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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.

Commission File Number 001-37468
AppFolio, Inc.
(Exact name of registrant as specified in its charter)
Delaware26-0359894
(State of incorporation or organization)(I.R.S. Employer Identification No.)
70 Castilian Drive93117
   Santa Barbara,California
(Address of principal executive offices) (Zip Code)
 (805) 364-6093
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A common stock, $0.0001 par valueAPPFNASDAQ Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
  
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of April 20, 2023, the number of shares of the registrant’s Class A common stock outstanding was 20,766,610 and the number of shares of the registrant’s Class B common stock outstanding was 14,719,225.


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Page No.
 



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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2023 (this "Quarterly Report"), contains forward-looking statements within the meaning of federal securities laws, which statements involve substantial risks and uncertainties. The forward-looking statements made in this Quarterly Report are based primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and prospects and relate only to events as of the date on which the statements are made. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report and "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (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. As such, you should not rely upon forward-looking statements as predictions of future events. Examples of forward-looking statements include, among others, statements made regarding changes in the competitive environment, responding to customer needs, research and product development plans, future products and services, growth in the size of our business and number of customers, strategic plans and objectives, business forecasts and plans, our future or assumed financial condition, results of operations and liquidity, trends affecting our business and industry, capital needs and financing plans, capital resource allocation plans, share repurchase plans, and commitments and contingencies, including with respect to the outcome of legal proceedings or regulatory matters. Any forward-looking statement made by us in this Quarterly Report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law.


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

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APPFOLIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
 March 31,
2023
December 31,
2022
Assets
Current assets
Cash and cash equivalents$103,925 $70,769 
Investment securities—current65,022 89,297 
Accounts receivable, net17,416 16,503 
Prepaid expenses and other current assets25,515 24,899 
Total current assets211,878 201,468 
Investment securities—noncurrent12,723 25,161 
Property and equipment, net25,789 26,110 
Operating lease right-of-use assets20,849 23,485 
Capitalized software development costs, net30,467 35,315 
Goodwill56,060 56,060 
Intangible assets, net4,214 4,833 
Other long-term assets8,720 8,785 
Total assets$370,700 $381,217 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$740 $2,473 
Accrued employee expenses47,087 34,376 
Accrued expenses18,029 15,601 
Other current liabilities13,971 8,893 
Total current liabilities79,827 61,343 
Operating lease liabilities45,257 50,237 
Other liabilities5,047 4,091 
Total liabilities130,131 115,671 
Commitments and contingencies (Note 8)
Stockholders’ equity:
Class A common stock2 2 
Class B common stock2 2 
Additional paid-in capital219,074 209,704 
Accumulated other comprehensive loss(921)(1,684)
Treasury stock(25,756)(25,756)
Retained earnings48,168 83,278 
Total stockholders’ equity240,569 265,546 
Total liabilities and stockholders’ equity$370,700 $381,217 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
 
 Three Months Ended
March 31,
 20232022
Revenue$136,100 $105,296 
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)(1)
56,208 43,347 
Sales and marketing(1)
29,398 24,919 
Research and product development(1)
37,662 24,320 
General and administrative(1)
31,691 18,964 
Depreciation and amortization7,671 8,415 
Total costs and operating expenses162,630 119,965 
Loss from operations(26,530)(14,669)
Other income (loss), net20 (10)
Interest income, net1,361 107 
Loss before provision for income taxes(25,149)(14,572)
Provision for (benefit from) income taxes9,961 (285)
Net loss$(35,110)$(14,287)
Net loss per common share, basic and diluted$(0.99)$(0.41)
Weighted average common shares outstanding, basic and diluted35,443 34,836 
(1) Includes stock-based compensation expense as follows:
Three Months Ended
March 31,
20232022
Stock-based compensation expense included in costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)$768 $358 
Sales and marketing2,417 1,460 
Research and product development5,439 2,806 
General and administrative5,279 2,794 
Total stock-based compensation expense$13,903 $7,418 
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
(UNAUDITED)
(in thousands)

 Three Months Ended
March 31,
 20232022
Net loss$(35,110)$(14,287)
Other comprehensive income (loss):
    Changes in unrealized gains (losses) on investment securities763 (1,345)
Comprehensive loss$(34,347)$(15,632)
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
Accumulated
AdditionalOther
Common StockCommon StockPaid-inComprehensiveTreasuryRetained
Class AClass BCapitalLossStockEarningsTotal
SharesAmountSharesAmount
Balance December 31, 202220,569 $2 14,746 $2 $209,704 $(1,684)$(25,756)$83,278 $265,546 
Exercise of stock options64 — — — 834 — — — 834 
Stock based compensation— — — — 14,075 — — — 14,075 
Vesting of restricted stock units, net of shares withheld for taxes79 — — — (5,539)— — — (5,539)
Conversion of Class B common stock to Class A common stock27 — (27)— — — — — — 
Issuance of restricted stock awards2 — — — — — — — — 
Other comprehensive income— — — — — 763 — — 763 
Net loss— — — — — — — (35,110)(35,110)
Balance March 31, 202320,741 $2 14,719 $2 $219,074 $(921)$(25,756)$48,168 $240,569 



Accumulated
AdditionalOther
Common StockCommon StockPaid-inComprehensiveTreasuryRetained
Class AClass BCapitalLossStockEarningsTotal
SharesAmountSharesAmount
Balance at December 31, 202119,417 $2 15,408 $2 $171,930 $(194)$(25,756)$151,397 $297,381 
Exercise of stock options17 — — — 100 — — — 100 
Stock-based compensation— — — — 7,967 — — — 7,967 
Vesting of restricted stock units, net of shares withheld for taxes17 — — — (1,073)— — — (1,073)
Conversion of Class B common stock to Class A common stock572 — (572)— — — — — — 
Other comprehensive loss— — — — — (1,345)— — (1,345)
Net loss— — — — — — — (14,287)(14,287)
Balance at March 31, 202220,023 $2 14,836 $2 $178,924 $(1,539)$(25,756)$137,110 $288,743 
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)
Three Months Ended
March 31,
 20232022
Cash from operating activities
Net loss$(35,110)$(14,287)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization6,937 7,878 
Amortization of operating lease right-of-use assets568 887 
Gain on lease modification(2,366) 
Deferred income taxes4 (342)
Stock-based compensation, including as amortized14,637 7,955 
Other(159)427 
Changes in operating assets and liabilities:
Accounts receivable(914)(3,431)
Prepaid expenses and other current assets(2,465)(1,942)
Other assets66 (573)
Accounts payable(1,777)2,987 
Accrued employee expenses13,041 (5,016)
Accrued expenses2,407 1,722 
Operating lease liabilities(771)(631)
Other liabilities7,475 2,122 
Net cash provided by (used in) operating activities1,573 (2,244)
Cash from investing activities
Purchases of available-for-sale investments(1,285)(23,309)
Proceeds from sales of available-for-sale investments1,013  
Proceeds from maturities of available-for-sale investments37,890 23,343 
Purchases of property and equipment(794)(1,830)
Capitalization of software development costs(1,165)(3,484)
Proceeds from sale of equity-method investment629  
Net cash provided by (used in) investing activities36,288 (5,280)
Cash from financing activities
Proceeds from stock option exercises834 100 
Tax withholding for net share settlement(5,539)(1,073)
Net cash used in financing activities(4,705)(973)
Net increase (decrease) in cash, cash equivalents and restricted cash33,156 (8,497)
Cash, cash equivalents and restricted cash
Beginning of period71,019 58,283 
End of period$104,175 $49,786 

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):
March 31,
20232022
Cash and cash equivalents$103,925 $49,536 
Restricted cash included in other assets250 250 
Total cash, cash equivalents and restricted cash$104,175 $49,786 

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. ("we," "us" or "our") is a leading provider of cloud business management solutions for the real estate industry. Our solutions are designed to enable our customers to digitally transform their businesses, address critical business operations and deliver a better customer experience. Digital transformation is effectively a requirement for business success in the modern world, and the way we work and live requires powerful software solutions.
 2. Summary of Significant Accounting Policies
Basis of Presentation and Significant Accounting Policies
The accompanying unaudited Condensed Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these Condensed Consolidated Financial Statements should be read in conjunction with our audited consolidated financial statements and the related notes included in our Annual Report, which was filed with the SEC on February 9, 2023. 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 three months ended March 31, 2023 are not necessarily indicative of the results expected for the full year ending December 31, 2023.
Reclassification
We reclassified certain amounts in our Condensed Consolidated Statements of Cash Flows within the cash flows from operating activities section in the prior year to conform to the current year's presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of 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 financial instruments, capitalized software development costs, period of benefit associated with deferred costs, incremental borrowing rate used to measure operating lease liabilities, the recoverability of goodwill and long-lived assets, income taxes, useful lives associated with property and equipment and intangible assets, contingencies, assumptions underlying performance-based compensation (whether cash or stock-based), and assumptions underlying stock-based compensation. Actual results could differ from those estimates and any such differences may have a material impact on our Condensed Consolidated Financial Statements.
Net Loss per Common Share
Net loss 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 per common share (in thousands):
 Three Months Ended
March 31,
 20232022
Weighted average common shares outstanding35,451 34,840 
Less: Weighted average unvested restricted shares subject to repurchase8 4 
Weighted average common shares outstanding; basic and diluted35,443 34,836 
Because we reported a net loss for all periods presented, all potentially dilutive common shares are anti-dilutive for these periods and have been excluded from the calculation of net loss per share.
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Recent Accounting Pronouncements Not Yet Adopted
In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, "Revenue from Contracts with Customers," as if the acquirer had originated the contracts. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. We adopted ASU 2021-08 on January 1, 2023. Adoption did not have an impact on our condensed consolidated financial statements.
 3. Investment Securities and Fair Value Measurements
Investment Securities
Investment securities classified as available-for-sale consisted of the following as of March 31, 2023 and December 31, 2022 (in thousands):
March 31, 2023
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$9,631 $ $(52)$9,579 
Agency securities11,259  (317)10,942 
Treasury securities58,249  (1,025)57,224 
Total available-for-sale investment securities$79,139 $ $(1,394)$77,745 
December 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$17,497 $2 $(112)$17,387 
Agency securities17,507  (484)17,023 
Treasury securities81,605  (1,557)80,048 
Total available-for-sale investment securities$116,609 $2 $(2,153)$114,458 
As of March 31, 2023, the decline in fair value below amortized cost basis was not considered other than temporary as it is more likely than not we will hold the securities until maturity or recovery of the cost basis. No allowance for credit losses for available-for-sale investment securities was recorded as of March 31, 2023 or December 31, 2022.
The fair values of available-for-sale investment securities, by remaining contractual maturity, are as follows (in thousands):
March 31, 2023December 31, 2022
Amortized CostEstimated Fair ValueAmortized CostEstimated Fair Value
Due in one year or less$66,348 $65,022 $90,822 $89,297 
Due after one year through three years12,791 12,723 25,787 25,161 
Total available-for-sale investment securities$79,139 $77,745 $116,609 $114,458 
During the three months ended March 31, 2023 and 2022, we had sales and maturities of investment securities, as follows (in thousands):
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Three Months Ended March 31, 2023
Gross Realized GainsGross Realized LossesGross Proceeds from Sales Gross Proceeds from Maturities
Corporate bonds$3 $ $1,013 $6,860 
Agency securities   6,250 
Treasury securities   24,780 
Total$3 $ $1,013 $37,890 
Three Months Ended March 31, 2022
Gross Realized GainsGross Realized LossesGross Proceeds from SalesGross Proceeds from Maturities
Corporate bonds$ $ $ $12,343 
Treasury securities   11,000 
Total$ $ $ $23,343 
Fair Value Measurements
Recurring Fair Value Measurements
The following tables present our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 by level within the fair value hierarchy (in thousands):
March 31, 2023
Level 1Level 2Total Fair
Value
Cash equivalents:
Money market funds$24,442 $ $24,442 
Treasury securities56,173  56,173 
Available-for-sale investment securities:
Corporate bonds 9,579 9,579 
Agency securities 10,942 10,942 
  Treasury securities57,224  57,224 
Total$137,839 $20,521 $158,360 
December 31, 2022
Level 1Level 2Total Fair
Value
Cash equivalents:
Money market funds$41,973 $ $41,973 
Treasury securities1,287  1,287 
Available-for-sale investment securities:
Corporate bonds 17,387 17,387 
Agency securities 17,023 17,023 
Treasury securities80,048  80,048 
Total$123,308 $34,410 $157,718 
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of the short maturity of these items.
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.
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 4. Capitalized Software Development Costs, net
Capitalized software development costs were as follows (in thousands):
March 31,
2023
December 31,
2022
Capitalized software development costs, gross$128,120 $129,749 
Less: Accumulated amortization(97,653)(94,434)
Capitalized software development costs, net$30,467 $35,315 
Capitalized software development costs were $1.0 million and $4.1 million for the three months ended March 31, 2023 and 2022, respectively. Amortization expense with respect to capitalized software development costs totaled $5.9 million and $6.1 million for the three months ended March 31, 2023 and 2022. During the three months ended March 31, 2023 and 2022, we disposed of $2.2 million and $0.8 million, respectively, of fully amortized capitalized software development costs.
Future amortization expense with respect to capitalized software development costs is estimated as follows (in thousands):
Years Ending December 31,
2023$13,707 
202411,598 
20254,567 
2026595 
    Total amortization expense$30,467 
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 5. Intangible Assets, net
Intangible assets consisted of the following (in thousands, except years):
 March 31, 2023
Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Weighted Average Useful Life in Years
Customer relationships$1,670 $(1,503)$167 5.0
Database4,710 (2,002)2,708 10.0
Technology6,539 (6,539) 4.0
Trademarks and trade names1,520 (1,288)232 5.0
Partner relationships680 (680) 3.0
Non-compete agreements7,340 (6,239)1,101 5.0
Domain names90 (84)6 5.0
Patents252 (252) 5.0
Total intangible assets, net$22,801 $(18,587)$4,214 5.8
 December 31, 2022
 Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Weighted Average Useful Life in Years
Customer relationships$1,670 $(1,448)$222 5.0
Database4,710 (1,884)2,826 10.0
Technology6,539 (6,539) 4.0
Trademarks and trade names1,520 (1,211)309 5.0
Partner relationships680 (680) 3.0
Non-compete agreements7,340 (5,872)1,468 5.0
Domain names90 (82)8 5.0
Patents252 (252) 5.0
Total intangible assets, net$22,801 $(17,968)$4,833 4.7

Amortization expense with respect to intangible assets totaled $0.6 million and $1.2 million for the three months ended March 31, 2023 and 2022, respectively. Future amortization expense with respect to intangible assets is estimated as follows (in thousands):
Years Ending December 31,
2023$1,857 
2024473 
2025471 
2026471 
2027471 
Thereafter471 
    Total amortization expense$4,214 

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 6. Accrued Employee Expenses
Accrued employee expenses consisted of the following (in thousands):
March 31,
2023
December 31,
2022
Accrued vacation$13,263 $12,067 
Accrued bonuses5,525 13,806 
Accrued severance16,693 496 
Accrued payroll and other11,606 8,007 
    Total accrued employee expenses$47,087 $34,376 
Accrued severance as of March 31, 2023 is primarily related to $14.9 million of separation costs associated with our former Chief Executive Officer's Transition and Separation Agreement, dated March 1, 2023 ("Separation Agreement"), which will be paid out in the second quarter of 2023.
 7. Leases
Operating leases for our corporate offices have remaining lease terms ranging from one to ten years, some of which include options to extend the leases for up to ten years. These options to extend have not been recognized as part of our operating lease right-of-use assets and lease liabilities as it is not reasonably certain that we will exercise these options. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. Certain leases contain provisions for property-related costs that are variable in nature for which we are responsible, including common area maintenance, which are expensed as incurred.
The components of lease expense recognized in the Condensed Consolidated Statements of Operations were as follows (in thousands):
Three Months Ended
March 31,
20232022
Operating lease cost$1,145 $1,447 
Variable lease cost573 123 
  Total lease cost$1,718 $1,570 

Lease-related assets and liabilities were as follows (in thousands):
March 31,
2023
December 31,
2022
Assets
Operating lease right-of-use assets$20,849 $23,485 
Liabilities
Other current liabilities$3,132 $3,357 
Operating lease liabilities45,257 50,237 
Total lease liabilities$48,389 $53,594 
In January 2023, we entered into an amendment to the lease agreement for our San Diego facility. We remeasured the lease liability and recorded a reduction to the lease liability and right-of-use asset using the discount rate at the modification date, which resulted in a gain of $2.4 million in the Condensed Consolidated Statements of Operations.
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Future minimum lease payments under non-cancellable leases as of March 31, 2023 were as follows (in thousands):
Years ending December 31,
2023$1,077 
20245,607 
20256,837 
20267,035 
20277,239 
Thereafter35,043 
Total future minimum lease payments62,838 
Less: imputed interest(14,449)
Total$48,389 
 8. Commitments and Contingencies
Legal Liability to Landlord Insurance
We have a wholly owned subsidiary, Terra Mar Insurance Company, Inc., which was established in connection with reinsuring liability to landlord insurance policies offered to our customers by our third-party service provider. Each policy has a limit of $100 thousand per incident. We assume a 100% quota share of the liability to landlord insurance policies placed with our customers by 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 estimated liability for reported claims and incurred but not reported claims as of March 31, 2023 and December 31, 2022 was $3.4 million and $2.7 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 March 31, 2023 and December 31, 2022 are $2.8 million and $4.5 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 matters, nor are we aware of any pending or threatened matters, that we believe would have a material adverse effect on our business, operating results, cash flows or financial condition should such proceedings be resolved unfavorably.
Indemnification
In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, business partners, investors, directors, officers, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of any applicable agreements, intellectual property infringement claims made by third parties, and other liabilities relating to or arising from our services or our acts or omissions. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions may not be subject to maximum loss clauses and is indeterminable. We have not incurred any costs as a result of such indemnification obligations and have not recorded any liabilities related to such obligations in the Condensed Consolidated Financial Statements.
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 9. Stock-Based Compensation
Stock Options
A summary of activity in connection with our stock options for the three months ended March 31, 2023, is as follows (number of shares in thousands):
Number of
Shares
Weighted
Average
Exercise
Price per Share
Weighted
Average
Remaining
Contractual Life
in Years
Options outstanding as of December 31, 2022516 $12.90 2.7
Options granted120 129.74 
Options exercised(64)13.05 
Options outstanding as of March 31, 2023572 $37.38 3.3
During the three months ended March 31, 2023, we granted our Chief Executive Officer 120,000 stock options of our Class A common stock. These stock options vest based on service conditions with one-third vesting at the end of each of the years ending December 31, 2025, 2026 and 2027. No stock options were granted during the three months ended March 31, 2022.
Our stock-based compensation expense for stock options was not material for the periods presented.
The fair value of stock options granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following table summarizes information relating to our stock options granted during three months ended March 31, 2023:
Weighted average grant-date fair value per share$67.23 
Weighted average Black-Scholes model assumptions:
Risk-free interest rate4.06 %
Expected term (in years)6.92
Expected volatility44 %
Expected dividend yield 
As of March 31, 2023, the total estimated remaining stock-based compensation expense for the aforementioned stock options was $7.9 million, which is expected to be recognized over a weighted average period of 4.8 years.
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Restricted Stock Units
A summary of activity in connection with our RSUs for the three months ended March 31, 2023, is as follows (number of shares in thousands):
Number of SharesWeighted Average Grant Date Fair Value per Share
Unvested as of December 31, 20221,162 $116.88 
Granted610 122.08 
Vested(124)116.45 
Forfeited(28)112.95 
Unvested as of March 31, 20231,620 $118.94 
Unvested RSUs as of March 31, 2023 were composed of 1.4 million RSUs with only service conditions and