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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 March 31, 2021.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.

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

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

As of May 3, 2021, the number of shares of the registrant’s Class A common stock outstanding was 18,951,445 and the number of shares of the registrant’s Class B common stock outstanding was 15,550,875.


Table of Contents
TABLE OF CONTENTS
 
SectionPage No.
 



Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 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;
changes in the competitive environment;
commitments and contingencies, including with respect to the outcome of legal proceedings or regulatory matters;
the application of accounting guidance, including the impact from adoption of recent accounting pronouncements; and
the impacts of, and our response to, the novel coronavirus ("COVID-19") pandemic.
The foregoing list may not include all of the forward-looking statements made in this Quarterly Report.
Our forward-looking statements are based on our management’s current beliefs, assumptions and expectations about future events and trends, which affect or may affect our business, strategy, operations, financial performance or liquidity. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to numerous known and unknown risks and uncertainties and are made in light of information currently available to us. Our actual financial condition and results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including those discussed in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (our "Annual Report"), as well as in the other reports we file with the Securities and Exchange Commission (the "SEC"). You should read this Quarterly Report, and the other documents we file with the SEC, with the understanding that our actual future results may be materially different from the results expressed or implied by these forward-looking statements.
Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements.
Forward-looking statements speak only as of the date they were made, and, except to the extent required by law or the rules of the NASDAQ Global Market, we undertake no obligation to update or review any forward-looking statement because of new information, future events or other factors.
We qualify all of our forward-looking statements by these cautionary statements.

1

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

2

Table of Contents
APPFOLIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par values)
 
 March 31,
2021
December 31,
2020
Assets
Current assets
Cash and cash equivalents$44,744 $140,263 
Investment securities—current103,341 28,256 
Accounts receivable, net12,524 10,057 
Prepaid expenses and other current assets20,843 20,777 
Total current assets181,452 199,353 
Investment securities—noncurrent11,806 6,770 
Property and equipment, net26,530 26,439 
Operating lease right-of-use assets30,021 30,561 
Capitalized software development costs, net37,554 35,459 
Goodwill56,147 56,147 
Intangible assets, net15,170 16,357 
Deferred income taxes—noncurrent13,401 12,181 
Other long-term assets6,616 6,213 
Total assets$378,697 $389,480 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$2,262 $1,040 
Accrued employee expenses—current20,050 18,888 
Accrued expenses10,231 14,069 
Deferred revenue3,135 2,262 
Income tax payable2,601 9,095 
Other current liabilities4,758 4,451 
Total current liabilities43,037 49,805 
Accrued employee expenses—noncurrent1,172  
Operating lease liabilities39,598 40,146 
Deferred income taxes—noncurrent9,106 13,609 
Total liabilities92,913 103,560 
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 March 31, 2021 and December 31, 2020
  
Class A common stock, $0.0001 par value, 250,000 shares authorized as of March 31, 2021 and December 31, 2020; 19,321 and 19,148 shares issued as of March 31, 2021 and December 31, 2020, respectively; 18,902 and 18,729 shares outstanding as of March 31, 2021 and December 31, 2020, respectively
2 2 
Class B common stock, $0.0001 par value, 50,000 shares authorized as of March 31, 2021 and December 31, 2020; 15,551 and 15,659 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
2 2 
Additional paid-in capital160,650 161,247 
Accumulated other comprehensive income38 56 
Treasury stock, at cost, 419 shares of Class A common stock as of March 31, 2021 and December 31, 2020
(25,756)(25,756)
Retained earnings150,848 150,369 
Total stockholders’ equity285,784 285,920 
Total liabilities and stockholders’ equity$378,697 $389,480 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
3

Table of Contents
APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
 
 Three Months Ended
March 31,
 20212020
Revenue$78,921 $72,495 
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)33,298 28,961 
Sales and marketing16,179 14,506 
Research and product development14,383 11,212 
General and administrative13,361 8,572 
Depreciation and amortization7,369 6,414 
Total costs and operating expenses84,590 69,665 
(Loss) income from operations(5,669)2,830 
Other income, net562 22 
Interest income (expense), net53 (494)
(Loss) income before (benefit from) provision for income taxes(5,054)2,358 
(Benefit from) provision for income taxes(5,533)375 
Net income$479 $1,983 
Net income per common share:
Basic$0.01 $0.06 
Diluted$0.01 $0.06 
Weighted average common shares outstanding:
Basic34,409 34,175 
Diluted35,712 35,681 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

4

Table of Contents

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

 Three Months Ended
March 31,
 20212020
Net income$479 $1,983 
Other comprehensive income:
    Changes in unrealized gains on investment securities(18)132 
Comprehensive income$461 $2,115 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

5

Table of Contents

APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
Accumulated
AdditionalOther
Common StockCommon StockPaid-inComprehensiveTreasuryRetained
Class AClass BCapitalIncomeStockEarningsTotal
SharesAmountSharesAmount
Balance at December 31, 202018,729 $2 15,659 $2 $161,247 $56 $(25,756)$150,369 $285,920 
Exercise of stock options23 — — — 100 — — — 100 
Stock-based compensation— — — — 3,295 — — — 3,295 
Vesting of restricted stock units, net of shares withheld for taxes42 — — — (3,992)— — — (3,992)
Conversion of Class B stock to Class A stock108 — (108)— — — — —  
Other comprehensive income— — — — — (18)— — (18)
Net income— — — — — — — 479 479 
Balance at March 31, 202118,902 $2 15,551 $2 $160,650 $38 $(25,756)$150,848 $285,784 


Accumulated
AdditionalOther
Common StockCommon StockPaid-inComprehensiveTreasuryAccumulated
Class AClass BCapitalIncomeStockDeficitTotal
SharesAmountSharesAmount
Balance at December 31, 201916,552 $2 17,594 $2 $161,509 $33 $(21,562)$(8,034)$131,950 
Exercise of stock options17 — — — 97 — — — 97 
Stock-based compensation— — — — 1,365 — — — 1,365 
Vesting of restricted stock units, net of shares withheld for taxes91 — — — (6,458)— — — (6,458)
Conversion of Class B stock to Class A stock58 — (58)— — — — —  
Other comprehensive income— — — — — 132 — — 132 
Repurchase of common stock(48)— — — — — (4,194)— (4,194)
Net income— — — — — — — 1,983 1,983 
Balance as of March 31, 202016,670 $2 17,536 $2 $156,513 $165 $(25,756)$(6,051)$124,875 
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,
 20212020
Cash from operating activities
Net income$479 $1,983 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization7,369 6,414 
Amortization of operating lease right-of-use assets662 1,053 
Deferred income taxes(5,723)362 
Stock-based compensation2,776 959 
Other(157)(38)
Changes in operating assets and liabilities:
Accounts receivable(1,896)(1,616)
Prepaid expenses and other current assets47 (2,822)
Other assets(403)(148)
Accounts payable870 (362)
Accrued employee expenses—current728 (5,427)
Accrued expenses(3,804)726 
Deferred revenue299 693 
Income tax payable(6,494) 
Other current liabilities310 522 
Accrued employee expenses—noncurrent1,172  
Operating lease liabilities(672)784 
Net cash (used in) provided by operating activities(4,437)3,083 
Cash from investing activities
Purchases of available-for-sale investments(99,011)(649)
Proceeds from sales of available-for-sale investments17,899 13,942 
Proceeds from maturities of available-for-sale investments1,000 7,250 
Purchases of property, equipment and intangible assets(938)(7,992)
Capitalization of software development costs(6,140)(6,822)
Net cash (used in) provided by investing activities(87,190)5,729 
Cash from financing activities
Proceeds from stock option exercises100 97 
Tax withholding for net share settlement(3,992)(6,458)
Payment of contingent consideration (5,977)
Proceeds from issuance of debt 49,437 
Principal payments on debt (749)
Purchase of treasury stock (4,194)
Net cash (used in) provided by financing activities(3,892)32,156 
Net (decrease) increase in cash, cash equivalents and restricted cash(95,519)40,968 
Cash, cash equivalents and restricted cash
Beginning of period140,699 16,247 
End of period$45,180 $57,215 
Noncash investing and financing activities
Purchases of property and equipment included in accounts payable and accrued expenses$688 $4,251 
Capitalization of software development costs included in accrued expenses and accrued employee expenses817 687 
Stock-based compensation capitalized for software development520 406 
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    The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within our Condensed Consolidated Balance Sheets to the total of the same such amounts shown above (in thousands):
March 31,
20212020
Cash and cash equivalents$44,744 $56,779 
Restricted cash included in other assets436 436 
Total cash, cash equivalents and restricted cash$45,180 $57,215 

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 industry-specific, cloud-based solutions are used primarily by property managers, and 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 their business ecosystems and a system of intelligence designed to leverage data to predict and optimize business workflows in order to enable exceptional customer experiences and increase efficiency across our customers' businesses. Our mobile-optimized software solutions are designed for use across multiple devices and operating systems. Our software solutions are offered as a service, are hosted using a modern cloud-based architecture, and in part, use artificial intelligence technologies. This architecture leads to rich data sets that have a consistent schema across our customer and user base and enables us to deploy data-powered products and services for our customers and users.
During the three months ended March 31, 2020, we also provided software solutions and services to the legal vertical. As previously disclosed, we completed our divestiture of MyCase, Inc. on September 30, 2020. For additional details, see Note 3, Divestitures.
2. Summary of Significant Accounting Policies
Basis of Presentation and Significant Accounting Policies
The accompanying unaudited Condensed Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these Condensed Consolidated Financial Statements should be read in conjunction with our audited consolidated financial statements and the related notes included in our Annual Report, which was filed with the SEC on March 1, 2021. The year-end condensed balance sheet was derived from our audited consolidated financial statements. Our unaudited interim Condensed Consolidated Financial Statements include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of our Condensed Consolidated Financial Statements. The operating results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full year ending December 31, 2021.
Reclassifications
We reclassified certain amounts in our Condensed Consolidated Statements of Cash Flows within the cash from operating activities section in the prior year to conform to the current year's presentation.
Changes in Accounting Policies
Except as described below under Recently Adopted Accounting Pronouncements, there have been no significant changes in our accounting policies from those disclosed in our annual consolidated financial statements and the related notes included in our Annual Report.
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue, expenses, other income, and provision for income taxes during the reporting period. Assets and liabilities which are subject to judgment and use of estimates include the fair value of assets and liabilities assumed in business combinations, fair value of financial instruments, capitalized software costs, period of benefit associated with deferred costs, incremental borrowing rate used to measure operating lease liabilities, the recoverability of goodwill and long-lived assets, income taxes, useful lives associated with property and equipment and intangible assets, contingencies, assumptions underlying performance-based compensation, 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 March 31, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for credit losses, the carrying value of goodwill and other long-lived assets, performance-based compensation and income taxes.
As of the date of our Condensed Consolidated Financial Statements, we are not aware of any specific event or circumstance that would require us to update our estimates or judgments or to revise the carrying value of our assets or liabilities. However, these estimates and judgments may change as new events occur and additional information is obtained, which may result in changes being recognized in our consolidated financial statements in future periods. While we considered the effects of COVID-19 in our estimates and assumptions, due to the level of uncertainty regarding the economic and operational impacts of COVID-19 on our business, there may be other judgments and assumptions that we have not considered. Such judgments and assumptions could result in a meaningful impact on our financial statements in future periods. Actual results could differ from those estimates and any such differences may have a material impact on our Condensed Consolidated Financial Statements.
Net Income per Common Share
Net income per common share was the same for shares of our Class A and Class B common stock because they are entitled to the same liquidation and dividend rights and are therefore combined in the table below. The following table presents a reconciliation of the weighted average number of shares of our Class A and Class B common stock used to compute net income per common share (in thousands):
 Three Months Ended
March 31,
 20212020
Weighted average common shares outstanding34,414 34,180 
Less: Weighted average unvested restricted shares subject to repurchase5 5 
Weighted average common shares outstanding; basic34,409 34,175 
Plus: Weighted average options, restricted stock units and restricted shares used to compute diluted net income per common share1,303 1,506 
Weighted average common shares outstanding; diluted35,712 35,681 
For the three months ended March 31, 2020, an aggregate of 109,000 shares 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 months ended March 31, 2021 and 2020.
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
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ASU 2016-13 on January 1, 2020. The adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), a series of amendments which align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. We adopted ASU 2018-15 on January 1, 2020. The adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or disclosures.
Recent Accounting Pronouncements Adopted in 2021
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). This amendment was issued to simplify the accounting for income taxes by removing certain exceptions for recognizing deferred taxes, performing intraperiod allocation, and calculating income taxes in interim periods. Further, ASU 2019-12 adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax basis goodwill and allocating taxes to members of a consolidated group. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. We adopted ASU 2019-12 on January 1, 2021. The adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or disclosures.
3. Divestitures
Divestiture of MyCase
On September 30, 2020, we completed our divestiture of 100% of our issued and outstanding equity interests of MyCase, Inc. ("MyCase"), a former wholly owned subsidiary that provided legal practice and case management software solutions to our legal customers, for $193.0 million, consisting of $192.2 million of cash proceeds, plus a $2.2 million employee retention bonus pool funded by us, less cash divested of $0.8 million and a preliminary working capital adjustment of $0.6 million (the "MyCase Transaction"). The retention bonus pool is refundable to the Company to the extent that MyCase employees are terminated prior to the retention period, which is one year from the closing date of the MyCase Transaction.
We recognized a pre-tax gain on the sale of $187.7 million on the MyCase Transaction, consisting of cash proceeds of $192.2 million, less net assets divested of $4.6 million. Net assets divested is primarily comprised of capitalized software of $3.9 million, deferred revenue of $2.8 million and goodwill allocated to MyCase of $2.3 million. The gain on the sale was recorded within Other income, net in our Condensed Consolidated Statements of Operations during the three months ended September 30, 2020. Income received during the three months ended March 31, 2021 in relation to the transition services provided by us to MyCase was $0.4 million and is included within Other income (expense), 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 March 31, 2021 and December 31, 2020 (in thousands):
March 31, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Agency securities$17,098 $21 $(2)$17,117 
Treasury securities97,990 43 (3)98,030 
Total available-for-sale investment securities$115,088 $64 $(5)$115,147 
December 31, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Agency securities$17,104 $29 $(1)$17,132 
Treasury securities17,847 47  17,894 
Total available-for-sale investment securities$34,951 $76 $(1)$35,026 
For available-for-sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of these criteria is met, the security’s amortized cost basis is written down to fair value through income. For securities in an unrealized loss position that do not meet these criteria, we evaluate whether the decline in fair value has resulted from credit loss or other factors. If this assessment indicates a credit loss exists, the credit-related portion of the loss is recorded as an allowance for losses on the security. No allowance for credit losses for available-for-sale investment securities was recorded as of March 31, 2021 or December 31, 2020.
As of March 31, 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):
March 31, 2021December 31, 2020
Amortized CostEstimated Fair ValueAmortized CostEstimated Fair Value
Due in one year or less$103,278 $103,341 $28,197 $28,256 
Due after one year through three years11,810 11,806 6,754 6,770 
Total available-for-sale investment securities$115,088 $115,147 $34,951 $35,026 
During the three months ended March 31, 2021 and 2020, we had sales and maturities (which include calls) of investment securities, as follows (in thousands):
Three Months Ended March 31, 2021
Gross Realized GainsGross Realized LossesGross Proceeds from Sales Gross Proceeds from Maturities
Treasury securities$1 $ $17,899 $1,000 
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Three Months Ended March 31, 2020
Gross Realized GainsGross Realized LossesGross Proceeds from SalesGross Proceeds from Maturities
Corporate bonds$5 $ $4,006 $4,000 
Agency securities24  7,878 1,250 
Treasury securities4  2,058 2,000 
Total$33 $ $13,942 $7,250 
Interest income, net of the amortization and accretion of the premium and discount, was $0.1 million for each of the three months ended March 31, 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 March 31, 2021 and December 31, 2020 by level within the fair value hierarchy (in thousands):
March 31, 2021
Level 1Level 2Level 3Total Fair
Value
Cash equivalents:
Money market funds$4,764 $ $ $4,764 
Treasury securities12,275   12,275 
Available-for-sale investment securities:
Agency securities 17,117  17,117 
  Treasury securities98,030   98,030 
Total$115,069 $17,117 $ $132,186 
December 31, 2020
Level 1Level 2Level 3Total Fair
Value
Cash equivalents:
Money market funds$4,749 $ $ $4,749 
Treasury securities97,433   97,433 
Available-for-sale investment securities:
Agency securities 17,132  17,132 
Treasury securities17,894   17,894 
Total$120,076 $17,132 $ $137,208 
The carrying amounts of restricted cash, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of these items.
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There were no changes to our valuation techniques used to measure financial asset and financial liability fair values on a recurring basis during the three months ended March 31, 2021. The valuation techniques for the financial assets in the tables above are as follows:
Cash Equivalents
As of March 31, 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 three months ended March 31, 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):
March 31,
2021
December 31,
2020
Capitalized software development costs, gross$104,069 $96,974 
Less: Accumulated amortization(66,515)(61,515)
Capitalized software development costs, net$37,554 $35,459 
Capitalized software development costs were $7.1 million and $6.7 million for the three months ended March 31, 2021 and 2020, respectively. Amortization expense with respect to capitalized software development costs totaled $5.0 million and $4.2 million for the three months ended March 31, 2021 and 2020, respectively.
Future amortization expense with respect to capitalized software development costs as of March 31, 2021 is estimated as follows (in thousands):
Years Ending December 31,
2021$14,970 
202215,147 
20237,033 
2024404 
    Total amortization expense$37,554 
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6. Intangible Assets, net
Intangible assets consisted of the following (in thousands, except years):
 March 31, 2021
 Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Weighted Average Useful Life in Years
Customer relationships$2,840 $(1,664)$1,176 5.0
Database8,330 (1,995)6,335 10.0
Technology6,539 (4,033)2,506 4.0
Trademarks and trade names1,890 (831)1,059 5.0
Partner relationships680 (680) 3.0
Non-compete agreements7,400 (3,334)4,066 5.0
Domain names90 (71)19 5.0
Patents252 (243)9 5.0
$28,021 $(12,851)$15,170 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
Database8,330 (1,787)6,543 10.0
Technology6,539 (3,641)2,898 4.0
Trademarks and trade names1,890 (732)1,158 5.0
Partner relationships680 (680) 3.0
Non-compete agreements7,400 (2,964)4,436 5.0
Domain names90 (70)20 5.0
Patents252 (240)12 5.0
$28,021 $(11,664)$16,357 6.3
Amortization expense with respect to intangible assets totaled $1.2 million and $1.3 million for the three months ended March 31, 2021 and 2020, respectively. Future amortization expense with respect to intangible assets is estimated as follows (in thousands):
Years Ending December 31,
2021$3,459 
20224,605 
20233,060 
2024835 
2025833 
Thereafter2,378 
    Total amortization expense$15,170 


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7. Accrued Employee Expenses
Accrued employee expenses consisted of the following (in thousands):
March 31,December 31
20212020
Accrued vacation$9,532 $8,277 
Accrued bonuses3,698 5,638 
Accrued commissions1,811 1,995 
Accrued payroll4,205 1,921 
Accrued payroll taxes and other804 1,057 
    Total accrued employee expenses—current$20,050 $18,888 
Accrued employee expenses—noncurrent$1,172 $ 
The Company has adopted several long-term executive cash incentive plans (the “Plan(s)”), which are designed to reward certain executives 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 judgement using, among other things, an internally developed rolling three year plan (the “Three Year Plan”). Compensation costs are recorded on a straight-line basis over the relevant service period to the extent it is probable the Performance Conditions in an applicable Plan will be achieved. Adjustments to compensation costs are recognized on a prospective basis over the remaining service period based on changes in our estimate of the probability of achieving the various Performance Conditions.
During the three months ended March 31, 2021, the Board of Directors approved the 2021 Three Year Plan, which allowed us to assess the probability of achieving the Performance Conditions under the Plans through December 31, 2023. As of March 31, 2021, we recorded $0.3 million and $1.2 million in Accrued employee expenses-current and Accrued employee expenses-noncurrent, respectively, in the Condensed Consolidated Balance Sheet related to the Plans. There are Plans for which no accrual has been recorded as it was determined that it is not currently probable that the related Performance Condition will be achieved. Amounts recorded under the Plans are based on assumptions and estimates subject to uncertainties and may fluctuate significantly each reporting period.
8. Leases
Operating leases for our corporate offices have remaining lease terms ranging from one 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):
March 31,
20212020
Operating lease cost$1,095 $1,436 
Variable lease cost306 392 
  Total lease cost$1,401 $1,828 

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Lease-related assets and liabilities were as follows as of March 31, 2021 and December 31, 2020 (in thousands):
March 31,
2021
December 31,
2020
Assets
Prepaid expenses and other current assets$3,979 $3,972 
Operating lease right-of-use assets30,021 30,561 
Liabilities
Other current liabilities$1,842 $1,845 
Operating lease liabilities39,598 40,146 
Total lease liabilities$41,440 $41,991 

Future minimum lease payments under non-cancellable leases as of March 31, 2021 were as follows (in thousands):
Years ending December 31,
2021(1)
$(1,935)
20224,434 
20234,845 
20244,797 
20254,671 
Thereafter32,218 
Total future minimum lease payments49,030 
Less: imputed interest(11,569)
Total(2)
$37,461 
(1) Future minimum lease payments are presented net of tenant improvement allowances of $4.7 million.
(2) Total future minimum lease payments include the current portion of lease liabilities recorded in Prepaid expenses and other current assets of $4.0 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 $100,000 per incident for each insured residence. We have entered into a reinsurance agreement with our third-party service provider and, as a result, we assume a 100% quota share of the 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 March 31, 2021 and December 31, 2020 was $1.8 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 March 31, 2021 and December 31, 2020 are $1.8 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
In December 2018, we received a Civil Investigative Demand from the Federal Trade Commission ("FTC") requesting certain information relating to our compliance with the Fair Credit Reporting Act in connection with our tenant screening Value+ service (the "FTC Investigation"). In April 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. We disagreed with the stated belief of the FTC and vigorously defended our position; however, we entered into settlement negotiations primarily to avoid protracted litigation and potential distraction to our business.
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On January 12, 2021, a Stipulated Order for Permanent Injunction and Civil Penalty Judgment (the "Stipulated Order") was finalized resolving all claims and allegations arising out of or related to the FTC Investigation. Under the Stipulated Order, we paid $4.25 million to the FTC and agreed to continue to comply with the FCRA.
In addition to the foregoing, from time to time, we are involved in various other investigatory inquiries or legal proceedings arising from or related to matters incident to the ordinary course of our business activities, including actions with respect to intellectual property, employment, regulatory and contractual issues. Although the results of such investigatory inquiries and legal proceedings cannot be predicted with certainty, we believe that we are not currently a party to any investigatory inquiries or legal proceeding(s) which, if determined adversely to us, would, individually or taken together, have a material adverse effect on our business, operating results, financial condition or cash flows. However, regardless of the merit of any matters raised or the ultimate outcome, investigatory inquiries or legal proceedings may generally have an adverse impact on us as a result of defense and settlement costs, diversion of management resources, and other factors.
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 March 31, 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, there is no expiration date for the Share Repurchase Program, and it may be modified, suspended or terminated at any time and for any reason.
During the three months ended March 31, 2020, we repurchased a total of 48,002 shares of our Class A common stock through open market repurchases, and recorded a $4.2 million reduction to stockholders' equity, which includes broker commissions. We have not made any repurchases under the Share 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 three months ended March 31, 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, 20201,168 $11.77 5.0
Options granted  
Options exercised(23)4.36 
Options cancelled/forfeited  
Options outstanding as of March 31, 20211,145 $11.92 4.7
Our stock-based compensation expense for stock options for the three months ended March 31, 2021 and 2020 was not material. As of March 31, 2021, the total estimated remaining stock-based compensation expense for unvested stock options was not material.
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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 three months ended March 31, 2021 or 2020.
Restricted Stock Units
A summary of activity in connection with our RSUs for the three months ended March 31, 2021, is as follows (number of shares in thousands):
Number of SharesWeighted Average Grant Date Fair Value per Share
Unvested as of December 31, 2020483 $80.20 
Granted150 143.24 
Vested(67)54.84 
Forfeited(7)101.76 
Unvested as of March 31, 2021559 $99.87 
During the three months ended March 31, 2021, we granted 127,000 RSUs that are subject to time-based vesting in equal annual installments over four years, and 23,000 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 three months ended March 31, 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 March 31, 2021 are 13,000, 31,000 and 35,000 PSUs granted in 2020, 2019 and 2018, respectively. Of these PSUs, 45,000 are subject to vesting based on the achievement of a pre-established consolidated net revenue growth target for the year ending December 31, 2021, and 34,000 are subject to vesting based on the achievement of a pre-established consolidated net revenue growth target for the year ending December 31, 2022. 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 the PSUs based on the grant date fair value of the PSUs that we determine are probable of vesting. Adjustments to compensation expense are made each period based on changes in our estimate of the number of PSUs that are probable of vesting. Our stock-based compensation expense for the RSUs and PSUs for the three months ended March 31, 2021 and 2020 was $3.1 million and $1.2 million, respectively.
During the three months ended March 31, 2021, we granted an award of 7,688 PSUs to an executive that will 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 the award was authorized prior to establishing an accounting grant date, the recipient began providing services prior to the grant date and 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 months ended March 31, 2021 was $0.2 million.
As of March 31, 2021, the total estimated remaining stock-based compensation expense for the RSUs and PSUs was $39.6 million, which is expected to be recognized over a weighted average period of 2.6 years.
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Restricted Stock Awards