Our existing credit agreement with Wells Fargo as administrative agent, and the lenders that are parties thereto, which we refer to as our Credit Agreement, contains certain operating and financial restrictions and covenants, including limitations on dividends, dispositions, mergers or consolidations, incurrence of indebtedness and liens, and other corporate activities. These restrictions and covenants, as well as those contained in any future financing agreements that we may enter into, may restrict our ability to finance our operations, and to engage in, expand or otherwise pursue our business activities and strategic objectives. Our ability to comply with these covenants may be affected by events beyond our control, and breaches of these covenants could result in a default under our existing Credit Agreement and any future financing agreements that we may enter into. If not waived, defaults could cause any outstanding indebtedness under our Credit Agreement and any future financing agreements that we may enter into to become immediately due and payable.

~~Because our long-term growth strategy involves expansion of our sales to customers outside the United States, our business will be susceptible to the risks associated with international operations.~~

A component of our growth strategy involves the expansion of our international operations and worldwide customer base. To date, we have realized an immaterial amount of revenue from customers outside the United States. Operating in international markets will require significant resources and management attention and will subject us to regulatory, economic, geographic and political risks that are different from those in the United States. Because of our limited experience with international operations and significant differences between the United States and international markets, our 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. 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.

If we fail to maintain an effective system of internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

In connection with the audit of our consolidated financial statements for fiscal year 2014, our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. As of December 31, 2015, we completed remediation of these material weaknesses. However, the completion of remediation does not provide assurance that our controls will continue to operate properly or that our financial statements will not contain any material errors. There may be future material weaknesses in our internal control over financial reporting, and as a result we may not detect financial statement errors on a timely basis. Moreover, in the future we may engage in business transactions, such as acquisitions or reorganizations, implement new accounting standards, or adopt other changes to our business processes, any of which could require us to develop and implement new controls or to modify existing controls, which could negatively affect our internal control over financial reporting and result in material weaknesses.

In the event we experience a material weakness in our internal control over financial reporting in the future, we may not detect errors on a timely basis and our financial statements may be materially misstated. Ineffective internal control over financial reporting, failure to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner and the inability to express an opinion as to the effectiveness of our internal control over financial reporting could cause investors to lose confidence in our reported financial statements and other information, which could have a negative effect on the market price of our Class A common stock. Additionally, it could lead to an investigation by the SEC, NASDAQ Global Market or other regulatory authorities, which could require the expenditure of additional financial and management resources.

~~We are an emerging growth company and our decision to comply with certain reduced reporting and disclosure requirements could make our Class A common stock less attractive to investors.~~

We qualify as an emerging growth company under the Jumpstart Our Business Startups, or JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements and may be relieved of other significant requirements that are otherwise generally applicable to public companies. These provisions include:


▪	~~an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting;~~


▪	an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;


▪	~~reduced disclosure about our executive compensation arrangements; and~~


▪	~~exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or stockholder approval of any golden parachute arrangements.~~

We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. However, in this Annual Report, we are taking advantage of the other exemptions discussed above. Accordingly, the information that we provide to our stockholders may be different from the information you receive from other public companies in which you have invested. If some investors find our Class A common stock less attractive as a result of our reliance on these exemptions, there may be a less active trading market for our Class A common stock, the market price of our Class A common stock may be more volatile, and the trading price of our Class A common stock may be lower than that of comparable companies.

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

~~As of~~At December 31, ~~2017,~~2020, we had ~~United States federal net operating loss carryforwards of approximately $73.5 million and~~ state net operating loss carryforwards of ~~approximately $48.0~~$46.5 million, which will begin to expire in ~~2027 and 2023, respectively. As of~~2028. At December 31, ~~2017~~2020, we also had federal and state research and development credit carryforwards of ~~$5.0~~$4.1 million and ~~$5.4~~$11.5 million, respectively. The federal ~~credits~~credit carryforwards will begin to expire in ~~2027,~~2040, while the state credit carryforwards apply indefinitely. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds ~~50 percentage points~~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. ~~Any~~There is also a risk that due to legislative changes, such ~~limitations~~as suspensions on ~~our ability to~~the use ~~our~~of net operating loss carryforwards, ~~and other tax assets could adversely impact our business, financial condition and operating results.~~

Tax laws or regulations could be enacted or changed and existing tax laws or regulations could be applied to us or to our customers in a manner that could increase the costs of our software solutions and adversely impact our operating results.

~~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~~unforeseen reasons, our existing net operating loss carryforwards could expire or ~~ordinances could~~otherwise be ~~enacted or amended at any time, possibly with retroactive effect, and could be applied solely or disproportionately~~unavailable to services provided over the Internet. These enactments or amendments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and could ultimately result in a negative impact on our operating results.

In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, modified or applied adversely to us, possibly with retroactive effect, which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties, as well as interest on past amounts. If we are unsuccessful in collecting such taxes due from our customers, we could be held liable for such costs, thereby adversely impacting our operating results.

~~We may be subject to additional~~offset future income tax liabilities.

~~We are subject to income, sales, use, value added and other taxes in the United States and other jurisdictions in which we conduct~~Our business and such laws and rates vary by jurisdiction. Certain jurisdictions in which we do not collect sales, use, value added or other taxes on our sales may assert that such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to pay or collect such taxes in the future. If we receive an adverse determination as a result of an audit or related litigation, or we unilaterally determine that we have misinterpreted provisions of the tax regulations to which we are subject, there could be a material effect on our tax provision, net income or cash flows in the period or periods for which that determination is made.

~~Our reported financial results~~ may be adversely affected by ~~changes~~developments in ~~accounting principles generally accepted in~~the global economy, including if we seek to expand our sales to customers outside of the United States.

~~Generally accepted accounting principles~~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 ~~are subject to interpretation~~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 ~~Financial Accounting Standards Board,~~COVID-19 pandemic, especially in certain countries in the ~~SEC~~European Union and ~~various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations~~Asia, could have a ~~significant~~prolonged negative impact on our ~~reported financial~~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 ~~and~~ could ~~affect the reporting of transactions completed before the announcement of a change.~~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. ~~For example, during 2017, the share price of our Class A common stock on the NASDAQ Global Market fluctuated between $21.63 and $52.25.~~

There are ~~numerous~~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 ~~including:~~


▪	~~price~~ and, ~~volume fluctuations in the overall stock market from time to time;~~


▪	~~volatility in the market prices and trading volumes of securities issued by software companies;~~


▪	~~changes in operating performance and stock market valuations of other software companies generally, and of companies that sell cloud-based solutions within our targeted verticals in particular;~~


▪	~~sales of shares of our Class A common stock by us or our stockholders, or perceptions that such sales may occur;~~


▪	~~any future announcements to repurchase our Class A common stock;~~


▪	~~failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow us, or our failure to meet these estimates or the expectations of investors;~~


▪	~~the guidance we may provide to the public, any changes in that guidance, and our performance relative to that guidance;~~


▪	~~announcements by us or our competitors of new products or services;~~


▪	~~public reaction to our press releases, filings with the SEC and other public announcements;~~


▪	~~rumors and market speculation involving us or other software companies;~~


▪	~~actual or anticipated changes in our operating results or fluctuations in our operating results;~~


▪	~~actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;~~


▪	~~litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;~~


▪	~~developments or disputes concerning our intellectual property or other proprietary rights;~~


▪	~~announced or completed acquisitions of businesses or technologies by us or our competitors;~~


▪	~~new laws or regulations or new interpretations of existing laws or regulations applicable to our business;~~


▪	~~changes in accounting standards, policies, guidelines, interpretations or principles;~~


▪	~~changes in our management; and~~


▪	~~general economic conditions and trends, including slow or negative growth of our markets.~~

~~In addition,~~ 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, potentially,~~and/or the price of our Class A common stock.

The dual class structure of our common stock ~~has the effect of concentrating~~concentrates voting control with a limited number of stockholders, including our executive officers, directors and principal stockholders, ~~which will limit~~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 December 31, ~~2017,~~2020, the holders of the outstanding shares of our Class B common stock, including our executive officers, directors, and principal stockholders, collectively ~~hold~~held approximately ~~93%~~90% of the combined voting power of our outstanding capital stock. Because of the 10-to-1 voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock collectively control a majority of the combined voting power of our outstanding capital stock and therefore ~~are able to exercise significant influence and~~ control ~~over~~ the ~~establishment and implementation~~election of a majority of our ~~future business plans~~directors and thereby have the power to control our affairs and policies, including the appointment of management and strategic ~~objectives,~~decisions, as well as ~~to control all~~ matters that are submitted to a vote by our ~~stockholders for approval. These persons may manage~~holders of our ~~business in ways with which you disagree and which~~common stock.The interests of our principal stockholders may be inconsistent with or adverse to ~~your interests.~~those of holders our Class A common stock. This concentrated control may also have the effect of delaying, deterring or preventing a change-in-control transaction, depriving our stockholders of an opportunity to receive a premium for their capital stock or negatively affecting the market price of our Class A common stock.

~~Transfers~~ 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.

~~In July 2017,~~ S&P Dow Jones, a provider of widely followed stock indices, has announced that companies with multiple ~~share~~ classes ~~such as ours,~~of stock will not be eligible for inclusion in certain of their indices. As a result, our Class A common stock will ~~likely~~ not be eligible for those stock indices. Additionally, FTSE Russell, another provider of widely followed stock indices, ~~recently stated that it plans to require~~requires new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders. As of December 31, 2017, the holders of the outstanding shares of our Class B common stock, including our executive officers, directors, and principal stockholders, collectively hold approximately 93% of the combined voting power of our outstanding capital stock. 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. ~~We cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future.~~ 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.

~~Anti-takeover provisions contained in our amended and restated certificate~~ In addition, several shareholder advisory firms have announced their opposition to the use of ~~incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.~~


▪	authorize the issuance of preferred stock with powers, preferences and rights that may be senior to our common stock, which can be created and issued by our board of directors without prior stockholder approval;


▪	~~provide for the adoption of a staggered board of directors whereby our board is divided into three classes, each of which has a different three-year term;~~


▪	~~provide that the number of directors will be fixed by our board of directors;~~


▪	~~prohibit our stockholders from filling vacancies on our board of directors;~~


▪	~~provide for the removal of a director only for cause and then only by the affirmative vote of the holders of a majority of the combined voting power of our outstanding capital stock;~~


▪	~~prohibit stockholders from calling special stockholder meetings;~~


▪	~~prohibit stockholders from acting by written consent without holding a meeting of stockholders;~~


▪	~~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;~~


▪	~~require advance written notice of stockholder proposals and director nominations;~~


▪	~~provide for a dual-class common stock structure, as discussed above; 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.~~

multiple class structures. As a ~~Delaware corporation, we are also subject~~result, shareholder advisory firms may publish negative commentary about our corporate governance practices or otherwise seek to ~~provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which may delay, deter~~cause us to change our capital structure. Any actions 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~~publications by shareholder advisory firms critical of our ~~common stock.~~

~~Any provision of Delaware law, our amended and restated certificate of incorporation,~~corporate governance practices 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~~structure could also adversely affect the

~~price that some investors are willing to pay for~~ value of our Class A common stock.

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 December 31, ~~2017,~~2020, we had an aggregate of ~~1.7~~1.2 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 December 31, ~~2017,~~2020, we had ~~0.6~~0.5 million ~~restricted stock units, or~~ 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.

~~Certain~~ 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.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business, our market or our competitors, or if they adversely change their recommendations regarding our Class A common stock, the market price and trading volume of our Class A common stock could decline.

The trading market for our Class A common stock is influenced, to some extent, by the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. If any of the analysts who cover us adversely change their recommendations regarding our Class A common stock or provide more favorable recommendations about our competitors, the market price of our Class A common stock may decline. If any of the analysts who cover us were to cease coverage of us or fail to publish reports on us regularly, visibility of our company in the financial markets could decrease, which in turn could cause the market price or trading volume of our Class A common stock to decline.

We do not expect to declare any dividends in the foreseeable ~~future.~~future and may repurchase stock in accordance with our Share Repurchase Program.

We have never declared, ~~or paid any cash dividends on our existing common stock. We~~and we do not anticipate declaring or paying, any cash dividends to holders of our Class A common stock in the foreseeable ~~future and intend to retain all future earnings for use in the growth of our business.~~future. In addition, the terms of our ~~Credit Agreement~~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. ~~Investors should~~

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 ~~purchase~~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 12, Stockholders' Equity, of our 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~~stock.

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 ~~expectation of receiving cash dividends.~~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 1B. UNRESOLVED STAFF COMMENTS

None.


~~ITEM 2.~~	~~PROPERTIES~~

ITEM 2. PROPERTIES

Our corporate headquarters is located in ~~two~~three adjacent office buildings in Santa Barbara, California. The lease ~~on the first building~~ covers approximately ~~43,300~~43,700 square feet, 86,000 square feet, and ~~expires in December 2021. The lease on the second building covers approximately~~ 35,900 square feet, respectively, in the three buildings. These leases expire in February 2032 and ~~expires in November 2020.~~

may be extended for two additional five-year terms at our election. We also lease office space in ~~San Diego, California and~~a variety of other U.S. cities, most notably Richardson, ~~Texas under leases that expire at various times between 2021 and 2022.~~

Texas.

We intend to procure additional space as we add employees and expand our operations geographically. We believe our current facilities are adequate for our current needs and that, should it be needed, suitable additional or alternative space will be available to us to accommodate any such expansion of our operations.

We lease all of our facilities and do not own any real property.


~~ITEM 3.~~	~~LEGAL PROCEEDINGS~~

ITEM 3.LEGAL PROCEEDINGS

From time to time, we are involved in various investigative inquiries, legal proceedings and other disputes arising from or related to ~~claims~~matters incident to the ~~normal~~ordinary course of our business ~~activities.~~activities, including actions with respect to intellectual property, employment, regulatory and contractual matters. Although the results of such investigative inquiries, legal proceedings and ~~claims~~other disputes cannot be predicted with certainty, we believe that we are not currently a party to any ~~legal proceeding(s)~~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 ~~claims~~matters raised or the ultimate outcome, investigative inquiries, legal proceedings and other disputes may generally have an adverse impact on us as a result of defense and settlement costs, diversion of management resources, and other factors.

For additional information regarding legal proceedings, refer to Note 11, Commitments and Contingencies of our Consolidated Financial Statements.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

PART II


~~ITEM 5.~~	ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market ~~Information~~ for our ~~Class A~~ Common Stock

Our Class A common stock began trading publicly on the NASDAQ Global Market under the symbol "APPF" on June 26, 2015. Prior to that date, there was no public trading market for our Class A common stock. ~~The following table sets forth the high and low intraday sales prices per share of our~~

Our Class AB common stock ~~as reported~~is not listed or traded on ~~the NASDAQ Global Market for the periods indicated:~~any stock exchange.

High Low
Year ended December 31, 2017:
First quarter $ 27.90
$ 21.63
Second quarter $ 35.20
$ 25.05
Third quarter $ 48.40
$ 31.15
Fourth quarter $ 52.25
$ 39.60

High Low
Year ended December 31, 2016:
First quarter $ 15.19
$ 11.07
Second quarter $ 15.57
$ 12.07
Third quarter $ 19.98
$ 14.12
Fourth quarter $ 24.50
$ 18.27

Holders of Record

~~As of~~At February ~~1, 2018,~~15, 2021, there were 3023 holders of record of our Class A common stock and ~~116~~78 holders of record of our Class B common stock. Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Dividend Policy

We have never declared or paid any cash dividends on our capital stock. We ~~have no plans~~do not anticipate declaring or paying any cash dividends to ~~declare or pay any dividends on~~holders of our capital stock in the foreseeable future and intend to retain all future earnings ~~if any, generated by our operations~~ for use in the growth of our business. ~~Any~~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 decision to declare or pay dividends will be made by our board of directors in its sole discretion and will depend upon our financial condition, results of operations, capital requirements, general economic conditions and other factors that our board of directors deems relevant at the time of its decision.gains on their investment. Investors should not purchase our Class A common stock with the expectation of receiving cash dividends. ~~In addition, the terms of our Credit Agreement may restrict our ability to pay dividends.~~

~~Stock Repurchase Program~~

~~Our board of directors may, from time to time, authorize our management to repurchase shares of our Class A common stock in open market transactions, privately negotiated transactions or otherwise.~~

Stock Performance Graph

The following performance graph compares the cumulative total return on our Class A common stock with that of the S&P 500 Index and the NASDAQ Computer Index. This chart assumes $100 was invested in our Class A common stock at the close of market on ~~June 26,~~December 31, 2015, ~~which was our initial trading day,~~and in ~~our Class A common stock,~~ the S&P 500 Index and the NASDAQ Computer Index, and assumes the reinvestment of any dividends.

The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.

This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any of our other filings under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Unregistered Sales of Equity Securities and Purchases of Equity Securities

None.

~~Use of Proceeds~~

~~None.~~

ITEM 6. SELECTED FINANCIAL DATA

The following tables ~~provide~~present our historical selected consolidated financial data for the periods indicated. We have derived the selected Consolidated Statements of Operations data for the fiscal years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018 and the selected Consolidated Balance Sheet data ~~as of~~at December 31, ~~2017~~2020 and ~~2016~~2019 from our audited Consolidated Financial Statements included elsewhere in this Annual Report. We have derived the selected Consolidated Statements of Operations data for the fiscal years ended December 31, ~~2014~~2017 and ~~2013~~2016 and the selected Consolidated Balance Sheet data ~~as of~~at December 31, ~~2015, 2014~~2018, 2017 and ~~2013~~2016 from our audited Consolidated Financial Statements, which are not included in this Annual Report. Our historical results are not necessarily indicative of the results we expect in the future.

The following historical selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, the section of this Annual Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report.


	Year Ended December 31,																Year Ended December 31,
	2017			2016			2015			2014			2013				2020 (1)		2019 (2)		2018 (3)		2017		2016
	(in thousands, except per share data)																(in thousands, except per share data)
Consolidated Statements of Operations Data:																Consolidated Statements of Operations Data:

Revenue	$	143,803		$	105,586		$	74,977		$	47,671		$	26,542		Revenue	$	310,056	$	256,012	$	190,071	$	143,803	$	105,586
Costs and operating expenses:																Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)⁽¹⁾	55,283			44,630			33,903			22,555			13,616
Sales and marketing⁽¹⁾	28,709			28,827			26,076			16,876			10,337
Research and product development⁽¹⁾	16,578			12,638			9,554			6,505			5,057
General and administrative⁽¹⁾	21,199			17,979			14,343			6,489			2,286
Cost of revenue (exclusive of depreciation and amortization)(4)																Cost of revenue (exclusive of depreciation and amortization)(4)	119,029		101,642		73,549		55,283		44,630
Sales and marketing(4)																Sales and marketing(4)	58,445		51,528		33,288		28,709		28,827
Research and product development(4)																Research and product development(4)	48,529		39,508		24,111		16,578		12,638
General and administrative(4)																General and administrative(4)	47,480		34,478		24,891		21,199		17,979
Depreciation and amortization	12,699			9,935			6,104			3,805			2,850			Depreciation and amortization	26,790		22,395		14,576		12,699		9,935
Total costs and operating expenses	134,468			114,009			89,980			56,230			34,146			Total costs and operating expenses	300,273		249,551		170,415		134,468		114,009
Income (loss) from operations	9,335			(8,423		)	(15,003		)	(8,559		)	(7,604		)	Income (loss) from operations	9,783		6,461		19,656		9,335		(8,423)
Other income (expense), net	(96		)	(37		)	5			(121		)	287			Other income (expense), net	188,897		16		(56)		(96)		(37)
Interest income (expense), net	535			246			(595		)	59			12
Interest (expense) income, net																Interest (expense) income, net	(1,849)		(1,654)		787		535		246
Income (loss) before provision for income taxes	9,774			(8,214		)	(15,593		)	(8,621		)	(7,305		)	Income (loss) before provision for income taxes	196,831		4,823		20,387		9,774		(8,214)
Provision for income taxes	58			67			75			—			—
Provision for (benefit from) income taxes																Provision for (benefit from) income taxes	38,428		(31,459)		420		58		67
Net income (loss)	$	9,716		$	(8,281	)	$	(15,668	)	$	(8,621	)	$	(7,305	)	Net income (loss)	$	158,403	$	36,282	$	19,967	$	9,716	$	(8,281)
Net income (loss) per common share:																Net income (loss) per common share:
Basic	0.29			(0.25		)	(0.73		)	(0.98		)	(0.87		)	Basic	$	4.62	$	1.07	$	0.59	$	0.29	$	(0.25)
Diluted	0.28			(0.25		)	(0.73		)	(0.98		)	(0.87		)	Diluted	$	4.44	$	1.02	$	0.56	$	0.28	$	(0.25)
Weighted average common shares outstanding:																Weighted average common shares outstanding:
Basic	33,849			33,561			21,336			8,757			8,437			Basic	34,264		34,016		34,128		33,849		33,561
Diluted	35,151			33,561			21,336			8,757			8,437			Diluted	35,713		35,567		35,562		35,151		33,561
⁽¹⁾ Includes stock-based compensation expense as follows (in thousands):
(1) MyCase was divested on September 30, 2020. The results of MyCase have been included in our results of operations through the date of divestiture. Refer to Note 3, Divestitures and Business Combinations of our Consolidated Financial Statements included elsewhere in this Annual Report for additional information regarding this transaction.																(1) MyCase was divested on September 30, 2020. The results of MyCase have been included in our results of operations through the date of divestiture. Refer to Note 3, Divestitures and Business Combinations of our Consolidated Financial Statements included elsewhere in this Annual Report for additional information regarding this transaction.
(2) We acquired Dynasty on January 7, 2019. The results of Dynasty have been included in our results of operations from the date of acquisition. Refer to Note 3, Divestitures and Business Combinations of our Consolidated Financial Statements included elsewhere in this Annual Report for additional information regarding this transaction.																(2) We acquired Dynasty on January 7, 2019. The results of Dynasty have been included in our results of operations from the date of acquisition. Refer to Note 3, Divestitures and Business Combinations of our Consolidated Financial Statements included elsewhere in this Annual Report for additional information regarding this transaction.
(3) We acquired WegoWise on August 31, 2018. The results of WegoWise have been included in our results of operations from the date of acquisition.																(3) We acquired WegoWise on August 31, 2018. The results of WegoWise have been included in our results of operations from the date of acquisition.
(4) The following table presents stock-based compensation expense included in each respective expense category:																(4) The following table presents stock-based compensation expense included in each respective expense category:

Year Ended December 31,
2017 2016 2015
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization) $ 725
$ 471
$ 124
Sales and marketing 723
442
115
Research and product development 657
382
41
General and administrative 3,991
3,006
727
Total stock-based compensation expense $ 6,096
$ 4,301
$ 1,007

Revenue

Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
2017 2016 2015
(dollars in thousands)
Core solutions $ 57,132
$ 43,775
$ 32,119
31 % 36 %
Value+ services 80,847
56,965
37,998
42 % 50 %
Other 5,824
4,846
4,860
20 % — %
Total revenues $ 143,803
$ 105,586
$ 74,977
36 % 41 %

~~Fiscal 2017 Compared to Fiscal 2016~~


	Year Ended December 31,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Core solutions	$	100,938	$	88,581	$	12,357	14	%
Value+ services	195,146		153,994		41,152		27	%
Other	13,972		13,437		535		4	%
Total revenue	$	310,056	$	256,012	$	54,044	21	%

Revenue ~~increased $38.2~~derived from our software and solutions offered to the real estate vertical for the years ended December 31, 2020 and 2019 was $284.7 million and $231.1 million, respectively, an increase of $53.6 million, or ~~36%, in 2017 compared to 2016, the substantial majority due~~23%. This increase was primarily attributable to the growth in the number of property ~~manager~~management customers and units under ~~management. We experienced a 17% year over year~~management utilizing our software and services. The remaining revenue was attributed to our legacy legal vertical.

Core solutions revenue derived from our real estate vertical for the years ended December 31, 2020 and 2019 was $86.5 million and $72.6 million, respectively, an increase of $13.9 million or 19%. Value+ services revenue derived from our real estate vertical for the years ended December 31, 2020 and 2019 was $184.2 million and $145.2 million, respectively, an increase of $39.1 million or 27%. The increase in ~~the number~~core solutions and Value+ services revenue was mainly attributable to growth in our base of property ~~manager~~management customers and ~~a 21% year over year increase~~growth in users of our subscription and usage-based services. During this period we experienced growth of 17% in the average number of property management units under ~~management. Revenue~~management resulting from 10% growth in the average number of property management customers during the period.

Our electronic payment services experienced increased demand during the current year as residents, property managers, owners and customers transacted more business online, which we attribute in part to the response to the COVID-19 pandemic. It is unclear whether the trend will continue over the long-term. During the comparative period, we also introduced new Value+ services and expanded the functionality of others, which resulted in incremental revenue. A significant majority of our Value+ services ~~increased by $23.9 million, or 42%, in 2017 compared to 2016, mainly driven by increased usage~~revenue comes directly and indirectly from the use of our electronic ~~payments~~payment services, tenant screening services, and ~~screening~~the insurance services by a larger property manager customer and unit base. We also experienced growth in each of our other Value+ services during that period. Core solutions revenue increased $13.4 million, or 31%, in 2017 comparedwe make available to ~~2016, mainly attributed to the growth in the number of our property manager customers, units under management, and strong customer renewal rates.~~

~~In each of 2017 and 2016, we derived more than 90% of our revenue from our property manager~~ customers.

~~Fiscal 2016 Compared to Fiscal 2015~~

Revenue increased $30.6 million, or 41%, in 2016 compared to 2015, mainly reflecting increased revenue from a 22% year over year increase in the number of our property manager customers. The overall increase in revenue was mostly attributable to revenue from Value+ services which increased by $19.0 million, or 50% when compared to the prior year. The increase in Value+ services was mainly driven by increased usage of our electronic payments services and screening services by a larger property manager customer base, and the increase in property manager units under management of 25% year over year. We also had strong growth in our legal liability to landlord insurance programs, customer contact center and website hosting services offered within our Value+ services. In addition, during 2016, we launched Premium Leads as a Value+ services for our property manager customers. The overall increase in revenue was also the result of an increase in revenue from our core solutions of $11.7 million, or 36%, driven by the growth in the number of our customers, units under management, and strong customer renewal rates.

~~In each of 2016 and 2015, we derived more than 90% of our revenue from our property manager customers.~~

Cost of Revenue (Exclusive of Depreciation and Amortization)

Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
2017 2016 2015
(dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization) $ 55,283
$ 44,630
$ 33,903
24 % 32 %
Percentage of revenue 38.4 % 42.3 % 45.2 %

~~Fiscal 2017 Compared to Fiscal 2016~~


	Year Ended December 31,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization)	$	119,029		$	101,642		$	17,387	17	%
Percentage of revenue	38.4		%	39.7		%
Stock-based compensation, included above	$	1,506		$	1,466		$	40	3	%

Cost of revenue ~~(exclusive~~related to our software and solutions offered to the real estate vertical for the years ended December 31, 2020 and 2019 was $109.7 million and $93.0 million, respectively, an increase of ~~depreciation and amortization) increased $10.7~~$16.7 million, or ~~24%, in 2017 compared~~18%. This increase was primarily attributable to ~~2016 based on~~increased costs associated with servicing the ~~36% increase~~incremental $53.6 million in revenue over the same ~~period.~~period, partially offset by third-party service provider incentives earned of $2.0 million. The ~~increase~~remaining cost of revenue was ~~primarily due~~attributed to our legacy legal vertical.

Expenditures to third-party service providers related to the delivery of our Value+ services to the real estate vertical increased ~~expenditures to third parties of $7.0~~$6.9 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the ~~42%~~$39.1 million increase in Value+ services ~~revenues. There~~revenue to the real estate vertical. Partially offsetting this increase was ~~also~~$2.0 million of annual maximum incentives earned during the period from third-party service providers related to programs intended to increase adoption and utilization of online payments. Personnel-related costs, including performance-based compensation, necessary to support growth and key investments, increased $7.8 million. Allocated shared costs increased by $2.1 million primarily driven by an increase in ~~personnel-related~~platform infrastructure costs, partially offset by a reduction of ~~$2.3 million due~~allocated expenses attributed to ~~an increase~~a decrease in ~~headcount to support the continued growth of our business, as well as increased allocated~~workplace-related and other ~~costs~~expenditures in response to the impact of ~~$1.3 million driven by expanded facilities, IT and other expenses supporting our growth.~~the COVID-19 pandemic.

As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) ~~improved~~fluctuates primarily based on the mix of Value+ services revenue in the period, given the varying percentage of revenue we pay to 38.4%, from 42.3% for the year ended December 31, 2017 compared to the year ended December 31, 2016. This improvement was primarily driven by our ability to increase revenue with a more moderate increase in personnel-related costs, and a slight improvement in pricing with our third-party service providers, ~~as we continue to grow.~~

~~Fiscal 2016 Compared to Fiscal 2015~~

~~Cost~~and investments made in advance of expected revenue ~~(exclusive of depreciation and amortization) increased $10.7 million, or 32%, in 2016 compared to 2015. The increase was primarily due to increased~~generation. Excluding the third-party costs of $5.0 million driven by increased Value+ services, increased personnel-related costs of $3.9 million due to our headcount growth, as well as increased allocated and other costs of $1.8 million driven by expanded facilities, IT and other shared expenses supporting our growth.

~~As a percentage of revenue,~~service provider incentives earned during the period, cost of revenue (exclusive of depreciation and amortization) ~~improved 2.9~~, as a percentage ~~points~~of revenue decreased to 39.2% from 40.2%. This decrease in ~~2016 compared to 2015. The improvement~~cost as a percentage of revenue was primarily driven by ~~a decrease in personnel-related costs due to our ability to increase~~the mix of Value+ services revenue with ~~a more moderate increase in headcount, and a decrease in third-party costs due to improved pricing with our third-party service providers as we continue to grow.~~varying underlying costs.

Sales and Marketing

Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
2017 2016 2015
(dollars in thousands)
Sales and marketing $ 28,709
$ 28,827
$ 26,076
— % 11 %
Percentage of revenue 20.0 % 27.3 % 34.8 %

~~Fiscal 2017 Compared to Fiscal 2016~~


	Year Ended December 31,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Sales and marketing	$	58,445		$	51,528		$	6,917	13	%
Percentage of revenue	18.8		%	20.1		%
Stock-based compensation, included above	$	1,415		$	1,271		$	144	11	%

Sales and marketing expense ~~remained relatively flat year over year as we focused upmarket~~related to our software and solutions offered to the real estate vertical for the years ended December 31, 2020 and 2019 was $52.5 million and $44.5 million, respectively, an increase of $8.0 million, or 18%. This increase was primarily due to a $6.7 million increase in personnel-related costs, including performance-based compensation, necessary to support growth and key investments in the ~~SMB space~~business. Advertising and ~~acquired fewer yet larger property manager customers. We~~promotion costs increased by $2.4 million due to increased online advertising and virtual marketing events aimed at increasing revenue and supporting growth in the business. In addition, there was a decrease in allocated and other costs of $1.1 million related to the elimination of event-related travel from cancelled or postponed events and the reduction of workplace-related and other non-essential expenditures in response to the impact of the COVID-19 pandemic.

As a percentage of revenue, sales and marketing expense decreased to 18.4% from 19.2% for fiscal 2020 compared to fiscal 2019. This leverage in cost as a percentage of revenue was primarily driven by the reduction of event related travel and other non-essential expenditures as a result of the COVID-19 pandemic. Notwithstanding the leverage in cost as a percentage of revenue, we intend to continue to invest in sales and marketing ~~as we grow~~ to increase ~~the size of~~ our customer base and increase the adoption and utilization of ~~our~~ Value+ services ~~by our new and existing customers.~~over time.

~~Fiscal 2016 Compared to Fiscal 2015~~

Sales and marketing expense increased $2.8 million, or 11%, in 2016 compared to 2015. The increase was primarily due to increased personnel-related costs of $2.6 million due to our headcount growth and related commission-based compensation, and increased allocated and other costs of $0.2 million driven by expanded facilities, IT and other shared expenses supporting our growth.

Research and Product Development


	Year Ended December 31,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Research and product development	$	48,529		$	39,508		$	9,021	23	%
Percentage of revenue	15.7		%	15.4		%
Stock-based compensation, included above	$	1,818		$	1,411		$	407	29	%

Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
2017 2016 2015
(dollars in thousands)
Research and product development $ 16,578
$ 12,638
$ 9,554
31 % 32 %
Percentage of revenue 11.5 % 12.0 % 12.7 %

~~Fiscal 2017 Compared to Fiscal 2016~~

Research and product development expense ~~increased $3.9~~related to our software and solutions offered to the real estate vertical for the years ended December 31, 2020 and 2019 was $43.8 million and $34.0 million, respectively, an increase of $9.8 million, or ~~31%, in 2017 compared to 2016. The~~29%. This increase was ~~primarily~~ the result of an increase in personnel-related costs, net of capitalized software development costs, of ~~$3.7~~$11.3 million due to investments in headcount growth within our research and product development organizations. We intend to continue to invest in research and product development as we continue to introduce additional core functionality to our existing customers, roll out new Value+ services to attract new customers and expand offerings to existing customers, develop new products to serve new or existing customers and expand into adjacent markets or new verticals.

~~Fiscal 2016 Compared to Fiscal 2015~~

~~Research and product development expense increased $3.1 million, or 32%, in 2016 compared to 2015. The~~organization. This increase was ~~primarily due to increased personnel-related costs, net of capitalized software development costs of $1.9 million, due to our headcount growth and rate of innovation and increased~~partially offset by a decrease in allocated and other costs of ~~$1.1~~$1.4 million ~~driven by expanded facilities, IT~~primarily related to the reduction of workplace-related and other ~~shared expenses supporting our growth.~~non-essential expenditures in response to the impact of the COVID-19 pandemic.

General and Administrative


	Year Ended December 31,						Change
	2020			2019			Amount		%
	(dollars in thousands)
General and administrative	$	47,480		$	34,478		$	13,002	38	%
Percentage of revenue	15.3		%	13.5		%
Stock-based compensation, included above	$	4,286		$	3,161		$	1,125	36	%

Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
2017 2016 2015
(dollars in thousands)
General and administrative $ 21,199
$ 17,979
$ 14,343
18 % 25 %
Percentage of revenue 14.7 % 17.0 % 19.1 %

~~Fiscal 2017 Compared to Fiscal 2016~~

General and administrative expense ~~increased $3.2~~related to our software and solutions offered to the real estate vertical and general corporate overhead expenses for the years ended December 31, 2020 and 2019 was $46.1 million and $33.4 million, respectively, an increase of $12.7 million, or ~~18%, in 2017 compared to 2016.~~38%. The increase in general and administrative expense was primarily ~~the result of an~~due to a $7.4 million increase in personnel-related costs, including performance-based compensation, due to investments in headcount growth within our general and administrative organizations. In addition, there was a $4.3 million legal settlement expense recorded during the current period related to our compliance with certain regulations in our tenant screening business. For additional information regarding this legal settlement, refer to Note 11, Commitments and Contingencies, of our Consolidated Financial Statements. There was also an increase in ~~incentive-based compensation. The increase in incentive-based compensation is~~professional services fees and other costs of $2.3 million related to the MyCase Transaction. Allocated and other costs decreased $1.4 million primarily due to the ~~stock option modification~~reduction of workplace-related and other non-essential expenditures in response to the impact of the ~~Company's former Chief Executive Officer who announced his retirement on August 17, 2017.~~COVID-19 pandemic.

~~Fiscal 2016 Compared~~We expect stock-based compensation expense will continue to ~~Fiscal 2015~~

~~General and administrative expense increased $3.6 million, or 25%,~~decrease for certain executives in ~~2016 compared to 2015. The increase was primarily due to increased personnel-related costs~~light of ~~$4.4 million due to headcount growth and incentive-based compensation programs partially off-set by decreased allocated and other costs~~our adoption of ~~$0.7 million related to certain costs incurred~~the Long-Term Cash Bonus Plan in ~~2015 for our initial public offering, or IPO, and incremental compensation paid to certain RentLinx personnel related to~~2018. No accrual has yet been made under this plan as a result of the ~~acquisition that did not reoccur in 2016.~~high degree of uncertainty regarding potential future payments under the plan.

Depreciation and Amortization

Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
2017 2016 2015
(dollars in thousands)
Depreciation and amortization $ 12,699
$ 9,935
$ 6,104
28 % 63 %
Percentage of revenue 8.8 % 9.4 % 8.1 %

~~Fiscal 2017 Compared to Fiscal 2016~~


	Year Ended December 31,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Depreciation and amortization	$	26,790		$	22,395		$	4,395	20	%
Percentage of revenue	8.6		%	8.7		%

Depreciation and amortization expense ~~increased $2.8~~related to our software and solutions offered to the real estate vertical for the years ended December 31, 2020 and 2019 was $25.0 million and $20.0 million, respectively, an increase of $5.0 million, or ~~28%,~~25%. This increase in ~~2017 compared to 2016. The increase was the result of increased amortization expense associated with higher capitalized software development balances.~~

~~Fiscal 2016 Compared to Fiscal 2015~~

~~Depreciation~~depreciation and amortization expense ~~increased $3.8 million, or 63%, in 2016 compared to 2015. The increase~~ was primarily due to increased amortization expense ~~of $2.8 million related to increased~~associated with higher accumulated capitalized software development ~~balances and increased depreciation expense of $0.9 million from capital purchases and building improvements made during 2016.~~balances.

~~Interest~~Other Income, net


	Year Ended December 31,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Other income, net	$	188,897		$	16		$	188,881	*
Percentage of revenue	60.9		%	—		%

Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
2017 2016 2015
(dollars in thousands)
Interest income (expense), net $ 535
$ 246
$ (595 ) 117 % N/A
Percentage of revenue 0.4 % 0.2 % (0.8 )%
*Percentage not meaningful

~~Fiscal 2017 Compared to Fiscal 2016~~

~~Interest~~The increase in other income, net ~~increased by $0.3 million in 2017 compared to 2016. The increase is primarily the result of higher investment security balances in the more recent period.~~

~~Fiscal 2016 Compared to Fiscal 2015~~

~~Interest income, net increased by $0.8 million in 2016 compared to 2015. The increase is~~was primarily due to ~~holding investment securities for a full year~~the gain of $187.7 million associated with the MyCase Transaction. Additionally, there was $1.1 million in ~~2016 versus a few months in 2015, resulting in increased interest~~other income recorded during the fourth quarter of ~~$0.2 million. In addition, interest expense decreased $0.6 million~~fiscal 2020 related to ~~our term loan repaid in 2015 and the associated write-off of deferred financing costs.~~certain post-closing transition services provided to MyCase.

Provision for (Benefit from) Income Taxes


	Year Ended December 31,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Provision for (benefit from) income taxes	$	38,428		$	(31,459)		$	69,887	*
Percentage of revenue	12.4		%	(12.3)		%

*Percentage not meaningful

Year Ended December 31, 2016 to 2017 % Change 2015 to 2016 % Change
2017 2016 2015
(dollars in thousands)
Provision for income taxes $ 58
$ 67
$ 75
(13 )% (11 )%
Percentage of revenue — % 0.1 % 0.1 %

For the year ended December 31, 2020, we recorded income tax expense of $38.4 million. The tax provision for ~~income taxes relates~~the year ended December 31, 2020 includes tax expense of $51.3 million relating to ~~minimum~~the MyCase Transaction which includes $52.3 million of current tax expense on the 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, we plan to file an election to treat the transaction as a sale of assets. As such, the tax impact takes into consideration the tax basis of the assets on the date of sale and the availability of net operating losses and research and development tax credits. The effective tax rate as compared to the U.S. federal statutory rate of 21% differs primarily due to state income taxes and the ~~amortization~~benefits associated with stock-based compensation expense and research and development tax credits.

For the year ended December 31, 2019, we recorded an income tax benefit of ~~tax deductible goodwill from~~$31.5 million. During the ~~purchase~~second quarter of ~~RentLinx~~2019, we evaluated all available positive and negative evidence, including our sustained profitability in ~~2015~~2018 and 2019, and the impact of recent acquisitions and future projections of profitability. As a result, we determined that ~~is not an available source~~all of ~~income to realize the~~our deferred tax ~~asset.~~assets were more likely than not to be realized and reversed the valuation allowance against those deferred tax assets accordingly.

Quarterly Results of Operations

The following table ~~sets forth~~presents selected unaudited quarterly consolidated statements of operations data for each of the eight quarters during the years ended December 31, ~~2017~~2020 and December 31, ~~2016.~~2019. We have prepared the unaudited quarterly consolidated statements of operations data on a basis consistent with the audited annual Consolidated Financial Statements included elsewhere in this Annual Report. In ~~the~~management's opinion, ~~of management,~~ the financial information in this table reflects all ~~adjustments, consisting of~~ normal and recurring adjustments necessary for the fair statement of this data. This information should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Annual Report. The results of historical periods are not necessarily indicative of the results for any future ~~period.~~periods.

Quarter Ended
2017 2016
December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue $ 37,897
$ 37,903
$ 35,877
$ 32,126
$ 28,010
$ 28,162
$ 26,203
$ 23,211
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)⁽¹⁾
14,536
14,053
13,701
12,993
11,243
11,645
11,212
10,530
Sales and marketing⁽¹⁾
7,153
7,257
7,192
7,107
6,730
6,979
7,567
7,551
Research and product development⁽¹⁾
4,580
4,367
4,002
3,629
3,107
3,464
3,024
3,043
General and administrative⁽¹⁾
5,889
5,405
5,101
4,804
5,399
4,642
4,389
3,549
Depreciation and amortization 3,352
3,237
3,114
2,996
2,823
2,636
2,359
2,117
Total costs and operating expenses 35,510
34,319
33,110
31,529
29,302
29,366
28,551
26,790
Income (loss) from operations 2,387
3,584
2,767
597
(1,292 ) (1,204 ) (2,348 ) (3,579 )
Other income (expense), net (3 ) (5 ) (60 ) (28 ) (3 ) (12 ) 2
(24 )
Interest income, net 158
155
120
102
25
102
95
24
Income (loss) before provision for income taxes 2,542
3,734
2,827
671
(1,270 ) (1,114 ) (2,251 ) (3,579 )
Income tax (benefit) provision (35 ) 52
30
11
19
11
13
24
Net income (loss) $ 2,577
$ 3,682
$ 2,797
$ 660
$ (1,289 ) $ (1,125 ) $ (2,264 ) $ (3,603 )
Net income (loss) per common share:
Basic $ 0.08
$ 0.11
$ 0.08
$ 0.02
$ (0.04 ) $ (0.03 ) $ (0.07 ) $ (0.11 )
Diluted $ 0.07
$ 0.10
$ 0.08
$ 0.02
$ (0.04 ) $ (0.03 ) $ (0.07 ) $ (0.11 )


	Quarter Ended
	December 31,		September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
	2020								2019
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue	$	72,432	$	84,086	$	81,043	$	72,495	$	67,362	$	67,935	$	63,624	$	57,091
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization) (1)	29,905		32,752		27,411		28,961		26,403		25,930		25,128		24,181
Sales and marketing (1)	15,328		14,894		13,717		14,506		14,441		12,636		13,232		11,219
Research and product development (1)	11,735		13,454		12,128		11,212		11,086		10,602		9,339		8,481
General and administrative (1)	11,177		12,946		14,785		8,572		9,117		8,955		8,214		8,192
Depreciation and amortization	7,039		6,680		6,657		6,414		6,226		5,678		5,415		5,076
Total costs and operating expenses	75,184		80,726		74,698		69,665		67,273		63,801		61,328		57,149
(Loss) income from operations	(2,752)		3,360		6,345		2,830		89		4,134		2,296		(58)
Other income (expense), net	1,138		187,747		(10)		22		84		(11)		(56)		(1)
Interest income (expense), net	60		(853)		(562)		(494)		(330)		(400)		(427)		(497)
(Loss) income before (benefit from) provision for income taxes	(1,554)		190,254		5,773		2,358		(157)		3,723		1,813		(556)
(Benefit from) provision for income taxes	(1,041)		52,578		(13,484)		375		(4,585)		(1,255)		(21,338)		(4,281)
Net (loss) income	$	(513)	$	137,676	$	19,257	$	1,983	$	4,428	$	4,978	$	23,151	$	3,725
Net (loss) income per common share:
Basic	$	(0.01)	$	4.01	$	0.56	$	0.06	$	0.13	$	0.15	$	0.68	$	0.11
Diluted	$	(0.01)	$	3.86	$	0.54	$	0.06	$	0.12	$	0.14	$	0.65	$	0.11

⁽¹⁾~~Includes~~ The following table presents stock-based compensation expense ~~as follows (in thousands):~~included in each respective expense category:


	Quarter Ended
	December 31,		September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
	2020								2019
	(in thousands)
Stock-based compensation expense included in costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)	$	408	$	452	$	520	$	126	$	393	$	334	$	415	$	324
Sales and marketing	346		367		477		225		367		354		302		248
Research and product development	470		474		580		294		387		353		363		308
General and administrative	993		1,803		1,176		314		731		1,151		607		672
Total stock-based compensation expense	$	2,217	$	3,096	$	2,753	$	959	$	1,878	$	2,192	$	1,687	$	1,552

Quarter Ended
2017 2016
December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
(in thousands)
Cost of revenue (exclusive of depreciation and amortization) $ 198
$ 189
$ 209
$ 129
$ 150
$ 138
$ 138
$ 45
Sales and marketing 207
186
210
120
146
124
130
42
Research and product development 186
173
182
116
118
109
104
51
General and administrative 1,201
1,040
1,018
732
1,043
918
720
325
Total stock-based compensation expense $ 1,792
$ 1,588
$ 1,619
$ 1,097
$ 1,457
$ 1,289
$ 1,092
$ 463

The following table ~~sets forth~~presents selected consolidated statements of operations data for the specified periods as a percentage of our revenue for those periods:


	Quarter Ended
	December 31,		September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
	2020								2019
Consolidated Statements of Operations Data:
Revenue	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)	41.3		39.0		33.8		39.9		39.2		38.2		39.5		42.4
Sales and marketing	21.2		17.7		16.9		20.0		21.4		18.6		20.8		19.7
Research and product development	16.2		16.0		15.0		15.5		16.5		15.6		14.7		14.9
General and administrative	15.4		15.4		18.2		11.8		13.5		13.2		12.9		14.3
Depreciation and amortization	9.7		7.9		8.2		8.8		9.2		8.4		8.5		8.9
Total costs and operating expenses	103.8		96.0		92.2		96.1		99.9		93.9		96.4		100.1
(Loss) income from operations	(3.8)		4.0		7.8		3.9		0.1		6.1		3.6		(0.1)
Other income (expense), net	1.6		223.3		—		—		0.1		—		(0.1)		—
Interest income (expense), net	0.1		(1.0)		(0.7)		(0.7)		(0.5)		(0.6)		(0.7)		(0.9)
(Loss) income before (benefit from) provision for income taxes	(2.1)		226.3		7.1		3.3		(0.2)		5.5		2.8		(1.0)
(Benefit from) provision for income taxes	(1.4)		62.5		(16.6)		0.5		(6.8)		(1.8)		(33.5)		(7.5)
Net (loss) income	(0.7)	%	163.7	%	23.8	%	2.7	%	6.6	%	7.3	%	36.3	%	6.5	%

Quarter Ended
2017 2016
December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
Consolidated Statements of Operations Data:
Revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization) 38.4
37.1
38.2
40.4
40.1
41.4
42.8
45.4
Sales and marketing 18.9
19.1
20.0
22.1
24.0
24.8
28.9
32.5
Research and product development 12.1
11.5
11.2
11.3
11.1
12.3
11.5
13.1
General and administrative 15.5
14.3
14.2
15.0
19.3
16.5
16.7
15.3
Depreciation and amortization 8.8
8.5
8.7
9.3
10.1
9.4
9.0
9.1
Total costs and operating expenses 93.7
90.5
92.3
98.1
104.6
104.3
109.0
115.4
Income (loss) from operations 6.3
9.5
7.7
1.9
(4.6 ) (4.3 ) (9.0 ) (15.4 )
Other income (expense), net —
—
(0.2 ) (0.1 ) —
—
—
(0.1 )
Interest income, net 0.4
0.4
0.3
0.3
0.1
0.4
0.4
0.1
Income (loss) before provision for income taxes 6.7
9.9
7.9
2.1
(4.5 ) (4.0 ) (8.6 ) (15.4 )
Provision for income taxes (0.1 ) 0.1
0.1
—
0.1
—
—
0.1
Net income (loss) 6.8 % 9.7 % 7.8 % 2.1 % (4.6 )% (4.0 )% (8.6 )% (15.5 )%
Seasonality

~~Quarterly Revenue and Cost Trends~~

Our quarterly revenue trends generally reflect increased revenue from our property manager customers. The overall increase was primarily a result of a quarter-over-quarter increase in the number of our customers, property manager units under management, as well as strong customer renewal rates, and an increase in Value+ services revenue primarily attributable to the expansion of our electronic payments platform and screening services. We experience ~~some~~limited seasonality in our Value+ services revenue, primarily with respect to ~~the screening~~certain leasing-related services we provide to our property ~~manager customers. These~~management customers, including our tenant screening services for rental prospects which also impact electronic payment services revenue. Our property management customers historically have processed fewer applications for ~~new tenants~~rental prospects during the fourth ~~quarter holiday season; therefore, revenue associated with our screening services and new tenant applications typically declines in the fourth quarter of the year.~~quarter. As a result of this seasonal decline in ~~revenue,~~activity, we have typically experienced overall slower sequential revenue growth or a sequential decline in revenue in the fourth quarter of each of our most recent fiscal years. We expect this seasonality to continue in the foreseeable future.

Overall, total costs and operating expenses as a percentage of revenue have improved during 2017 when compared to 2016, as we continue to realize operating leverage. Cost of revenue (exclusive of depreciation and amortization) fluctuated each quarter based on the mix of Value+ services and related third party costs. Research and product development costs fluctuated each quarter based on the amount of software development costs that were capitalized each quarter. General and administrative expenses fluctuated each quarter primarily due to the impact of increased compensation due to an increase in headcount and incentive based compensation.

Our quarter-over-quarter total costs and operating expenses as a percentage of revenue for each quarter during 2016 improved, with the exception of general and administrative expenses and depreciation and amortization, as we continue to realize operating leverage. General and administrative expenses fluctuated each quarter during 2016 primarily due to the impact of increased compensation due to an increase in headcount.

Liquidity and Capital Resources

Cash and Cash Equivalents

~~As of December 31, 2017 and 2016, our~~Our principal sources of liquidity ~~were~~continue to be comprised of our cash, cash equivalents, and investment securities, as well as cash flows generated from our operations. At December 31, 2020, our cash and cash equivalents and investment ~~securities-current and investment securities-noncurrent, which~~securities had an aggregate balance of ~~$68.3 million~~$175.3 million. During the year ended December 31, 2020, our cash and ~~$52.9 million, respectively.~~

cash equivalents increased primarily as a result of the proceeds from the MyCase Transaction.

Working Capital

~~As of~~At December 31, ~~2017,~~2020, we had working capital of ~~$29.9~~$149.5 million, compared to working capital of ~~$10.9~~$14.3 million ~~as of~~at December 31, ~~2016.~~2019. The increase in our working capital was primarily due to an increase in ~~the current portion of investment securities,~~ cash and cash equivalents ~~prepaid expenses and~~as a result of the net proceeds from the MyCase Transaction, a decrease in other current liabilities due to the payment of contingent consideration related to the Dynasty acquisition, an increase in investment securities-current, an increase in accounts receivable primarily driven by increased usage of our Value+ services, and a ~~decline~~decrease in deferred ~~revenue,~~revenue. The increase in our working capital was partially offset by an increase in income taxes payable related to the MyCase Transaction, and increases in ~~our~~ accrued ~~employee~~ expenses, and accrued ~~expenses from the continued growth of our business.~~

~~Revolving Facility~~

As of December 31, 2017, we had a $25.0 million revolving line of credit, which we refer to as our Revolving Facility, under the terms of our Credit Agreement with Wells Fargo, as administrative agent, and the lenders that are parties thereto. As of both December 31, 2017 and 2016, we had no outstanding balance under our Revolving Facility. For additional information regarding our Credit Agreement refer to Note 7, ~~Long-term Debt~~ ~~of our Consolidated Financial Statements included elsewhere in this Annual Report.~~employee expenses.

Liquidity Requirements

We have financed our operations primarily through cash generated from operations. We believe that our existing cash and cash equivalents, investment securities, ~~available borrowing capacity of $25.0 million under our Revolving Facility,~~ and cash generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next ~~twelve~~12 months.

Capital Requirements

Our future capital requirements will depend on many factors, including ~~the~~ continued market acceptance of our software solutions, ~~the change~~changes in the number of our customers, ~~the~~ 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, ~~in our existing markets and verticals,~~ the timing and extent of our expansion into adjacent ~~markets~~ or new ~~verticals and~~markets, the timing and extent of our investments across our ~~organization.~~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~~Board of ~~directors may, from time~~Directors has authorized the repurchase of up to ~~time, authorize our management to repurchase~~$100.0 million of shares of our Class A common stock ~~in open market transactions, privately negotiated transactions or otherwise.~~from time to time, as directed by a committee consisting of three directors. 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 12, Stockholders' Equity.

Cash Flows

The following table ~~summarizes~~presents our cash flows for the periods indicated (in thousands):

Year Ended
December 31,
2017 2016 2015
Net cash provided by (used in) operating activities $ 29,371
$ 11,500
$ (6,844 )
Net cash used in investing activities (22,828 ) (13,065 ) (59,367 )
Net cash (used in) provided by financing activities (1,133 ) 201
72,862
Net increase (decrease) in cash and cash equivalents $ 5,410
$ (1,364 ) $ 6,651


	Year Ended December 31,
	2020		2019
Net cash provided by operating activities	$	48,299	$	38,887
Net cash provided by (used in) investing activities	146,511		(89,874)
Net cash used in financing activities	(70,358)		(7,272)
Net increase (decrease) in cash and cash equivalents	$	124,452	$	(58,259)

Cash Provided by ~~(Used in)~~ 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 year ended December 31, ~~2017,~~2020, cash provided by operating activities was ~~$29.4~~$48.3 million resulting from our net income of ~~$9.7~~$158.4 million, adjusted by the gain related to the MyCase Transaction of $187.7 million, non-cash charges of ~~$18.9~~$68.6 million and a net increase in our operating assets and liabilities of ~~$0.7~~$8.9 million. The non-cash charges primarily consist of ~~$12.7~~a decrease in deferred taxes of $29.0 million, of depreciation and amortization costs of ~~our property~~$26.8 million, stock-based compensation expense of $9.0 million, and ~~equipment and capitalized software and $6.1 million~~amortization of ~~stock-based compensation.~~operating lease right-of-use assets of $3.7 million. The net increase in our operating assets and liabilities was mostly attributable to a ~~$3.2~~$9.4 million increase in other liabilities primarily driven by income taxes payable due to the MyCase Transaction, a $6.9 million increase in accrued ~~employee~~ expenses which includes a $4.3 million accrual related to ~~an overall increase in personnel-related costs. The increase in our operating assets and liabilities was partially offset by an increase in prepaid expenses and other current assets of $1.0 million,~~legal loss reserves, a ~~$0.9 million increase in accounts receivable, and a $0.6 million decrease in deferred revenue.~~

For the year ended December 31, 2016, cash provided by operating activities was $11.5 million resulting from our net loss of $8.3 million, adjusted by non-cash charges of $14.7 million and a net increase in our operating assets and liabilities of $5.0 million. The non-cash charges primarily consist of $9.9 million of depreciation and amortization of our property and equipment and capitalized software and $4.3 million of stock-based compensation. The net increase in our operating assets and liabilities

~~was mostly attributable to an increase of $2.7 million in deferred revenue in line with our increased revenues, a $2.2~~$2.8 million increase in accrued employee expenses related to an overall increase in personnel-related costs, and a ~~$1.1~~$0.5 million increase in accrued expenses primarily due to payment processing fees and fees associated with our resident screening services driven by growth in our Value+ services, and a $0.8 million increase in other liabilities. The increase in our operating assets and liabilities wasdeferred revenue. These increases were partially offset by a $2.8 million increase in accounts receivable primarily driven by growth of our Value+ services, an increase in prepaid expenses and other current assets of $5.9 million primarily driven by an increase in prepaid expenses to support the growth in our business, an increase in deposits held with a third party related to requirements to maintain collateral for our insurance services, and an increase in deferred costs, and a $0.9 million decrease in accounts payable due to timing of ~~$0.9 million, an increase in accounts receivable of $0.5 million, and an increase in our prepaid expenses and current assets of $0.4 million, in conjunction with our growth and expansion during 2016.~~ payments.

For the year ended December 31, ~~2015,~~2019, cash ~~used in~~provided by operating activities was ~~$6.8~~$38.9 million resulting from our net ~~loss~~income of ~~$15.7~~$36.3 million, adjusted by non-cash charges of ~~$6.8~~$2.4 million and a net increase in our operating assets and liabilities of ~~$2.1~~$0.2 million. The ~~net increase in our~~ non-cash charges ~~was~~ primarily consist of a one-time benefit of $31.5 million related to the ~~result~~release of ~~an increase of $6.1~~the valuation allowance for our deferred tax assets, offset by $22.4 million of depreciation and amortization of our property and equipment, intangible assets, and capitalized software ~~and $1.0~~development costs, $7.3 million of stock-based ~~compensation.~~compensation and $4.1 million of amortization of operating lease right-of-use ("ROU") assets. The net increase in our operating assets and liabilities was ~~mostly~~primarily attributable to an increase of ~~$1.9~~$4.5 million in accrued employee expenses related to an overall increase in personnel-related costs, a $1.4 million decrease in other assets, a $1.2 million increase in other liabilities and a $1.2 million increase in deferred revenue in line with our increased revenues, a $1.1 million increase in accrued expenses mostly attributed to payment processing fees driven by growth in our Value+ services, and a $1.0 million increase in other liabilities.revenue. The increase in our operating assets and liabilities was partially offset by ana $4.0 million increase in ~~our~~ prepaid expenses and other current assets, ~~of $1.9~~a $2.7 million andecrease in operating lease liabilities, and a $2.0 million increase in accounts receivable primarily driven by the growth in sales of ~~$0.7 million in conjunction with~~ our ~~growth and expansion during 2015, and a decrease in accounts payable of $0.4 million.~~Value+ services.

Cash ~~Used in~~Provided by (Used in) Investing Activities

Cash ~~used in~~provided by (used in) investing activities is generally comprised of proceeds from divestitures, purchases, maturities and sales of investment securities, purchases of property and equipment, additions to capitalized software development, and cash paid for business ~~acquisitions and capital expenditures.~~acquisitions.

For the year ended December 31, ~~2017,~~2020, investing activities ~~used $22.8~~provided $146.5 million in cash primarily ~~as a result~~due to net proceeds from the MyCase Transaction of ~~$26.6~~$191.4 million and the proceeds from maturities and sales of investment securities ~~purchased~~of $27.3 million and $16.7 million, respectively. These sources of cash were partially offset by ~~$16.5~~purchases of investment securities of $43.9 million, ~~of maturities. In addition, we had an increase in~~ capitalized software development costs of ~~$10.5~~$26.0 million, and capital expenditures of $19.0 million to purchase property and equipment primarily related to the growth and expansion of our headquarters in Santa Barbara, CA, a portion of which was reimbursed through tenant improvement allowances.

For the year ended December 31, 2019, investing activities used $89.9 million in cash primarily due to $54.0 million used to acquire Dynasty, as well as purchases of investment securities of $25.2 million, capitalized software development costs of $21.0 million for the continued investment in our software development, and capital expenditures of ~~$2.2~~$8.1 million to purchase property, equipment and ~~equipment~~intangible assets for the continued growth and expansion of our business. These uses were partially offset by sales and maturities of investment securities of $2.8 million and $15.7 million, respectively.

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, the payment of contingent consideration under acquisition arrangements, activities associated with our former Credit Facility, and activities related to the repurchase of our Class A common stock.

For the year ended December 31, ~~2016, investing~~2020, financing activities used ~~$13.1~~$70.4 million in cash primarily as a result of ~~$31.6~~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 ~~investment securities purchased~~RSUs of $12.2 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 ~~$21.3 million~~net proceeds from the Revolving Facility of maturities and $12.6 million of sales of investment securities. In addition, we had an increase in capitalized software development costs of $11.2 million for the continued investment in our software development, and capital expenditures of $4.2 million to purchase property and equipment for the continued growth and expansion of our business.$50.8 million.

For the year ended December 31, 2015, investing activities used $59.4 million in cash primarily as a result of $74.2 million of investment securities purchased offset by $26.1 million of maturities and $4.1 million of sales of investment securities. In addition, we had an increase in capitalized software development costs of $7.7 million for the continued investment in our software development, an increase in capital expenditures of $3.7 million to purchase property and equipment for the continued growth and expansion of our business. We also used $4.0 million of cash for the acquisition of RentLinx.

~~Cash (Used in) Provided by Financing Activities~~

Cash (used in) provided by financing activities is generally comprised of proceeds from our IPO, proceeds from the exercise of stock options and restricted stock awards, or RSAs, proceeds from the issuance of debt or draws from our Revolving Facility and principal repayments of our term loan and on our Revolving Facility.

~~For the year ended December 31, 2017,~~2019, financing activities used ~~$1.1 million in cash primarily as a result of tax withholdings from RSU net settlements offset by proceeds from stock option exercises.~~

For the year ended December 31, 2016, financing activities provided $0.2 million in cash primarily as a result of proceeds from stock option exercises offset by tax withholdings from RSU net settlements.

~~For the year ended December 31, 2015, financing activities provided $72.9~~$7.3 million in cash primarily as a result of net share settlements for employee tax withholdings associated with the vesting of RSUs of $6.2 million, as well as principal payments on debt of $3.4 million, and payments of debt issuance costs of $0.4 million, partially offset by proceeds from ~~the IPO in the amount~~issuance of ~~$75.4~~debt of $2.2 million ~~offset by a $2.4 million earnout payment relating to our acquisition~~and proceeds from stock option exercises of ~~MyCase.~~

$0.6 million.

Off-Balance Sheet Arrangements

At December 31, 2020, we did not have any off-balance sheet arrangements.

Contractual Obligations and Other Commitments

~~Our principal commitments consist of contractual obligations under our operating leases for office space.~~ The following table ~~summarizes~~presents our contractual obligations and other commitments ~~as of~~at December 31, ~~2017:~~2020:

Payments Due by Period

Total

Less than 1 year(1)

1 to 3 years

3 to 5 years

More than 5 years

(in thousands)

Operating lease obligations

52,692

(1,275)

9,327

10,172

34,468

Payments Due by Period
Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years
(in thousands)
Operating lease obligations $ 9,129
$ 2,446
$ 5,021
$ 1,662
$ —
(1) Operating lease obligations for the year ending December 31, 2021 are presented net of tenant improvement allowances of $5.2 million.

At December 31, ~~2017,~~2020, liabilities for unrecognized tax benefits of ~~$2.1~~$6.1 million were not included in our contractual obligations in the table above because, due to their nature, there is a high degree of uncertainty regarding the timing of future cash outflows and other events that would extinguish these liabilities.

For additional information regarding our contractual obligations, commitments and indemnification arrangements, refer to Note 8, 9, Leases and Note 11, Commitments and Contingencies of our Consolidated Financial Statements included elsewhere in this Annual Report.

~~Off-Balance Sheet Arrangements~~

~~As of December 31, 2017, we did not have any off-balance sheet arrangements.~~

Critical Accounting Policies and Estimates

Our ~~financial statements~~Consolidated Financial Statements and the related notes included elsewhere in this Annual Report are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our ~~financial statements~~Consolidated Financial Statements requires usmanagement 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 ~~costs~~ and ~~operating~~ expenses ~~provision for income taxes and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under~~during the ~~circumstances. However, actual~~reporting period. Actual results could differ ~~significantly~~materially from the estimates made by management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.those estimates.

We believe that the following critical accounting policies involve a greater degree of judgment or complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to a full understanding and evaluation of our Consolidated Financial Statements. For additional information, refer to Note 2, Summary of Significant Accounting Policies of our Consolidated Financial Statements included elsewhere in this Annual Report.

Revenue Recognition

We generate revenue ~~primarily~~ from our customers ~~for~~primarily through subscriptions to access our core solutions and Value+ services for our cloud-based ~~property management and legal~~ software solutions. ~~Subscription fees~~Revenue is recognized upon transfer of control of promised services in an amount that reflects the consideration we expect to receive in exchange for those services. We enter into contracts that can include various combinations of services, which are generally capable of being distinct, distinct within the context of the contract, and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

Contracts with Multiple Performance Obligations

Many of our contracts with customers contain multiple performance obligations. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment. We account for individual performance obligations separately if they are distinct. The performance obligations for these contracts include access and use of our core solutions, ~~are charged on a per-unit per-month basis for our property management software solution~~implementation services, and ~~on a per-user per-month basis for our legal software solution. We recognize subscription revenue on a straight-line basis over the terms~~customer support. Access and use of the subscription agreements, which range from one month to one year. We generally invoice our customers for subscription services in monthly, quarterly or annual installments, typically in advance of the subscription period. Any revenues which are billed in advance are recorded as deferred revenue.

~~We charge our customers on a subscription basis for~~ our core solutions and ~~many of our Value+ services. Our subscription fees~~implementation services are ~~designed~~considered distinct.

The transaction price is allocated to ~~scale~~each performance obligation on a relative standalone selling price basis. Judgment is required to determine the standalone selling price for each distinct performance obligation. We typically have more than one standalone selling price for individual products and services due to the ~~size~~stratification of those products and services by customers and circumstances. In these instances, we determine the standalone selling price based on our customers’ businesses. We also charge usage-based fees for using certain Value+ services, including electronic payment processing. Usage-based fees are charged on a flat fee per transaction basis with no minimum usage commitments. We recognize revenue for usage-based services in the period the service is rendered. We generally invoice our customers for usage-based services on a monthly basis for services rendered in the preceding month with the exception of fees for electronic payment processing, which are generally paid by our customers or the clients of our customers at the time the electronic payment is processed.

~~Our legal software core solution offers customers a free trial period to try our software. Revenue is not recognized until the free trial period is complete~~overall pricing objectives, taking into consideration customer demographics and ~~the customer has entered into a subscription agreement with us.~~

We recognize revenue when (i) there is persuasive evidence of an arrangement, (ii) our software solutions have been made available or delivered, or services have been performed, (iii) the amount of fees is fixed or determinable, and (iv) collectability is reasonably assured. Evidence of an arrangement generally consists of either a signed customer contract or an online click-through agreement. We consider that delivery of a solution or website has commenced once we provide the customer with access to use the solution or website.other factors. Fees are fixed based on rates specified in the subscription agreements, which do not provide for any refunds or adjustments. ~~If collectability is not considered reasonably assured, revenue is deferred until the fees are collected. Some~~

Capitalized Software Development Costs

Software development cost consist of ~~our subscription agreements contain minimum cancellation fees in the event that the customer cancels the subscription early.~~

~~Internal-Use Software~~

~~We account for the costs of computer software obtained or developed for internal use in accordance with ASC 350, Intangibles-Goodwill~~certain payroll and ~~Other. These include~~stock compensation costs incurred ~~in connection with the development~~to develop functionality of our internal-use software ~~solutions when (i) the preliminary project stage is completed, (ii) management has authorized further funding~~solutions. We capitalize certain software development costs for ~~the completion of the project and (iii) it is probable that the project will be completed and performed~~new offerings as intended. These capitalized costs include personnel and related expenses for employees who are directly associated with and who devote time to internal-use software projects and, when material, interest costs incurred during the development. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Costs incurred forwell as significant upgrades and enhancements to our existing software ~~solutions are also capitalized. Costs incurred for post-configuration training, maintenance and minor modifications or enhancements are expensed as incurred.~~solutions. Capitalized software development costs are amortized using the straight-line method over an estimated useful life of three years. We do not transfer ownership of our software, or lease our software, to third parties. We believe there are two key estimates within the capitalized software balance, which are the determination of the useful life of the software and the determination of the amounts to be capitalized.

We determined that a three year life is appropriate for our internal-use software based on our best estimate of the useful life of the internally developed software after considering factors such as continuous developments in the technology, obsolescence and anticipated life of the service offering before significant upgrades. Based on our prior experience, internally generated software will generally remain in use for a minimum of three years before being significantly replaced or modified to keep up with evolving customer and company needs. While we do not anticipate any significant changes to this three year estimate, a change in this estimate could produce a material impact on our financial statements.

We determine the amount of internal software costs to be capitalized based on the amount of time spent by our software engineers on projects. Costs associated with building or significantly enhancing our software solutions and new internally built software solutions are capitalized, while costs associated with planning new developments and maintaining our software solutions are expensed as incurred. There is judgment involved in estimating the stage of development as well as estimating time allocated to a particular project. A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods.

Business Combinations

The results of a business acquired in a business combination are included in our ~~consolidated financial statements~~Consolidated Financial Statements from the date of acquisition. We allocate the purchase price, including the fair value of contingent consideration, to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill.

Determining the fair value of assets acquired and liabilities assumed requires management to make significant judgments and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. We engage the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination.

Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an operating expense in the period in which the costs are incurred.

~~Goodwill and Intangible Assets~~

Goodwill and intangible assets are evaluated for impairment annually in the fourth quarter or whenever events or circumstances indicate the carrying value of goodwill may not be recoverable or when there is a triggering event. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate or a significant decline in expected cash flows.

When evaluating goodwill for impairment, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform the first of a two-step impairment test.

The first step of the impairment test involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then the carrying amount of the goodwill is compared with its implied fair value. The estimate of implied fair value of goodwill may require valuations of certain internally generated and unrecognized intangible assets. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess above the estimated fair value.

~~At December 31, 2017, we determined our goodwill was not impaired as the fair value of our reporting unit significantly exceeded its carrying value.~~

~~Stock-Based Compensation~~

~~We account for stock-based compensation awards granted to employees and directors by recording compensation expense based on each award's grant-date estimated fair value, in accordance with ASC 718,~~ ~~Compensation-Stock Compensation~~ over the vesting period. We estimate the fair value of RSAs, RSUs and performance based RSUs, or PSUs, based on the fair value of our common stock on the date of grant. We estimate the fair value of stock options and performance based stock options, or PSOs, using the Black-Scholes option-pricing model. Determining the fair value of stock options under this model requires highly subjective assumptions, including the fair value of the underlying common stock, the risk-free interest rate, the expected term of the award, the expected volatility of the price of our common stock, and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If we had made different assumptions, our stock-based compensation expense could have been materially different.

Prior to our IPO, there was no public market for our common stock and our board of directors determined the fair value of our common stock at the time of the grant of stock options and RSAs by considering a number of objective and subjective factors, including our actual operating and financial performance, market conditions and performance of comparable publicly traded companies, developments and milestones in our company, the likelihood of achieving a liquidity event and transactions involving our convertible preferred stock, among other factors. The fair value of the underlying common stock was determined by our board of directors in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants ~~Valuation of Privately Held Company Equity Securities Issued as Compensation~~. In valuing our common stock at various dates, our board of directors determined our equity value generally using the income approach and the market comparable approach valuation methods. Once we determined our equity value, we used an option pricing method or the Probability Weighted Expected Return Method to allocate the equity value to preferred stock and common stock. Application of these approaches and methods involves the use of estimates, judgments and assumptions, such as future revenue, expenses and cash flows, selections of comparable companies, probabilities and timing of exit events, and other factors.

~~Since our IPO in June 2015, the fair value of our common stock is based on the closing price of our Class A common stock, as quoted on the~~ ~~NASDAQ Global Market,on the date of grant and we utilized the following assumptions and estimates when utilizing the Black-Scholes option-pricing model when calculating the fair value of our options and PSOs:~~


▪	~~Risk-Free Interest Rate~~ ~~- The risk free interest rate assumption is based upon observed interest rates on United States government securities appropriate for the expected term of the stock option.~~


▪	~~Expected Term -~~ Given that we do not have sufficient exercise history to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, we determine the expected term using the simplified method, which is calculated as the midpoint of the stock option vesting term and the expiration date of the stock option.

▪

~~Expected Volatility~~ - We determine the expected volatility based on the historical average volatilities of publicly traded industry peers. We intend to continue to consistently apply this methodology using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose stock prices are publicly available would be utilized in the calculation.


▪	~~Expected Dividend Yield~~ ~~- We have not paid and do not anticipate paying any cash dividends in the foreseeable future and, therefore, we use an expected dividend yield of zero.~~

~~Forfeiture Rate~~

In addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate our stock-based compensation expense for our options and awards. The forfeiture rate is based on an analysis of actual forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and other factors. Changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the estimated forfeiture rate is changed. If a revised forfeiture rate is higher than the previously-estimated forfeiture rate, an adjustment is made that will result in a decrease to our stock-based compensation expense recognized in our consolidated financial statements. If a revised forfeiture rate is lower than the previously-estimated forfeiture rate, an adjustment is made that will result in an increase to our stock-based compensation expense recognized in our consolidated financial statements.

~~Restricted Stock Units~~

In September 2015, we began granting RSUs. The RSUs vest in equal tranches over four annual periods. The RSUs are expensed on a straight-line basis over the vesting period. The shares underlying the RSU grants are not issued and outstanding until the applicable vesting date.

~~Performance Based Equity Awards~~

In 2016, we began granting PSOs and PSUs. The fair values of the PSOs are estimated using the Black-Scholes option-pricing model and the PSUs' fair values are based on the fair value of our common stock on the date of grant. The vesting of the PSOs and PSUs is based on achievement of a pre-established free cash flow performance metric or adjusted gross margin target and continued employment throughout the performance period. We recognize expense for the PSOs and PSUs based on the grant date fair value to the extent vesting of the award is probable. Adjustments to compensation expense are made each period based on changes in our estimate of the number of PSOs and PSUs that are probable of vesting. PSOs and PSUs will vest upon achievement of the relevant performance metric once such calculation is reviewed and approved by our board of directors.

Income Taxes

We ~~account for income taxes in accordance with ASC 740,~~ ~~Income Taxes, which requires the recognition of~~recognize deferred tax ~~assets~~liabilities and ~~liabilities~~assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax ~~basis~~bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the ~~consolidated statements~~Consolidated Statements of ~~operations~~Operations in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, management considers the weighting of all available positive and negative evidence, which includes, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, and the duration of statutory carryforward periods.

Judgment is required to measure the amount of tax benefits that can be recognized associated with uncertain tax positions. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in our ~~consolidated financial statements~~Consolidated Financial Statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized. We recognize interest and penalties accrued with respect to uncertain tax positions, if any, in our provision for income taxes in the ~~consolidated statements~~Consolidated Statements of ~~operations.~~Operations.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in prepaid expenses and other current assets, operating lease right of use ("ROU") assets, other current liabilities, and operating lease liabilities on our Consolidated Balance Sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As none of our leases provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU assets also include any lease payments made to the lessor before or at the lease commencement date and excludes lease incentives received and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies of our Consolidated Financial Statements included elsewhere in this Annual Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

Investment Securities

At December 31, ~~2017,~~2020, we had cash and cash equivalents of ~~$16.1~~$140.3 million consisting of bank deposits, ~~and~~ money market funds, and ~~$52.2~~treasury securities, and $35.0 million of investment securities ~~which consist~~consisting of ~~corporate bonds,~~ United States government agency securities and ~~certificates of deposit.~~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~~At December 31, ~~2017,~~2020, a hypothetical 100 basis point ~~decrease~~change in interest rates would not have resulted in ~~an approximate increase~~a material change in the fair value of ~~$0.5 million and a hypothetical 100 basis point increase in interest rates would have resulted in an approximate decrease in fair value of $0.5 million.~~our investment securities. This estimate is based on a sensitivity model which ~~measures~~measured an instant change in interest rates by ~~1% or~~ 100 basis points at December 31, ~~2017.~~2020.

~~The~~Credit Facility

Prior to its termination in connection with the MyCase Transaction, we were exposed to interest rate risk as a result of our Credit Facility. Outstanding borrowings under the Credit Facility accrued interest as described in Note 10, Long-Term Debt, of our ~~Revolving~~Consolidated Financial Statements. Our borrowings under the Credit Facility ~~are at variable~~were subject to interest ~~rates. However, there was no~~rate fluctuations, which could have had a material impact on our cash flows and results of operations depending on the magnitude of the fluctuations and the outstanding ~~balance under our Revolving Facility as~~borrowings. In order to determine the potential impact of ~~December 31, 2017. Accordingly, a hypothetical change~~changes in interest rates on our cash flows and result of operations, we performed a sensitivity analysis. A hypothetical 100 basis point increase in interest rates during the year ended December 31, 2020 would not have ~~impacted~~had a material impact on our ~~debt service~~cash flows or results of operations. In connection with the MyCase Transaction, and as required by the terms of the Credit Agreement, the Credit Agreement was terminated and all obligations ~~as of December 31, 2017.~~outstanding under the Term Loan and Revolving Facility thereunder, including all guarantees and security interests granted with respect to such obligations, were satisfied in full with proceeds from the MyCase Transaction and extinguished.

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 Exchange Rate Risk

We have not been exposed to, nor do we anticipate being exposed to, material risks relating to foreign currency exchange rate fluctuations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



	Page
Report of Independent Registered Public Accounting Firm		5045
Consolidated Balance Sheets		5147
Consolidated Statements of Operations		5248
Consolidated Statements of Comprehensive Income ~~(Loss)~~		5349
Consolidated Statements of ~~Convertible Preferred Stock and~~ Stockholders' Equity ~~(Deficit)~~		5450
Consolidated Statements of Cash Flows		5551
Notes to Consolidated Financial Statements		5753

The supplementary financial information required by this Item 8 is included in Item 7 of this Annual Report in the section entitled "Quarterly Results of Operations."

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Tothe Board of Directors and Stockholders of AppFolio, Inc.

~~Opinion~~Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of AppFolio, Inc. and its subsidiaries (the “Company”) as of December 31, ~~2017~~2020 and ~~2016,~~2019, and the related consolidated statements of operations, of comprehensive income, ~~(loss), convertible preferred stock and~~of stockholders’ equity ~~(deficit),~~ and of cash flows for each of the three years in the period ended December 31, ~~2017,~~2020, including the related notes (collectively referred to as the ~~"consolidated~~“consolidated financial ~~statements"~~statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017~~2020 and ~~2016,~~2019, and the results of ~~their~~its operations and ~~their~~its cash flows for each of the three years in the period ended December 31, ~~2017~~2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with customers in 2018.

Basis for ~~Opinion~~Opinions

~~These~~The Company's management is responsible for these consolidatedfinancial statements, ~~are the responsibility~~for maintaining effective internal control over financial reporting, and for its assessment of the ~~Company’s management.~~effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express ~~an opinion~~opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ~~("PCAOB")~~(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits ~~of these consolidatedfinancial statements~~ in accordance with the standards of the PCAOB. Those standards require that we plan and perform the ~~audit~~audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding offraud, and whether effective internal control over financial reporting ~~but not for the purpose of expressing an opinion on the effectiveness~~was maintained in all material respects.

Our audits of the ~~Company's internal control over~~consolidated financial ~~reporting. Accordingly, we express no such opinion.~~

~~Our audits~~statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our ~~opinion.~~opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Uncertain Tax Positions

As described in Notes 2 and 14 to the consolidated financial statements, the Company has recorded reserves for unrecognized tax benefits from uncertain tax positions of $6.1 million as of December 31, 2020.Judgment is required to measure the amount of tax benefits that can be recognized associated with uncertain tax positions.Management recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized.

The principal considerations for our determination that performing procedures relating to uncertain tax positions is a critical audit matter are (i) the significant judgment by management when determining uncertain tax positions and measuring the amount of reserve required to be recognized, (ii) the significant auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s identification of uncertain tax positions and measurement of the amount of tax benefits recognized associated with uncertain tax positions, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the identification and recognition of the reserves for uncertain tax positions. These procedures also included, among others (i) evaluating management’s process for identifying uncertain tax positions and measuring the amount of the reserve required, (ii) testing the completeness of management’s assessment of the identification of uncertain tax positions, and (iii)testing the reasonableness of management’s assessment of the technical merits of the tax positions and estimates of the amount of tax benefit expected to be realized. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s uncertain tax positions related to the application of relevant tax laws.

/s/ PricewaterhouseCoopers LLP

Los Angeles, California

~~February 26, 2018~~

March 1, 2021

We have served as the ~~Company's~~Company’s auditor since 2012.

APPFOLIO, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except par values)


	December 31,							December 31,
	2017			2016				2020		2019
Assets							Assets
Current assets							Current assets
Cash and cash equivalents	$	16,109		$	10,699		Cash and cash equivalents	$	140,263	$	15,813
Investment securities—current	29,800			15,473			Investment securities—current	28,256		22,876
Accounts receivable, net	3,387			2,511			Accounts receivable, net	10,057		7,562
Prepaid expenses and other current assets	4,546			3,537			Prepaid expenses and other current assets	20,777		15,540
Total current assets	53,842			32,220			Total current assets	199,353		61,791
Investment securities—noncurrent	22,401			26,688			Investment securities—noncurrent	6,770		12,089
Property and equipment, net	6,696			7,077			Property and equipment, net	26,439		14,744
Capitalized software, net	17,609			15,539
Operating lease right-of-use assets							Operating lease right-of-use assets	30,561		27,803
Capitalized software development costs, net							Capitalized software development costs, net	35,459		30,023
Goodwill	6,737			6,737			Goodwill	56,147		58,425
Intangible assets, net	1,725			3,105			Intangible assets, net	16,357		21,377
Other assets	1,238			1,217
Deferred taxes							Deferred taxes	12,181		27,574
Other long-term assets							Other long-term assets	6,213		6,276
Total assets	$	110,248		$	92,583		Total assets	$	389,480	$	260,102
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities							Current liabilities
Accounts payable	$	610		$	937		Accounts payable	$	1,040	$	1,927
Accrued employee expenses	10,710			7,550			Accrued employee expenses	18,888		17,758
Accrued expenses	4,289			4,044			Accrued expenses	14,069		10,833
Deferred revenue	7,080			7,638			Deferred revenue	2,262		4,600
Income tax payable							Income tax payable	9,095		0
Other current liabilities	1,223			1,192			Other current liabilities	4,451		11,139
Term loan, net—current portion							Term loan, net—current portion	0		1,208
Total current liabilities	23,912			21,361			Total current liabilities	49,805		47,465
Other liabilities	1,257			1,540
Operating lease liabilities							Operating lease liabilities	40,146		33,312

Term loan, net							Term loan, net	0		47,375
Deferred taxes							Deferred taxes	13,609		0

Total liabilities	25,169			22,901			Total liabilities	103,560		128,152
Commitments and contingencies (Note 8)
Commitments and contingencies (Note 11)							Commitments and contingencies (Note 11)	0		0
Stockholders’ equity:							Stockholders’ equity:
Preferred stock, $0.0001 par value, 25,000 authorized and no shares issued and outstanding as of December 31, 2017 and 2016	—			—
Class A common stock, $0.0001 par value, 250,000 shares authorized as of December 31, 2017 and 2016; 14,879 and 11,691 shares issued and outstanding as of December 31, 2017 and 2016, respectively	1			1
Class B common stock, $0.0001 par value, 50,000 shares authorized as of December 31, 2017 and 2016; 19,102 and 22,028 shares issued and outstanding as of December 31, 2017 and 2016, respectively	3			3
Preferred stock, $0.0001 par value, 25,000 shares authorized and 0 shares issued and outstanding as of December 31, 2020 and December 31, 2019							Preferred stock, $0.0001 par value, 25,000 shares authorized and 0 shares issued and outstanding as of December 31, 2020 and December 31, 2019	0		0
Class A common stock, $0.0001 par value, 250,000 shares authorized as of December 31, 2020 and December 31, 2019; 19,148 and 16,923 shares issued as of December 31, 2020 and December 31, 2019, respectively; 18,729 and 16,552 shares outstanding as of December 31, 2020 and December 31, 2019, respectively							Class A common stock, $0.0001 par value, 250,000 shares authorized as of December 31, 2020 and December 31, 2019; 19,148 and 16,923 shares issued as of December 31, 2020 and December 31, 2019, respectively; 18,729 and 16,552 shares outstanding as of December 31, 2020 and December 31, 2019, respectively	2		2
Class B common stock, $0.0001 par value, 50,000 shares authorized as of December 31, 2020 and December 31, 2019; 15,659 and 17,594 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively							Class B common stock, $0.0001 par value, 50,000 shares authorized as of December 31, 2020 and December 31, 2019; 15,659 and 17,594 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively	2		2
Additional paid-in capital	152,531			146,692			Additional paid-in capital	161,247		161,509
Accumulated other comprehensive loss	(209		)	(51		)
Accumulated deficit	(67,247		)	(76,963		)
Accumulated other comprehensive income							Accumulated other comprehensive income	56		33
Treasury stock, at cost, 419 and 371 shares of Class A common stock as of December 31, 2020 and December 31, 2019, respectively							Treasury stock, at cost, 419 and 371 shares of Class A common stock as of December 31, 2020 and December 31, 2019, respectively	(25,756)		(21,562)
Retained earnings (accumulated deficit)							Retained earnings (accumulated deficit)	150,369		(8,034)
Total stockholders’ equity	85,079			69,682			Total stockholders’ equity	285,920		131,950
Total liabilities and stockholders’ equity	$	110,248		$	92,583		Total liabilities and stockholders’ equity	$	389,480	$	260,102

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

APPFOLIO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)


	Year Ended December 31,										Year Ended December 31,
	2017			2016			2015				2020		2019		2018
Revenue	$	143,803		$	105,586		$	74,977		Revenue	$	310,056	$	256,012	$	190,071
Costs and operating expenses:										Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)	55,283			44,630			33,903			Cost of revenue (exclusive of depreciation and amortization)	119,029		101,642		73,549
Sales and marketing	28,709			28,827			26,076			Sales and marketing	58,445		51,528		33,288
Research and product development	16,578			12,638			9,554			Research and product development	48,529		39,508		24,111
General and administrative	21,199			17,979			14,343			General and administrative	47,480		34,478		24,891
Depreciation and amortization	12,699			9,935			6,104			Depreciation and amortization	26,790		22,395		14,576
Total costs and operating expenses	134,468			114,009			89,980			Total costs and operating expenses	300,273		249,551		170,415
Income (loss) from operations	9,335			(8,423		)	(15,003		)
Income from operations										Income from operations	9,783		6,461		19,656
Other income (expense), net	(96		)	(37		)	5			Other income (expense), net	188,897		16		(56)
Interest income (expense), net	535			246			(595		)
Income (loss) before provision for income taxes	9,774			(8,214		)	(15,593		)
Provision for income taxes	58			67			75
Net income (loss)	$	9,716		$	(8,281	)	$	(15,668	)
Net income (loss) per common share:
Interest (expense) income, net										Interest (expense) income, net	(1,849)		(1,654)		787
Income before provision for (benefit from) income taxes										Income before provision for (benefit from) income taxes	196,831		4,823		20,387
Provision for (benefit from) income taxes										Provision for (benefit from) income taxes	38,428		(31,459)		420
Net income										Net income	$	158,403	$	36,282	$	19,967
Net income per common share:										Net income per common share:
Basic	0.29			(0.25		)	(0.73		)	Basic	$	4.62	$	1.07	$	0.59
Diluted	0.28			(0.25		)	(0.73		)	Diluted	$	4.44	$	1.02	$	0.56
Weighted average common shares outstanding:										Weighted average common shares outstanding:
Basic	33,849			33,561			21,336			Basic	34,264		34,016		34,128
Diluted	35,151			33,561			21,336			Diluted	35,713		35,567		35,562

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

APPFOLIO, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(in thousands)

Year Ended December 31,
2017 2016 2015
Net income (loss) $ 9,716
$ (8,281 ) $ (15,668 )
Other comprehensive income (loss):
Changes in unrealized gains (losses) on investment securities (158 ) 102
(153 )
Comprehensive income (loss) $ 9,558
$ (8,179 ) $ (15,821 )


	Year Ended December 31,
	2020		2019		2018
Net income	$	158,403	$	36,282	$	19,967
Other comprehensive income:
Changes in unrealized gains on investment securities	23		211		31
Comprehensive income	$	158,426	$	36,493	$	19,998

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

APPFOLIO, INC.

CONSOLIDATED STATEMENTS OF ~~CONVERTIBLE~~

~~PREFERRED STOCK AND~~ STOCKHOLDERS' EQUITY ~~(DEFICIT)~~

(in thousands)


																																			Accumulated				Retained
																Accumulated																	Additional		Other				Earnings/
													Additional			Other										Common Stock		Common Stock			Paid-in		Comprehensive		Treasury		(Accumulated
	Convertible					Common Stock			Common Stock				Paid-in			Comprehensive			Accumulated							Class A		Class B			Capital		Income (Loss)		Stock		Deficit)		Total
	Preferred Stock					Class A			Class B				Capital			Loss			Deficit			Total					Shares	Amount		Shares	Amount
	Shares		Amount			Shares	Amount		Shares		Amount
Balance at December 31, 2014	68,027		$	63,166		—	$	—	9,042		$	1	$	1,546		$	—		$	(53,014	)	$	(51,467	)
Exercise of stock options	—		—			2	—		315				357			—						357
Stock-based compensation	—		—			—	—		—		—		1,103			—						1,103
Conversion of convertible preferred stock in connection with initial public offering	(68,027	)	(63,166		)	—	—		17,007		2		63,164			—			—			63,166
Issuance of common stock in connection with initial public offering, net of offering costs	—		—			7,130	1		—		—		75,358			—			—			75,359
Conversion of Class B stock to Class A stock	—		—			1,848	—		(1,848	)	—		—			—			—			—
Issuance of restricted stock awards	—		—			25	—		25		—		—			—			—			—
Other comprehensive loss	—		—			—	—		—		—		—			(153		)	—			(153		)
Net loss	—		—			—	—		—		—		—			—			(15,668		)	(15,668		)
Balance at December 31, 2015	—		—			9,005	1		24,541		3		141,528			(153		)	(68,682		)	72,697
Balance at December 31, 2017																									Balance at December 31, 2017		14,879	$	1	19,102	$	3	$	152,531	$	(209)	$	0	$	(67,247)	$	85,079
Exercise of stock options	—		—			140	—		1		—		352			—			—			352			Exercise of stock options		170	—		—	—		1,035		—		—		—		1,035
Stock-based compensation	—		—			—	—		—		—		4,495			—			—			4,495			Stock-based compensation		—	—		—	—		7,187		—		—		—		7,187
Vesting of restricted stock units, net of shares withheld for taxes						10	—		—		—		127			—			—			127			Vesting of restricted stock units, net of shares withheld for taxes		113	—		—	—		(2,890)		—		—		—		(2,890)
Vesting of early exercised shares	—		—			—	—		—		—		190			—			—			190			Vesting of early exercised shares		—	—		—	—		35		—		—		—		35
Conversion of Class B stock to Class A stock	—		—			2,514	—		(2,514	)			—			—			—			—			Conversion of Class B stock to Class A stock		993	1		(993)	(1)		—		—		—		—		0
Issuance of restricted stock awards	—		—			22	—		—		—		—			—			—			—			Issuance of restricted stock awards		5	—		—	—		—		—		—		—		0
Other comprehensive income						—	—		—		—		—			102			—			102			Other comprehensive income		—	—		—	—		—		31		—		—		31
Net loss	—		—			—	—		—		—		—			—			(8,281		)	(8,281		)
Balance at December 31, 2016	—		—			11,691	1		22,028		3		146,692			(51		)	(76,963		)	69,682
Repurchase of common stock																									Repurchase of common stock		(371)	—		—	—		—		—		(21,562)		—		(21,562)
Cumulative-effect adjustment resulting from adoption of ASU 2014-09																									Cumulative-effect adjustment resulting from adoption of ASU 2014-09		—	—		—	—		—		—		—		2,964		2,964
Net income																									Net income		—	—		—	—		—		—		—		19,967		19,967
Balance at December 31, 2018																									Balance at December 31, 2018		15,789	2		18,109	2		157,898		(178)		(21,562)		(44,316)		91,846
Exercise of stock options	—		—			165	—		—		—		663			—			—			663			Exercise of stock options		120	—		0	—		553		—		—		—		553
Stock-based compensation	—		—			—	—		—		—		6,618			—			—			6,618			Stock-based compensation		—	—		—	—		8,985		—		—		—		8,985
Vesting of restricted stock units, net of shares withheld for taxes	—		—			88	—		—		—		(1,559		)	—			—			(1,559		)	Vesting of restricted stock units, net of shares withheld for taxes		123	—		—	—		(5,933)		—		—		—		(5,933)
Vesting of early exercised shares	—		—			—	—		—				117			—			—			117			Vesting of early exercised shares		—	—		—	—		6		—		—		—		6
Conversion of Class B stock to Class A stock	—		—			2,926	—		(2,926	)			—			—			—			—			Conversion of Class B stock to Class A stock		515	—		(515)	—		—		—		—		—		0
Issuance of restricted stock awards	—		—			9	—		—				—			—			—			—			Issuance of restricted stock awards		5	—		—	—		—		—		—		—		0
Other comprehensive loss	—		—			—	—		—				—			(158		)	—			(158		)
Other comprehensive income																									Other comprehensive income		—	—		—	—		—		211		—		—		211

Net income	—		—			—	—		—				—			—			9,716			9,716			Net income		—	—		—	—		—		—		—		36,282		36,282
Balance at December 31, 2017	—		$	—		14,879	$	1	19,102		$	3	$	152,531		$	(209	)	$	(67,247	)	$	85,079
Balance at December 31, 2019																									Balance at December 31, 2019		16,552	2		17,594	2		161,509		33		(21,562)		(8,034)		131,950
Exercise of stock options																									Exercise of stock options		106	—		13	—		822		—		—		—		822
Stock-based compensation																									Stock-based compensation		—	—		—	—��		11,112		—		—		—		11,112
Vesting of restricted stock units, net of shares withheld for taxes																									Vesting of restricted stock units, net of shares withheld for taxes		166	—		—	—		(12,196)		—		—		—		(12,196)

Conversion of Class B stock to Class A stock																									Conversion of Class B stock to Class A stock		1,948	—		(1,948)	—		—		—		—		—		0
Issuance of restricted stock awards																									Issuance of restricted stock awards		5	—		—	—		—		—		—		—		0
Other comprehensive income																									Other comprehensive income		—	—		—	—		—		23		—		—		23
Repurchase of common stock																									Repurchase of common stock		(48)	—		—	—		—		—		(4,194)		—		(4,194)
Net income																									Net income		—	—		—	—		—		—		—		158,403		158,403
Balance at December 31, 2020																									Balance at December 31, 2020		18,729	$	2	15,659	$	2	$	161,247	$	56	$	(25,756)	$	150,369	$	285,920

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

APPFOLIO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Year Ended December 31,
	2020		2019		2018
Cash from operating activities
Net income	$	158,403	$	36,282	$	19,967
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	26,790		22,395		14,576
Amortization of operating lease right-of-use assets	3,701		4,130		0
Deferred income taxes	29,002		(31,455)		0
Stock-based compensation	9,025		7,309		6,337
Gain on sale of business	(187,658)		0		0
Other	125		32		224
Changes in operating assets and liabilities:
Accounts receivable	(2,782)		(2,031)		(908)
Prepaid expenses and other current assets	(5,894)		(4,031)		(6,073)
Other assets	(519)		1,376		(4,447)
Accounts payable	(903)		511		614
Accrued employee expenses	2,799		4,542		1,219
Accrued expenses	6,878		55		3,281
Deferred revenue	530		1,193		(4,589)
Operating lease liabilities	(564)		(2,662)		0
Other liabilities	9,366		1,241		6,067
Net cash provided by operating activities	48,299		38,887		36,268
Cash from investing activities
Purchases of available-for-sale investments	(43,877)		(25,198)		(29,516)
Proceeds from sales of available-for-sale investments	16,711		2,750		20,900
Proceeds from maturities of available-for-sale investments	27,330		15,660		32,819
Purchases of property, equipment and intangible assets	(19,038)		(8,084)		(2,102)
Capitalization of software development costs	(26,042)		(20,998)		(12,304)
Cash paid in business acquisition, net of cash acquired	0		(54,004)		(14,441)
Proceeds from sale of business, net of cash divested	191,427		0		0

Net cash provided by (used in) investing activities	146,511		(89,874)		(4,644)
Cash from financing activities
Proceeds from stock option exercises	822		553		1,035


Tax withholding for net share settlement	(12,196)		(6,155)		(3,127)
Payment of contingent consideration	(5,977)		0		0
Proceeds from issuance of debt	50,752		2,169		50,138
Principal payments on debt	(99,565)		(3,419)		(138)
Payment of debt issuance costs	0		(420)		0
Purchase of treasury stock	(4,194)		0		(21,562)
Net cash (used in) provided by financing activities	(70,358)		(7,272)		26,346
Net increase (decrease) in cash and cash equivalents	124,452		(58,259)		57,970
Cash, cash equivalents and restricted cash
Beginning of period	16,247		74,506		16,536
End of period	$	140,699	$	16,247	$	74,506

Year Ended December 31,
2017 2016 2015
Cash from operating activities
Net income (loss) $ 9,716
$ (8,281 ) $ (15,668 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization 12,699
9,935
6,104
Purchased investment premium, net of amortization (39 ) 245
(865 )
Amortization of deferred financing costs 63
63
456
Loss on disposal of property, equipment and intangibles 97
41
67
Stock-based compensation 6,096
4,301
1,007
Lease abandonment —
161
—
Changes in operating assets and liabilities:
Accounts receivable (876 ) (463 ) (746 )
Prepaid expenses and other current assets (1,009 ) (377 ) (1,893 )
Other assets (84 ) (103 ) (56 )
Accounts payable (100 ) (904 ) (439 )
Accrued employee expenses 3,243
2,223
1,887
Accrued expenses 271
1,148
1,135
Deferred revenue (558 ) 2,685
1,173
Other liabilities (148 ) 826
994
Net cash provided by (used in) operating activities 29,371
11,500
(6,844 )
Cash from investing activities
Purchases of property and equipment (2,213 ) (4,242 ) (3,694 )
Additions to capitalized software (10,455 ) (11,166 ) (7,677 )
Purchases of investment securities (26,648 ) (31,551 ) (74,176 )
Sales of investment securities 15
12,559
4,100
Maturities of investment securities 16,474
21,337
26,136
Cash paid in business acquisition, net of cash acquired —
—
(4,039 )
Purchases of intangible assets (1 ) (2 ) (17 )
Net cash used in investing activities (22,828 ) (13,065 ) (59,367 )
Cash from financing activities
Proceeds from stock option exercises 663
352
357
Proceeds from issuance of restricted stock —
—
141
Proceeds from issuance of options —
—
208
Tax withholding for net share settlement (1,796 ) (111 ) —
Principal payments under capital lease obligations —
(29 ) (27 )
Proceeds from initial public offering, net of underwriting discounts and commissions —
—
79,570
Payments of initial public offering costs —
—
(4,213 )
Payment of contingent consideration —
—
(2,429 )
Proceeds from issuance of debt 118
117
10,253
Principal payments on debt (118 ) (128 ) (10,241 )
Payment of debt issuance costs —
—
(757 )
Net cash (used in) provided by financing activities (1,133 ) 201
72,862


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

	Year Ended December 31,
	2020		2019		2018
Supplemental disclosure of cash flow information
Cash paid for interest	$	1,815	$	2,169	$	118
Cash paid for income taxes	85		545		82
Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows	2,198		5,007		—
Right-of-use assets obtained in exchange for operating lease liabilities	6,644		14,986		—

Noncash investing and financing activities
Purchases of property and equipment included in accounts payable and accrued expenses	$	370	$	3,447	$	518
Capitalization of software development costs included in accrued expenses and accrued employee expenses	383		1,187		825
Stock-based compensation capitalized for software development	2,087		1,844		1,087
Purchase consideration for acquisitions included in other current liabilities	0		5,977		0

Debt issuance and other financing costs accrued, not paid	0		0		371

The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same such amounts shown above (in thousands):


	December 31,
	2020		2019		2018
Cash and cash equivalents	$	140,263	$	15,813	$	74,076
Restricted cash included in other assets	436		434		430
Total cash, cash equivalents and restricted cash	$	140,699	$	16,247	$	74,506

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

Year Ended December 31,
2017 2016 2015
Net increase (decrease) in cash and cash equivalents 5,410
(1,364 ) 6,651
Cash and cash equivalents
Beginning of period 10,699
12,063
5,412
End of period $ 16,109
$ 10,699
$ 12,063

Supplemental disclosure of cash flow information
Cash paid for interest $ 182
$ 191
$ 797
Cash paid for taxes 30
27
91

Noncash investing and financing activities
Purchases of property and equipment included in accounts payable and accrued expenses $ 21
$ 261
$ 1,220
Additions of capitalized software included in accrued employee expenses 374
458
290
Stock-based compensation capitalized for software development 759
431
166
Conversion of convertible preferred stock into common stock in connection with initial public offering —
—
63,166

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

APPFOLIO, INC.

NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS

1. Nature of Business

AppFolio, Inc. ~~(“we”, the "Company"~~("we," "us" or ~~“AppFolio”~~"our") provides ~~industry-specific, cloud-based~~innovative software, ~~solutions~~services and data analytics to the real estate ~~market, which comprises a significant majority of our revenue, as well as to the legal market,~~industry. Our industry-specific, cloud-based solutions are used primarily by property managers, and ~~we intend to enter new vertical markets over time. We serve small and medium-sized businesses (“SMBs”)~~also by numerous other constituencies in the property management ~~industry~~business ecosystem. These other constituencies include property owners, rental prospects, tenants and ~~solo practitioners and small law firms in the legal industry. We~~service providers, whom we refer to ~~solo practitioners~~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 ~~small law firms as SMBs in connection with~~enable exceptional customer service. In addition to our ~~legal vertical in these financial statements.~~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 ~~clients~~business ecosystems and ~~vendors, and, increasingly,~~ a system of intelligence designed to ~~anticipate, influence,~~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 ~~take action~~deploy data-powered products and services for our customers and users.

For the years ended December 31, 2020, 2019 and 2018, our revenue was $310.1 million, $256.0 million and $190.1 million, respectively of which $284.7 million, $231.1 million and $172.4 million, respectively, are derived from our software and services offered to the real estate vertical. During certain periods covered by this Annual Report, we also provided software solutions and services to the legal vertical.

On September 30, 2020, we completed our divestiture of 100% of the issued and outstanding equity interests of MyCase, Inc. ("MyCase"), a former wholly owned subsidiary that provided such legal practice and case management software solutions to our legal customers. We sold MyCase to Mockingbird AcquisitionCo Inc., a Delaware corporation (“Buyer”) affiliated with funds advised by Apax Partners LLP, for $193.0 million pursuant to a Stock Purchase Agreement, dated September 7, 2020 (the “Purchase Agreement”), by and among Buyer, us and MyCase (the “MyCase Transaction”). In connection with the closing of the MyCase Transaction, and in ~~real time.~~accordance with the terms of the Purchase Agreement, we entered into certain ancillary agreements with MyCase, including relating to certain post-closing transition services to be provided by us to MyCase at fair market value, as well as an intellectual property licensing agreement for certain software and patents for which no ongoing licensing fees will be received. We recognized a pre-tax gain on the sale of $187.7 million on the MyCase Transaction.

2. Summary of Significant Accounting Policies

Basis of Presentation and Significant Accounting Policies

The accompanying Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Reclassification

We reclassified certain amounts in our Consolidated Balance Sheet in the prior year to confirm to the current year's presentation.

Principles of Consolidation

The accompanying Consolidated Financial Statements include the operations of AppFolio, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Our investment in SecureDocs, Inc. (“SecureDocs”) is accounted for under the equity method of accounting as we have the ability to exert significant influence, but do not control and are not the primary beneficiary of the entity. Our investment in SecureDocs is not material and ~~our share of its losses are~~any income (loss) activity is not material individually or in the aggregate to our ~~financial position, results of operations or cash flows~~Consolidated Financial Statements for any period presented.

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 ~~revenues~~revenue, expenses, other income, and ~~expenses~~provision for income taxes during the reporting period. ~~Actual results could differ materially from those estimates. On an ongoing basis, management evaluates its~~Assets and liabilities which are subject to judgment and use of estimates ~~based on historical data and experience, as well as various other factors that management believes to be reasonable under~~include the ~~circumstances, the results of which form the basis for making judgments about the carrying~~fair value of assets and liabilities assumed in business combinations, 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, and valuation and assumptions underlying stock-based compensation and other equity instruments.

During early calendar year 2020, the novel coronavirus disease ("COVID-19") spread globally, including to every state in the United States. The global pandemic has created and may continue to create significant uncertainty in a wide variety of industries and markets and has prompted many federal, state, local, and foreign governments to adopt various orders and restrictions in an attempt to control the spread and mitigate the impact of the disease, which may reduce demand for our core solutions and/or Value+ services, impact the productivity of our workforce, reduce our access to capital, and harm our business and results of operations. These potential impacts are only amplified by the length of time they remain in place, as the cumulative effect upon our customers and their businesses may only exacerbate potential harm to our business and results of operations.

In light of the unknown duration and severity of COVID-19, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting policies. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of COVID-19 as of December 31, 2020 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 Consolidated Financial Statements, we are not ~~readily apparent~~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 Consolidated Financial Statements in future periods. Actual results could differ from ~~other sources.~~those estimates and any such differences may have a material impact on our Consolidated Financial Statements.

Segment Information

Our chief operating decision maker reviews financial information presented on an aggregated and consolidated basis, together with revenue information for our core solutions, Value+ and other service offerings, principally to make decisions about how to allocate resources and to measure our performance. Accordingly, management has determined that we have ~~one~~1 reportable and operating segment.

Concentrations of Credit Risk

Financial instruments that potentially subject us to credit risk consist principally of cash, cash equivalents, restricted cash, accounts receivable, investment securities and notes receivable. ~~At times, we~~We maintain cash balances at financial institutions in excess of amounts insured by United States government agencies or payable by the United States government directly. We place our cash with high credit, quality financial institutions. We invest in investment securities with a minimum rating of A by Standard & Poor's ~~and~~or A-1 by Moody's and regularly monitor our investment security portfolio for changes in credit ratings.

Concentrations of credit risk with respect to accounts receivable and revenue are limited due to a large, diverse customer base. No individual customer represented 10% or more of accounts receivable ~~as of~~at December 31, ~~2017~~2020 and ~~2016~~2019 or revenue for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015.~~

2018.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Accounting Standard Codification ~~(“ASC”)~~ 820, Fair Value Measurements and Disclosures~~(“ASC 820”)~~, describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities or funds.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


	~~Level 3~~ ~~- Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.~~ Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Cash, ~~and~~ Cash Equivalents and Restricted Cash

We consider all highly liquid investments, readily convertible to cash, and which have a remaining maturity date of three months or less at the date of purchase, to be cash equivalents. Cash and cash equivalents are recorded at fair value and consist primarily of bank deposits, treasury securities, and money market funds.

Restricted cash of $0.4 million ~~as of~~at December 31, ~~2017~~2020 and ~~2016,~~2019, is comprised of certificates of deposits relating to collateral requirements for customer automated clearing house and credit card chargebacks and minimum collateral requirements for our insurance services, which are recorded in other ~~long term~~long-term assets.

Investment Securities

Our investment securities currently consist of corporate bonds, United States government agency securities ~~("Agency Securities")~~ and ~~certificates of deposit.~~treasury securities. We classify investment securities as available-for-sale at the time of purchase and reevaluate such classification ~~as of~~at each balance sheet date. All investments are recorded at estimated fair value. Unrealized gains and losses for available-for-sale investment securities are included in accumulated other comprehensive income, ~~(loss),~~ a component of stockholders’ equity. We classify our investments as current when the period of time between the reporting date and the contractual maturity is twelve months or less and as noncurrent when the period of time between the reporting date and the contractual maturity is more than twelve months.

~~We evaluate our investments to~~For available-for-sale debt securities in an unrealized loss position, we first assess whether ~~those with~~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 ~~positions are~~position that do not meet these criteria, we evaluate whether the decline in fair value has resulted from credit loss or other ~~than temporarily impaired. We consider impairments to be other than temporary if they are related to deterioration in~~factors. If this assessment indicates a credit ~~risk or if it~~loss exists, the credit-related portion of the loss is ~~likely we will sell the securities before the recovery of their cost basis. Declines in value judged to be other than temporary are determined based~~recorded as an allowance for losses on the ~~specific identification method and are reported in other income (expense), net in the Consolidated Statements~~security. NaN allowance for credit losses for available-for-sale investment securities was recorded as of ~~Operations.~~December 31, 2020.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount, net of an allowance for ~~doubtful accounts.~~credit losses. The allowance for ~~doubtful accounts~~credit losses is based on historical loss experience, the number of days that receivables are past due, and an evaluation of the potential risk of loss associated with delinquent accounts. Accounts receivable considered ~~uncollectable~~uncollectible are charged against the allowance for ~~doubtful accounts~~credit losses when identified. We do not have any off-balance sheet credit exposure related to our customers. ~~As of~~At December 31, ~~2017, 2016~~2020 and ~~2015,~~2019, our allowance for ~~doubtful accounts~~credit losses was not material.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of assets. The estimated useful lives of our property and equipment are as follows:



Asset Type						Depreciation Period
~~Data center and computer~~Computer equipment						3 years
Furniture and fixtures						7 years
Office equipment						23 to 5 years
Leasehold improvements						Shorter of remaining life of lease or asset life

Repair and maintenance costs are expensed as incurred. Renewals and improvements are capitalized. Assets disposed of or retired are removed from the cost and accumulated depreciation accounts and any resulting gain or loss is reflected in our results of operations.

Leases

~~Leases~~We determine if an arrangement is a lease at inception. Operating leases are ~~evaluated~~included in prepaid expenses and ~~classified as either~~ other current assets, operating ~~or capital leases. All~~lease ROU assets, other current liabilities, and operating lease liabilities on our Consolidated Balance Sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments, over the lease term at commencement date. As none of our ~~office space~~ leases ~~are~~provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating ~~leases.~~lease ROU assets also include any lease payments made to the lessor before or at the lease commencement date and excludes lease incentives received and initial direct costs incurred. Our lease terms may include options to extend the lease when it is reasonably certain that we will exercise that option.

~~Rent~~Lease expense ~~under operating leases~~for minimum lease payments is recognized on a straight-line basis over the lease term. ~~The difference between recognized rent expense~~We have lease arrangements with lease and ~~the rent payment amount is recorded as an increase or decrease in deferred rent liability. If the lease has tenant allowances from the lessor~~non-lease components, which are generally accounted for ~~certain improvements made to the leased property, these allowances are capitalized as leasehold improvements. Tenant allowances and rent holidays in lease agreements are recognized~~ as a ~~deferred rent credit, which is amortized~~single lease component. Leases with an initial term of twelve months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease ~~term as a reduction~~term.

Capitalized Software Development Costs

Software development cost consist of ~~rent expense.~~

~~Internal-Use Software~~

~~We account for the costs of computer software obtained or developed for internal use in accordance with ASC 350, Intangibles-Goodwill~~certain payroll and ~~Other~~ ~~(“ASC 350”). These include~~stock compensation costs incurred ~~in connection with the development~~to develop functionality of our internal-use software ~~solutions when (i) the preliminary project stage is completed, (ii) management has authorized further funding~~solutions. We capitalize certain software development costs for ~~the completion of the project and (iii) it is probable that the project will be completed and performed~~new offerings as intended. These capitalized costs include personnel and related expenses for employees who are directly associated with and who devote time to internal-use software projects and, when material, interest costs incurred during the development. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Costs incurred forwell as significant upgrades and enhancements to our existing software ~~solutions are also capitalized. Costs incurred for post-configuration training, maintenance and minor modifications or enhancements are expensed as incurred.~~solutions. Capitalized software development costs are amortized using the straight-line method over an estimated useful life of three years. We do not transfer ownership of our software, license, or lease our software to third parties. We believe there are two key estimates within the capitalized software balance, which are the determination of the useful life of the software and the determination of the amounts to be capitalized.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired in business combinations. Goodwill is tested for impairment at least annually at the reporting unit level or at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We have the option to assess goodwill for possible impairment by performing a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. A quantitative assessment is performed if the qualitative assessment results in a more-likely-than-not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent that the reporting unit’s carrying value exceeds its fair value.

We have 1 reporting unit and we test for goodwill impairment annually during the fourth quarter of the calendar year. Additionally, in connection with the disposal of goodwill associated with the MyCase Transaction, we performed a goodwill impairment assessment as of September 30, 2020 on our remaining goodwill balance. Based on the assessments performed at September 30, 2020 and November 1, 2020, we determined it was unlikely that our reporting unit fair value was less than its carrying value and no quantitative impairment test assessment was required. There were no indicators that our goodwill has become impaired since that date, and as such, there was no impairment charges recorded.

NaN impairment losses were recorded for goodwill during the years ended December 31, 2020, 2019 and 2018.

Intangible assets primarily consist of acquired database and technology, non-compete agreements, customer and partner relationships, ~~acquired technology,~~ trademarks and trade names, domain names and patents, which are recorded at cost, less accumulated amortization. We determine the appropriate useful life of our intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized over their estimated useful lives ~~using the~~on a straight-line ~~method,~~basis, which approximates the pattern in which the economic benefits of the assets are consumed.

Impairment of Long-Lived Assets

We assess the recoverability of our long-lived assets when events or changes in circumstances indicate that the carrying value of an asset may not be ~~recoverable.~~recoverable or that the useful lives of those assets are no longer appropriate. An impairment charge would be recognized when the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. There were no0 impairment charges related to the identified long-lived assets for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015.~~2018.

Business Combinations

Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an operating expense in the period in which the costs are incurred.

~~Goodwill~~

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. We test goodwill for impairment in accordance with the provisions of ASC 350. Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired. Events or changes in circumstances which could trigger an impairment review include a significant adverse change in legal factors or in the

business climate, unanticipated competition, loss of key personnel, significant changes in the use of the acquired assets or our strategy, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform the first of a two-step impairment test.

The first step involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then the carrying amount of the goodwill is compared with its implied fair value. The estimate of implied fair value of goodwill may require valuations of certain internally generated and unrecognized intangible assets. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

We have one reporting unit and we test for goodwill impairment annually during the fourth quarter of the calendar year. At December 31, 2017 and 2016, we determined our goodwill of $6.7 million was not impaired as the fair value of our reporting unit significantly exceeded its carrying value based on the results of our annual impairment tests.

Revenue Recognition

We generate revenue ~~primarily~~ from our customers primarily for subscriptions to access our core solutions and Value+ services for our cloud-based ~~property management~~software solutions. Revenue is recognized upon transfer of control of promised services in an amount that reflects the consideration we expect to receive in exchange for those services. We enter into contracts that can include various combinations of services, which are generally capable of being distinct, distinct within the context of the contract, and ~~legal software~~accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Refer to Note 15, Revenue and Other Information for the disaggregated breakdown of revenue between core solutions, Value+ services and other revenue.

Core Solutions

We charge our customers on a subscription basis for our core solutions. Our subscription fees are designed to scale to the size of our customers' businesses. Subscription fees for our core solutions are charged on a per-unit per-month basis for our property management software solution and on a per-user per-month basis for our legal software solution. WeOur customers do not have rights to the underlying software code of our solutions, and, accordingly, we recognize subscription revenue over time on a straight-line basis over the ~~terms~~contract term beginning on the date that our service is made available to the customer. The term of ~~the~~our core solutions subscription agreements ~~which range~~typically ranges from one month to one year. We ~~generally~~typically invoice our customers for subscription services in monthly ~~quarterly~~ or annual installments, ~~typically~~ in advance of the subscription period. Any revenues which are billed in advance are recorded as deferred revenue until the revenue is earned. Revenue from subscription services is impacted by the change in the number and type of our customers, the size and needs of our customers' businesses and our customer renewal rates.

Value+ Services

We charge our customers on a subscription or usage basis for ~~certain of~~ our Value+ services. ~~Our subscription~~Subscription-based fees are ~~designed to scale~~charged on a per-unit basis. We typically invoice our customers for subscription-based services in monthly installments, in advance of the subscription period. 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 to the size of our customers’ businesses. Subscription Value+ services include website hosting services and contact center services. We also charge our customers usage-based fees for using certain Value+ services. Usage-based Value+ services include fees for electronic payment processing, applicant screening services, our legal liability to landlord insurance program, collections, online vacancy advertising services and renters insurance.customer. Usage-based fees are charged on a flat ~~fee~~rate per transaction basis with no minimum usage commitments. We recognize revenue for usage-based services in the period the service is rendered. We generally invoice our customers for usage-based services on a monthly basis for services rendered in the preceding ~~month with the exception of~~month. In addition, some subscription or usage-based Value+ services, such as fees for electronic payment ~~processing, which~~services, are ~~generally~~ paid by ~~the~~either our customers or clients of our customers at the time the ~~electronic payment is processed. Revenue from~~services are rendered.

We work with third-party partners to provide certain of our Value+ services. For these Value+ services, ~~is impacted by~~we evaluate whether we are the principal, and report revenue on a ~~number~~gross basis, or the agent, and report revenue on a net basis. In this assessment we consider if we obtain control of ~~factors, including~~ the ~~number of new~~specified services before they are transferred to the customer, as well as other indicators such as whether we are the party primarily responsible for fulfillment, and ~~existing customers that adopt and utilize our Value+ service, the size and needs of our customers and our customer renewal rates.~~whether we have discretion in establishing price.

Other Revenue

Other revenue ~~includes revenue~~include fees from one-time services related to ~~on-boarding~~the implementation of our software solutions and other recurring or one-time fees related to our customers who are not otherwise using our core solutions. This includes legacy customers of businesses we have acquired where the customers haven't migrated to our core ~~solutions, website design~~solutions. The fees for implementation and data migration services are billed upon signing our core subscription contract and ~~online vacancy advertising services offered to legacy RentLinx customers.~~

~~Our legal software core solution offers customers a free trial period to try our software. Revenue is~~are not recognized until the ~~free trial period~~core solution is ~~complete~~accessible and fully functional for our customer's use. Other services are billed when the services rendered are completed and delivered to the customer ~~has entered into~~or billed in advance and deferred over the subscription period.

Contracts with Multiple Performance Obligations

The transaction price is allocated to each performance obligation on a ~~subscription agreement with us.~~

~~Our customers do not~~relative standalone selling price basis. Judgment is required to determine the standalone selling price for each distinct performance obligation. We typically have ~~rights~~more than one standalone selling price for individual products and services due to the ~~underlying software code~~stratification of those products and services by customers and circumstances. In these instances, we determine the standalone selling price based on our ~~solutions,~~overall pricing objectives, taking into consideration customer demographics and accordingly, the Company's revenue arrangements are outside the scope of the software revenue recognition guidance, and are instead recognized in accordance with Staff Accounting Bulletin Topic 13. We recognize revenue when (i) there is persuasive evidence of an arrangement, (ii) our software solutions have been made available or delivered, or services have been performed, (iii) the amount of fees is fixed or determinable, and (iv) collectability is reasonably assured. Evidence of an arrangement generally consists of either a signed customer contract or an online click-through agreement. We consider that delivery of a solution or website has commenced once we provide the customer with access to use the solution or website.other factors. Fees are fixed based on rates specified in the subscription agreements, which do not provide for any refunds or adjustments. ~~If collectability~~

Deferred Revenue

We record deferred revenue when cash payments are received in advance of our performance. During the twelve months ended December 31, 2020 and 2019, we recognized revenue of $4.5 million and $3.4 million, respectively, that were included in the deferred revenue balances at December 31, 2019 and 2018, respectively.

Our payment terms vary by the type of our customer and the products or services offered. The time between invoicing and when payment is due is not ~~considered reasonably assured,~~significant. In instances where the timing of revenue ~~is deferred until~~recognition differs from the ~~fees are collected. Some~~timing of ~~our subscription agreements contain minimum cancellation fees in the event that the customer cancels the subscription early.~~

~~For multiple-deliverable arrangements,~~invoicing, we ~~first assess whether each deliverable has value to the customer on a standalone basis. We~~ have determined that ~~the subscription services related to~~ our ~~core solutions have value on a standalone basis because~~

~~once access is provided, they are fully functional and~~contracts do not ~~require additional development, modification or customization. Our Value+ services~~include a significant financing component.

Practical Expedients

In determining the transaction price, we have applied the practical expedient which allows us not to adjust the consideration for the effects of the time value ~~on a standalone basis~~of money as long as the ~~services are sold separately by other vendors~~time between when we transfer the promised service to a customer and ~~are~~when a customer pays is one year or less.

We do not ~~essential~~disclose the value of unsatisfied performance obligations for contracts with an original expected term of one year or less.

We recognize revenue in proportion to the functionality of the other deliverables. The usage-based services are typically entered into subsequent to the initial customer arrangement. In multiple-deliverable arrangements that contain usage-based services, the customer has the option to purchase the services on an ad hoc basis, and payments are made when the services are rendered.

Based on the standalone value of the deliverables, and since our customers do not have a general right of return, we allocate revenue among the separate non-contingent deliverables in a multiple-deliverable arrangement under the relative selling price method using the selling price hierarchy within the revenue accounting guidance (ASC Topic 605, ~~Revenue Recognition~~). The selling price hierarchy requires the selling price of each deliverable in a multiple-deliverable arrangement to be based on, in descending order, (i) vendor-specific objective evidence of fair value ("VSOE"), (ii) third-party evidence of fair value ("TPE"), or (iii) management’s best estimate of the selling price ("BESP").

~~For our property manager core solution,~~amount we have ~~established VSOE based on our consistent historical pricing and discounting practices~~the right to invoice for ~~customer renewals where the customer only subscribes to our~~certain core solutions and based on the price established by management for elements not yet being sold separately. In establishing VSOE, the substantial majority of the selling prices for our core solutions fall within a reasonably narrow pricing range, and the price once established by management for elements not yet being sold separately are not offered at a discount. For our legal software core solution, we utilize BESP to allocate revenue among the separate non-contingent deliverables, as we have been unable to establish VSOE due to our discounting practices, and we have been unable to obtain TPE.

After the contract value is allocated to each non-contingent deliverable in a multiple-deliverable arrangement based on the relative selling price, revenue is recognized for each deliverable based on the pattern in which the revenue is earned. For subscriptionsValue+ services revenue, ~~is recognized~~as that amount corresponds directly with our performance completed to date.

Deferred Costs

Deferred costs, which primarily consist of sales commissions, are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be three years. We typically do not pay commissions for contract renewals. We determined the ~~subscription period. For usage-based services, revenue is recognized as~~period of benefit by taking into consideration our customer contract term, the ~~services are rendered. For one-time services, revenue is recognized upon completion~~useful life of ~~the related services. Sales commissions~~our internal-use software, average customer life, and other ~~incremental~~factors. Amortization expense for the deferred costs is allocated based on the employee's department and included withinsales and marketing expense in the accompanying Consolidated Statements of Operations.

Deferred costs were $10.3 million and $9.5 million at December 31, 2020 and 2019, respectively, of which $5.5 million and $4.8 million, respectively, are included in prepaid expenses and other current assets and $4.8 million and $4.6 million, respectively, are included in other assets in the accompanying Consolidated Balance Sheets. Amortization expense for deferred costs was $5.8 million, $4.2 million, and $2.0 million for the years ended December 31, 2020, 2019, and 2018, respectively. For the years ended December 31, 2020 and 2019, no impairments were identified in relation to ~~acquire contracts are expensed as incurred.~~the costs capitalized for the periods presented.

Cost of Revenue

Cost of revenue ~~consists of~~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 (including salaries, ~~incentive-based~~performance-based compensation, benefits, and stock-based compensation) for our employees focused on customer service and the support of our operations, platform infrastructure costs (such as data center operations and hosting-related costs), payment processing fees and allocated shared costs. ~~We typically allocate shared costs across our organization based on headcount within the applicable part of our organization.~~ 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 (including salaries, sales commissions, ~~incentive-based~~performance-based compensation, benefits, and stock-based compensation) for our employees focused on sales and marketing, costs associated with sales and marketing activities, and allocated shared and other costs. Marketing activities include advertising, online lead generation, lead nurturing, customer and industry events, and the creation of industry-related content and collateral. Sales commissions and other incremental costs to acquire customers and grow adoption and utilization of our Value+ services by our new and existing customers are ~~expensed as incurred.~~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. Advertising expenses were ~~$3.6~~$7.0 million, $5.8 million and $4.5 million for each of the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively, and are expensed as incurred.

Research and Product Development

Research and product development expense consists of personnel-related costs (including salaries, ~~incentive-based~~performance-based compensation, benefits, and stock-based compensation) for our employees focused on research and product development, fees for third-party development resources, and allocated shared and other costs. Our research and product development efforts are focused on enhancing functionality and the ease of use ~~and functionality~~ of our existing software solutions by adding new core functionality, Value+ services and other improvements, as well as developing new products and ~~services.~~services for new and existing markets. We capitalize ~~the portion of~~ our software development costs ~~that meets~~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 (including salaries, ~~incentive-based~~a majority of total performance-based compensation, benefits, and stock-based compensation) for employees in our executive, finance, information technology, human resources, legal, compliance, corporate development ~~legal~~ and administrative organizations. 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.

Stock-Based Compensation

We ~~account~~recognize stock-based compensation expense for stock-based ~~compensation~~ awards granted to employees and directors ~~by recording compensation expense based on each award's grant-date estimated~~that can be settled in shares of our common stock. We estimate the fair value ~~in accordance with ASC 718,~~ ~~Compensation-Stock Compensation~~ ~~over~~of stock options and performance-based stock options ("PSOs"), using the ~~vesting period.~~Black-Scholes option-pricing model. We estimate the fair value of restricted stock awards ("RSAs"), restricted stock units ("RSUs") and performance-based RSUs or performance ~~based RSUs~~share units ("PSUs") based on the fair value of our common stock on the date of grant. We

Stock Options

For the years ended December 31, 2020, 2019, and 2018 we did not grant time-based stock options or PSOs.

Restricted Stock Units

RSUs generally vest in equal tranches over four annual periods and are expensed on a straight-line basis over the vesting period. The shares underlying the RSU grants are not issued and outstanding until the applicable vesting date.

Performance-Based Equity Awards

Our PSUs include performance conditions that require us to estimate the fair value of stock options and performance based stock options ("PSOs") using the Black-Scholes option-pricing model. Determining the fair value of stock options under this model requires highly subjective assumptions, including the fair valueprobable outcome of the underlying common stock, the risk-free interest rate, the expected term of the award, the expected volatility of the price of our common stock, and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If we had made different assumptions, our stock-based compensation expense could have been materially different.

~~Since our IPO in June 2015, the fair value of our common stock~~performance condition. This assessment is based on management's judgment using internally developed forecasts and assessed at each reporting period. Compensation cost is recorded if it is probable that the ~~closing price~~performance condition will be achieved. Adjustments to compensation expense are made each period based on changes in our estimate of the number of PSUs that are probable of vesting. PSUs will vest upon achievement of the relevant performance metric once such calculation is reviewed and approved by our ~~Class A common stock, as quoted on the~~ ~~NASDAQ Global Market,on the date~~Board of ~~grant and we utilized the following assumptions and estimates when utilizing the Black-Scholes option-pricing model when calculating the fair value of our options and PSOs:~~Directors.


▪	~~Risk-Free Interest Rate~~ ~~- The risk free interest rate assumption is based upon observed interest rates on United States government securities appropriate for the expected term of the stock option.~~


▪	~~Expected Term -~~ Given that we do not have sufficient exercise history to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, we determine the expected term using the simplified method, which is calculated as the midpoint of the stock option vesting term and the expiration date of the stock option.

▪


▪	~~Expected Dividend Yield~~ ~~- We have not paid and do not anticipate paying any cash dividends in the foreseeable future and, therefore, we use an expected dividend yield of zero.~~

Forfeiture Rate

~~In addition to the assumptions used in the Black-Scholes option-pricing model, we also~~We estimate a forfeiture rate to calculate our stock-based compensation expense for our ~~options and~~stock-based awards. The forfeiture rate is based on an analysis of actual forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and other factors. Changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the estimated forfeiture rate is changed. If a revised forfeiture rate is higher than the previously-estimated forfeiture rate, an adjustment is made that will result in a decrease to our stock-based compensation expense recognized in our ~~consolidated financial statements.~~Consolidated Financial Statements. If a revised forfeiture rate is lower than the previously-estimated forfeiture rate, an adjustment is made that will result in an increase to our stock-based compensation expense recognized in our ~~consolidated financial statements.~~

~~Restricted Stock Units~~

In September 2015, we began granting RSUs. The RSUs vest in equal tranches over four annual periods and are expensed on a straight-line basis over the vesting period. The shares underlying the RSU grants are not issued and outstanding until the applicable vesting date.

~~Performance Based Equity Awards~~

In 2016, we began granting PSOs and PSUs. The fair values of the PSOs are estimated using the Black-Scholes option-pricing model and the PSUs fair values are based on the fair value of our common stock on the date of grant. The vesting of the PSOs and PSUs is based on achievement of a pre-established free cash flow performance metric or adjusted gross margin target and continued employment throughout the performance period. We recognize expense for the PSOs and PSUs based on the grant date fair value to the extent vesting of the award is probable. Adjustments to compensation expense are made each period based on changes in our estimate of the number of PSOs and PSUs that are probable of vesting. PSOs and PSUs will vest upon achievement of the relevant performance metric once such calculation is reviewed and approved by our board of directors.Consolidated Financial Statements.

Income Taxes

We ~~account for income taxes in accordance with ASC 740, which requires the recognition of~~recognize deferred tax ~~assets~~liabilities and ~~liabilities~~assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the ~~consolidated statements~~Consolidated Statements of ~~operations~~Operations in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, management considers the weighting of all available positive and negative evidence, which includes, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, and the duration of statutory carryforward periods.

Net Income ~~(Loss)~~ per Share

Basic net income per share includes no dilution and is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The dilutive effect of outstanding options and equity incentive awards is reflected in diluted net income per share by application of the treasury stock method. The calculation of diluted net income per share excludes all anti-dilutive common shares.

The net income ~~(loss)~~ per common share was the same for our Class A and Class B common shares 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 our weighted average number of Class A and Class B common shares used to compute net income ~~(loss)~~ per share (in thousands):


	Year Ended December 31,
	2020	2019	2018
Weighted average common shares outstanding	34,269	34,020	34,139
Less: Weighted average unvested restricted shares subject to repurchase	5	4	11
Weighted average common shares outstanding; basic	34,264	34,016	34,128

Weighted average common shares outstanding; basic	34,264	34,016	34,128
Plus: Weighted average options, restricted stock units and restricted shares used to compute diluted net income per common share	1,449	1,551	1,434
Weighted average common shares outstanding; diluted	35,713	35,567	35,562

Year Ended December 31,
2017 2016 2015
Weighted average common shares outstanding 33,876
33,639
21,486
Less: Weighted average unvested restricted shares subject to repurchase 27
78
150
Weighted average common shares outstanding; basic 33,849
33,561
21,336

Weighted average common shares outstanding; basic 33,849
33,561
21,336
Plus: Weighted average options, RSUs and restricted shares used to compute diluted net income per share 1,302
— —
Weighted average common shares outstanding; diluted 35,151
33,561
21,336

~~Approximately 548,000~~For the years ended December 31, 2020, 2019 and 2018, an aggregate of 79,000, 187,000 and 358,000 shares, ofrespectively, underlying PSOs and PSUs ~~are~~were not included in the computations of diluted and anti-dilutive shares ~~for the year ended December 31, 2017,~~ as they are considered contingently issuable upon ~~the~~ satisfaction of pre-defined performance measures and their respective performance measures have not been met.

~~For the years ended December 31, 2016 and 2015, we reported a net loss and therefore all potentially dilutive common shares are~~ RSUs with an anti-dilutive ~~and have been excluded from the calculation of net loss per share. The following table presents the number of anti-dilutive common shares~~effect were excluded from the calculation of weighted average number of shares used to compute diluted net income ~~(loss)~~ per common share and they were not material for the years ended December 31, ~~2017, 2016,~~2020, 2019 and ~~2015 (in thousands):~~2018.

December 31,
2017 2016 2015
Options to purchase common stock —
1,718
1,171
Unvested RSAs —
46
120
Unvested RSUs 21
496
17
Contingent RSUs⁽¹⁾
6
34
49
Total shares excluded from net loss per share attributable to common stockholders 27
2,294
1,357

⁽¹⁾The reported shares are based on fixed price RSU commitments for which the number of shares has not been determined at the grant date. The number of shares have been determined by dividing the fixed price commitment to issue shares in the future by the closing price of our common stock as of the applicable reporting period date.

~~Recently Adopted~~Recent Accounting Pronouncements Adopted in 2018

Under the Jumpstart our Business Startups Act (the “JOBS Act”), we meet the definition of an emerging growth company. We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

In ~~March 2016,~~May 2014, the Financial Accounting Standards Board ("FASB") issued ~~Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 781),~~ ~~Improvements to Employee Share-Based Payment Accounting~~ ~~("ASU 2016-09"), which amends and simplifies~~ the accounting for share-based payment awards in three areas: (i) income tax consequences, (ii) classification of awards as either equity or liabilities, and (iii) classification on the statement of cash flows. ASU 2016-09 also provides an accounting policy election to account for forfeitures as they occur. We adopted this guidance on January 1, 2017. The impact on the Company’s consolidated financial statements was not material due to the full valuation allowance on our deferred tax assets. We have elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized each period.

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ New Revenue ~~from Contracts with Customers, as amended,~~Standard, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to ~~customers (the “new revenue standard”).~~customers. The ~~new revenue standard~~New Revenue Standard also includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which discusses the deferral of incremental costs of obtaining a contract with a customer. ~~The new revenue standard will be effective on January 1, 2018. The standard permits~~

We adopted the ~~use of either a full retrospective or modified retrospective transition method.~~

~~The Company will adopt the new revenue standard as of~~New Revenue Standard at January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed ~~as of~~at that date. ~~Upon adoption, we will recognize~~We recognized the cumulative effect of ~~adopting this guidance~~initially applying the New Revenue Standard as an adjustment to ~~our~~the opening balance of ~~accumulated deficit. Prior periods will~~retained earnings.

The adoption of the New Revenue Standard did not ~~be retrospectively adjusted.~~

~~We do not expect a material~~have an impact on our ~~revenue upon adoption. The primary~~revenues. It did, however, have a significant impact ~~of adopting the new revenue standard relates~~related to the deferral of incremental costs of obtaining contracts. ~~We have substantially completed our assessment~~Prior to the adoption of the ~~impacts~~New Revenue Standard, our commissions were expensed as incurred.

The cumulative effects of the ~~new revenue standard on incremental costs of obtaining contracts and we expect~~changes made to ~~record an adjustment to decrease accumulated deficit as of~~our Consolidated Balance Sheet at January 1, 2018 for ~~approximately $3.0 million related to~~ the ~~accounting for~~adoption of the ~~cost of sales commissions. Historically, sales commissions and other incremental costs to obtain contracts are expensed~~New Revenue Standard were as ~~incurred. Under the new revenue standard, such costs will be deferred and recognized over the period of benefit which we have determined to be three years. The Company is~~follows (in thousands):


	Balance at December 31, 2017		Adjustments		Balance at January 1, 2018
Assets
Prepaid expenses and other current assets	$	4,546	$	1,148	$	5,694
Other assets	1,238		1,816		3,054

Equity
Accumulated deficit	$	(67,247)	$	2,964	$	(64,283)

Recent Accounting Pronouncements Adopted in the process of implementing the necessary changes to its accounting policies, processes, internal controls and information systems that will be required to meet the new revenue standard’s reporting and disclosure requirements.2019

In February 2016, the FASB issued ASU No. 2016-02, Leases~~(Topic 842)~~ ("ASU 2016-02")~~. Under ASU 2016-02,~~, which requires an entity ~~will be required~~ to recognize ~~right-of-use~~ROU assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ~~For public companies,~~In July 2018, the FASB issued ASU ~~2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires~~No. 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11"). Among other things, ASU 2018-11 provides administrative relief by allowing entities to implement the lease standard on a modified retrospective ~~adoption, with early adoption permitted. There are additional optional practical expedients that an entity may elect~~basis (the "Optional Transition Method"). Effectively, the Optional Transition Method permits us to ~~apply. We anticipate this~~adopt the lease standard ~~will have~~through a ~~material impact on our consolidated~~

~~financial statements. While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impact relates~~cumulative effect adjustment to our ~~accounting~~opening balance sheet as of January 1, 2019, and ~~reporting of our operating leases~~report under the new lease standard on ~~our balance sheet.~~ a post-adoption basis.

We ~~are in the process of implementing changes to our processes in conjunction with our review of existing lease agreements. We will adopt~~adopted ASU 2016-02 effective January 1, 2019, using the Optional Transition Method. We elected the package of practical expedients permitted under the transition guidance, which allows us to carry forward our historical lease classification, our assessment of whether a contract is or contains a lease, and ~~expect~~our initial direct costs for any leases that existed prior to ~~elect certain available transitional practical expedients.~~adoption of the new lease standard. The comparative information has not been recast and continues to be reported under the accounting standards in effect for those periods. We updated our accounting policies, processes, internal controls and information systems that were required to meet the new lease standard's reporting and disclosure requirements.

The adoption of ASU 2016-02 had a material impact on our Consolidated Balance Sheets, but did not have an impact on our Consolidated Statements of Operations or our Consolidated Statements of Cash Flows. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. We also reclassified prepaid and deferred rent to the ROU asset balance as of January 1, 2019.

The cumulative effect of the changes made to our Consolidated Balance Sheet at January 1, 2019 for the adoption of the new lease standard was as follows (in thousands):


	Balance at December 31, 2018		Adjustments		Balance at January 1, 2019
Assets
Prepaid expenses and other current assets	$	11,775	$	(317)	$	11,458
Operating lease right-of-use assets	0		16,945		16,945

Liabilities and Stockholders’ Equity
Other current liabilities	$	1,447	$	3,493	$	4,940
Operating lease liabilities	0		20,056		20,056
Other long-term liabilities	7,080		(6,921)		159

Recent Accounting Pronouncements Adopted in 2020

In June 2016, the FASB issued ~~ASU~~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 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period after December 15, 2018. We do not expect theon January 1, 2020. The adoption of this guidance todid not have a material impact on our financial condition, results of operations, cash flows or disclosures.

In August ~~2016,~~2018, the FASB issued ASU No. ~~2016-15,~~ ~~Statement~~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 ~~Cash Flows (Topic 230): Classification~~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 ~~Certain Cash Receipts and Cash Payments~~ ("a hosting arrangement that is a service contract is not affected by these amendments. We adopted ASU 2016-15"), which provides cash flow statement classification guidance for debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We do not expect the2018-15 on January 1, 2020. The adoption of this guidance todid not have a material impact on our ~~statement~~financial condition, results of operations, cash ~~flows.~~flows or disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In ~~October 2016,~~December 2019, the FASB issued ASU No. ~~2016-16,~~ 2019-12, Income Taxes (Topic 740): ~~Intra-Entity Transfers of Assets Other Than Inventory~~ Simplifying the Accounting for Income Taxes ("ASU ~~2016-16"~~2019-12")~~, which changes~~. 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 ~~when certain intercompany transactions are recognized within~~recognition of the ~~provision for~~effects from enacted tax law changes on the effective income ~~taxes. ASU 2016-16~~tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. This guidance is effective ~~on January 1, 2018. Early~~for interim and annual periods beginning after December 15, 2020 with early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our financial condition, results of operations, cash flows or disclosures.

~~In November 2016,~~3. Divestitures and Business Combinations

Divestiture of MyCase

On September 30, 2020, we completed the ~~FASB issued ASU 2016-18,~~ ~~Statement~~MyCase Transaction for $193.0 million, consisting of ~~Cash Flows (Topic 230): Restricted Cash~~ ~~("ASU 2016-18"), which provides amendments to current guidance to address the classification and presentation of changes in restricted cash in the statement~~$192.2 million of cash ~~flows. ASU 2016-18~~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 retention bonus pool is ~~effective~~refundable to us to the extent that MyCase employees are terminated prior to the retention period, which is one year from the closing date of the MyCase Transaction. A portion of the cash proceeds was used to pay all outstanding borrowings under the Credit Facility. Refer to Note 10, Long-Term Debt, of our Consolidated Financial Statements for more information about the termination of the Credit Facility.

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 development costs of $3.9 million, deferred revenue of $2.8 million and goodwill allocated to MyCase of $2.3 million. The gain on the sale is included within Other income (expense), net in our Consolidated Statements of Operations. Income received in relation to the transition services provided by us to MyCase of $1.1 million is included within Other income (expense), net in our Consolidated Statements of Operations. Refer to Note 1, Nature of Business, of our Consolidated Financial Statements for more information about the MyCase Transaction.

Acquisition of Dynasty

On January 7, 2019, we acquired 100% of the voting equity interest of Dynasty Marketplace, Inc. ("Dynasty") for $60.2 million, of which $6.0 million the "Holdback Amount") was retained by us to satisfy any necessary adjustments, including without limitation certain indemnification claims. The balance of the Holdback Amount, less any amount retained with respect to any unresolved indemnification claims, was released to the stockholders of Dynasty on January 10, 2020 in accordance with the terms of the purchase agreement. Dynasty is a provider of advanced artificial intelligence solutions for the real estate vertical, which automate leasing communications, replace manual tasks and help customers grow their portfolios.

The transaction was accounted for using the acquisition method and, as a result, assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management to make significant judgments and estimates, including the selection of valuation methodologies and comparable companies, estimates of future revenue and cash flows, discount rates, and the software decay rate and database ramp up rate. The following table summarizes the final purchase price allocation (in thousands), as well as the estimated useful lives of the acquired intangible assets over which they are amortized on a straight-line basis, as this approximates the pattern in which we expect the economic benefits will be consumed:


	Amount (in thousands)		Estimated Useful Life (in years)
Total current assets	$	305
Identified intangible assets:
Technology	5,730		4.0
Database	4,710		10.0
Customer relationships	1,110		5.0
Backlog	470		1.0
Trademark & trade name	1,390		10.0
Non-compete agreement	7,340		5.0
Total intangible assets subject to amortization	20,750		6.0
Goodwill	42,877		Indefinite
Other noncurrent assets	35
Total assets acquired	63,967

Accrued and other liabilities	48
Deferred tax liability, net	3,711
Total liabilities assumed	3,759
Purchase consideration	$	60,208

Goodwill is mainly attributable to synergies expected from the acquisition and assembled workforce and is non-deductible for U.S. federal income tax purposes.

We incurred a total of $0.3 million in transaction costs related to the acquisition and expensed all transaction costs incurred during the period in which such service was received.

Pro Forma Results of Operations

The following unaudited pro forma information has been prepared for illustrative purposes only, and assumes that the aforementioned Dynasty acquisition occurred on January 1, 2018, and ~~early adoption is permitted. We expect that adoption will change~~includes pro forma adjustments related to the ~~current presentation~~amortization of ~~restricted cash~~acquired intangible assets, elimination of historical interest and amortization expense, income taxes, compensation arrangements, and the transaction costs incurred. The unaudited pro forma results have been prepared based on ~~our statement of cash flows as well as require additional disclosures to reconcile cash~~estimates and ~~cash equivalents per the balance sheet to cash and cash equivalents on the statement of cash flows.~~

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~ ~~("ASU 2017-04"),~~assumptions, which eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value;we believe are reasonable; however, ~~the loss recognized should~~they are not ~~exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount~~necessarily indicative of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for public entities for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on dates after January 1, 2017. We do not expect the adoption of this guidance to have a material impact on our financial condition,consolidated results of operations ~~cash flows or disclosures.~~

~~In March 2017,~~had the ~~FASB issued ASU No. 2017-08,~~ ~~Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities~~ ~~(“ASU 2017-08”)~~. ~~ASU 2017-08 shortens the amortization period for certain callable debt securities held~~acquisitions occurred at a premium. Specifically, ASU 2017-08 requires the premium to be amortized to the earliest call date. ASU 2017-08 does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public companies, ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the ~~period~~periods presented, or of ~~adoption. We do not expect the adoption of this guidance to have a material impact on our financial condition,~~future results of ~~operations, cash flows or disclosures since our current accounting policy is in accordance with ASU 2017-08.~~operations. The unaudited pro forma results are as follows (in thousands):


	Year Ended December 31,
		2019		2018
Revenue		$	256,047	$	193,405
Net income		32,339		5,937

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting~~ ~~("ASU 2017-09")~~. ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our financial condition, results of operations, cash flows or disclosures.

3.4. Investment Securities and Fair Value Measurements

Investment Securities

Investment securities classified as available-for-sale consisted of the following at December 31, ~~2017~~2020 and ~~2016~~2019 (in thousands):


	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		0		17,894
Total available-for-sale investment securities	$	34,951	$	76	$	(1)	$	35,026


	December 31, 2017										December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Corporate bonds	$	38,383	$	—	$	(166	)	$	38,217	Corporate bonds	$	9,597	$	18	$	(1)	$	9,614
Agency securities	11,045		—		(42		)	11,003		Agency securities	11,101		17		0		11,118
Certificates of deposit	2,982		1		(2		)	2,981
Treasury securities										Treasury securities	14,222		12		(1)		14,233
Total available-for-sale investment securities	$	52,410	$	1	$	(210	)	$	52,201	Total available-for-sale investment securities	$	34,920	$	47	$	(2)	$	34,965



		Section	Page No.
Cautionary Note Regarding Forward-Looking Statements			1
Part I
Item 1.		Business	2
Item 1A.		Risk Factors	811
Item 1B.		Unresolved Staff Comments	2825
Item 2.		Properties	2825
Item 3.		Legal Proceedings	2925
Item 4.		Mine Safety Disclosures	2926
Part II
Item 5.		Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3026
Item 6.		Selected Financial Data	3227
Item 7.		Management's Discussion Analysis of Financial Condition and Results of Operation	3329
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk	4844
Item 8.		Financial Statements and Supplementary Data	4944
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosures	8179
Item 9A.		Controls and Procedures	8180
~~Item 9B.~~	~~Other Information~~	82
Part III
Item 10.		Directors, Executive Officers and Corporate Governance	8281
Item 11.		Executive Compensation	8281
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	8281
Item 13.		Certain Relationships and Related Transactions, and Director Independence	8281
Item 14.		Principal Accounting Fees and Services	8281
Part IV
Item 15.		Exhibits and Financial Statement Schedules	8381
~~Exhibit Index~~Signatures			84
~~Signatures~~		85


	Quarter Ended
	December 31,	September 30,	June 30,	March 31,	December 31,	September 30,	June 30,	March 31,
	2020				2019
Property management customers	15,724	15,352	15,011	14,729	14,385	14,034	13,737	13,409
Property management units under management (in millions)	5.36	5.12	4.94	4.8	4.64	4.41	4.23	4.08



	Quarter Ended
	2017				2016
	December 31,	September 30,	June 30,	March 31,	December 31,	September 30,	June 30,	March 31,
Property manager	11,708	11,258	10,820	10,468	10,038	9,612	9,275	8,816
Property manager units under management (in millions)	3.25	3.08	2.93	2.83	2.68	2.53	2.41	2.30


▪	~~Great, Innovative Products Are Key To A Great Business~~


▪	~~We Do The Right Thing Because It’s Good For Business~~


▪	~~our research~~across our organization and, product development organization to enhance the ease of use and functionality of our software solutions by adding new core functionality, Value+ services and other improvements to address the evolving needs of our customers, as ~~well as to develop new products for adjacent markets and new verticals;~~


▪	~~our customer service organization to deepen our relationships with our customers, assist our customers in achieving success through the use of our software solutions, 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, increase adoption and utilization of new and existing Value+ services by our new and existing customers, and enter adjacent markets and new verticals;


▪	maintaining and expanding our technology infrastructure and operational support, including data center operations, to promote the security and availability of our software solutions, and support our growth;


▪	our general and administrative functions, including hiring additional finance, IT, human resources, legal and administrative personnel, to support our growth and assist us in achieving and maintaining compliance with public company reporting and compliance obligations;


▪	~~the expansion of our existing facilities, including leasing and building out additional office space, to support our growth and strategic expansion; and~~


▪	~~our continued strategic efforts to identify and expand into key adjacent and new vertical markets.~~


▪	to, liability for customer costs related to disputed ~~or fraudulent transactions if those costs exceed the amount of the customer reserves we have during the clearing period or after payments have been settled to our customers;~~


~~ITEM 1.~~	~~BUSINESS~~


▪	~~Simpler Is Better~~


▪	~~Great People Make A Great Company~~


▪	~~Listening To Customers Is In Our DNA~~


▪	~~electronic processing limits on the amounts that any single ODFI, or collectively all of our ODFIs, will underwrite;~~


▪	our reliance on sponsoring clearing banks, card payment processors and other electronic payment partners to process electronic transactions, especially where those partners are highly scrutinized and regulated themselves;


▪	~~failure by us, our partners or our customers to adhere to applicable laws, regulations and standards that may legally or contractually apply to the provision of electronic payment services;~~


▪	~~continually evolving and developing laws and regulations governing money transmission and anti-money~~


▪	~~incidences of fraud, security breaches, errors, defects, failures, vulnerabilities or bugs in our electronic payments platform, or our failure to comply with required external audit standards; and~~


▪	~~our inability to increase our fees at times when our electronic payment partners increase their transaction processing fees.~~


▪	~~our ability to retain our existing customers, and to expand adoption and utilization of our core solutions and Value+~~tenant screening services ~~by our existing customers;~~


▪	~~our ability to attract new customers, the type of customers we are able to attract, the size and needs of their businesses, and the cost of acquiring these customers;~~


▪	~~the mix of our core solutions and Value+ services sold during the period;~~


▪	~~the timing and impact of security breaches, service outages or other performance problems with our technology infrastructure and software solutions;~~


▪	~~variations in the timing of sales of our core solutions and Value+ services as a result of trends impacting the verticals in which we sell our software solutions;~~


▪	~~the timing and market acceptance of new core functionality, Value+ services and other products introduced by us and our competitors;~~


▪	~~changes in our pricing policies or those of our competitors;~~


▪	~~our ability to convert customers who start their accounts on a free trial into paying subscribers;~~


▪	~~the amount and timing of costs and operating expenses related to the maintenance and expansion of our~~ business ~~infrastructure and operations;~~


▪	the amount and timing of costs and operating expenses related to the development or acquisition of businesses, services, technologies or intellectual property rights, and potential future charges for impairment of goodwill from these acquisitions;


▪	~~the timing and costs associated with legal or regulatory actions;~~


▪	~~changes in the competitive dynamics of our industry, including consolidation among competitors, strategic partners or customers;~~


▪	~~loss of our executive officers or other key employees;~~


▪	~~industry conditions and trends that are specific to the verticals in which we sell or intend to sell our software solutions; and~~