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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 September 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)

Delaware

26-0359894

(State of incorporation or organization)

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

50 Castilian Drive

93117

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 class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, $0.0001 par value	APPF	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 November 1, 2021, the number of shares of the registrant’s Class A common stock outstanding was 19,214,570 and the number of shares of the registrant’s Class B common stock outstanding was 15,453,371.

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TABLE OF CONTENTS


Section						Page No.
Cautionary Note Regarding Forward-Looking Statements						1
Part I. Financial Information						2
Item 1. Condensed Consolidated Financial Statements (Unaudited)						2
Condensed Consolidated Balance Sheets as of Septe mber 30, 2021 and December 31, 2020						3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020						4
Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2021 and 2020						5
Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2021 and 2020						6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020						8
Notes to Condensed Consolidated Unaudited Financial Statements						10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						22
Item 3. Qualitative and Quantitative Disclosure about Market Risk						35
Item 4. Controls and Procedures						35
Part II. Other Information						37
Item 1. Legal Proceedings						37
Item 1A. Risk Factors						37
Item 6. Exhibits						51
Signatures

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the fiscal quarter ended September 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.

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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, 2021		December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	84,444	$	140,263
Investment securities—current	76,034		28,256
Accounts receivable, net	12,184		10,057
Prepaid expenses and other current assets	24,714		20,777
Total current assets	197,376		199,353
Investment securities—noncurrent	9,287		6,770
Property and equipment, net	28,177		26,439
Operating lease right-of-use assets	42,597		30,561
Capitalized software development costs, net	40,711		35,459
Goodwill	56,147		56,147
Intangible assets, net	12,864		16,357
Deferred income taxes—noncurrent	12,834		12,181
Other long-term assets	7,394		6,213
Total assets	$	407,387	$	389,480
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	2,493	$	1,040
Accrued employee expenses—current	25,785		18,888
Accrued expenses	13,090		14,069
Deferred revenue	2,738		2,262
Income tax payable	186		9,095
Other current liabilities	4,910		4,451

Total current liabilities	49,202		49,805

Accrued employee expenses—noncurrent	2,059		—
Operating lease liabilities	56,559		40,146


Deferred income taxes—noncurrent	7,868		13,609
Total liabilities	115,688		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 September 30, 2021 and December 31, 2020	—		—
Class A common stock, $0.0001 par value, 250,000 shares authorized as of September 30, 2021 and December 31, 2020; 19,610 and 19,148 shares issued as of September 30, 2021 and December 31, 2020, respectively; 19,191 and 18,729 shares outstanding as of September 30, 2021 and December 31, 2020, respectively	2		2
Class B common stock, $0.0001 par value, 50,000 shares authorized as of September 30, 2021 and December 31, 2020; 15,453 and 15,659 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively	2		2
Additional paid-in capital	164,740		161,247
Accumulated other comprehensive (loss) income	(17)		56
Treasury stock, at cost, 419 shares of Class A common stock as of September 30, 2021 and December 31, 2020	(25,756)		(25,756)
Retained earnings	152,728		150,369
Total stockholders’ equity	291,699		285,920
Total liabilities and stockholders’ equity	$	407,387	$	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,
	2021		2020		2021		2020
Revenue	$	95,809	$	84,086	$	263,770	$	237,624
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)	38,730		32,752		104,847		89,124
Sales and marketing	19,362		14,894		53,255		43,117
Research and product development	16,500		13,454		46,389		36,794
General and administrative	13,404		12,946		40,971		36,303
Depreciation and amortization	7,826		6,680		22,844		19,751
Total costs and operating expenses	95,822		80,726		268,306		225,089
(Loss) income from operations	(13)		3,360		(4,536)		12,535
Other (loss) income, net	(353)		187,747		705		187,759
Interest income (expense), net	65		(853)		173		(1,909)
(Loss) income before (benefit from) provision for income taxes	(301)		190,254		(3,658)		198,385
(Benefit from) provision for income taxes	(160)		52,578		(6,017)		39,469
Net (loss) income	$	(141)	$	137,676	$	2,359	$	158,916

Net (loss) income per common share:
Basic	$	—	$	4.01	$	0.07	$	4.64
Diluted	$	—	$	3.86	$	0.07	$	4.46
Weighted average common shares outstanding:
Basic	34,614		34,296		34,525		34,241
Diluted	34,614		35,665		35,695		35,662

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 (LOSS) INCOME

(UNAUDITED)

(in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net (loss) income	$	(141)	$	137,676	$	2,359	$	158,916
Other comprehensive (loss) income:
Changes in unrealized (losses) gains on investment securities	(7)		(41)		(73)		57
Comprehensive (loss) income	$	(148)	$	137,635	$	2,286	$	158,973

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
							Additional		Other
	Common Stock			Common Stock			Paid-in		Comprehensive		Treasury		Retained
	Class A			Class B			Capital		Income (Loss)		Stock		Earnings		Total
	Shares	Amount		Shares	Amount
Balance at December 31, 2020	18,729	$	2	15,659	$	2	$	161,247	$	56	$	(25,756)	$	150,369	$	285,920
Exercise of stock options	23	—		—	—		100		—		—		—		100
Stock-based compensation	—	—		—	—		3,295		—		—		—		3,295
Vesting of restricted stock units, net of shares withheld for taxes	42	—		—	—		(3,992)		—		—		—		(3,992)
Conversion of Class B stock to Class A stock	108	—		(108)	—		—		—		—		—		—

Other comprehensive loss	—	—		—	—		—		(18)		—		—		(18)
Net income	—	—		—	—		—		—		—		479		479
Balance at March 31, 2021	18,902	$	2	15,551	$	2	$	160,650	$	38	$	(25,756)	$	150,848	$	285,784
Exercise of stock options	13	—		84	—		545		—		—		—		545
Stock-based compensation	—	—		—	—		3,873		—		—		—		3,873
Vesting of restricted stock units, net of shares withheld for taxes	56	—		—	—		(4,908)		—		—		—		(4,908)
Conversion of Class B stock to Class A stock	14	—		(14)	—		—		—		—		—		—
Issuance of restricted stock awards	4	—		—	—		—		—		—		—		—
Other comprehensive loss	—	—		—	—		—		(48)		—		—		(48)
Net income	—	—		—	—		—		—		—		2,021		2,021
Balance at June 30, 2021	18,989	$	2	15,621	$	2	$	160,160	$	(10)	$	(25,756)	$	152,869	$	287,267
Exercise of stock options	29	—		—	—		146		—		—		—		146
Stock-based compensation	—	—		—	—		4,837		—		—		—		4,837
Vesting of restricted stock units, net of shares withheld for taxes	5	—		—	—		(403)		—		—		—		(403)
Conversion of Class B stock to Class A stock	168	—		(168)	—		—		—		—		—		—

Other comprehensive loss	—	—		—	—		—		(7)		—		—		(7)
Net loss	—	—		—	—		—		—		—		(141)		(141)
Balance at September 30, 2021	19,191	$	2	15,453	$	2	$	164,740	$	(17)	$	(25,756)	$	152,728	$	291,699

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APPFOLIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

(in thousands)


									Accumulated				(Accumulated
							Additional		Other				Deficit)/
	Common Stock			Common Stock			Paid-in		Comprehensive		Treasury		Retained
	Class A			Class B			Capital		Income		Stock		Earnings		Total
	Shares	Amount		Shares	Amount
Balance at December 31, 2019	16,552	$	2	17,594	$	2	$	161,509	$	33	$	(21,562)	$	(8,034)	$	131,950
Exercise of stock options	17	—		—	—		97		—		—		—		97
Stock-based compensation	—	—		—	—		1,365		—		—		—		1,365
Vesting of restricted stock units, net of shares withheld for taxes	91	—		—	—		(6,458)		—		—		—		(6,458)
Conversion of Class B stock to Class A stock	58	—		(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, 2020	16,670	$	2	17,536	$	2	$	156,513	$	165	$	(25,756)	$	(6,051)	$	124,875
Exercise of stock options	32	—		—	—		232		—		—		—		232
Stock-based compensation	—	—		—	—		3,406		—		—		—		3,406
Vesting of restricted stock units, net of shares withheld for taxes	50	—		—	—		(3,232)		—		—		—		(3,232)
Conversion of Class B stock to Class A stock	197	—		(197)	—		—		—		—		—		—
Issuance of restricted stock awards	3	—		—	—		—		—		—		—		—
Other comprehensive loss	—	—		—	—		—		(34)		—		—		(34)
Net income	—	—		—	—		—		—		—		19,257		19,257
Balance as of June 30, 2020	16,952	$	2	17,339	$	2	$	156,919	$	131	$	(25,756)	$	13,206	$	144,504
Exercise of stock options	10	—		—	—		74		—		—		—		74
Stock-based compensation	—	—		—	—		3,572		—		—		—		3,572
Vesting of restricted stock units, net of shares withheld for taxes	12	—		—	—		(1,269)		—		—		—		(1,269)
Conversion of Class B stock to Class A stock	1,057	—		(1,057)	—		—		—		—		—		—
Other comprehensive loss	—	—		—	—		—		(41)		—		—		(41)
Net income	—	—		—	—		—		—		—		137,676		137,676
Balance as of September 30, 2020	18,031	$	2	16,282	$	2	$	159,296	$	90	$	(25,756)	$	150,882	$	284,516

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)

	Nine Months Ended September 30,
	2021		2020
Cash from operating activities
Net income	$	2,359	$	158,916
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	22,844		19,751
Amortization of operating lease right-of-use assets	2,312		2,973
Deferred income taxes	(6,394)		22,878
Stock-based compensation	10,053		6,808
Gain on sale of business	(380)		(187,636)
Other	89		170

Changes in operating assets and liabilities:
Accounts receivable	(1,350)		(2,229)
Prepaid expenses and other current assets	(3,558)		(859)
Other assets	(1,181)		(320)
Accounts payable	1,384		695
Accrued employee expenses—current	6,335		1,919
Accrued expenses	(1,426)		5,931
Deferred revenue	(302)		815
Income tax payable	(8,909)		—

Accrued employee expenses—noncurrent	2,059		—
Operating lease liabilities	1,995		(1,135)
Other liabilities	529		16,539
Net cash provided by operating activities	26,459		45,216
Cash from investing activities
Purchases of available-for-sale investments	(167,041)		(29,879)
Proceeds from sales of available-for-sale investments	43,198		13,942
Proceeds from maturities of available-for-sale investments	73,754		13,300
Purchases of property, equipment and intangible assets	(5,166)		(16,551)
Capitalization of software development costs	(18,511)		(19,697)

Proceeds from sale of business, net of cash divested	—		191,427

Net cash (used in) provided by investing activities	(73,766)		152,542
Cash from financing activities
Proceeds from stock option exercises	791		402


Tax withholding for net share settlement	(9,303)		(10,959)

Payment of contingent consideration	—		(5,977)
Proceeds from issuance of debt	—		50,752
Principal payments on debt	—		(99,565)

Purchase of treasury stock	—		(4,194)
Net cash used in financing activities	(8,512)		(69,541)

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

	Nine Months Ended September 30,
	2021		2020
Net (decrease) increase in cash, cash equivalents and restricted cash	(55,819)		128,217
Cash, cash equivalents and restricted cash
Beginning of period	140,699		16,247
End of period	$	84,880	$	144,464







Noncash investing and financing activities
Purchases of property and equipment included in accounts payable and accrued expenses	$	886	$	1,748
Capitalization of software development costs included in accrued expenses and accrued employee expenses	945		756
Stock-based compensation capitalized for software development	1,952		1,535

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,
	2021		2020
Cash and cash equivalents	$	84,444	$	144,028
Restricted cash included in other assets	436		436
Total cash, cash equivalents and restricted cash	$	84,880	$	144,464

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.

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 nine months ended September 30, 2021 are not necessarily indicative of the results expected for the full year ending December 31, 2021.

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 September 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 (Loss) Income per Common Share

Net (loss) 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 (loss) income per common share (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Weighted average common shares outstanding	34,620	34,301	34,530	34,246
Less: Weighted average unvested restricted shares subject to repurchase	6	5	5	5
Weighted average common shares outstanding; basic	34,614	34,296	34,525	34,241






Plus: Weighted average options, restricted stock units and restricted shares used to compute diluted net (loss) income per common share	—	1,369	1,170	1,421
Weighted average common shares outstanding; diluted	34,614	35,665	35,695	35,662

For the three and nine months ended September 30, 2021 and 2020, an aggregate of 127,000 and 130,000 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 nine months ended September 30, 2021 and 2020. Because we reported a net loss for the three months ended September 30, 2021, all potentially dilutive common shares are anti-dilutive for that period and have been excluded from the calculation of net loss per share.

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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 was refundable to the Company to the extent that MyCase employees were terminated prior to the retention period, which was 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 (loss) income, net in our Condensed Consolidated Statements of Operations during the three months ended September 30, 2020. No income was received during the three months ended September 30, 2021 in relation to the transition services provided by us to MyCase. Income received during the nine months ended September 30, 2021 in relation to the transition services provided by us to MyCase was $0.7 million, and is included within Other (loss) income, 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 September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Corporate bonds	$	59,445	$	4	$	(6)	$	59,443
Agency securities	7,837		6		—		7,843

Treasury securities	18,037		8		(10)		18,035
Total available-for-sale investment securities	$	85,319	$	18	$	(16)	$	85,321


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Agency securities	$	17,104	$	29	$	(1)	$	17,132


Treasury securities	17,847		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 September 30, 2021 or December 31, 2020.

As of September 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):


	September 30, 2021				December 31, 2020
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	76,022	$	76,034	$	28,197	$	28,256
Due after one year through three years	9,297		9,287		6,754		6,770
Total available-for-sale investment securities	$	85,319	$	85,321	$	34,951	$	35,026

During the nine months ended September 30, 2021 and 2020, we had sales and maturities (which include calls) of investment securities, as follows (in thousands):


	Nine Months Ended September 30, 2021
	Gross Realized Gains		Gross Realized Losses		Gross Proceeds from Sales		Gross Proceeds from Maturities
Corporate bonds	$	—	$	—	$	—	$	2,800
Agency securities	—		—		—		9,250

Treasury securities	6		—		43,198		61,704
Total	$	6	$	—	$	43,198	$	73,754

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	Nine Months Ended September 30, 2020
	Gross Realized Gains		Gross Realized Losses		Gross Proceeds from Sales		Gross Proceeds from Maturities
Corporate bonds	$	5	$	—	$	4,006	$	5,600
Agency securities	25		—		7,878		1,900

Treasury securities	4		—		2,058		5,800
Total	$	34	$	—	$	13,942	$	13,300

Interest income, net of the amortization and accretion of the premium and discount, was $0.1 million for each of the three months ended September 30, 2021 and 2020, and $0.2 million and $0.3 million for the nine months ended September 30, 2021 and 2020, respectively.

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 September 30, 2021 and December 31, 2020 by level within the fair value hierarchy (in thousands):


	September 30, 2021
	Level 1		Level 2		Level 3		Total Fair Value
Cash equivalents:
Money market funds	$	6,166	$	—	$	—	$	6,166
Treasury securities	40,498		—		—		40,498

Available-for-sale investment securities:
Corporate bonds	—		59,443		—		59,443
Agency securities	—		7,843		—		7,843

Treasury securities	18,035		—		—		18,035
Total	$	64,699	$	67,286	$	—	$	131,985


	December 31, 2020
	Level 1		Level 2		Level 3		Total Fair Value
Cash equivalents:
Money market funds	$	4,749	$	—	$	—	$	4,749
Treasury securities	97,433		—		—		97,433
Available-for-sale investment securities:

Agency securities	—		17,132		—		17,132

Treasury securities	17,894		—		—		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 nine months ended September 30, 2021. The valuation techniques for the financial assets in the tables above are as follows:

Cash Equivalents

As of September 30, 2021 and December 31, 2020, cash equivalents include cash invested in money market funds 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 nine months ended September 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):


	September 30, 2021		December 31, 2020
Capitalized software development costs, gross	$	118,000	$	96,974
Less: Accumulated amortization	(77,289)		(61,515)
Capitalized software development costs, net	$	40,711	$	35,459

Capitalized software development costs were $7.0 million and $6.9 million for the three months ended September 30, 2021 and 2020, respectively, and $21.0 million and $20.8 million for the nine months ended September 30, 2021 and 2020, respectively. Amortization expense with respect to capitalized software development costs totaled $5.5 million and $4.7 million for the three months ended September 30, 2021 and 2020, respectively, and $15.8 million and $13.3 million for the nine months ended September 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	$	5,518
2022	19,706
2023	11,676
2024	3,811
Total amortization expense	$	40,711

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6. Intangible Assets, net

Intangible assets consisted of the following (in thousands, except years):


	September 30, 2021
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted Average Useful Life in Years
Customer relationships	$	2,840	$	(1,892)	$	948	5.0
Database	8,330		(2,411)		5,919		10.0
Technology	6,539		(4,749)		1,790		4.0
Trademarks and trade names	1,890		(1,029)		861		5.0
Partner relationships	680		(680)		—		3.0
Non-compete agreements	7,400		(4,074)		3,326		5.0
Domain names	90		(74)		16		5.0
Patents	252		(248)		4		5.0

Total intangible assets, net	$	28,021	$	(15,157)	$	12,864	6.3


	December 31, 2020
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted Average Useful Life in Years
Customer relationships	$	2,840	$	(1,550)	$	1,290	5.0
Database	8,330		(1,787)		6,543		10.0
Technology	6,539		(3,641)		2,898		4.0
Trademarks and trade names	1,890		(732)		1,158		5.0
Partner relationships	680		(680)		—		3.0
Non-compete agreements	7,400		(2,964)		4,436		5.0
Domain names	90		(70)		20		5.0
Patents	252		(240)		12		5.0

Total intangible assets, net	$	28,021	$	(11,664)	$	16,357	6.3

Amortization expense with respect to intangible assets totaled $1.2 million for the three months ended September 30, 2021 and 2020, and $3.5 million and $3.7 million for the nine months ended September 30, 2021 and 2020, respectively. Future amortization expense with respect to intangible assets is estimated as follows (in thousands):


Years Ending December 31,
2021	$	1,153
2022	4,605
2023	3,060
2024	835
2025	833
Thereafter	2,378
Total amortization expense	$	12,864

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7. Accrued Employee Expenses

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


	September 30, 2021		December 31, 2020
Accrued vacation	$	10,374	$	8,277
Accrued bonuses	7,196		5,638
Accrued commissions	1,968		1,995
Accrued payroll	5,206		1,921
Accrued payroll taxes and other	1,041		1,057
Total accrued employee expenses—current	$	25,785	$	18,888

Accrued employee expenses—noncurrent	$	2,059	$	—

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 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 first quarter of 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. As of September 30, 2021, there is $0.8 million and $2.0 million in Accrued employee expenses-current and Accrued employee expenses-noncurrent, respectively, in the Condensed Consolidated Balance Sheet related to the Plans.

8. Leases

Operating leases for our corporate offices have remaining lease terms ranging from two to eleven years, some of which include options to extend the leases for up to ten years. These options to extend have not been recognized as part of our operating lease right-of-use assets and lease liabilities as it is not reasonably certain that we will exercise these options. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. 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 components of lease expense recognized in the Condensed Consolidated Statements of Operations were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Operating lease cost	$	1,459	$	1,300	$	3,756	$	4,148
Variable lease cost	388		395		1,088		1,187
Total lease cost	$	1,847	$	1,695	$	4,844	$	5,335

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Lease-related assets and liabilities were as follows as of September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021		December 31, 2020
Assets
Prepaid expenses and other current assets	$	5,635	$	3,972
Operating lease right-of-use assets	42,597		30,561

Liabilities
Other current liabilities	$	1,775	$	1,845
Operating lease liabilities	56,559		40,146
Total lease liabilities	$	58,334	$	41,991

Future minimum lease payments under non-cancellable leases as of September 30, 2021 were as follows (in thousands):


Years ending December 31,
2021(1)	$	(4,462)
2022(1)	3,980
2023(1)	5,281
2024(1)	6,161
2025	6,837
Thereafter	49,317
Total future minimum lease payments	67,114
Less: imputed interest	(14,415)
Total(2)	$	52,699

(1) Future minimum lease payments for the years ending December 31, 2021, 2022, 2023, and 2024 are presented net of tenant improvement allowances of $5.7 million, $1.0 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 $5.6 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.

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 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 September 30, 2021 and December 31, 2020 was $1.7 million and $1.5 million, respectively, and is included in Other current liabilities on our Condensed Consolidated Balance Sheets.

Included in Prepaid expenses and other current assets as of September 30, 2021 and December 31, 2020 are $1.9 million and $2.7 million, respectively, of deposits held with a third party related to requirements to maintain collateral for this insurance service.

Legal Proceedings

From time to time we may become involved in various legal proceedings, investigative inquiries, and other disputes arising from or related to matters incident to the ordinary course of our business activities. We are not currently a party to any legal proceedings, nor are we aware of any pending or threatened legal proceedings, that would have a material adverse effect on our business, operating results, cash flows or financial condition should such proceedings be resolved unfavorably.

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Indemnification

In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, 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 is 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 September 30, 2021 and December 31, 2020, we have not accrued a liability for these indemnification arrangements because we determined that the likelihood of incurring a payment obligation, if any, in connection with these indemnification arrangements is not probable or reasonably possible and the amount or range of amounts of any such liability is not reasonably estimable.

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 three 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, which 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 Repurchase 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 nine months ended September 30, 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, 2020	1,168	$	11.77	5.0
Options granted	—	—
Options exercised	(149)	5.32
Options cancelled/forfeited	—	—
Options outstanding as of September 30, 2021	1,019	$	12.71	3.0

Our stock-based compensation expense for stock options for the three and nine months ended September 30, 2021 and 2020 was not material.

The fair value of stock options is estimated on their date of grant using the Black-Scholes option-pricing model. No stock options were granted during the nine months ended September 30, 2021 or 2020.

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Restricted Stock Units

A summary of activity in connection with our RSUs for the nine months ended September 30, 2021, is as follows (number of shares in thousands):


	Number of Shares	Weighted Average Grant Date Fair Value per Share
Unvested as of December 31, 2020	483	$	80.20
Granted	301	137.94
Vested	(166)	61.85
Forfeited	(37)	106.01
Unvested as of September 30, 2021	581	$	113.67

During the nine months ended September 30, 2021, we granted 255,000 RSUs that are subject to time-based vesting in equal annual installments over four years, and 46,000 PSUs that are subject to vesting based on the achievement of pre-established consolidated net revenue growth targets for the years ending December 31, 2022 and 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 0% and 65% of the initial target awards.

During the nine months ended September 30, 2021, 50,000 PSUs vested based on the achievement of 106% of the pre-established consolidated net revenue growth performance target for the year ended December 31, 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 September 30, 2021 are 45,000, 12,000, 30,000 and 32,000 PSUs granted in 2021, 2020, 2019 and 2018, respectively. Of these PSUs, 43,000 are subject to vesting based on the achievement of a pre-established consolidated net revenue growth target for each of the years ending December 31, 2021 and December 31, 2022, and 33,000 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 0% and 65% of the initial target awards.

We recognize expense for 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 RSUs and PSUs for the three months ended September 30, 2021 and 2020 was $4.6 million and $3.4 million, respectively, and $11.4 million and $7.8 million for the nine months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 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 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 three and nine months ended September 30, 2021 was $0.2 million and $0.7 million, respectively.

As of September 30, 2021, the total estimated remaining stock-based compensation expense for the aforementioned RSUs and PSUs was $47.2 million, which is expected to be recognized over a weighted average period of 2.6 years.

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Restricted Stock Awards

A summary of activity in connection with our restricted stock awards for the nine months ended September 30, 2021 is as follows (number of shares in thousands):


	Number of Shares	Weighted Average Grant Date Fair Value per Share
Unvested as of December 31, 2020	5	$	153.41
Granted	4	144.33
Vested	(3)	160.34
Forfeited	—	—
Unvested as of September 30, 2021	6	$	143.74

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 million for each of the three months ended September 30, 2021 and 2020, and $0.6 million and $0.5 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, the total estimated remaining stock-based compensation expense for unvested restricted stock awards with a repurchase right was $0.5 million, which is expected to be recognized over a weighted average period of 0.7 years.

12. Income Taxes

We calculate our (benefit from) provision for 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 nine months ended September 30, 2021, we recorded an income tax benefit of $0.2 million and $6.0 million, respectively. 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 taxable income/loss for the year.

For the three and nine months ended September 30, 2020, we recorded income tax expense of $52.6 million and $39.5 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 filed 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 taxable income for the year.

There were no material changes to our unrecognized tax benefits during the nine months ended September 30, 2021 and we do not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.

As of September 30, 2021, we have approximately $5.0 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.

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13. Revenue and Other Information

The following table presents our revenue categories for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Core solutions	$	26,920	$	27,117	$	76,457	$	78,080
Value+ services	65,578		53,392		177,535		149,122
Other	3,311		3,577		9,778		10,422
Total revenue	$	95,809	$	84,086	$	263,770	$	237,624

Our revenue is generated primarily from customers in the United States. All of our property and equipment is located in the United States.

Deferred Revenue

During the nine months ended September 30, 2021 and 2020, we recognized $2.1 million and $4.3 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 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

We provide 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.

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In 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 investment 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 operators, who typically manage single- and multi-family residential properties, and others who manage community association, and commercial properties. Our solutions and services also serve other constituencies in the property 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, and the level of adoption and utilization of Value+ services by the customer and users. 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.

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 core solutions.


	Quarter Ended
		September 30,	June 30,	March 31,	December 31,	September 30,	June 30,	March 31,
		2021			2020
Property manager customers		16,844	16,532	16,178	15,724	15,352	15,011	14,729
Property manager units under management (in millions)		6.04	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 our business to capitalize on our market opportunity by working closely with our customers, prospects, partners and other industry participants to inform our product strategy. Over the long-term, these investments 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, but this trend may be interrupted from time to time as a result of accelerated investment opportunities occurring in advance of realization of revenue.

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We rely heavily on our talented team of employees to execute our growth plans and achieve our long-term strategic objectives. We believe our people are at the heart of our success and our customers' success, and we have worked hard not only to attract and retain talented individuals, but also to provide a challenging and rewarding environment to motivate and develop our valuable human capital. Beginning in March 2020, in an effort to protect our employees and comply with applicable government orders, we 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 are slowly transitioning employees back to the workplace on a voluntary basis and have resumed limited employee business travel. Given the ongoing uncertainties surrounding COVID-19, we have pushed our return to office into 2022 and will continue to provide employees the option to work remotely until further notice. If the COVID-19 pandemic once again requires full remote working conditions or otherwise continues to slow 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 objectives. We take the health and welfare of our people very seriously. We have encouraged, and will continue to encourage, safe practices designed to stem the infection and spread of COVID-19 within our workforce and beyond and to maintain the mental health and well-being of our employees. While the COVID-19 pandemic may have long-term effects on the nature of the office environment and remote working, which may present operational and workplace culture challenges that may adversely affect our business, we are committed to our employees returning to the workplace in the long-term.

During the nine months ended September 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 (the "MyCase Transaction"). In connection with the MyCase Transaction, our credit facility was terminated and all obligations outstanding under our term and 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. For additional details, see Note 3, Divestitures of our Condensed Consolidated Financial Statements in this Quarterly Report.

Key Components of Results of Operations

Revenue

Our core solutions and certain of our Value+ 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 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. We generally invoice monthly or annually in advance of the subscription period.

We also offer Value+ services, which are not covered by our subscription fees, 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 usage-based services on a monthly basis or collect the fee at the time of service. A significant majority of our Value+ services revenue comes directly and indirectly from the use of our electronic payment services, tenant screening services, and insurance services. Usage-based fees are paid either by customers or by users.

We charge our customers for on-boarding assistance to our core solutions and certain other non-reoccurring services. We generally invoice for these other services in advance of the services being completed and recognize revenue upon completion of the related service. We generate revenue from the standalone customers of previously acquired businesses such as WegoWise and Dynasty, by providing services outside of our property management core solution platform. Revenue derived from these services is recorded in Other revenue.

Costs and Operating Expenses

Cost of Revenue. Many of our Value+ services are facilitated by third-party service providers. Cost of revenue includes the fees paid to these third-party service providers (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 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 costs. Cost of revenue excludes depreciation of property and equipment, and amortization of capitalized software development costs and intangible assets.

Sales and Marketing. 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), 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

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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.

Research and Product Development. Research and product development expense consists of personnel-related costs for our employees focused on research and product development (including salaries, performance-based compensation, benefits, and stock-based compensation), fees for third-party development resources, and allocated shared and other costs. Our research and product development efforts are focused on enhancing functionality and the ease of use 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.

General and Administrative. General and administrative expense consists of personnel-related costs for employees in our executive, finance, information technology, human resources, legal, compliance, corporate development and administrative 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.

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.

Other (Loss) Income, Net. Other (loss) income, net includes gains and losses associated with the sale of property, equipment and investment securities, as well as income from certain post-closing transition services provided by us to MyCase in connection with the MyCase Transaction.

Interest Income (Expense), Net. Interest expense includes interest paid on any outstanding 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.

(Benefit from) Provision for Income Taxes. (Benefit from) Provision for 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,
	2021				2020				2021				2020
	Amount		%		Amount		%		Amount		%		Amount		%
Consolidated Statements of Operations Data:
Revenue	$	95,809	100.0	%	$	84,086	100.0	%	$	263,770	100.0	%	$	237,624	100.0	%
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization) (1)	38,730		40.4		32,752		39.0		104,847		39.7		89,124		37.5
Sales and marketing (1)	19,362		20.2		14,894		17.7		53,255		20.2		43,117		18.1
Research and product development (1)	16,500		17.2		13,454		16.0		46,389		17.6		36,794		15.5
General and administrative (1)	13,404		14.0		12,946		15.4		40,971		15.5		36,303		15.3
Depreciation and amortization	7,826		8.2		6,680		7.9		22,844		8.7		19,751		8.3
Total costs and operating expenses	95,822		100.0		80,726		96.0		268,306		101.7		225,089		94.7
(Loss) income from operations	(13)		—		3,360		4.0		(4,536)		(1.7)		12,535		5.3
Other (loss) income, net	(353)		(0.4)		187,747		223.3		705		0.3		187,759		79.0
Interest income (expense), net	65		0.1		(853)		(1.0)		173		0.1		(1,909)		(0.8)
(Loss) income before (benefit from) provision for income taxes	(301)		(0.3)		190,254		226.3		(3,658)		(1.4)		198,385		83.5
(Benefit from) provision for income taxes	(160)		(0.2)		52,578		62.5		(6,017)		(2.3)		39,469		16.6
Net (loss) income	$	(141)	(0.1)	%	$	137,676	163.7	%	$	2,359	0.9	%	$	158,916	66.9	%

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Stock-based compensation expense included in costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)	$	575	$	452	$	1,509	$	1,098
Sales and marketing	738		367		1,587		1,069
Research and product development	1,451		474		3,522		1,348
General and administrative	1,299		1,803		3,435		3,293
Total stock-based compensation expense	$	4,063	$	3,096	$	10,053	$	6,808

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Comparison of the Three and Nine Months Ended September 30, 2021 and 2020

Revenue


	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
	2021		2020		Amount		%		2021		2020		Amount		%
	(dollars in thousands)
Core solutions	$	26,920	$	27,117	$	(197)	(1)	%	$	76,457	$	78,080	$	(1,623)	(2)	%
Value+ services	65,578		53,392		12,186		23	%	177,535		149,122		28,413		19	%
Other	3,311		3,577		(266)		(7)	%	9,778		10,422		(644)		(6)	%
Total revenue	$	95,809	$	84,086	$	11,723	14	%	$	263,770	$	237,624	$	26,146	11	%

Revenue for the three months ended September 30, 2021 and 2020, was $95.8 million and $84.1 million, respectively, an increase of $11.7 million, or 14%. This increase was primarily attributable to the growth in the number of property management customers and units under management utilizing our software and services. Revenue in 2020 includes $9.5 million attributable to our legacy legal vertical. Excluding this amount, revenue derived from our software and solutions offered to the real estate vertical for the three months ended September 30, 2021 and 2020 increased $21.2 million, or 28%. Revenue for the nine months ended September 30, 2021 and 2020, was $263.8 million and $237.6 million, respectively, an increase of $26.1 million, or 11%. This increase was primarily attributable to the growth in the number of property management customers and units under management utilizing our software and services. Revenue in 2020 includes $25.3 million attributable to our legacy legal vertical. Excluding this amount, revenue derived from our software and solutions offered to the real estate vertical for the nine months ended September 30, 2021 and 2020 increased $51.5 million, or 24%.

Core solutions revenue derived from our real estate vertical for the three months ended September 30, 2021 and 2020 was $26.9 million and $22.0 million, respectively, an increase of $4.9 million or 23%. Core solutions revenue derived from our real estate vertical for the nine months ended September 30, 2021 and 2020 was $76.5 million and $63.7 million, respectively, an increase of $12.8 million or 20%.

Value+ services revenue derived from our real estate vertical for the three months ended September 30, 2021 and 2020 was $65.6 million and $49.1 million, respectively, an increase of $16.5 million or 34%. Value+ services revenue derived from our real estate vertical for the nine months ended September 30, 2021 and 2020 was $177.5 million and $138.2 million, respectively, an increase of $39.3 million or 28%. These increases in core solutions and Value+ services revenue for the three and nine months ended September 30, 2021 and 2020 were mainly attributable to growth in our base of property management customers and growth in users of our subscription and usage-based services. During the three and nine month periods we experienced growth of 18% and 17%, respectively, in the average number of property management units under management resulting from 10% growth in the average number of property management customers during each of the periods.

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 units under management. A significant majority of our Value+ services revenue comes directly and indirectly from the use of our electronic payment services, tenant screening services, and the insurance services we make available to customers.

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Cost of Revenue (Exclusive of Depreciation and Amortization)


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2021			2020			Amount		%		2021			2020			Amount		%
	(dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization)	$	38,730		$	32,752		$	5,978	18	%	$	104,847		$	89,124		$	15,723	18	%
Percentage of revenue	40.4		%	39.0		%					39.7		%	37.5		%

Cost of revenue (exclusive of depreciation and amortization) related to our software and solutions offered to the real estate vertical for the three months ended September 30, 2021 and 2020 was $38.7 million and $29.3 million, respectively, an increase of $9.4 million, or 32%. This increase was primarily attributable to increased costs associated with servicing the incremental $21.2 million in revenue over the same period. The remaining cost of revenue in 2020 was attributed to our legacy legal vertical.

For the three months ended September 30, 2021 and 2020, expenditures to third-party service providers related to the delivery of our Value+ services to the real estate vertical increased $5.8 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the $16.5 million increase in Value+ services revenue to the real estate vertical. Personnel-related costs, including performance-based compensation, necessary to support growth and key investments, increased $2.3 million. Allocated shared and other costs increased by $1.3 million primarily driven by increases in software, payment processing and other costs incurred in support of our overall growth.

Cost of revenue (exclusive of depreciation and amortization) related to our software and solutions offered to the real estate vertical for the nine months ended September 30, 2021 and 2020 was $104.7 million and $80.0 million, respectively, an increase of $24.7 million, or 31%. This increase was primarily attributable to increased costs associated with servicing the incremental $51.5 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 (loss) income, net.

For the nine months ended September 30, 2021 and 2020, expenditures to third-party service providers related to the delivery of our Value+ services to the real estate vertical increased $15.2 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the $39.3 million increase in Value+ services revenue to the real estate vertical. Personnel-related costs, including performance-based compensation, necessary to support growth and key investments, increased $7.1 million. Allocated shared and other costs increased by $2.4 million primarily driven by a $2.8 million increase in software, payment processing and other costs incurred in support of our overall growth, partially offset by a $0.4 million reduction of expenses attributed to a decrease in workplace-related and other 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 of Value+ services revenue 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. For the three months ended September 30, 2021, cost of revenue (exclusive of depreciation and amortization), as a percentage of revenue, increased to 40.4% from 39.3% for the three months ended September 30, 2020, and increased to 39.7% from 37.7% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

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Sales and Marketing


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2021			2020			Amount		%		2021			2020			Amount		%
	(dollars in thousands)
Sales and marketing	$	19,362		$	14,894		$	4,468	30	%	$	53,255		$	43,117		$	10,138	24	%
Percentage of revenue	20.2		%	17.7		%					20.2		%	18.1		%

Sales and marketing expense related to our software and solutions offered to the real estate vertical for the three months ended September 30, 2021 and 2020 was $19.4 million and $13.1 million, respectively, an increase of $6.3 million, or 48%. This increase was primarily due to a $3.6 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 $2.0 million due in part from lower spending in 2020 from the cancellation or postponement of in person events and the reduction of online marketing spend, as well as increased advertising and promotion spending in 2021 to support the growth and key investments in the business in 2021 and beyond. In addition, there was an increase in allocated shared and other costs of $0.8 million primarily driven by increases in software and other costs incurred in support of our overall growth. The remaining sales and marketing expense in 2020 was attributed to our legacy legal vertical.

Sales and marketing expense related to our software and solutions offered to the real estate vertical for the nine months ended September 30, 2021 and 2020 was $53.1 million and $37.3 million, respectively, an increase of $15.8 million, or 42%. This increase was primarily due to an $8.5 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 $6.2 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 advertising and promotion spending in 2021 to support the growth and key investments in the business in 2021 and beyond. In addition, there was an increase in allocated shared and other costs of $1.1 million primarily related to 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 (loss) income, net.

As a percentage of revenue, sales and marketing expense increased to 20.2% from 17.6% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and increased to 20.1% from 17.6% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 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.

Research and Product Development


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2021			2020			Amount		%		2021			2020			Amount		%
	(dollars in thousands)
Research and product development	$	16,500		$	13,454		$	3,046	23	%	$	46,389		$	36,794		$	9,595	26	%
Percentage of revenue	17.2		%	16.0		%					17.6		%	15.5		%

Research and product development expense related to our software and solutions offered to the real estate vertical for the three months ended September 30, 2021 and 2020 was $16.5 million and $11.7 million, respectively, an increase of $4.8 million, or 41%. This increase was the result of an increase in personnel-related costs, including performance based compensation, net of capitalized software development costs, of $4.1 million due to investments in headcount growth within our research and product development organization. Allocated shared and other costs increased by $0.7 million primarily related to software and other costs to support our overall growth. The remaining research and development expense for 2020 was attributed to our legacy legal vertical.

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Research and product development expense related to our software and solutions offered to the real estate vertical for the nine months ended September 30, 2021 and 2020 was $46.3 million and $32.3 million, respectively, an increase of $14.0 million, or 43%. This increase was the result of an increase in personnel-related costs, including performance based compensation, net of capitalized software development costs, of $13.3 million due to investments in headcount growth within our research and product development organization. Allocated shared and other costs increased $0.7 million primarily related to software and other costs 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 Other (loss) income, net.

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General and Administrative


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2021			2020			Amount		%		2021			2020			Amount		%
	(dollars in thousands)
General and administrative	$	13,404		$	12,946		$	458	4	%	$	40,971		$	36,303		$	4,668	13	%
Percentage of revenue	14.0		%	15.4		%					15.5		%	15.3		%

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 September 30, 2021 and 2020 was $13.4 million and $12.0 million, respectively, an increase of $1.4 million, or 12%. The increase in general and administrative expense was primarily due to an increase of $1.9 million in personnel related costs due to investments in headcount growth within our general and administrative organizations, a $1.3 million increase in connection with long-term executive cash incentive plans for certain executives, including certain of our named executive officers, and a $1.1 million increase in allocated shared and other costs to support our overall growth. We expect to incur additional expense in future periods under the long-term executive cash incentive plans throughout the remaining service periods. These increases were offset by a $1.9 million insurance recovery related to our previously disclosed settlement with the Federal Trade Commission (the "FTC") and a $1.0 million decrease in legal fees related to the MyCase Transaction. The remaining general and administrative expense for 2020 was attributed to our legacy legal vertical.

General and administrative expense related to our software and solutions offered to the real estate vertical and general corporate overhead expenses for the nine months ended September 30, 2021 and 2020 was $41.0 million and $35.0 million, respectively, an increase of $6.0 million, or 17%. The increase in general and administrative expense was primarily due to a $7.1 million increase in personnel-related costs for investments in headcount, a $2.0 million expense in connection with long-term executive cash incentive plans for certain executives, $1.0 million expense related to severances, and an increase of $3.0 million in allocated shared and other costs for professional fees, education and training, insurance, software and other costs to support our overall growth. These increases were offset by a $1.9 million insurance recovery received during the nine months ended September 30, 2021 and a decrease in legal costs of $5.3 million related to our $4.3 million settlement with the FTC and a decrease in legal fees of $1.0 million related to the MyCase transaction during the nine months ended September 30, 2020. The remaining general and administrative expense for 2020 was attributed to our legacy legal vertical and such costs for 2021 were reimbursed through our ongoing Transition Services Agreement and recorded in Other (loss) income, net.

Depreciation and Amortization


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2021			2020			Amount		%		2021			2020			Amount		%
	(dollars in thousands)
Depreciation and amortization	$	7,826		$	6,680		$	1,146	17	%	$	22,844		$	19,751		$	3,093	16	%
Percentage of revenue	8.2		%	7.9		%					8.7		%	8.3		%

Depreciation and amortization expense related to our software and solutions offered to the real estate vertical for the three months ended September 30, 2021 and 2020 was $7.8 million and $6.2 million, respectively, an increase of $1.6 million, or 26%. Depreciation and amortization expense related to our software and solutions offered to the real estate vertical for the nine months ended September 30, 2021 and 2020 was $22.8 million and $18.0 million, respectively, an increase of $4.8 million, or 27%. These increases in depreciation and amortization expense were primarily due to increased amortization expense associated with higher accumulated capitalized software development balances. The remaining depreciation and amortization expense for 2020 was attributed to our legacy legal vertical.

Other (Loss) Income, net


	Three Months Ended September 30,						Change			Nine Months Ended September 30,						Change
	2021			2020			Amount		%	2021			2020			Amount		%
	(dollars in thousands)
Other (loss) income, net	$	(353)		$	187,747		$	(188,100)	*	$	705		$	187,759		$	(187,054)	*
Percentage of revenue	(0.4)		%	223.3		%				0.3		%	79.0		%

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*Percentage change not meaningful

Other loss, net related to our software and solutions offered to the real estate vertical for the three months ended September 30, 2021 was $0.4 million compared to other income of $187.7 million for the three months ended September 30, 2020, a decrease of $188.1 million. The decrease in other (loss) income, net was primarily due to the gain of $187.6 million associated with the MyCase Transaction in September 2020.

Other income, net related to our software and solutions offered to the real estate vertical for the nine months ended September 30, 2021 and 2020 was $0.7 million and $187.8 million, respectively, a decrease of $187.1 million. The decrease in other income, net was primarily due to the gain of $187.6 million associated with the MyCase Transaction in September 2020. The decrease was offset by $0.7 million in other income recorded during the nine months ended September 30, 2021 related to certain post-closing transition services provided to MyCase, and $0.4 million in other income recorded during the nine months ended September 30, 2021 related to post-closing adjustments to the sales price of MyCase.

(Benefit from) Provision for Income Taxes


	Three Months Ended September 30,						Change			Nine Months Ended September 30,						Change
	2021			2020			Amount		%	2021			2020			Amount		%
	(dollars in thousands)
(Benefit from) provision for income taxes	$	(160)		$	52,578		$	(52,738)	*	$	(6,017)		$	39,469		$	(45,486)	*
Percentage of revenue	(0.2)		%	62.5		%				(2.3)		%	16.6		%

*Percentage not meaningful

For the three and nine months ended September 30, 2020 we recorded an income tax expense of $52.6 million and $39.5 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.

Liquidity and Capital Resources

Our principal sources of liquidity continue to be comprised of our cash, cash equivalents, investment securities, as well as cash flows generated from our operations. As of September 30, 2021, our cash, cash equivalents, and investment securities had an aggregate balance of $169.8 million. We have financed our operations primarily through cash generated from 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 twelve months.

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,
	2021		2020
Net cash provided by operating activities	$	26,459	$	45,216
Net cash (used in) provided by investing activities	(73,766)		152,542
Net cash used in financing activities	(8,512)		(69,541)
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(55,819)	$	128,217

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 nine months ended September 30, 2021, net cash provided by operating activities was $26.5 million resulting from income of $2.4 million, non-cash charges of $28.5 million and a net decrease in our operating assets and liabilities of $4.4 million. The non-cash charges primarily consist of $22.8 million of depreciation and amortization costs, stock-based compensation expense of $10.1 million, a decrease in deferred taxes of $6.4 million, and $2.3 million of amortization of operating lease right-of-use ("ROU") assets. The net decrease in our operating assets and liabilities was mostly attributable to an $8.9 million decrease in income taxes payable primarily driven by income taxes paid due to the MyCase Transaction, a $3.6 million increase in prepaid expenses and other current assets primarily attributable to a $1.9 million insurance recovery received related to our previously disclosed settlement with the FTC, and an increase in prepaid expenses to support our overall growth, a $1.4 million decrease in accrued expenses which was primarily due to a $4.3 million legal expense accrued during the nine months ended September 30, 2020 and paid in the three months ended March 31, 2021 related to our settlement with the FTC, and a $1.4 million increase in accounts receivable primarily driven by growth of our Value+ services. These decreases were partially offset by a $6.3 million increase in accrued employee expenses-current primarily due to an increase in other short-term accrued management bonuses, an increase in payroll expense based on the number of days accrued, and an increase in accrued paid time off, a $2.0 million increase in operating lease liabilities, a $1.4 million increase in accounts payable, and a $2.1 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.

For the nine months ended September 30, 2020, net cash provided by operating activities was $45.2 million resulting from net income of $158.9 million, adjusted by the gain on the sale of MyCase of $187.6 million, non-cash charges of $52.6 million and a net increase in our operating assets and liabilities of $21.3 million. The non-cash charges primarily consist of an increase in deferred taxes of $22.9 million, $19.8 million of depreciation and amortization costs, stock-based compensation expense of $6.8 million, and $3.0 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 million increase in other liabilities primarily driven by income taxes payable due to the MyCase Transaction, a $5.9 million increase in accrued expenses which was primarily due to a $4.3 million accrual recorded during the current period related to our reasonable estimate of the probable loss associated with the FTC Investigation, a $1.9 million increase in accrued employee expenses primarily due to an increase in accrued paid time off, and a $0.8 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.

Cash (Used in) Provided by Investing Activities

Cash (used in) provided by investing activities is generally comprised of purchases of investment securities, maturities and sales of investment securities, purchases of property and equipment, and additions to capitalized software development.

For the nine months ended September 30, 2021, investing activities used $73.8 million in cash primarily due to purchases of investment securities of $167.0 million, capitalized software development costs of $18.5 million, and capital expenditures of $5.2 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 $43.2 million and $73.8 million, respectively.

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For the nine months ended September 30, 2020, investing activities provided $152.5 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 million, capitalized software development costs of $19.7 million, and capital expenditures of $16.6 million to purchase property and equipment for the continued growth and expansion of our business.

Cash Used in Financing Activities

Cash used in 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, activities associated with our former 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 nine months ended September 30, 2021, financing activities used $8.5 million in cash primarily as a result of net share settlements for employee tax withholdings associated with the vesting of RSUs of $9.3 million, offset by proceeds from stock option exercises of $0.8 million.

For the nine months ended September 30, 2020, 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.

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 September 30, 2021, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements and the related notes are prepared in accordance with 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.

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

Investment Securities

As of September 30, 2021, we had cash and cash equivalents of $84.4 million consisting of bank deposits, money market funds, and treasury securities, and $85.3 million of investment securities consisting of United States government agency securities, corporate bonds, and treasury securities. The primary objective of investing in securities is to support our liquidity and capital needs. We did not purchase these investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

Our investment securities are exposed to market risk due to interest rate fluctuations. While fluctuations in interest rates do not impact our interest income from our investment securities as all of these securities have fixed interest rates, changes in interest rates may impact the fair value of the investment securities. Since our investment securities are held as available for sale, all changes in fair value impact our other comprehensive income unless an investment security is considered impaired in which case changes in fair value are reported in other expense. As of September 30, 2021, a hypothetical 100 basis point decrease in interest rates would not have resulted in material change in the fair value of our investment 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 $0.4 million. This estimate is based on a sensitivity model which measures an instant change in interest rates by 100 basis points at September 30, 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 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.

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.

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 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 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 are slowly transitioning employees back to the workplace on a voluntary basis and have resumed employee business travel. Given the ongoing uncertainties surrounding COVID-19, we have pushed our return to office into 2022 and will continue to provide employees the option to work remotely until further notice. If the COVID-19 pandemic once again requires full remote working conditions or otherwise continues to slow 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 objectives. Furthermore, the COVID-19 pandemic may have long-term effects on the nature of 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. Our inability to meet in-person with current or prospective customers, or the cancellation or postponement of company-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 extent to which the COVID-19 pandemic will impact our business, financial conditions, and results of operations in the future is highly uncertain and will be affected by a number of factors. These include the duration and extent of the pandemic, the duration and extent of imposed or recommended containment and mitigation measures, the extent, duration, and 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 value, and not towards the realization of short-term metrics or short-term 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 value, the decisions we make may not produce the long-term benefits we expect. Our principal stockholders, some of whom also serve as our directors and executive officers, control a majority of the combined voting power of our outstanding capital stock. As a result, they control the election of a majority of our directors and thereby have the power to control our affairs and policies, including the appointment of management and strategic decisions, as well as matters that are submitted to a vote by our holders of our common stock. The interests of our principal stockholders may be inconsistent with or adverse to 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. 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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Our acquisition of other companies or technologies would subject us to 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 vertical, provide an opportunity to expand into an adjacent market or new vertical, or otherwise offer growth or strategic opportunities. For example, in the 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.

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 rights 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 the risk of 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.

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 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 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 created new data privacy and security rights for California residents and the Virginia Consumer Data Protection Act created new data privacy and security rights for Virginia 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, the Fair Housing Act, and related regulations. The FCRA continues 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 have the authority to promulgate rules and regulations that may impact our customers and our 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 was a reasonable basis for asserting claims against us for our alleged failure to comply with certain sections of the FCRA. Notwithstanding our disagreement with the FTC's position and vigorous defense of our position, primarily in an effort to avoid protracted litigation and potential distraction to our business, we entered into a settlement agreement with the FTC in an effort to resolve all claims and allegations arising out of or relating to the FTC Investigation. We admitted no wrongdoing in connection with the settlement, but paid $4.3 million to the FTC in connection therewith and are subject to ongoing compliance and reporting requirements. Our failure to comply with these requirements could result in additional penalties or other actions by the FTC or 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.

The vertical market in which we participate is 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 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 an evolving market. If the market is smaller than estimated or 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 vertical 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-based business management 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 disparate point solutions, the willingness of SMBs to transition from their existing software systems or otherwise alter their existing businesses practices, 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, 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-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 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 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.

We depend on cloud computing platforms and computing infrastructure operated by third parties and any disruption in these operations could adversely affect our operating results.

We currently rely on cloud computing resources operated by Amazon Web Services and other third party cloud computing service providers to power the products and services that we provide to our customers. These cloud computing service providers may experience service interruptions that are outside of our control, possibly even across multiple regions, which could adversely affect our 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 regional, or multi-regional, outage by any of our cloud computing service providers. Problems 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 customers, result in loss of or damage to our customers’ stored information, which could harm our reputation, impair our ability to attract and retain customers, and subject us to potential liability, any 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 technical, contractual, and other 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.

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 the 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.

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 potential future indebtedness that may adversely affect our financial condition and future financing agreements may contain restrictive operating and financial covenants.

We may 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 any 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 future indebtedness and meet our other business and customer obligations.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

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.

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Our business may be adversely affected by developments in the global economy, including if we seek to expand our sales to customers outside of the United States.

To date, we have realized an immaterial amount of revenue from customers outside the United States. We 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 seek 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. 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 September 30, 2021, the holders of the outstanding shares of our Class B common stock, including our executive officers, directors, and principal stockholders, collectively held approximately 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 control the election of a majority of our directors and thereby have the power to control our affairs and policies, including the appointment of management and strategic decisions, as well as matters that are submitted to a vote by our holders of our common stock. The interests of our principal stockholders may be inconsistent with or adverse to 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. 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 September 30, 2021, we had an aggregate of 1.0 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 September 30, 2021, we had 0.6 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 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.

Item 6. Exhibits


			Exhibit Number						Description of Document
			10.1						Employment agreement between the Company and Fay Sien Goon.
			31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
			31.2						Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
			32.1*						Certifications of Chief Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
			101.INS						Inline XBRL Instance Document.
			101.SCH						Inline XBRL Taxonomy Extension Schema Document.
			101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
			101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
			101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
			101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
			104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

			†						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:

November 8, 2021

By:

/s/ Jason Randall

Jason Randall

Chief Executive Officer

(Principal Executive Officer)

Date:

November 8, 2021

By:

/s/ Fay Sien Goon

Fay Sien Goon

Chief Financial Officer

(Principal Financial Officer)

Date:

November 8, 2021

By:

/s/ Ann Wilson

Ann Wilson

Vice President of Accounting

(Principal Accounting Officer)

Document

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of September 15, 2021, between AppFolio, Inc., a Delaware corporation (the “Company”), and Fay Sien Goon (the “Executive”).

W I T N E S S E T H

WHEREAS, the Company desires to employ the Executive as the Chief Financial Officer of the Company; and

WHEREAS, the Company and the Executive desire to enter into this Agreement as to the terms of the Executive’s employment with the Company.

NOW, THEREFORE, the parties to this Agreement agree as follows:

1.Employment Term. The Company agrees to employ the Executive pursuant to the terms of this Agreement, and the Executive agrees to be so employed, commencing as of October 18, 2021 (the “Effective Date”). The Executive’s employment may be terminated in accordance with Sections 8 and 9 of this Agreement. The period of time between the Effective Date and the termination of the Executive’s employment is the “Employment Term.”

2.Position and Duties.

(a)During the Employment Term, the Executive will serve as the Chief Financial Officer of the Company, reporting to the Company’s Chief Executive Officer. In this capacity, the Executive will have the duties, authorities and responsibilities as are consistent with the Executive’s position.

(b)During the Employment Term, the Executive shall devote all of the Executive’s business time, energy, business judgment, knowledge and skill and the Executive’s best efforts to the performance of the Executive’s duties with the Company. Notwithstanding the foregoing, the Executive may: (i) serve on the boards of directors of non-profit organizations and, in a manner consistent with the Company’s applicable policies and procedures and practices, other for-profit companies, (ii) participate in charitable, civic, educational, professional, community or industry affairs, (iii) manage the Executive’s passive personal investments, (iv) serve in the capacities as described on the list separately provided to, and reviewed by, the Company; provided that the Executive’s duties, responsibilities and time-commitment associated with such capacities may not be expanded following the Effective Date without prior written approval of the Chief Executive Officer; provided, further, that in each case of clauses (i)-(iv), so long as such activities in the aggregate do not interfere or conflict with the Executive’s duties under this Agreement or create a potential business or fiduciary conflict.

3.Base Salary. During the Employment Term, the Company will pay the Executive a base salary (the “Base Salary”) at an annual rate of $450,000, in accordance with the Company’s

regular payroll practices. The Base Salary is subject to annual review by the Company’s Board of Directors (the “Board”).

4.Sign-on Bonus. The Company will pay the Executive a one-time sign-on bonus of $500,000 (the “Sign-On Bonus”), payable on the next regularly scheduled payroll date following the Effective Date, or such other date mutually agreed upon by the Executive and the Company, subject to the Executive’s continued employment through the payment date. If the Executive’s employment is terminated (i) by the Company for “Cause” or (ii) by the Executive for any reason (other than death, “Disability” or resignation for “Good Reason” (as such capitalized terms are defined in Section 12 below), in each case, following the payment of the Sign-On Bonus but prior to the first anniversary of the Effective Date, the Executive will be required to repay the Sign-On Bonus to the Company.

5.Short-Term Cash Awards. For each fiscal year of the Company completed during the Employment Term, the Executive will be eligible to earn an annual short-term incentive cash award (each annual award, an “STI Award”) under the Short-term Incentive Cash Plan or its successor (the “STIP”). The annual grant of an STI Award is subject to the Board’s approval and the Executive’s execution of the applicable participation agreement under the STIP. For fiscal year 2021, the Executive will be eligible for a STI Award of $450,000 at target (subject to a possible increase or decrease relative to certain performance metrics), prorated based on the Effective Date. For fiscal year 2022, the Executive will be eligible for a special one-time STI Award of $2,000,000 at target (again, subject to a possible increase or decrease relative to certain performance metrics) (the “2022 STI Award”) in addition to the annual STI Award of $450,000 at target. In each case, the STI Award will be subject to the terms and conditions of this Section 5 and the applicable plan documents.

6.Equity Awards. The Executive will be eligible to receive the following incentive equity awards:

(a)New-Hire Award. As soon as administratively practicable following the Effective Date, the Executive will be granted an award of time-vesting RSUs (as defined in Section 12 below) with an initial aggregate award value of $6,000,000 on the date of grant (the “New Hire Equity Award”). The New Hire Equity Award will vest in equal annual installments over five years following the grant date, subject to the Executive’s continuous employment through the applicable vesting date. The New Hire Equity Award is subject to the Board’s approval and the Executive’s execution of an RSU award agreement with standard terms and conditions consistent with the terms of this Agreement;

(b)Performance-Based Award. The Executive will be eligible for an award of RSUs that is tied to certain performance metrics over a performance period of up to three years with an initial aggregate target award value of $2,400,000 on the date of grant (the “Performance-Based LTI Award”). Such Performance-Based LTI Award is subject to the Board’s approval and the Executive’s execution of related agreements with the Company containing standard terms and conditions; and

(c)Time-Based Award. The Executive will be eligible for an award of time-vesting RSUs with an initial aggregate award value of $600,000 on the date of grant (the “Time-Based LTI Award”). The Time-Based LTI Award will vest in equal annual installments over four years

following the grant date, subject to the Executive’s continuous employment through the applicable vesting date. Such Time-Based LTI Award is subject to the Board’s approval and the Executive’s execution of an RSU award agreement with standard terms and conditions.

7.Employee Benefits.

(a)Benefit Plans; Vacation. During the Employment Term, the Executive will be eligible to participate in any employee benefit plan adopted by the Company for the benefit of its executive employees, subject to satisfying the applicable eligibility requirements, except to the extent such plans are duplicative of the benefits otherwise provided under this Agreement. The Executive shall be entitled to the same vacation policy for executive employees of the Company as in effect from time to time. Notwithstanding the foregoing, the Company may modify or terminate any employee benefit plan at any time.

(b)Business Expenses. The Company will reimburse the Executive for all reasonable and necessary out-of-pocket business incurred by the Executive in connection with the performance of the Executive’s duties under this Agreement, including reasonable travel costs and expenses incurred in connection with the Executive’s commute to the Company’s headquarters, in accordance with the Company’s expense reimbursement policy, subject to a tax gross-up to the extent any such amounts are includible in the Executive’s taxable income.

(c)Tax and Legal Fees. As a one-time reimbursement, upon presentation of appropriate documentation, the Company will pay the Executive’s reasonable tax and legal counsel fees incurred in connection with the Executive’s employment transition, which fees shall be paid within forty-five (45) days following the Company’s receipt the aforementioned documentation, subject to a tax gross-up to the extent any such amounts are includible in the Executive’s taxable income, and the Executive’s continued employment through the payment date.

8.Termination. The Executive’s employment and the Employment Term shall terminate on the first of the following to occur:

(a)Disability. Immediately upon written notice by the Company to the Executive of termination due to Disability (capitalized terms in this Section 8 that have not been previously defined in this Agreement are defined in Section 12, below).

(b)Death. Automatically upon the date of death of the Executive.

(c)Cause. Immediately upon written notice by the Company to the Executive of a termination for Cause.

(d)Without Cause. Immediately upon written notice by the Company to the Executive of an involuntary termination without Cause (other than for death or Disability).

(e)Good Reason. Upon written notice by the Employee to the Company of a termination for Good Reason.

(f)Without Good Reason. Upon thirty (30) days’ prior written notice by the Executive to the Company of the Executive’s voluntary termination of employment without Good

Reason (which the Company may, in its sole discretion, make effective earlier than any notice date).

9.Consequences Of Termination.

(a)Death; Disability. In the event that the Executive’s employment and/or the Employment Term ends on account of the Executive’s death or Disability, the Company shall pay to the Executive or the Executive’s estate, as the case may be, the Accrued Benefits (as defined in Section 12, below), and the Executive’s outstanding equity awards as of such termination date shall vest in accordance with the Equity Award Treatment (as defined in Section 12, below). Notwithstanding the foregoing, all right and obligations to the Accrued Benefits shall be subject to state and federal laws governing disabilities and leaves of absence as well as the Company’s applicable policies.

(b)Termination For Cause Or Voluntary Termination By Executive. If the Executive’s employment is terminated: (x) by the Company for Cause, or (y) by the Executive other than by reason of death, Disability or resignation for Good Reason, then the Company shall pay to the Executive the Accrued Benefits.

(c)Termination Without Cause or Resignation for Good Reason. If the Executive’s employment by the Company is terminated by the Company other than for Cause or the Executive resigns for Good Reason, the Company shall pay or provide the Executive with the following:

(i)the Accrued Benefits;

(ii)subject to the Executive’s continued compliance with Sections 10 and 11 of this Agreement, (1) an amount equal to the Executive’s monthly Base Salary (but not as an employee), paid in accordance with the Company’s normal payroll practices for a period of twelve (12) months following such termination; (2) a pro-rated portion of the STI Award (including the 2022 STI Award, if applicable) for the fiscal year in which such termination occurs, with such pro-rated portion determined based on the number of days the Executive was employed by the Company during such year, and achievement of the applicable performance goals determined by the Board at the time of such termination based on forecasted results (but no greater than target-level performance), payable on the first regularly scheduled pay period following the sixtieth (60th) day following such termination; (3) payment of COBRA premiums (through premium reimbursement or direct payment to the insurer) for twelve (12) months following termination; (4) payment of any earned but unpaid STI Award (including the 2022 STI Award, if applicable) for the prior completed fiscal year; and (5) the Executive’s outstanding equity awards as of such termination date shall vest in accordance with the Equity Award Treatment. Notwithstanding the foregoing, any such payment scheduled to occur pursuant to this Section 9(c)(ii) during the first sixty (60) days following the termination will not be paid until the first regularly scheduled pay period following the sixtieth (60th) day following such termination and will include payment of any amount that was otherwise scheduled to be paid prior thereto.

(d)Corporate Transaction. In addition to the payments described in Sections 9(c)(i) and (ii), and subject to the Executive’s continued compliance with Sections 10 and 11 of this Agreement, if the Executive’s employment by the Company (or its successor) is terminated by the

Company (or its successor) other than for Cause or the Executive resigns for Good Reason on or within twelve (12) months following the consummation of a Corporate Transaction (as defined in Section 12 below), all outstanding equity awards held by the Executive as of the applicable termination date shall accelerate and become fully-vested effective as of immediately prior to such termination. In addition, if the outstanding equity awards held by the Executive as of immediately prior to the consummation of a Corporate Transaction are not assumed or substituted for value upon such Corporate Transaction, such equity awards shall accelerate and become fully-vested effective as of immediately prior to such Corporate Transaction.

(e)Resignation From All Other Positions. Upon any termination of the Employment Term, the Executive will promptly resign, and will be deemed to have automatically resigned, from all positions, if any, that the Executive holds as a member of the Board (including any committees), officer, director, manager or fiduciary of the Company or any of its affiliates or subsidiaries. The Executive will take all actions reasonably requested by the Company to give effect to this Section 9(d).

(f)Exclusive Remedy. The amounts payable to the Executive following termination of employment and the Employment Term pursuant to Sections 8 and 9 of this Agreement shall be in full and complete satisfaction of the Executive’s rights under this Agreement and any other claims that the Executive may have in respect of the Executive’s employment with the Company or any of its affiliates. The Executive acknowledges that such amounts are fair and reasonable and are the Executive’s sole and exclusive remedy, in lieu of all other remedies at law or in equity, with respect to the termination of the Executive’s employment or any breach of this Agreement.

10.Release; Continued Compliance. Any and all amounts payable and benefits or additional rights provided upon termination of employment pursuant to this Agreement beyond the Accrued Benefits pursuant to Section 9(c) (the “Severance Benefits”) shall only be payable if the Executive delivers to the Company, and does not revoke, a general release of claims in favor of the Company in substantially the form attached hereto as Exhibit A. Such release will be executed and delivered (and no longer subject to revocation, if applicable) within sixty (60) days following termination. During such time that the Executive is receiving the Severance Benefits, if (a) the Company discovers grounds constituting Cause existed before Executive’s termination or (b) the Executive breaches any of the restrictive covenants set forth in the Employee Proprietary Information and Invention Assignment Agreement attached to this Agreement as Exhibit B, the Executive’s right to receive the Severance Benefits will immediately cease and be forfeited and any previously paid Severance Benefits shall be repaid (including repayment of any amounts received in respect of equity awards that became vested as a result of the Equity Award Treatment).

11.Restrictive Covenants. The Executive acknowledges and agrees to be bound by the restrictive covenants set forth in the Employee Proprietary Information and Invention Assignment Agreement attached to this Agreement as Exhibit B.

12.Certain Defined Terms. As used in this Agreement, the following terms have the meanings set forth below:

(a)“Accrued Benefits” means: (i) any accrued but unpaid Base Salary through the date of termination; (ii) reimbursement for any unreimbursed business expenses incurred through the

date of termination; and (iii) all other accrued but unpaid payments, benefits or fringe benefits to which the Executive shall be entitled under the terms of any applicable compensation arrangement or benefit, equity or fringe benefit plan or program or grant. Notwithstanding anything to the contrary, amounts due under prongs (i)-(iii) will be paid within sixty (60) days following termination of employment, or such earlier date as may be required by applicable law.

(b)“Cause” means the Executive’s: (i) theft, dishonesty, misconduct, falsification of any employment or Company records or any other act or omission that has a material detrimental effect on the Company’s reputation or business; (ii) conviction (including any plea of guilty or no contest) for any felony, or for any criminal act that materially impairs the Executive’s ability to perform the Executives duties to the Company; (iii) material breach of any agreement between the Executive and the Company; or (iv) material violation of any Company policy; or (v) the Executive’s willful failure to perform, or willful misconduct or gross negligence in the performance of, the Executive’s duties to the Company or the Executive’s failure to follow the lawful directives of the Board or any executive to which the Executive reports (other than as a result of death or Disability); provided that, in the case of clauses (iii), (iv) and (v), the Executive shall have an opportunity to cure, if susceptible to cure, for a period of thirty (30) days following notice by the Board.

(c)“Corporate Transaction” has the meaning set forth in the Company’s 2015 Stock Incentive Plan, as may be amended from time to time.

(d)“Disability” or “Disabled” means the Executive becomes “disabled” or suffers from a “disability” as defined in Section 409A, or in any successor regulation, as determined by the Board in good faith.

(e)“Equity Award Treatment” means (i) with respect to each outstanding equity award held by the Executive as of the applicable termination date that vests solely based on the Executive’s continued employment with the Company (each a “Time-Vesting Award”), the portion of such Time-Vesting Award that would have vested had the Executive remained employed with the Company for an additional twelve (12) months will accelerate and become vested effective as of immediately prior to such termination: provided, that if the Executive’s employment ends on account of the Executive’s death or Disability, then 100% of the Time-Vesting Award will accelerate and become vested effective as of immediately prior to such termination; and (ii) with respect to each outstanding equity award held by the Executive as of the applicable termination date that vests (in whole or in part) based on achievement of applicable performance goals (each a “Performance-Vesting Award”), a pro-rated portion of such Performance-Vesting Award will accelerate and become vested effective as of immediately prior to such termination, with such pro-rated portion determined based on the number of days the Executive was employed by the Company during the applicable performance period for the Performance-Vesting Award, and achievement of the applicable performance goals determined by the Board at the time of such termination based on forecasted results (but no greater than target-level performance).

(f)“Good Reason” means, without the Executive’s prior written consent: (i) a material reduction in the Executive’s base salary (other than a reduction pertaining to all similarly situated employees of the Company); (ii) a material diminution of the Executive’s duties inconsistent with the Executive’s position; (iii) a material breach by the Company or its affiliate of the Agreement or

any other material written agreement with the Company; or (iv) the relocation of the Executive’s principal work location by more than thirty-five (35) miles or a material modification by the Company of the Executive’s flexible hybrid work arrangement involving both off-site services and in-person services at the Company’s headquarters; provided that, “Good Reason” shall only exist if the Executive tenders written objection to the Company within thirty (30) days of the initial occurrence of such Good Reason setting forth in reasonable detail the circumstances alleged to give rise to Good Reason, the Company fails to remedy the condition within thirty (30) days after receiving such written objection notice, and the Executive gives notice of resignation from employment within thirty (30) days after the end of such cure period.

(g)“RSUs” means restricted stock units covering a number of shares of Class A common stock of the Company that may be settled in cash and/or by issuance of shares of Class A common stock of the Company.

(h)“Section 409A” means Section 409A of the Internal Revenue Code and the regulations and guidance promulgated under the Internal Revenue Code.

13.No Assignments. This Agreement is personal to each of the parties. Except as provided below, no party may assign or delegate any rights or obligations under this Agreement without first obtaining the written consent of the other party. The Company may assign this Agreement to any successor to all or substantially all of its business or assets.

14.Notice. All communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of delivery, if delivered by hand, (b) on the date of transmission, if delivered by electronic mail, or (c) on the first business day following the date of deposit, if delivered by guaranteed overnight delivery service:

If to the Executive:

At the address (or to the email address) shown in the books and records of the Company.

If to the Company:

70 Castillan Drive

Santa Barbara, CA 93117

Attention: General Counsel and Chief Compliance Officer

or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

15.Interpretation. The section headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement. In the event of any inconsistency between the terms of this Agreement and any form, award, plan or policy of the Company, the terms of this Agreement shall govern and control.

16.Severability. The provisions of this Agreement shall be deemed severable. The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect

the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties shall be enforceable to the fullest extent permitted by applicable law.

17.Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

18.Arbitration. Any dispute or controversy arising under or in connection with this Agreement or the Executive’s employment with the Company shall be settled exclusively by arbitration, conducted before a single arbitrator in Santa Barbara, California in accordance with the JAMS Employment Rules and Procedures then in effect (available at www.jamsdr.com). The decision of the arbitrator will be final and binding upon the parties. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. In connection with any such arbitration and regardless of outcome, (a) each party shall pay all of its own costs and expenses, including, without limitation, its own legal fees and expenses, and (b) the arbitration costs shall be borne by the Company.

19.Governing Law. This Agreement, the rights and obligations of the parties, and all claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of California (without regard to its choice of law provisions).

20.Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer or director as may be designated by the Board. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement, together with all exhibits attached to this Agreement, sets forth the entire agreement of the parties in respect of the subject matter contained in this Agreement and supersedes any and all prior agreements or understandings between the Executive and the Company with respect to the subject matter of this Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. In the event of any inconsistency between the terms of this Agreement and any equity award, the terms of this Agreement shall govern and control.

21.Representations. The Executive represents and warrants to the Company that: (a) the Executive has the legal right to enter into this Agreement and to perform all of the obligations on the Executive’s part to be performed under this Agreement; and (b) the Executive is not a party to any agreement or understanding, written or oral, and is not subject to any restriction, which, in either case, could prevent or impair the Executive from entering into this Agreement or performing the Executive’s duties and obligations under this Agreement.

22.Tax Matters.

(a)Withholding. The Company may withhold from any and all amounts payable under this Agreement or otherwise such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.

(b)Section 409A Compliance.

(i)The intent of the parties is that payments and benefits under this Agreement comply with, or are exempt from, Section 409A. Accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith or exempt therefrom. In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on the Executive by Section 409A or damages for failing to comply with Section 409A.

(ii)A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A. For purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.” Notwithstanding anything to the contrary in this Agreement, if the Executive is deemed on the date of termination to be a “specified employee” within the meaning of that term under Section 409A, then with regard to any payment or the provision of any benefit that is considered deferred compensation under Section 409A payable on account of a “separation from service,” such payment or benefit shall not be made or provided until the date which is the earlier of (A) the expiration of the six (6)-month period measured from the date of such “separation from service” of the Executive, and (B) the date of the Executive’s death, to the extent required under Section 409A. Upon the expiration of the foregoing delay period, all payments and benefits delayed pursuant to this Section 22(b)(ii) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

(iii)To the extent that reimbursements or other in-kind benefits under this Agreement constitute “nonqualified deferred compensation” for purposes of Section 409A, (A) all expenses or other reimbursements under this Agreement shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by the Executive, (B) any right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (C) no such reimbursement, expenses eligible for reimbursement, or in-kind benefits provided in any taxable year shall in any way affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year.

(iv)For purposes of Section 409A, the Executive’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the sole discretion of the Company.

(v)Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment under this Agreement that constitutes “nonqualified deferred compensation” for purposes of Section 409A be subject to offset by any other amount unless otherwise permitted by Section 409A.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.


			COMPANY
By:			/s/ Jason Randall
Name:			Jason Randall
Title:			President & CEO

			EXECUTIVE
			/s/ Fay Sien Goon

[Signature Page to Employment Agreement]

Exhibit A

GENERAL RELEASE

I, Fay Sien Goon, in consideration of and subject to the performance by AppFolio, Inc. (together with its subsidiaries, the “Company”) of its obligations under that Employment Agreement, dated as of September 15, 2021 (the “Agreement”), do hereby release and forever discharge as of the date hereof the Company and its respective affiliates and all present, former and future managers, directors, officers, employees, successors and assigns of the Company and its affiliates and direct or indirect owners (collectively, the “Released Parties”) to the extent provided below (this “General Release”). The Released Parties are intended to be third-party beneficiaries of this General Release, and this General Release may be enforced by each of them in accordance with the terms hereof in respect of the rights granted to such Released Parties hereunder. Terms used herein but not otherwise defined shall have the meanings given to them in the Agreement.

1.My employment or service with the Company and its affiliates terminated as of ________________, and I hereby resign from any position as an officer, member of the board of managers or directors (as applicable) or fiduciary of the Company or its affiliates (or reaffirm any such resignation that may have already occurred). I understand that the Severance Benefits represent, in part, consideration for signing this General Release and are not salary, wages or benefits to which I was already entitled. I understand and agree that I will not receive the Severance Benefits unless I execute this General Release and do not revoke this General Release within the time period permitted hereafter. I understand and agree that such payments and benefits are subject to the restrictive covenants set forth in Exhibit B attached to the Agreement, which (as noted below) expressly survive my termination of employment and the execution of this General Release. Such payments and benefits will not be considered compensation for purposes of any employee benefit plan, program, policy or arrangement maintained or hereafter established by the Company or its affiliates.

2.Except as provided in paragraphs 5 and 6 below and except for the provisions of the Agreement which expressly survive the termination of my employment with the Company, I knowingly and voluntarily (for myself, my heirs, executors, administrators and assigns) release and forever discharge the Company and the other Released Parties from any and all claims, suits, controversies, actions, causes of action, cross-claims, counterclaims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date that this General Release becomes effective and enforceable) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties which I, my spouse, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment with, or my separation or termination from, the Company (including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any

Exhibit A - 1

applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters) (all of the foregoing collectively referred to herein as the “Claims”).

3.The released claims described in paragraph 2 hereof include all such claims, whether known or unknown by me. Therefore, I waive the effect of California Civil Code Section 1542 and any other analogous provision of applicable law of any jurisdiction. Section 1542 states:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”

4.I represent that I have made no assignment or transfer of any right, claim, demand, cause of action, or other matter covered by paragraph 2 above.

5.I agree that this General Release does not waive or release any rights or claims that I may have under the Age Discrimination in Employment Act of 1967 which arise after the date I execute this General Release. I acknowledge and agree that my separation from employment with the Company in compliance with the terms of the Agreement shall not serve as the basis for any claim or action (including, without limitation, any claim under the Age Discrimination in Employment Act of 1967).

6.I agree that I hereby waive all rights to sue or obtain equitable, remedial or punitive relief from any or all Released Parties of any kind whatsoever in respect of any Claim, including, without limitation, reinstatement, back pay, front pay, and any form of injunctive relief. Notwithstanding the above, I further acknowledge that I am not waiving and am not being required to waive any right that cannot be waived under law, including the right to file an administrative charge or participate in an administrative investigation or proceeding; provided, however, that I disclaim and waive any right to share or participate in any monetary award resulting from the prosecution of such charge or investigation or proceeding. Additionally, I am not waiving (i) any right to the Accrued Benefits or any severance benefits to which I am entitled under the Agreement, (ii) any claim relating to directors’ and officers’ liability insurance coverage or any right of indemnification under the Company’s organizational documents or otherwise, or (iii) my rights as an equity or security holder in the Company or its affiliates.

7.In signing this General Release, I acknowledge and intend that it shall be effective as a bar to each and every one of the Claims hereinabove mentioned or implied. I expressly consent that this General Release shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Claims (notwithstanding any state or local statute that expressly limits the effectiveness of a general release of unknown, unsuspected and unanticipated Claims), if any, as well as those relating to any

Exhibit A - 2

other Claims hereinabove mentioned or implied. I acknowledge and agree that this waiver is an essential and material term of this General Release and that without such waiver the Company would not have agreed to the terms of the Agreement. I further agree that in the event I should bring a Claim seeking damages against the Company, or in the event I should seek to recover against the Company in any Claim brought by a governmental agency on my behalf, this General Release shall serve as a complete defense to such Claims to the maximum extent permitted by law. I further agree that I am not aware of any pending claim of the type described in paragraph 2 above as of the execution of this General Release.

8.I agree that neither this General Release, nor the furnishing of the consideration for this General Release, shall be deemed or construed at any time to be an admission by the Company, any Released Party or myself of any improper or unlawful conduct.

9.I agree that if I violate this General Release by suing the Company or the other Released Parties, I will pay all costs and expenses of defending against the suit incurred by the Released Parties, including reasonable attorneys’ fees.

10.Any non-disclosure provision in this General Release does not prohibit or restrict me (or my attorney) from responding to any inquiry about this General Release or its underlying facts and circumstances by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), any other self-regulatory organization or any governmental entity.

11.I hereby acknowledge that Exhibit B of the Agreement shall survive as applicable therein my execution of this General Release.

12.I represent that I am not aware of any claim by me other than the claims that are released by this General Release. I acknowledge that I may hereafter discover claims or facts in addition to or different than those which I now know or believe to exist with respect to the subject matter of the release set forth in paragraph 2 above and which, if known or suspected at the time of entering into this General Release, may have materially affected this General Release and my decision to enter into it.

13.Notwithstanding anything in this General Release to the contrary, this General Release shall not relinquish, diminish, or in any way affect any rights or claims arising out of any breach by the Company or by any Released Party of the Agreement after the date hereof.

14.Whenever possible, each provision of this General Release shall be interpreted in, such manner as to be effective and valid under applicable law, but if any provision of this General Release is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this General Release shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:

1.I HAVE READ IT CAREFULLY;

Exhibit A - 3

2.I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED;

3.I VOLUNTARILY CONSENT TO EVERYTHING IN IT;

4.I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION, I HAVE CHOSEN NOT TO DO SO OF MY OWN VOLITION;

5.I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE TO CONSIDER IT, AND THE CHANGES MADE SINCE MY RECEIPT OF THIS RELEASE ARE NOT MATERIAL OR WERE MADE AT MY REQUEST AND WILL NOT RESTART THE REQUIRED 21DAY PERIOD;

6.I UNDERSTAND THAT I HAVE SEVEN (7) DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED;

7.I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND

8.I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.

SIGNED:__________________________ DATED:_________________

Exhibit A - 4

Exhibit B

Employee Proprietary Information and Invention Assignment Agreement

(attached)

Exhibit B - 1

Document

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jason Randall, certify that:


1.			I have reviewed this Quarterly Report on Form 10-Q of AppFolio, Inc.;


2.			Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.			Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.			The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have:


			a.			Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


			b.			Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


			c.			Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


			d.			Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.			The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


			a.			All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


			b.			Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	November 8, 2021	/s/ Jason Randall
		Jason Randall
		Chief Executive Officer

Document

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Fay Sien Goon, certify that:


1.			I have reviewed this Quarterly Report on Form 10-Q of AppFolio, Inc.;


2.			Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.			Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.			The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have:


			a.			Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


			b.			Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


			c.			Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


			d.			Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.			The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


			a.			All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


			b.			Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	November 8, 2021	/s/ Fay Sien Goon
		Fay Sien Goon
		Chief Financial Officer

Document

EXHIBIT 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The following certifications are hereby made in connection with the Quarterly Report on Form 10-Q of AppFolio, Inc. (the “Company”) for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”):

I, Jason Randall, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented.


Date:	November 8, 2021	By:	/s/ Jason Randall
			Jason Randall
			President and Chief Executive Officer

I, Fay Sien Goon, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented.



Date:	November 8, 2021	By:	/s/ Fay Sien Goon
			Fay Sien Goon
			Chief Financial Officer