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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 2020.2021.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.

Commission File Number 001-37468
AppFolio, Inc.
(Exact name of registrant as specified in its charter)
Delaware26-0359894
(State of incorporation or organization)(I.R.S. Employer Identification No.)
50 Castilian Drive93117
   Santa Barbara,California
(Address of principal executive offices)(Zip Code)
 (805) 364-6093
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A Common Stock, $0.0001 par valueAPPFNASDAQ Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically 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 No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer
  
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of NovemberAugust 2, 2020,2021, the number of shares of the registrant’s Class A common stock outstanding was 18,098,28418,991,205 and the number of shares of the registrant’s Class B common stock outstanding was 16,229,904.15,620,784.


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SectionPage No.
 



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the fiscal quarter ended SeptemberJune 30, 20202021 (this "Quarterly Report"), includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which statements are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not statements of historical facts and can be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts," “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those expressions. Forward-looking statements also include the assumptions underlying or relating to such statements. In particular, forward-looking statements contained in this Quarterly Report relate to, among other things:
our future or assumed financial condition, results of operations and liquidity;
business forecasts and plans;
trends affecting our business and industry, and the economy as a whole;
capital needs and financing plans;
capital resource allocation plans;
share repurchase plans;
research and product development plans;
future products and Value+ services;
growth in the size of our business and number of customers;
strategic plans and objectives;
the impact of acquisitions, investments and divestitures;
performance-based compensation, whether cash- or equity-based;
changes in the competitive environment;
commitments and contingencies, including with respect to the outcome of legal proceedings or regulatory matters;
the application of accounting guidance, including the impact from adoption of recent accounting pronouncements; and
the impacts of, and our response to, the novel coronavirus ("COVID-19") pandemic.
We caution you that theThe foregoing list may not include all of the forward-looking statements made in this Quarterly Report.
Our forward-looking statements are based on our management’s current beliefs, assumptions and expectations about future events and trends, which affect or may affect our business, strategy, operations, financial performance or liquidity. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to numerous known and unknown risks and uncertainties and are made in light of information currently available to us. Our actual financial condition and results could differ materially from those anticipated inexpressed or implied by these forward-looking statements as a result of various factors, including those discussed in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 20192020 (our "Annual Report"), as well as in the other reports we file with the Securities and Exchange Commission (the "SEC"). You should read this Quarterly Report, and the other documents we file with the SEC, with the understanding that our actual future results may be materially different from the results expressed or implied by these forward-looking statements.
Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and 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.
Forward-looking statements speak only as of the date they were made, and, except to the extent required by law or the rules of the NASDAQ Global Market, we undertake no obligation to update or review any forward-looking statement because of new information, future events or other factors.
We qualify all of our forward-looking statements by these cautionary statements.

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

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APPFOLIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par values)
September 30,
2020
December 31,
2019
June 30,
2021
December 31,
2020
AssetsAssetsAssets
Current assetsCurrent assetsCurrent assets
Cash and cash equivalentsCash and cash equivalents$144,028 $15,813 Cash and cash equivalents$48,610 $140,263 
Investment securities—currentInvestment securities—current32,689 22,876 Investment securities—current102,978 28,256 
Accounts receivable, netAccounts receivable, net9,416 7,562 Accounts receivable, net14,973 10,057 
Prepaid expenses and other current assetsPrepaid expenses and other current assets15,720 15,540 Prepaid expenses and other current assets23,306 20,777 
Total current assetsTotal current assets201,853 61,791 Total current assets189,867 199,353 
Investment securities—noncurrentInvestment securities—noncurrent5,135 12,089 Investment securities—noncurrent11,541 6,770 
Property and equipment, netProperty and equipment, net26,565 14,744 Property and equipment, net27,324 26,439 
Operating lease right-of-use assetsOperating lease right-of-use assets24,645 27,803 Operating lease right-of-use assets40,983 30,561 
Capitalized software, net33,543 30,023 
Capitalized software development costs, netCapitalized software development costs, net39,225 35,459 
GoodwillGoodwill56,147 58,425 Goodwill56,147 56,147 
Intangible assets, netIntangible assets, net17,544 21,377 Intangible assets, net14,017 16,357 
Deferred taxes14,826 27,574 
Deferred income taxes—noncurrentDeferred income taxes—noncurrent12,774 12,181 
Other long-term assetsOther long-term assets6,014 6,276 Other long-term assets7,194 6,213 
Total assetsTotal assets$386,272 $260,102 Total assets$399,072 $389,480 
Liabilities and Stockholders’ EquityLiabilities and Stockholders’ EquityLiabilities and Stockholders’ Equity
Current liabilitiesCurrent liabilitiesCurrent liabilities
Accounts payableAccounts payable$3,591 $1,927 Accounts payable$2,411 $1,040 
Accrued employee expenses18,379 17,758 
Accrued employee expenses—currentAccrued employee expenses—current27,504 18,888 
Accrued expensesAccrued expenses13,546 10,833 Accrued expenses11,403 14,069 
Deferred revenueDeferred revenue2,457 4,586 Deferred revenue3,205 2,262 
Income tax payableIncome tax payable13,571 Income tax payable66 9,095 
Other current liabilitiesOther current liabilities4,607 11,139 Other current liabilities4,196 4,451 
Term loan, net—current portion1,208 
Total current liabilitiesTotal current liabilities56,151 47,451 Total current liabilities48,785 49,805 
Accrued employee expenses—noncurrentAccrued employee expenses—noncurrent968 
Operating lease liabilitiesOperating lease liabilities32,755 33,312 Operating lease liabilities53,936 40,146 
Term loan, net47,375 
Deferred taxes10,130 
Other long-term liabilities2,720 14 
Deferred income taxes—noncurrentDeferred income taxes—noncurrent8,116 13,609 
Total liabilitiesTotal liabilities101,756 128,152 Total liabilities111,805 103,560 
Commitments and contingencies (Note 9)Commitments and contingencies (Note 9)Commitments and contingencies (Note 9)00
Stockholders’ equity:Stockholders’ equity:Stockholders’ equity:
Preferred stock, $0.0001 par value, 25,000 shares authorized and no shares issued and outstanding as of September 30, 2020 and December 31, 2019
Class A common stock, $0.0001 par value, 250,000 shares authorized as of September 30, 2020 and December 31, 2019; 18,450 and 16,923 shares issued as of September 30, 2020 and December 31, 2019, respectively; 18,031 and 16,552 shares outstanding as of September 30, 2020 and December 31, 2019, respectively
Class B common stock, $0.0001 par value, 50,000 shares authorized as of September 30, 2020 and December 31, 2019; 16,282 and 17,594 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
Preferred stock, $0.0001 par value, 25,000 shares authorized and 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020Preferred stock, $0.0001 par value, 25,000 shares authorized and 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020
Class A common stock, $0.0001 par value, 250,000 shares authorized as of June 30, 2021 and December 31, 2020; 19,408 and 19,148 shares issued as of June 30, 2021 and December 31, 2020, respectively; 18,989 and 18,729 shares outstanding as of June 30, 2021 and December 31, 2020, respectivelyClass A common stock, $0.0001 par value, 250,000 shares authorized as of June 30, 2021 and December 31, 2020; 19,408 and 19,148 shares issued as of June 30, 2021 and December 31, 2020, respectively; 18,989 and 18,729 shares outstanding as of June 30, 2021 and December 31, 2020, respectively
Class B common stock, $0.0001 par value, 50,000 shares authorized as of June 30, 2021 and December 31, 2020; 15,621 and 15,659 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectivelyClass B common stock, $0.0001 par value, 50,000 shares authorized as of June 30, 2021 and December 31, 2020; 15,621 and 15,659 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
Additional paid-in capitalAdditional paid-in capital159,296 161,509 Additional paid-in capital160,160 161,247 
Accumulated other comprehensive income90 33 
Treasury stock, at cost, 419 and 371 shares of Class A common stock as of September 30, 2020 and December 31, 2019, respectively(25,756)(21,562)
Retained earnings (accumulated deficit)150,882 (8,034)
Accumulated other comprehensive (loss) incomeAccumulated other comprehensive (loss) income(10)56 
Treasury stock, at cost, 419 shares of Class A common stock as of June 30, 2021 and December 31, 2020Treasury stock, at cost, 419 shares of Class A common stock as of June 30, 2021 and December 31, 2020(25,756)(25,756)
Retained earningsRetained earnings152,869 150,369 
Total stockholders’ equityTotal stockholders’ equity284,516 131,950 Total stockholders’ equity287,267 285,920 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$386,272 $260,102 Total liabilities and stockholders’ equity$399,072 $389,480 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019 2021202020212020
RevenueRevenue$84,086 $67,935 $237,624 $188,650 Revenue$89,040 $81,043 $167,961 $153,538 
Costs and operating expenses:Costs and operating expenses:Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)Cost of revenue (exclusive of depreciation and amortization)32,752 25,930 89,124 75,239 Cost of revenue (exclusive of depreciation and amortization)32,819 27,411 66,117 56,372 
Sales and marketingSales and marketing14,894 12,636 43,117 37,087 Sales and marketing17,714 13,717 33,893 28,223 
Research and product developmentResearch and product development13,454 10,602 36,794 28,422 Research and product development15,506 12,128 29,889 23,340 
General and administrativeGeneral and administrative12,946 8,955 36,303 25,361 General and administrative14,206 14,785 27,567 23,357 
Depreciation and amortizationDepreciation and amortization6,680 5,678 19,751 16,169 Depreciation and amortization7,649 6,657 15,018 13,071 
Total costs and operating expensesTotal costs and operating expenses80,726 63,801 225,089 182,278 Total costs and operating expenses87,894 74,698 172,484 144,363 
Income from operations3,360 4,134 12,535 6,372 
Other income (expense), net187,747 (11)187,759 (68)
Interest expense, net(853)(400)(1,909)(1,324)
Income before provision for (benefit from) income taxes190,254 3,723 198,385 4,980 
Provision for (benefit from) income taxes52,578 (1,255)39,469 (26,874)
Income (loss) from operationsIncome (loss) from operations1,146 6,345 (4,523)9,175 
Other income (loss), netOther income (loss), net496 (10)1,058 12 
Interest income (expense), netInterest income (expense), net55 (562)108 (1,056)
Income (loss) before benefit from income taxesIncome (loss) before benefit from income taxes1,697 5,773 (3,357)8,131 
Benefit from income taxesBenefit from income taxes(324)(13,484)(5,857)(13,109)
Net incomeNet income$137,676 $4,978 $158,916 $31,854 Net income$2,021 $19,257 $2,500 $21,240 
Net income per common share:Net income per common share:Net income per common share:
BasicBasic$4.01 $0.15 $4.64 $0.94 Basic$0.06 $0.56 $0.07 $0.62 
DilutedDiluted$3.86 $0.14 $4.46 $0.90 Diluted$0.06 $0.54 $0.07 $0.60 
Weighted average common shares outstanding:Weighted average common shares outstanding:Weighted average common shares outstanding:
BasicBasic34,296 34,047 34,241 33,991 Basic34,548 34,254 34,479 34,214 
DilutedDiluted35,665 35,421 35,662 35,406 Diluted35,674 35,614 35,697 35,647 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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

Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019 2021202020212020
Net incomeNet income$137,676 $4,978 $158,916 $31,854 Net income$2,021 $19,257 $2,500 $21,240 
Other comprehensive (loss) income:
Other comprehensive income:Other comprehensive income:
Changes in unrealized (losses) gains on investment securities Changes in unrealized (losses) gains on investment securities(41)20 57 216  Changes in unrealized (losses) gains on investment securities(48)(34)(66)98 
Comprehensive incomeComprehensive income$137,635 $4,998 $158,973 $32,070 Comprehensive income$1,973 $19,223 $2,434 $21,338 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
AccumulatedRetainedAccumulated
AdditionalOtherEarnings/AdditionalOther
Common StockCommon StockPaid-inComprehensiveTreasury(AccumulatedCommon StockCommon StockPaid-inComprehensiveTreasuryRetained
Class AClass BCapitalIncomeStockDeficit)TotalClass AClass BCapitalIncome (Loss)StockEarningsTotal
SharesAmountSharesAmountSharesAmountSharesAmount
Balance as of December 31, 201916,552 $17,594 $$161,509 $33 $(21,562)$(8,034)$131,950 
Balance at December 31, 2020Balance at December 31, 202018,729 $15,659 $$161,247 $56 $(25,756)$150,369 $285,920 
Exercise of stock optionsExercise of stock options17 — — — 97 — — — 97 Exercise of stock options23 — — — 100 — — — 100 
Stock-based compensationStock-based compensation— — — — 1,365 — — — 1,365 Stock-based compensation— — — — 3,295 — — — 3,295 
Vesting of restricted stock units, net of shares withheld for taxesVesting of restricted stock units, net of shares withheld for taxes91 — — — (6,458)— — — (6,458)Vesting of restricted stock units, net of shares withheld for taxes42 — — — (3,992)— — — (3,992)
Conversion of Class B stock to Class A stockConversion of Class B stock to Class A stock58 — (58)— — — — — Conversion of Class B stock to Class A stock108 — (108)— — — — — — 
Other comprehensive income— — — — — 132 — — 132 
Repurchase of common stock(48)— — — — — (4,194)— (4,194)
Other comprehensive lossOther comprehensive loss— — — — — (18)— — (18)
Net incomeNet income— — — — — — — 1,983 1,983 Net income— — — — — — — 479 479 
Balance as of March 31, 202016,670 $17,536 $$156,513 $165 $(25,756)$(6,051)$124,875 
Balance at March 31, 2021Balance at March 31, 202118,902 $15,551 $$160,650 $38 $(25,756)$150,848 $285,784 
Exercise of stock optionsExercise of stock options32 — — — 232 — — — 232 Exercise of stock options13 — 84 — 545 — — — 545 
Stock-based compensationStock-based compensation— — — — 3,406 — — — 3,406 Stock-based compensation— — — — 3,873 — — — 3,873 
Vesting of restricted stock units, net of shares withheld for taxesVesting of restricted stock units, net of shares withheld for taxes50 — — — (3,232)— — — (3,232)Vesting of restricted stock units, net of shares withheld for taxes56 — — — (4,908)— — — (4,908)
Conversion of Class B stock to Class A stockConversion of Class B stock to Class A stock197 — (197)— — — — — Conversion of Class B stock to Class A stock14 — (14)— — — — — — 
Issuance of restricted stock awardsIssuance of restricted stock awards— — — — — — — Issuance of restricted stock awards— — — — — — — — 
Other comprehensive lossOther comprehensive loss— — — — — (34)— — (34)Other comprehensive loss— — — — — (48)— — (48)
Net incomeNet income— — — — — — — 19,257 19,257 Net income— — — — — — — 2,021 2,021 
Balance as of June 30, 202016,952 $17,339 $$156,919 $131 $(25,756)$13,206 $144,504 
Exercise of stock options10 — — — 74 — — — 74 
Stock-based compensation— — — — 3,572 — — — 3,572 
Vesting of restricted stock units, net of shares withheld for taxes12 — — — (1,269)— — — (1,269)
Conversion of Class B stock to Class A stock1,057 — (1,057)— — — — — 
Other comprehensive loss— — — — — (41)— — (41)
Net income— — — — — — — 137,676 137,676 
Balance as of September 30, 202018,031 $16,282 $159,296 $90 $(25,756)$150,882 $284,516 
Balance at June 30, 2021Balance at June 30, 202118,989 $15,621 $$160,160 $(10)$(25,756)$152,869 $287,267 













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APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
AccumulatedAccumulated(Accumulated
AdditionalOtherAdditionalOtherDeficit)/
Common StockCommon StockPaid-inComprehensiveTreasuryAccumulatedCommon StockCommon StockPaid-inComprehensiveTreasuryRetained
Class AClass BCapital(Loss) IncomeStockDeficitTotalClass AClass BCapitalIncomeStockEarningsTotal
SharesAmountSharesAmountSharesAmountSharesAmount
Balance as of December 31, 201815,789 $18,109 $$157,898 $(178)$(21,562)$(44,316)$91,846 
Balance at December 31, 2019Balance at December 31, 201916,552 $17,594 $$161,509 $33 $(21,562)$(8,034)$131,950 
Exercise of stock optionsExercise of stock options14 — — — 90 — — — 90 Exercise of stock options17 — — — 97 — — — 97 
Stock-based compensationStock-based compensation— — — — 1,831 — — — 1,831 Stock-based compensation— — — — 1,365 — — — 1,365 
Vesting of restricted stock units, net of shares withheld for taxesVesting of restricted stock units, net of shares withheld for taxes58 — — — (2,572)— — — (2,572)Vesting of restricted stock units, net of shares withheld for taxes91 — — — (6,458)— — — (6,458)
Vesting of early exercised shares— — — — — — — 
Conversion of Class B stock to Class A stockConversion of Class B stock to Class A stock38 — (38)— — — — — Conversion of Class B stock to Class A stock58 — (58)— — — — — — 
Other comprehensive incomeOther comprehensive income— — — — — 129 — — 129 Other comprehensive income— — — — — 132 — — 132 
Repurchase of common stockRepurchase of common stock(48)— — — — — (4,194)— (4,194)
Net incomeNet income— — — — — — — 3,725 3,725 Net income— — — — — — — 1,983 1,983 
Balance as of March 31, 201915,899 $18,071 $$157,253 $(49)$(21,562)$(40,591)$95,055 
Balance as of March 31, 2020Balance as of March 31, 202016,670 $17,536 $$156,513 $165 $(25,756)$(6,051)$124,875 
Exercise of stock optionsExercise of stock options23 — — — 109 — — — 109 Exercise of stock options32 — — — 232 — — — 232 
Stock-based compensationStock-based compensation— — — — 2,080 — — — 2,080 Stock-based compensation— — — — 3,406 — — — 3,406 
Vesting of restricted stock units, net of shares withheld for taxesVesting of restricted stock units, net of shares withheld for taxes42 — — — (2,247)— — — (2,247)Vesting of restricted stock units, net of shares withheld for taxes50 — — — (3,232)— — — (3,232)
Conversion of Class B stock to Class A stockConversion of Class B stock to Class A stock119 — (119)— — — — — Conversion of Class B stock to Class A stock197 — (197)— — — — — — 
Issuance of restricted stock awardsIssuance of restricted stock awards— — — — — — — Issuance of restricted stock awards— — — — — — — — 
Other comprehensive income— — — — — 67 — — 67 
Other comprehensive lossOther comprehensive loss— — — — — (34)— — (34)
Net incomeNet income— — — — — — — 23,151 23,151 Net income— — — — — — — 19,257 19,257 
Balance as of June 30, 201916,086 $17,952 $$157,195 $18 $(21,562)$(17,440)$118,215 
Exercise of stock options— — — 60 — — — 60 
Stock-based compensation— — — — 2,678 — — — 2,678 
Vesting of restricted stock units, net of shares withheld for taxes11 — — — (534)— — — (534)
Conversion of Class B stock to Class A stock267 — (267)— — — — — 
Issuance of restricted stock awards— — — — — — — — 
Other comprehensive income— — — — — 20 — — 20 
Net income— — — — — — — 4,978 4,978 
Balance as of September 30, 201916,373 $17,685 $$159,399 $38 $(21,562)$(12,462)$125,417 
Balance as of June 30, 2020Balance as of June 30, 202016,952 $17,339 $$156,919 $131 $(25,756)$13,206 $144,504 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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APPFOLIO, INC.APPFOLIO, INC.APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)(UNAUDITED)(UNAUDITED)
(in thousands)(in thousands)(in thousands)
Nine Months Ended
September 30,
Six Months Ended
June 30,
20202019 20212020
Cash from operating activitiesCash from operating activitiesCash from operating activities
Net incomeNet income$158,916 $31,854 Net income$2,500 $21,240 
Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortizationDepreciation and amortization19,751 16,169 Depreciation and amortization15,018 13,071 
Amortization of operating lease right-of-use assetsAmortization of operating lease right-of-use assets2,973 3,016 Amortization of operating lease right-of-use assets1,399 2,071 
Deferred income taxesDeferred income taxes22,878 (27,032)Deferred income taxes(6,086)(13,137)
Stock-based compensationStock-based compensation6,808 5,431 Stock-based compensation5,990 3,712 
Gain on sale of business(187,636)
OtherOther170 136 Other(579)(30)
Changes in operating assets and liabilities:Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivableAccounts receivable(2,229)(2,778)Accounts receivable(4,007)(5,136)
Prepaid expenses and other current assetsPrepaid expenses and other current assets(859)(4,403)Prepaid expenses and other current assets(2,171)(292)
Other assetsOther assets(320)1,129 Other assets(982)(107)
Accounts payableAccounts payable695 270 Accounts payable1,301 193 
Accrued employee expenses1,919 486 
Accrued employee expenses—currentAccrued employee expenses—current7,638 717 
Accrued expensesAccrued expenses5,931 (14)Accrued expenses(3,047)4,534 
Deferred revenueDeferred revenue815 1,039 Deferred revenue33 532 
Income tax payableIncome tax payable(9,029)
Other current liabilitiesOther current liabilities30 100 
Accrued employee expenses—noncurrentAccrued employee expenses—noncurrent968 
Operating lease liabilitiesOperating lease liabilities(1,135)(2,886)Operating lease liabilities1,685 (92)
Other liabilities16,539 996 
Net cash provided by operating activitiesNet cash provided by operating activities45,216 23,413 Net cash provided by operating activities10,661 27,376 
Cash from investing activitiesCash from investing activitiesCash from investing activities
Purchases of available-for-sale investmentsPurchases of available-for-sale investments(29,879)(10,690)Purchases of available-for-sale investments(148,293)(13,389)
Proceeds from sales of available-for-sale investmentsProceeds from sales of available-for-sale investments13,942 2,750 Proceeds from sales of available-for-sale investments42,198 13,942 
Proceeds from maturities of available-for-sale investmentsProceeds from maturities of available-for-sale investments13,300 11,000 Proceeds from maturities of available-for-sale investments26,750 7,750 
Purchases of property, equipment and intangible assetsPurchases of property, equipment and intangible assets(16,551)(4,115)Purchases of property, equipment and intangible assets(2,804)(14,306)
Additions to capitalized software(19,697)(15,669)
Cash paid in business acquisition, net of cash acquired(54,004)
Proceeds from sale of business, net of cash divested191,427 
Capitalization of software development costsCapitalization of software development costs(11,911)(12,709)
Net cash provided by (used in) investing activities152,542 (70,728)
Net cash used in investing activitiesNet cash used in investing activities(94,060)(18,712)
Cash from financing activitiesCash from financing activitiesCash from financing activities
Proceeds from stock option exercisesProceeds from stock option exercises402 259 Proceeds from stock option exercises646 329 
Tax withholding for net share settlementTax withholding for net share settlement(10,959)(5,541)Tax withholding for net share settlement(8,900)(9,690)
Payment of contingent considerationPayment of contingent consideration(5,977)Payment of contingent consideration(5,977)
Proceeds from issuance of debtProceeds from issuance of debt50,752 1,697 Proceeds from issuance of debt50,190 
Principal payments on debtPrincipal payments on debt(99,565)(2,634)Principal payments on debt(1,818)
Payment of debt issuance costs(420)
Purchase of treasury stockPurchase of treasury stock(4,194)Purchase of treasury stock(4,194)
Net cash used in financing activities(69,541)(6,639)
Net increase (decrease) in cash, cash equivalents and restricted cash128,217 (53,954)
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(8,254)28,840 
Net (decrease) increase in cash, cash equivalents and restricted cashNet (decrease) increase in cash, cash equivalents and restricted cash(91,653)37,504 
Cash, cash equivalents and restricted cashCash, cash equivalents and restricted cashCash, cash equivalents and restricted cash
Beginning of periodBeginning of period140,699 16,247 
End of periodEnd of period$49,046 $53,751 
Noncash investing and financing activitiesNoncash investing and financing activities
Purchases of property and equipment included in accounts payable and accrued expensesPurchases of property and equipment included in accounts payable and accrued expenses$822 $2,678 
Capitalization of software development costs included in accrued expenses and accrued employee expensesCapitalization of software development costs included in accrued expenses and accrued employee expenses1,361 1,281 
Stock-based compensation capitalized for software developmentStock-based compensation capitalized for software development1,178 1,059 
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APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 Nine Months Ended
September 30,
 20202019
Beginning of period16,247 74,506 
End of period$144,464 $20,552 
Noncash investing and financing activities
Purchases of property and equipment included in accounts payable and accrued expenses$1,748 $1,613 
Additions of capitalized software included in accrued and accrued employee expenses756 601 
Stock-based compensation capitalized for software development1,535 1,321 
Purchase consideration for acquisitions included in other current liabilities5,977 

    The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within our Condensed Consolidated Balance Sheets to the total of the same such amounts shown above (in thousands):
September 30,June 30,
2020201920212020
Cash and cash equivalentsCash and cash equivalents$144,028 $20,121 Cash and cash equivalents$48,610 $53,315 
Restricted cash included in other assetsRestricted cash included in other assets436 431 Restricted cash included in other assets436 436 
Total cash, cash equivalents and restricted cashTotal cash, cash equivalents and restricted cash$144,464 $20,552 Total cash, cash equivalents and restricted cash$49,046 $53,751 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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APPFOLIO, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. Nature of Business
AppFolio, Inc.'s (the "Company," “we,”"we," "us" or "our") mission is to revolutionize vertical industry businesses by providing greatprovides innovative software, and services. We offer industry-specific, cloud-based business software solutions, services and data analytics to our customers.the real estate industry. Our cloud-based solutions are used primarily by property managers, but also by numerous other constituencies in the property management business ecosystem. These other constituencies include property owners, rental prospects, tenants and service providers, whom we refer to collectively as "users". Although specific functionality varies by product, our core solutions are designed to enable our customers to digitally transform their businesses, address commoncritical business operations and interactions of our customers' businesses.enable exceptional customer service. In addition to our core solutions, we offer a rangean array of optional, but often business-critical, Value+ services. Our Value+ services that are builtdesigned to enhance, automate and streamline processes and support workflows that are essential to our customers' businesses.
Our real estate software solutions represent approximately 90% of our revenue as of September 30, 2020. The significant majority ofValue+ services are generally available on an as-needed basis and enable our customers in the real estate vertical useto adapt our property managementofferings to their specific operational requirements.
Our solutions which provide our property management customers, including third-party property managers and owner-operators who manage single- and multi-family residences, community associations, commercial properties, and student housing, as well as mixed real estate portfolios, withservices are designed to be a system of record to automate essential business processes, a system of engagement to enhance business interactions between our customers and their clients and other stakeholders,users and a system of intelligence designed to leverage data to predict and optimize business workflows in order to enable superiorexceptional customer experiences and increase efficiency across our customers' businesses. We also provideOur mobile-optimized software solutions are designed for use across multiple devices and operating systems. Our software solutions are offered as a service, are hosted using a modern cloud-based architecture, and in part, use artificial intelligence technologies. This architecture leads to real estate investment managers.rich data sets that have a consistent schema across our customer and user base and enables us to deploy data-powered products and services for our customers and users.
During the periods covered by this Quarterly Report,six months ended June 30, 2020, we also provided software solutions and services to the legal vertical that enabledindustry via MyCase, a software solution primarily designed for small and mid-sized law firms to administer their practice and manage their caseloads more efficiently by centralizing case details in a single system of record and system of engagement.
firms. As previously disclosed, we completed our divestiture of MyCase, Inc. on September 30, 2020, the Company completed its divestiture of 100% of the issued and outstanding equity interests of MyCase, Inc. ("MyCase"), a former wholly owned subsidiary of the Company that provided such legal practice and case management software solutions to our legal customers. The Company sold MyCase to Mockingbird AcquisitionCo Inc., a Delaware corporation (“Buyer”) affiliated with funds advised by Apax Partners LLP, for $193.0 million pursuant to a Stock Purchase Agreement, dated September 7, 2020 (the “Purchase Agreement”), by and among Buyer, the Company and MyCase (the “MyCase Transaction”)2020. For additional details, see Note 3, Divestitures. In connection with the closing of the MyCase Transaction, and in accordance with the terms of the Purchase Agreement, the Company and MyCase entered into certain ancillary agreements, including relating to certain post-closing transition services to be provided by the Company to MyCase at fair market value, as well as an intellectual property licensing agreement for certain software and patents for which no ongoing licensing fees will be received. We recognized a pre-tax gain on the sale of $187.6 million on the MyCase Transaction.
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 (“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 March 2, 2020.1, 2021. The year-end condensed balance sheet was derived from our audited consolidated financial statements. Our unaudited interim Condensed Consolidated Financial Statements include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of our Condensed Consolidated Financial Statements. The operating results for the ninesix months ended SeptemberJune 30, 20202021 are not necessarily indicative of the results expected for the full year ending December 31, 2020.2021.
Reclassifications
We reclassified certain amounts in our Condensed Consolidated Statements of Cash Flows within the cash from investingoperating activities section in the prior year to conform to the current year's presentation.
Changes in Accounting Policies
Except as described below under Recently Adopted Accounting Pronouncements, there have been no significant changes in our accounting policies from those disclosed in our annual consolidated financial statements and the related notes included in our Annual Report.
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue, expenses, other income, and provision for income taxes during the reporting period. Assets and liabilities which are subject to judgment and use of estimates include the fair value of assets and liabilities assumed in business combinations, fair value of financial instruments, capitalized software costs, period of benefit associated with deferred costs, incremental borrowing rate used to measure operating lease liabilities, the recoverability of goodwill and long-lived assets, income taxes, useful lives associated with property and equipment and intangible assets, contingencies, assumptions underlying performance-based compensation (whether cash or stock-based), and valuation and assumptions underlying stock-based compensation and other equity instruments.
During early calendar year 2020, the novel coronavirus disease ("COVID-19") spread globally, including to every state in the United States. The global pandemic has created and may continue to create significant uncertainty in a wide variety of industries and markets and has prompted many federal, state, local, and foreign governments to adopt various orders and restrictions in an attempt to control the spread and mitigate the impact of the disease, which may reduce demand for our core solutions and/or Value+ services, impact the productivity of our workforce, reduce our access to capital, and harm our business and results of operations. These potential impacts are only amplified by the length of time they remain in place, as the cumulative effect upon our customers and their businesses may only exacerbate potential harm to our business and results of operations.
In light of the unknown duration and severity of COVID-19, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting policies. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of COVID-19 as of SeptemberJune 30, 20202021 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for credit losses, the carrying value of goodwill and other long-lived assets, performance-based compensation and income taxes.
As of the date of our Condensed Consolidated Financial Statements, we are not aware of any specific event or circumstance that would require us to update our estimates or judgments or to revise the carrying value of our assets or liabilities. However, these estimates and judgments may change as new events occur and additional information is obtained, which may result in changes being recognized in our consolidated financial statements in future periods. While we considered the effects of COVID-19 in our estimates and assumptions, due to the level of uncertainty regarding the economic and operational impacts of COVID-19 on our business, there may be other judgments and assumptions that we have not considered. Such judgments and assumptions could result in a meaningful impact on our financial statements in future periods. Actual results could differ from those estimates and any such differences may have a material impact on our financial statements.Condensed Consolidated Financial Statements.
Net Income per Common Share
Net income per common share was the same for shares of our Class A and Class B common stock because they are entitled to the same liquidation and dividend rights and are therefore combined in the table below. The following table presents a reconciliation of the weighted average number of shares of our Class A and Class B common stock used to compute net income per common share (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019 2021202020212020
Weighted average common shares outstandingWeighted average common shares outstanding34,301 34,050 34,246 33,995 Weighted average common shares outstanding34,553 34,259 34,484 34,219 
Less: Weighted average unvested restricted shares subject to repurchaseLess: Weighted average unvested restricted shares subject to repurchaseLess: Weighted average unvested restricted shares subject to repurchase
Weighted average common shares outstanding; basicWeighted average common shares outstanding; basic34,296 34,047 34,241 33,991 Weighted average common shares outstanding; basic34,548 34,254 34,479 34,214 
Plus: Weighted average options, restricted stock units and restricted shares used to compute diluted net income per common sharePlus: Weighted average options, restricted stock units and restricted shares used to compute diluted net income per common share1,369 1,374 1,421 1,415 Plus: Weighted average options, restricted stock units and restricted shares used to compute diluted net income per common share1,126 1,360 1,218 1,433 
Weighted average common shares outstanding; dilutedWeighted average common shares outstanding; diluted35,665 35,421 35,662 35,406 Weighted average common shares outstanding; diluted35,674 35,614 35,697 35,647 
For the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, an aggregate of 130,000120,000 and 361,000146,000 shares, respectively, underlying performance-based stock options ("PSOs") and performance-based restricted stock units ("PSUs") were not included in the computations of diluted and anti-dilutive shares as they are considered contingently issuable upon the satisfaction of pre-definedpredefined performance measures and their respective performance measures have not been met.
Restricted stock units ("RSUs") with an anti-dilutive effect were excluded from the calculation of weighted average number of shares used to compute diluted net income per common share and they were not material for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019.2020.
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RecentlyRecent Accounting Pronouncements Adopted Accounting Pronouncementsin 2020
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 investment securities and purchased financial assets with credit deterioration. We adopted ASU 2016-13 on January 1, 2020. The adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), a series of amendments which align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. We adopted ASU 2018-15 on January 1, 2020. The adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or disclosures.
Recent Accounting Pronouncements Not Yet Adopted in 2021
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). This amendment was issued to simplify the accounting for income taxes by removing certain exceptions for recognizing deferred taxes, performing intraperiod allocation, and calculating income taxes in interim periods. Further, ASU 2019-12 adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax basis goodwill and allocating taxes to members of a consolidated group. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. This guidance is effective for interim and annual periods beginning after December 15, 2020 with early adoption permitted. We do not expect theadopted ASU 2019-12 on January 1, 2021. The adoption of this guidance todid not have a material impact on our financial condition, results of operations, cash flows or disclosures.
3. Divestitures and Business Combinations
Divestiture of MyCase
On September 30, 2020, we completed theour divestiture of 100% of our issued and outstanding equity interests of MyCase, TransactionInc. ("MyCase"), a former wholly owned subsidiary that provided legal practice and case management software solutions to our legal customers, for $193.0 million, consisting of $192.2 million of cash proceeds, plus a $2.2 million employee retention bonus pool funded by the Company,us, less cash divested of $0.8 million and a preliminary working capital adjustment of $0.6 million.million (the "MyCase Transaction"). The retention bonus pool is refundable to the Company to the extent that MyCase employees are terminated prior to the retention period, which is one year from the closing date of the MyCase Transaction. A portion of the cash proceeds was used to pay all outstanding borrowings under the Credit Facility. Refer to Note 8, Long-Term Debt, of our Condensed Consolidated Financial Statements for more information about the termination of the Credit Facility.
We recognized a pre-tax gain on the sale of $187.6$188.0 million on the MyCase Transaction, consisting of cash proceeds of $192.2 million, less net assets divested of $4.6 million, plus an adjustment in the employee retention bonus pool of $0.4 million. Net assets divested is primarily comprised of capitalized software of $3.9 million, deferred revenue of $2.8 million and goodwill allocated to MyCase of $2.3 million. The gain on the sale was recorded within Other income (loss), net in our Condensed Consolidated Statements of Operations during the three months ended September 30, 2020. Income received during the three and six months ended June 30, 2021 in relation to the transition services provided by us to MyCase was $0.3 million and $0.7 million, and is included within Other income (expense)(loss), net in our Condensed Consolidated Statements of Operations. Income received in relation to the transition services to be provided by the Company to MyCase will be included within Other income (expense), net    in our Condensed Consolidated Statements of Operations. Refer to Note 1, Nature of Business, of our Condensed Consolidated Financial Statements for more information about the MyCase Transaction.
Acquisition of Dynasty
On January 7, 2019, we acquired 100% of the voting equity interest of Dynasty Marketplace, Inc. ("Dynasty") for $60.2 million, of which $6.0 million (the "Holdback Amount") was retained by the Company to satisfy any necessary adjustments, including without limitation certain indemnification claims. The balance of the Holdback Amount, less any amount retained with respect to any unresolved indemnification claims, was released to the stockholders of Dynasty on January 10, 2020 in accordance with the terms of the purchase agreement. Dynasty is a provider of advanced artificial intelligence solutions for the real estate vertical, which automate leasing communications, replace manual tasks and help customers grow their portfolios.
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The transaction was accounted for using the acquisition method and, as a result, assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management to make significant judgments and estimates, including the selection of valuation methodologies and comparable companies, estimates of future revenue and cash flows, discount rates, and the software decay rate and database ramp up rate. The following table summarizes the final purchase price allocation (in thousands), as well as the estimated useful lives of the acquired intangible assets over which they are amortized on a straight-line basis, as this approximates the pattern in which we expect the economic benefits will be consumed:
Amount
(in thousands)
Estimated Useful Life (in years)
Total current assets$305 
Identified intangible assets:
Technology5,730 4.0
Database4,710 10.0
Customer relationships1,110 5.0
Backlog470 1.0
Trademark & trade name1,390 10.0
Non-compete agreement7,340 5.0
Total intangible assets subject to amortization20,750 6.0
Goodwill42,877 Indefinite
Other noncurrent assets35 
Total assets acquired63,967 
Accrued and other liabilities48 
Deferred tax liability, net3,711 
Total liabilities assumed3,759 
Purchase consideration$60,208 

Goodwill is mainly attributable to synergies expected from the acquisition and assembled workforce and is non-deductible for U.S. federal income tax purposes.
We incurred a total of $0.3 million in transaction costs related to the acquisition and expensed all transaction costs incurred during the period in which such service was received.
Pro Forma Results
The following unaudited pro forma information has been prepared for illustrative purposes only, and assumes that the aforementioned Dynasty acquisition occurred on January 1, 2018, and includes pro forma adjustments related to the amortization of acquired intangible assets, elimination of historical interest and amortization expense, income taxes, compensation arrangements, and the transaction costs incurred. The unaudited pro forma results have been prepared based on estimates and assumptions, which we believe are reasonable; however, they are not necessarily indicative of the consolidated results of operations had the acquisitions occurred at the beginning of the periods presented, or of future results of operations. The unaudited pro forma results are as follows (in thousands):
Three Months Ended September 30, 2019Nine Months Ended September 30, 2019
Revenue$67,935 $188,685 
Net income4,978 27,911 


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4. Investment Securities and Fair Value Measurements
Investment Securities
Investment securities classified as available-for-sale consisted of the following as of SeptemberJune 30, 20202021 and December 31, 20192020 (in thousands):
September 30, 2020June 30, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bondsCorporate bonds$49,442 $$(7)$49,439 
Agency securitiesAgency securities$3,104 $34 $$3,138 Agency securities11,842 13 (7)11,848 
Treasury securitiesTreasury securities34,618 68 34,686 Treasury securities53,225 18 (11)53,232 
Total available-for-sale investment securitiesTotal available-for-sale investment securities$37,722 $102 $$37,824 Total available-for-sale investment securities$114,509 $35 $(25)$114,519 
December 31, 2019December 31, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$9,597 $18 $(1)$9,614 
Agency securitiesAgency securities11,101 17 11,118 Agency securities$17,104 $29 $(1)$17,132 
Treasury securitiesTreasury securities14,222 12 (1)14,233 Treasury securities17,847 47 17,894 
Total available-for-sale investment securitiesTotal available-for-sale investment securities$34,920 $47 $(2)$34,965 Total available-for-sale investment securities$34,951 $76 $(1)$35,026 
For available-for-sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of these criteria is met, the security’s amortized cost basis is written down to fair value through income. For securities in an unrealized loss position that do not meet these criteria, we evaluate whether the decline in fair value has resulted from credit loss or other factors. If this assessment indicates a credit loss exists, the credit-related portion of the loss is recorded as an allowance for losses on the security. NoNaN allowance for credit losses for available-for-sale investment securities was recorded as of SeptemberJune 30, 2021 or December 31, 2020.
As of SeptemberJune 30, 20202021 and December 31, 2019,2020, the contractual maturities of our investments did not exceed 36 months. The fair values of available-for-sale investment securities, by remaining contractual maturity, are as follows (in thousands):
September 30, 2020December 31, 2019June 30, 2021December 31, 2020
Amortized CostEstimated Fair ValueAmortized CostEstimated Fair ValueAmortized CostEstimated Fair ValueAmortized CostEstimated Fair Value
Due in one year or lessDue in one year or less$32,658 $32,689 $22,846 $22,876 Due in one year or less$102,950 $102,978 $28,197 $28,256 
Due after one year through three yearsDue after one year through three years5,064 5,135 12,074 12,089 Due after one year through three years11,559 11,541 6,754 6,770 
Total available-for-sale investment securitiesTotal available-for-sale investment securities$37,722 $37,824 $34,920 $34,965 Total available-for-sale investment securities$114,509 $114,519 $34,951 $35,026 
During the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, we had sales and maturities (which include calls) of investment securities, as follows (in thousands):
Nine Months Ended September 30, 2020Six Months Ended June 30, 2021
Gross Realized GainsGross Realized LossesGross Proceeds from SalesGross Proceeds from MaturitiesGross Realized GainsGross Realized LossesGross Proceeds from SalesGross Proceeds from Maturities
Corporate bonds$$$4,006 $5,600 
Agency securitiesAgency securities25 7,878 1,900 Agency securities$$$$5,250 
Treasury securitiesTreasury securities2,058 5,800 Treasury securities42,198 21,500 
TotalTotal$34 $$13,942 $13,300 Total$$$42,198 $26,750 
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Nine Months Ended September 30, 2019Six Months Ended June 30, 2020
Gross Realized GainsGross Realized LossesGross Proceeds from SalesGross Proceeds from MaturitiesGross Realized GainsGross Realized LossesGross Proceeds from SalesGross Proceeds from Maturities
Corporate bondsCorporate bonds$$(1)$2,750 $8,350 Corporate bonds$$$4,006 $4,000 
Agency securitiesAgency securities2,650 Agency securities24 7,878 1,250 
Treasury securitiesTreasury securities2,058 2,500 
TotalTotal$$(1)$2,750 $11,000 Total$33 $$13,942 $7,750 
Interest income, net of the amortization and accretion of the premium and discount, was $0.1 million for each of the three months ended SeptemberJune 30, 2021 and 2020, and 2019, and $0.3 million and $0.5$0.1 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019, respectively.$0.2 million for the six months ended June 30, 2020.
Fair Value Measurements
Recurring Fair Value Measurements
Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables summarize our financial assets measured at fair value on a recurring basis as of SeptemberJune 30, 20202021 and December 31, 20192020 by level within the fair value hierarchy (in thousands):
September 30, 2020June 30, 2021
Level 1Level 2Level 3Total Fair
Value
Level 1Level 2Level 3Total Fair
Value
Cash equivalents:Cash equivalents:Cash equivalents:
Money market fundsMoney market funds$4,781 $$$4,781 Money market funds$5,030 $$$5,030 
Treasury securitiesTreasury securities600 600 Treasury securities9,500 9,500 
Commercial paperCommercial paper3,000 3,000 
Available-for-sale investment securities:Available-for-sale investment securities:Available-for-sale investment securities:
Corporate bondsCorporate bondsCorporate bonds49,439 49,439 
Agency securitiesAgency securities3,138 3,138 Agency securities11,848 11,848 
Treasury securities Treasury securities34,686 34,686  Treasury securities53,232 53,232 
TotalTotal$40,067 $3,138 $$43,205 Total$67,762 $64,287 $$132,049 
December 31, 2019December 31, 2020
Level 1Level 2Level 3Total Fair
Value
Level 1Level 2Level 3Total Fair
Value
Cash equivalents:Cash equivalents:Cash equivalents:
Money market fundsMoney market funds$337 $$$337 Money market funds$4,749 $$$4,749 
Treasury securitiesTreasury securities97,433 97,433 
Available-for-sale investment securities:Available-for-sale investment securities:Available-for-sale investment securities:
Corporate bonds9,614 9,614 
Agency securitiesAgency securities11,118 11,118 Agency securities17,132 17,132 
Treasury securitiesTreasury securities14,233 14,233 Treasury securities17,894 17,894 
TotalTotal$14,570 $20,732 $$35,302 Total$120,076 $17,132 $$137,208 
The carrying amounts of cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of these items.
The estimated fair value of the $50.0 million term loan issued by Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, and the lenders that are parties thereto ("Term Loan") and the $50.0 million revolving credit facility made available to us by Wells Fargo and the lenders that are parties thereto ("Revolving Facility," and, together with the Term Loan, the "Credit Facility"), approximated their carrying values due to the variable interest rates. We considered the fair value of the Term Loan and the Revolving Facility to be Level 2 measurements as these debt instruments were not actively traded. We carried the Term Loan at face value less the unamortized discount. Refer to Note 8, Long-Term Debt, of our Condensed Consolidated Financial Statements for more information about our since-terminated Term Loan and Revolving Facility.
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There were no changes to our valuation techniques used to measure financial asset and financial liability fair values on a recurring basis during the ninesix months ended SeptemberJune 30, 2020.2021. The valuation techniques for the financial assets in the tables above are as follows:
Cash Equivalents
As of SeptemberJune 30, 20202021 and December 31, 2019,2020, cash equivalents include cash invested in money market funds, commercial paper, and treasury securities with a maturity of three months or less. Fair value is based on market prices for identical assets.
Available-for-Sale Investment Securities
Fair value for our Level 1 investment securities is based on market prices for identical assets. Our Level 2 securities were priced by a pricing vendor. The pricing vendor utilizes the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, other observable inputs like market transactions involving comparable securities are used.
Non-Recurring Fair Value Measurements
Certain assets, including goodwill, intangible assets and our note receivable with SecureDocs, Inc., are also subject to measurement at fair value on a non-recurring basis using Level 3 measurement, but only when they are deemed to be impaired. For the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, no impairments were identified on those assets required to be measured at fair value on a non-recurring basis.
5. Internal-UseCapitalized Software Development Costs, net
Internal-useCapitalized software development costs as of September 30, 2020 and December 31, 2019 were as follows (in thousands):
September 30,
2020
December 31,
2019
Internal use software development costs, gross$90,451 $81,475 
Less: Accumulated amortization(56,908)(51,452)
Internal use software development costs, net$33,543 $30,023 
June 30,
2021
December 31,
2020
Capitalized software development costs, gross$111,042 $96,974 
Less: Accumulated amortization(71,817)(61,515)
Capitalized software development costs, net$39,225 $35,459 
Capitalized software development costs were $6.9$7.0 million and $6.5$7.1 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and $20.8$14.1 million and $17.1$13.8 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. Amortization expense with respect to capitalized software development costs totaled $4.7$5.3 million and $3.6$4.5 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and $13.3$10.3 million and $10.0$8.7 million for the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively. During the three months ended September 30, 2020, $3.9 million in capitalized software development costs were divested in connection with the MyCase Transaction.
Future amortization expense with respect to capitalized software development costs as of September 30, 2020 is estimated as follows (in thousands):
Years Ending December 31,Years Ending December 31,Years Ending December 31,
2020$4,424 
2021202115,834 2021$10,545 
2022202210,608 202217,432 
202320232,677 20239,357 
202420241,891 
Total amortization expense Total amortization expense$33,543  Total amortization expense$39,225 
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6. Intangible Assets, and Goodwillnet
Intangible assets consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands, except years):
September 30, 2020 June 30, 2021
Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Weighted Average Useful Life in Years Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Weighted Average Useful Life in Years
Customer relationshipsCustomer relationships$2,840 $(1,436)$1,404 5.0Customer relationships$2,840 $(1,778)$1,062 5.0
DatabaseDatabase8,330 (1,578)6,752 10.0Database8,330 (2,203)6,127 10.0
TechnologyTechnology6,539 (3,250)3,289 4.0Technology6,539 (4,391)2,148 4.0
Trademarks and trade namesTrademarks and trade names1,890 (633)1,257 5.0Trademarks and trade names1,890 (930)960 5.0
Partner relationshipsPartner relationships680 (680)3.0Partner relationships680 (680)3.0
Non-compete agreementsNon-compete agreements7,400 (2,594)4,806 5.0Non-compete agreements7,400 (3,704)3,696 5.0
Domain namesDomain names90 (68)22 5.0Domain names90 (73)17 5.0
PatentsPatents252 (238)14 5.0Patents252 (245)5.0
$28,021 $(10,477)$17,544 6.3
Total intangible assets, netTotal intangible assets, net$28,021 $(14,004)$14,017 6.3
December 31, 2019 December 31, 2020
Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Weighted Average Useful Life in Years Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Weighted Average Useful Life in Years
Customer relationshipsCustomer relationships$3,070 $(1,296)$1,774 5.0Customer relationships$2,840 $(1,550)$1,290 5.0
DatabaseDatabase8,330 (954)7,376 10.0Database8,330 (1,787)6,543 10.0
TechnologyTechnology10,541 (6,074)4,467 5.0Technology6,539 (3,641)2,898 4.0
Trademarks and trade namesTrademarks and trade names2,690 (898)1,792 6.0Trademarks and trade names1,890 (732)1,158 5.0
Partner relationshipsPartner relationships680 (680)3.0Partner relationships680 (680)3.0
Non-compete agreementsNon-compete agreements7,400 (1,484)5,916 5.0Non-compete agreements7,400 (2,964)4,436 5.0
Domain namesDomain names301 (276)25 5.0Domain names90 (70)20 5.0
PatentsPatents252 (225)27 5.0Patents252 (240)12 5.0
Backlog470 (470)1.0
$33,734 $(12,357)$21,377 6.2
Total intangible assets, netTotal intangible assets, net$28,021 $(11,664)$16,357 6.3

Amortization expense with respect to intangible assets totaled $1.2 million and $1.3 million for the three months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively, and $3.7$2.3 million and $4.0$2.5 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. Future amortization expense with respect to intangible assets is estimated as follows (in thousands):
Years Ending December 31,Years Ending December 31,Years Ending December 31,
2020$1,186 
202120214,647 2021$2,306 
202220224,605 20224,605 
202320233,060 20233,060 
202420241,197 2024835 
20252025833 
ThereafterThereafter2,849 Thereafter2,378 
Total amortization expense Total amortization expense$17,544  Total amortization expense$14,017 


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Our goodwill balance is solely attributed to acquisitions. As a result7. Accrued Employee Expenses
Accrued employee expenses consisted of the disposal of goodwill associated with the MyCase Transaction, we performed a goodwill impairment assessment as of September 30, 2020 on our remaining goodwill balance. There have been 0 impairment charges recorded against goodwill. The change in the carrying amount of goodwill during the nine months ended September 30, 2020 is as followsfollowing (in thousands):
Goodwill at December 31, 2019
June 30,December 31
20212020
Accrued vacation$9,891 $8,277 
Accrued bonuses7,024 5,638 
Accrued commissions2,191 1,995 
Accrued payroll7,169 1,921 
Accrued payroll taxes and other1,229 1,057 
    Total accrued employee expenses—current$27,504 $18,888 
Accrued employee expenses—noncurrent$968 $
The Company has adopted several long-term executive cash incentive plans (the “Plan(s)”), which are designed to reward certain executives, including certain of our named executive officers, for their contributions toward our long-term strategic objectives (the “Performance Conditions”), which vary by Plan. We are required to estimate the probable payout under the Plans based on management’s judgment using, among other things, an internally developed rolling three year plan (the “Three Year Plan”). Compensation costs are recorded on a straight-line basis over the relevant service period to the extent we believe it is probable the Performance Conditions in an applicable Plan will be achieved over the course of such performance period. Adjustments to projected compensation costs are recognized on a prospective basis over the remaining service period based on changes in our estimate of the probability of achieving the various Performance Conditions.
During the three months ended March 31, 2021, the Board of Directors approved the 2021 Three Year Plan, which allowed us to assess the probability of achieving the Performance Conditions under the Plans through December 31, 2023. During the three months ended June 30, 2021, the Company re-assessed the probability of achieving the Performance Conditions under the Plans. Based on that updated assessment, we recorded $0.5 million and $1.0 million in Accrued employee expenses-current and Accrued employee expenses-noncurrent, respectively, in the Condensed Consolidated Balance Sheet related to the Plans. There are Plans for which no accrual has been recorded as it was determined that it is not currently probable that the related Performance Conditions will be achieved. Amounts recorded under the Plans are based on assumptions and estimates subject to uncertainties and may fluctuate significantly each reporting period.
$58,425 
Goodwill attributed to MyCase divestiture(2,278)
Goodwill at September 30, 2020$56,147 
7.8. Leases
Operating leases for our corporate offices have remaining lease terms ranging from one to 12eleven years, some of which include options to extend the leases byfor 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. We have lease agreements with lease and non-lease components, which we have elected to combine for all asset classes. Certain leases contain provisions for property-related costs that are variable in nature for which the Company is responsible, including common area maintenance, which are expensed as incurred.
The totalcomponents of lease cost associated with our operating leases was $1.3 million for eachexpense recognized in the Condensed Consolidated Statements of the three months ended September 30, 2020 and 2019, and $4.1 million and $3.7 million for the nine months ended September 30, 2020 and 2019, respectively.Operations were as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Operating lease cost$1,202 $1,412 $2,297 $2,848 
Variable lease cost394 399 700 792 
  Total lease cost$1,596 $1,811 $2,997 $3,640 

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Lease-related assets and liabilities were as follows as of SeptemberJune 30, 20202021 and December 31, 20192020 (in thousands):
September 30,
2020
December 31,
2019
June 30,
2021
December 31,
2020
AssetsAssetsAssets
Prepaid expenses and other current assetsPrepaid expenses and other current assets$2,901 $3,908 Prepaid expenses and other current assets$6,599 $3,972 
Operating lease right-of-use assetsOperating lease right-of-use assets24,645 27,803 Operating lease right-of-use assets40,983 30,561 
LiabilitiesLiabilitiesLiabilities
Other current liabilitiesOther current liabilities$2,021 $2,826 Other current liabilities$1,561 $1,845 
Operating lease liabilitiesOperating lease liabilities32,755 33,312 Operating lease liabilities53,936 40,146 
Total lease liabilitiesTotal lease liabilities$34,776 $36,138 Total lease liabilities$55,497 $41,991 

Future minimum lease payments under non-cancellable leases as of SeptemberJune 30, 20202021 were as follows (in thousands):
Years ending December 31,Years ending December 31,Years ending December 31,
2020(1)
$(1,027)
2021(1)
2021(1)
2,240 
2021(1)
$(4,645)
20224,085 
20233,977 
20243,908 
2022(1)
2022(1)
4,022 
2023(1)
2023(1)
4,850 
2024(1)
2024(1)
5,814 
202520256,481 
ThereafterThereafter29,590 Thereafter46,783 
Total future minimum lease paymentsTotal future minimum lease payments42,773 Total future minimum lease payments63,305 
Less: imputed interestLess: imputed interest(10,898)Less: imputed interest(14,407)
Total(2)
Total(2)
$31,875 
Total(2)
$48,898 
(1) Future minimum lease payments for the years ending December 31, 2021, 2022, 2023, and 2024 are presented net of tenant improvement allowances of $2.3 million.$6.9 million, $0.6 million, $0.8 million, and $0.2 million, respectively.
(2) Total future minimum lease payments include the current portion of lease liabilities recorded in Prepaid expenses and other current assets of $2.9$6.6 million on our Condensed Consolidated Balance Sheets, which relates to certain of our leases for which the lease incentives to be received exceed the minimum lease payments to be paid over the next 12 months.
8. Long-Term Debt
Credit Agreement
On December 24, 2018, we entered into Amendment Number Two to the Credit Agreement (the "Second Amendment") with Wells Fargo, as administrative agent, and the lenders that were parties thereto (as amended, the "Credit
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Agreement"). Under the terms of the Second Amendment, the lenders issued the Term Loan to us and increased the amount available under the Revolving Facility to $50.0 million. The maturity date of the Term Loan and Revolving Facility was December 24, 2023. In addition, pursuant to the Second Amendment, we were permitted to make certain restricted junior payments, including, without limitation, repurchases of our common stock, and to enter into acquisitions with no value limitation, so long as we maintained specified liquidity requirements and leverage ratios.
The Second Amendment also modified certain financial covenants by, among other things, requiring us to maintain (i) an EBITDA-to-interest-expense ratio of not less than 3.0 to 1.0, and (ii) a funded-indebtedness-to-EBITDA ratio of not more than 3.5 to 1.0 (the "Required Leverage Ratio") (decreasing by 0.25 per year until the Required Leverage Ratio is 2.5 to 1.0); provided, however, that we were not required to maintain the foregoing ratios if our liquidity (defined as the sum of the remaining borrowing capacity under the Credit Agreement and available cash) had equaled or exceeded the greater of $20.0 million and 20% of the sum of the outstanding principal amount of the Term Loan and commitments under the Revolving Facility. If we entered into an acquisition with a purchase price greater than or equal to $20.0 million, then the Required Leverage Ratio would be increased by 0.5 for the 12-month period immediately following the consummation of such acquisition.
The Credit Agreement contained customary affirmative, negative and financial covenants. The affirmative covenants required us to, among other things, disclose financial and other information to the lenders, maintain our business and properties, and maintain adequate insurance. The negative covenants restricted us from, among other things, incurring additional indebtedness, prepaying certain types of indebtedness, encumbering or disposing of our assets, making fundamental changes to our corporate structure, and making certain dividends and distributions.
Under the terms of the Second Amendment, borrowings under the Credit Agreement would bear interest at a fluctuating rate per annum equal to, at our option, (i) LIBOR or (ii) an alternate base rate, in each case plus the applicable interest rate margin. Borrowings would fluctuate between LIBOR plus 1.5% per annum and LIBOR plus 2.0% per annum (or between the alternate base rate plus 0.5% per annum and the alternate base rate plus 1.0% per annum), based upon our Required Leverage Ratio.
Fees payable on the unused portion of the Revolving Facility were 0.25% per annum, unless the average usage of the Revolving Facility was equal to or less than $30.0 million for the applicable period, in which case the fees on the unused portion of the Revolving Facility would have been 0.375% per annum.    
In connection with the MyCase Transaction, and as required by the terms of the Credit Agreement, the Credit Agreement was terminated and all obligations outstanding under the Term Loan and Revolving Facility thereunder, including all guarantees and security interests granted with respect to such obligations, were satisfied in full with proceeds from the MyCase Transaction and extinguished. Immediately prior to the repayment of amounts owed under, and termination of, the Credit Agreement, there were approximately $48.1 million in term loans outstanding and $49.1 million in revolving borrowings outstanding. Refer to Note 1, Nature of Business, and Note 3, Divestitures and Business Combinations, of our Condensed Consolidated Financial Statements for more information about the MyCase Transaction.
Debt Financing Costs
As a result of the Second Amendment, we incurred $0.4 million in financing fees that were capitalized and amortized over the remaining life of the related debt, $0.2 million of which was related to the Term Loan and $0.2 million of which was related to the Revolving Facility. Pursuant to GAAP, the Second Amendment is accounted for as a debt modification. As a result, the unamortized deferred debt financing costs related to the Revolving Facility prior to the Second Amendment were added to the $0.2 million of deferred debt financing costs related to the Second Amendment and amortized over the remaining life of the Revolving Facility.
Debt financing costs were deferred and amortized using the straight-line method, which approximated the effective interest method, for costs related to the Term Loan, and the straight-line method for costs related to the Revolving Facility, over the term of the debt arrangement; such amortization is included in interest expense in our Condensed Consolidated Statements of Operations. Amortization of deferred debt financing costs was not material for the three and nine months ended September 30, 2020 or 2019. As of September 30, 2020 the remaining unamortized deferred debt financing costs of $0.4 million were expensed to Interest expense, net in our Condensed Consolidated Statements of Operations, in connection with the termination of the Credit Agreement. At December 31, 2019, the remaining unamortized deferred debt financing costs were $0.4 million, of which $0.2 million was offset against debt. As of December 31, 2019, $0.3 million of the remaining unamortized deferred debt financing costs were recorded in prepaid expenses and other current assets and other long-term assets on our Condensed Consolidated Balance Sheets, as they pertained to the Revolving Facility.
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The following is a summary of our long-term debt as of September 30, 2020 and December 31, 2019 (in thousands):
September 30,
2020
December 31,
2019
Principal amounts due under Term Loan$$48,750 
Unamortized debt financing costs(167)
Long-term debt, net of unamortized debt financing costs$$48,583 
9. Commitments and Contingencies
Legal Liability to Landlord Insurance
We have a wholly owned subsidiary, Terra Mar Insurance Company, Inc., which was established to provide our customers with the option to purchase legal liability to landlord insurance. If our customers choose to use this insurance service, they are issued an insurance policy underwritten by our third-party service provider. The policy has a limit of $100,000$100 thousand 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 legal liability to landlord insurance provided to our customers through our third-party service provider. We accrue for reported claims, and include an estimate of losses incurred but not reported by our property manager customers, in cost of revenue because we bear the risk related to all such claims. Our liability for reported claims and incurred but not reported claims as of SeptemberJune 30, 20202021 and December 31, 20192020 was $1.4$1.5 million and $1.8$1.5 million, respectively, and is included in otherOther current liabilities on our Condensed Consolidated Balance Sheets.
Included in prepaidPrepaid expenses and other current assets as of SeptemberJune 30, 20202021 and December 31, 20192020 are $1.7$1.8 million and $1.3$2.7 million, respectively, of deposits held with a third party related to requirements to maintain collateral for this insurance service.
Legal Proceedings
In December 2018, we received a Civil Investigative Demand fromThere have been no changes in the Federal Trade Commission ("FTC") requesting certain information relating to our compliance with the Fair Credit Reporting Act (the “FCRA”) in connection with our tenant screening Value+ service (the "FTC Investigation"). On April 30, 2020, the FTC staff informed us of its belief that there is a reasonable basis for asserting claims against us for our alleged failure to comply with certain sections of the FCRA that could result in monetary penalty and/or injunctive relief. We disagree with the stated belief of the FTC and have vigorously defended our position.
Notwithstanding our disagreement with the FTC's position, and primarily in an effort to avoid protracted litigation and potential distraction to our business, we have entered into settlement negotiations with the FTC in an effort to resolve all claims and allegations arising out of or relating to the FTC Investigation. Although the final outcome of the FTC Investigation is subject to ongoing settlement discussions and therefore remains uncertain, we have determined that a loss is probable and that a reasonable estimate of the loss is approximately $4.3 million. Accordingly, we have recognized an accrual of $4.3 millionCompany’s material legal proceedings during the ninethree months ended SeptemberJune 30, 2020 within accrued expenses on our Condensed Consolidated Balance Sheet. While this amount represents our best judgment of the probable loss based on information currently available to us, it is subject to significant judgments and estimates and numerous factors beyond our control, including without limitation the FTC's position with respect to the ongoing settlement negotiations. In the event that the FTC Investigation results in a settlement payment by us, or a judgment against us, in an amount significantly in excess of our accrual, the resulting liability could have a material adverse effect upon our financial condition, results of operations and liquidity.
In July 2019, we received a Request for Information from the Civil Rights Division (Housing and Civil Enforcement Section) of the U.S. Department of Justice ("DOJ") requesting certain information relating to our compliance with the Servicemembers Civil Relief Act (the "SCRA") in connection with our tenant screening Value+ service. On November 6, 2020, the DOJ issued a no action letter, declining to take any action against us and closing its investigation.
In addition, from time to time, we are involved in various other investigatory inquiries, legal proceedings and other disputes arising from or related to matters incident to the ordinary course of our business activities, including actions with respect to intellectual property, employment, regulatory and contractual issues. Although the results of such investigatory inquiries, legal proceedings and other disputes cannot be predicted with certainty, we believe that we are not currently a party to any matters which, if determined adversely to us, would, individually or taken together, have a material adverse effect on our business, operating results, financial condition or cash flows. However, regardless of the merit of any matters raised or the ultimate outcome, investigatory inquiries, legal proceedings and other disputes may generally have an adverse impact on us as a result of defense and settlement costs, diversion of management resources, and other factors.2021.
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Indemnification
In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, vendors, investors, directors and officers with respect to certain matters, including, but not limited to, losses arising out of our breach of any applicable agreements, services to be provided by us, or intellectual property infringement claims made by third parties. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions may not be subject to maximum loss clauses and may therefore beis indeterminable. We have never paid a material claim, nor have any legal claims been brought against us, in connection with these indemnification arrangements. As of SeptemberJune 30, 20202021 and December 31, 2019,2020, we hadhave not accrued a liability for these indemnification obligationsarrangements because we determined that the likelihood of incurring anya 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.
10. Share Repurchase Program
On February 20, 2019, our Board of Directors authorized a $100.0 million share repurchase program (the "Share Repurchase Program") relating to our outstanding shares of Class A common stock. Under the Share Repurchase Program, share repurchases may be made from time to time, as directed by a committee consisting of 3 directors, in open market purchases or privately negotiated transactions at a repurchase price that the members of the committee unanimously believe is below intrinsic value conservatively determined. The Share Repurchase Program does not obligate us to repurchase any specific dollar amount or number of shares, and there is no expiration date for the Share Repurchase Program, whichand it may be modified, suspended or terminated at any time and for any reason.
During the three months ended March 31, 2020, we repurchased a total of 48,002 shares of our Class A common stock through open market repurchases, and recorded a $4.2 million reduction to stockholders' equity, which includes broker commissions. We have not made any repurchases under the Share RepurcShare Repurchasehase Program subsequent to the three months ended March 31, 2020.
11. Stock-Based Compensation
Stock Options
A summary of activity in connection with our stock options for the ninesix months ended SeptemberJune 30, 2020,2021, 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, 20191,342 $11.84 5.9
Options granted
Options exercised(59)6.87 
Options cancelled/forfeited(55)23.76 
Options outstanding as of September 30, 20201,228 $11.53 5.1
During the nine months ended September 30, 2020, 77,000 PSOs vested based on the achievement of 95% of the pre-established free cash flow performance target for the year ended December 31, 2019, and 40,000 PSOs vested based on the achievement of 115% of the pre-established gross margin target for the year ended December 31, 2019.
Number of
Shares
Weighted
Average
Exercise
Price per Share
Weighted
Average
Remaining
Contractual Life
in Years
Options outstanding as of December 31, 20201,168 $11.77 5.0
Options granted
Options exercised(120)5.37 
Options cancelled/forfeited
Options outstanding as of June 30, 20211,048 $12.50 3.2
Our stock-based compensation expense for stock options for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019 was not material. As of September 30, 2020 the total estimated remaining stock-based compensation expense for unvested stock options was not material.
The fair value of stock options is estimated on their date of grant using the Black-Scholes option-pricing model. NaN stock options were granted during the ninesix months ended SeptemberJune 30, 20202021 or 2019.2020.
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Restricted Stock Units
A summary of activity in connection with our RSUs for the ninesix months ended SeptemberJune 30, 2020,2021, is as follows (number of shares in thousands):
Number of SharesWeighted Average Grant Date Fair Value per ShareNumber of SharesWeighted Average Grant Date Fair Value per Share
Unvested as of December 31, 2019646 $52.42 
Unvested as of December 31, 2020Unvested as of December 31, 2020483 $80.20 
GrantedGranted164 109.29 Granted194 140.30 
VestedVested(247)34.75 Vested(158)60.18 
ForfeitedForfeited(57)69.16 Forfeited(21)105.98 
Unvested as of September 30, 2020506 $77.63 
Unvested as of June 30, 2021Unvested as of June 30, 2021498 $108.77 
During the ninesix months ended SeptemberJune 30, 2020,2021, we granted 150,000159,000 RSUs that are subject to time-based vesting in equal annual installments over four years, and 14,00035,000 PSUs that are subject to vesting based on the achievement of pre-established consolidated net revenue growth targets for the years ending December 31, 2020, 20212022 and 2022,2023, assuming continued employment throughout the performance period. The number of PSUs granted, as included in the above table, assumes achievement of the performance metric at 100% of the performance target. The actual number of shares to be issued at the end of the performance period will range from 0% to 100% of the initial target awards. Achievement of the performance metric between 100% and 150% of the performance target will result in a performance-based cash bonus payment between 100%0% and 165%65% of the initial target awards.
During the ninesix months ended SeptemberJune 30, 2020, 84,0002021, 50,000 PSUs vested and 4,000 PSUs were cancelled based on the achievement of 95%106% of the pre-established free cash flowconsolidated net revenue growth performance target for the year ended December 31, 2019.2020 and additional performance-based cash bonuses equal to 12% of the target value of such vested PSUs were also paid.
Included in the unvested RSUs as of SeptemberJune 30, 20202021 are 34,000, 12,000, 31,000 and 82,00035,000 PSUs granted in 2021, 2020, 2019 and 2018, respectively. Of these PSUs, 48,000 are subject to vesting based on the achievement of a pre-established consolidated net revenue growth target for the year ending December 31, 2020, 43,00045,000 are subject to vesting based on the achievement of a pre-established consolidated net revenue growth target for the year ending December 31, 2021, and 25,00039,000 are subject to vesting based on the achievement of a pre-established consolidated net revenue growth target for the year ending December 31, 2022.2022, and 28,000 are subject to vesting based on the achievement of a pre-established consolidated net revenue growth target for the year ending December 31, 2023. The number of PSUs granted assumes achievement of the performance metric at 100% of the performance target. The actual number of shares to be issued at the end of the performance period will range from 0% to 100% of the initial target awards. Achievement of the performance metric between 100% and 150% of the performance target will result in a performance-based cash bonus payment between 100%0% and 165%65% of the initial target awards.
We recognize expense for the PSUs based on the grant date fair value of the PSUs that we determine are probable of vesting. Adjustments to compensation expense are made each period based on changes in our estimate of the number of PSUs that are probable of vesting. Our stock-based compensation expense for the RSUs and PSUs for the three months ended SeptemberJune 30, 2021 and 2020 and 2019 was $3.4 $3.7 million and $2.5and $3.2 million, respectively, and $7.8$6.8 million and $6.1$4.4 million for the ninesix months ended SeptemberJune 30, 2021 and 2020, respectively.
During the six months ended June 30, 2021, we granted an award of 7,688 PSUs to an executive that vest based on achievement of certain pre-established individual performance metrics during fiscal year 2021, for which the achievement is approved on a pass/fail basis by the Board of Directors in its sole discretion after taking into account the recommendation of the President and 2019, respectively.Chief Executive Officer. The service inception date precedes the grant date for this award as (a) the award was authorized prior to establishing an accounting grant date, (b) the recipient began providing services prior to the grant date and (c) there are performance conditions that, if not met by the accounting grant date, will result in the forfeiture of the award. As the service inception date precedes the grant date, we recognize stock-based compensation expense on a straight-line basis over the requisite service period based on the fair value at each reporting date. Our stock-based compensation expense for this award for the six months ended June 30, 2021 was $0.5 million.
As of SeptemberJune 30, 2020,2021, the total estimated remaining stock-based compensation expense for the aforementioned RSUs and PSUs was $25.2$39.4 million, which is expected to be recognized over a weighted average period of 2.3 2.6 years.
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Restricted Stock Awards
A summary of activity in connection with our restricted stock awards for the ninesix months ended SeptemberJune 30, 20202021 is as follows (number of shares in thousands): 
Number of
Shares
Weighted Average
Grant Date
Fair Value per Share
Number of
Shares
Weighted Average
Grant Date
Fair Value per Share
Unvested as of December 31, 2019$105.88 
Unvested as of December 31, 2020Unvested as of December 31, 2020$153.41 
GrantedGranted160.34 Granted144.33 
VestedVested(3)111.38 Vested(3)160.34 
ForfeitedForfeitedForfeited
Unvested as of September 30, 2020$139.72 
Unvested as of June 30, 2021Unvested as of June 30, 2021$143.74 
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We have the right to repurchase any unvested restricted stock awards subject to certain conditions. Restricted stock awards vest over a one-year period. We recognized stock-based compensation expense for restricted stock awards of $0.2$0.2 million and $0.1$0.2 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and $0.5$0.3 million and $0.2$0.3 million for the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively.
As of SeptemberJune 30, 2020,2021, the total estimated remaining stock-based compensation expense for unvested restricted stock awards with a repurchase right was $0.4$0.7 million, which is expected to be recognized over a weighted average period of 0.70.9 years.
12. Income Taxes
We calculate our benefit from income taxes on a quarterly basis by applying an estimated annual effective tax rate to income from operations and by calculating the tax effect of discrete items recognized during the quarter.
For the three and ninesix months ended SeptemberJune 30, 2020,2021, we recorded an income tax expensebenefit of $52.6$0.3 million and $39.5$5.9 million, respectively.The tax provision for the three months ended September 30, 2020 ÷includes a discrete tax expense of $47.9 million relating to the MyCase Transaction which includes $48.9 million of current tax expense on the expected gain on the sale of MyCase, less a $1.0 million benefit on the reversal of deferred tax liabilities relating to MyCase. For tax purposes, the Company plans to file an election to treat the transaction as a sale of assets. As such, the tax impact takes into consideration the tax basis of the assets on the date of sale and the availability of net operating losses and research and development tax credits. The effective tax rate as compared to the U.S. federal statutory rate of 21% differs primarily due to the significance of the benefits associated with stock-based compensation expense and research and development tax credits in relation to the forecasted pre-tax results for the year.
For the three and ninesix months ended SeptemberJune 30, 2019,2020, we recorded income tax benefit of $1.3$13.5 million and $26.9$13.1 million, respectively. DuringThe effective tax rate as compared to the second quarterU.S. federal statutory rate of 2019, we evaluated all available positive21% differs primarily due to the significance of the benefits associated with stock-based compensation expense and negative evidence, including our sustained profitabilityresearch and development tax credits in 2018 and 2019,relation to the impact of recent acquisitions and future projections of profitability. As a result, we determined that all of our deferred tax assets were more likely than not to be realized and reversedforecasted pre-tax results for the valuation allowance against those deferred tax assets accordingly.year.
There were no material changes to our unrecognized tax benefits during the ninesix months ended SeptemberJune 30, 20202021 and we do not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.
As of June 30, 2021, we have approximately $4.7 million of net deferred tax assets. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize these deferred tax assets. However, it is possible that in certain jurisdictions some or all of our net operating loss carryforwards and research tax credits may expire unused if we are unable to sustain a certain level of future profitability in those jurisdictions, in which event a valuation allowance may be necessary to reduce our deferred tax assets.
13. Revenue and Other Information
The following table presents our revenue categories for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 (in thousands): 
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Core solutions$27,117 $22,503 $78,080 $64,934 
Value+ services53,392 41,645 149,122 114,399 
Other3,577 3,787 10,422 9,317 
Total revenue$84,086 $67,935 $237,624 $188,650 
During the nine months ended September 30, 2020 and 2019, we recognized $4.3 million and $3.2 million of revenue, respectively, which were included in the deferred revenue balances as of December 31, 2019 and 2018, respectively.
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Core solutions$25,363 $26,061 $49,537 $50,963 
Value+ services60,447 51,592 111,957 95,730 
Other3,230 3,390 6,467 6,845 
Total revenue$89,040 $81,043 $167,961 $153,538 
Our revenue is generated primarily from customers in the United States. All of our property and equipment is located in the United States.
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Deferred Revenue
During the six months ended June 30, 2021 and 2020, we recognized $1.8 million and $3.5 million of revenue, respectively, which were included in the deferred revenue balances as of December 31, 2020 and 2019, respectively.
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, including those related to the anticipated impact on our business from, and our response to, the COVID-19 pandemic. 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 this Quarterly Report and in our
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Annual Report, as well as our other public filings with the SEC. Please also refer to the section of this Quarterly Report entitled "Cautionary Note Regarding Forward-Looking Statements" for additional information.
Overview
Our mission is to revolutionize vertical industry businesses by providing greatWe provide innovative software, and services. We offer industry-specific, cloud-based business software solutions, services and data analytics to our customers.the real estate industry. Our cloud-based solutions are used primarily by property managers, but also by numerous other constituencies in the property management business ecosystem. These other constituencies include property owners, rental prospects, tenants and service providers, whom we refer to collectively as "users". Although specific functionality varies by product, our core solutions are designed to enable our customers to digitally transform their businesses, address commoncritical business operations and interactions of our customers' businesses.enable exceptional customer service. In addition to our core solutions, we offer a rangean array of optional, but often business-critical, Value+ services. Our Value+ services that are builtdesigned to enhance, automate and streamline processes and support workflows that are essential to our customers' businesses. Our Value+ services are generally available on an as-needed basis and enable our customers to adapt our offerings to their specific operational requirements.
Our solutions and services are designed to be a system of record to automate essential business processes, a system of engagement to enhance business interactions between our customers and users and a system of intelligence to leverage data to predict and optimize business workflows in order to enable exceptional customer experiences and increase efficiency across our customers' businesses. Our mobile-optimized software solutions are designed for use across multiple devices and operating systems. Our software solutions are offered as a service, for our customers andare hosted using a modern cloud-based architecture.architecture, and, in part, use artificial intelligence technologies. This architecture leads to rich data sets that have a consistent schema across our customer and user base and enables us to deploy data-powered products and services for our customers.customers and users.
The significant majorityIn 2008, we introduced APM, a property management solution designed to address the unique operational and business requirements of property management companies and their business ecosystems. Recognizing that our customers and their business ecosystems would benefit from additional business critical services, we launched a series of Value+ services beginning in 2009. Our Value+ services are tailored to the specific workflows of property management businesses and generally fall into the categories of marketing and leasing, electronic payment services, business optimization and risk mitigation. In 2018, we introduced APM PLUS, a tier of APM designed for larger businesses with more complex needs. APM PLUS builds upon the functionality of APM and additionally offers data analytics, configurable workflows, and revenue management and optimization functionality for our customers. In April 2019, we launched AppFolio Investment Management, which is designed to enable real estate vertical use our property management solutions, which provideinvestment managers to better manage their investor relationships by increasing transparency and streamlining certain business processes. We do not separately break out customer information between APM, APM PLUS and AppFolio Investment Management at this time.
APM and APM PLUS serve our property management customers, including third-party property managers and owner-operatorsowner operators, who typically manage single- and multi-family residences, community associations, commercialresidential properties, and student housing, as well as mixed real estate portfolios, with a system of record to automate essential business processes, a system of engagement to enhance business interactions between our customersothers who manage community association, and their clientscommercial properties. Our solutions and services also serve other stakeholders, and a system of intelligence to leverage data to predict and optimize business workflows that enable superior customer experiences and increase efficiency across our customers' businesses. We also provide software solutions to real estate investment managers.
We have focused on growing our revenue by providing cloud-based business software solutions, services and data analytics that are designed and developed with our customers’ industry-specific business needs in mind, increasing the size of our customer baseconstituencies in the markets we serve, increasingproperty management market, including property owners, rental prospects, tenants and service providers. Revenue generated from each customer varies based on the type of property, the number of units under management, introducing new or expandedand the level of adoption and utilization of Value+ services retaining customers,by the customer and increasingusers. Revenue per unit generated from each customer typically varies based on the type of property and the level of adoption and utilization of Value+ services by the customer and users. For example, revenue generated per community association unit, which represent a growing percentage of our overall units, is lower than revenue generated per residential unit given the unique and complex needs of the residential rental lifecycle and resulting impact on the adoption and utilization of V+ services.
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Property management customer count and property management units under management are presented in the table below. We define property management customers as those paying for a subscription to our Value+ services by new and existing customers. We evaluate the success of our business during the periods presented based on factors such as the development and launch of new and innovative core functionality and Value+ services, enhancements to user experience, customer satisfaction, growth in our revenue and customer base, fluctuations in costs and operating expenses as a percentage of revenue, operating loss or income and cash flows from operating activities.solutions.
Quarter Ended
June 30,March 31,December 31,September 30,June 30,March 31,
20212020
Property manager customers16,532 16,178 15,724 15,352 15,011 14,729 
Property manager units under management (in millions)5.82 5.62 5.36 5.12 4.94 4.80 

To date, we have experienced rapid revenue growth due to strong relationships with our customers, as well as our investments in research and product development, sales and marketing, customer service and support, and infrastructure. We have invested, and intend to continue to invest, in growth areas, organically and via acquisition, basedour business to capitalize on our market validation findingsopportunity by working closely with our customers, prospects, partners and customer feedback.other industry participants to inform our product strategy. Over the long-term, these investments to grow our business are expected to continue to increase our costs and operating expenses on an absolute basis. Many of these investments will occur in advance of our realization of revenue or any other benefit, which will make it difficult to determine if we are allocating our resources effectively and efficiently. We expect our operating margins will improve over the long term,long-term, but this trend may be interrupted from time to time as a result of accelerated investment opportunities occurring in advance of realization of revenue.
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. We have invested, and intend to continue to invest, in our business to capitalizerely heavily on our market opportunity by working closely withtalented team of employees to execute our customers, prospects, partnersgrowth plans and other industry participants to informachieve our product roadmap. Accordingly, if opportunities arise that might cause us to sacrifice our performance with respect to short-term financial or business metrics, but that we believe are in the best interests of our stockholders in the long term, we will take those opportunities.    
long-term strategic objectives. We believe our people are at the heart of our success and our customers’customers' success, and we have worked hard not only to attract hire and retain qualitytalented individuals, but also to nurtureprovide a challenging and rewarding environment to motivate and develop our valuable human resources. The professionalismcapital. Beginning in March 2020, in an effort to protect our employees and dedication ofcomply with applicable government orders, we transitioned our employees to a remote work environment and restricted non-essential employee travel. Our workforce has continued to continue effectively developingdevelop and supportingsupport our productsoftware and serviceservices offerings has persisted notwithstanding the current environment,environment. We expect to slowly transition employees back to the workplace and resume employee travel throughout 2021; however, employees will have the morale and focusoption to work remotely for the remainder of the year. If the COVID-19 pandemic once again requires full remote working conditions or otherwise slows our return to the workplace, it could have an adverse impact on the productivity of our team, even while working remotely, remains high.employees as they navigate the challenges of daily life during a pandemic, which would harm our business and impede our ability to achieve our strategic objectives. We take the health and welfare of our people very seriously,seriously. We have encouraged, and have encouragedwill continue to encourage, safe practices designed to stem the infection and spread of COVID-19 within our workforce and beyond. Atbeyond and to maintain the same time, in an effort to ensure business continuity, we have developed both shortmental health and long-term succession plans for key individuals and roles throughout the business. With allwell-being of that said, ifour employees. While the COVID-19 pandemic requiresmay have long-term effects on the nature of the office environment and remote working, conditions for a prolonged period of time, it could have an adverse impact on the productivity ofwhich may present operational and workplace culture challenges that may adversely affect our business, we are committed to our employees which would harm our business and impede our abilityreturning to achieve our strategic plan. Further, we havethe workplace in the long-term. We recently constructed a limited history of remote work andnew office space in Santa Barbara, California, extended the long-term impact on, and the resulting types of continuing investments necessarylease for our employee base is uncertain.office in Richardson, Texas and leased new office space in San Diego, California.
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As of SeptemberDuring the six months ended June 30, 2020, we had approximately 1,420 employees, which includes 118also provided software solutions and services to the legal industry via MyCase, employees who were terminated in connection with the MyCase Transaction. We continue to consider our relationship with our employees to be very good. We also hire temporary employeesa software solution primarily designed for small and consultants, and believe we have a similarly strong relationship with them. None of our employees is represented by a labor union or covered by a collective bargaining agreement. Our future growth depends, in part, upon our ability to continue to identify, attract and retain the necessary qualified personnel to support our growth plans and the continued service of our executive officers and other key employees. If we fail to do so, our business and operating results may suffer.
Recent Developments
mid-sized law firms. As previously disclosed, we completed our divestiture of MyCase, Inc. on September 30, 2020 the Company completed the divestiture of 100% of the issued and outstanding equity interests of MyCase, the former wholly owned subsidiary of the Company that provided legal practice and case management software solutions to our legal customers, to an affiliate of certain funds advised by Apax Partners LLP for $193.0 million.(the "MyCase Transaction"). In connection with the MyCase Transaction, our Credit Agreementcredit facility was terminated and all obligations outstanding under the Term Loanour term and Revolving Facility,revolving loans, including all guarantees and security interests granted with respect to such obligations, were satisfied in full with proceeds from the sale and extinguished.
Real Estate Overview
In 2008, we entered the real estate vertical with our first product, AppFolio Property Manager ("APM"), a property management solution designed to address the unique operational and business requirements of property management companies. Recognizing that our customers and their stakeholders would benefit from For additional business critical services, we launched a series of Value+ services beginning in 2009. Our first Value+ service assisted our customers in the marketing of their rental properties by offering property level website design and hosting services. One year later, we commenced the roll out details, see Note 3, Divestitures of our electronic payment services, thereby facilitating the payment of rent via ACH by tenants. In 2011, we launched tenant screening services, further assisting our customers with the leasing process. In 2012, we introduced our legal liability to landlord insurance program, which protects property owners and managers from certain defined losses. We expanded our electronic payment services in 2013 by allowing residents to pay rent by electronic cash payment and credit or debit card. In 2014, we launched a tenant-facing contact center solution to assist our property managers with resolving incoming maintenance requests. In 2015, we expanded the marketing services offered to our property management customers with a premium leads service built on technology acquired with our acquisition of RentLinx, LLC ("RentLinx") and expanded our electronic payment services to facilitate payments made between our customers and property owners and vendors. In 2016, we introduced a tenant debt collection Value+ service to assist our property managers with running a more efficient business. We expanded our insurance services in 2017 to enable tenants to purchase renters insurance from within APM, protecting both our property management customers and their tenants. In 2018, we acquired substantially all of the assets of WegoWise, Inc. ("WegoWise"), a provider of cloud-based utility analytics software solutions, and began offering AppFolio Utility Management as a Value+ service to our property management customers in mid-2019. That same year, we released AppFolio Property Manager PLUS ("APM PLUS"), a new tier of APM designed for larger businesses with more complex needs. APM PLUS builds upon the core functionality of APM and also offers data analytics, configurable workflows, and revenue management and optimization functionality for our customers. In January 2019, we acquired Dynasty Marketplace, Inc. ("Dynasty"), a provider of advanced artificial intelligence ("AI") solutions for the real estate vertical, and began offering an AI Leasing Assistant, which we refer to as "Lisa", as a Value+ service to our property management customers in mid-2019. In April 2019, we launched AppFolio Investment Management, which enables real estate investment managers to better manage their investor relationships by increasing transparency and streamlining certain business processes.
The significant majority of our customers in the real estate vertical use our property management solutions. We define our property management customer base as the number of customers subscribing to our property management core solutions. Customer count and property management units under management are presented in the table below:
Quarter Ended
September 30,June 30,March 31,December 31,September 30,June 30,March 31,
20202019
Property manager customers15,352 15,011 14,729 14,385 14,034 13,737 13,409 
Property manager units under management (in millions)5.12 4.94 4.80 4.64 4.41 4.23 4.08 

Legal Overview
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We entered the legal vertical with the acquisition of MyCase in 2012. As stated above, on September 30, 2020, we exited the legal vertical upon the completion of our divestiture of 100% of the issued and outstanding equity interests of MyCase to an affiliate of certain funds advised by Apax Partners LLP, for $193.0 million.
As of September 30, 2020, our legal customers directly and indirectly accounted for approximately 10% of our annual revenue. We do not expect there will be a material impact to our operating income as a result of the MyCase Transaction. We formerly defined our legal customer base as the number of customers subscribed to MyCase core solutions, exclusive of free trial periods. Our historical legal customer count is summarized in the table below for the periods presented therein:
Quarter Ended
September 30,June 30,March 31,December 31,September 30,June 30,March 31,
20202019
Law firm customers11,592 11,305 11,115 10,971 10,781 10,631 10,485 

Trends and Uncertainties Related to the COVID-19 Pandemic
During early calendar year 2020, the novel coronavirus disease ("COVID-19") spread globally, including to every state in the United States. The global pandemic has created and may continue to create significant uncertainty in a wide variety of industries and markets and has prompted many federal, state, local, and foreign governments to various orders and restrictions in an attempt to control the spread and mitigate the impact of the disease, which may reduce demand for our core solutions and/or Value+ services, impact the productivity of our workforce, reduce our access to capital, and harm our business and results of operations. Such restrictions or orders, or the perception that such restrictions or orders could be implemented, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and the cancellation or postponement of events. These potential impacts are only amplified by the length of time they remain in place, as the cumulative effect upon our customers and their businesses may only exacerbate potential harm to our business and results of operations.
Beginning in March 2020, in an effort to protect our employees and comply with applicable government orders, we restricted non-essential employee travel and transitioned our employees to a remote work environment. We currently expect our employees to continue working remotely at least through the end of the first quarter of 2021. The professionalism and dedication of our workforce to continue effectively developing and supporting our product and service offerings has persisted notwithstanding the current environment, and the morale and focus of our team, even while working remotely, remains high. We take the health and welfare of our people very seriously, and have encouraged safe practices designed to stem the infection and spread of COVID-19 within our workforce and beyond. With all of that said, if the COVID-19 pandemic requires remote working conditions for a prolonged period of time, it could have an adverse impact on the productivity of our employees, which would harm our business and impede our ability to achieve our strategic plan. For example, certain our employees with younger children have been required to respond to ongoing school closures and adapt to a distance learning environment, and may be required to continue to do so for the foreseeable future. Further, we have a limited history of remote work and the long-term impact on, and the resulting types of continuing investments necessary for, our employee base is uncertain.
We began fiscal year 2020 with healthy demand for our products and services, many of which are designed to enable our customers to manage their businesses virtually. During the three and nine months ended September 30, 2020, we experienced some variability in demand for certain Value+ services after government restrictions were implemented. We expect demand variability for our products and services could continue as a result of the COVID-19 pandemic, although it is presently unclear whether the cumulative impacts will be positive or negative.
We continue to actively communicate with and listen to our customers to best ensure that we are responding to their needs in the current environment with innovative solutions that will not only be beneficial now but also over the long-term as well. However, our ability to interact with customers has been impacted by the current environment. For example, we believe that our inability to meet in-person with current or prospective customers, as well as the cancellation or postponement of Company-sponsored events or third-party events at which our products are featured, may have a negative impact on our business.
We continue to monitor developments related to COVID-19 and remain flexible in our response to the challenges presented by the pandemic. To mitigate the adverse impact COVID-19 may have on our business and operations, we have implemented a number of measures to protect the health and safety of our employees, as well as to strengthen our financial position. These efforts include increasing our cash position and eliminating, reducing, or deferring non-essential expenditures, as well as complying with local and state government recommendations to protect our workforce.
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Our reported results for the three and nine months ended September 30, 2020 may not be reflective of current market conditions, or of our results for any future periods, which may be negatively impacted by the COVID-19 pandemic to a greater extent than the reported period. The impact of the COVID-19 pandemic may also exacerbate other risks discussedCondensed Consolidated Financial Statements in this Quarterly Report. Refer to Item 1A. “Risk Factors” in this Quarterly Report for a complete description of the material risks that we currently face.
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.services are offered on a subscription basis. Our core solutions subscription fees vary by property type and are designed to scale to the size of our customers’ businesses. We recognize subscription revenue for subscription-based services over time on a straight-line basis over the contract term beginning on the date that our service is made available to the customer.available. We generally invoice our customers for subscription services in monthly or annual installments, typicallyannually 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, pricing for our solutions, and the level of adoption of our Value+ subscription services by new and existing customers.
We also chargeoffer Value+ services, which are not covered by our customers usage-basedsubscription fees, for using certain Value+ services. Certain of the usage-based fees are paid by either our customers or clients of our customers.on a per use basis. Usage-based fees are charged on a flat fee per transaction basis with no minimum usage commitments. We recognize revenue for usage-based services in the period the service is rendered. We generally invoice our customers for usage-based services on a monthly basis for services rendered inor collect the preceding month. Other usage-based fees are collectedfee at the time of service. Revenue from usage-based services is impacted by a numberA significant majority of factors, including the number of new and existing customers that adopt and utilize our Value+ services, the size and needs of our customers, and our customer renewal rates.
We experience limited seasonality in our Value+ services revenue primarily with respect to certain leasing-relatedcomes directly and indirectly from the use of our electronic payment services, we provide to our property management customers, including our tenant screening services, and new tenant applications which impact electronic payment services revenue. Our property managementinsurance services. Usage-based fees are paid either by customers historically have processed fewer applications for new tenants during the fourth quarter. As a resultor by users.
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Table of this seasonal decline in activity, we have typically experienced overall 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.Contents
We offer assistance tocharge our customers withfor on-boarding assistance to our core solutions as well as website designand certain other non-reoccurring services. We generally invoice our customers for these other services in advance of the services being completed. Wecompleted and recognize revenue for these other services upon completion of the related service. We generate revenue from RentLinx,the standalone customers of previously acquired businesses such as WegoWise and Dynasty, stand-alone customers by providing services outside of our property management core solution platform. Revenue derived from customers using these services is recorded in Other revenue.
Costs and Operating Expenses
Cost of RevenueRevenue. .Many of our Value+ services are facilitated by third-party service providers. Cost of revenue consists ofincludes the fees paid to these third-party service providers associated with delivering certain of our Value+ services (including legal fees and costs associated with the delivery and provision of those services, as well as loss reserves and other costs associated with our legal liability to landlord insurance services), which vary both in cost and as a percent of revenue for each Value+ service offering, personnel-related costs (including salaries, performance-based compensation, benefits, and stock-based compensation) for our employees focused on customer service and the support of our operations (including salaries, performance-based compensation, benefits, and stock-based compensation), platform infrastructure costs (such as data center operations and hosting-related costs), payment processing fees and allocated shared and other costs. Cost of revenue excludes depreciation of property and equipment, and amortization of capitalized software development costs and intangible assets. We intend to continue to invest in customer service and support, and the expansion of our technology infrastructure as our business grows.
Sales and MarketingMarketing. . Sales and marketing expense consists of personnel-related costs for our employees focused on sales and marketing (including salaries, sales commissions, performance-based compensation, benefits, and stock-based compensation) for our employees focused on sales and marketing,, costs associated with sales and marketing activities, and allocated shared and other costs. Marketing activities include advertising, online lead generation, lead nurturing, customer and industry events, and the creation of industry-related content and collateral. Sales commissions and other incremental costs to acquire customers and grow adoption and utilization of our Value+ services by our new and existing customers are deferred and then amortized on a straight-line basis over a period of benefit, which we have determined to be three years. We focus our sales and marketing efforts on generating awareness of our software solutions, creating sales leads, establishing and promoting our brands, and cultivating an educated community of successful and vocal customers. We intend to continue to invest in sales and marketing to increase 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 (includingfor our employees focused on research and product development(including salaries, performance-based compensation, benefits, and stock-based compensation) for our employees focused on
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research and product development,, fees for third-party development resources, and allocated shared and other costs. Our research and product development efforts are focused on enhancing functionality and the ease of use of our existing software solutions by adding new core functionality, Value+ services and other improvements, as well as developing new products and services for new and existing markets. We capitalize our software development costs which meet the criteria for capitalization. Amortization of capitalized software development costs is included in depreciation and amortization expense. We intend to continue to invest in research and product development as we continue to introduce new core functionality, roll out new Value+ services, develop new products and services, and expand into adjacent markets and new verticals.
General and Administrative.General and administrative expense consists of personnel-related costs (including salaries, a majority of total performance-based compensation, benefits, and stock-based compensation) for employees in our executive, finance, information technology, human resources, legal, compliance, corporate development legal, and administrative organizations.organizations (including salaries, a majority of total performance-based cash compensation, benefits, and stock-based compensation). In addition, general and administrative expense includes fees for third-party professional services (including audit, legal, compliance, tax, and consulting services), transaction costs related to business combinations and divestitures, regulatory fines and penalties, other corporate expenses, and allocated shared costs. We intend to continue to incur incremental general and administrative costs associated with supporting the growth of our business.
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 and product development organization and the development or acquisition of new technology, we expect to have increased capitalized software development costs and incremental amortization. Further, we may incur additional amortization expense to the extent we enter into additional arrangements to acquire or invest in new technologies or markets adjacent to those we serve today or entirely new verticals. Finally, as we expand our facilities footprint and increase our base of employees, we expect to have increased property and equipment expenditures and incremental depreciation expense.
Other Income (Expense)(Loss), Net. Other income (expense)(loss), net includes gains and losses associated with the sale of businesses, property, and equipment and investment securities.securities, as well as income from certain post-closing transition services to be provided by us to MyCase in connection with the MyCase Transaction.
Interest Expense, NetIncome (Expense), Net. . Interest expense includes interest paid on any outstanding borrowings under our former Credit Agreement.borrowings. Interest income includes interest earned on investment securities, amortization and accretion of the premium and discounts paid from the purchase of investment securities, and interest earned on notes receivable and on cash deposited in our bank accounts.
Provision for (Benefit from)Benefit from Income Taxes. Provision for (benefit from)Benefit from income taxes consists of federal and state income taxes in the United States.
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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,
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019 2021202020212020
Amount%Amount%Amount%Amount% Amount%Amount%Amount%Amount%
Consolidated Statements of Operations Data:Consolidated Statements of Operations Data:Consolidated Statements of Operations Data:
RevenueRevenue$84,086 100.0 %$67,935 100.0 %$237,624 100.0 %$188,650 100.0 %Revenue$89,040 100.0 %$81,043 100.0 %$167,961 100.0 %$153,538 100.0 %
Costs and operating expenses: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)
32,752 39.0 25,930 38.2 89,124 37.5 75,239 39.9 
Cost of revenue (exclusive of depreciation and amortization) (1)
32,819 36.9 27,411 33.8 66,117 39.4 56,372 36.7 
Sales and marketing (1)
Sales and marketing (1)
14,894 17.7 12,636 18.6 43,117 18.1 37,087 19.7 
Sales and marketing (1)
17,714 19.9 13,717 16.9 33,893 20.2 28,223 18.4 
Research and product development (1)
Research and product development (1)
13,454 16.0 10,602 15.6 36,794 15.5 28,422 15.1 
Research and product development (1)
15,506 17.4 12,128 15.0 29,889 17.8 23,340 15.2 
General and administrative (1)
General and administrative (1)
12,946 15.4 8,955 13.2 36,303 15.3 25,361 13.4 
General and administrative (1)
14,206 16.0 14,785 18.2 27,567 16.4 23,357 15.2 
Depreciation and amortizationDepreciation and amortization6,680 7.9 5,678 8.4 19,751 8.3 16,169 8.6 Depreciation and amortization7,649 8.6 6,657 8.2 15,018 8.9 13,071 8.5 
Total costs and operating expensesTotal costs and operating expenses80,726 96.0 63,801 93.9 225,089 94.7 182,278 96.6 Total costs and operating expenses87,894 98.7 74,698 92.2 172,484 102.7 144,363 94.0 
Income from operations3,360 4.0 4,134 6.1 12,535 5.3 6,372 3.4 
Other income (expense), net187,747 223.3 (11)— 187,759 79.0 (68)— 
Interest expense, net(853)(1.0)(400)(0.6)(1,909)(0.8)(1,324)(0.7)
Income before provision for (benefit from) income taxes190,254 226.3 3,723 5.5 198,385 83.5 4,980 2.6 
Provision for (benefit from) income taxes52,578 62.5 (1,255)(1.8)39,469 16.6 (26,874)(14.2)
Income (loss) from operationsIncome (loss) from operations1,146 1.3 6,345 7.8 (4,523)(2.7)9,175 6.0 
Other income (loss), netOther income (loss), net496 0.6 (10)— 1,058 0.6 12 — 
Interest income (expense), netInterest income (expense), net55 0.1 (562)(0.7)108 0.1 (1,056)(0.7)
Income (loss) before benefit from income taxesIncome (loss) before benefit from income taxes1,697 1.9 5,773 7.1 (3,357)(2.0)8,131 5.3 
Benefit from income taxesBenefit from income taxes(324)(0.4)(13,484)(16.6)(5,857)(3.5)(13,109)(8.5)
Net incomeNet income$137,676 163.7 %$4,978 7.3 %$158,916 66.9 %$31,854 16.9 %Net income$2,021 2.3 %$19,257 23.8 %$2,500 1.5 %$21,240 13.8 %

(1) Includes stock-based compensation expense as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
20202019202020192021202020212020
Stock-based compensation expense included in costs and operating expenses:Stock-based compensation expense included in costs and operating expenses:Stock-based compensation expense included in costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)Cost of revenue (exclusive of depreciation and amortization)$452 $334 $1,098 $1,073 Cost of revenue (exclusive of depreciation and amortization)$463 $520 $934 $646 
Sales and marketingSales and marketing367 354 1,069 904 Sales and marketing447 477 849 702 
Research and product developmentResearch and product development474 353 1,348 1,024 Research and product development1,214 580 2,071 874 
General and administrativeGeneral and administrative1,803 1,151 3,293 2,430 General and administrative1,090 1,176 2,136 1,490 
Total stock-based compensation expenseTotal stock-based compensation expense$3,096 $2,192 $6,808 $5,431 Total stock-based compensation expense$3,214 $2,753 $5,990 $3,712 


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Comparison of the Three and NineSix Months Ended SeptemberJune 30, 20202021 and 20192020

Revenue
Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change Three Months Ended
June 30,
ChangeSix Months Ended
June 30,
Change
20202019Amount%20202019Amount% 20212020Amount%20212020Amount%
(dollars in thousands) (dollars in thousands)
Core solutionsCore solutions$27,117 $22,503 $4,614 21 %$78,080 $64,934 $13,146 20 %Core solutions$25,363 $26,061 $(698)(3)%$49,537 $50,963 $(1,426)(3)%
Value+ servicesValue+ services53,392 41,645 11,747 28 %149,122 114,399 34,723 30 %Value+ services60,447 51,592 8,855 17 %111,957 95,730 16,227 17 %
OtherOther3,577 3,787 (210)(6)%10,422 9,317 1,105 12 %Other3,230 3,390 (160)(5)%6,467 6,845 (378)(6)%
Total revenueTotal revenue$84,086 $67,935 $16,151 24 %$237,624 $188,650 $48,974 26 %Total revenue$89,040 $81,043 $7,997 10 %$167,961 $153,538 $14,423 %

ForRevenue derived from our software and solutions offered to the real estate vertical for the three and nine months ended SeptemberJune 30, 2021 and 2020, was $89.0 million and 2019, we$72.8 million, respectively, an increase of $16.2 million, or 22%. This increase was primarily attributable to the growth in the number of property management customers and units under management utilizing our software and services. The remaining revenue in 2020 was attributed to our legacy legal vertical. Revenue derived approximately 90%from our software and solutions offered to the real estate vertical for the six months ended June 30, 2021 and 2020, was $168.0 million and $137.7 million, respectively, an increase of $30.3 million, or 22%. This increase was primarily attributable to the growth in the number of property management customers and units under management utilizing our software and services. The remaining revenue directly and indirectlyin 2020 was attributed to our legacy legal vertical.
Core solutions revenue derived from the software solutions, services and data analytics we offer to our real estate vertical customers, most notably from our property management solutions. The majorityfor the three months ended June 30, 2021 and 2020 was $25.4 million and $21.2 million, respectively, an increase of our$4.2 million or 20%. Core solutions revenue is derived from our property management core solutionsreal estate vertical for the six months ended June 30, 2021 and 2020 was $49.5 million and $41.7 million, respectively, an increase of $7.8 million or 19%.
Value+ services utilized by property managers, residents, applicantsrevenue derived from our real estate vertical for the three months ended June 30, 2021 and owners.
The2020 was $60.4 million and $48.2 million, respectively, an increase of $12.2 million or 25%. Value+ services revenue derived from our real estate vertical for the six months ended June 30, 2021 and 2020 was $112.0 million and $89.1 million, respectively, an increase of $22.9 million or 26%. These increases in core solutions and Value+ services revenue wasfor the three and six months ended June 30, 2021 and 2020 were mainly attributable to a growinggrowth in our base of property management customers and additional residents, applicantsgrowth in users of our subscription and owners utilizing our Value+usage-based services. During the comparative three and nine months ended September 30, 2020,six month periods we experienced growth of 16%17% and 17%, respectively, in the average number of property management units under management resulting from 9%10% and 10%, respectively, growth respectively, in the average number of property management customers during the same periods. In addition,
Our electronic payment services experienced increased demand during the comparative periods as residents, property managers, owners and customers transacted more business online. Our tenant screening and insurance services usage also increased during the comparative periods in line with the increase in core solutions revenue was also attributable to growth of 7% in the average number of law firm customers coupled with a core solutions price increase rolled out during the period.
units under management. A significant majority of our Value+ services revenue comes directly and indirectly from our customers'the use of our electronic payment services, tenant screening services, and the insurance services. Our electronic payment services experienced increased demand during the most recent quarter as residents, property managers, owners and customers transacted more business online. It is unclear whether the trend will continue over the long term. During the comparative periods, we also introduced new Value+ services and expanded the functionality of others, which resulted in incremental revenue.make available to customers.
The decrease in Other revenue for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily attributable to a decrease in fees associated with our property management customers upgrading to a new website hosting platform, partially offset by increases in revenue from WegoWise and Dynasty. The increase in Other revenue for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily attributable to increases in revenue from WegoWise and Dynasty.
Cost of Revenue (Exclusive of Depreciation and Amortization)
Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change Three Months Ended
June 30,
ChangeSix Months Ended
June 30,
Change
20202019Amount%20202019Amount% 20212020Amount%20212020Amount%
(dollars in thousands) (dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization)Cost of revenue (exclusive of depreciation and amortization)$32,752 $25,930 $6,822 26 %$89,124 $75,239 $13,885 18 %Cost of revenue (exclusive of depreciation and amortization)$32,819 $27,411 $5,408 20 %$66,117 $56,372 $9,745 17 %
Percentage of revenuePercentage of revenue39.0 %38.2 %37.5 %39.9 %Percentage of revenue36.9 %33.8 %39.4 %36.7 %

The increase in costCost of revenue (exclusive of depreciation and amortization) related to our software and solutions offered to the real estate vertical for the three months ended SeptemberJune 30, 2021 and 2020 compared to the three months ended September 30, 2019,was $32.8 million and $24.5 million, respectively, an increase of $8.3 million, or 34%. This increase was primarily attributable to increased costs associated with servicing the incremental $16.2 million in revenue over the same period. The remaining cost of revenue was attributed to our legacy legal vertical and such costs for 2021 were reimbursed through our ongoing Transition Services Agreement and recorded in Other income (loss), net.
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For the three months ended SeptemberJune 30, 2021 and 2020, expenditures to third-party service providers related to the delivery of our Value+ services to the real estate vertical increased $4.0$5.6 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the $11.7$12.2 million increase in Value+ services revenue.revenue to the real estate vertical. Personnel-related costs, including performance-based compensation, necessary to support growth and key investments, in the business, increased $2.2$2.0 million. Allocated shared and other costs increased by $0.6$0.8 million primarily driven by an increaseincreases in platform infrastructure,software, payment processing and other costs associated with the delivery and provisionincurred in support of our Value+ services, partially offset by a reduction of workplace-related expenses and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.overall growth.
The increase in costCost of revenue (exclusive of depreciation and amortization) related to our software and solutions offered to the real estate vertical for the ninesix months ended SeptemberJune 30, 2021 and 2020 compared to the nine months ended September 30, 2019,was $65.9 million and $50.6 million, respectively, an increase of $15.3 million, or 30%. This increase was primarily attributable to increased costs associated with servicing the incremental $49.0$30.3 million in revenue over the same period, partially offset by third-party service provider incentives earnedperiod. The remaining cost of $2.1 million.revenue was attributed to our legacy legal vertical and such costs for 2021 were reimbursed through our ongoing Transition Services Agreement and recorded in Other income (loss), net.
For the ninesix months ended SeptemberJune 30, 2021 and 2020, expenditures to third-party service providers related to the delivery of our Value+ services to the real estate vertical increased $7.7$9.4 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the $34.7$22.9 million increase in Value+ services revenue. Partially offsetting this volume increase was $2.1 million of annual maximum incentives earned duringrevenue to the period from third-party service providers related to programs intended to increase adoption and utilization of online payments and favorable trends in loss reserves in our insurance services business.real estate vertical. Personnel-related costs, including performance-based compensation, necessary to support growth and key investments, in the business, increased $4.8$4.9 million. Allocated shared and other costs increased by $1.4$1.0 million primarily driven by ana $1.4 million increase in platform infrastructure,software, payment processing and other costs associated with the delivery and provisionincurred in support of our Value+ services,overall growth, partially offset by a $0.4 million reduction of expenses attributed to a decrease in workplace-related expenses and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.
As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) fluctuates primarily based on the mix and prices of Value+ services utilized duringrevenue in the period, given the varying percentage of revenue we pay to third-party service providers, and investments made in advance of expected revenue generation. ExcludingFor the third-party service provider incentives earned during the period, as a percentage of revenue,three months ended June 30, 2021, cost of revenue (exclusive of depreciation and amortization), as a percentage of revenue, increased to 39.0%36.8% from 38.2%33.6% for the three months ended SeptemberJune 30, 2020, and increased to 39.3% from 36.8% for the six months ended June 30, 2021 compared to the threesix months ended SeptemberJune 30, 2019, and decreased to 38.4% from 39.9% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.2020. These fluctuationsincreases in cost as a percentage of revenue were primarily driven by the mix of Value+ services revenue with varying underlying third-party costs.
Sales and Marketing
Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change Three Months Ended
June 30,
ChangeSix Months Ended
June 30,
Change
20202019Amount%20202019Amount% 20212020Amount%20212020Amount%
(dollars in thousands) (dollars in thousands)
Sales and marketingSales and marketing$14,894 $12,636 $2,258 18 %$43,117 $37,087 $6,030 16 %Sales and marketing$17,714 $13,717 $3,997 29 %$33,893 $28,223 $5,670 20 %
Percentage of revenuePercentage of revenue17.7 %18.6 %18.1 %19.7 %Percentage of revenue19.9 %16.9 %20.2 %18.4 %
The increase in salesSales and marketing expense related to our software and solutions offered to the real estate vertical for the three months ended SeptemberJune 30, 2021 and 2020 compared to the three months ended September 30, 2019,was $17.7 million and $11.9 million, respectively, an increase of $5.8 million, or 49%. This increase was primarily due to a $1.6$2.2 million increase in personnel-related costs, including performance-based compensation, necessary to support growth and key investments in the business. Advertising and promotion costs increased by $1.1$3.0 million due to increased online advertising and virtual marketing events aimed at increasing revenue and supporting growth in part from lower spending in 2020 from the business. In addition, there was a decreasecancellation or postponement of in allocated and other costs of $0.4 million related to a reduction of workplace-related expenses, the elimination of event-related travel from cancelled or postponedperson events and the reduction of other non-essential expendituresonline marketing spend as well as increased advertising and promotion spending in response2021 to support the impact ofgrowth and key investments in the COVID-19 pandemic. The investment we makebusiness in sales2021 and marketing is key to acquiring new customers, expanding the adoption and utilization of Value+ services, and growing revenue over time. We intend to continue to invest in sales and marketing to increase our customer base and increase the adoption and utilization of Value+ services over time.
Thebeyond. In addition, there was an increase in allocated shared and other costs of $0.6 million primarily driven by increases in software and other costs incurred in support of our overall growth. The remaining sales and marketing expense was attributed to our legacy legal vertical and such costs for 2021 were reimbursed through our ongoing Transition Services Agreement and recorded in Other income (loss), net.
Sales and marketing expense related to our software and solutions offered to the real estate vertical for the ninesix months ended SeptemberJune 30, 2021 and 2020 compared to the nine months ended September 30, 2019,was $33.8 million and $24.3 million, respectively, an increase of $9.5 million, or 39%. This increase was primarily due to a $6.1$4.9 million increase in personnel-related costs, including performance-based compensation, necessary to support growth and key investments in the business. Advertising and promotion costs increased by $0.9$4.3 million due in part to lower spending in 2020 due to the cancellation or postponement of in person events and the reduction of online marketing spend as well as increased online advertising and virtual marketing events aimed at increasing revenuepromotion spending in 2021 to support the growth and supporting growthkey investments in the business.business in 2021 and beyond. In addition, there was a decreasean increase in allocated shared and other costs of $0.9$0.7 million primarily related to software, offset by a reduction of workplace-related expenses,$0.4 million decrease in costs due to the elimination of event-related travel from cancelled or postponed events and the reduction of workplace-related and other non-essential expenditures in response to the impact of the COVID-19 pandemic. The remaining
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sales and marketing expense was attributed to our legacy legal vertical and such costs for 2021 were reimbursed through our ongoing Transition Services Agreement and recorded in Other income (loss), net.
As a percentage of revenue, sales and marketing expense decreasedincreased to 17.7%19.9% from 18.6%16.3% for the three months ended SeptemberJune 30, 20202021 compared to the three months ended SeptemberJune 30, 20192020 and 18.1%increased to 20.1% from 19.7%17.6% for the ninesix months ended SeptemberJune 30, 20202021 compared to the ninesix months ended SeptemberJune 30, 2019. This leverage in cost as a percentage of revenue was primarily driven by the reduction of event related travel and other non-essential expenditures as a result of the COVID-19 pandemic. Notwithstanding the leverage in cost as a percentage of revenue, we intend to continue to invest in sales and marketing to increase our customer base and increase the adoption and utilization of Value+ services over time.
Research and Product Development
 Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change
 20202019Amount%20202019Amount%
 (dollars in thousands)
Research and product development$13,454 $10,602 $2,852 27 %$36,794 $28,422 $8,372 29 %
Percentage of revenue16.0 %15.6 %15.5 %15.1 %
2020. The increase in research and product development expense for the three months ended SeptemberJune 30, 20202021 compared to the three months ended SeptemberJune 30, 2019,2020 was due in part to lower advertising and promotion costs in 2020 as a result of fewer events and lower online marketing spend as well as increased spend in 2021 to support the growth of the business. The increase for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was due to in part to lower advertising and promotion costs in 2020 as a result of fewer events and lower online marketing spend as well as increased spend in 2021 to support the growth of the business.
Research and Product Development
 Three Months Ended
June 30,
ChangeSix Months Ended
June 30,
Change
 20212020Amount%20212020Amount%
 (dollars in thousands)
Research and product development$15,506 $12,128 $3,378 28 %$29,889 $23,340 $6,549 28 %
Percentage of revenue17.4 %15.0 %17.8 %15.2 %
Research and product development expense related to our software and solutions offered to the real estate vertical for the three months ended June 30, 2021 and 2020 was $15.5 million and $10.7 million, respectively, an increase of $4.8 million, or 45%. This increase was the result of an increase in personnel-related costs, including performance based compensation, net of capitalized software development costs, of $3.7$4.5 million due to investments in headcount growth within our research and product development organization. This increase was partially offset by a decrease in allocatedAllocated shared and other costs of $0.8increased by $0.3 million primarily related to a reduction of workplace-related expensessoftware and the reduction of other non-essential expenditurescosts to support our overall growth. The remaining research and development expense was attributed to our legacy legal vertical and such costs for 2021 were reimbursed through our ongoing Transition Services Agreement and recorded in response to the impact of the COVID-19 pandemic. Other income (loss), net.
The increase in researchResearch and product development expense related to our software and solutions offered to the real estate vertical for the ninesix months ended SeptemberJune 30, 2021 and 2020 compared to the nine months ended September 30, 2019,was $29.8 million and $20.6 million, respectively, an increase of $9.2 million, or 45%. This increase was the result of an increase in personnel-related costs, including performance based compensation, net of capitalized software development costs, of $9.3$9.2 million due to investments in headcount growth within our research and product development organization. This increase was partially offset by a decrease in allocatedAllocated shared and other costs of $0.9increased $0.3 million primarily related to software costs, and were offset by a $0.3 million reduction of workplace related expensesworkplace-related and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic. The remaining research and development expense was attributed to our legacy legal vertical and such costs for 2021 were reimbursed through our ongoing Transition Services Agreement and recorded in Other income (loss), net.

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General and Administrative
Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change Three Months Ended
June 30,
ChangeSix Months Ended
June 30,
Change
20202019Amount%20202019Amount% 20212020Amount%20212020Amount%
(dollars in thousands) (dollars in thousands)
General and administrativeGeneral and administrative$12,946 $8,955 $3,991 45 %$36,303 $25,361 $10,942 43 %General and administrative$14,206 $14,785 $(579)(4)%$27,567 $23,357 $4,210 18 %
Percentage of revenuePercentage of revenue15.4 %13.2 %15.3 %13.4 %Percentage of revenue16.0 %18.2 %16.4 %15.2 %
General and administrative expense related to our software and solutions offered to the real estate vertical and general corporate overhead expenses for the three months ended June 30, 2021 and 2020 was $14.2 million and $14.5 million, respectively, a decrease of $0.3 million, or 2%. The increasedecrease in general and administrative expense for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to a $1.8one-time $4.3 million legal expense accrued during the three months ended June 30, 2020 and paid in the three months ended March 31, 2021 related to our previously disclosed settlement with the Federal Trade Commission (the "FTC"). This decrease was offset by an increase of $2.1 million in personnel-relatedpersonnel related costs including performance-based compensation, due to investments in headcount growth within our general and administrative organizations. In addition, there was anorganizations, a $1.0 million one-time expense related to separation pay in connection with the departure of our Chief Financial Officer ("CFO") during the three months ended June 30, 2021, and a $1.1 million increase in professional services feesallocated shared and other costs to support our overall growth, all of $2.3which was partially offset by a net decrease of $0.2 million in connection with long-term executive cash incentive plans for certain executives, including certain of our named executive officers. We expect to incur additional expense in future periods under the long-term executive cash incentive plans throughout the remaining service periods.

General and administrative expense related to our software and solutions offered to the MyCase Transaction.
real estate vertical and general corporate overhead expenses for the six months ended June 30, 2021 and 2020 was $27.6 million and $23.0 million, respectively, an increase of $4.6 million, or 20%. The increase in general and administrative expense for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was primarily due to a $5.0 million increase in personnel-related costs including performance-based compensation, due tofor investments in headcount, growth within our general and administrative organizations. In addition, there was a $4.3$1.0 million expense recorded during the current period related to the probable loss associatedCFO separation pay, a $1.0 million expense in connection with the FTC Investigation. There was alsolong-term executive cash incentive plans for certain executives, and an increase of $1.9 million in professional services feesallocated shared and other costs of $2.3 million related to the MyCase Transaction. Allocatedfor professional and legal fees, education and training, insurance, software and other costs decreased $0.7to support our overall growth. These increases were offset by the $4.3 million primarily duelegal expense accrued during the three months ended June 30, 2020 and paid in the three months ended March 31, 2021 related to a reduction of workplace-related expenses andour settlement with the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.
We expect stock-based compensation expense will continue to decrease for certain executives in light of our adoption of the Long-Term Cash Bonus Plan in 2018. No accrual has yet been made under this plan as a result of the high degree of uncertainty regarding potential future payments under the plan.
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FTC.
Depreciation and Amortization
Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change Three Months Ended
June 30,
ChangeSix Months Ended
June 30,
Change
20202019Amount%20202019Amount% 20212020Amount%20212020Amount%
(dollars in thousands) (dollars in thousands)
Depreciation and amortizationDepreciation and amortization$6,680 $5,678 $1,002 18 %$19,751 $16,169 $3,582 22 %Depreciation and amortization$7,649 $6,657 $992 15 %$15,018 $13,071 $1,947 15 %
Percentage of revenuePercentage of revenue7.9 %8.4 %8.3 %8.6 %Percentage of revenue8.6 %8.2 %8.9 %8.5 %
TheDepreciation and amortization expense related to our software and solutions offered to the real estate vertical for the three months ended June 30, 2021 and 2020 was $7.6 million and $6.0 million, respectively, an increase of $1.6 million, or 28%. Depreciation and amortization expense related to our software and solutions offered to the real estate vertical for the six months ended June 30, 2021 and 2020 was $15.0 million and $11.8 million, respectively, an increase of $3.2 million, or 27%. These increases in depreciation and amortization expense for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, waswere primarily due to increased amortization expense associated with higher accumulated capitalized software development balances.
Other Income (Expense)(Loss), net
Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
ChangeThree Months Ended
June 30,
ChangeSix Months Ended
June 30,
Change
20202019Amount%20202019Amount%20212020Amount%20212020Amount%
(dollars in thousands)(dollars in thousands)
Other income (expense), net$187,747 $(11)$187,758 n/a$187,759 $(68)$187,827 n/a
Other income (loss), netOther income (loss), net$496 $(10)$506 *$1,058 $12 $1,046 *
Percentage of revenuePercentage of revenue223.3 %— %79.0 %— %Percentage of revenue0.6 %— %0.6 %— %
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*Percentage change not meaningful
Other income (loss), net related to our software and solutions offered to the real estate vertical for the three months ended June 30, 2021 and 2020 was $0.5 million and $(10) thousand, respectively, an increase of $0.5 million. The increase in otherOther income (expense)(loss), net for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, was primarily due to the gain of $187.6$0.3 million associated with the MyCase Transaction. We expect to recognize additionalin other income beginning inrecorded during the fourth quarter of 2020 relatingthree months ended June 30, 2021 related to income from certain post-closing transition services provided to be provided byMyCase, and $0.2 million in other income recorded during the Companythree months ended June 30, 2021 related to post-closing adjustments to the sales price of MyCase.
ProvisionOther income (loss), net related to our software and solutions offered to the real estate vertical for (Benefit from)the six months ended June 30, 2021 and 2020 was $1.1 million and $12 thousand, respectively, an increase of $1.0 million. The increase in Other income (loss), net was primarily due to $0.7 million in other income recorded during the six months ended June 30, 2021 related to certain post-closing transition services provided to MyCase, and $0.4 million in other income recorded during the six months ended June 30, 2021 related to post-closing adjustments to the sales price of MyCase.

Benefit from Income Taxes
Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change Three Months Ended
June 30,
ChangeSix Months Ended
June 30,
Change
20202019Amount%20202019Amount% 20212020Amount%20212020Amount%
(dollars in thousands) (dollars in thousands)
Provision for (benefit from) income taxes$52,578 $(1,255)$53,833 (4,289)%$39,469 $(26,874)$66,343 (247)%
Benefit from income taxesBenefit from income taxes$(324)$(13,484)$13,160 *$(5,857)$(13,109)$7,252 (55)%
Percentage of revenuePercentage of revenue62.5 %(1.8)%16.6 %(14.2)%Percentage of revenue(0.4)%(16.6)%(3.5)%(8.5)%
*Percentage not meaningful

We calculate our provision forbenefit from income taxes on a quarterly basis by applying an estimated annual effective tax rate to income from operations and by calculating the tax effect of discrete items recognized during the quarter.

For the three and ninesix months ended SeptemberJune 30, 2020,2021, we recorded an income tax expensebenefit of $52.6$0.3 million and $39.5$5.9 million, respectively.The tax provision for the three months ended September 30, 2020 includes a discrete tax expense of $47.9 million relating to the MyCase Transaction which includes $48.9 million of current tax expense less a $1.0 million benefit from the reversal of deferred tax liabilities. The effective tax rate as compared to the U.S. federal statutory rate of 21% differs primarily due to the significance of the benefits associated with stock-based compensation expense and research and development tax credits in relation to the forecasted pre-tax results for the year.

For the three and ninesix months ended SeptemberJune 30, 2019,2020, we recorded an income tax benefit of $1.3$13.5 million and $26.9$13.1 million, respectively. The effective tax benefits recorded wererate as compared to the U.S. federal statutory rate of 21% differs primarily due to the releasesignificance of the valuation allowance duringbenefits associated with stock-based compensation expense and research and development tax credits in relation to the second quarter of 2019.forecasted pre-tax results for the year.
Liquidity and Capital Resources
Cash and Cash Equivalents
As of September 30, 2020, ourOur principal sources of liquidity werecontinue to be comprised of our cash, andcash equivalents, investment securities, as well as cash flows generated from our operations. As of June 30, 2021, our cash, cash equivalents, and investment securities which had an aggregate balance of $181.9$163.1 million. During the nine months ended September 30, 2020,We have financed our operations primarily through cash and cash equivalents increased primarily as a result of the proceedsgenerated from the MyCase Transaction.
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Working Capital
As of September 30, 2020, we had working capital of $145.7 million, compared to working capital of $14.3 million as of December 31, 2019. The increase in our working capital was primarily due to an increase in cash and cash equivalents as a result of the net proceeds from the MyCase Transaction, an increase in investment securities-current, a decrease in other current liabilities due to the payment of contingent consideration related to the Dynasty acquisition, a decrease in deferred revenue, and an increase in accounts receivable primarily driven by increased usage of our Value+ services. The increase in our working capital was partially offset by an increase in income taxes payable related to the MyCase Transaction, and increases in accrued expenses, accounts payable and accrued employee expenses.
Liquidity Requirements
operations. We believe that our existing cash and cash equivalents, investment securities, and cash generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12twelve months.
Capital Requirements
Our future capital requirements will depend on many factors, including continued market acceptance of our software solutions, changes in the number of our customers, adoption and utilization of our Value+ services by new and existing customers, the timing and extent of the introduction of new core functionality, products and Value+ services, the timing and extent of our expansion into adjacent or new markets, the timing and extent of our investments across our organization, and the impact of the COVID-19 pandemic on the customers we serve and on our business. In addition, we have in the past entered into, and may in the future enter into, arrangements to acquire or invest in new technologies or markets adjacent to those we serve today or entirely new verticals. Furthermore, our Board of Directors has authorized our management to repurchase up to $100.0 million of shares of our Class A common stock from time to time. To date, we have repurchased $4.2 million of our Class A common stock under the Share Repurchase Program. For additional information regarding our share repurchase program, refer to Note 10, Share Repurchase Program, of our Condensed Consolidated Financial Statements.
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Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
 Nine Months Ended
September 30,
 20202019
Net cash provided by operating activities$45,216 $23,413 
Net cash provided by (used in) investing activities152,542 (70,728)
Net cash used in financing activities(69,541)(6,639)
Net increase (decrease) in cash, cash equivalents and restricted cash$128,217 $(53,954)
 Six Months Ended
June 30,
 20212020
Net cash provided by operating activities$10,661 $27,376 
Net cash used in investing activities(94,060)(18,712)
Net cash (used in) provided by financing activities(8,254)28,840 
Net (decrease) increase in cash, cash equivalents and restricted cash$(91,653)$37,504 
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 core solutions and Value+ 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 ninesix months ended SeptemberJune 30, 2020,2021, net cash provided by operating activities was $45.2$10.7 million resulting from net income of $158.9 million, adjusted by the gain on the sale of MyCase of $187.6$2.5 million, non-cash charges of $52.6$15.7 million and a net increasedecrease in our operating assets and liabilities of $21.3$7.6 million. The non-cash charges primarily consist of an increase in deferred taxes of $22.9$6.1 million, $19.8$15.0 million of depreciation and amortization costs, $1.4 million of amortization of operating lease right-of-use ("ROU") assets, and stock-based compensation expense of $6.0 million. The net decrease in our operating assets and liabilities was mostly attributable to a $9.0 million decrease in income taxes payable primarily driven by income taxes paid due to the MyCase Transaction, a $3.0 million decrease in accrued expenses which was primarily due to a $4.3 million legal expense accrued during the three months ended June 30, 2020 and paid in the three months ended March 31, 2021 related to our settlement with the FTC, a $2.2 million increase in prepaid expenses and other current assets primarily attributable to an increase in tenant improvement allowance receivable, and a $4.0 million increase in accounts receivable primarily driven by growth of our Value+ services. These decreases were partially offset by a $1.7 million increase in operating lease liabilities, a $1.0 million increase in accrued employee expenses-noncurrent due to an increase in accrued long-term management bonuses made in connection with long-term executive cash incentive plans for certain executives, a $7.6 million increase in accrued employee expenses-current primarily due to an increase in other short-term accrued management bonuses, and a $1.3 million increase in accounts payable.

For the six months ended June 30, 2020, net cash provided by operating activities was $27.4 million resulting from net income of $21.2 million, adjusted by non-cash charges of $5.7 million and a net increase in our operating assets and liabilities of $0.4 million. The non-cash charges primarily consist of an increase in deferred taxes of $13.1 million, $13.1 million of depreciation and amortization costs, stock-based compensation expense of $6.8$3.7 million, and $3.0$2.1 million of amortization of operating lease right-of-use assets. The net increase in our operating assets and liabilities was mostly attributable to a $16.5$5.1 million increase in other liabilitiesaccounts receivable primarily driven by income taxes payable due to the MyCase Transaction,growth of our Value+ services, partially offset by a $5.9$4.5 million increase in accrued expenses which was primarily due to a $4.3 million accrual recordedlegal expense accrued during the current periodthree months ended June 30, 2020 and paid in the three months ended March 31, 2021 related to our reasonable estimate of the probable loss associatedsettlement with the FTC, Investigation, a $1.9$0.7 million increase in accrued employee expenses primarily due to an increase in accrued paid time off and partially offset by a $0.8decrease in accrued performance-based cash compensation and a $0.5 million increase in deferred revenue driven by growth in the number of customers invoiced during the period. These increases were partially offset by a $2.2 million increase in accounts receivable primarily driven by growth of our Value+ services, a $1.1 million decrease in operating lease liabilities, and a $0.9 million increase in prepaid expenses and other current assets.
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For the nine months ended September 30, 2019, net cash provided by operating activities was $23.4 million resulting from net income of $31.9 million, adjusted by non-cash charges of $2.3 million and a net decrease in our operating assets and liabilities of $6.2 million. The non-cash charges primarily consist of a one-time benefit of $27.0 million related to the release of the valuation allowance for our deferred tax assets, offset by $16.2 million of depreciation and amortization of our property and equipment and capitalized software development costs, $5.4 million of stock-based compensation and $3.0 million of amortization of operating lease right-of-use ("ROU") assets in accordance with ASU 2016-02. The net decrease in our operating assets and liabilities was mostly attributable to an increase of $4.4 million in prepaid expenses and other current assets, a $2.9 million decrease in operating lease liabilities, and a $2.8 million increase in accounts receivable primarily driven by growth of our Value+ services. The decrease in our operating assets and liabilities was partially offset by a $1.1 million decrease in other assets, a $1.0 million increase in deferred revenue, a $1.0 million increase in other liabilities, and a $0.5 million increase in accrued employee expenses.
Cash Provided by (Used in)Used in Investing Activities
Cash provided by (used in)used in investing activities is generally comprised of proceeds from divestitures, purchases of investment securities, maturities and sales of investment securities, purchases of property and equipment, and additions to capitalized software development, and cash paid for business acquisitions.development.
For the ninesix months ended SeptemberJune 30, 2020,2021, investing activities provided $152.5used $94.1 million in cash primarily due to net proceeds from the MyCase Transaction of $191.4 million and the sales and maturities of investment securities of $13.9 million and $13.3 million, respectively. These sources of cash were partially offset by purchases of investment securities of $29.9$148.3 million, capitalized software development costs of $19.7$11.9 million, and capital expenditures of $16.6 million to purchase property and equipment for the continued growth and expansion of our business.
For the nine months ended September 30, 2019, investing activities used $70.7 million in cash primarily due to $54.0 million used to acquire Dynasty, as well as capitalized software development costs of $15.7 million for the continued investment in our software development, purchases of investment securities of $10.7 million, and capital expenditures of $4.1$2.8 million to purchase property and equipment for the continued growth and expansion of our business. These uses of cash were partially offset by sales and maturities of investment securities of $2.8$42.2 million and $11.0$26.8 million, respectively.
For the six months ended June 30, 2020, investing activities used $18.7 million in cash primarily due to capital expenditures of $14.3 million to purchase property and equipment for the continued growth and expansion of our business, purchases of investment securities of $13.4 million, and capitalized software development costs of $12.7 million for the continued investment in our software development. These uses of cash were partially offset by sales and maturities of investment securities of $13.9 million and $7.8 million, respectively.
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Cash Used in(Used in) Provided by Financing Activities
Cash used in(used in) provided by financing activities is generally comprised of proceeds from the exercise of stock options, net share settlements for employee tax withholdings associated with the vesting of RSUs, the payment of contingent consideration under acquisition arrangements, activities associated with our former Credit Facility,credit facility, which was terminated in connection with the divestiture of MyCase Inc. (For additional details, refer to Note 3. Divestitures), and activities related to the repurchase of our Class A common stock.
For the ninesix months ended SeptemberJune 30, 2020,2021, financing activities used $69.5 million in cash primarily as a result of the payment of all outstanding amounts due under the Credit Facility of $99.6 million, net share settlements for employee tax withholdings associated with the vesting of RSUs of $11.0 million, payment of contingent consideration related to the Dynasty acquisition of $6.0 million, and the repurchase of outstanding shares of Class A common stock in the amount of $4.2 million. These uses of cash were partially offset by net proceeds from the Revolving Facility of $50.8 million.
For the nine months ended September 30, 2019, financing activities used $6.6$8.3 million in cash primarily as a result of net share settlements for employee tax withholdings associated with the vesting of RSUs of $5.5$8.9 million.
For the six months ended June 30, 2020, financing activities provided $28.8 million in cash primarily as well asa result of proceeds from our prior revolving credit facility of $50.2 million, partially offset by net share settlements for employee tax withholdings associated with the vesting of RSUs of $9.7 million, payment of contingent consideration related to the Dynasty acquisition completed in January 2019 of $6.0 million, the repurchase of outstanding shares of Class A common stock in the amount of $4.2 million, and principal payments on debt of $2.6 million, and payments of debt issuance costs of $0.4 million, partially offset by proceeds from issuance of debt of $1.7 million and proceeds from stock option exercises of $0.3$1.8 million.

Contractual Obligations and Other Commitments

There have been no material changes to our contractual obligations and other commitments as disclosed in our Annual Report.
Off-Balance Sheet Arrangements
As of SeptemberJune 30, 2020,2021, we did not have any off-balance sheet arrangements.
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Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements and the related notes are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
COVID-19 has created and may continue to create significant uncertainty in a wide variety of industries and markets, which may reduce demand for our core solutions and/or Value+ services, impact the productivity of our workforce, reduce our access to capital, and harm our business and results of operations. As of the date of our Condensed Consolidated Financial Statements, we are not aware of any specific event or circumstance that would require us to update our estimates or judgments, or to revise the carrying value of our assets or liabilities. However, these estimates may change as new events occur and additional information is obtained, which may result in changes being recognized in our consolidated financial statements in future periods. While we considered the effects of COVID-19 in our estimates and assumptions, due to the current level of uncertainty over the economic and operational impacts of COVID-19 on our business, there may be other judgments and assumptions that were not currently considered. Such judgments and assumptions could result in a meaningful impact to our financial statements in future periods. Actual results could differ from those estimates and any such differences may have a material impact on our financial statements.
There have been no changes to our critical accounting policies and estimates described in our Annual Report that have had a material impact on our Condensed Consolidated Financial Statements and related notes.

Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies, of our Condensed Consolidated Financial Statements.
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Item 3. Qualitative and Quantitative Disclosure about Market Risk
Interest Rate Risk
Short-Term InvestmentsInvestment Securities
As of SeptemberJune 30, 2020,2021, we had cash and cash equivalents of $144.0$48.6 million consisting of bank deposits, money market funds, commercial paper, and treasury securities, and $37.8$114.5 million of investment securities consisting of treasury securities, United States government agency securities, corporate bonds, and corporate bonds.treasury securities. The primary objective of our investment policy is to investinvesting in securities is to support our liquidity and capital needs. We havedid not purchasedpurchase these investments for trading or speculative purposes and have not used any derivative financial instruments to manage our credit risk or interest rate risk exposure.
Our investment securities are exposed to market risk due to interest rate fluctuations. While fluctuations in interest rates do not impact our interest income from our investment securities as all of these securities have fixed interest rates, changes in interest rates may impact the fair value of the investment securities. Since our investment securities are held as available for sale, all changes in fair value impact our other comprehensive income unless an investment security is considered impaired in which case changes in fair value are reported in other expense. As of SeptemberJune 30, 20202021, a hypothetical 100 basis point changedecrease in interest rates would not have resulted in a material change in the fair value of our investment securities.securities 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 million. This estimate is based on a sensitivity model which measuredmeasures an instant change in interest rates by 100 basis points as of Septemberat June 30, 2020.
Credit Facility
We were exposed to interest rate risk as a result of our Credit Facility prior to its termination. Outstanding borrowings under the Credit Facility accrued interest as described in Note 8, Long-Term Debt, of our Condensed Consolidated Financial Statements. Our borrowings under the Credit Facility were subject to interest rate fluctuations, which could have had a material impact on our cash flows and results of operations depending on the magnitude of the fluctuations and the outstanding borrowings. In order to determine the potential impact of changes in interest rates on our cash flows and result of operations, we performed a sensitivity analysis. A hypothetical 100 basis point increase in interest rates during the period ended September 30, 2020 would not have had a material impact on our cash flows or results of operations. In connection with the MyCase Transaction, and as required by the terms of the Credit Agreement, the Credit Agreement was terminated and all obligations outstanding under the Term Loan and Revolving Facility thereunder, including all guarantees and security interests granted with respect to such obligations, were satisfied in full with proceeds from the MyCase Transaction and extinguished.
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2021.
Inflation Risk
We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in inflation rates.
Foreign Currency Risk
We have not been exposed to, nor do we anticipate being exposed to, material risks relating to foreign currency exchange rate fluctuations.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the supervision and participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and other procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Based on our management's evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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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.
As previously disclosed on Current Reports on Form 8-K filed with the SEC on May 10, 2021 and June 4, 2021, Ida Kane resigned as Chief Financial Officer effective June 4, 2021. We havedo not experienced any material changesbelieve that the resignation has materially affected, or is reasonably likely to our internal controls over financial reporting despite the fact that all non-essential employees are working remotely due to the COVID-19 pandemic. We are continually monitoring the impact of COVID-19 on the operating effectiveness ofmaterially affect, our internal control over financial reporting. We are in the process of conducting our search for Ms. Kane’s successor. Our Chief Executive Officer has signed the required certifications as both the Principal Executive Officer and Principal Financial Officer for our most recently completed fiscal quarter.
Inherent Limitations on Effectiveness of Disclosure Controls
In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in various investigative inquiries, legal proceedings and other disputes arising from or related to matters incident to the ordinary course of our business activities, including actions with respect to intellectual property, employment, regulatory and contractual matters. Although the results of such investigative inquiries, legal proceedings and other disputes cannot be predicted with certainty, we believe that we are not currently a party to any matters which, if determined adversely to us, would, individually or taken together, have a material adverse effect on our business, operating results, financial condition or cash flows. However, regardless of the merit of any matters raised or the ultimate outcome, investigative inquiries, legal proceedings and other disputes may generally have an adverse impact on us as a result of defense and settlement costs, diversion of management resources, and other factors.
For additional information regarding investigatory inquiries and legal proceedings, refer to Note 9, Commitments and Contingencies, of our Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
You should consider carefully the risks described below, together with all of the other information included in this Quarterly Report, as well as in our other filings with the SEC, in evaluating our business and/or an investment in our Class A common stock. If any of the following risks actually occur, our business, financial condition, operating results and future prospects could be materially and adversely affected. In that case, the trading price of our Class A common stock may decline and you might lose all or part of your investment. The risks described below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business, financial condition, operating results and prospects.
Please be advised that certain of the risks and uncertainties described below contain “forward-looking statements.” See the section of this Quarterly Report entitled “Cautionary Note Regarding Forward-Looking Statements” for additional information.
Risks Related to Our Business and Our Industry
Health epidemics, including the COVID-19 pandemic, have had, and could in the future have, a material adverse impact on our operations, the operations of our customers and other business partners, and the markets and communities in which we and our customers and partners operate.
In December 2019, a novel coronavirus disease, referred to as COVID-19, was reported and has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States government declared a national emergency with respect to COVID-19. The COVID-19 pandemic has had, and another public health crisis or epidemic in the future could have repercussions across local, regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has adversely impacted global economic activity and has contributed to volatility in and negative pressure on financial markets. In response to the COVID-19 pandemic, many state, local, and foreign governments have put in place, and others in the future may put in place, travel restrictions, quarantines, shelter-in-place orders, and similar government orders and restrictions, in an attempt to control the spread of the disease. Such restrictions or orders, or the perception that such restrictions or orders could be implemented, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, and cancellation or postponement of events, among other effects that could negatively impact our operations, as well as the operations of our customers and business partners. These potential impacts are only amplified by the length of time they remain in place, as the cumulative effect upon our customers and their businesses may exacerbate the potential harm to our business and results of operations.
Beginning in March 2020, in an effort to protect our employees and comply with applicable government orders, we restricted non-essential employee travel and transitioned our employees to a remote work environment and restricted non-essential employee travel. Our workforce has continued to effectively develop and support our software and services offerings notwithstanding the current environment. We currently expect ourto slowly transition employees back to continue working remotely at least through the first quarter of 2021. Although we have not experienced a material impact from shifting our employees to a remote work environment, there is no guarantee that ourworkplace and resume employee travel throughout 2021; however employees will be as effective while workinghave the option to work remotely due to a numberfor the remainder of factors, including the inability of team members to communicate as effectively in a remote environment, the reality that employees may have additional personal needs to attend to (such as looking after children as a result of school closures or family members who become sick), and employees may become sick themselves and unable to work.year. If the COVID-19 pandemic once again requires full remote working conditions for a prolonged period of time,or otherwise slows our return to the workplace, it could have an adverse impact on the productivity of our employees as they navigate the challenges of daily life during a pandemic, which would harm our business and impede our ability to achieve our strategic plan. Further, we have a limited history of remote work and the long-term impact on, and the resulting types of continuing investments necessary for, our employee base is uncertain. In addition, in an effort to manage the financial uncertainty involved withobjectives. Furthermore, the COVID-19 pandemic wemay have delayedlong-term effects on the hiringnature of certain non-essential employees.the office environment and remote working, which may present operational and workplace culture challenges that may adversely affect our business.
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The COVID-19 pandemic has resulted in a rapid rise in unemployment and a sudden decrease in global economic activity, and many businesses have experienced, or are anticipating that they may experience, a significant negative impact on their operating results. While we did not experience a significant impact on the demand for our core products and Value+ services during the period ended September 30, 2020, we anticipate greater demand impacts in future periods, although the timing and magnitude of these impacts is difficult to estimate. In addition, ourOur inability to meet in-person with current or prospective customers, or the cancellation or postponement of Company-sponsoredcompany-sponsored events or third-party events at which our products are featured, could have a negative impact on our customer engagement efforts, which could further impact demand in future periods. Furthermore, the demand for our products and services, as well as our operating results, could be adversely impacted due to a number of other factors, including the following:
customers delaying decisions to adopt our core products, or expand the use of our Value+ services, as they seek to reduce or delay spending in response to the impacts of COVID-19 on their own businesses;
a complete or partial closure of, or other operational issues at, properties owned by our customers resulting from government restrictions or orders;
a deterioration in our ability, or the ability of our customers, to operate in affected geographic areas;
bankruptcies or other financial difficulties facing our customers, which could cause them to delay making payments to us, or result in them terminating or reducing their use of our core products or Value+ services;
the inability of tenants to meet their obligations to our customers, resulting in tenant evictions or the sale of properties;
the failure of key business partners to provide services needed for our efficient operations, including with respect to electronic payments and tenant screening;
a decrease in the reliability or availability of our core products or Value+ services as a result of errors, defects or service interruptions caused by the remote work environment;
an increase in risks related to cyber-attacks or fraud designed to exploit perceived or actual gaps in security as a result of the remote work environment; and
a decrease in the availability or utility of our customer service organization caused by the remote work environment.
Any of the factors described above, or any number of other risks related to the COVID-19 pandemic, could disrupt our business, which could have a material adverse impact on our business, operations and financial results. Both the pandemic and the containment and mitigation measures have had and are likely to continue to have an adverse impact on the global and U.S. economies, the severity and duration of which are uncertain. It is likely that government stabilization efforts will only partially mitigate the consequences to the economy. As such, both the pandemic and containment and mitigation measures may adversely affect our business, operations and financial condition by, among other things, reducing demand for our core solutions and/or Value+ services, impairing the productivity of our workforce, and reducing our access to capital. The global impact of COVID-19 continuesextent to rapidly evolve, and it is not currently possible to ascertain all of the current or future impacts to our business. The ultimate impact ofwhich the COVID-19 pandemic or a similar public health crisiswill impact our business, financial conditions, and results of operations in the future on our business is highly uncertain and subject to change. Further, we expect that any further spreadwill be affected by a number of factors. These include the duration and extent of the COVID-19 pandemic, the duration and extent of imposed or evenrecommended containment and mitigation measures, the threat or perception that this could occur, could further exacerbate any negative impacts on our business, financial conditionextent, duration, and operating results.effective execution of government stabilization and recovery efforts, including those from the successful distribution of effective vaccines.
We manage our business to achieve long-term growth, which may not be consistent with the short-term expectations of some investors.
We plan to continue to manage our business towards the achievement of long-term growth to positively impact long-term stockholder value, and not towards the realization of short-term metrics or short-term stockholder value. We will make product decisions and pursue opportunities that may reduce our short-term operating results if we believe that these decisions are consistent with our strategic objective to achieve long-term growth. These decisions may not be consistent with the short-term expectations of some investors, and may cause significant fluctuations in our operating results and our stock price from period to period. In addition, notwithstanding our intention to make strategic decisions that positively impact long-term stockholder value, the decisions we make may not produce the long-term benefits we expect. Furthermore,Our principal stockholders, some of whom also serve as our executive officers, directors and principal stockholdersexecutive officers, control a majority of the combined voting power of our outstanding capital stock. As a result, they are able to exercise significant influence and control over the establishment and implementationelection of a majority of our future business plansdirectors and thereby have the power to control our affairs and policies, including the appointment of management and strategic objectives,decisions, as well as control all matters that are submitted to a vote by our stockholders for approval. These persons may manageholders of our business in ways with which you disagree and whichcommon stock. The interests of our principal stockholders may be inconsistent with or adverse to your interests.those of holders our Class A common stock.
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Failure to manage our growth effectively could adversely affect our operating results and preclude our achievement of our strategic plans.
We anticipate that we will continue to experience growth and expansion of our operations, although the rate of growth may be negatively impacted by the COVID-19 pandemic.operations. This growth in the size, complexity and diversity of our business has placed, and we expect it will continue to place, a significant strain on our management, administrative, operational and financial resources, as well as our company culture. Our future success will depend, in part, on our ability to manage this growth effectively, which we expect to be more challenging in the current environment as we seek to continue to respond to the uncertainty and disruption caused by the COVID-19 pandemic. To manage the expected growth of our operations, we will need to continue to develop and improve our operational and financial controls and our reporting systems and procedures, attract and retain highly qualified and motivated personnel across our organization, and nurture and build on our company culture. Failure to effectively manage growth could adversely impact our business, including by resulting in errors or delays in deploying new core functionality to our customers, delays or difficulties in introducing new Value+ services or other products, declines in the quality or responsiveness of our customer service organization, exposure to legal, regulatory and operational risks inherent in our business and resulting from any new products or services we provide to our customers or to our customers’ customers, increases in costs and operating expenses, and other operational difficulties. If any of these risks actually occur, it could adversely affect our operating results, and preclude us from achieving our strategic objectives.
We expect to make substantial investments across our organization to grow our business and may not sustain profitability.
In order to implement our business and growth strategy, we have made and will continue to make substantial investments across our organization and, as a result, we expect our expenses to increase significantly and we may not be consistently profitable. For example, we intend to continue to make substantial investments in, among other things: our research and product development organization to enhance the ease of use and functionality of our software solutions and develop new products; our continued efforts to identify acquisition targets that enhance the depth and/or functionality of our software solutions or Value+ services; our customer service organization to deepen our relationships with our customers and promote customer retention; our sales and marketing organization, including expansion of our direct sales organization and marketing programs, to increase the size of our customer base and increase adoption and utilization of new and existing Value+ services by our new and existing customers; maintaining and expanding our technology infrastructure and operational support to promote the security and availability of our software solutions; our general and administrative functions, to support our growth and assist us in maintaining compliance with legal, regulatory and other compliance-related obligations; and the expansion of our existing facilities, including leasing and building out additional office space, to support our growth and strategic development. Even if we are successful in growing our customer base and increasing revenue from new and existing customers, we may not be able to generate additional revenue in an amount that is sufficient to cover our expenses. We cannot assure you that we will continue to achieve profitability in the near term or that we will sustain profitability on a sequential quarterly basis or over any particular period of time.
Our quarterly results may fluctuate significantly and period-to-period comparisons of our results may not be meaningful.
Our quarterly results, including the levels of our revenue, costs, operating expenses, and operating margins, may fluctuate significantly in the future, and period-to-period comparisons of our results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of our future performance. Our focus on managing our business towards the achievement of long-term growth, rather than the realization of short-term metrics, may also exacerbate fluctuations in our quarterly results, which could negatively impact the value of our Class A common stock. We may incur significant losses in a particular period for a number of reasons, and may experience significant fluctuations in our operating results from period to period. These and other factors, including the significant disruption and uncertainty caused by the COVID-19 pandemic, combine to make it difficult for us to accurately forecast our future operating results, which in turn makes it difficult for us to prepare accurate budgets and implement strategic plans. Furthermore, if our quarterly results fall below the expectations of investors or any securities analysts who follow our stock, or below any financial guidance we may provide, the price of our Class A common stock could decline substantially.
Our estimates of market opportunity are subject to significant uncertainty and, even if the markets in which we compete meet or exceed our size estimates, we could fail to increase our revenue or market share.
We determine the level of our investment in various aspects of the business, in part, based on our market opportunity estimates. Market opportunity estimates are subject to significant uncertainty and are based on assumptions and estimates, including our internal analysis and industry experience. Assessing the market for industry-specific, cloud-based business management software is particularly difficult due to a number of factors, including limited available information and rapid evolution of the market. Further, market opportunity estimates sometimes change based on relevant macro-trends and market conditions, or evolving assessment methodologies. The disruptions and impacts caused by the COVID‑19 pandemic may ultimately require us to significantly reduce our estimates of the market opportunities in certain markets or industry verticals, which could negatively impact our long-term growth prospects.
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We have acquired, and may in the future acquire,Our acquisition of other companies or technologies which could divert our management’s attention, result in additional dilutionwould subject us to our stockholders and otherwise disrupt our operations.integration risks, as well as risks related to the financing of such acquisitions.
We have acquired, and may in the future acquire, other companies or technologies to complement or expand our software solutions, optimize our technical capabilities, enhance our ability to compete in our targeted verticals,vertical, provide an opportunity to expand into an adjacent market or new vertical, or otherwise offer growth or strategic opportunities. For example, in ourthe real estate vertical, we acquired substantially all of the assets of WegoWise in 2018 and completed the acquisition of Dynasty in 2019. The identification, investigation and negotiation of acquisitions may divert the attention of management and cause us to incur various expenses, whether or not they are consummated. We have limited experience acquiring other businesses and we may not be able to effectively integrate acquired assets, technologies, personnel and operations or achieve the anticipated synergies or other benefits from the acquired business due to the inherent risks associated with acquisitions. If an acquisition fails to meet our expectations in terms of its contribution to our overall business strategy or operating results, or if the costs of acquiring or integrating the acquired business exceed our estimates, our business, operating results and financial condition may suffer. In addition, acquisitions
Acquisitions could also subject us to related financing risks. We cannot guarantee that additional financing will be available to us on favorable terms when required, or at all. Acquisitions could result in the issuance of equity securities, which would result in immediate dilution to our stockholders and those securities may have powers, preferences or rights senior to the incurrencerights of our Class A common stock. We may incur debt to finance acquisitions, which could impose debt service obligations and restrictions on our ability to operate our business. Our ability to obtain additional capital for acquisitions will depend on numerous factors, including investor and lender demand, our compliance with debt obligations, our historical and forecasted financial and operating performance, our liquidity position, the overall condition of the capital markets, and the global economy as a whole. If we raise funds in the form of debt, we may incur interest expense or other costs to service the debt, we may be required to encumber certain assets, and we may become subject to restrictions on our ability to conduct business, any of which could negatively impact our operating results. Furthermore, a significant portion of the purchase price of companies we may acquire could be allocated to goodwill and other intangible assets, which must be assessed for impairment. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our operating results.
Security vulnerabilities in our software solutions or a breach of our security controls could result in the loss, theft, misuse, unauthorized disclosure, or unauthorized access to customer or employee data, or other confidential or sensitive information, which could harm our customer and/or employee relationships, expose us to litigation or harm our reputation.
Our business involves the storage and transmission of a significant amount of confidential and sensitive information, including the personal information of our employees and other individuals, customer data, and our proprietary financial, operational and strategic information. In providing our software solutions, we store and transmit large amounts of our customers’ data, including sensitive and proprietary data and personal information collected by or on behalf of our customers. Our software solutions are typically the system of record, system of engagement and, increasingly, the system of intelligence for all or a portion of our customers’ businesses, and the data processed through our software solutions is critical to their businesses. Like many other businesses, we have experienced, and are continually at risk of being subject to, cyber attacks and data security incidents. As our business grows, the number of users of our software solutions, as well as the amount of information we collect and store, is increasing, and our brands are becoming more widely recognized which makes us an even greater target for malicious activity. There can be no assurance that the security measures we employ will prevent malicious or unauthorized access to our systems and information. Furthermore, no security program can entirely eliminate entirely the risk of non-malicious human error, such as an employee or contractor’s failure to follow one or more security protocols. Therefore, despite our significant efforts to keep our systems, products and networks protected and up to date, we may be unable to anticipate cyber attacks, detect security incidents or react to them in a timely manner, or implement adequate preventive measures, any of which may expose us to a risk of loss, litigation and potential liability. In addition, some of our third-party service providers also collect and/or store our sensitive information and our customers’ data on our behalf, and these service providers are subject to similar threats of cyber attacks and other malicious Internet-based activities.
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If our security measures, or the security measures of our third-party service providers, are breached as a result of wrongdoing or malicious activity on the part of our employees, our partners’ employees, our customers’ employees, or any third party, or as a result of any human error or neglect, product defect or otherwise, and this results in the loss, theft, misuse, unauthorized disclosure, or unauthorized access to customer data or other sensitive information, we could incur liability to our customers and to individuals or organizations whose information was being stored by us or our customers, as well as fines from payment processing networks and regulatory action by governmental bodies. If we experience a widespread security breach, we cannot be certain that our insurance coverage will be sufficient to compensate us for liabilities actually incurred or that insurance will continue to be available to us on reasonable terms, or at all. In addition, security breaches could result in reputational damage, adversely affect our ability to attract new customers and cause existing customers to reduce or discontinue the use of our software solutions. Furthermore, the perception by our current or potential customers that our software solutions could be vulnerable to exploitation or that our security measures are inadequate, even in the absence of a particular problem or threat, could reduce market acceptance of our software solutions and cause us to lose customers. The legal and regulatory environment around data security and governance is significantly evolving, and both regulators and consumers are increasingly taking action on data-related matters, which may contribute to increased reputational, economic and other harm in the event of a data security incident.
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Service outages and other infrastructure performance problems could harm our reputation and adversely affect our ability to attract and retain customers.
We seek to maintain sufficient excess capacity in our technology infrastructure to meet the needs of all of our customers, including facilitating the expansion of existing customer deployments and the provisioning of new customer deployments. We have experienced, and may in the future experience, website disruptions, service outages and other performance problems with our technology infrastructure. These problems may be caused by a variety of factors, including infrastructure changes, power or network outages, fire, flood or other natural disasters affecting our data centers,cloud computing platform providers, human or software errors, viruses, security breaches, fraud or other malicious activity, spikes in customer usage and distributed denial of service attacks. If our technology infrastructure fails to keep pace with the increased number of users and amount of data, or if we are unable to avoid service outages and performance problems, or to resolve them quickly, this could adversely affect our ability to attract new customers, result in the loss of existing customers and harm our reputation, any or all of which could adversely affect our business and operating results.
Errors, defects or other disruptions in our software solutions could harm our reputation, cause us to lose customers, and result in significant expenditures to correct the problem.
Our customers use our software solutions to manage critical aspects of their businesses, and any errors, defects or other disruptions in the performance of our software solutions, including with respect to third party partners upon which certain of our software solutions are dependent, may result in loss of or damage to our customers’ data and disruption to our customers’ businesses, which could harm our reputation. We provide continuous updates to our software solutions and these updates may contain undetected errors when first introduced. In the past, we have discovered errors, failures, vulnerabilities and bugs in our software updates after they have been released, and similar problems may arise in the future. Real or perceived errors, failures, vulnerabilities or bugs in our software solutions could result in negative publicity, reputational harm, loss of customers, delay in market acceptance of our software solutions, loss of competitive position, withholding or delay of payment to us, claims by customers for losses sustained by them and potential litigation or regulatory action. In any such event, we may be required to expend additional resources in order to help correct the problem or we may choose to expend additional resources to take corrective action even where not required. The costs incurred in correcting any material errors, defects or other disruptions could be substantial and there may not be any corresponding increase in revenue to offset these costs. In addition, we may not carry insurance sufficient to compensate us for any losses that may result from claims arising from errors, defects or other disruptions in our software solutions.
Privacy and data security laws and regulations could impose additional costs and reduce demand for our software solutions.
We store and transmit personal information relating to our employees and other individuals, and our customers use our technology platform to store and transmit a significant amount of personal information relating to their clients,customers, vendors, employees and other industry participants. Federal, state and foreign government bodies and agencies have in the past adopted, and may in the future adopt, laws and regulations regarding the collection, use, processing, storage and disclosure of personal or identifying information obtained from customers and other individuals. For instance, the California Consumer Privacy Act which went into effect on January 1, 2020,created new data privacy and security rights for California residents and the Virginia Consumer Data Protection Act creates new data privacy and security rights for CaliforniaVirginia residents. Similarly, there are a number of existing and proposed laws and regulations in the European Union and the United States at both the federal and state level, as well as other jurisdictions that could impose new obligations in areas affecting our business. These new obligations could increase the cost and complexity of delivering our services, and divert our managements’ attention from pursuing strategic objectives.
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In addition to government regulation, privacy advocates and industry groups may propose various self-regulatory standards that may legally or contractually apply to our business. As new laws, regulations and industry standards take effect, and as we expand into new jurisdictions, adjacent markets or, potentially, verticals consistent with our strategic plan, we will need to understand and comply with various new requirements, which may result in significant additional costs. These laws, regulations and industry standards could have negative effects on our business, including by increasing our costs and operating expenses, and/or delaying or impeding our deployment of new or existing core functionality or Value+ services. Failure to comply with these laws, regulations and industry standards could result in negative publicity, subject us to fines or penalties, expose us to litigation, or result in demands that we modify or cease existing business practices. In addition, the costs of compliance with, and other burdens imposed by, such laws, regulations and industry standards may adversely affect our customers’ ability or desire to collect, use, process and store personal information using our software solutions, which could reduce overall demand for them. Furthermore, privacy and data security concerns may cause our customers’ clients, vendors, employees and other industry participants to resist providing the personal information necessary to allow our customers to use our applications effectively. Any of these outcomes could adversely affect our business and operating results.
We depend on highly skilled personnel and, if we are unable to retain or hire additional qualified personnel or if we lose key members of our management team, we may not be able to achieve our strategic objectives and our business may be harmed.
Our success and future growth depend, in part, upon the continued services of our executive officers and other key employees. There may be changes in our executive officers or other key employees resulting from the hiring or departure of these personnel, which may disrupt our business. The loss of one or more of our executive officers or other key employees could have an adverse effect on our business. In addition, to execute our growth plan and achieve our strategic objectives, we must continue to attract and retain highly qualified and motivated personnel across our organization. In particular, in order to continue to enhance our software solutions, add new and innovative core functionality and/or Value+ services, as well as develop new products, it will be critical for us to increase the size of our research and product development organization, including hiring highly skilled software engineers. Competition for software engineers is intense within our industry and there continues to be upward pressure on the compensation paid to these professionals. Further, in order for us to achieve broader market acceptance of our software solutions, grow our customer base, and pursue adjacent markets and, potentially, new verticals consistent with our strategic plan, we will need to continue to increase the size of our sales and marketing and customer service and support organizations. Identifying, recruiting, training and retaining qualified personnel is difficult and requires a significant investment of time and resources.
Many of the companies with which we compete for experienced personnel have greater name recognition and financial resources than we have. In addition, our headquarters are located in Santa Barbara, California, which is not generally recognized as a prominent commercial center, and it is challenging to attract qualified professionals due to our geographic location. As a result, we may have even greater difficulty hiring and retaining skilled personnel than our competitors. If we hire employees from other companies, their former employers may attempt to assert that we or these employees have breached their legal obligations, resulting in a diversion of our time and resources. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, or if the price of our Class A common stock experiences significant volatility, this may adversely affect our ability to recruit and retain highly skilled employees. If we are unable to attract and retain the personnel necessary to execute our growth plan, we may be unable to achieve our strategic objectives and our operating results may suffer.
Our corporate culture has contributed to our success and, if we cannot continue to foster this culture as we grow, we could lose the passion, creativity, teamwork, focus and innovation fostered by our culture.
We believe that our culture has been and will continue to be a key contributor to our success. If we do not continue to develop our corporate culture or maintain our core values as we grow and evolve, we may be unable to foster the passion, creativity, teamwork, focus and innovation we believe we need to support our growth. Any failure to preserve our culture could negatively affect our ability to recruit and retain personnel and to effectively focus on and pursue our strategic objectives. Moreover, liquidity available to our employee security holders could lead to disparities of wealth among our employees, which could adversely impact relations among employees and our culture in general. As we grow and mature as a public company, we may find it difficult to maintain our corporate culture. This difficulty will only be exacerbated by the COVID-19 pandemic, which has resulted in travel restrictions, quarantines, shelter-in-place orders and similar government orders and restrictions that collectively make it more difficult for employees to interact, communicate and innovate.
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We face risks in our electronic payment services business that could adversely affect our business and/or operating results.
In our electronic payments services business, we facilitate the processing of both inbound and outbound payments for our customers. These payments are settled through our sponsoring clearing bank, card payment processors, and other third-party electronic payment services providers that we may contract with from time to time. Our electronic payment services subject us to a number of risks, including, but not limited to, liability for customer costs related to disputed or fraudulent transactions and other incidences of fraud in our electronic payment services ecosystem. In the event that we are found to be in violation of our legal, regulatory or contractual requirements, we may be subject to monetary fines or penalties, cease-and-desist orders, mandatory product changes, or other liabilities that could have an adverse effect on our operating results. Additionally, with respect to the processing of electronic payment transactions by our third-party electronic payment services providers, we are exposed to financial risk. Electronic payment transactions between our customer and another user may be returned for various reasons such as insufficient funds, fraud or stop payment orders. If we or our electronic payment services provider is unable to collect such amounts from the customer’s account, we bear the ultimate risk of loss for the transaction amount. Further, there is an overarching risk stemming from the potential widespread adoption of quickly evolving financial technology products, including, for example, blockchain or other distributed ledger technologies, that could materially impact the manner in which payments are processed, the mix of payment methodologies conventionally utilized by payors and payees, and the regulatory framework applicable to such payments. The adoption of disruptive financial technologies could significantly reduce the volume of our electronic payment services business and/or change the transaction costs associated with those payments, thereby reducing our revenue and increasing our associated expenses, which could materially impact our business, financial condition, and operating results.
Evolution and expansion of our electronic payment services may subject us to additional risks and regulatory requirements.
The evolution and expansion of our electronic payment services may subject us to additional risks and regulatory requirements, including, without limitation, laws and regulations governing money transmission and anti-money laundering. These requirements vary throughout the markets in which we operate, and several jurisdictions lack clarity with respect to the application and interpretation of these rules. Our efforts to comply with these rules could require significant management time and effort, as well as significant expenditures, and will not guarantee our compliance with all regulatory requirements, especially given that the applicable regulatory frameworks are constantly changing and subject to evolving interpretation. While we maintain a compliance program focused on applicable laws and regulations throughout our applicable industries, there is no guarantee that we will not be subject to fines, penalties or other regulatory actions in one or more jurisdictions, or be required to adjust our business practices to accommodate future regulatory requirements.
We face risks in our tenant screening services business that could adversely affect our business and/or operating results.
Our tenant screening services business is subject to a number of complex laws that are subject to varying interpretations, including the FCRA and related regulations. The FCRA has recently beencontinues to be the subject of multiple class-based litigation proceedings, as well as numerous regulatory inquiries and enforcement actions. In addition, entities such as the FTC and the Consumer Financial Protection Bureau ("CFPB") have the authority to promulgate rules and regulations that may impact our customers and our business.business, and have made various public statements that tenant screening is an area of focus for such agencies. Although we attempt to structure our tenant screening services to comply with the relevant laws and regulations, we may be found to be in violation of them and we may be subject to routine regulatory inquiries, enforcement actions, class-based litigation or indemnity demands.
As previously disclosed, we received a Civil Investigative Demand from the FTC in December 2018 requesting certain information relating to our compliance with the FCRA in connection with our tenant screening services business (the "FTC Investigation"). On April 30, 2020, the FTC staff informed us of its belief that there iswas a reasonable basis for asserting claims against us for our alleged failure to comply with certain sections of the FCRA that could result in monetary penalty and injunctive relief.FCRA. Notwithstanding our disagreement with the FTC's position and vigorous defense of our position, and primarily in an effort to avoid protracted litigation and potential distraction to our business, we have entered into a settlement negotiationsagreement with the FTC in an effort to resolve all claims and allegations arising out of or relating to the FTC Investigation. AlthoughWe admitted no wrongdoing in connection with the final outcome ofsettlement, but paid $4.3 million to the FTC Investigation isin connection therewith and are subject to ongoing settlement discussionscompliance and therefore remains uncertain, we have determined that a loss is probable and that a reasonable estimate of the loss is approximately $4.3 million. Accordingly, we recognized an accrual of $4.3 million within accrued expenses on our Condensed Consolidated Balance Sheet for the nine month period ended September 30, 2020. While this amount represents our best judgment of the probable loss based on information currently availablereporting requirements. Our failure to us, it is subject to significant estimates and numerous factors beyond our control, including without limitation the FTC's positioncomply with respect to the ongoing settlement negotiations. In the event thatthese requirements could result in additional penalties or other actions by the FTC Investigation results in a settlement payment by us, or a judgment against us, in an amount significantly in excess of our accrual, the resulting liability could have a material adverse effect upon our financial condition, results of operations and liquidity.
In addition, we received a Request for Information from the DOJ in July 2019 requesting certain information relating to our compliance with the SCRA in connection with our tenant screening services business. On November 6, 2020, the DOJ issued a no action letter, declining to take any action against us and closing its investigation.
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other agencies.
Due to the large number of tenant screening transactions in which we participate, our potential liability in any enforcement action or a class action lawsuit could have a material impact on our business, especially given that certain applicable laws and regulations provide for fines or penalties on a per occurrence basis. The existence of any such enforcement action or class action lawsuit, whether meritorious or not, may adversely affect our ability to attract customers, result in the loss of existing customers, harm our reputation and cause us to incur defense costs or other expenses.
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We use third-party service providers for electronic payment and tenant screening services, and their failure to fulfill their contractual obligations could harm our reputation, disrupt our business and adversely affect our operating results.
We use third-party electronic payment services providers to enable us to provide electronic payment services, and third-party tenant screening services providers to enable us to provide tenant screening services such as background and credit checks to our customers. In some cases, functions necessary to our business are performed on proprietary third-party systems and software to which we have no access. The failure of these service providers to provide us with accurate and timely information, to fulfill their contractual obligations to us, or to renew their contracts with us, could result in direct liability to us, harm our reputation, result in significant disruptions to our business, and adversely affect our operating results.
Our corporate culture has contributed to our success and, if we cannot continue to foster this culture as we grow, we could lose the passion, creativity, teamwork, focus and innovation fostered by our culture.
We believe that our culture has been and will continue to be a key contributor to our success. If we do not continue to develop our corporate culture or maintain our core values as we grow and evolve, we may be unable to foster the passion, creativity, teamwork, focus and innovation we believe we need to support our growth. Any failure to preserve our culture could negatively affect our ability to recruit and retain personnel and to effectively focus on and pursue our strategic objectives. Moreover, liquidity available to our employee security holders could lead to disparities of wealth among our employees, which could adversely impact relations among employees and our cultureThe vertical market in general. As we grow and mature as a public company, we may find it difficult to maintain our corporate culture. This difficulty will only be exacerbated by the COVID-19 pandemic, which has resulted in travel restrictions, quarantines, shelter-in-place orders and similar government orders and restrictions that collectively make it more difficult for employees to interact, communicate and innovate.
We depend on highly skilled personnel and, if we are unable to retain or hire additional qualified personnel or if we lose key members of our management team, we may not be able to achieve our strategic objectives and our business may be harmed.
Our success and future growth depend, in part, upon the continued services of our executive officers and other key employees. There may be changes in our executive officers or other key employees resulting from the hiring or departure of these personnel, which may disrupt our business. The loss of one or more of our executive officers or other key employees could have an adverse effect on our business. In addition, to execute our growth plan and achieve our strategic objectives, we must continue to attract and retain highly qualified and motivated personnel across our organization. In particular, in order to continue to enhance our software solutions, add new and innovative core functionality and/or Value+ services, as well as develop new products, it will be critical for us to increase the size of our research and product development organization, including hiring highly skilled software engineers. Competition for software engineers is intense within our industry and there continues to be upward pressure on the compensation paid to these professionals. Further, in order for us to achieve broader market acceptance of our software solutions, grow our customer base, and pursue adjacent markets and new verticals consistent with our strategic plan, we will need to continue to increase the size of our sales and marketing and customer service and support organizations. Identifying, recruiting, training and retaining qualified personnel is difficult requires a significant investment of time and resources.
Many of the companies with which we compete for experienced personnel have greater name recognition and financial resources than we have. In addition, our headquarters are located in Santa Barbara, California, whichparticipate is not generally recognized as a prominent commercial center, and it is challenging to attract qualified professionals due to our geographic location. As a result, we may have even greater difficulty hiring and retaining skilled personnel than our competitors. If we hire employees from other companies, their former employers may attempt to assert that we or these employees have breached their legal obligations, resulting in a diversion of our time and resources. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, or if the price of our Class A common stock experiences significant volatility, this may adversely affect our ability to recruit and retain highly skilled employees. If we are unable to attract and retain the personnel necessary to execute our growth plan, we may be unable to achieve our strategic objectives and our operating results may suffer.
The markets we participate in are intensely competitive and our business could be harmed if we do not compete effectively.
The overall market for cloud-based business management software is global, highly competitive and continually evolving in response to a number of factors, including changes in technology, operational requirements, and laws and regulations. While we focus on providing industry-specific, cloud-based business management software solutions to the real estate vertical, we compete with other vertical cloud-based solution providers, as well as with horizontal cloud-based solution providers that provide broad cloud-based solutions across multiple verticals. Our competitors include established vertical software vendors, as well as newer entrants in the market. We also face competition from numerous cloud-based solution providers that focus almost exclusively
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on one or more point solutions. Continued consolidation among cloud-based providers could lead to significantly increased competition. Many of our competitors and potential competitors are larger and have greater name recognition, longer operating histories, and significantly greater resources. As a result, our competitors may be able to respond more quickly and effectively to new or changing opportunities, technologies, operational requirements and industry standards, as well as to new challenges such as those resulting from the COVID-19 pandemic. In addition, our current and potential competitors may develop, market and sell new technologies with comparable functionality to our software solutions, which could cause us to lose customers, slow the rate of growth of new customers and/or cause us to decrease our prices in order to remain competitive. For all of these reasons, we may not be able to compete effectively against our current and future competitors, which could harm our business.
As the markets for our existing software solutions mature, or as current and future competitors introduce new products or services that compete with ours, we may experience pricing pressure and be unable to renew our subscription agreements with existing customers or increase adoption and usage of our Value+ services, or attract new customers at prices that are consistent with our current pricing model and operating budget. We may ultimately have to change our pricing model or offer pricing incentives which may adversely affect our revenue even if adoption and utilization remain constant. Changes to our pricing model could harm our customer retention rates and our ability to attract new customers, whether in connection with our core solutions or our Value+ services, which could adversely affect our operating results.
Business management software for small and medium-sized businesses ("SMBs") is a new and developingan evolving market. If the market is smaller than estimated or develops more slowly than expected,the transition to or between cloud-based business management software slows, our operating results could be adversely affected.
We provide cloud-based business management software for SMBs in the real estate marketvertical and will assess entry into new or adjacent markets consistent with our strategic plan. Our success will depend, in part, on the continued widespread adoption by SMBs of cloud computing in general and of cloud-based business management software in particular.software. The market for industry-specific, cloud-based business management software for SMBs, both generally, and specifically within the real estate market, is evolving and is relatively small. The continued expansion of this market depends on numerous factors, including the cost and perceived value associated with cloud-based business management software relative to on-premise software applications and disparate point solutions, the ability of cloud-based solution providers to offer SMBs the functionality they need to operate and grow their businesses, the willingness of SMBs to transition from their existing software systems or otherwise alter their existing businesses practices, to migrate their businesses to a vertical cloud-based business management software solution, and the ability of cloud-based solution providers to address security, privacy, availability and other concerns. If the widespread adoption of cloud-based business management software by SMBs does not continue, to achieve widespread market acceptance among SMBs, our revenue may increase at a slower rate than we expect and may even decline, which could adversely affect our operating results. In addition, it is difficult to estimate the rate at which SMBs will be willing to transition to or between vertical cloud-based business management software in any particular period, which makes it difficult to estimate the overall size and growth rate of the market for cloud-based business management software at any point in time or to forecast revenue growth or market share. This transition rate may be negatively impacted by the COVID-19 pandemic as customers may delay decisions to adopt our core products, or expand the use of our Value+ services, as they seek to reduce or delay spending within their businesses.
If we are unable to increase sales of our software solutions to larger customers while mitigating the risks associated with serving such customers, our business and operating results may suffer.
While we plan to continue to market and sell our software solutions to smaller companies or firms, our growth strategy is dependent, in part, upon increasing sales of our software solutions to larger customers within the real estate vertical. Sales to larger customers may involve risks that are not present, or are present to a lesser extent, in sales to smaller businesses. As we seek to increase our sales to larger customers, we may invest considerably greater amounts of time and financial resources in our sales and marketing efforts. In addition, we may face longer sales cycles and experience less predictability and greater
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competition in completing some of our sales. Our ability to sell our software solutions to larger customers may be dependent, in part, on our ability to develop functionality, or to implement pricing policies, that are unique to particular customers or are necessary for success in a market segment dominated by larger customers. Also, because security breaches or other performance problems with respect to larger customers may result in greater economic harm to these customers and more adverse publicity, there is increased financial and reputational risk associated with serving such customers. If we are unable to increase sales of our software solutions to larger customers, while mitigating the risks associated with serving such customers, our business and operating results may suffer.
If we are unable to introduce successful enhancements, including new and innovative core functionality and/or Value+ services, or new products for adjacent markets or additional verticals, our operating results could be adversely affected.
The software industry is characterized by rapid technological advances, changing industry standards, evolving customer requirements and intense competition. Our ability to attract new customers, increase revenue from our existing customers, and expand into adjacent markets or, potentially, new verticals depends, in part, on our ability to enhance the functionality of our existing software solutions by introducing new and innovative core functionality and/or Value+ services that keep pace with technological developments and address the evolving business needs of our customers. In addition, our growth over the long termlong-term depends, in part, on our ability to introduce new products for adjacent markets and, potentially, additional verticals that we identify through our market validation process consistent with our strategic plan. Market acceptance
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of our current and future software solutions will depend on numerous factors, including the pricing of our software solutions relative to competitive products, perceptions about the security, privacy and availability of our software solutions relative to competitive products, and the time-to-market of our updates and enhancements to our core functionality, Value+ services and products. If we are unable to successfully enhance the functionality of our existing software solutions and timely develop or acquire new products that gain market acceptance in adjacent markets and additional verticals consistent with our strategic plan, our revenue may increase at a slower rate than we expect and may even decline, which could adversely affect our operating results.
Our business depends substantially on existing customers renewing their subscriptions with us and expanding their use of our Value+ services, and a decline in either could adversely impact our operating results.
In order for us to maintain or increase our revenue and improve our operating results, it is important that our existing customers continue to pay subscription fees for the use of our core solutions, which tend to incrementally rise over time, as well as increase their adoption and utilization of our Value+ services. We cannot assure you that our customers will renew their subscriptions with us, that our existing customers will continue to broaden their adoption and utilization of our Value+ services, or that they will use our Value+ services at all. If our existing customers do not renew their subscriptions and increase their adoption and utilization of our existing or newly developed Value+ services, our revenue may increase at a slower rate than we expect and may even decline, which could adversely impact our financial condition and operating results. The loss of our existing customers could have a significant impact on our reputation and our ability to acquire new customers cost-effectively via word-of-mouth. A reduction in the number of our existing customers, even if offset by an increase in new customers, could reduce our revenue and operating margins. We may need to employ increasingly costly sales and marketing efforts and make significant investments in research and product development to introduce Value+ services that ultimately are not broadly adopted by our customers. In either of those cases, we could incur significantly increased costs without a corresponding increase in revenue. Furthermore, we may fail to identify Value+ services that our customers need for their businesses, in which case we could miss opportunities to increase our revenue. We may experience lower rates of subscription renewals, as well as lower rates of adoption and utilization of Value+ services, as a result of the COVID-19 pandemic as customers may seek to reduce or delay spending within their businesses.
All of our revenues are presently generated by sales to customers and users in the real estate vertical, and factors that adversely affect that vertical, or our customers or users within it, could also adversely affect us.
We expect that our real estate customers and users will continue to account for a significant portion or all of our revenue for the foreseeable future. Demand for our software solutions and services could be affected by factors that are unique to and adversely affect the real estate vertical and our customers and users within it. If the vertical itself declines, our customers may decide not to renew their subscriptions or they may cease using our Value+ services in order to reduce costs to remain competitive. Further, we could lose real estate customers as a result of acquisitions or consolidations within the real estate vertical, bankruptcies or other financial difficulties facing our real estate customers, new or enhanced legal or regulatory regimes that negatively impact the real estate vertical, and conditions or trends specific to the real estate vertical such as the economic factors that impact the rental market. It is possible that the significant increase in unemployment rates, regulation and financial uncertainty caused by the COVID-19 pandemic could have a disproportionate impact on businesses within the real estate vertical, which may, in turn, disproportionately affect our customers and users and, therefore, our business, financial condition and operating results. In addition to the foregoing risks, there is an overarching risk stemming from potential widespread adoption of quickly evolving financial or other disruptive technology products that could significantly impact the real estate vertical, even if the disruptive technology is not specifically designed to apply directly to it. The adoption of these new technologies could significantly reduce the volume or demand of our customers and users, thereby reducing our revenue, which could materially impact our business, financial condition and operating results.
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Our growth depends in part on our strategic relationships with third parties and, if we are unsuccessful in establishing or maintaining these relationships, our ability to compete in our targeted markets or grow our revenue could be impaired.
In order to grow our business, we anticipate that we will continue to depend on our relationships with third parties, including our data center operators, cloud computing service providers, electronic payment, tenant screening and insurance services providers, and other third parties that support delivery of our software solutions. Identifying partners, negotiating agreements and maintaining relationships requires significant time and resources. Our competitors may be more effective than us in cost-effectively building relationships with third parties that enhance their products and services, allow them to provide more competitive pricing, or offer other benefits to their customers. In addition, acquisitions of our partners by our competitors or others could result in a decrease in the number of current and potential strategic partners willing to establish or maintain relationships with us, and could increase the price at which products or services are available to us. If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenue could be impaired, which could negatively impact our operating results.
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We depend on data centerscloud computing platforms and computing infrastructure operated by third parties and any disruption in these operations could adversely affect our operating results.
We currently serve our customers through a combination of our own servers located in third party data center facilities, andrely on cloud computing resources operated by Amazon Web Services and other third party cloud computing service providers. Whileproviders to power the products and services that we control and have accessprovide to our own servers and the other components of our networkcustomers. These cloud computing service providers may experience service interruptions that are located in our third party data centers, we do not control the operation of any of these third party data center facilities. The owners of our data center facilities have no obligation to renew their agreements with us. If we are unable to renew these agreements on commercially reasonable terms, or if one of our third party data center operators is acquired, we may be required to transfer our servers and other infrastructure to new facilities, and we may incur significant costs and possible service interruptions. Further, our third party data center providers could experience significant outages outside of our control, that could adversely affect our business. Problems faced by our third party data center operators, or with any of the service providers with whom we or they contract, could adversely affect the experience of our customers. Additionally, if our data centers are unable to keep up with our growing needs for capacity or any spikes in customer demand, this could result in loss of or damage to our customers’ stored information and service interruptions, which could harm our reputation, impair our ability to attract and retain customers, and subject us to potential liability, any ofpossibly even across multiple regions, which could adversely affect our operating results.
The cloud computing service providers with which we contract may experience service interruptions across multiple regions that are outside of our control.business. Furthermore, they may not be able to provide us with additional computing resources needed to scale our infrastructure ahead of our growing customer base. If any of these issues arise, we may be required to migrate our cloud computing resources, or add new computing resources, to other cloud computing service providers. It may require significant effort to migrate all of our services to a different region if we are forced to recover from a data center’s severe impairment or total destruction, or from a regional, or multi-regional, outage by any of our cloud computing service providers. AnyProblems faced by any of these service providers with whom we contract, or changes in service levels provided by them, could adversely affect the experience of our cloud computing service providers couldcustomers, result in loss of or damage to our customers’ stored information, and service interruptions, which could harm our reputation, impair our ability to attract and retain customers, and subject us to potential liability, andany of which could adversely affect our operating results.
Our platform must integrate with a variety of devices, operating systems and browsers that are developed by others, and if we are unable to ensure that our software solutions interoperate with such devices, operating systems and browsers, our software solutions may become less competitive and our operating results may be harmed.
We offer our software solutions across a variety of operating systems and through the Internet. We depend on the interoperability of our platform with third party devices, desktop and mobile operating systems, as well as web browsers that we do not control. Any changes in such devices, systems or web browsers that degrade the functionality of our software solutions or give preferential treatment to competitive services could adversely affect the adoption and usage of our software solutions. In addition, in order to deliver high quality software solutions, we will need to continuously enhance and modify our functionality to keep pace with changes in Internet-related hardware, mobile operating systems such as iOS and Android, browsers and other software, communication, network and database technologies. We may not be successful in developing enhancements and modifications that operate effectively with these devices, operating systems, web browsers and other technologies or in bringing them to market in a timely manner. Furthermore, uncertainties regarding the timing or nature of new network platforms or technologies, and modifications to existing platforms or technologies, could increase our research and product development expenses. In the event that it is difficult for our customers to access and use our software solutions, our software solutions may become less competitive, and our operating results could be adversely affected.
If our property management customers stop requiring residents to provide proof of legal liability to landlord insurance, if insurance premiums decline or if insureds experience greater than expected losses, our operating results could be harmed.
We generate revenue by offering legal liability to landlord insurance through a wholly owned subsidiary. Some of our property management customers require residents to provide proof of legal liability to landlord insurance and offer to enroll residents in their legal liability to landlord insurance policy. If demand for rental housing declines, or if our property management customers believe that it may decline, these customers may reduce their rental rates and stop requiring residents to provide proof of legal liability to landlord insurance in order to reduce the overall cost of renting and make their rental offerings more competitive. If our property management customers stop requiring residents to provide proof of legal liability to landlord insurance or elect to enroll residents in insurance programs offered by competing providers, or if insurance premiums otherwise decline, our revenues from insurance services could be adversely affected. Additionally, we underwrite our legal liability to landlord insurance policies, and we are required by our insurance partner to maintain a reserve to cover potential claims under the policies. While our policies have per-occurrence limits, there is no limit on the dollar amount of claims that could be made against us in any particular period or in the aggregate. In the event that claims by the insureds increase unexpectedly, our reserve may not be sufficient to cover our resulting liability under the policies. If we are required to pay out significantly higher amounts to insureds than our current reserves, this could have a material adverse impact on our operating results.
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Our insurance business is subject to state governmental regulation, which could limit the growth of our insurance business and impose additional costs on us.
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Our insurance-related wholly owned subsidiaries and third-party service providers maintain licenses with a number of individual state departments of insurance. Collectively, we are subject to state governmental regulation and supervision in connection with the operation of our insurance business, which includes both our legal liability to landlord insurance and renters insurance businesses. Such supervision could limit the growth of our insurance business by increasing the costs of regulatory compliance, limiting or restricting the products or services we provide or the methods by which we provide them, and subjecting us to regulatory actions or proceedings. Our continued ability to maintain these insurance licenses in the jurisdictions in which we are licensed depends on our compliance with the rules and regulations promulgated from time to time by the regulatory authorities in each of these jurisdictions. Furthermore, we are routinely subject to periodic state examinations, audits and investigations of the affairs of insurance companies and agencies, any of which could result in the expenditure of significant management time or financial resources. Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licenses and approvals and to implement and interpret rules and regulations. Accordingly, we may be precluded or temporarily suspended from carrying on some or all of the activities of our insurance business or otherwise be fined or penalized. No assurances can be given that our insurance business can continue to be conducted in any given jurisdiction as it has been conducted in the past or that we will be able to expand our insurance business in the future.
If we are unable to deliver effective customer service and/or effectively maintain and promote our brands, it could harm our relationships with our existing customers and adversely affect our ability to attract new customers and our operating results.
Our business depends, in part, on our ability to satisfy our customers, both by providing software solutions that address their business needs, and by providing onboarding services and ongoing customer service. Once our software solutions are deployed, our customers depend on our customer service organization to resolve technical issues relating to their use of our solutions. As we do not separately charge our customers for support services, increased demand for our support services would increase costs without corresponding revenue, which could adversely affect our operating results. Further, our sales process is highly dependent on the ease of use of our software solutions, our reputation and positive recommendations from our existing customers. Any failure to maintain high-quality or responsive customer service, or a market perception that we do not maintain high-quality or responsive customer service, could harm our reputation, cause us to lose customers and adversely impact our ability to sell our software solutions to prospective customers.
We believe that maintaining and promoting our brands is critical to achieving widespread awareness and acceptance of our software solutions, and maintaining and expanding our customer base. We also believe that the importance of brand recognition will increase as competition in our targeted verticalsthe real estate vertical increases. If we do not continue to build awareness of our brands, we could be placed at a competitive disadvantage as compared to companies whose brands are, or become, more recognizable than ours. Maintaining and promoting our brands will depend, in part, on our ability to continue to provide new and innovative core functionality and Value+ services and best-in-class customer service, as well as the effectiveness of our sales and marketing efforts. If we fail to deliver products and functionality that address our customers’ business needs, or if we fail to meet our customers’ expectations for customer service, it could weaken our brands and harm our reputation. Maintaining and enhancing our brands may require us to make substantial investments, and these investments may not result in commensurate increases in our revenue. If we fail to successfully maintain and promote our brands, or if we make investments that are not offset by increased revenue, our operating results could be adversely affected.
Failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brands, which could harm our business.
We currently rely on patent, trademark, copyright and trade secret laws, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect our intellectual property rights. Our success and ability to compete depend, in part, on our ability to continue to protect our intellectual property, including our proprietary technology and our brands. If we are unable to protect our proprietary rights adequately, our competitors could use the intellectual property we have developed to enhance their own products and services, which could harm our business. In order to monitor and protect our intellectual property rights, we may be required to expend significant resources. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management, and could result in the impairment or loss of portions of our intellectual property or require us to pay costly royalties. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Accordingly, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our business and operating results.
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We may be sued by third parties for alleged infringement of their proprietary rights, which could cause us to incur significant expenses and require us to pay substantial damages.
Our success depends, in part, on our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may legally own or claim to own intellectual property relating to our technology or software solutions, including without limitation technology we develop and build internally and/or acquire. From time to time, our competitors or other third parties may claim that we are infringing upon their intellectual property rights. Any claims or litigation, regardless of merit, could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages, settlement costs or ongoing royalty payments, require that we comply with other unfavorable license and other terms, or prevent us from offering our software solutions in their current form. Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the attention of our management and key personnel from our business operations and harm our operating results.
Because we recognize revenue from subscriptions for our software solutions over the term of each subscription agreement, downturns or upturns in new business may not be immediately reflected in our operating results.
A portion of the revenue we report in each period is derived from the recognition of deferred revenue relating to subscription agreements entered into during previous periods. Consequently, while a decline in new or renewed subscriptions in any one period may not be reflected in our revenue results for that period, any such decline will negatively affect our revenue in future quarters. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription period. Accordingly, the effect of downturns or upturns in our sales, the market acceptance of our software solutions, and potential changes in our customer retention rates, may not be apparent in our operating results until future periods.
Our software solutions contain both third-party and open source software, which may pose risks to our proprietary source code and/or introduce security vulnerabilities, and could have a negative impact on our business and operating results.
We use open source software in our software solutions and expect to continue to do so in the future. The terms of many open source licenses to which we are subject have not been interpreted by United States or foreign courts, and there is a risk that open source licenses could be construed in a manner that imposes unanticipated conditions, restrictions or costs on our ability to provide or distribute our software solutions. Additionally, we may from time to time face claims from third parties alleging ownership of, or demanding release of, the open source software or of derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation, which could be costly for us to defend, and could require us to make our source code freely available, purchase a costly license or cease offering the implicated functionality unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and product development resources, and we may not be able to complete it successfully or in a timely manner. In addition to risks related to license requirements, usage of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. We also use third-party commercial software in our software solutions and expect to continue to do so in the future. Third-party commercial software is developed outside of our direct control and may introduce security vulnerabilities that may be difficult to anticipate or mitigate. Further, there is no guarantee that third-party software developers or open source software providers will continue active work on the third-party software that we use. Should development of in-use third-party software cease, significant engineering effort may be required to create an in-house solution. These risks could also be difficult to eliminate or manage, and could have a negative impact on our business and operating results.
There are risks associated with our outstanding andpotential future indebtedness that may adversely affect our financial condition andour existing and future financing agreements may contain restrictive operating and financial covenants.
On September 30, 2020, our Credit Agreement with Wells Fargo was terminated and all obligations outstanding under the Term Loan and Revolving Facility thereunder were satisfied in full and extinguished. We may however, incur additional indebtedness in the future and/or enter into new financing arrangements. Our ability to meet expenses, to remain in compliance with the covenants under our existing andany future debt instruments, and to pay fees, interest and principal on our indebtedness will depend on, among other things, our operating performance and market conditions. Accordingly, our cash flow may not be sufficient to allow us to pay principal and interest on our debtfuture indebtedness and meet our other business and customer obligations.
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Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of September 30, 2020, we had federal and state net operating loss carryforwards, which, if not utilized, will begin to expire in 2031 for federal purposes and in 2028 for state purposes. As of September 30, 2020, we also had federal and state research and development credit carryforwards. The federal credit carryforwards will begin to expire in 2027, while the majority state credits carryforwards apply indefinitely. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50% over a rolling three-year period. Similar rules may apply under state tax laws. It is possible that our existing net operating loss and/or credit carryforwards may be subject to limitations arising from previous ownership changes, and future issuances of our stock could cause an ownership change. Furthermore, our ability to utilize net operating loss and/or credit carryforwards of companies that we have acquired or may acquire in the future may be subject to limitations. There is also a risk that due to legislative changes, such as suspensions on the use of net operating loss carryforwards, or other unforeseen reasons, our existing net operating loss carryforwards could expire or otherwise be unavailable to offset future income tax liabilities. In addition, under
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Our business may be adversely affected by developments in the Tax Cuts and Jobs Act, the amount of net operating loss carryforwards from taxable years beginning after December 31, 2017 thatglobal economy, including if we are permittedseek to deduct in any taxable year is limited to 80% of our taxable income in such year, where taxable income is determined without regard to the net operating loss carryforward deduction itself. However, the Coronavirus Aid, Relief, and Economic Security Act (also known as the "CARES Act') suspended this limitation for taxable years beginning before January 1, 2021. Nonetheless, for aforementioned reasons, we may not be able to realize a tax benefit, or may realize less tax benefit, from the use of our net operating loss carryforwards. Any such limitations on our ability to use our net operating loss carryforwards and other tax assets could adversely impact our business, financial condition and operating results.
Because our long-term growth strategy involves potential expansion ofexpand our sales to customers outside of the United States, our business may be susceptible to the risks associated with international operations.States.
To date, we have realized an immaterial amount of revenue from customers outside the United States. ToWe may nonetheless be affected by economic, regulatory or other developments in the global economy or particular countries, such as China, because certain of our customers’ businesses may be based in or have significant ties to international jurisdictions. This may, for example, affect our ability to meet customer requirements in a cost-effective manner or the ability of our customers to expand their relationships with us. Furthermore, to the extent that we decideseek to expand our operations to international markets, such expansion will require significant resources and management attention and will subject us to additional regulatory, economic, geographic and political risks, including but not limited to the risk of disruptions caused by regional natural disasters or health epidemics, that are different from those in the United States.risks. Because of our limited experience with international operations and significant differences between the United States and international markets, any international expansion efforts may not be successful in creating demand for our software solutions outside of the United States or in effectively selling our software solutions in any international markets we may enter. The significant disruptions caused by the COVID-19 pandemic, especially in certain countries in the European Union and Asia, could have a prolonged negative impact on our ability to expand our sales to customers outside the United States. If we invest substantial time and resources to expand our international operations and are unable to do so successfully, our business and operating results could suffer.
Risks Related to Our Class A Common Stock
The market price of our Class A common stock may be volatile or may decline regardless of our operating performance, which could result in substantial losses for our stockholders.
The market price of our Class A common stock has been, and is likely to continue to be, highly volatile, and fluctuations in the price of our Class A common stock could cause you to lose all or part of your investment. There are a wide variety of factors, many of which are outside our control, that could cause fluctuations in the market price of our Class A common stock and, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. If instituted against us, any such litigation, regardless of its merit or final outcome, could result in substantial costs and a diversion of our management’s attention, thereby adversely affecting our operating results and/or the price of our Class A common stock.
The dual class structure of our common stock concentrates voting control with a limited number of stockholders, including our executive officers, directors and principal stockholders, effectively limiting your ability to influence corporate matters.
Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. As of SeptemberJune 30, 2020,2021, the holders of the outstanding shares of our Class B common stock, including our executive officers, directors, and principal stockholders, collectively held approximately 90%89% of the combined voting power of our outstanding capital stock. Because of the 10-to-1 voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock collectively control a majority of the combined voting power of our outstanding capital stock and therefore are able to exercise significant influence and control over the establishment and implementationelection of a majority of our future business plansdirectors and thereby have the power to control our affairs and policies, including the appointment of management and strategic objectives,decisions, as well as to control all matters that are submitted to a vote by our stockholders for approval. These persons may manageholders of our business in ways with which you disagree and whichcommon stock.The interests of our principal stockholders may be inconsistent with or adverse to your interests.those of holders our Class A common stock. This concentrated control may also have the effect of delaying, deterring or preventing a change-in-control transaction, depriving our stockholders of an opportunity to receive a premium for their capital stock or negatively affecting the market price of our Class A common stock.
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In addition, transfers by holders of our Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions. The conversion of our Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of the holders of our Class B common stock who retain their shares over the long term.
We cannot predict the impact that our capital structure may have on our stock price.
S&P Dow Jones, a provider of widely followed stock indices, has announced that companies with multiple classes of stock will not be eligible for inclusion in certain of their indices. As a result, our Class A common stock will not be eligible for those stock indices. Additionally, FTSE Russell, another provider of widely followed stock indices, requires new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders. Many investment funds are precluded from investing in companies that are not included in such indices, and these funds would be unable to purchase our Class A common stock. Exclusion from these and other indices could make our Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, shareholder advisory firms may publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.
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Future sales of shares of our Class A common stock, or the perception that these sales could occur, could depress the market price of our Class A common stock.
Sales of a substantial number of shares of our Class A common stock in the public market, or the perception that these sales might occur, could cause the market price of our Class A common stock to decline or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate, and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales, or the perception that our shares may be available for sale, will have on the prevailing market price of our Class A common stock. As of SeptemberJune 30, 2020,2021, we had an aggregate of 1.21.0 million options outstanding that, if fully exercised, would result in the issuance of additional shares of Class A common stock or Class B common stock, as applicable. Our Class B common stock converts into Class A common stock on a one-for-one basis. In addition, as of SeptemberJune 30, 2020,2021, we had 0.5 million RSUs, outstanding which, if fully vested and settled in shares, would result in the issuance of additional shares of Class A common stock. All of the shares of Class A common stock issuable upon the exercise of options (or upon conversion of shares of Class B common stock issued upon the exercise of options), or upon the vesting and settlement of RSUs, have been registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance. In addition, certain holders of our Class A common stock and Class B common stock have rights, subject to certain conditions, to require us to file registration statements for the public resale of such shares (in the case of Class B common stock, the Class A common stock issuable upon conversion of such shares) or to include such shares in registration statements that we may file for us or other stockholders. Any sales of securities by these stockholders could have a material adverse effect on the market price of our Class A common stock.
We do not expect to declare any dividends in the foreseeable future and may repurchase stock in accordance with our Share Repurchase Program.
We have never declared, and we do not anticipate declaring or paying, any cash dividends to holders of our Class A common stock in the foreseeable future. In addition, the terms of our future borrowing arrangements we may enter into from time to time may restrict our ability to pay dividends. Consequently, investors may need to rely on sales of our Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Price appreciation, which may never occur, may be further impacted by repurchases of our shares in accordance with our Share Repurchase Program. Repurchases of our shares could increase the volatility of the trading price of our shares, which could have a negative impact on the trading price of our shares. Similarly, the future announcement of the termination or suspension of the Share Repurchase Program, or our decision not to utilize the full authorized repurchase amount under the Share Repurchase Program, could result in a decrease in the trading price of our shares. In addition, the Share Repurchase Program could have the impact of diminishing our cash reserves, which may impact our ability to finance our growth, complete acquisitions and execute our strategic plan. For additional information regarding our Share Repurchase Program, refer to Note 10, Share Repurchase Program, of our Condensed Consolidated Financial Statements.

General Risk Factors
Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could have the effect of rendering more difficult hostile takeovers, change-in-control transactions or changes in our Board of Directors or management. Among other things, these provisions authorize the issuance of preferred stock with powers, preferences and rights that may be senior to our common stock, provide for the adoption of a staggered three-class Board of
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Directors, prohibit our stockholders from filling vacancies on our Board of Directors or calling special stockholder meetings, require the vote of at least two-thirds of the combined voting power of our outstanding capital stock to approve amendments to our certificate of incorporation or bylaws, and require the approval of the holders of at least a majority of the outstanding shares of our Class B common stock voting as a separate class prior to consummating a change-in-control transaction. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which may delay, deter or prevent a change-in-control transaction. Section 203 imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock. Any provision of Delaware law, our amended and restated certificate of incorporation, or our amended and restated bylaws that has the effect of rendering more difficult, delaying, deterring or preventing a change-in-control transaction could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our Class A common stock.
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Government regulations and laws are continuously evolving and unfavorable changes could adversely affect our operating results, subject us to litigation or governmental investigation, or otherwise harm our business.
We are subject to general business regulations and laws, as well as regulations and laws specifically governing the highly regulated real estate market, electronic payment, background screening, and insurance services markets, the Internet itself, the use of mobile devices to conduct business and communicate, and many other products and services we provide. It is not clear how existing laws governing issues such as property ownership, management, rental and investment, data protection, and personal privacy apply to the Internet, digital content, communication services, web services, and artificial intelligence technologies and services. Unfavorable regulations, laws, and administrative or judicial decisions interpreting or applying those laws and regulations could diminish the demand for, or availability of, our products and services, subject us to litigation or governmental investigation and increase our cost of doing business, any of which may adversely affect our operating results. In addition, the application of federal, state, local and foreign tax laws to services provided electronically is continuously evolving. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted or amended at any time, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the Internet. These enactments or amendments could adversely affect our sales activity due to the inherent cost increase such taxes would represent and could ultimately result in a negative impact on our operating results. In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, modified or applied adversely to us, possibly with retroactive effect, which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties, as well as interest on past amounts. If we are unsuccessful in collecting such taxes due from our customers, we could be held liable for such costs, thereby adversely impacting our operating results.
We may require additional capital to support our operations or the growth of our business, and we cannot be certain that this capital will be available on favorable terms, or at all, which may adversely affect our business and financial condition.
Our ability to obtain additional capital, if and when required, will depend on numerous factors, including investor and lender demand, our compliance with debt obligations, our historical and forecasted financial and operating performance, our liquidity position, the overall condition of the capital markets, and the global economy as a whole. We cannot guarantee that additional financing will be available to us on favorable terms when required, or at all. In addition, if we raise additional funds through the issuance of equity securities, those securities may have powers, preferences or rights senior to the rights of our Class A common stock, and our existing stockholders may experience immediate dilution. If we raise additional funds through the issuance of debt securities, we may incur interest expense or other costs to service the indebtedness, we may be required to encumber certain assets, and we may become subject to restrictions on our ability to conduct business, any of which could negatively impact our operating results. Furthermore, if we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support the growth of our business and the achievement of our strategic objectives could be significantly impaired and our operating results may be harmed.
Item 6. Exhibits
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  Exhibit
Number
  Description of Document
2.310.1
  31.1  
  31.2  
  32.1*  
  101.INSInline XBRL Instance Document.
  101.SCHInline XBRL Taxonomy Extension Schema Document.
  101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
  101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
  101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
  101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
(1)Filed as Exhibit 2.1 to the registrant’s Current Report on Form 8-K (File No. 001-37468) filed with the U.S. Securities and Exchange Commission on September 8, 2020, and incorporated herein by reference.
Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the U.S. Securities and Exchange Commission upon request.
*The certifications attached as Exhibit 32.1 accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act, and are not to be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in any such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AppFolio, Inc.
Date:NovemberAugust 9, 20202021By:/s/ Ida KaneJason Randall
Ida KaneJason Randall
Chief FinancialExecutive Officer
(Principal Financial andOfficer)
Date:August 9, 2021By:/s/ Ann Wilson
Ann Wilson
Vice President of Accounting
(Principal Accounting Officer)