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Table of Contents

 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 June 30, 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 filer
Accelerated 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 August 2, 2021, the number of shares of the registrant’s Class A common stock outstanding was 18,991,205 and the number of shares of the registrant’s Class B common stock outstanding was 15,620,784.


Table of Contents
TABLE OF CONTENTS
 
SectionPage No.
 



Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2021 (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.
The 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 expressed 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, 2020 (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.

1

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
2

Table of Contents
APPFOLIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par values)
 June 30,
2021
December 31,
2020
Assets
Current assets
Cash and cash equivalents$48,610 $140,263 
Investment securities—current102,978 28,256 
Accounts receivable, net14,973 10,057 
Prepaid expenses and other current assets23,306 20,777 
Total current assets189,867 199,353 
Investment securities—noncurrent11,541 6,770 
Property and equipment, net27,324 26,439 
Operating lease right-of-use assets40,983 30,561 
Capitalized software development costs, net39,225 35,459 
Goodwill56,147 56,147 
Intangible assets, net14,017 16,357 
Deferred income taxes—noncurrent12,774 12,181 
Other long-term assets7,194 6,213 
Total assets$399,072 $389,480 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$2,411 $1,040 
Accrued employee expenses—current27,504 18,888 
Accrued expenses11,403 14,069 
Deferred revenue3,205 2,262 
Income tax payable66 9,095 
Other current liabilities4,196 4,451 
Total current liabilities48,785 49,805 
Accrued employee expenses—noncurrent968  
Operating lease liabilities53,936 40,146 
Deferred income taxes—noncurrent8,116 13,609 
Total liabilities111,805 103,560 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 25,000 shares authorized and no 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, respectively
2 2 
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, respectively
2 2 
Additional paid-in capital160,160 161,247 
Accumulated 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, 2020
(25,756)(25,756)
Retained earnings152,869 150,369 
Total stockholders’ equity287,267 285,920 
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
June 30,
Six Months Ended
June 30,
 2021202020212020
Revenue$89,040 $81,043 $167,961 $153,538 
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)32,819 27,411 66,117 56,372 
Sales and marketing17,714 13,717 33,893 28,223 
Research and product development15,506 12,128 29,889 23,340 
General and administrative14,206 14,785 27,567 23,357 
Depreciation and amortization7,649 6,657 15,018 13,071 
Total costs and operating expenses87,894 74,698 172,484 144,363 
Income (loss) from operations1,146 6,345 (4,523)9,175 
Other income (loss), net496 (10)1,058 12 
Interest income (expense), net55 (562)108 (1,056)
Income (loss) before benefit from income taxes1,697 5,773 (3,357)8,131 
Benefit from income taxes(324)(13,484)(5,857)(13,109)
Net income$2,021 $19,257 $2,500 $21,240 
Net income per common share:
Basic$0.06 $0.56 $0.07 $0.62 
Diluted$0.06 $0.54 $0.07 $0.60 
Weighted average common shares outstanding:
Basic34,548 34,254 34,479 34,214 
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
June 30,
Six Months Ended
June 30,
 2021202020212020
Net income$2,021 $19,257 $2,500 $21,240 
Other comprehensive income:
    Changes in unrealized (losses) gains on investment securities(48)(34)(66)98 
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)
Accumulated
AdditionalOther
Common StockCommon StockPaid-inComprehensiveTreasuryRetained
Class AClass BCapitalIncome (Loss)StockEarningsTotal
SharesAmountSharesAmount
Balance at December 31, 202018,729 $2 15,659 $2 $161,247 $56 $(25,756)$150,369 $285,920 
Exercise of stock options23 — — — 100 — — — 100 
Stock-based compensation— — — — 3,295 — — — 3,295 
Vesting of restricted stock units, net of shares withheld for taxes42 — — — (3,992)— — — (3,992)
Conversion of Class B stock to Class A stock108 — (108)— — — — — — 
Other comprehensive loss— — — — — (18)— — (18)
Net income— — — — — — — 479 479 
Balance at March 31, 202118,902 $2 15,551 $2 $160,650 $38 $(25,756)$150,848 $285,784 
Exercise of stock options13 — 84 — 545 — — — 545 
Stock-based compensation— — — — 3,873 — — — 3,873 
Vesting of restricted stock units, net of shares withheld for taxes56 — — — (4,908)— — — (4,908)
Conversion of Class B stock to Class A stock14 — (14)— — — — — — 
Issuance of restricted stock awards4 — — — — — — — — 
Other comprehensive loss— — — — — (48)— — (48)
Net income— — — — — — — 2,021 2,021 
Balance at June 30, 202118,989 $2 15,621 $2 $160,160 $(10)$(25,756)$152,869 $287,267 













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APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
Accumulated(Accumulated
AdditionalOtherDeficit)/
Common StockCommon StockPaid-inComprehensiveTreasuryRetained
Class AClass BCapitalIncomeStockEarningsTotal
SharesAmountSharesAmount
Balance at December 31, 201916,552 $2 17,594 $2 $161,509 $33 $(21,562)$(8,034)$131,950 
Exercise of stock options17 — — — 97 — — — 97 
Stock-based compensation— — — — 1,365 — — — 1,365 
Vesting of restricted stock units, net of shares withheld for taxes91 — — — (6,458)— — — (6,458)
Conversion of Class B stock to Class A stock58 — (58)— — — — — — 
Other comprehensive income— — — — — 132 — — 132 
Repurchase of common stock(48)— — — — — (4,194)— (4,194)
Net income— — — — — — — 1,983 1,983 
Balance as of March 31, 202016,670 $2 17,536 $2 $156,513 $165 $(25,756)$(6,051)$124,875 
Exercise of stock options32 — — — 232 — — — 232 
Stock-based compensation— — — — 3,406 — — — 3,406 
Vesting of restricted stock units, net of shares withheld for taxes50 — — — (3,232)— — — (3,232)
Conversion of Class B stock to Class A stock197 — (197)— — — — — — 
Issuance of restricted stock awards3 — — — — — — — — 
Other comprehensive loss— — — — — (34)— — (34)
Net income— — — — — — — 19,257 19,257 
Balance as of June 30, 202016,952 $2 17,339 $2 $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.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 Six Months Ended
June 30,
 20212020
Cash from operating activities
Net income$2,500 $21,240 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization15,018 13,071 
Amortization of operating lease right-of-use assets1,399 2,071 
Deferred income taxes(6,086)(13,137)
Stock-based compensation5,990 3,712 
Other(579)(30)
Changes in operating assets and liabilities:
Accounts receivable(4,007)(5,136)
Prepaid expenses and other current assets(2,171)(292)
Other assets(982)(107)
Accounts payable1,301 193 
Accrued employee expenses—current7,638 717 
Accrued expenses(3,047)4,534 
Deferred revenue33 532 
Income tax payable(9,029) 
Other current liabilities30 100 
Accrued employee expenses—noncurrent968  
Operating lease liabilities1,685 (92)
Net cash provided by operating activities10,661 27,376 
Cash from investing activities
Purchases of available-for-sale investments(148,293)(13,389)
Proceeds from sales of available-for-sale investments42,198 13,942 
Proceeds from maturities of available-for-sale investments26,750 7,750 
Purchases of property, equipment and intangible assets(2,804)(14,306)
Capitalization of software development costs(11,911)(12,709)
Net cash used in investing activities(94,060)(18,712)
Cash from financing activities
Proceeds from stock option exercises646 329 
Tax withholding for net share settlement(8,900)(9,690)
Payment of contingent consideration (5,977)
Proceeds from issuance of debt 50,190 
Principal payments on debt (1,818)
Purchase of treasury stock (4,194)
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, cash equivalents and restricted cash
Beginning of period140,699 16,247 
End of period$49,046 $53,751 
Noncash investing and financing activities
Purchases 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 expenses1,361 1,281 
Stock-based compensation capitalized for software development1,178 1,059 
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    The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within our Condensed Consolidated Balance Sheets to the total of the same such amounts shown above (in thousands):
June 30,
20212020
Cash and cash equivalents$48,610 $53,315 
Restricted cash included in other assets436 436 
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. (the "Company," "we," "us" or "our") provides innovative software, services and data analytics to 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 critical business operations and enable exceptional customer service. In addition to our core solutions, we offer an array of optional, but often business-critical, Value+ services that are designed to enhance, automate and streamline processes and 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, are hosted using a modern cloud-based 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 and users.
During the six months ended June 30, 2020, we also provided software solutions and services to the legal industry via MyCase, a software solution primarily designed for small and mid-sized law firms. As previously disclosed, we completed our divestiture of MyCase, Inc. on September 30, 2020. For additional details, see Note 3, Divestitures.
2. Summary of Significant Accounting Policies
Basis of Presentation and Significant Accounting Policies
The accompanying 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 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 six months ended June 30, 2021 are not necessarily indicative of the results expected for the full year ending December 31, 2021.
Reclassifications
We reclassified certain amounts in our Condensed Consolidated Statements of Cash Flows within the cash from operating 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.
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 June 30, 2021 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 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
June 30,
Six Months Ended
June 30,
 2021202020212020
Weighted average common shares outstanding34,553 34,259 34,484 34,219 
Less: Weighted average unvested restricted shares subject to repurchase5 5 5 5 
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 share1,126 1,360 1,218 1,433 
Weighted average common shares outstanding; diluted35,674 35,614 35,697 35,647 
For the three and six months ended June 30, 2021 and 2020, an aggregate of 120,000 and 146,000 shares, respectively, underlying 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 predefined performance measures and their 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 six months ended June 30, 2021 and 2020.
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Recent Accounting Pronouncements Adopted in 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 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. We adopted ASU 2019-12 on January 1, 2021. The adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or disclosures.
3. Divestitures
Divestiture of MyCase
On September 30, 2020, we completed our divestiture of 100% of our issued and outstanding equity interests of MyCase, Inc. ("MyCase"), a former wholly owned subsidiary that provided legal practice and case management software solutions to our legal customers, for $193.0 million, consisting of $192.2 million of cash proceeds, plus a $2.2 million employee retention bonus pool funded by us, less cash divested of $0.8 million and a preliminary working capital adjustment of $0.6 million (the "MyCase Transaction"). The retention bonus pool 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.
We recognized a pre-tax gain on the sale of $188.0 million on the MyCase Transaction, consisting of cash proceeds of $192.2 million, less net assets divested of $4.6 million, plus an adjustment in the 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 (loss), net in our Condensed Consolidated Statements of Operations.     

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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 June 30, 2021 and December 31, 2020 (in thousands):
June 30, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$49,442 $4 $(7)$49,439 
Agency securities11,842 13 (7)11,848 
Treasury securities53,225 18 (11)53,232 
Total available-for-sale investment securities$114,509 $35 $(25)$114,519 
December 31, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Agency securities$17,104 $29 $(1)$17,132 
Treasury securities17,847 47  17,894 
Total available-for-sale investment securities$34,951 $76 $(1)$35,026 
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. No allowance for credit losses for available-for-sale investment securities was recorded as of June 30, 2021 or December 31, 2020.
As of June 30, 2021 and December 31, 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):
June 30, 2021December 31, 2020
Amortized CostEstimated Fair ValueAmortized CostEstimated Fair Value
Due in one year or less$102,950 $102,978 $28,197 $28,256 
Due after one year through three years11,559 11,541 6,754 6,770 
Total available-for-sale investment securities$114,509 $114,519 $34,951 $35,026 
During the six months ended June 30, 2021 and 2020, we had sales and maturities (which include calls) of investment securities, as follows (in thousands):
Six Months Ended June 30, 2021
Gross Realized GainsGross Realized LossesGross Proceeds from Sales Gross Proceeds from Maturities
Agency securities$ $ $ $5,250 
Treasury securities6  42,198 21,500 
Total$6 $ $42,198 $26,750 
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Six Months Ended June 30, 2020
Gross Realized GainsGross Realized LossesGross Proceeds from SalesGross Proceeds from Maturities
Corporate bonds$5 $ $4,006 $4,000 
Agency securities24  7,878 1,250 
Treasury securities4  2,058 2,500 
Total$33 $ $13,942 $7,750 
Interest income, net of the amortization and accretion of the premium and discount, was $0.1 million for the three months ended June 30, 2021 and 2020, and $0.1 million for the six months ended June 30, 2021 and $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 June 30, 2021 and December 31, 2020 by level within the fair value hierarchy (in thousands):
June 30, 2021
Level 1Level 2Level 3Total Fair
Value
Cash equivalents:
Money market funds$5,030 $ $ $5,030 
Treasury securities9,500   9,500 
Commercial paper 3,000  3,000 
Available-for-sale investment securities:
Corporate bonds 49,439  49,439 
Agency securities 11,848  11,848 
  Treasury securities53,232   53,232 
Total$67,762 $64,287 $ $132,049 
December 31, 2020
Level 1Level 2Level 3Total Fair
Value
Cash equivalents:
Money market funds$4,749 $ $ $4,749 
Treasury securities97,433   97,433 
Available-for-sale investment securities:
Agency securities 17,132  17,132 
Treasury securities17,894   17,894 
Total$120,076 $17,132 $ $137,208 
The carrying amounts of restricted cash, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of these items.
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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 six months ended June 30, 2021. The valuation techniques for the financial assets in the tables above are as follows:
Cash Equivalents
As of June 30, 2021 and December 31, 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 six months ended June 30, 2021 and 2020, no impairments were identified on those assets required to be measured at fair value on a non-recurring basis.
5. Capitalized Software Development Costs, net
Capitalized software development costs were as follows (in thousands):
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 $7.0 million and $7.1 million for the three months ended June 30, 2021 and 2020, respectively, and $14.1 million and $13.8 million for the six months ended June 30, 2021 and 2020, respectively. Amortization expense with respect to capitalized software development costs totaled $5.3 million and $4.5 million for the three months ended June 30, 2021 and 2020, respectively, and $10.3 million and $8.7 million for the six months ended June 30, 2021 and 2020, respectively.
Future amortization expense with respect to capitalized software development costs is estimated as follows (in thousands):
Years Ending December 31,
2021$10,545 
202217,432 
20239,357 
20241,891 
    Total amortization expense$39,225 
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6. Intangible Assets, net
Intangible assets consisted of the following (in thousands, except years):
 June 30, 2021
 Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Weighted Average Useful Life in Years
Customer relationships$2,840 $(1,778)$1,062 5.0
Database8,330 (2,203)6,127 10.0
Technology6,539 (4,391)2,148 4.0
Trademarks and trade names1,890 (930)960 5.0
Partner relationships680 (680)