UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
x ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017.March 31, 2024.
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 |
| | |
Delaware | | 26-0359894 |
(State of incorporation or organization) | | (I.R.S. Employer Identification No.) |
|
|
70 Castilian Drive | | 93117 |
50 Castilian Drive
Santa Barbara, California | 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” andfiler,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): | | | | | | | | | | | | | | | | | |
| | | | | |
Large accelerated filer | | ☒ | | ¨ | Accelerated filer | x☐ |
| | | | |
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 SecuritiesExchange Act. x☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO xYes ☐ No ☒
As of October 23, 2017,April 18, 2024, the number of shares of the registrant’s Class A common stock outstanding was 14,506,41222,326,649 and the number of shares of the registrant’s Class B common stock outstanding was 19,440,672.13,886,648
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017, or Quarterly Report, includes “forward-looking statements”March 31, 2024 (this "Quarterly Report"), contains forward-looking statements within the meaning of Section 27A of the federal securities laws, including the Private Securities Litigation Reform 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,1995 (the “PSLRA”), which statements are subject to considerableinvolve substantial risks and uncertainties. The forward-looking statements made in this Quarterly Report are intended to qualify for the protection of the safe harbor provided by the PLSRA and 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, cash flows and/or prospects. Forward-looking statements include all statements that are not statements of historical facts contained in this Quarterly Report andfact. Forward-looking statements can also be identified by words such as “may,” “will,” “should,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,“predicts,” “potential,” “predicts, “projects,“future,” “should,or “continue,” “could,” “will,” “would” or the negative of these words or other similar expressions andterms or expressions. Examples of forward-looking statements include, among others, statements regarding changes in the negatives of those expressions. In particular, forward looking statements contained in this Quarterly Report relatecompetitive environment, responding to among other things, our future or assumed financial condition, results of operations, business forecasts and plans, capitalcustomer needs, and financing plans, research and product development plans, future products and services, growth in the size of our business and number of customers, strategic plans and objectives, acquisitionsbusiness forecasts and investments,plans, our future or assumed financial condition, results of operations and liquidity, trends affecting our business and industry, capital needs and financing plans, capital resource allocation plans, share repurchase plans, and commitments and contingencies, including with respect to the applicationoutcome of accounting guidance.legal proceedings or regulatory matters. We cautioncannot assure you that the foregoing list may not include all ofresults, events, and circumstances reflected in the forward-looking statements madewill be achieved or occur, and actual results, events, or circumstances could differ materially from those described in this Quarterly Report.
Forward-lookingthe forward-looking statements. The outcome of the events described in these forward-looking statements represent our management’s current beliefs and assumptions based on information currently available. Forward-looking statements involve numerous known and unknownis 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 theseincluding those risks, uncertainties and uncertainties in greater detailother factors described in the section entitled “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations” ofOperations" in this Quarterly Report and
in the section entitled “Risk Factors” "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, or Annual Report,2023 (our "Annual Report"), as well as in ourthe other filingsreports we file with the Securities and Exchange Commission or SEC.(the "SEC"). You should read this Quarterly Report, and the other documents we have filedfile with the SEC, with the understanding that our actual future results may be materially different from the results expressed or implied by these forward-looking statements.
Moreover, we operate As such, you should not rely upon forward-looking statements as predictions of future events. Any forward-looking statement made by us in an evolving environment. New risksthis Quarterly Report is based only on information currently available to us and uncertainties emerge from time to time andspeaks only as of the date on which it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements.
Except as required by applicable law or the rules of the NASDAQ Stock Market, we assumemade. We undertake no obligation to update any forward-looking statements publicly,made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even ifreflect new information becomes available inor the future.occurrence of unanticipated events, except as required by law.
We qualify all
Table of our forward-looking statements by these cautionary statements.Contents
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
APPFOLIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par values)thousands)
| | | | September 30, 2017 | | December 31, 2016 | | | March 31, 2024 | | December 31, 2023 |
Assets | | | | |
Current assets | | | | |
Current assets | |
Current assets | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Cash and cash equivalents | | $ | 14,781 |
| | $ | 10,699 |
|
Investment securities—current | | 28,396 |
| | 15,473 |
|
Accounts receivable, net | | 3,419 |
| | 2,511 |
|
Prepaid expenses and other current assets | | 4,393 |
| | 3,537 |
|
Total current assets | | 50,989 |
| | 32,220 |
|
Investment securities—noncurrent | | 20,423 |
| | 26,688 |
|
| Property and equipment, net | | 7,005 |
| | 7,077 |
|
Capitalized software, net | | 17,320 |
| | 15,539 |
|
Property and equipment, net | |
Property and equipment, net | |
Operating lease right-of-use assets | |
Capitalized software development costs, net | |
Goodwill | | 6,737 |
| | 6,737 |
|
Intangible assets, net | | 2,054 |
| | 3,105 |
|
Other assets | | 1,219 |
| | 1,217 |
|
| Other long-term assets | |
| Other long-term assets | |
| Other long-term assets | |
Total assets | | $ | 105,747 |
| | $ | 92,583 |
|
Liabilities and Stockholders’ Equity | | | | |
Current liabilities | | | | |
Current liabilities | |
Current liabilities | |
Accounts payable | |
Accounts payable | |
Accounts payable | | $ | 1,164 |
| | $ | 937 |
|
Accrued employee expenses | | 8,169 |
| | 7,550 |
|
Accrued expenses | | 5,908 |
| | 4,044 |
|
Deferred revenue | | 7,508 |
| | 7,638 |
|
| Other current liabilities | | 1,083 |
| | 1,192 |
|
| Other current liabilities | |
| Other current liabilities | |
| Total current liabilities | | 23,832 |
| | 21,361 |
|
Total current liabilities | |
Total current liabilities | |
| Operating lease liabilities | |
| Operating lease liabilities | |
| Operating lease liabilities | |
| Other liabilities | |
| Other liabilities | |
| Other liabilities | | 1,238 |
| | 1,540 |
|
Total liabilities | | 25,070 |
| | 22,901 |
|
Commitments and contingencies (Note 6) | |
| |
|
Commitments and contingencies (Note 8) | | Commitments and contingencies (Note 8) | | |
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 | |
| Class A common stock | |
Class B common stock | |
Additional paid-in capital | | 150,520 |
| | 146,692 |
|
Accumulated other comprehensive loss | | (23 | ) | | (51 | ) |
Accumulated deficit | | (69,824 | ) | | (76,963 | ) |
Accumulated other comprehensive Income (loss) | |
Treasury stock | |
Retained earnings | |
Total stockholders’ equity | | 80,677 |
| | 69,682 |
|
Total liabilities and stockholders’ equity | | $ | 105,747 |
| | $ | 92,583 |
|
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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 |
|
Revenue | |
Revenue | |
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 |
|
Costs and operating expenses: | |
Costs and operating expenses: | |
Cost of revenue (exclusive of depreciation and amortization)(1) | |
Cost of revenue (exclusive of depreciation and amortization)(1) | |
Cost of revenue (exclusive of depreciation and amortization)(1) | |
Sales and marketing(1) | |
Sales and marketing(1) | |
Sales and marketing(1) | |
Research and product development(1) | |
Research and product development(1) | |
Research and product development(1) | |
General and administrative(1) | |
General and administrative(1) | |
General and administrative(1) | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | 3,237 |
| | 2,636 |
| | 9,347 |
| | 7,112 |
|
Total costs and operating expenses | 34,319 |
| | 29,366 |
| | 98,958 |
| | 84,707 |
|
Total costs and operating expenses | |
Total costs and operating expenses | |
Income (loss) from operations | 3,584 |
| | (1,204 | ) | | 6,948 |
| | (7,131 | ) |
Other expense, net | (5 | ) | | (12 | ) | | (93 | ) | | (34 | ) |
Income (loss) from operations | |
Income (loss) from operations | |
Other income (loss), net | |
Other income (loss), net | |
Other income (loss), net | |
Interest income, net | |
Interest income, net | |
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 |
|
Income (loss) before provision for income taxes | |
Income (loss) before provision for income taxes | |
(Benefit from) provision for income taxes | |
(Benefit from) provision for income taxes | |
(Benefit from) provision for income taxes | |
Net income (loss) | |
Net income (loss) | |
Net income (loss) | $ | 3,682 |
| | $ | (1,125 | ) | | $ | 7,139 |
| | $ | (6,992 | ) |
| | | | | | | |
Net income (loss) per common share: | | | | | | | |
| Net income (loss) per common share: | |
| Net income (loss) per common share: | |
Basic | |
Basic | |
Basic | $ | 0.11 |
| | $ | (0.03 | ) | | $ | 0.21 |
| | $ | (0.21 | ) |
Diluted | $ | 0.10 |
| | $ | (0.03 | ) | | $ | 0.20 |
| | $ | (0.21 | ) |
Diluted | |
Diluted | |
Weighted average common shares outstanding: | |
Weighted average common shares outstanding: | |
Weighted average common shares outstanding: | | | | | | | |
Basic | 33,905 |
| | 33,600 |
| | 33,817 |
| | 33,529 |
|
Basic | |
Basic | |
Diluted | 35,205 |
| | 33,600 |
| | 35,091 |
| | 33,529 |
|
Diluted | |
Diluted | |
(1) Includes stock-based compensation expense as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Stock-based compensation expense included in costs and operating expenses: | | | | | | | |
Cost of revenue (exclusive of depreciation and amortization) | $ | 960 | | | $ | 768 | | | | | |
Sales and marketing | 1,510 | | | 2,417 | | | | | |
Research and product development | 5,682 | | | 5,439 | | | | | |
General and administrative | 5,322 | | | 5,279 | | | | | |
Total stock-based compensation expense | $ | 13,474 | | | $ | 13,903 | | | | | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
| | |
| |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income (loss) | $ | 3,682 |
| | $ | (1,125 | ) | | $ | 7,139 |
| | $ | (6,992 | ) |
Net income (loss) | |
Net income (loss) | |
Other comprehensive income (loss): | | | | | | | |
Changes in unrealized gains (losses) on investment securities | 26 |
| | (96 | ) | | 28 |
| | 277 |
|
Other comprehensive income (loss): | |
Other comprehensive income (loss): | |
Changes in unrealized (losses) gains on investment securities, net of tax | |
Changes in unrealized (losses) gains on investment securities, net of tax | |
Changes in unrealized (losses) gains on investment securities, net of tax | |
Comprehensive income (loss) | $ | 3,708 |
| | $ | (1,221 | ) | | $ | 7,167 |
| | $ | (6,715 | ) |
Comprehensive income (loss) | |
Comprehensive income (loss) | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | | | | | | |
| | | | | | | | | Additional | | Other | | | | | | |
| Common Stock | | Common Stock | | Paid-in | | Comprehensive | | Treasury | | Retained | | |
| Class A | | Class B | | Capital | | Income (Loss) | | Stock | | Earnings | | Total |
| Shares | | Amount | | Shares | | Amount | | | | | | | | | | |
Balance at December 31, 2023 | 21,749 | | | $ | 2 | | | 14,116 | | | $ | 2 | | | $ | 236,985 | | | $ | 99 | | | $ | (25,756) | | | $ | 85,980 | | | $ | 297,312 | |
Exercise of stock options | 244 | | | — | | | — | | | — | | | 3,874 | | | — | | | — | | | — | | | 3,874 | |
Stock-based compensation | — | | | — | | | — | | | — | | | 13,646 | | | — | | | — | | | — | | | 13,646 | |
Vesting of restricted stock units, net of shares withheld for taxes | 89 | | | — | | | — | | | — | | | (14,086) | | | — | | | — | | | — | | | (14,086) | |
Conversion of Class B common stock to Class A common stock | 199 | | | — | | | (199) | | | — | | | — | | | — | | | — | | | — | | | — | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (214) | | | — | | | — | | | (214) | |
Net Income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 38,663 | | | 38,663 | |
Balance at March 31, 2024 | 22,281 | | | $ | 2 | | | 13,917 | | | $ | 2 | | | $ | 240,419 | | | $ | (115) | | | $ | (25,756) | | | $ | 124,643 | | | $ | 339,195 | |
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| | | | | | | | | | | Accumulated | |
| | | | | | | | | Additional | |
| | | | | | | | | Additional | |
| | | | | | | | | Additional | |
| Common Stock | |
| Common Stock | |
| Common Stock | |
| Class A | |
| Class A | |
| Class A | |
| Shares | |
| Shares | |
| Shares | |
Balance at December 31, 2022 | |
Balance at December 31, 2022 | |
Balance at December 31, 2022 | |
Exercise of stock options | |
Exercise of stock options | |
Exercise of stock options | |
Stock-based compensation | |
Stock-based compensation | |
Stock-based compensation | |
Vesting of restricted stock units, net of shares withheld for taxes | |
Vesting of restricted stock units, net of shares withheld for taxes | |
Vesting of restricted stock units, net of shares withheld for taxes | |
Conversion of Class B common stock to Class A common stock | |
Conversion of Class B common stock to Class A common stock | |
Conversion of Class B common stock to Class A common stock | |
Issuance of restricted stock awards | |
Issuance of restricted stock awards | |
Issuance of restricted stock awards | |
Other comprehensive income | |
Other comprehensive income | |
Other comprehensive income | |
Net loss | |
Net loss | |
Net loss | |
Balance at March 31, 2023 | |
Balance at March 31, 2023 | |
Balance at March 31, 2023 | |
| | | | | | | | | | | | | 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 |
|
| | | |
| | | | | | | | | | | | | | | |
APPFOLIO, INC. | | | | |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | |
(UNAUDITED) | | | | |
(in thousands) | | | | |
| | | | | |
| Three Months Ended March 31, | | | | |
| 2024 | | 2023 | | | | |
Cash from operating activities | | | | | | | |
Net Income (loss) | $ | 38,663 | | | $ | (35,110) | | | | | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | 4,693 | | | 6,937 | | | | | |
Amortization of operating lease right-of-use assets | 523 | | | 568 | | | | | |
| | | | | | | |
Gain on lease modification | — | | | (2,366) | | | | | |
Stock-based compensation, including as amortized | 13,992 | | | 14,637 | | | | | |
| | | | | | | |
| | | | | | | |
Other | (1,824) | | | (155) | | | | | |
Changes in operating assets and liabilities: | | | | | | | |
Accounts receivable | (5,470) | | | (914) | | | | | |
Prepaid expenses and other current assets | 8,849 | | | (2,399) | | | | | |
Accounts payable | 733 | | | (1,777) | | | | | |
Operating lease liabilities | (475) | | | (771) | | | | | |
Accrued expenses and other liabilities | (16,730) | | | 22,923 | | | | | |
Net cash provided by operating activities | 42,954 | | | 1,573 | | | | | |
Cash from investing activities | | | | | | | |
Purchases of available-for-sale investments | (57,162) | | | (1,285) | | | | | |
Proceeds from sales of available-for-sale investments | — | | | 1,013 | | | | | |
Proceeds from maturities of available-for-sale investments | 36,670 | | | 37,890 | | | | | |
Purchases of property and equipment | (1,420) | | | (794) | | | | | |
Capitalization of software development costs | (1,125) | | | (1,165) | | | | | |
| | | | | | | |
Proceeds from sale of business, net of cash divested | — | | | 629 | | | | | |
Net cash (used in) provided by investing activities | (23,037) | | | 36,288 | | | | | |
Cash from financing activities | | | | | | | |
Proceeds from stock option exercises | 3,874 | | | 834 | | | | | |
Tax withholding for net share settlement | (14,086) | | | (5,539) | | | | | |
Net cash used in financing activities | (10,212) | | | (4,705) | | | | | |
Net increase in cash, cash equivalents and restricted cash | 9,705 | | | 33,156 | | | | | |
Cash, cash equivalents and restricted cash | | | | | | | |
Beginning of period | 49,759 | | | 71,019 | | | | | |
End of period | $ | 59,464 | | | $ | 104,175 | | | | | |
Cash, cash equivalents and restricted cash at end of period: | | | | | | | |
Cash and cash equivalents | $ | 59,214 | | | $ | 103,925 | | | | | |
Restricted cash included in prepaid expenses and other current assets | 250 | | | 250 | | | | | |
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | $ | 59,464 | | | $ | 104,175 | | | | | |
Supplemental disclosure of cash flow information | | | | | | | |
| | | | | | | |
| | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows | 1,483 | | | 1,348 | | | | | |
|
| | | | | | | |
APPFOLIO, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(UNAUDITED) |
(in thousands) |
| |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Noncash investing and financing activities | | | |
Purchases of property and equipment included in accounts payable and accrued expenses | $ | 271 |
| | $ | 112 |
|
Additions of capitalized software included in accrued employee expenses | 231 |
| | 231 |
|
Stock-based compensation capitalized for software development | 548 |
| | 308 |
|
The accompanying Notes to Condensed Consolidated Financial Statements are an integral partTable of these statements.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 softwareis a leading provider of cloud business management solutions for smallthe real estate industry. Our solutions are designed to enable our property manager 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 customersway we work and their clients and vendors. We also offer optional, but often mission-critical, Value+ services, which are seamlessly built into our corelive 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, 2017.1, 2024. The year-end condensed balance sheet was derived from our audited consolidated financial statements. Our unaudited interim Condensed Consolidated Financial Statements have been prepared on a basis consistent with that used to prepare our audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of theour Condensed Consolidated Financial Statements. The operating results for the ninethree months ended September 30, 2017,March 31, 2024 are not necessarily indicative of the results expected for the full year ending December 31, 2017.2024.
Changes in Accounting PoliciesReclassification
Except as described below under Recently Adopted Accounting Pronouncements, there have been no significant changesWe reclassified certain amounts in our accounting policiesCondensed Consolidated Statements of Cash Flows within the cash flows from those disclosedoperating activities section in our annual consolidated financial statements and the related notes included in our Annual Report.prior year to conform to the current year's presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires managementus to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenuesrevenue, expenses, other income, and expensesprovision for income taxes during the reporting period. Assets and liabilities which are subject to judgment and use of estimates include the fair value of financial instruments, capitalized software development costs, period of benefit associated with deferred costs, incremental borrowing rate used to measure operating lease liabilities, the recoverability of goodwill and long-lived assets, income taxes, useful lives associated with property and equipment and intangible assets, contingencies, assumptions underlying performance-based compensation (whether cash or stock-based), and assumptions underlying stock-based compensation. Actual results could differ materially from those estimates. On an ongoing basis, management evaluates its estimates basedand any such differences may have a material impact on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the resultsour Condensed Consolidated Financial Statements.
Table of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.Contents
Net Income (Loss) per Common Share
The netNet income (loss) per common share was the same for shares of our Class A and Class B common sharesstock because they are entitled to the same liquidation and dividend rights and are therefore combined in the table below. The following table presents a reconciliationsets forth the computation of our weighted average number of Class Abasic and Class B common shares used to computediluted net income (loss) per common share (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | |
| 2024 | | 2023 | | | | | | |
Basic net income (loss) per share: | | | | | | | | | |
Numerator | | | | | | | | | |
Net income (loss) | $ | 38,663 | | | $ | (35,110) | | | | | | | |
Less: undistributed earnings to participating securities | 5 | | | — | | | | | | | |
Net income (loss) attributable to common stockholders | $ | 38,658 | | | $ | (35,110) | | | | | | | |
Denominator | | | | | | | | | |
Weighted average common shares outstanding | 36,092 | | | 35,451 | | | | | | | |
Less: Weighted average unvested restricted shares subject to repurchase | 5 | | | 8 | | | | | | | |
Weighted average common shares outstanding; basic | 36,087 | | | 35,443 | | | | | | | |
Net income (loss) per common share; basic | $ | 1.07 | | | $ | (0.99) | | | | | | | |
Diluted net income (loss) per share: | | | | | | | | | |
Numerator | | | | | | | | | |
Net income (loss) attributable to common stockholders | $ | 38,658 | | | $ | (35,110) | | | | | | | |
Denominator | | | | | | | | | |
Weighted average common shares outstanding; basic | 36,087 | | | 35,443 | | | | | | | |
Add: Weighted average dilutive options outstanding | 108 | | | — | | | | | | | |
Add: Weighted average dilutive RSUs outstanding | 479 | | | — | | | | | | | |
Weighted average common shares outstanding; diluted | 36,674 | | | 35,443 | | | | | | | |
Net income (loss) per common share; diluted | $ | 1.05 | | | $ | (0.99) | | | | | | | |
|
| | | | | | | | | | | | |
| | 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")Potentially dilutive securities that 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, we reported a net loss and therefore all potentially dilutive common shares are anti-dilutive and have been excluded from the calculation of net loss per share. The following table presents the number 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 2016because doing so would be antidilutive are as follows (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Unvested Restricted Stock Awards | 4 | | | 8 | | | | | |
Options | — | | | 572 | | | | | |
Restricted Stock Units | 170 | | | 1,620 | | | | | |
Total potentially dilutive securities | 174 | | | 2,200 | | | | | |
|
| | | | | | | | | | | | |
| | 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 numberTable 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.Contents
Recently Adopted Accounting Pronouncements
Under the Jumpstart our Business Startups Act (the “JOBS Act”), we meet the definition of an emerging growth company. We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 781), Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which amends and simplifies the accounting for share-based payment awards in three areas: (1) income tax consequences, (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. ASU 2016-19 also provides an accounting policy election to account for forfeitures as they occur. We adopted this guidance on January 1, 2017. The impact on the Company’s consolidated financial statements was not material due to the full valuation allowance on
our deferred tax assets. We have elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized each period.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as amended which requires an entity to recognize the amount of revenue to which it expects to be entitled for 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 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We have not determined the effect of this guidance on our statement of cash flows.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16"), which changes the timing of when certain intercompany transactions are recognized within the provision for income taxes. ASU 2016-16 is effective on January 1, 2018. Early adoption is permitted. We 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 material impact on our financial condition, results of operations, cash flows or disclosures.
In March 2017, the FASB issued ASU No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, ASU 2017-08 requires the premium to be amortized to the earliest call date. ASU 2017-08 does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public companies, ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We do not expect the adoption of this guidance to have a material impact on our financial condition, results of operations, cash flows or disclosures since our current accounting policy is in accordance with ASU 2017-08.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU 2017-09"). ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our financial condition, results of operations, cash flows or disclosures.
3. Investment Securities and Fair Value Measurements
Investment Securities
Investment securities classified as available-for-sale consisted of the following at September 30, 2017as of March 31, 2024 and December 31, 20162023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| | | | | | | |
| | | | | | | |
U.S. government and agency securities | 184,377 | | | 17 | | | (96) | | | 184,298 | |
Total available-for-sale investment securities | $ | 184,377 | | | $ | 17 | | | $ | (96) | | | $ | 184,298 | |
|
| | | | | | | | | | | | | | | |
| 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 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
Corporate bonds | $ | 30,492 |
| | $ | 9 |
| | $ | (56 | ) | | $ | 30,445 |
|
Agency securities | 6,248 |
| | — |
| | (20 | ) | | 6,228 |
|
Certificates of deposit | 5,472 |
| | 16 |
| | — |
| | 5,488 |
|
Total available-for-sale investment securities | $ | 42,212 |
| | $ | 25 |
| | $ | (76 | ) | | $ | 42,161 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| | | | | | | |
| | | | | | | |
U.S. government and agency securities | 162,062 | | | 193 | | | (59) | | | 162,196 | |
Total available-for-sale investment securities | $ | 162,062 | | | $ | 193 | | | $ | (59) | | | $ | 162,196 | |
As of September 30, 2017,March 31, 2024, the unrealized losses on investmentdecline in fair value below amortized cost basis was not considered other than temporary as it is more likely than not we will hold the securities which have been in a net loss position for 12 months or greater were not material. These unrealized losses are considered temporary and there were no impairments considered to be "other-than-temporary" based on our evaluation of available evidence, which includes our intent to hold these investments tountil maturity or a recovery of the cost basis.
At September 30, 2017 and No allowance for credit losses for available-for-sale investment securities was recorded as of March 31, 2024 or December 31, 2016, the contractual maturities of our investments did not exceed 36 months. 2023.
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 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
Due in one year or less | $ | 184,377 | | | $ | 184,298 | | | $ | 162,062 | | | $ | 162,196 | |
| | | | | | | |
Total available-for-sale investment securities | $ | 184,377 | | | $ | 184,298 | | | $ | 162,062 | | | $ | 162,196 | |
During the ninethree months ended September 30, 2017March 31, 2024 and 2016,2023, we had sales and maturities (which includes calls) of investment securities, as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2024 |
| Gross Realized Gains | | Gross Realized Losses | | Gross Proceeds from Sales | | Gross Proceeds from Maturities |
| | | | | | | |
| | | | | | | |
U.S. government and agency securities | — | | | — | | | — | | | 36,670 | |
Total | $ | — | | | $ | — | | | $ | — | | | $ | 36,670 | |
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 |
| Gross Realized Gains | | Gross Realized Losses | | Gross Proceeds from Sales | | Gross Proceeds from Maturities |
Agency securities | $ | 1 |
| | $ | — |
| | $ | 15 |
| | $ | 1,044 |
|
Corporate bonds | — |
| | — |
| | — |
| | 7,440 |
|
Certificates of deposit | — |
| | — |
| | — |
| | 2,490 |
|
| $ | 1 |
| | $ | — |
| | $ | 15 |
| | $ | 10,974 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Gross Realized Gains | | Gross Realized Losses | | Gross Proceeds from Sales | | Gross Proceeds from Maturities |
Agency securities | $ | 5 |
| | $ | — |
| | $ | 3,005 |
| | $ | 9,557 |
|
Corporate 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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | | |
| Gross Realized Gains | | Gross Realized Losses | | Gross Proceeds from Sales | | Gross Proceeds from Maturities | | | |
Corporate bonds | $ | 3 | | | $ | — | | | $ | 1,013 | | | $ | 6,860 | | | | |
| | | | | | | | | | |
U.S. government and agency securities | — | | | — | | | — | | | 31,030 | | | | |
Total | $ | 3 | | | | | $ | 1,013 | | | $ | 37,890 | | | | |
Fair Value Measurements
Recurring Fair Value Measurements
Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables summarizepresent our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2017March 31, 2024 and December 31, 2016,2023 by level within the fair value hierarchy (in thousands):
| | March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| Level 1 | | | Level 1 | | Level 2 | | | | Total Fair Value |
Cash equivalents: | |
Money market funds | |
Money market funds | |
Money market funds | |
| | Available-for-sale investment securities: | |
| Available-for-sale investment securities: | |
| Available-for-sale investment securities: | |
| 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 |
|
U.S. government and agency securities | |
| U.S. government and agency securities | |
| U.S. government and agency securities | |
Total | $ | 6,894 |
| | $ | 45,835 |
| | $ | — |
| | $ | 52,729 |
|
| | December 31, 2023 | |
| December 31, 2023 | |
| December 31, 2023 | |
| Level 1 | | | Level 1 | | Level 2 | | | | Total Fair Value |
Cash equivalents: | |
Money market funds | |
Money market funds | |
Money market funds | |
| Available-for-sale investment securities: | |
Available-for-sale investment securities: | |
Available-for-sale investment securities: | |
| | U.S. government and agency securities | |
| December 31, 2016 |
| Level 1 | | Level 2 | | Level 3 | | Total Fair Value |
Cash equivalents: | | | | | | | |
Money market funds | $ | 4,849 |
| | $ | — |
| | $ | — |
| | $ | 4,849 |
|
Available-for-sale investment securities: | | | | | | | |
Corporate bonds | — |
| | 30,445 |
| | — |
| | 30,445 |
|
Agency securities | — |
| | 6,228 |
| | — |
| | 6,228 |
|
Certificates of deposit | 5,488 |
| | — |
| | — |
| | 5,488 |
|
U.S. government and agency securities | |
| U.S. government and agency securities | |
Total | $ | 10,337 |
| | $ | 36,673 |
| | $ | — |
| | $ | 47,010 |
|
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of the short maturity of these items.
There were no changes toFair value for our valuation techniques used to measure asset and liability fair values on a recurring basis during the nine months ended September 30, 2017. The valuation techniques for the items in the table above are as follows:
Cash and Cash Equivalents
As of September 30, 2017 and December 31, 2016, cash and cash equivalents include cash invested in money market funds. Fair valueLevel 1 investment securities is based on market prices for identical assets. Our Level 2 securities were priced by a pricing vendor. The pricing vendor utilizes the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, other observable inputs like market transactions involving comparable securities are used.
Available-for-Sale Investment Securities
The fair value of our investment securities and certificates of deposit is based on pricing determined using inputs other than quoted prices that are observable either directly or indirectly such as yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.
Non-Recurring Fair Value Measurements
Certain assets, including goodwill, intangible assets and our note receivable with SecureDocs, are also subject to measurement at fair value on a non-recurring basis using Level 3 measurement when they are deemed to be impaired as a result of an impairment review. For the nine months ended September 30, 2017 and 2016, no impairments were identified on those assets required to be measured at fair value on a non-recurring basis.
4. Internal-UseCapitalized Software Development Costs, net
Internal-useCapitalized software development costs were as follows (in thousands): |
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Internal use software development costs, gross | | $ | 41,902 |
| | $ | 33,545 |
|
Less: Accumulated amortization | | (24,582 | ) | | (18,006 | ) |
Internal use software development costs, net | | $ | 17,320 |
| | $ | 15,539 |
|
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
Capitalized software development costs, gross | | $ | 125,890 | | | $ | 126,606 | |
Less: Accumulated amortization | | (106,916) | | | (105,044) | |
Capitalized software development costs, net | | $ | 18,974 | | | $ | 21,562 | |
Capitalized software development costs were $2.9$1.2 million and $3.3$1.0 million for the three months ended September 30, 2017March 31, 2024 and 2016, respectively, and were $8.4 million and $8.8 million for the nine months ended September 30, 2017 and 2016,2023, respectively. Amortization expense with respect to capitalized software development costs totaled $2.3$3.7 million and $1.7$5.9 million for the three months ended September 30, 2017March 31, 2024 and 2016, respectively,2023, respectively. During the three months ended March 31, 2024 and $6.62023, we disposed of $1.9 million and $4.4$2.2 million, for the nine months ended September 30, 2017 and 2016, respectively.
respectively, of fully amortized capitalized software development costs.
Future amortization expense with respect to capitalized software development costs as of September 30, 2017,March 31, 2024 is estimated as follows (in thousands):
| | | | | | | | |
Years Ending December 31, |
2024 | | $ | 9,074 | |
2025 | | 6,434 | |
2026 | | 2,816 | |
2027 | | 650 | |
| | |
Total amortization expense | | $ | 18,974 | |
|
| | | | |
Years Ending December 31, |
2017 | | $ | 2,409 |
|
2018 | | 8,431 |
|
2019 | | 5,153 |
|
2020 | | 1,327 |
|
Total amortization expense | | $ | 17,320 |
|
5. Accrued Employee Expenses
5. Intangible Assets
Intangible assetsAccrued employee expenses consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
Accrued vacation | | $ | 13,258 | | | $ | 12,399 | |
Accrued bonuses | | 5,694 | | | 14,795 | |
| | | | |
Accrued payroll, severance and related personnel cost | | 10,250 | | | 8,373 | |
| | | | |
| | | | |
Total accrued employee expenses | | $ | 29,202 | | | $ | 35,567 | |
|
| | | | | | | | | | | | |
| | September 30, 2017 |
| | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
Customer relationships | | $ | 790 |
| | $ | (510 | ) | | $ | 280 |
|
Technology | | 4,811 |
| | (3,671 | ) | | 1,140 |
|
Trademarks | | 930 |
| | (508 | ) | | 422 |
|
Partner relationships | | 680 |
| | (567 | ) | | 113 |
|
Non-compete agreements | | 40 |
| | (33 | ) | | 7 |
|
Domain names | | 273 |
| | (273 | ) | | — |
|
Patents | | 285 |
| | (193 | ) | | 92 |
|
| | $ | 7,809 |
| | $ | (5,755 | ) | | $ | 2,054 |
|
|
| | | | | | | | | | | | |
| | 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 forIn the three months ended September 30, 2017March 31, 2023, we expensed $14.9 million of severance related to separation costs associated with our former Chief Executive Officer's Transition and 2016 was $0.4 millionSeparation Agreement, dated March 1, 2023 ("Separation Agreement").
6. Other Current Liabilities
Other Current Liabilities consisted of the following (in thousands):
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
Insurance reserves | | $ | 3,314 | | | $ | 4,174 | |
Operating lease liabilities-current | | 3,796 | | | 3,626 | |
Other | | 4,683 | | | 3,535 | |
Total other current liabilities | | $ | 11,793 | | | $ | 11,335 | |
For additional information, refer to Note 8, Commitments and Contingencies and Note 7, Leases.
7. Leases
Operating leases for each periodour corporate offices have remaining lease terms ranging from four months to nine 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 nine months ended September 30, 2017 and 2016 was $1.1 million for each period.
AsCondensed Consolidated Statements of September 30, 2017, estimated future amortization of intangible assets wasOperations were as follows (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Operating lease cost | $ | 1,073 | | | $ | 1,145 | | | | | |
Variable lease cost | 365 | | | 573 | | | | | |
Total lease cost | $ | 1,438 | | | $ | 1,718 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | |
Years Ending December 31, |
2017 | | $ | 329 |
|
2018 | | 929 |
|
2019 | | 352 |
|
2020 | | 259 |
|
2021 | | 124 |
|
Thereafter | | 61 |
|
Total amortization expense | | $ | 2,054 |
|
Lease-related assets and liabilities were as follows (in thousands): 6. | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Assets | | | |
| | | |
Operating lease right-of-use assets | $ | 18,762 | | | $ | 19,285 | |
| | | |
Liabilities | | | |
Other current liabilities | $ | 3,796 | | | $ | 3,626 | |
Operating lease liabilities | 40,469 | | | 41,114 | |
Total lease liabilities | $ | 44,265 | | | $ | 44,740 | |
| | | |
| | | |
| | | |
In January 2023, we entered into an amendment to the lease agreement for our San Diego facility. 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.
Future minimum lease payments under non-cancellable leases as of March 31, 2024 were as follows (in thousands):
| | | | | |
Years ending December 31, | |
2024 | $ | 4,323 | |
2025 | 6,168 | |
2026 | 6,345 | |
2027 | 6,529 | |
2028 | 6,717 | |
Thereafter | 24,373 | |
Total future minimum lease payments | 54,455 | |
Less: imputed interest | (10,190) | |
Total | $ | 44,265 | |
8. Commitments and Contingencies
Lease Obligations
As of September 30, 2017, we had operating lease obligations of approximately $9.6 million through 2022. We recorded rent expense of $0.5 million for each three month period ended September 30, 2017 and 2016, and $1.5 million for each nine month period ended September 30, 2017 and 2016.
In February 2017, we signed a lease amendment relatingLegal Liability to the property located at 50 Castilian Drive in Santa Barbara, California, our corporate headquarters. This amendment extends the term from February 2018 to December 2021. The total commitment under this lease extension is $3.1 million. All of the other terms and conditions of the lease agreement remain the same.
Line of Credit
We are party to a Credit Agreement with Wells Fargo, as administrative agent, and the lenders that are parties thereto (as amended, the “Credit Agreement”). Under the terms of the Credit Agreement, the lenders made available to us a $25.0 million revolving line of credit (the “Revolving Facility”). Borrowings under the Revolving Facility are subject to the satisfaction of customary conditions. The Revolving Facility matures on October 9, 2020; however, we can make payments on, and cancel in full, the Revolving Facility at any time without premium or penalty.
As of September 30, 2017 and December 31, 2016, there was no outstanding balance under the Credit Agreement and we are in compliance with the financial covenants under the Revolving Facility.
Landlord Insurance
We have a wholly owned subsidiary, Terra Mar Insurance Company, Inc. (“Terra Mar”), which was established in connection with reinsuring liability to providelandlord insurance policies offered to our customers with the option to purchase tenant liability insurance. If our customers choose to use our insurance services, they are issued an insurance policy underwritten by our third-party service provider. The policy has a limit of $100,000 per incident for each insured residence. We have entered into a reinsurance agreement with our third-party service provider and, as a result, we assume a 100% quota share of the tenant liability to landlord insurance provided topolicies placed with our customers throughby our third-party service provider. Included in cost of revenue weWe accrue for reported claims, and include an estimate of losses incurred but not reported by our property manager customers, asin cost of revenue because we bear the risk related to all such claims. Our estimated liability for reported claims and incurred but not reported claims as of September 30, 2017March 31, 2024 and December 31, 20162023 was $0.4$3.3 million and $0.3$4.2 million, respectively, and is included in Other current liabilities on theour Condensed Consolidated Balance Sheets.
Included in OtherPrepaid expenses and other current assets as of September 30, 2017March 31, 2024 and December 31, 2016,2023 are $1.5$3.0 million and $1.2$5.1 million, respectively, of deposits held with a third party related to requirements to maintain collateral for this insurance service.
Legal Proceedings
On February 10, 2023, a lawsuit was filed in the First Judicial District Court of New Mexico, Murphy, et al. v. AppFolio, Inc., et al. (No. D-101-CV-2022-02100), naming us as a defendant and alleging certain violations of the New Mexico Unfair Practices Act and negligent misrepresentation in connection with our tenant screening service (the “Murphy Litigation”). In late November 2023, the parties agreed to settle the Murphy Litigation. We did not admit any wrongdoing in connection with the settlement of the Murphy Litigation. The settlement agreement required us to pay $7.0 million, which was covered in full under our existing insurance services.policies. In April, 2024, the parties filed a stipulation of settlement with the court dismissing all claims against AppFolio with prejudice.
LitigationAs the settlement was paid in March 2024, there is no remaining liability or receivable as of March 31, 2024.
From
In addition to the foregoing, from time to time, we may become subject to certainare involved in various other investigative inquiries, legal proceedings including without limitation claims and/and disputes arising from or litigationrelated to matters arising inincident to the ordinary course of business. We areour business activities, including actions with respect to intellectual property, employment, labor, regulatory and contractual matters. Although the ultimate outcome of such investigative inquiries, legal proceedings and other disputes cannot be predicted with certainty, we do not currently a party tobelieve that any such pending investigative inquiries, legal proceedings nor are we aware of any pendingand other disputes, if determined adversely to us, would, individually or threatened litigation, that we believe wouldtaken together, have a material adverse effect on our business, operating results, cash flows or financial condition should such proceedings be resolved unfavorably.or cash flows.
Indemnification
In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, business partners, investors, directors, officers, and officersother parties with respect to certain matters, including, but not limited to, losses arising out of our breach of any applicable agreements, services to be provided by us, or intellectual property infringement claims made by third parties.parties, and other liabilities relating to or arising from our services or our acts or omissions. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments we could be required to make under these indemnification provisionsclauses and is indeterminable. We have never paidnot incurred any costs as a material claim, norresult of such indemnification obligations and have not recorded any legal claims been brought against usliabilities related to such obligations in connection with these indemnification arrangements. As 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.Condensed Consolidated Financial Statements.
7. 9. Stock-Based Compensation
Stock Options
A summary of activity in connection with our stock option activityoptions for the ninethree months ended September 30, 2017,March 31, 2024, 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, 2023 | | 381 | | | $ | 51.49 | | | 3.4 |
| | | | | | |
Options exercised | | (244) | | | 15.86 | | | |
Options cancelled/forfeited | | (1) | | | 3.28 | | | |
Options outstanding as of March 31, 2024 | | 136 | | | $ | 115.58 | | | 8.0 |
|
| | | | | | | | | |
| | Number of Shares | | Weighted Average Exercise Price per Share | | Weighted Average Remaining Contractual Life in Years |
Options outstanding as of December 31, 2016 | | 1,718 |
| | $ | 8.75 |
| | 8.2 |
Options granted | | 172 |
| | 24.77 |
| | |
Options exercised | | (133 | ) | | 3.83 |
| | |
Options cancelled/forfeited | | (29 | ) | | 9.84 |
| | |
Options outstanding as of September 30, 2017 | | 1,728 |
| | $ | 10.70 |
| | 7.9 |
During the nine months ended September 30, 2017, we granted PSOs to purchase up to 172,000 shares of our Class A common stock. The PSOs have a weighted average exercise price of $24.77 per share. Vesting of the PSOs is based on the achievement of pre-established performance metrics for the year ended December 31, 2019, and continued employment throughout the performance period. Of the PSOs granted during 2017, 132,000 shares would vest based upon the maximum payout of 165% when the 2019 free cash flow performance metric meets the maximum achievement of 150%. For performance at 100% of the targeted 2019 free cash flow metric, approximately 61% of the PSOs would vest. For performance at 80% of the targeted metric, approximately 48% of the PSOs would vest. For performance below 80% of the 2019 targeted metric, no PSOs would vest, all previously recognized compensation expense for the PSOs would be reversed, and no compensation expense would be recognized. The remaining 40,000 PSOs granted during 2017 have a pre-established adjusted gross margin target for 2019. PSOs tied to the gross margin performance metric have two levels of vesting, with 50% vesting based upon the achievement of 110% of the targeted amount and the remaining 50% vesting upon the achievement of 115% of the targeted amount. If the 110% performance target is not met, no shares will vest and all previously recognized expense for those PSOs would be reversed and no compensation expense would be recognized.
Included in the options outstanding as of September 30, 2017 are 500,000 PSOs granted in 2016, which vest based on the achievement of a pre-established free cash flow performance metric for the years ended December 31, 2017 and 2018. The number of PSOs granted in 2016 related to the performance metrics for the years ended December 31, 2017 and 2018, assumes achievement of the performance metric at the maximum level, which is 150% of the targeted performance metric. For performance at 100% of the targeted metric, approximately 67% of the PSOs would vest. For performance at 80% of the targeted metric, approximately 53% would vest. For performance below 50% of the 2017 targeted metric or 80% of the 2018 targeted metric, no PSOs would vest, all previously recognized compensation expense for PSOs would be reversed, and no compensation expense would be recognized.
During the nine months ended September 30, 2017, 247,000 of the PSOs vested based on the achievement of 148% of the pre-established free cash flow performance metric for the year ended December 31, 2016, and 3,000 PSOs were cancelled as a result of the PSOs being granted at 150% of the target metric. During the year ended December 31, 2016, $1.0 million of expense was recognized related to the PSOs that vested during the nine months ended September 30, 2017.
We recognize expense for the PSOs based on the grant date fair value of the PSOs that we determine are probable of vesting. Adjustments to compensation expense are made each period based on changes in our estimate of the number of PSOs that are probable of vesting. Our stock-based compensation expense for stock options including the PSOs,were not material for the three months ended September 30, 2017 and 2016, was $0.7 million and $0.7 million, respectively, and $2.0 million and $1.6 million for the nine months ended September 30, 2017 and 2016, respectively.
The fair value of stock options granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following table summarizes information relating to our stock options granted during the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Stock options granted (in thousands) | | — |
| | — |
| | 172 |
| | 750 |
|
Weighted average exercise price per share | | $ | — |
| | $ | — |
| | $ | 24.77 |
| | $ | 12.85 |
|
Weighted average grant-date fair value per share | | $ | — |
| | $ | — |
| | $ | 9.58 |
| | $ | 4.85 |
|
Weighted average Black-Scholes model assumptions: | | | | | | | | |
Risk-free interest rate | | — | % | | — | % | | 2.02 | % | | 1.45 | % |
Expected term (in years) | | — |
| | — |
| | 6.4 |
| | 5.9 |
|
Expected volatility | | — | % | | — | % | | 35 | % | | 37 | % |
Expected dividend yield | | — |
| | — |
| | — |
| | — |
|
periods presented.
As of September 30, 2017,March 31, 2024, the total estimated remaining stock-based compensation expense for unvestedthe aforementioned stock options including the PSOs, was $2.7$6.3 million, which is expected to be recognized over a weighted average period of 1.53.8 years.
Restricted Stock Units
A summary of activity in connection with our RSUsrestricted stock units ("RSUs") for the ninethree months ended September 30, 2017,March 31, 2024, is as follows (number of shares in thousands):
| | | | | | | | | | | | | | |
| | Number of Shares | | Weighted Average Grant Date Fair Value per Share |
Unvested as of December 31, 2023 | | 943 | | | $ | 121.61 | |
Granted | | 270 | | | 211.40 | |
Vested | | (105) | | | 118.27 | |
Forfeited | | (15) | | | 127.79 | |
Unvested as of March 31, 2024 | | 1,093 | | | $ | 144.03 | |
|
| | | | | | | |
| | Number of Shares | | Weighted- Average Grant Date Fair Value per Share |
Unvested as of December 31, 2016 | | 496 |
| | $ | 13.34 |
|
Granted | | 307 |
| | 25.64 |
|
Vested | | (139 | ) | | 12.81 |
|
Forfeited | | (46 | ) | | 16.17 |
|
Unvested as of September 30, 2017 | | 618 |
| | $ | 19.36 |
|
During the nine months ended September 30, 2017, weUnvested RSUs as of March 31, 2024 were composed of 1.0 million RSUs with only service conditions and 0.1 million performance share units ("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, andfour-year period, assuming continued employment throughoutthrough the performance period; and 13,000 PSUs were granted and vested as a result of the attainment of the 2016 performance metric.applicable vesting date. 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. The actual numberunvested PSUs as of sharesMarch 31, 2024, are subject to be issued at the end of the performance period will range from 0% to 165% of the initial target awards. For performance at 150% of the targeted metric in 2019, 165% of the PSUs would vest. For performance below 80% of the targeted metric in 2019, no PSUs would vest and no compensation expense would be recognized, and all previously recognized compensation expense for PSUs would be reversed.
During the nine months ended September 30, 2017, 41,000 of the PSUs vestedvesting based on the achievement of 148% of the pre-established free cash flow performance metricmetrics for the year endedending December 31, 2016,2024 and an additional 13,000 PSUs were granted and vested aswill vest over a result of the attainment of the 2016 performance metric as approved by our Board of Directors. During thethree year ended December 31, 2016, $479,000 of expense was recognized related to the PSUs vested during the nine months ended September 30, 2017.
Included in the unvested RSUs as of September 30, 2017 are 56,000 PSUs granted in 2016, which vest based on the achievement of a pre-established free cash flow performance metric for the years ended December 31, 2017 and 2018, andperiod, assuming continued employment throughout the performance period. The number of PSUs granted in 2016 related to the performance metrics for the
years ended December 31, 2017 and 2018, and assumed achievement of the performance metric at 100% of the targeted performance metric.through each vesting date. The actual number of shares to be issued at the end of the performance period will range from 0% to 150% of the initial target awards. Fornumber of shares depending on achievement relative to the performance at 150% ofmetric over the targeted metric, 150% 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.applicable period.
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 $13.0 million and $13.8 million for the three months ended September 30, 2017March 31, 2024 and 2016, was $1.02023, respectively. Excluded from stock-based compensation expense is capitalized software development costs of $0.2 million and $571,000, respectively, and $2.6 million and $1.2$0.2 million for the ninethree months ended September 30, 2017March 31, 2024 and 2016,2023, respectively.
As of September 30, 2017,March 31, 2024, the total estimated remaining estimated stock-based compensation expense for the aforementioned RSUs and PSUs was $9.2$124.8 million, which is expected to be recognized over a weighted average period of 2.62.5 years.
Restricted Stock Awards
A summary of activity in connection with our restricted stock awards for the nine months ended September 30, 2017, 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 |
|
10. Income TaxesWe havecalculate our provision for income taxes on a quarterly basis by applying an estimated annual effective tax rate to income (loss) from operations and by calculating the right to repurchase any unvested restricted stock awards. Restricted stock awards vest over a four-year period for employees and a one-year period for non-employee directors. Wetax effect of discrete items recognized stock-based compensation expense for restricted stock awards of $84,000 and $113,000 forduring the quarter.
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.
As of September 30, 2017, the total remaining stock-based compensation expense for unvested restricted stock awards with a repurchasing right was $268,000 which is expected to be recognized over a weighted average period of 0.8 years.
8. Income Taxes
Our effective tax rate differs from the U.S. Federal statutory rate of 34% primarily because our previously reported losses have been offset by a valuation allowance due to uncertainty as to the realization of those losses.
For the three and nine months ended September 30, 2017,March 31, 2024, we recorded benefits from income tax expensetaxes of $52,000 and $93,000, respectively, on pre-tax income of $3.7$1.6 million, and $7.2 million, respectively, forrepresenting an effective tax rate of 1.4%(4.3)%. The effective tax rate as compared to the U.S. federal statutory rate of 21% differs primarily due to excess tax benefits from stock-based compensation, partially offset by change in valuation allowance against deferred tax assets, state income taxes and 1.3%, respectively. Thenon-deductible officers' compensation.
We assess our 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 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 expenseplanning strategies. Due to a history of cumulative losses, including permanent adjustments, and assessing all available positive and negative evidence, we have determined that it is more likely than not that our federal and state deferred tax assets would not be realized. Accordingly, we have been maintaining full valuation allowance against our deferred tax assets. However, based on our paymentscurrent and projected future earnings, we believe that there is reasonable possibility that sufficient positive evidence of state minimum taxes, alternative minimum tax ("AMT") (netsustained profitability may be achieved during the current year to reach a conclusion that part or all of available AMT credit), and the amortization of tax deductible goodwill that is not an available source of income to realize theour deferred tax asset.assets may become realizable, resulting in a possible release of valuation allowance. Such valuation allowance release may result in a material increase to our deferred tax assets and a corresponding decrease in income tax expense. The exact timing and amount of the valuation allowance release are subject to our projection of earnings and level of profitability that will be achieved.
ForThere were no material changes to our unrecognized tax benefits during the three and nine months ended September 30, 2016,March 31, 2024, and we recorded incomedo not expect to have any significant changes to unrecognized tax expensebenefits through the remainder of $11,000 and $48,000, respectively, on pre-tax lossesthe year.
Table 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.Contents
9. 11. Revenue and Other Information
The following table presents our revenue categories for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Core solutions | | $ | 14,670 |
| | $ | 11,302 |
| | $ | 41,682 |
| | $ | 31,637 |
|
Value+ services | | 21,752 |
| | 15,684 |
| | 60,053 |
| | 42,338 |
|
Other | | 1,481 |
| | 1,176 |
| | 4,171 |
| | 3,601 |
|
Total revenues | | $ | 37,903 |
| | $ | 28,162 |
| | $ | 105,906 |
| | $ | 77,576 |
|
Core solutions revenue includes our subscription fees which are designed to scale to the size of our customers’ businesses. We recognize subscription revenue ratably over the terms of the subscription agreements, which typically range from one month to one year. Revenue from subscription services is impacted by a number of factors, including the change in the number and type of our customers, the size and needs of our customers’ businesses, and our customer renewal rates.
Value+ services revenue includes subscriptions and usage-based fees. Subscription Value+ services include website hosting services and contact center services. Usage-based Value+ services include fees for electronic payment processing, applicant screening services, our tenant liability insurance program, collections, and online vacancy advertising services. Revenue from Value+ services is impacted by a number of factors, including the number of new and existing customers that adopt and utilize our Value+ service, the size and needs of our customers and our customer renewal rates.
Other revenue includes revenue from one-time services related to on-boarding customers to our core solutions, website design services and online vacancy advertising services offered to legacy RentLinx customers.
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
Core solutions | | $ | 42,920 | | | $ | 37,169 | | | | | |
Value Added Services | | 142,331 | | | 96,835 | | | | | |
Other | | 2,179 | | | 2,096 | | | | | |
Total revenue | | $ | 187,430 | | | $ | 136,100 | | | | | |
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.
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. Please also refer to the section of this Quarterly Report entitled "Cautionary Note Regarding Forward-Looking Statements" for additional information.
Overview
AppFolio isWe are a providertechnology leader powering the future of industry-specific, cloud-based softwarethe real estate industry. Our 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.
Our platform isare 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 vacanciesan interconnected and collectinggrowing network of stakeholders in their tenants' unpaid rent. Also in 2016, we expandedbusiness 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 interface, coupled with streamlined and automated workflows, make it easier for our electronic payments platform incustomers 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 clientsheart of our legal customerssuccess 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 announcednavigate the upcoming releasechallenges of a new Value+ service, renters insurance, which expands onincreased competition for talent, we continue to evolve our existing tenant liability insurance programcompensation and offers additional coverage for tenant’s personal belongings.employee reward practices.
Property management units under management. We also enhancedbelieve that our electronic payments platform with the addition of same day ACH payments for owner contributions and eCheck payables. Throughability 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 managermanagement 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 advanceindicator of our realization of revenue or any other benefitmarket 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 8.3 million and 7.5 million property management units under management as of March 31, 2024 and 2023, 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 ourOur core solutions and certain of our Value+ services.Value Added Services are offered on a subscription basis. Our core solutions subscription fees vary by property type and are designed to scale towith the size of our customers’ businesses. We recognize subscription revenue ratablyfor subscription-based services on a straight-line basis over the terms ofcontract term beginning on the subscription agreements, which typically range from one month to one year.date that our service is made available. We generally invoice our customers for subscription services in monthly quarterly or, annual installments, typicallyto a lesser extent, annually in advance of the subscription period. Revenue from subscription services is impacted by a number of factors, including the change in the number and type of our customers, the size and needs of our customers’ businesses, our customer renewal rates, and the level of adoption of our Value+ subscription services by new and existing customers.
We also chargeoffer certain Value Added Services, which are not covered by our customers usage-basedsubscription fees, for using certain Value+ services, although fees for electronic payment processing are generally paid by the clients of our customers.on a per-use basis. Usage-based fees are charged either as a percentage of the transaction amount (e.g., for certain of our 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 inor collect the preceding month. Revenue from usage-based services is impacted by a numberfee at the time of factors, including the number of new and existing customers that adopt and utilize our Value+ services, the size and needsservice. A significant majority of our customers andValue 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,risk mitigation services.
In addition, we have typically experienced slower sequential revenue growth or a sequential decline in revenue in the fourth quarter of each of our most recent fiscal years. We expect this seasonality to continue in the foreseeable future.
We also offer our assistance tocharge our customers with on-boarding tofor assistance onboarding onto our core solutions as well as website designand 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. Wecompleted and recognize revenue for these other services upon completion ofin 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 managermanagement core solution platformplatform. Revenue derived from these services is being recorded under in Other revenue.revenue. As of March 31, 2024 and 2023, we had 19,941 and 18,834 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 expansionamortization of our technology infrastructure as we grow the number of our customers and roll out additional Value+ services. We also intend to expand our Value+ offerings over time, which will impact cost of revenue both in absolute dollars and overall percentage of revenue.intangible assets.
Sales and Marketing. Marketing. Sales and marketing expense consists of personnel-related costs (including salaries, sales commissions, incentive-based compensation, benefits, and stock-based compensation) for our employees focused on sales and marketing (including salaries, sales commissions, performance-based compensation, benefits, and stock-based compensation), costs associated with sales and marketing activities, and allocated shared and other costs. Marketing activities include advertising, online lead generation, lead nurturing, customer and industry events, and the creation of industry-related content and collateral. Sales commissions and other incremental costs to acquire customers and grow adoption and utilization of our Value+ 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 enhancingexpanding functionality and the ease of use and functionality of our existing software solutions by adding new core functionality, Value+ servicesValue Added Services and other improvements, as well as developing new products and services. We capitalize the portion of our software development costs that meetsmeet the criteria for capitalization. Amortization of capitalized software development costs is included in depreciation and amortization expense. We intend to continue to invest in research and product development as we continue to introduce new core functionality, roll out new Value+ services, develop new products and services, and expand into adjacent markets and new verticals.
General and Administrative.General and administrative expense consists of personnel-related costs (including salaries, incentive-based compensation, benefits, and stock-based compensation) for employees in our executive, finance, information technology, or IT, human resources, legal, compliance, corporate development legal and administrative organizations.organizations (including salaries, performance-based 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 audittax services), 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 organizationlosses associated with the sale of businesses and the development or acquisition of new technology, we expect to have increased capitalized software development costsproperty 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 withinin our bank accounts. Interest expense includes interest paid on outstanding borrowings under our Credit Agreement.
(Benefit from) provision for income taxes. (Benefit from) 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 March 31, | | Change | | | | |
| | 2024 | | 2023 | | Amount | | % | | | | | | | | |
| | (dollars in thousands) |
Core solutions | | $ | 42,920 | | | $ | 37,169 | | | $ | 5,751 | | | 15 | % | | | | | | | | |
Value Added Services | | 142,331 | | | 96,835 | | | 45,496 | | | 47 | % | | | | | | | | |
Other | | 2,179 | | | 2,096 | | | 83 | | | 4 | % | | | | | | | | |
Total revenue | | $ | 187,430 | | | $ | 136,100 | | | $ | 51,330 | | | 38 | % | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| | 2017 | | 2016 | | Amount | | % | | 2017 | | 2016 | | Amount | | % |
| | (dollars in thousands) |
Core solutions | | $ | 14,670 |
| | $ | 11,302 |
| | $ | 3,368 |
| | 30 | % | | $ | 41,682 |
| | $ | 31,637 |
| | $ | 10,045 |
| | 32 | % |
Value+ services | | 21,752 |
| | 15,684 |
| | 6,068 |
| | 39 | % | | 60,053 |
| | 42,338 |
| | 17,715 |
| | 42 | % |
Other | | 1,481 |
| | 1,176 |
| | 305 |
| | 26 | % | | 4,171 |
| | 3,601 |
| | 570 |
| | 16 | % |
Total revenues | | $ | 37,903 |
| | $ | 28,162 |
| | $ | 9,741 |
| | 35 | % | | $ | 105,906 |
| | $ | 77,576 |
| | $ | 28,330 |
| | 37 | % |
Revenue increased $9.7 million, or 35%,The increase in revenue for the three months ended September 30, 2017March 31, 2024, compared to the same period in the prior year, was primarily attributable to an increase in the usage of our payments, tenant screening, and risk mitigation services. During the three monthsmonth period ended September 30, 2016, mainly reflecting a 17% increaseMarch 31, 2024, we also experienced growth of 11% 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% increasesame periods in the numberprior year, which drove growth in users of property manager customers. The overall increase was mostly attributable to revenue from Value+our subscription and usage-based services.
Our payment services which increased by $17.7 million, or 42%. The increase in Value+ services was mainly driven byexperienced increased usage during the comparative periods as residents, property managers, and owners transacted more business online.
We expect total revenue for the year ending December 31, 2024 to increase compared to the year ended December 31, 2023 as we continue to add new customers and property management units under management, along with increased adoption and utilization of our electronic payments platform and screening services by a larger property manager customer base and increase in the number of units under management. We also experienced revenue growth in our other Value+ services, including tenant liability insurance, customer contact center, website hosting services and premium lead services within our Value+ services. The overall increase in revenue was also attributable to growth in revenue from our Core solutions of $10.0 million, or 32%, driven by growth in the number of our customers and units under management.Value Added Services.
For the nine months ended September 30, 2017 and 2016, we derived more than 90% of our revenue from our property manager customers.
Cost of Revenue (Exclusive of Depreciation and Amortization)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change | | | | |
| | 2024 | | 2023 | | Amount | | % | | | | | | | | |
| | (dollars in thousands) |
Cost of revenue (exclusive of depreciation and amortization) | | $ | 64,646 | | | $ | 56,208 | | | $ | 8,438 | | | 15 | % | | | | | | | | |
Percentage of revenue | | 34.5 | % | | 41.3 | % | | | | | | | | | | | | |
Stock-based compensation, included above | | $ | 960 | | | $ | 768 | | | $ | 192 | | | 25 | % | | | | | | | | |
Percentage of revenue | | 0.5 | % | | 0.6 | % | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| | 2017 | | 2016 | | Amount | | % | | 2017 | | 2016 | | Amount | | % |
| | (dollars in thousands) |
Cost of revenue (exclusive of depreciation and amortization) | | $ | 14,053 |
| | $ | 11,645 |
| | $ | 2,408 |
| | 21 | % | | $ | 40,747 |
| | $ | 33,387 |
| | $ | 7,360 |
| | 22 | % |
Percentage of revenue | | 37.1 | % | | 41.4 | % | | | | | | 38.5 | % | | 43.0 | % | | | | |
Cost of revenue (exclusive of depreciation and amortization) increased $2.4 million, or 21%, for the three months ended September 30, 2017March 31, 2024 increased primarily due to increases in expenditures to third-party service providers related to the delivery of our Value Added Services of $8.6 million compared to the three months ended September 30, 2016. Thesame period 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 byValue Added Services during the 39% increase in Value+ services revenues. There was also an increase in personnel-related costs of $0.6 million to support the continued growth of our business.period.
As a percentage of revenue,We expect cost of revenue (exclusive of depreciation and amortization) improved to 37.1% from 41.4% for the three months ended September 30, 2017year ending December 31, 2024, to decrease as a percentage of revenue compared to the three monthsyear 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 wasDecember 31, 2023, primarily due to increased third-
party costs of $4.9 million driven by increased Value+ services revenue from eCheck fee and an increase in head-countproduct mix, and personnel-related costs of $1.7 million due to the continued growth of our business.
As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) improved to 38.5% from 43.0% for the nine months ended September 30, 2017 compared to the nine 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 an improvement in pricing with our third-party services providers as we continue to grow.leverage headcount efficiencies.
Sales and Marketing
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| | 2017 | | 2016 | | Amount | | % | | 2017 | | 2016 | | Amount | | % |
| | (dollars in thousands) |
Sales and marketing | | $ | 7,257 |
| | $ | 6,979 |
| | $ | 278 |
| | 4 | % | | $ | 21,556 |
| | $ | 22,097 |
| | $ | (541 | ) | | (2 | )% |
Percentage of revenue | | 19.1 | % | | 24.8 | % | | | | | | 20.4 | % | | 28.5 | % | | | | |
Sales and marketing expense increased by $0.3 million or 4% for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. This increase was the result of an increase in personnel-related costs in our sales and marketing organization to support our revenue growth.
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| | Three Months Ended March 31, | | Change | | | | |
| | 2024 | | 2023 | | Amount | | % | | | | | | | | |
| | (dollars in thousands) |
Sales and marketing | | $ | 24,455 | | | $ | 29,398 | | | $ | (4,943) | | | (17) | % | | | | | | | | |
Percentage of revenue | | 13.0 | % | | 21.6 | % | | | | | | | | | | | | |
Stock-based compensation, included above | | $ | 1,510 | | | $ | 2,417 | | | $ | (907) | | | (38) | % | | | | | | | | |
Percentage of revenue | | 0.8 | % | | 1.8 | % | | | | | | | | | | | | |
Sales and marketing expense decreased $0.5 million, or 2%, for the ninethree months ended September 30, 2017March 31, 2024 compared to the ninesame period in the prior year, primarily due to a $3.5 million decrease in personnel-related costs, including stock-based and performance-based compensation, driven by the lower headcount resulting from our improved efficiency . In addition, advertising costs decreased by $0.6 million for the three months ended September 30, 2016. TheMarch 31, 2024 compared to the same period in the prior year due to timing of promotional activities.
We expect sales and marketing expense for the year ending December 31, 2024 to decrease wasas a percentage of revenue compared to the result of a decrease in allocated and other operating costs of $0.3 million and a decrease in personnel related costs of $0.2 millionyear ended December 31, 2023, as we gain efficiencies in our expenses relativecontinue to revenue growth.leverage headcount efficiencies.
Research and Product Development
| | |
| |
| |
| |
| | | | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| | 2017 | | 2016 | | Amount | | % | | 2017 | | 2016 | | Amount | | % |
| | (dollars in thousands) | | (dollars in thousands) |
Research and product development | | $ | 4,367 |
| | $ | 3,464 |
| | $ | 903 |
| | 26 | % | | $ | 11,998 |
| | $ | 9,531 |
| | $ | 2,467 |
| | 26 | % |
Percentage of revenue | | 11.5 | % | | 12.3 | % | | | | | | 11.3 | % | | 12.3 | % | | | | |
Percentage of revenue | |
Percentage of revenue | |
Stock-based compensation, included above | |
Stock-based compensation, included above | |
Stock-based compensation, included above | |
Percentage of revenue | |
Percentage of revenue | |
Percentage of revenue | |
Research and product development expense increased $0.9 million, or 26%, for the three months ended September 30, 2017March 31, 2024 was relatively flat compared to the three months ended September 30, 2016. The increase wassame period in the result of an increase in personnel-related costs, net of capitalized software development costs, due to headcount growth within ourprior year.
We expect research and product development organizations.
Research and product development expense increased $2.5 million, or 26%,expenses for the nine months ended September 30, 2017year ending December 31, 2024 to decrease as a percentage of revenue compared to the nine monthsyear ended September 30, 2016. The increase was primarily the result of an increase in personnel-related costs, net of capitalized software development costs, dueDecember 31, 2023, as we continue to leverage headcount growth within our research and product development organizations.efficiencies.
General and Administrative
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| | 2017 | | 2016 | | Amount | | % | | 2017 | | 2016 | | Amount | | % |
| | (dollars in thousands) |
General and administrative | | $ | 5,405 |
| | $ | 4,642 |
| | $ | 763 |
| | 16 | % | | $ | 15,310 |
| | $ | 12,580 |
| | $ | 2,730 |
| | 22 | % |
Percentage of revenue | | 14.3 | % | | 16.5 | % | | | | | | 14.5 | % | | 16.2 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change | | | | |
| | 2024 | | 2023 | | Amount | | % | | | | | | | | |
| | (dollars in thousands) |
General and administrative | | $ | 21,132 | | | $ | 31,691 | | | $ | (10,559) | | | (33) | % | | | | | | | | |
Percentage of revenue | | 11.3 | % | | 23.3 | % | | | | | | | | | | | | |
Stock-based compensation, included above | | $ | 5,322 | | | $ | 5,279 | | | $ | 43 | | | 1 | % | | | | | | | | |
Percentage of revenue | | 2.8 | % | | 3.9 | % | | | | | | | | | | | | |
General and administrative expense increased $0.8 million, or 16%, for the three months ended September 30, 2017March 31, 2024 decreased compared to the three months ended September 30, 2016.same period in the prior year primarily due to a $13.9 million decrease in personnel-related costs, including stock-based and performance-based compensation, which was partially offset by a $3.4 million increase in allocated shared and other costs, The decrease in personnel-related costs was primarily due to severance costs associated with our former Chief Executive Officer's separation in the first quarter of 2023. The increase in allocated shared and other costs was primarily the result of increased personnel-related costs of $0.6 million due to headcount growth and an increasea gain on lease modification of $2.4 million in incentive-based compensation.the first quarter of 2023.
GeneralWe expect general and administrative expense increased $2.7 million, or 22%,expenses for the nine months ended September 30, 2017year ending December 31, 2024 to decrease as a percentage of revenue compared to the nine monthsyear ended September 30, 2016. The increase was primarily the resultDecember 31, 2023, as we continue to leverage headcount efficiencies.
Table of an increase in personnel-related costs of $2.8 million due to headcount growth and an increase in incentive-based compensation.Contents
Depreciation and Amortization
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| |
| |
| |
| | | | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| | 2017 | | 2016 | | Amount | | % | | 2017 | | 2016 | | Amount | | % |
| | (dollars in thousands) | | (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 | % | | | | |
Percentage of revenue | |
Percentage of revenue | |
Depreciation and amortization expense increased $0.6 million, or 23%, for the three months ended September 30, 2017March 31, 2024 decreased, compared to the three months ended September 30, 2016. The increase wassame period in the result of increasedprior year, primarily due to decreased amortization expense of $0.6 million associated with highercapitalized software development and intangible balances.
We expect depreciation and amortization expenses for the year ending December 31, 2024 to decrease as a percentage of revenue compared to the year ended December 31, 2023 due to a decrease in amortization of accumulated capitalized software development balances.
Depreciation and amortization expense increased $2.2 million, or 31%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase was the result of increased amortization expense of $2.2 million associated with higher capitalized software development balances.
| | | | 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 | % |
| Three Months Ended March 31, 2024 | |
| Three Months Ended March 31, 2024 | |
| Three Months Ended March 31, 2024 | |
| 2024 | |
| 2024 | |
| 2024 | |
| (dollars in thousands) | |
| (dollars in thousands) | |
| (dollars in thousands) | |
Interest income, net | |
Percentage of revenue | | 0.4 | % | | 0.4 | % | | | | | | 0.4 | % | | 0.3 | % | | | | |
Percentage of revenue | |
Percentage of revenue | |
Interest income net, remained relatively flat for the three months ended September 30, 2017March 31, 2024 increased, compared to the same period in the prior year, primarily due to higher interest rates.
(Benefit from) Provision for Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change | | | | |
| | 2024 | | 2023 | | Amount | | % | | | | | | | | |
| | (dollars in thousands) |
Income (loss) before provision for income taxes | | $ | 37,082 | | | $ | (25,149) | | | $ | 62,231 | | | (247.4) | % | | | | | | | | |
Provision for income taxes | | $ | (1,581) | | | $ | 9,961 | | | $ | (11,542) | | | * | | | | | | | | |
Effective tax rate | | (4.3) | % | | (39.6) | % | | | | | | | | | | | | |
*Percentage not meaningful
Our effective tax rate for the three months ended September 30, 2016. ForMarch 31, 2024 differs from the nineU.S. federal statutory rate of 21% primarily due to excess tax benefits from stock-based compensation, partially offset by a change in valuation allowance against deferred tax assets, state income taxes and non-deductible officers' compensation. Our effective tax rate for the three months ended September 30, 2017March 31, 2023 differs from the U.S. federal statutory rate of 21% primarily due to a change in valuation allowance against deferred tax assets, non-deductible officers' compensation and state income taxes, partially offset by tax benefits from research and development tax credits.
The increase in our effective tax rate for the three months ended March 31, 2024, as compared to the nine months ended September 30, 2016, interest income increased $0.2 million and is primarily the result of higher investment security balancessame period in the more recent period.prior year, was primarily due to the significant increase in our pre-tax income, partially offset by the increase in excess tax benefits from stock-based compensation.
Liquidity and Capital Resources
Cash and Cash Equivalents
As of September 30, 2017, ourOur principal sources of liquidity werecontinue to be cash, and cash equivalents, and investment securities which had an aggregate balance of $63.6 million.
Working Capital
As of September 30, 2017, we had working capital of $27.2 million, compared to working capital of $10.9totaling $243.5 million, as of December 31, 2016. The increase inwell as cash flows generated from our working capital wasoperations. We have financed our operations primarily due to an increase in the current portion of investment securities and inthrough cash and cash equivalents, offset by increases in accrued expenses and accrued employee expensesgenerated from the continued growth of our business.
Revolving Facility
As of September 30, 2017, we had a $25.0 million revolving line of credit, which we refer to as the Revolving Facility, under the terms of the Credit Agreement with Wells Fargo, as administrative agent, and the lenders and parties thereto. As of September 30, 2017 and December 31, 2016, we had no outstanding balance and were in compliance with the financial covenants under the Revolving Facility.
Liquidity Requirements
operations. We believe that our existing cash and cash equivalents, investment securities, available borrowing capacity of $25.0 million under the Revolving Facility, and cash generated from ongoing operationsoperating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12twelve months.
Capital Requirements
Our future capital requirements will depend on many factors, including the continued market acceptance of our software solutions, the changechanges in the number of our customers, the adoption and utilization of our Value+ servicesValue Added Services by new and existing customers, the timing and extent of the introduction of new core functionality, products and Value+ services in our existing markets and verticals, the timing and extent of our expansion into adjacent markets or new verticalsValue 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, althoughmarkets adjacent to those we serve today. Furthermore, our Board of Directors has authorized the repurchase of up to $100.0 million of shares of our Class A common stock from time to time. To date, we have no present plans with respect to any acquisitions or investments.repurchased $4.2 million of our Class A common stock under the share repurchase program.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2024 | | 2023 |
Net cash provided by operating activities | | $ | 42,954 | | | $ | 1,573 | |
Net cash (used in) provided by investing activities | | (23,037) | | | 36,288 | |
Net cash used in financing activities | | (10,212) | | | (4,705) | |
Net increase in cash, cash equivalents and restricted cash | | $ | 9,705 | | | $ | 33,156 | |
|
| | | | | | | | |
| | 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 increase in cash provided by operating activities was $21.6 million resulting from net income of $7.1 million, adjusted by non-cash charges of $13.8 million and a net increase in our operating assets and liabilities of $0.6 million. The non-cash charges primarily consist of $9.3 million of depreciation and amortization of our property and equipment and capitalized software development and $4.3 million of stock based compensation. The net increase in our operating assets and liabilities was mostly attributable to a $1.7 million increase in accrued expenses and a $0.8 million increase in accrued employee expenses. The increase in our operating assets and liabilities was partially offset by a decrease in accounts receivable of $0.9 million, and prepaid expenses and other current assets of $0.9 million.
Forfor the ninethree 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 increaseMarch 31, 2024, compared to the same period in our operating assets and liabilities of $1.3 million. The net increase in our non-cash chargesthe prior year, was primarily the result of $7.1 million of depreciation and amortization of our property and equipment and capitalized software and $2.8 million of stock based compensation. The increase in our operating assets and liabilities was mostly attributeddue to an increase in deferred revenue of $1.7 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 collections from customers.
Cash Used in Investing Activities
Cash used in investing activities is generally comprised of purchases, maturities and sales of investment securities, additions to capitalized software development and purchases and dispositions of capital expenditures.
For the nine months ended September 30, 2017, investing activities used $16.4 million in cash primarily as a result of $17.6 million of investment securities purchased, partially offset by $11.0 million of maturities of investment securities. In addition, we incurred capitalized software development costs of $8.1 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 investing activities is generally composed of purchases of investment securities, maturities of investment securities, purchases of property and equipment, and additions to capitalized software development.
The net increase in cash used in investing activities for the three months ended March 31, 2024, compared to the same period in the prior year, was primarily due to higher purchases of available-for-sale investment securities.
Financing Activities
Cash 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 resultcomposed of net share settlements for employee tax withholdings associated with the vesting of RSUs of $1.6 million, partiallyequity awards offset by proceeds from the exercise of stock option exercises of $0.5 million.options.
ForThe net increase in cash used in financing activities for the ninethree months ended September 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 relatingMarch 31, 2024, compared to the property located at 50 Castilian Drivesame period in Santa Barbara, California, our corporate headquarters. This amendment extends the term from February 2018prior year, was primarily due to December 2021. The total commitment under this lease extension is $3.1 million. Allan increase in net share settlements for employee tax withholdings associated with the vesting of the other terms and conditions of the original lease agreement remain the same.equity awards.
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. 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 and operatingthe disclosure of contingent assets and 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 adoptedThere have been no newchanges to our critical accounting policies during the nine months ended September 30, 2017. Please refer to our Critical Accounting Policies as includedand estimates described in our Annual Report.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies withinReport that have had a material impact on our Condensed Consolidated Financial Statements.Statements and related notes.
Item 3. Quantitative and Qualitative and Quantitative DisclosureDisclosures about Market Risk
Interest Rate Risk
At September 30, 2017,Investment Securities
As of March 31, 2024, we had cash and cash equivalents of $14.8$184.3 million of investment securities consisting of bank deposits and money market funds, and $48.8 million of investment securities which are comprised of fixed rate debtUnited States government agency securities and certificatestreasury securities. The primary objective of deposit.investing in securities is to support our liquidity and capital needs. We did not purchase these investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
Our investment securities are exposed to market risk due to interest rate fluctuations. While fluctuations in interest rates do not impact our interest income from our investment securities as all of these securities have fixed interest rates, changes in interest rates may impact the fair value of the investment securities. Since our investment securities are held as available for sale, all changes in fair value impact our other comprehensive (loss) income unless an investment security is considered impaired in which case changes in fair value are reported in other expense. As of September 30, 2017,March 31, 2024, 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$0.7 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$0.7 million. This estimate is based on a sensitivity model which measures an instant change in interest rates by 1% or 100 basis points at September 30, 2017.March 31, 2024.
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 defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) 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'sthis 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 designed at the reasonable assurance level and 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 ControlsContents
In designing and evaluating our disclosure controls and procedures, our management recognizes that no evaluation of controls can provide absolute assurance that all control issues within a company have been detected. In addition, the design of disclosure controls and procedures must reflect the fact that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure controls system are met.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved inFor information regarding legal proceedings, arising from or relatedrefer to claims incident to the normal courseNote 8, Commitments and Contingencies of our business activities. Although the results of such legal proceedings and claims cannot be predicted with certainty, we believe that we are not currently a party to any legal proceeding(s) 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 raised or the ultimate outcome, legal proceedings may generally have an adverse impact on us as a result of defense and settlement costs, diversion of management resources, and other factors.Condensed Consolidated Financial Statements.
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, as well as in our other public filings with the SEC.1, 2024. 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.decline. 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 Quarterly Report, there have been no material changes to the risk factors previously disclosed under the section "Risk Factors" in Part I, Item IA of our 2023 Annual Report.
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 March 15, 2024, Andreas von Blottnitz, a member of our Board of Directors, adopted a Rule 10b5-1 trading arrangement providing for the sale of up to 28,500 shares of the Company's Class A common stock between June 14, 2024 and December 31, 2024. Mr. von Blottnitz'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.
On March 15, 2024, Janet Kerr, a member of our Board of Directors, adopted a Rule 10b5-1 trading arrangement providing for the sale of up to 2,500 shares of the Company's Class A common stock between June 14, 2024 and December 31, 2024. 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.
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 | | |
| 31.2 | | |
| 32.1* | | |
| 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. .
|
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: | April 25, 2024 | By: | /s/ Shane Trigg | |
| | | Shane Trigg | |
| | | Chief Executive Officer | |
| | | (Principal Executive Officer) | |
| | | | |
Date: | April 25, 2024 | By: | /s/ Fay Sien Goon | |
| | | Fay Sien Goon | |
| | | Chief Financial Officer | |
| | | (Principal Financial and Accounting Officer) | |