Exhibit Index~~

~~CAUTIONARY NOTE REGARDING~~

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the fiscal quarter ended ~~September~~June 30, ~~2017, or Quarterly Report, includes “forward-looking statements”~~2023 (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 considerable~~involve 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-looking~~Report are based primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and prospects and relate only to events as of the date on which the statements ~~represent~~are 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 beliefs~~expectations, strategy, plans, or intentions. We cannot assure you that the results, events, and ~~assumptions based on information currently available. Forward-looking~~circumstances reflected in the forward-looking statements ~~involve numerous known~~will be achieved or occur, and ~~unknown~~actual results, events, or circumstances could differ materially from those described in the forward-looking statements. Our forward-looking statements do not reflect the potential impact of 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’s~~titled "Management's Discussion and Analysis of Financial Condition and Results of ~~Operations” of~~Operations" 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,~~2022 (our "Annual Report"), as well as in ~~our~~the other ~~filings~~reports we file with the Securities and Exchange Commission ~~or SEC.~~(the "SEC"). You should read this Quarterly Report, and the other documents we ~~have filed~~file 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 risks~~the competitive environment, responding to customer needs, research and ~~uncertainties emerge from time~~product 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 ~~time~~the 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 assume~~made. 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 if~~reflect new information ~~becomes available in~~or the ~~future.~~occurrence of unanticipated events, except as required by law.

~~We qualify all~~

Table of ~~our forward-looking statements by these cautionary statements.~~Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Table of Contents

APPFOLIO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in ~~thousands, except par values)~~thousands)


	September 30, 2017			December 31, 2016				June 30, 2023		December 31, 2022
Assets							Assets
Current assets							Current assets
Cash and cash equivalents	$	14,781		$	10,699		Cash and cash equivalents	$	24,698	$	70,769
Investment securities—current	28,396			15,473			Investment securities—current	139,273		89,297
Accounts receivable, net	3,419			2,511			Accounts receivable, net	20,033		16,503
Prepaid expenses and other current assets	4,393			3,537			Prepaid expenses and other current assets	25,478		24,899
Total current assets	50,989			32,220			Total current assets	209,482		201,468
Investment securities—noncurrent	20,423			26,688			Investment securities—noncurrent	—		25,161
Property and equipment, net	7,005			7,077			Property and equipment, net	26,635		26,110
Capitalized software, net	17,320			15,539
Operating lease right-of-use assets							Operating lease right-of-use assets	20,308		23,485
Capitalized software development costs, net							Capitalized software development costs, net	26,857		35,315
Goodwill	6,737			6,737			Goodwill	56,060		56,060
Intangible assets, net	2,054			3,105			Intangible assets, net	3,593		4,833
Other assets	1,219			1,217

Other long-term assets							Other long-term assets	8,424		8,785
Total assets	$	105,747		$	92,583		Total assets	$	351,359	$	381,217
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities							Current liabilities
Accounts payable	$	1,164		$	937		Accounts payable	$	1,532	$	2,473
Accrued employee expenses	8,169			7,550			Accrued employee expenses	31,447		34,376
Accrued expenses	5,908			4,044			Accrued expenses	18,560		15,601
Deferred revenue	7,508			7,638

Income tax payable							Income tax payable	13,485		—
Other current liabilities	1,083			1,192			Other current liabilities	9,687		8,893

Total current liabilities	23,832			21,361			Total current liabilities	74,711		61,343

Operating lease liabilities							Operating lease liabilities	39,554		50,237

Other liabilities	1,238			1,540			Other liabilities	11,141		4,091
Total liabilities	25,070			22,901			Total liabilities	125,406		115,671
Commitments and contingencies (Note 6)
Commitments and contingencies (Note 8)							Commitments and contingencies (Note 8)
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 stock							Class A common stock	2		2
Class B common stock							Class B common stock	2		2
Additional paid-in capital	150,520			146,692			Additional paid-in capital	223,025		209,704
Accumulated other comprehensive loss	(23		)	(51		)	Accumulated other comprehensive loss	(587)		(1,684)
Accumulated deficit	(69,824		)	(76,963		)
Treasury stock							Treasury stock	(25,756)		(25,756)
Retained earnings							Retained earnings	29,267		83,278
Total stockholders’ equity	80,677			69,682			Total stockholders’ equity	225,953		265,546
Total liabilities and stockholders’ equity	$	105,747		$	92,583		Total liabilities and stockholders’ equity	$	351,359	$	381,217

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

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APPFOLIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share amounts)

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 marketing 7,257
6,979
21,556
22,097
Research and product development 4,367
3,464
11,998
9,531
General and administrative 5,405
4,642
15,310
12,580
Depreciation and amortization 3,237
2,636
9,347
7,112
Total costs and operating expenses 34,319
29,366
98,958
84,707
Income (loss) from operations 3,584
(1,204 ) 6,948
(7,131 )
Other expense, net (5 ) (12 ) (93 ) (34 )
Interest income, net 155
102
377
221
Income (loss) before provision for income taxes 3,734
(1,114 ) 7,232
(6,944 )
Provision for income taxes 52
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:
Basic 33,905
33,600
33,817
33,529
Diluted 35,205
33,600
35,091
33,529


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue	$	147,075	$	117,450	$	283,175	$	222,746
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)(1)	57,854		47,430		114,062		90,777
Sales and marketing(1)	27,002		26,995		56,400		51,914
Research and product development(1)	37,263		26,687		74,925		51,007
General and administrative(1)	18,819		37,947		50,510		56,911
Depreciation and amortization	6,816		8,321		14,487		16,736
Total costs and operating expenses	147,754		147,380		310,384		267,345
Loss from operations	(679)		(29,930)		(27,209)		(44,599)
Other (loss) income, net	(54)		45		(34)		35
Interest income, net	1,478		151		2,839		258
Income (loss) before provision for income taxes	745		(29,734)		(24,404)		(44,306)
Provision for (benefit from) income taxes	19,646		236		29,607		(49)
Net loss	$	(18,901)	$	(29,970)	$	(54,011)	$	(44,257)


Net loss per common share, basic and diluted	$	(0.53)	$	(0.86)	$	(1.52)	$	(1.27)


Weighted average common shares outstanding, basic and diluted	35,565		34,927		35,505		34,881

(1) Includes stock-based compensation expense as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Stock-based compensation expense included in costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)	$	988	$	726	$	1,756	$	1,084
Sales and marketing	444		2,013		2,861		3,473
Research and product development	4,348		4,024		9,787		6,830
General and administrative	4,992		3,198		10,271		5,992
Total stock-based compensation expense	$	10,772	$	9,961	$	24,675	$	17,379

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

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APPFOLIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(UNAUDITED)

(in thousands)


												Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,					Nine Months Ended September 30,						2023		2022		2023		2022
	2017		2016			2017		2016
Net income (loss)	$	3,682	$	(1,125	)	$	7,139	$	(6,992	)
Net loss											Net loss	$	(18,901)	$	(29,970)	$	(54,011)	$	(44,257)
Other comprehensive income (loss):											Other comprehensive income (loss):
Changes in unrealized gains (losses) on investment securities	26		(96		)	28		277			Changes in unrealized gains (losses) on investment securities	334		(400)		1,097		(1,745)
Comprehensive income (loss)	$	3,708	$	(1,221	)	$	7,167	$	(6,715	)
Comprehensive loss											Comprehensive loss	$	(18,567)	$	(30,370)	$	(52,914)	$	(46,002)

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

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APPFOLIO, INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

(in thousands)


									Accumulated
							Additional		Other
	Common Stock			Common Stock			Paid-in		Comprehensive		Treasury		Retained
	Class A			Class B			Capital		Loss		Stock		Earnings		Total
	Shares	Amount		Shares	Amount
Balance at December 31, 2022	20,569	$	2	14,746	$	2	$	209,704	$	(1,684)	$	(25,756)	$	83,278	$	265,546
Exercise of stock options	64	—		—	—		834		—		—		—		834
Stock based compensation	—	—		—	—		14,075		—		—		—		14,075
Vesting of restricted stock units, net of shares withheld for taxes	79	—		—	—		(5,539)		—		—		—		(5,539)
Conversion of Class B common stock to Class A common stock	27	—		(27)	—		—		—		—		—		—
Issuance of restricted stock awards	2	—		—	—		—		—		—		—		—
Other comprehensive income	—	—		—	—		—		763		—		—		763

Net loss	—	—		—	—		—		—		—		(35,110)		(35,110)
Balance at March 31, 2023	20,741	$	2	14,719	$	2	$	219,074	$	(921)	$	(25,756)	$	48,168	$	240,569
Exercise of stock options	95	—		—	—		668		—		—		—		668
Stock based compensation	—	—		—	—		11,000		—		—		—		11,000
Vesting of restricted stock units, net of shares withheld for taxes	82	—		—	—		(7,717)		—		—		—		(7,717)

Issuance of restricted stock awards	4	—		—	—		—		—		—		—		—
Other comprehensive income	—	—		—	—		—		334		—		—		334
Net loss	—	—		—	—		—		—		—		(18,901)		(18,901)
Balance at June 30, 2023	20,922	$	2	14,719	$	2	$	223,025	$	(587)	$	(25,756)	$	29,267	$	225,953

Table of Contents


																													Accumulated
																											Additional		Other
																					Common Stock			Common Stock			Paid-in		Comprehensive		Treasury		Retained
																					Class A			Class B			Capital		Loss		Stock		Earnings		Total
																					Shares	Amount		Shares	Amount
Balance at December 31, 2021																				Balance at December 31, 2021	19,417	$	2	15,408	$	2	$	171,930	$	(194)	$	(25,756)	$	151,397	$	297,381
Exercise of stock options																				Exercise of stock options	17	—		—	—		100		—		—		—		100
Stock-based compensation																				Stock-based compensation	—	—		—	—		7,967		—		—		—		7,967
Vesting of restricted stock units, net of shares withheld for taxes																				Vesting of restricted stock units, net of shares withheld for taxes	17	—		—	—		(1,073)		—		—		—		(1,073)
Conversion of Class B common stock to Class A common stock																				Conversion of Class B common stock to Class A common stock	572	—		(572)	—		—		—		—		—		—

Other comprehensive loss																				Other comprehensive loss	—	—		—	—		—		(1,345)		—		—		(1,345)
Net loss																				Net loss	—	—		—	—		—		—		—		(14,287)		(14,287)
Balance at March 31, 2022																				Balance at March 31, 2022	20,023	$	2	14,836	$	2	$	178,924	$	(1,539)	$	(25,756)	$	137,110	$	288,743
Exercise of stock options																				Exercise of stock options	41	—		27	—		503		—		—		—		503
Stock-based compensation																				Stock-based compensation	—	—		—	—		10,639		—		—		—		10,639
Vesting of restricted stock units, net of shares withheld for taxes																				Vesting of restricted stock units, net of shares withheld for taxes	66	—		—	—		(4,524)		—		—		—		(4,524)
Conversion of Class B stock to Class A stock																				Conversion of Class B stock to Class A stock	37	—		(37)	—		—		—		—		—		—
Issuance of restricted stock awards																				Issuance of restricted stock awards	6	—		—	—		—		—		—		—		—
Other comprehensive loss																				Other comprehensive loss	—	—		—	—		—		(400)		—		—		(400)
Net income																				Net income	—	—		—	—		—		—		—		(29,970)		(29,970)
Balance at June 30, 2022																				Balance at June 30, 2022	20,173	$	2	14,826	$	2	$	185,542	$	(1,939)	$	(25,756)	$	107,140	$	264,991

											Accumulated
								Additional			Other
	Common Stock			Common Stock				Paid-in			Comprehensive			Accumulated
	Class A			Class B				Capital			(Loss)/Income			Deficit			Total
	Shares	Amount		Shares		Amount
Balance at December 31, 2016	11,691	$	1	22,028		$	3	$	146,692		$	(51	)	$	(76,963	)	$	69,682
Exercise of stock options	133	—		—				508			—			—			508
Stock-based compensation	—	—		—		—		4,674			—			—			4,674
Vesting of restricted stock units, net of shares withheld for taxes	81	—		—		—		(1,421		)	—			—			(1,421		)
Vesting of early exercised shares	—	—		—		—		67			—			—			67
Conversion of Class B stock to Class A stock	2,580	—		(2,580	)	—		—			—			—			—
Issuance of restricted stock awards	9	—		—		—		—			—			—			—
Other comprehensive income	—	—		—		—		—			28			—			28
Net income	—	—		—		—		—			—			7,139			7,139
Balance at September 30, 2017	14,494	$	1	19,448		$	3	$	150,520		$	(23	)	$	(69,824	)	$	80,677

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

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 amortization 9,347
7,112
Purchased investment premium, net of amortization (22 ) 185
Amortization of deferred financing costs 48
48
Loss on disposal of property and equipment 94
33
Stock-based compensation 4,304
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 payable 369
(1,109 )
Accrued employee expenses 846
(144 )
Accrued expenses 1,713
1,354
Deferred revenue (130 ) 1,674
Other liabilities (334 ) 1,183
Net cash provided by operating activities 21,556
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 securities 15
10,016
Maturities of investment securities 10,974
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 exercises 508
260
Tax withholding for net share settlement (1,608 ) (85 )
Principal payments under capital lease obligations —
(24 )
Proceeds from issuance of debt 88
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 equivalents 4,082
(4,460 )
Cash and cash equivalents
Beginning of period 10,699
12,063
End of period $ 14,781
$ 7,603

Table of Contents


APPFOLIO, INC.	APPFOLIO, INC.				APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS				CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)	(UNAUDITED)				(UNAUDITED)
(in thousands)	(in thousands)				(in thousands)

	Nine Months Ended September 30,					Six Months Ended June 30,
	2017		2016			2023		2022
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 expenses	231		231
Stock-based compensation capitalized for software development	548		308
Cash from operating activities					Cash from operating activities
Net loss					Net loss	$	(54,011)	$	(44,257)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:					Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization					Depreciation and amortization	13,135		15,637
Amortization of operating lease right-of-use assets					Amortization of operating lease right-of-use assets	1,109		1,809
Impairment, net					Impairment, net	—		19,792
Gain on lease modification					Gain on lease modification	(4,281)		—
Deferred income taxes					Deferred income taxes	9		(1,550)
Stock-based compensation, including as amortized					Stock-based compensation, including as amortized	26,027		18,478

Other					Other	(717)		6

Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable					Accounts receivable	(3,530)		(2,924)
Prepaid expenses and other current assets					Prepaid expenses and other current assets	(2,429)		(2,652)
Other assets					Other assets	363		(1,308)
Accounts payable					Accounts payable	(989)		17
Accrued employee expenses					Accrued employee expenses	(2,719)		(3,217)
Accrued expenses					Accrued expenses	2,170		3,182

Taxes payable					Taxes payable	25,152		52

Operating lease liabilities					Operating lease liabilities	(4,638)		(1,311)
Other liabilities					Other liabilities	(2,308)		1,527
Net cash (used in) provided by operating activities					Net cash (used in) provided by operating activities	(7,657)		3,281
Cash from investing activities					Cash from investing activities
Purchases of available-for-sale investments					Purchases of available-for-sale investments	(73,597)		(44,900)
Proceeds from sales of available-for-sale investments					Proceeds from sales of available-for-sale investments	1,013		—
Proceeds from maturities of available-for-sale investments					Proceeds from maturities of available-for-sale investments	49,617		43,498
Purchases of property and equipment					Purchases of property and equipment	(2,171)		(5,099)
Capitalization of software development costs					Capitalization of software development costs	(2,151)		(7,193)
Proceeds from sale of equity-method investment					Proceeds from sale of equity-method investment	629		—

Net cash used in investing activities					Net cash used in investing activities	(26,660)		(13,694)
Cash from financing activities					Cash from financing activities
Proceeds from stock option exercises					Proceeds from stock option exercises	1,502		603

Tax withholding for net share settlement					Tax withholding for net share settlement	(13,256)		(5,597)

Net cash used in financing activities					Net cash used in financing activities	(11,754)		(4,994)
Net decrease in cash, cash equivalents and restricted cash					Net decrease in cash, cash equivalents and restricted cash	(46,071)		(15,407)
Cash, cash equivalents and restricted cash					Cash, cash equivalents and restricted cash
Beginning of period					Beginning of period	71,019		58,283
End of period					End of period	$	24,948	$	42,876

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):


	June 30,
	2023		2022
Cash and cash equivalents	$	24,698	$	42,626
Restricted cash included in other assets	250		250
Total cash, cash equivalents and restricted cash	$	24,948	$	42,876

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

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-based software~~is a leading provider of cloud business management solutions for ~~small~~the real estate industry. Our solutions are designed to enable our customers to digitally transform their businesses, address critical business operations and ~~medium-sized businesses (“SMBs”)~~deliver a better customer experience. Digital transformation is effectively a requirement for business success 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 processesmodern world, and the ~~system of engagement to enhance business interactions between our customers~~way we work and ~~their clients and vendors. We also offer optional, but often mission-critical, Value+ services, which are seamlessly built into our core~~live requires powerful software solutions.

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.~~9, 2023. 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 ~~the~~our Condensed Consolidated Financial Statements. The operating results for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023 are not necessarily indicative of the results expected for the full year ending December 31, ~~2017.~~2023.

~~Changes in Accounting Policies~~Reclassification

~~Except as described below under~~ ~~Recently Adopted Accounting Pronouncements, there have been no significant changes~~We reclassified certain amounts in our ~~accounting policies~~Condensed Consolidated Statements of Cash Flows within the cash flows from ~~those disclosed~~operating 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 ~~revenues~~revenue, expenses, other income, and ~~expenses~~provision for income taxes during the reporting period. Assets and liabilities which are subject to judgment and use of estimates include the fair value of financial instruments, capitalized software development costs, period of benefit associated with deferred costs, incremental borrowing rate used to measure operating lease liabilities, the recoverability of goodwill and long-lived assets, income taxes, useful lives associated with property and equipment and intangible assets, contingencies, assumptions underlying performance-based compensation (whether cash or stock-based), and assumptions underlying stock-based compensation. Actual results could differ ~~materially~~ from those ~~estimates. On an ongoing basis, management evaluates its~~ estimates ~~based~~and any such differences may have a material impact on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

our Condensed Consolidated Financial Statements.

Net ~~Income (Loss)~~Loss per Common Share

~~The net income (loss)~~Net loss per common share was the same for shares of our Class A and Class B common ~~shares~~stock 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 ~~our~~the weighted average number of shares of our Class A and Class B common ~~shares~~stock used to compute net ~~income (loss)~~loss per common share (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Weighted average common shares outstanding	35,573	34,931	35,512	34,885
Less: Weighted average unvested restricted shares subject to repurchase	8	4	7	4
Weighted average common shares outstanding; basic and diluted	35,565	34,927	35,505	34,881

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 571,000 shares of performance based options ("PSOs") and performance based restricted stock units ("PSUs") are 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,~~Because we reported a net loss ~~and therefore~~for all periods presented, all potentially dilutive common shares are anti-dilutive for these periods and have been excluded from the calculation of net loss per share. ~~The following table presents the number~~

Table of anti-dilutive common shares excluded from the calculation of weighted average number of shares used to compute diluted net income (loss) per share for the three and nine months ended September 30, 2017 and 2016 (in thousands):

Contents

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 dividing the fixed price commitment to issue shares in the future by the closing price of our stock as of the applicable reporting period date.

~~Recently Adopted~~Recent Accounting Pronouncements Adopted

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,~~October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~No. 2016-09, Compensation - Stock Compensation~~2021-08, "Business Combinations (Topic ~~781),~~ ~~Improvements to Employee Share-Based Payment~~805): Accounting (for Contract Assets and Contract Liabilities from Contracts with Customers,"~~ASU 2016-09"),~~ which ~~amends~~requires contract assets and ~~simplifies the accounting for share-based payment awards~~contract liabilities acquired 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~~a business combination to be recognized ~~each period.~~

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~In May 2014,~~and measured by the ~~FASB issued ASU No. 2014-09,~~ acquirer on the acquisition date in accordance with ASC 606, "Revenue from Contracts with Customers," as ~~amended which requires an entity to recognize~~if the ~~amount of revenue to which it expects to be entitled for~~acquirer 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. Early~~2022, 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 issued~~adopted ASU ~~No. 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~ ~~("ASU 2016-16"), which changes the timing of when certain intercompany transactions are recognized within the provision for income taxes. ASU 2016-16 is effective~~2021-08 on January 1, ~~2018. Early adoption is permitted. We~~2023. Adoption did not have ~~not determined the effect of this guidance on our financial condition, results of operations, cash flows or disclosures.~~

~~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 materialan impact on our condensed consolidated financial ~~condition, results of operations, cash flows or disclosures.~~statements.

~~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~~as of June 30, ~~2017~~2023 and December 31, ~~2016~~2022 (in thousands):


	June 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Corporate bonds	$	5,484	$	—	$	(32)	$	5,452
Agency securities	11,261		—		(233)		11,028

Treasury securities	123,582		8		(797)		122,793
Total available-for-sale investment securities	$	140,327	$	8	$	(1,062)	$	139,273

September 30, 2017
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Corporate bonds $ 34,558
$ 11
$ (19 ) $ 34,550
Agency securities 11,302
—
(17 ) 11,285
Certificates of deposit 2,982
3
(1 ) 2,984
Total available-for-sale investment securities $ 48,842
$ 14
$ (37 ) $ 48,819


	December 31, 2016										December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Corporate bonds	$	30,492	$	9	$	(56	)	$	30,445	Corporate bonds	$	17,497	$	2	$	(112)	$	17,387
Agency securities	6,248		—		(20		)	6,228		Agency securities	17,507		—		(484)		17,023
Certificates of deposit	5,472		16		—			5,488

Treasury securities										Treasury securities	81,605		—		(1,557)		80,048
Total available-for-sale investment securities	$	42,212	$	25	$	(76	)	$	42,161	Total available-for-sale investment securities	$	116,609	$	2	$	(2,153)	$	114,458

As of ~~September~~June 30, ~~2017,~~2023, the ~~unrealized losses on investment~~decline 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.

~~At September~~ No allowance for credit losses for available-for-sale investment securities was recorded as of June 30, ~~2017 and~~2023 or December 31, ~~2016, the contractual maturities of our investments did not exceed 36 months.~~ 2022.

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 years 20,444
20,423
26,737
26,688
Total available-for-sale investment securities $ 48,842
$ 48,819
$ 42,212
$ 42,161


	June 30, 2023				December 31, 2022
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	140,327	$	139,273	$	90,822	$	89,297
Due after one year through three years	—		—		25,787		25,161
Total available-for-sale investment securities	$	140,327	$	139,273	$	116,609	$	114,458

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, we had sales and maturities ~~(which includes calls)~~ of investment securities, as follows (in thousands):

Table of Contents


										Six Months Ended June 30, 2023
	Nine Months Ended September 30, 2017									Gross Realized Gains		Gross Realized Losses		Gross Proceeds from Sales		Gross Proceeds from Maturities
Corporate bonds									Corporate bonds	$	3	$	—	$	1,013	$	11,012
Agency securities									Agency securities	—		—		—		6,250
	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
Treasury securities									Treasury securities	—		—		—		32,355
Total									Total	$	3	$	—	$	1,013	$	49,617

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 bonds 1
—
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.


	Six Months Ended June 30, 2022
	Gross Realized Gains		Gross Realized Losses		Gross Proceeds from Sales		Gross Proceeds from Maturities
Corporate bonds	$	—	$	—	$	—	$	23,998


Treasury securities	—		—		—		19,500
Total	$	—	$	—	$	—	$	43,498

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 ~~summarize~~present our financial assets and liabilities measured at fair value on a recurring basis as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022 by level within the fair value hierarchy (in thousands):


	June 30, 2023
	Level 1		Level 2		Total Fair Value
Cash equivalents:
Money market funds	$	5,226	$	—	$	5,226
Treasury securities	797		—		797

Available-for-sale investment securities:
Corporate bonds	—		5,452		5,452
Agency securities	—		11,028		11,028

Treasury securities	122,793		—		122,793
Total	$	128,816	$	16,480	$	145,296

September 30, 2017
Level 1 Level 2 Level 3 Total Fair
Value
Cash equivalents:
Money market funds $ 3,910
$ —
$ —
$ 3,910
Available-for-sale investment securities:
Corporate bonds —
34,550
—
34,550
Agency securities —
11,285
—
11,285
Certificates of deposit 2,984
—
—
2,984
Total $ 6,894
$ 45,835
$ —
$ 52,729


	December 31, 2016									December 31, 2022
	Level 1		Level 2		Level 3		Total Fair Value			Level 1		Level 2		Total Fair Value
Cash equivalents:									Cash equivalents:
Money market funds	$	4,849	$	—	$	—	$	4,849	Money market funds	$	41,973	$	—	$	41,973
Treasury securities									Treasury securities	1,287		—		1,287
Available-for-sale investment securities:									Available-for-sale investment securities:
Corporate bonds	—		30,445		—		30,445		Corporate bonds	—		17,387		17,387
Agency securities	—		6,228		—		6,228		Agency securities	—		17,023		17,023
Certificates of deposit	5,488		—		—		5,488

Treasury securities									Treasury securities	80,048		—		80,048
Total	$	10,337	$	36,673	$	—	$	47,010	Total	$	123,308	$	34,410	$	157,718

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 to~~Fair 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 value~~Level 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~~

Table 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.Contents

~~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-Use~~Capitalized Software Development Costs, net

~~Internal-use~~Capitalized 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


	June 30, 2023		December 31, 2022
Capitalized software development costs, gross	$	128,142	$	129,749
Less: Accumulated amortization	(101,285)		(94,434)
Capitalized software development costs, net	$	26,857	$	35,315

Capitalized software development costs were ~~$2.9~~$1.3 million and ~~$3.3~~$4.2 million for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and ~~were $8.4~~$2.3 million and ~~$8.8~~$8.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively. Amortization expense with respect to capitalized software development costs totaled ~~$2.3~~$4.9 million and ~~$1.7~~$6.0 million for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and ~~$6.6~~$10.8 million and ~~$4.4~~$12.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

During the three and six months ended June 30, 2023, we disposed of $1.3 million and $3.5 million, respectively, of fully amortized capitalized software development costs.

Future amortization expense with respect to capitalized software development costs as of ~~September~~June 30, ~~2017,~~2023 is estimated as follows (in thousands):


Years Ending December 31,
2023	$	8,580
2024	12,042
2025	5,012
2026	1,223
Total amortization expense	$	26,857

Years Ending December 31,
2017 $ 2,409
2018 8,431
2019 5,153
2020 1,327
Total amortization expense $ 17,320

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5. Intangible Assets, net

Intangible assets consisted of the following ~~as of September 30, 2017 and December 31, 2016~~ (in ~~thousands)~~thousands, except years):


	June 30, 2023
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted Average Useful Life in Years
Customer relationships	$	1,670	$	(1,559)	$	111	5.0
Database	4,710		(2,120)		2,590		10.0
Technology	6,539		(6,539)		—		4.0
Trademarks and trade names	1,520		(1,367)		153		5.0
Partner relationships	680		(680)		—		3.0
Non-compete agreements	7,340		(6,606)		734		5.0
Domain names	90		(85)		5		5.0
Patents	252		(252)		—		5.0

Total intangible assets, net	$	22,801	$	(19,208)	$	3,593	5.8


	September 30, 2017								December 31, 2022
	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	$	1,670	$	(1,448)	$	222	5.0
Database								Database	4,710		(1,884)		2,826		10.0
Technology	4,811		(3,671		)	1,140		Technology	6,539		(6,539)		—		4.0
Trademarks	930		(508		)	422
Trademarks and trade names								Trademarks and trade names	1,520		(1,211)		309		5.0
Partner relationships	680		(567		)	113		Partner relationships	680		(680)		—		3.0
Non-compete agreements	40		(33		)	7		Non-compete agreements	7,340		(5,872)		1,468		5.0
Domain names	273		(273		)	—		Domain names	90		(82)		8		5.0
Patents	285		(193		)	92		Patents	252		(252)		—		5.0
	$	7,809	$	(5,755	)	$	2,054
Total intangible assets, net								Total intangible assets, net	$	22,801	$	(17,968)	$	4,833	4.7

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 $0.6 million and $1.2 million for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016 was $0.4~~2022, respectively, and $1.2 million and $2.3 million for ~~each period and for~~ the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016 was $1.1 million for each period.~~

~~As of September 30, 2017, estimated future~~2022, respectively. Future amortization ofexpense with respect to intangible assets ~~was~~as of June 30, 2023 is estimated as follows (in thousands):


Years Ending December 31,
2023	$	1,236
2024	473
2025	471
2026	471
2027	471
Thereafter	471
Total amortization expense	$	3,593

Years Ending December 31,
2017 $ 329
2018 929
2019 352
2020 259
2021 124
Thereafter 61
Total amortization expense $ 2,054

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6. Accrued Employee Expenses

6.Accrued employee expenses consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Accrued vacation	$	13,523	$	12,067
Accrued bonuses	10,028		13,806
Accrued severance	515		496
Accrued payroll and other	7,381		8,007


Total accrued employee expenses	$	31,447	$	34,376

In the first quarter of 2023, we accrued $14.9 million of severance related to separation costs associated with our former Chief Executive Officer's Transition and Separation Agreement, dated March 1, 2023 ("Separation Agreement"). The $14.9 million was fully paid in the second quarter of 2023.

7. Leases

Operating leases for our corporate offices have remaining lease terms ranging from one to ten 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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Operating lease cost	$	1,131	$	1,468	$	2,276	$	2,915
Variable lease cost	448		252		1,021		375
Total lease cost	$	1,579	$	1,720	$	3,297	$	3,290

Lease-related assets and liabilities were as follows (in thousands):


	June 30, 2023		December 31, 2022
Assets

Operating lease right-of-use assets	$	20,308	$	23,485

Liabilities
Other current liabilities	$	3,052	$	3,357
Operating lease liabilities	39,554		50,237
Total lease liabilities	$	42,606	$	53,594

During the second quarter of 2022, we decided to exit and make available for sublease certain leased office spaces. As a result, we recorded an impairment of $19.4 million consisting of $15.7 million related to ROU assets and $3.7 million related to property and equipment associated with our leased office spaces. These charges were recorded within General and administrative expenses in our Condensed Consolidated Statements of Operations.

In January 2023, we entered into an amendment to the lease agreement for our San Diego facility (the "San Diego Lease"). We remeasured the lease liability and recorded a reduction to the lease liability and right-of-use asset using the discount rate at the modification date, which resulted in a gain of $2.4 million in the Condensed Consolidated Statements of Operations.

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In June 2023, we entered into a second amendment to reduce the rentable square footage and our future rental payment obligations under the San Diego Lease pursuant to which we made a one-time payment of $2.9 million. We again remeasured the lease liability and recorded a reduction to the lease liability using the discount rate at the modification date. As a result, we recorded a gain of $1.9 million in the Condensed Consolidated Statements of Operations.

In July 2023, we entered into an agreement to sublet one of our office spaces in Santa Barbara through December 31, 2031.

Future minimum lease payments under non-cancellable leases as of June 30, 2023 were as follows (in thousands):


Years ending December 31,
2023(1)	$	(793)
2024(1)	5,063
2025	6,168
2026	6,345
2027	6,528
Thereafter	31,090
Total future minimum lease payments	54,401
Less: imputed interest	(11,795)
Total	$	42,606

(1) Future minimum lease payments for the years ending December 31, 2023 and 2024 are presented net of tenant improvement allowances of $3.7 million and $0.7 million respectively.

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 relating~~Legal 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 ~~provide~~landlord 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. ~~The~~Each 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 to~~policies placed with our customers ~~through~~by our third-party service provider. ~~Included in cost of revenue we~~We 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~~June 30, ~~2017~~2023 and December 31, ~~2016~~2022 was ~~$0.4~~$3.2 million and ~~$0.3~~$2.7 million, respectively, and is included in Other current liabilities on ~~the~~our Condensed Consolidated Balance Sheets.

Included in ~~Other~~Prepaid expenses and other current assets as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022 are ~~$1.5~~$2.8 millionand ~~$1.2~~$4.5 million, respectively, of deposits held with a third party related to requirements to maintain collateral for ~~our~~this insurance ~~services.~~service.

~~Litigation~~Legal Proceedings

From time to time we may become ~~subject to certain~~involved in various legal proceedings, ~~including without limitation claims and/~~investigative inquiries, and other disputes arising from or ~~litigation~~related to matters ~~arising in~~incident to the ordinary course of ~~business.~~our business activities. We are not currently a party to any ~~such legal proceedings,~~matters, nor are we aware of any pending or threatened ~~litigation,~~matters, 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 ~~officers~~other 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 provisions~~clauses and is indeterminable. We have ~~never paid~~not incurred any costs as a ~~material claim, nor~~result of such indemnification obligations and have not recorded any ~~legal claims been brought against us~~liabilities related to such obligations in ~~connection with these indemnification arrangements. As~~the Condensed Consolidated Financial Statements.

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 activity~~options for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, is as follows (number of shares in thousands):

Number of
Shares

Weighted
Average
Exercise
Price per Share

Weighted
Average
Remaining
Contractual Life
in Years
Options outstanding as of December 31, 2016 1,718
$ 8.75
8.2
Options granted 172
24.77

Options exercised (133 ) 3.83

Options cancelled/forfeited (29 ) 9.84

Options outstanding as of September 30, 2017 1,728
$ 10.70
7.9


	Number of Shares	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life in Years
Options outstanding as of December 31, 2022	516	$	12.90	2.7
Options granted	120	129.74
Options exercised	(159)	9.44

Options outstanding as of June 30, 2023	477	$	43.44	3.4

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, we granted ~~PSOs to purchase up to 172,000 shares~~our Chief Executive Officer 120,000 stock options 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~~These stock options ~~outstanding as of September 30, 2017 are 500,000 PSOs granted in 2016, which~~ vest based on service conditions with one-third vesting at the ~~achievement~~end of ~~a pre-established free cash flow performance metric for~~each of the years ~~ended~~ending December 31, ~~2017~~2025, 2026 and ~~2018. The number of PSOs~~2027. No stock options were granted ~~in 2016 related to~~during 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~~six months ended ~~September~~June 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, 2017.2022.

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 ~~including the PSOs,~~was $0.4 million and $0.6 million for the three and six months ended ~~September~~June 30, ~~2017 and 2016,~~2023, respectively. There was ~~$0.7 million and $0.7 million, respectively, and $2.0 million and $1.6 million~~no stock-based compensation expense for stock options in the ~~nine months ended September 30, 2017 and 2016, respectively.~~same periods in the prior year.

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~~six months ended ~~September~~June 30, ~~2017 and 2016:~~ 2023:

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 —
—
—
—




Weighted average grant-date fair value per share	$	67.23
Weighted average Black-Scholes model assumptions:
Risk-free interest rate	4.06		%
Expected term (in years)	6.92
Expected volatility	44		%
Expected dividend yield	—

As of ~~September~~June 30, ~~2017,~~2023, the total estimated remaining stock-based compensation expense for ~~unvested~~the aforementioned stock options ~~including the PSOs,~~ was ~~$2.7~~$7.5 million, which is expected to be recognized over a weighted average period of ~~1.5~~4.5 years.

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Restricted Stock Units

A summary of activity in connection with our RSUs for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, is as follows (number of shares in thousands):


	Number of Shares	Weighted Average Grant Date Fair Value per Share
Unvested as of December 31, 2022	1,162	$	116.88
Granted	630	122.37
Vested	(261)	116.18
Forfeited	(196)	115.28
Unvested as of June 30, 2023	1,335	$	119.84

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~~Unvested RSUs as of June 30, ~~2017, we~~2023 were composed of 1.1 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.~~target. Of the unvested PSUs as of June 30, 2023, 0.1 million are subject to vesting based on the achievement of pre-established performance metrics for the year ending December 31, 2023 and will vest over a three year period, assuming continued employment through each vesting date. The actual number of shares to be issued at the end of the performance period will range from 0% to ~~165%~~142% of the ~~initial~~ target ~~awards. For~~number of shares depending on achievement relative to the performance ~~at 150%~~metric over the applicable period. The remaining 0.1 million PSUs unvested as 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~~June 30, ~~2017, 41,000 of the PSUs vested~~2023 are subject to vesting based on the achievement of ~~148% of the~~ pre-established ~~free cash flow~~ performance ~~metric~~metrics for ~~the~~three year ~~ended~~measurement periods ending December 31, 2016, and an additional 13,000 PSUs were granted and vested as a result of the attainment of the 2016 performance metric as approved by our Board of Directors. During the 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, and2023, 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%~~100% of the initial target awards. ~~For~~Achievement 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 $10.4 million and $10.5 million for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016, was $1.0~~2022, respectively, and $24.1 million and ~~$571,000,~~$18.3 million for the six months ended June 30, 2023 and 2022, respectively. Excluded from stock-based compensation expense is capitalized software development costs of $0.2 million and $0.7 million for the three months ended June 30, 2023 and 2022, respectively, and ~~$2.6~~$0.4 million and $1.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

As of ~~September~~June 30, ~~2017,~~2023, the total estimated remaining ~~estimated~~ stock-based compensation expense for the aforementioned RSUs and PSUs was ~~$9.2~~$126.2 million, which is expected to be recognized over a weighted average period of ~~2.6~~2.7 years.

Restricted Stock Awards

A summary of activity in connection with our restricted stock awards ("RSAs") for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023 is as follows (number of shares in thousands):

Number of
Shares Weighted-Average
Grant Date
Fair Value per Share
Unvested as of December 31, 2016 46
$ 8.55
Granted 9
33.30
Vested (38 ) 9.33
Forfeited —
—
Unvested as of September 30, 2017 17
$ 19.79


	Number of Shares	Weighted Average Grant Date Fair Value per Share
Unvested as of December 31, 2022	6	$	96.33
Granted	6	151.83
Vested	(6)	96.33

Unvested as of June 30, 2023	6	$	151.83

We have the right to repurchase any unvested ~~restricted stock awards. Restricted stock awards~~RSAs subject to certain conditions. RSAs vest over a ~~four-year period for employees and a~~ one-year ~~period for non-employee directors. We recognized~~period. Our stock-based compensation expense for ~~restricted stock awards of $84,000 and $113,000~~RSAs 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~~June 30, ~~2017,~~2023, the total estimated remaining stock-based compensation expense for unvested ~~restricted stock awards~~RSAs with a ~~repurchasing~~repurchase right was ~~$268,000~~$0.9 million, which is expected to be recognized over a weighted average period of ~~0.8~~0.9 years.

8. 10. Income Taxes

~~Our~~We calculate our provision for (benefit from) income taxes on a quarterly basis by applying an estimated annual effective tax rate ~~differs~~to income/loss from operations and by calculating the ~~U.S. Federal statutory rate~~tax effect of ~~34% primarily because our previously reported losses have been offset by a valuation allowance due to uncertainty as to~~discrete items recognized during the ~~realization~~quarter.

Table of ~~those losses.~~Contents

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, we recorded income tax expense of ~~$52,000 and $93,000, respectively, on pre-tax income of $3.7~~$19.6 million and ~~$7.2~~$29.6 million ~~respectively, for~~representing an effective tax rate of ~~1.4%~~2,637% and ~~1.3%, respectively.~~(121)%. The effective tax rate as compared to the U.S. federal statutory rate of 21% differs primarily due to the change in valuation allowance against deferred tax assets, non-deductible officers' compensation and state income taxes, partially offset by tax ~~expense is based on~~benefits from research and development tax credits.

We assess our ~~payments of state minimum taxes, alternative minimum tax ("AMT") (net of available AMT credit), and the amortization of tax deductible goodwill that is not an available source of income~~ability to realize our deferred tax assets on a quarterly basis and we establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax ~~asset.~~assets will not be realized. We weigh all available positive and negative evidence, including our earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies.

~~For~~There were no material changes to our unrecognized tax benefits during the ~~three and nine~~six months ended ~~September~~June 30, 2016, we recorded income tax expense 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.2023.

9. 11. Revenue and Other Information

The following table presents our revenue categories for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022 (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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Core solutions	$	38,515	$	32,414	$	75,684	$	63,223
Value Added Services	106,085		81,450		202,920		152,950
Other	2,475		3,586		4,571		6,573
Total revenue	$	147,075	$	117,450	$	283,175	$	222,746

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

Deferred revenue as of June 30, 2023 and December 31, 2022 was $1.1 million and $0.9 million, respectively, and is included in Other current liabilities on our Condensed Consolidated Balance Sheets. During the six months ended June 30, 2023 and 2022, we recognized$0.7 million and $2.1 million of revenue, respectively, which were included in the deferred revenue balances as of December 31, 2022 and 2021, respectively.

Remaining Performance Obligations

As of June 30, 2023, the total non-cancelable remaining performance obligations ("RPO") under our contracts with customers was $24 million, and we expect to recognize revenue on approximately 50% of these RPO over the following 12 months, with the balance to be recognized thereafter.

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 is~~We are a leading provider of ~~industry-specific, cloud-based software~~cloud business management solutions for ~~SMBs in~~ the ~~property management and legal industries. We were formed in 2006 with a vision to revolutionize the way that SMBs grow and compete by enabling their digital transformation.~~

real estate industry. Our ~~platform is~~solutions are 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. Our 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 toenable our property manager customers to digitally transform their businesses, address critical business operations and deliver a better customer experience. Our products assist our customers with ~~filling vacancies~~an interconnected and ~~collecting~~growing network of stakeholders in their ~~tenants' unpaid rent. Also in 2016, we expanded~~business ecosystems, including property owners, real estate investment managers, rental prospects, residents, and service providers, and provide key functionality related to critical transactions across the real estate lifecycle, including screening potential tenants, sending and receiving payments and risk mitigation services. AppFolio’s intuitive

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interface, coupled with streamlined and automated workflows, make it easier for our ~~electronic payments platform in~~customers to eliminate redundant and manual processes so they can deliver a great experience for their network of stakeholders 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 ~~legal vertical by allowing clients~~heart of our ~~legal customers~~success and our customers' success, and we have worked hard not only to ~~pay their legal bills by credit card, debit card, or ACH. In September 2017,~~attract and retain talented individuals, but also to provide a challenging and rewarding work environment to motivate and develop our valuable human capital. As we ~~announced~~navigate the ~~upcoming release~~challenges of ~~a new Value+ service, renters insurance, which expands on~~increased competition for talent, we continue to evolve our ~~existing tenant liability insurance program~~compensation and ~~offers additional coverage for tenant’s personal belongings.~~employee reward practices.

Property management units under management. We ~~also enhanced~~believe that our ~~electronic payments platform with the addition of same day ACH payments for owner contributions and eCheck payables. Through~~ability to increase 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 base as the number of customers subscribing to our core solutions, exclusive of free trials. We intend to continue to invest in revenue growth opportunities over time in our current markets, adjacent markets, and new verticals.

~~Customer count and~~ property ~~manager~~management units under management ~~are summarized in the table below:~~

September 30, June 30, March 31, December 31, September 30, June 30,
2017 2016
Property manager 11,258
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 firm 9,214
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 onis an ~~absolute basis. Many of these investments will occur in advance~~indicator of our ~~realization of revenue or any other benefit~~market penetration, growth, and ~~will make it difficult to determine if we are allocating our resources efficiently.~~potential future business opportunities. 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 ourdefine property management ~~solution.~~units under management as active or committed units under management at the period end date. We had 7.7 million and 6.8 million property management units under management as of June 30, 2023 and 2022, respectively.

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 our~~Our 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 towith the size of our customers’ businesses. We recognize ~~subscription~~ revenue ~~ratably~~for subscription-based services on a straight-line basis over the ~~terms of~~contract 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, typically~~to 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 ~~charge~~offer certain Value Added Services, which are not covered by our ~~customers usage-based~~subscription 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 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 payments services fees are recorded gross of the interchange and payment processing related fees. We generally invoice our ~~customers for~~ usage-based services on a monthly basis ~~for services rendered in~~or collect the ~~preceding month. Revenue from usage-based services is impacted by a number~~fee at the time of ~~factors, including the number of new and existing customers that adopt and utilize our Value+ services, the size and needs~~service. A significant majority of our ~~customers and~~Value Added Services revenue comes from the use of our ~~customer renewal rates.~~

~~We experience some seasonality in our Value+~~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 growth or a sequential decline in revenue in the fourth quarter of each of our most recent fiscal years. risk mitigation services.

We ~~expect this seasonality to continue in the foreseeable future.~~

~~We also offer our assistance to~~charge our customers ~~with on-boarding to~~for assistance onboarding onto our core solutions ~~as well as website design~~and for 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. We~~completed and recognize revenue ~~for these other services upon completion of~~in the ~~related service.~~period the service is rendered. 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 ~~manager~~management core solution ~~platform~~platform. Revenue derived from these services is ~~being~~ recorded ~~under~~ in Other ~~revenue~~.revenue. As of June 30, 2023 and 2022, we had 19,145 and 17,878 property management customers, respectively.

Costs and Operating Expenses

Cost of Revenue(Exclusive of Depreciation and Amortization).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 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 expansion~~amortization 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+ services by new and existing customers are expensed as incurred.~~ 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~~expanding functionality and the ease of use ~~and functionality~~ of our existing software

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solutions by adding new core functionality, ~~Value+ services~~Value Added Services and other improvements, as well as developing new products and services. We capitalize ~~the portion of~~ our software development costs that ~~meets~~meet 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 ~~consulting,~~audit, legal, compliance, and ~~audit~~tax services), transaction costs related to sales of subsidiary businesses, regulatory fees, other corporate expenses, impairment of long-lived assets, gains on lease modifications, 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 to invest in our research~~

Other Income (Loss), Net. Other income (loss), net includes gains and ~~product development organization~~losses associated with the sale of businesses and ~~the development or acquisition of new technology, we expect to have increased capitalized software development costs~~property and ~~incremental amortization.~~equipment.

Interest Income, ~~(Expense)~~. Net. Interest income, net 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 ~~within~~in our bank accounts. ~~Interest expense includes interest paid on outstanding borrowings under our Credit Agreement.~~

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

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 amortization 3,237
8.5
2,636
9.4
9,347
8.8
7,112
9.2
Total costs and operating expenses 34,319
90.5
29,366
104.3
98,958
93.4
84,707
109.2
Income (loss) from operations 3,584
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, net 155
0.4
102
0.4
377
0.4
221
0.3
Income (loss) before provision for income taxes 3,734
9.9
(1,114 ) (4.0 ) 7,232
6.8
(6,944 ) (9.0 )
Provision for income taxes 52
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 June 30,				Change				Six Months Ended June 30,				Change
	2023		2022		Amount		%		2023		2022		Amount		%
	(dollars in thousands)
Core solutions	$	38,515	$	32,414	$	6,101	19	%	$	75,684	$	63,223	$	12,461	20	%
Value Added Services	106,085		81,450		24,635		30	%	202,920		152,950		49,970		33	%
Other	2,475		3,586		(1,111)		(31)	%	4,571		6,573		(2,002)		(30)	%
Total revenue	$	147,075	$	117,450	$	29,625	25	%	$	283,175	$	222,746	$	60,429	27	%

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 and six months ended ~~September~~June 30, ~~2017~~2023, compared to the same periods in the prior year, was primarily attributable to an increase in the usage of our payment, tenant screening and risk mitigation services. During the three ~~months~~and six month period ended ~~September~~June 30, ~~2016, mainly reflecting a 17% increase~~2023, we also experienced growth of 13% in the number of property manager customers. The overall increase 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 inmanagement 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 also attributable to growth in revenue from our Core solutions of $3.4 million, or 30%, driven by 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~~same periods in the ~~number of property manager customers. The overall increase was mostly attributable to revenue from Value+ services,~~prior year, which ~~increased by $17.7 million, or 42%. The increase~~drove growth in ~~Value+ services was mainly driven by increased usage~~users of our ~~electronic payments platform~~subscription and ~~screening~~usage-based services.

We expect our payment services, ~~by a larger property manager customer base and increase~~including the eCheck (ACH) transaction fee, which we will no longer waive beginning in the ~~number~~third quarter 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 overall2023, to increase ~~in revenue was also attributable to growth in revenue from our Core solutions~~for the remainder of ~~$10.0 million, or 32%, driven by growth in~~ the ~~number~~year ended December 31, 2023.

Table of ~~our customers and units under management.~~Contents

~~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 June 30,						Change				Six Months Ended June 30,						Change
	2023			2022			Amount		%		2023			2022			Amount		%
	(dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization)	$	57,854		$	47,430		$	10,424	22	%	$	114,062		$	90,777		$	23,285	26	%
Percentage of revenue	39.3		%	40.4		%					40.3		%	40.8		%
Stock-based compensation, included above	$	988		$	726		$	262	36	%	$	1,756		$	1,084		$	672	62	%
Percentage of revenue	0.7		%	0.6		%					0.6		%	0.5		%

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%, for~~For the three and six months ended ~~September~~June 30, ~~2017~~2023, expenditures to third-party service providers related to the delivery of our Value Added Services increased $7.0 million and $15.2 million, respectively, compared to the ~~three months ended September 30, 2016. The~~same periods in the prior year. This increase 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, as evidenced by the 39% increase in Value+ services revenues. There was also an increase in personnel-related~~Value Added Services. Personnel-related costs, ~~of $0.6 million~~including stock-based and performance-based compensation, necessary to support growth and key investments, increased $2.4 million and $6.1 million for the ~~continued growth~~three and six months ended June 30, 2023, respectively, compared to the same periods in the prior year. Allocated shared and other costs increased by $1.0 million and $1.9 million for the three and six months ended June 30, 2023, respectively, compared to the same periods in the prior year, primarily related to platform infrastructure, software and other costs incurred in support of our ~~business.~~overall growth.

As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) ~~improved~~fluctuates 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~~year ending December 31, 2023, to decrease as a percentage of revenue compared to the ~~nine months~~year ended ~~September 30, 2016. This improvement was~~December 31, 2022, primarily ~~driven by~~due to increased revenue from our ~~ability to increase~~enhanced revenue ~~with a more moderate increase in personnel-related costs, and an improvement in pricing with our third-party services providers as we continue to grow.~~mix.

Sales and Marketing


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change						Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
	2017			2016			Amount		%		2017			2016			Amount			%			2023			2022			Amount		%		2023			2022			Amount		%
	(dollars in thousands)																						(dollars in thousands)
Sales and marketing	$	7,257		$	6,979		$	278	4	%	$	21,556		$	22,097		$	(541	)	(2	)%	Sales and marketing	$	27,002		$	26,995		$	7	—	%	$	56,400		$	51,914		$	4,486	9	%
Percentage of revenue	19.1		%	24.8		%					20.4		%	28.5		%						Percentage of revenue	18.4		%	23.0		%					19.9		%	23.3		%
Stock-based compensation, included above																						Stock-based compensation, included above	$	444		$	2,013		$	(1,569)	(78)	%	$	2,861		$	3,473		$	(612)	(18)	%
Percentage of revenue																						Percentage of revenue	0.3		%	1.7		%					1.0		%	1.6		%

Sales and marketing expense ~~increased by $0.3 million or 4%~~ for the three months ended ~~September~~June 30, ~~2017~~2023 stayed flat compared to the ~~three months ended September 30, 2016. This increase was~~same period in the ~~result of an increase in personnel-related costs in our sales and marketing organization to support our revenue growth.~~

prior year. Sales and marketing expense ~~decreased $0.5 million, or 2%,~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 increased primarily due to increases in personnel-related costs, including stock-based and performance-based compensation, necessary to support growth in the business of $3.4 million compared to the ~~nine~~same period in the prior year. Advertising costs increased by $0.9 million for the six months ended ~~September~~June 30, ~~2016.~~ 2023 compared to the same period in the prior year, due to increased promotional activities.

The decrease in stock-based compensation for the three and six months ended June 30, 2023 was primarily due to the reversal of expense for unvested equity awards as a result of changes in our leadership team.

We expect sales and marketing expense for the year ending December 31, 2023 to decrease as a ~~decrease in allocated and other operating costs~~percentage of ~~$0.3 million and a decrease in personnel related costs of $0.2 million~~revenue compared to the year ended December 31, 2022, as we ~~gain efficiencies in our expenses relative~~continue to ~~revenue growth.~~leverage headcount efficiencies.

Table of Contents

Research and Product Development


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change					Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
	2017			2016			Amount		%		2017			2016			Amount		%			2023			2022			Amount		%		2023			2022			Amount		%
	(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	$	37,263		$	26,687		$	10,576	40	%	$	74,925		$	51,007		$	23,918	47	%
Percentage of revenue	11.5		%	12.3		%					11.3		%	12.3		%					Percentage of revenue	25.3		%	22.7		%					26.5		%	22.9		%
Stock-based compensation, included above																					Stock-based compensation, included above	$	4,348		$	4,024		$	324	8	%	$	9,787		$	6,830		$	2,957	43	%
Percentage of revenue																					Percentage of revenue	3.0		%	3.4		%					3.5		%	3.1		%

Research and product development expense ~~increased $0.9 million, or 26%,~~ for the three and six months ended ~~September~~June 30, ~~2017 compared~~2023 increased primarily due to ~~the three months ended September 30, 2016. The increase was the result of~~ an increase in personnel-related costs, including stock-based and performance-based compensation, net of capitalized software development costs, of $10.2 million and $23.0 million, respectively, compared to the same periods in the prior year. The increase in personnel-related costs was primarily due to headcount growth within our research and product development ~~organizations.~~organization.

~~Research~~We expect research and product development ~~expense increased $2.5 million, or 26%,~~expenses for the ~~nine months ended September 30, 2017~~year ending December 31, 2023 to increase as a percentage of revenue compared to the ~~nine~~year ended December 31, 2022, as we continue to invest in our research and product development organization to support our strategy to expand the use cases of our product capabilities to the larger customer segment.

General and Administrative


	Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
	2023			2022			Amount		%		2023			2022			Amount		%
	(dollars in thousands)
General and administrative	$	18,819		$	37,947		$	(19,128)	(50)	%	$	50,510		$	56,911		$	(6,401)	(11)	%
Percentage of revenue	12.8		%	32.3		%					17.8		%	25.5		%
Stock-based compensation, included above	$	4,992		$	3,198		$	1,794	56	%	$	10,271		$	5,992		$	4,279	71	%
Percentage of revenue	3.4		%	2.7		%					3.6		%	2.7		%

General and administrative expense for the three and six months ended ~~September~~June 30, ~~2016. The increase~~2023 decreased compared to the same periods in the prior year primarily due to lease-related asset impairment charges of $19.4 million and $19.8 million recognized in the three and six months ended June 30, 2022, respectively, that did not recur in 2023. In addition, allocated shared and other costs decreased $1.9 million and $4.3 million for the three and six months ended June 30, 2023, compared to the same periods in the prior year, due to gains related to lease modifications. This was ~~primarily the result of~~partially offset by an increase in personnel-related costs, ~~net~~including stock-based and performance-based compensation, in the three and six months ended June 30, 2023 of $1.9 million and $17.5 million, respectively, compared to the same periods in the prior year. The increase in personnel-related costs for the six months ended June 30, 2023 was driven primarily by the separation costs associated with our former Chief Executive Officer's Separation Agreement. For further information see Note 6, Accrued Employee Expenses, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

For the three and six months ended June 30, 2023, stock-based compensation increased due to additional grants to current and new employees.

We expect general and administrative expenses for the year ending December 31, 2023 to decrease as a percentage of revenue compared to the year ended December 31, 2022, as we continue to leverage headcount efficiencies.

Table of Contents

Depreciation and Amortization


	Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
	2023			2022			Amount		%		2023			2022			Amount		%
	(dollars in thousands)
Depreciation and amortization	$	6,816		$	8,321		$	(1,505)	(18)	%	$	14,487		$	16,736		$	(2,249)	(13)	%
Percentage of revenue	4.6		%	7.1		%					5.1		%	7.5		%

Depreciation and amortization expense for the three and six months ended June 30, 2023 decreased, compared to the same periods in the prior year, primarily due to decreased amortization expense associated with capitalized software development ~~costs,~~and intangible balances.

We expect depreciation and amortization expenses for the year ending December 31, 2023 to decrease as a percentage of revenue compared to the year ended December 31, 2022 due to ~~headcount growth within our~~a decrease in amortization of accumulated capitalized software development balances.

Interest Income, Net


	Three Months Ended June 30, 2023						Change				Six Months Ended June 30, 2023						Change
	2023			2022			Amount		%		2023			2022			Amount		%
	(dollars in thousands)
Interest income, net	$	1,478		$	151		$	1,327	879	%	$	2,839		$	258		$	2,581	1,000	%
Percentage of revenue	1.0		%	—		%					1.0		%	0.1		%

Interest income for the three and six months ended June 30, 2023 increased, compared to the same periods in the prior year, primarily due to higher interest rates.

Provision for (Benefit from) Income Taxes


	Three Months Ended June 30,						Change			Six Months Ended June 30,						Change
	2023			2022			Amount		%	2023			2022			Amount		%
	(dollars in thousands)
Income (loss) before provision for income taxes	$	745		$	(29,734)		$	30,479	(103)%	$	(24,404)		$	(44,306)		$	19,902	(45)%
Provision for (benefit from) income taxes	$	19,646		$	236		$	19,410	*	$	29,607		$	(49)		$	29,656	*
Effective tax rate	2,637		%	(1)		%				(121)		%	—		%

*Percentage not meaningful

Our effective tax rates for the three and six months ended June 30, 2023 differ from the U.S. federal statutory rate of 21% primarily due to the change in valuation allowance against deferred tax assets, non-deductible officers' compensation and state income taxes, partially offset by tax benefits from stock-based compensation and research and ~~product~~ development ~~organizations.~~tax credits. Our effective tax rates for the three and six months ended June 30, 2022 differ from the U.S. federal statutory rate of 21% primarily due to the change in valuation allowance against deferred tax assets and tax benefits from research and development credits.

~~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 %

~~General and administrative expense increased $0.8 million, or 16%,~~The increase in our effective tax rate for the three months ended ~~September~~June 30, ~~2017~~2023, as compared to the ~~three~~same period in 2022, is primarily due to the significant increase in our pre-tax income and increase in tax expense attributable to the change in valuation allowance against deferred tax assets, higher non-deductible officers’ compensation, state income taxes, and capitalized research and development expenses as required by a change in U.S. tax law effective January 1, 2022. The decrease in our effective tax rate for the six months ended ~~September~~June 30, ~~2016. The increase was 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 $2.7 million, or 22%, for the nine months ended September 30, 2017~~2023 as compared to the ~~nine months ended September 30, 2016. The increase was~~same period in 2022 is primarily attributable to the ~~result of an~~decrease in our pre-tax losses and increase in ~~personnel-related costs~~tax expense for similar reasons aforementioned.

Table of ~~$2.8 million due to headcount growth and an increase in incentive-based compensation.~~Contents

~~Depreciation and Amortization~~

Three Months Ended September 30, Change Nine Months Ended September 30, Change
2017 2016 Amount % 2017 2016 Amount %
(dollars in thousands)
Depreciation and amortization $ 3,237
$ 2,636
$ 601
23 % $ 9,347
$ 7,112
$ 2,235
31 %
Percentage of revenue 8.5 % 9.4 % 8.8 % 9.2 %

Depreciation and amortization expense increased $0.6 million, or 23%, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The increase was the result of increased amortization expense of $0.6 million associated with higher 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.

~~Interest Income, net~~

Three Months Ended September 30, Change Nine Months Ended September 30, Change
2017 2016 Amount % 2017 2016 Amount %
(dollars in thousands)
Interest income $ 155
$ 102
$ 53
52 % $ 377
$ 221
$ 156
71 %
Percentage of revenue 0.4 % 0.4 % 0.4 % 0.3 %

Interest income, net, remained relatively flat for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. For the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, interest income increased $0.2 million and is primarily the result of higher investment security balances in the more recent period.

Liquidity and Capital Resources

~~Cash and Cash Equivalents~~

~~As of September 30, 2017, our~~Our principal sources of liquidity ~~were~~continue 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~~totaling $164.0 million, as ~~of December 31, 2016. The increase in~~well as cash flows generated from our ~~working capital was~~operations. We have financed our operations primarily ~~due to an increase in the current portion of investment securities and in~~through cash ~~and cash equivalents, offset by increases in accrued expenses and accrued employee expenses~~generated 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 operations~~operating 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 change~~changes in the number of our customers, ~~the~~ adoption and utilization of our ~~Value+ services~~Value 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, the timing and extent of our expansion into adjacent markets or new verticals~~Value Added Services, 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, although~~markets 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):


	Six Months Ended June 30,
	2023		2022
Net cash (used in) provided by operating activities	$	(7,657)	$	3,281
Net cash used in investing activities	(26,660)		(13,694)
Net cash used in financing activities	(11,754)		(4,994)
Net decrease in cash, cash equivalents and restricted cash	$	(46,071)	$	(15,407)

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,~~The net decrease in cash provided by operating activities for the six months ended June 30, 2023, compared to the same period in the prior year, was ~~$21.6 million resulting from net income~~primarily due to the payment of ~~$7.1 million, adjusted by non-cash charges~~separation costs in the second quarter of ~~$13.8 million and a net increase in~~2023 related to 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. 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 wasformer Chief Executive Officer's Separation Agreement, partially offset by ~~a decrease~~changes in ~~accounts receivable of $0.9 million, and prepaid expenses and other current assets of $0.9 million.~~working capital levels.

~~For the nine months ended September 30, 2016, cash provided by 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 attributed to an increase in deferred revenue of $1.7 million related to our core solutions and an increase in accrued expenses of $1.4 million and other liabilities of $1.2 million, offset by a decline in accounts payable of $1.1 million.

~~Cash Used in~~ Investing Activities

Cash used in investing activities is generally ~~comprised~~composed 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.

~~For~~The net increase in cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017, investing activities used $16.4 million~~2023, compared to the same period in ~~cash~~the prior year, was primarily ~~as a result~~due to higher purchases of ~~$17.6 million of~~available-for-sale investment ~~securities purchased, partially offset by $11.0 million of maturities of investment~~ securities. In addition, we incurred capitalized software development costs of $8.1 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 nine months ended September 30, 2016, investing activities used $9.3 million in cash primarily as a result of~~

$27.1 million of sales and maturities (which includes calls) of investment securities offset by $24.3 million of investment securities purchased. In addition, we had an increase in capitalized software development costs 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.

~~Cash (Used in) Provided by~~ Financing Activities

Cash ~~(used in) provided by~~used 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 result~~composed of net share settlements for employee tax withholdings associated with the vesting of ~~RSUs of $1.6 million, partially~~equity awards offset by proceeds from the exercise of stock ~~option exercises of $0.5 million.~~options.

~~For~~The net increase in cash used in financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016, financing activities provided $0.1 million in cash primarily as a result~~

~~of proceeds from stock option exercises.~~

~~Contractual Obligations and Other Commitments~~

~~In February 2017, we signed a lease amendment relating~~2023, compared to the ~~property located at 50 Castilian Drive~~same period in ~~Santa Barbara, California, our corporate headquarters. This amendment extends~~ the ~~term from February 2018~~prior year, was primarily due to ~~December 2021. The total commitment under this lease extension is $3.1 million. All~~an increase in net share settlements for employee tax withholdings associated with the vesting of ~~the other terms and conditions~~equity awards.

Table of ~~the original lease agreement remain the same.~~Contents

~~There have been no other material changes to our contractual obligations and other commitments as disclosed in our Annual Report.~~

~~Off-Balance Sheet Arrangements~~

~~As of September 30, 2017, we did not have any off-balance sheet arrangements.~~

Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements and the related notes are prepared in accordance with ~~GAAP.~~accounting principles generally accepted in the United States. The preparation of our Condensed Consolidated Financial Statements requires usmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities, ~~revenue, costs~~the disclosure of contingent assets and ~~operating~~liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses ~~provision for income taxes and related disclosures.~~during the reporting period.

~~We adopted~~There have been no ~~new~~changes to our critical accounting policies ~~during the nine months ended September 30, 2017. Please refer to our Critical Accounting Policies as included~~and estimates described in our Annual ~~Report.~~

~~Recent Accounting Pronouncements~~

~~For information regarding recent accounting pronouncements, refer to Note 2,~~ ~~Summary of Significant Accounting Policies~~ ~~within~~Report that have had a material impact on our Condensed Consolidated Financial ~~Statements.~~Statements and related notes.

Item 3. Qualitative and Quantitative Disclosure about Market Risk

Interest Rate Risk

~~At September~~Investment Securities

As of June 30, ~~2017,~~2023, we had ~~cash and cash equivalents of $14.8~~$139.3 million of investment securities consisting of ~~bank deposits~~United States government agency securities, corporate bonds, and ~~money market funds,~~treasury securities. The primary objective of investing in securities is to support our liquidity and ~~$48.8 million of investment securities which are comprised of fixed rate debt securities and certificates of deposit.~~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~~June 30, ~~2017,~~2023, 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~~$0.6 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~~$0.6 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~~June 30, ~~2017.~~2023.

The borrowings under our Revolving Facility are at variable interest rates. However, there was no outstanding balance under our Revolving Facility as of September 30, 2017. Accordingly, a hypothetical change in interest rates would not have impacted our debt service obligations as of September 30, 2017.

~~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~~

Table of ~~Controls~~Contents

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 ~~claims~~matters incident to the ~~normal~~ordinary course of our business ~~activities.~~activities, including actions with respect to intellectual property, employment, labor, regulatory and contractual matters. Although the results of such investigative inquiries, legal proceedings and ~~claims~~other 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 ~~claims~~matters 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,~~9, 2023, 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.~~On May 5, 2023, Janet Kerr, a member of our Board of Directors, entered into a prearranged stock selling plan for the sale of up to 1,000 shares of the Company's Class A common stock between August 4, 2023 and December 31, 2023 (the "Sale Period"). Ms. Kerr's trading plan was entered into during an open insider trading window and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act of 1934, as amended, and the Company's policies regarding insider transactions.

Table of Contents

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, 2017~~	~~By:~~	~~/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 ~~Chief~~Principal 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 ~~Chief~~Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101.INS	Inline XBRL Instance Document.
	101.SCH	Inline XBRL Taxonomy Extension Schema Document.
	101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
	101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
	101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.
	101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
	104	Cover 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. .

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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:

July 27, 2023

By:

/s/ Shane Trigg

Shane Trigg

Chief Executive Officer

(Principal Executive Officer)

Date:

July 27, 2023

By:

/s/ Fay Sien Goon

Fay Sien Goon

Chief Financial Officer

(Principal Financial and Accounting Officer)



	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 bonds	1		—		5,011		2,480
Treasury bills	—		—		2,000		3,830
Certificates of Deposit	—		—		—		1,245
	$	6	$	—	$	10,016	$	17,112



	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



Years Ending December 31,
2017	$	2,409
2018	8,431
2019	5,153
2020	1,327
Total amortization expense	$	17,320



	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



	Number of Shares		Weighted-Average Grant Date Fair Value per Share
Unvested as of December 31, 2016	46		$	8.55
Granted	9		33.30
Vested	(38	)	9.33
Forfeited	—		—
Unvested as of September 30, 2017	17		$	19.79



	September 30,	June 30,	March 31,	December 31,	September 30,	June 30,
	2017			2016
Property manager	11,258	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 firm	9,214	8,913	8,676	8,135	7,799	7,349