Table of ~~customers subscribing to MyCase core solutions, exclusive of free trial periods. Legal customer count is summarized in the table below:~~

Quarter Ended
September 30, June 30, March 31, December 31, September 30, June 30, March 31,
2019 2018
Law firm customers 10,781
10,631
10,485
10,279
10,173
10,001
9,706

AtAs of September 30, ~~2019,~~2020, we had approximately ~~1,210~~1,420 employees, ~~and we~~which includes 118 MyCase employees who were terminated in connection with the MyCase Transaction. We continue to consider our relationship with ~~them~~our employees to be very good. We also hire temporary employees and consultants, and ~~feel~~believe we have a similarly ~~about our relationships~~strong relationship with them. None of our employees is represented by a labor union or covered by a collective bargaining agreement. Our future growth depends, in part, upon our ability to continue to identify, attract and retain the necessary qualified personnel to support our growth plans and the continued service of our executive officers and other key employees. If we fail to do so, our business and operating results may suffer.

Recent Developments

As previously disclosed, on September 30, 2020, the Company completed the divestiture of 100% of the issued and outstanding equity interests of MyCase, the former wholly owned subsidiary of the Company that provided legal practice and case management software solutions to our legal customers, to an affiliate of certain funds advised by Apax Partners LLP for $193.0 million. In connection with the MyCase Transaction, our Credit Agreement was terminated and all obligations outstanding under the Term Loan and Revolving Facility, including all guarantees and security interests granted with respect to such obligations, were satisfied in full with proceeds from the sale and extinguished.

Real Estate Overview

In 2008, we entered the real estate vertical with our first product, AppFolio Property Manager ("APM"), a property management solution designed to address the unique operational and business requirements of property management companies. Recognizing that our customers and their stakeholders would benefit from additional business critical services, we launched a series of Value+ services beginning in 2009. Our first Value+ service assisted our customers in the marketing of their rental properties by offering property level website design and hosting services. One year later, we commenced the roll out of our electronic payment services, thereby facilitating the payment of rent via ACH by tenants. In 2011, we launched tenant screening services, further assisting our customers with the leasing process. In 2012, we introduced our legal liability to landlord insurance program, which protects property owners and managers from certain defined losses. We expanded our electronic payment services in 2013 by allowing residents to pay rent by electronic cash payment and credit or debit card. In 2014, we launched a tenant-facing contact center solution to assist our property managers with resolving incoming maintenance requests. In 2015, we expanded the marketing services offered to our property management customers with a premium leads service built on technology acquired with our acquisition of RentLinx, LLC ("RentLinx") and expanded our electronic payment services to facilitate payments made between our customers and property owners and vendors. In 2016, we introduced a tenant debt collection Value+ service to assist our property managers with running a more efficient business. We expanded our insurance services in 2017 to enable tenants to purchase renters insurance from within APM, protecting both our property management customers and their tenants. In 2018, we acquired substantially all of the assets of WegoWise, Inc. ("WegoWise"), a provider of cloud-based utility analytics software solutions, and began offering AppFolio Utility Management as a Value+ service to our property management customers in mid-2019. That same year, we released AppFolio Property Manager PLUS ("APM PLUS"), a new tier of APM designed for larger businesses with more complex needs. APM PLUS builds upon the core functionality of APM and also offers data analytics, configurable workflows, and revenue management and optimization functionality for our customers. In January 2019, we acquired Dynasty Marketplace, Inc. ("Dynasty"), a provider of advanced artificial intelligence ("AI") solutions for the real estate vertical, and began offering an AI Leasing Assistant, which we refer to as "Lisa", as a Value+ service to our property management customers in mid-2019. In April 2019, we launched AppFolio Investment Management, which enables real estate investment managers to better manage their investor relationships by increasing transparency and streamlining certain business processes.

The significant majority of our customers in the real estate vertical use our property management solutions. We define our property management customer base as the number of customers subscribing to our property management core solutions. Customer count and property management units under management are presented in the table below:


	Quarter Ended
		September 30,	June 30,	March 31,	December 31,	September 30,	June 30,	March 31,
		2020			2019
Property manager customers		15,352	15,011	14,729	14,385	14,034	13,737	13,409
Property manager units under management (in millions)		5.12	4.94	4.80	4.64	4.41	4.23	4.08

Legal Overview

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We entered the legal vertical with the acquisition of MyCase in 2012. As stated above, on September 30, 2020, we exited the legal vertical upon the completion of our divestiture of 100% of the issued and outstanding equity interests of MyCase to an affiliate of certain funds advised by Apax Partners LLP, for $193.0 million.

As of September 30, 2020, our legal customers directly and indirectly accounted for approximately 10% of our annual revenue. We do not expect there will be a material impact to our operating income as a result of the MyCase Transaction. We formerly defined our legal customer base as the number of customers subscribed to MyCase core solutions, exclusive of free trial periods. Our historical legal customer count is summarized in the table below for the periods presented therein:


	Quarter Ended
	September 30,	June 30,	March 31,	December 31,	September 30,	June 30,	March 31,
	2020			2019
Law firm customers	11,592	11,305	11,115	10,971	10,781	10,631	10,485

Trends and Uncertainties Related to the COVID-19 Pandemic

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 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. Such restrictions or orders, or the perception that such restrictions or orders could be implemented, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and the cancellation or postponement of events. 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.

Beginning in March 2020, in an effort to protect our employees and comply with applicable government orders, we restricted non-essential employee travel and transitioned our employees to a remote work environment. We currently expect our employees to continue working remotely at least through the end of the first quarter of 2021. The professionalism and dedication of our workforce to continue effectively developing and supporting our product and service offerings has persisted notwithstanding the current environment, and the morale and focus of our team, even while working remotely, remains high. We take the health and welfare of our people very seriously, and have encouraged safe practices designed to stem the infection and spread of COVID-19 within our workforce and beyond. With all of that said, if the COVID-19 pandemic requires remote working conditions for a prolonged period of time, it could have an adverse impact on the productivity of our employees, which would harm our business and impede our ability to achieve our strategic plan. For example, certain our employees with younger children have been required to respond to ongoing school closures and adapt to a distance learning environment, and may be required to continue to do so for the foreseeable future. Further, we have a limited history of remote work and the long-term impact on, and the resulting types of continuing investments necessary for, our employee base is uncertain.

We began fiscal year 2020 with healthy demand for our products and services, many of which are designed to enable our customers to manage their businesses virtually. During the three and nine months ended September 30, 2020, we experienced some variability in demand for certain Value+ services after government restrictions were implemented. We expect demand variability for our products and services could continue as a result of the COVID-19 pandemic, although it is presently unclear whether the cumulative impacts will be positive or negative.

We continue to actively communicate with and listen to our customers to best ensure that we are responding to their needs in the current environment with innovative solutions that will not only be beneficial now but also over the long-term as well. However, our ability to interact with customers has been impacted by the current environment. For example, we believe that our inability to meet in-person with current or prospective customers, as well as the cancellation or postponement of Company-sponsored events or third-party events at which our products are featured, may have a negative impact on our business.

We continue to monitor developments related to COVID-19 and remain flexible in our response to the challenges presented by the pandemic. To mitigate the adverse impact COVID-19 may have on our business and operations, we have implemented a number of measures to protect the health and safety of our employees, as well as to strengthen our financial position. These efforts include increasing our cash position and eliminating, reducing, or deferring non-essential expenditures, as well as complying with local and state government recommendations to protect our workforce.

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Our reported results for the three and nine months ended September 30, 2020 may not be reflective of current market conditions, or of our results for any future periods, which may be negatively impacted by the COVID-19 pandemic to a greater extent than the reported period. The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this Quarterly Report. Refer to Item 1A. “Risk Factors” in this Quarterly Report for a complete description of the material risks that we currently face.

Key Components of Results of Operations

Revenue

We charge our customers on a subscription basis for our core solutions and certain of our Value+ services. Our subscription fees are designed to scale to the size of our customers’ businesses. We recognize subscription revenue over time on a straight-line basis over the contract term beginning on the date that our service is made available to the customer. We generally invoice our customers for subscription services in monthly or annual installments, typically in advance of the subscription period. Revenue from subscription services is impacted by a number of factors, including the change in the number and type of our customers, the size and needs of our customers’ businesses, our customer renewal rates, pricing for our solutions, and the level of adoption of our Value+ subscription services by new and existing customers.

We also charge our customers usage-based fees for using certain Value+ services. Certain of the usage-based fees are paid by either our customers or clients of our customers. 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. Other usage-based fees are collected at the time of service. Revenue from usage-based services is impacted by a number of factors, including the number of new and existing customers that adopt and utilize our Value+ services, the size and needs of our customers, and our customer renewal rates.

We experience limited seasonality in our Value+ services revenue, primarily with respect to certain leasing-related services we provide to our property ~~manager~~management customers, including our tenant screening services and new tenant ~~applications. These~~applications which impact electronic payment services revenue. Our property management customers historically have processed fewer applications for new tenants during the ~~winter holiday season; therefore, revenue associated with our leasing services typically declines in the~~ fourth 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 although the impact from seasonality may decline as our revenue from other services increases.~~future.

We offer assistance to our customers with on-boarding to our core solutions, as well as website design services. We generally invoice our customers for these other services in advance of the services being completed. We recognize revenue for these other services upon completion of the related service. We generate revenue from ~~legacy~~ RentLinx, WegoWise, and Dynasty stand-alone customers by providing services ~~that allow these customers to advertise rental houses and apartments online.~~outside of our property management core solution platform. Revenue derived from customers using ~~the RentLinx~~these services ~~outside of our property manager core solution platform~~ is recorded in Other revenue. We also generate revenue from legacy WegoWise customers by providing utility analytics services and from legacy Dynasty customers by providing artificial intelligence solutions for the real estate market. Revenue derived from customers using the WegoWise and Dynasty services outside of our property manager core solution platform is also recorded in Other revenue.

Costs and Operating Expenses

Cost of Revenue. Cost of revenue consists of fees paid to third-party service providers associated with delivering certain of our Value+ services (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), 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 and other 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. We intend to continue to invest in customer service and support, and the expansion of our technology infrastructure as ~~we grow the number of~~ our ~~customers, enter new markets and offer additional Value+ services. These investments could impact cost of revenue both in absolute dollars and as an overall percentage of revenue.~~business grows.

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 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 deferred and then amortized on a straight-line basis over a period of benefit, ~~that~~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. We intend to continue to invest in sales and marketing ~~as we grow~~ to increase our customer base ~~in new and existing markets~~ and increase the adoption and utilization of Value+ services by our new and existing customers.

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

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research and product development, fees for third-party development resources, and allocated shared 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 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. We intend to continue to invest in research and product development as we continue to introduce new core functionality, roll out new Value+ services, develop new products and services, and expand into adjacent markets and new verticals.

General and Administrative. General and administrative expense consists of personnel-related costs (including salaries, a majority of total ~~incentive-based~~performance-based compensation, benefits, and stock-based compensation) for employees in our executive, finance, information technology, human resources, corporate development, legal, and administrative organizations. In addition, general

and administrative expense includes fees for third-party professional services (including audit, legal, tax, and consulting services), transaction costs related to business combinations, regulatory fines and penalties, other corporate expenses, and allocated shared costs. We intend to continue to incur incremental general and administrative costs associated with supporting the growth of our business.

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. As we continue to invest in our research and product development organization and the development or acquisition of new technology, we expect to have increased capitalized software development costs and incremental amortization. Further, we may incur additional amortization expense to the extent ~~that~~ we enter into additional arrangements to acquire or invest in new technologies or markets adjacent to those we serve today or entirely new verticals. Finally, as we expand our facilities footprint and increase our base of employees, we expect to have increased property and equipment expenditures and incremental depreciation expense.

~~Interest~~Other Income (Expense), Net. Other income (expense), net includes gains and losses associated with the sale of businesses, property and equipment and investment securities.

Interest Expense, Net. Interest expense includes interest paid on outstanding borrowings under our former Credit Agreement. Interest income includes interest earned on investment securities, amortization and accretion of the premium and discounts paid from the purchase of investment securities, and interest earned on notes receivable and on cash deposited in our bank accounts. Interest expense includes interest paid on outstanding borrowings under the credit agreement with Wells Fargo, as administrative agent, and the lenders that are parties thereto, ("the Credit Agreement").

Provision for (Benefit from) Income Taxes. Provision for (benefit from) income taxes consists of federal and state income taxes in the United ~~States and a non-cash benefit related to the release~~States.

Table of ~~the valuation allowance for our deferred tax assets.~~Contents

Results of Operations

The following table sets forth our results of operations for the periods presented in dollars (in thousands) and as a percentage of revenue:

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Amount % Amount % Amount % Amount %
Consolidated Statements of Operations Data:
Revenue $ 67,935
100.0 % $ 50,126
100.0 % $ 188,650
100.0 % $ 139,706
100.0 %
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization) ⁽¹⁾
25,930
38.2
19,282
38.5
75,239
39.9
53,624
38.4
Sales and marketing ⁽¹⁾
12,636
18.6
8,681
17.3
37,087
19.7
23,711
17.0
Research and product development ⁽¹⁾
10,602
15.6
6,440
12.8
28,422
15.1
17,523
12.5
General and administrative ⁽¹⁾
8,955
13.2
6,541
13.0
25,361
13.4
17,105
12.2
Depreciation and amortization 5,678
8.4
3,705
7.4
16,169
8.6
10,784
7.7
Total costs and operating expenses 63,801
93.9
44,649
89.0
182,278
96.6
122,747
87.8
Income from operations 4,134
6.1
5,477
10.9
6,372
3.4
16,959
12.1
Other income (expense), net (11 ) —
1
—
(68 ) —
(20 ) —
Interest income (expense), net (400 ) (0.6 ) 229
0.5
(1,324 ) (0.7 ) 631
0.5
Income before provision for (benefit from) income taxes 3,723
5.5
5,707
11.4
4,980
2.6
17,570
12.6
Provision for (benefit from) income taxes (1,255 ) (1.8 ) 183
0.4
(26,874 ) (14.2 ) 252
0.2
Net income $ 4,978
7.3 % $ 5,524
11.0 % $ 31,854
16.9 % $ 17,318
12.4 %


	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020				2019
	Amount		%		Amount		%		Amount		%		Amount		%
Consolidated Statements of Operations Data:
Revenue	$	84,086	100.0	%	$	67,935	100.0	%	$	237,624	100.0	%	$	188,650	100.0	%
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization) (1)	32,752		39.0		25,930		38.2		89,124		37.5		75,239		39.9
Sales and marketing (1)	14,894		17.7		12,636		18.6		43,117		18.1		37,087		19.7
Research and product development (1)	13,454		16.0		10,602		15.6		36,794		15.5		28,422		15.1
General and administrative (1)	12,946		15.4		8,955		13.2		36,303		15.3		25,361		13.4
Depreciation and amortization	6,680		7.9		5,678		8.4		19,751		8.3		16,169		8.6
Total costs and operating expenses	80,726		96.0		63,801		93.9		225,089		94.7		182,278		96.6
Income from operations	3,360		4.0		4,134		6.1		12,535		5.3		6,372		3.4
Other income (expense), net	187,747		223.3		(11)		—		187,759		79.0		(68)		—
Interest expense, net	(853)		(1.0)		(400)		(0.6)		(1,909)		(0.8)		(1,324)		(0.7)
Income before provision for (benefit from) income taxes	190,254		226.3		3,723		5.5		198,385		83.5		4,980		2.6
Provision for (benefit from) income taxes	52,578		62.5		(1,255)		(1.8)		39,469		16.6		(26,874)		(14.2)
Net income	$	137,676	163.7	%	$	4,978	7.3	%	$	158,916	66.9	%	$	31,854	16.9	%

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Stock-based compensation expense included in costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)	$	452	$	334	$	1,098	$	1,073
Sales and marketing	367		354		1,069		904
Research and product development	474		353		1,348		1,024
General and administrative	1,803		1,151		3,293		2,430
Total stock-based compensation expense	$	3,096	$	2,192	$	6,808	$	5,431

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Stock-based compensation expense included in costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization) $ 334
$ 282
$ 1,073
$ 752
Sales and marketing 354
270
904
708
Research and product development 353
218
1,024
730
General and administrative 1,151
994
2,430
2,229
Total stock-based compensation expense $ 2,192
$ 1,764
$ 5,431
$ 4,419

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Comparison of the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

The following comparative financial information includes the impact of ongoing investment in our business that we believe will positively impact long-term stockholder value, including (i) the acquisition of substantially all of the assets of WegoWise completed in August 2018, (ii) the development and launch of AppFolio Property Manager PLUS in September 2018, (iii) the acquisition of Dynasty completed in January 2019, and (iv) the development and launch of AppFolio Investment Management in April 2019. The WegoWise platform empowers building owners and third-party property managers to better manage operating and capital expenditures relating to utilities. Earlier this year we launched our AppFolio Utility Management Value+ service, which has been developed from certain key aspects of the WegoWise platform, and is a fully integrated offering that provides enhanced functionality to our real estate customers for utility analytics and management. Dynasty offers advanced conversational AI solutions that automate leasing communications, replace manual tasks and help customers grow their portfolios. The acquisition of Dynasty strengthens AppFolio's system of intelligence capabilities, and has enabled the launch of Lisa, AppFolio’s AI Leasing Assistant Value+ service for real estate customers.

Revenue


	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
	2020		2019		Amount		%		2020		2019		Amount		%
	(dollars in thousands)
Core solutions	$	27,117	$	22,503	$	4,614	21	%	$	78,080	$	64,934	$	13,146	20	%
Value+ services	53,392		41,645		11,747		28	%	149,122		114,399		34,723		30	%
Other	3,577		3,787		(210)		(6)	%	10,422		9,317		1,105		12	%
Total revenue	$	84,086	$	67,935	$	16,151	24	%	$	237,624	$	188,650	$	48,974	26	%

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2019 2018 Amount % 2019 2018 Amount %
(dollars in thousands)
Core solutions $ 22,503
$ 17,908
$ 4,595
26 % $ 64,934
$ 51,101
$ 13,833
27 %
Value+ services 41,645
30,797
10,848
35 % 114,399
84,189
30,210
36 %
Other 3,787
1,421
2,366
167 % 9,317
4,416
4,901
111 %
Total revenue $ 67,935
$ 50,126
$ 17,809
36 % $ 188,650
$ 139,706
$ 48,944
35 %

Total revenue was $67.9 million for the three months ended September 30, 2019 compared to $50.1 million for the three months ended September 30, 2018, an increase of $17.8 million, or 36%. Core solutions revenue was $22.5 million for the three months ended September 30, 2019 compared to $17.9 million for the three months ended September 30, 2018, an increase of $4.6 million, or 26%. Value+ services revenue was $41.6 million for the three months ended September 30, 2019 compared to $30.8 million for the three months ended September 30, 2018, an increase of $10.8 million, or 35%. Other revenue was $3.8 million for the three months ended September 30, 2019, compared to $1.4 million for the three months ended September 30, 2018, an increase of $2.4 million or 167%. The increase in Core solutions and Value+ services revenue was mainly attributed to the growth in the number of property manager customers and units under management. Combining new customer acquisition and strong customer renewal rates, we experienced an 11% year over year increase in the number of property manager customers and a 19% year over year increase in the number of property management units under management. In addition to the growth in customer count and units, property managers, residents, applicants and owners increased usage of our Value+ services platforms during the period. The increase in Other revenue was primarily attributed to revenue generated from customer subscriptions for the WegoWise platform and Dynasty technology services and an increase in one-time website setup fees associated with our property manager customers' upgrading to a new website hosting platform.

Total revenue was $188.7 million for the nine months ended September 30, 2019 compared to $139.7 million for the nine months ended September 30, 2018, an increase of $48.9 million, or 35%. Core solutions revenue was $64.9 million for the nine months ended September 30, 2019 compared to $51.1 million for the nine months ended September 30, 2018, an increase of $13.8 million, or 27%. Value+ services revenue was $114.4 million for the nine months ended September 30, 2019 compared to $84.2 million for the nine months ended September 30, 2018, an increase of $30.2 million, or 36%. Other revenue was $9.3 million for the nine months ended September 30, 2019, compared to $4.4 million for the nine months ended September 30, 2018, an increase of $4.9 million or 111%. The increase in Core solutions and Value+ services revenue was mainly attributed to the growth in the number of property manager customers and units under management. Combining new customer acquisition and strong customer renewal rates, we experienced an 11% year over year increase in the number of property manager customers and a 19% year over year increase in the number of property management units under management. In addition to the growth in customer count and units, property managers, residents, applicants and owners increased usage of our Value+ services platforms during the period. The increase in Other revenue was primarily attributed to revenue generated from customer subscriptions for the WegoWise platform and Dynasty technology services and an increase in one-time website setup fees associated with with our property manager customers' upgrading to a new website hosting platform.

For the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, we derived ~~more than~~approximately 90% of our revenue directly and indirectly from the software solutions, services and data analytics we offer to our real estate ~~customers.~~vertical customers, most notably from our property management solutions. The majority of our revenue is derived from our property management core solutions and Value+ services utilized by property managers, residents, applicants and owners.

The increase in core solutions and Value+ services revenue was mainly attributable to a growing base of property management customers and additional residents, applicants and owners utilizing our Value+ services. During the comparative three and nine months ended September 30, 2020, we experienced growth of 16% and 17%, respectively, in the average number of property management units under management resulting from 9% and 10% growth, respectively, in the average number of property management customers during the same periods. In addition, the increase in core solutions revenue was also attributable to growth of 7% in the average number of law firm customers coupled with a core solutions price increase rolled out during the period.

A significant majority of our Value+ services revenue comes directly and indirectly from our customers' use of our electronic payment services, tenant screening services, and insurance services. Our electronic payment services experienced increased demand during the most recent quarter as residents, property managers, owners and customers transacted more business online. It is unclear whether the trend will continue over the long term. During the comparative periods, we also introduced new Value+ services and expanded the functionality of others, which resulted in incremental revenue.

The decrease in Other revenue for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily attributable to a decrease in fees associated with our property management customers upgrading to a new website hosting platform, partially offset by increases in revenue from WegoWise and Dynasty. The increase in Other revenue for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily attributable to increases in revenue from WegoWise and Dynasty.

Cost of Revenue (Exclusive of Depreciation and Amortization)


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2020			2019			Amount		%		2020			2019			Amount		%
	(dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization)	$	32,752		$	25,930		$	6,822	26	%	$	89,124		$	75,239		$	13,885	18	%
Percentage of revenue	39.0		%	38.2		%					37.5		%	39.9		%

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2019 2018 Amount % 2019 2018 Amount %
(dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization) $ 25,930
$ 19,282
$ 6,648
34 % $ 75,239
$ 53,624
$ 21,615
40 %
Percentage of revenue 38.2 % 38.5 % 39.9 % 38.4 %

Cost of revenue (exclusive of depreciation and amortization) was $25.9 million for the three months ended September 30, 2019 compared to $19.3 million for the three months ended September 30, 2018, an increase of $6.6 million, or 34%. ThisThe increase in cost of revenue (exclusive of depreciation and amortization) for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, was primarily ~~attributed~~attributable to increased costs associated with servicing the ~~36% increase~~incremental $16.2 million in revenue over the same ~~period and an increase in personnel-related investments made in advance~~period.

Table of ~~expected revenue generation. Expenditures~~Contents

For the three months ended September 30, 2020, expenditures to third-party service providers related to the delivery of our Value+ services increased ~~$3.4~~$4.0 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the ~~35%~~$11.7 million increase in Value+ services ~~revenues. There was also an increase in personnel-related~~revenue. Personnel-related costs, ~~of $3.0 million, related to increased headcount~~including performance-based compensation, necessary to support growth and key investments in the business, increased ~~number of customers, including those acquired in our recent acquisitions and investments made for future growth of our business.~~$2.2 million. Allocated and other costs increased by ~~$0.3~~$0.6 million primarily driven by an increase in ~~facilities,~~ platform infrastructure, payment processing and other ~~costs incurred in support of our overall growth, as well as~~ costs associated with the delivery and provision of our Value+ ~~services.~~services, partially offset by a reduction of workplace-related expenses and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.

The increase in cost of revenue (exclusive of depreciation and amortization) for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was primarily attributable to increased costs associated with servicing the incremental $49.0 million in revenue over the same period, partially offset by third-party service provider incentives earned of $2.1 million.

For the nine months ended September 30, 2020, expenditures to third-party service providers related to the delivery of our Value+ services increased $7.7 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the $34.7 million increase in Value+ services revenue. Partially offsetting this volume increase was $2.1 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 and favorable trends in loss reserves in our insurance services business. Personnel-related costs, including performance-based compensation, necessary to support growth and key investments in the business, increased $4.8 million. Allocated and other costs increased by $1.4 million primarily driven by an increase in platform infrastructure, payment processing and other costs associated with the delivery and provision of our Value+ services, partially offset by a reduction of workplace-related expenses and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.

As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) fluctuates primarily based on the mix and prices of Value+ services inutilized during the period, and investments made in advance of expected revenue generation. ~~For~~Excluding the three months ended September 30, 2019 cost of revenue (exclusive of depreciation and amortization), as a percentage of revenue, was 38.2% compared to 38.5% for the three months ended September 30, 2018. This improvement in cost as a percentage of revenue was primarily driven by increased costs associated with settling a litigation matterthird-party service provider incentives earned during the ~~prior year quarter ended September 30, 2018. Adjusting for these costs, cost of revenue (exclusive of depreciation and amortization)~~period, as a percentage of revenue would have increased primarily due to increased personnel-related investments made in advance of expected revenue generation associated with growth initiatives including without limitation the Dynasty and WegoWise acquisitions.

Cost of revenue (exclusive of depreciation and amortization) was $75.2 million for the nine months ended September 30, 2019 compared to $53.6 million for the nine months ended September 30, 2018, an increase of $21.6 million, or 40%. This increase in cost of revenue (exclusive of depreciation and amortization) was primarily attributed to the 35% increase in revenue over the same period and an increase in personnel-related investments made in advance of expected revenue generation. Personnel-related costs increased by $9.7 million, related to increased headcount to support the increased number of customers, including those acquired in our recent acquisitions and investments made for future growth of our business. There was also an increase in expenditures to third-party service providers of $8.8 million directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the 36% increase in Value+ services revenues. Allocated and other costs increased by $3.1 million primarily driven by an increase in facilities, platform infrastructure, payment processing and other costs incurred in support of our overall growth, as well as costs associated with the delivery and provision of our Value+ services.

As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) ~~fluctuates primarily based on~~increased to 39.0% from 38.2% for the ~~mix~~three months ended September 30, 2020 compared to the three months ended September 30, 2019, and ~~prices of Value+ services in the period and investments made in advance of expected revenue generation. For~~decreased to 38.4% from 39.9% for the nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018, cost of revenue (exclusive of depreciation and amortization), as a percentage of revenue, increased to 39.9% from 38.4%. This increase~~2019. These fluctuations in cost as a percentage of revenue ~~was~~were primarily ~~due to increased personnel-related investments made in advance~~driven by the mix of ~~expected~~Value+ services revenue ~~generation associated~~ with ~~growth initiatives including without limitation the Dynasty and WegoWise acquisitions.~~

varying underlying costs.

Sales and Marketing


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2020			2019			Amount		%		2020			2019			Amount		%
	(dollars in thousands)
Sales and marketing	$	14,894		$	12,636		$	2,258	18	%	$	43,117		$	37,087		$	6,030	16	%
Percentage of revenue	17.7		%	18.6		%					18.1		%	19.7		%

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2019 2018 Amount % 2019 2018 Amount %
(dollars in thousands)
Sales and marketing $ 12,636
$ 8,681
$ 3,955
46 % $ 37,087
$ 23,711
$ 13,376
56 %
Percentage of revenue 18.6 % 17.3 % 19.7 % 17.0 %

~~Sales~~The increase in sales and marketing expense ~~was $12.6 million~~ for the three months ended September 30, ~~2019~~2020 compared to ~~$8.7 million for~~ the three months ended September 30, ~~2018, an increase of $4.0 million, or 46%. This increase~~2019, was primarily due to ana $1.6 million increase in personnel-related costs, ~~of $3.6 million driven by an increase~~including performance-based compensation, necessary to support growth and key investments in the ~~average headcount~~business. Advertising and promotion costs increased by $1.1 million due to ~~support our~~increased online advertising and virtual marketing events aimed at increasing revenue and supporting growth ~~and investments made~~ in ~~advance of expected revenue generation.~~the business. In addition, there was ~~an increase~~a decrease in allocated and other costs of ~~$0.7~~$0.4 million driven by an increase in IT and other costs incurred in support of our overall growth in personnel. These increases were offset by a decrease in advertising and promotion costs of $0.3 million primarily related to a ~~decrease~~reduction of workplace-related expenses, the elimination of event-related travel from cancelled or postponed events and the reduction of other non-essential expenditures in ~~costs associated with our real estate customer conference that occurred during the fourth quarter of 2019, compared~~response to the ~~third quarter~~impact of ~~2018, offset by an~~the COVID-19 pandemic. The investment we make in sales and marketing is key to acquiring new customers, expanding the adoption and utilization of Value+ services, and growing revenue over time. We intend to continue to invest in sales and marketing to increase our customer base and increase the adoption and utilization of Value+ services over time.

The increase in ~~advertising and promotion related to our new and expanding services offerings.~~

~~Sales~~sales and marketing expense ~~was $37.1 million~~ for the nine months ended September 30, ~~2019~~2020 compared to ~~$23.7 million for~~ the nine months ended September 30, ~~2018, an increase of $13.4 million, or 56%. This increase~~2019, was primarily due to ana $6.1 million increase in personnel-related costs, ~~of $9.7 million driven by an increase~~including performance-based compensation, necessary to support growth and key investments in the ~~average headcount to support our growth and investments made in advance of expected revenue generation. There was also an increase in advertising~~business. Advertising and promotion costs ~~of $1.9~~increased by $0.9 million ~~related~~due to ~~our new~~increased online advertising and ~~expanding service offerings, offset by a decrease of $0.5 million related to costs associated with our real estate customer conference that occurred during~~virtual marketing events aimed at increasing revenue and supporting growth in the ~~fourth quarter of 2019, compared to the third quarter of 2018.~~business. In addition, there was ~~an increase~~a decrease in allocated and other costs of ~~$2.3~~$0.9 million ~~driven by an increase~~related to a reduction of workplace-related expenses, the elimination of event-related travel from cancelled or postponed events and the reduction of other non-essential expenditures in ~~consulting services, IT and other costs incurred in support~~response to the impact of ~~our overall growth in personnel.~~the COVID-19 pandemic.

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As a percentage of revenue, sales and marketing expense ~~increased~~decreased to ~~18.6%~~17.7% from ~~17.3%~~18.6% for the three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018,~~2019 and to18.1% from 19.7% ~~from 17.0%~~ for the nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018. These increases were~~2019. This leverage in cost as a percentage of revenue was primarily driven by ~~personnel-related investments made~~the reduction of event related travel and other non-essential expenditures as a result of the COVID-19 pandemic. Notwithstanding the leverage in ~~advance~~cost as a percentage of ~~expected~~ revenue, ~~generation associated with growth initiatives~~we intend to continue to invest in sales and marketing to increase our customer base and increase the ~~business offset by the impact~~adoption and utilization of ~~a timing change of our real estate customer conference.~~Value+ services over time.

Research and Product Development


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2020			2019			Amount		%		2020			2019			Amount		%
	(dollars in thousands)
Research and product development	$	13,454		$	10,602		$	2,852	27	%	$	36,794		$	28,422		$	8,372	29	%
Percentage of revenue	16.0		%	15.6		%					15.5		%	15.1		%

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2019 2018 Amount % 2019 2018 Amount %
(dollars in thousands)
Research and product development $ 10,602
$ 6,440
$ 4,162
65 % $ 28,422
$ 17,523
$ 10,899
62 %
Percentage of revenue 15.6 % 12.8 % 15.1 % 12.5 %

~~Research~~The increase in research and product development expense ~~was $10.6 million~~ for the three months ended September 30, ~~2019~~2020 compared to ~~$6.4 million for~~ the three months ended September 30, ~~2018, an increase of $4.2 million, or 65%. This increase~~2019, was the result of an increase in personnel-related costs, net of capitalized software development costs, of ~~$2.9~~$3.7 million due to investments in headcount growth within our research and product development ~~organization, and an~~organization. This increase was partially offset by a decrease in allocated and other costs of ~~$1.3~~$0.8 million ~~driven by an~~primarily related to a reduction of workplace-related expenses and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.

The increase in ~~facilities, IT and other costs incurred in support of our overall growth in personnel.~~

~~Research~~research and product development expense ~~was $28.4 million~~ for the nine months ended September 30, ~~2019~~2020 compared to ~~$17.5 million for~~ the nine months ended September 30, ~~2018, an increase of $10.9 million, or 62%. This increase~~2019, was the result of an increase in personnel-related costs, net of capitalized software development costs, of ~~$7.2~~$9.3 million due to investments in headcount growth within our research and product development ~~organization, and an~~organization. This increase was partially offset by a decrease in allocated and other costs of ~~$3.7~~$0.9 million ~~driven by an increase~~primarily related to a reduction of workplace related expenses and the reduction of other non-essential expenditures in ~~facilities, IT and other costs incurred in support~~response to the impact of ~~our overall growth in personnel.~~

We intend to continue to invest in research and product development as we continue to introduce additional functionality into our software solutions, services and data offerings, develop or integrate acquired 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.~~the COVID-19 pandemic.

General and Administrative


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2020			2019			Amount		%		2020			2019			Amount		%
	(dollars in thousands)
General and administrative	$	12,946		$	8,955		$	3,991	45	%	$	36,303		$	25,361		$	10,942	43	%
Percentage of revenue	15.4		%	13.2		%					15.3		%	13.4		%

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2019 2018 Amount % 2019 2018 Amount %
(dollars in thousands)
General and administrative $ 8,955
$ 6,541
$ 2,414
37 % $ 25,361
$ 17,105
$ 8,256
48 %
Percentage of revenue 13.2 % 13.0 % 13.4 % 12.2 %

~~General~~The increase in general and administrative expense ~~was $9.0 million~~ for the three months ended September 30, ~~2019~~2020 compared to ~~$6.5 million for~~ the three months ended September 30, ~~2018, an increase of $2.4 million, or 37%. This increase~~2019 was primarily due to ana $1.8 million increase in personnel-related costs, ~~of $2.0 million driven by growth~~including performance-based compensation, due to investments in headcount growth within our general and administrative organizations. In addition, there was an increase in ~~allocated~~professional services fees and other costs of ~~$0.4~~$2.3 million related to anthe MyCase Transaction.

The increase in ~~facilities and other costs incurred to support our growth.~~

~~General~~general and administrative expense ~~was $25.4 million~~ for the nine months ended September 30, ~~2019~~2020 compared to ~~$17.1 million for~~ the nine months ended September 30, ~~2018, an increase of $8.3 million, or 48%. This increase~~2019, was primarily due to ana $5.0 million increase in personnel-related costs, ~~of $5.7 million driven by growth~~including performance-based compensation, due to investments in headcount growth within our general and administrative organizations. In addition, there was a $4.3 million expense recorded during the current period related to the probable loss associated with the FTC Investigation. There was also an increase in professional services fees and ~~allocated~~other costs of $2.3 million related to the MyCase Transaction. Allocated and other costs decreased $0.7 million primarily due to a reduction of ~~$2.5 million related~~workplace-related expenses and the reduction of other non-essential expenditures in response to ~~expanded audit services, legal and other services fees associated with compliance with Section 404(b)~~the impact of the ~~Sarbanes-Oxley Act~~COVID-19 pandemic.

We expect stock-based compensation expense will continue to decrease for certain executives in light of ~~2002, increased leasing activities, due diligence and acquisition related activities,~~our adoption of the Long-Term Cash Bonus Plan in 2018. No accrual has yet been made under this plan as ~~well as other costs incurred to support our growth.~~a result of the high degree of uncertainty regarding potential future payments under the plan.

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Depreciation and Amortization


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2020			2019			Amount		%		2020			2019			Amount		%
	(dollars in thousands)
Depreciation and amortization	$	6,680		$	5,678		$	1,002	18	%	$	19,751		$	16,169		$	3,582	22	%
Percentage of revenue	7.9		%	8.4		%					8.3		%	8.6		%

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2019 2018 Amount % 2019 2018 Amount %
(dollars in thousands)
Depreciation and amortization $ 5,678
$ 3,705
$ 1,973
53 % $ 16,169
$ 10,784
$ 5,385
50 %
Percentage of revenue 8.4 % 7.4 % 8.6 % 7.7 %

~~Depreciation~~The increase in depreciation and amortization expense ~~was $5.7 million~~ for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, ~~compared to $3.7 million for the three months ended September 30, 2018, an increase of $2.0 million, or 53%. This increase~~ was primarily due to increased ~~amortization expense associated with intangible assets acquired from WegoWise and Dynasty and in~~ amortization expense associated with higher accumulated capitalized software development balances.

Depreciation and amortization expense was $16.2 million for the nine months ended September 30, 2019 compared to $10.8 million for the nine months ended September 30, 2018, an increase of $5.4 million, or 50%. This increase was primarily due to increased amortization expense associated with intangible assets acquired from WegoWise and Dynasty and in amortization expense associated with higher accumulated capitalized software development balances.

~~Interest~~Other Income (Expense), net


																								Three Months Ended September 30,						Change			Nine Months Ended September 30,						Change
	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change						2020			2019			Amount		%	2020			2019			Amount		%
	2019			2018			Amount			%		2019			2018			Amount			%			(dollars in thousands)
	(dollars in thousands)
Interest income (expense), net	$	(400	)	$	229		$	(629	)	(275	)%	$	(1,324	)	$	631		$	(1,955	)	(310	)%
Other income (expense), net																							Other income (expense), net	$	187,747		$	(11)		$	187,758	n/a	$	187,759		$	(68)		$	187,827	n/a
Percentage of revenue	(0.6		)%	0.5		%						(0.7		)%	0.5		%						Percentage of revenue	223.3		%	—		%				79.0		%	—		%

Interest expense, net, was $0.4 million for the three months ended September 30, 2019 compared to interest income of $0.2 million for the three months ended September 30, 2018, a decrease of $0.6 million, due to anThe increase in ~~interest expense associated with increased borrowings under the Credit Agreement and a decrease in interest~~other income ~~due to lower investment security balances in the more recent period.~~

~~Interest expense,~~(expense), net was $1.3 million for the nine months ended September 30, 2019 compared to interest income of $0.6 million for the nine months ended September 30, 2018, a decrease of $2.0 million, due to an increase in interest expense associated with increased borrowings under the Credit Agreement and a decrease in interest income due to lower investment security balances in the more recent period.

~~Provision for (Benefit from) Income Taxes~~

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2019 2018 Amount % 2019 2018 Amount %
(dollars in thousands)
Provision for (benefit from) income taxes $ (1,255 ) $ 183
$ (1,438 ) (786 )% $ (26,874 ) $ 252
$ (27,126 ) (10,764 )%
Percentage of revenue (1.8 )% 0.4 % (14.2 )% 0.2 %

~~The benefit from income taxes was $1.3 million and $26.9 million~~ for the three and nine months ended September 30, ~~2019, respectively,~~2020 compared to ~~a provision for income taxes of $183,000 and $252,000 for~~ the three and nine months ended September 30, ~~2018, respectively. The change~~2019, was primarily due to the gain of $187.6 million associated with the MyCase Transaction. We expect to recognize additional other income beginning in the fourth quarter of 2020 relating to income from certain post-closing transition services to be provided by the Company to MyCase.

Provision for (Benefit from) Income Taxes


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2020			2019			Amount		%		2020			2019			Amount		%
	(dollars in thousands)
Provision for (benefit from) income taxes	$	52,578		$	(1,255)		$	53,833	(4,289)	%	$	39,469		$	(26,874)		$	66,343	(247)	%
Percentage of revenue	62.5		%	(1.8)		%					16.6		%	(14.2)		%

We calculate our provision for income taxes ~~was~~on a quarterly basis by applying an estimated annual effective tax rate to income from operations and by calculating the tax effect of discrete items recognized during the quarter.

For the three and nine months ended September 30, 2020, we recorded income tax expense of $52.6 million and $39.5 million, respectively. The tax provision for the three months ended September 30, 2020 includes a discrete tax expense of $47.9 million relating to the MyCase Transaction which includes $48.9 million of current tax expense less a $1.0 million benefit from the reversal of deferred tax liabilities. The effective tax rate as compared to the U.S. federal statutory rate of 21% differs primarily due to the significance of the benefits associated with stock-based compensation expense and research and development tax credits in relation to the forecasted pre-tax results for the year.

For the three and nine months ended September 30, 2019, we recorded an income tax benefit of $1.3 million and $26.9 million, respectively. The tax benefits recorded were primarily due to the release of the valuation allowance during the second quarter of ~~2019 as further described in Note 12,~~ ~~Income Taxes~~ of our Condensed Consolidated Financial Statements. Our estimated annual effective tax rate is (12.2%) which differs from the US federal statutory rate of 21% primarily due to tax benefits from research and development tax credits.2019.

Liquidity and Capital Resources

Cash and Cash Equivalents

As of September 30, ~~2019,~~2020, our principal sources of liquidity were cash and cash equivalents and investment securities, which had an aggregate balance of ~~$45.2~~$181.9 million. During the nine months ended September 30, 2020, our cash and cash equivalents increased primarily as a result of the proceeds from the MyCase Transaction.

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Working Capital

As of September 30, ~~2019,~~2020, we had working capital of ~~$22.4~~$145.7 million, compared to working capital of ~~$79.8~~$14.3 million as of December 31, ~~2018.~~2019. The ~~decrease~~increase in our working capital was primarily due to ~~a decrease~~an increase in cash and cash equivalents ~~related to~~as a result of the ~~acquisition of Dynasty,~~net proceeds from the MyCase Transaction, an increase in investment securities-current, a decrease in other current liabilities due to the ~~$6.0 million Holdback Amount~~payment of contingent consideration related to the Dynasty acquisition, ~~the recording~~a decrease in deferred revenue, and an increase in accounts receivable primarily driven by increased usage of ~~lease liabilities associated with the adoption of ASU 2016-02, and increases in accrued employee expenses and accrued expenses.~~our Value+ services. The ~~decrease~~increase in our working capital was partially offset by ~~increases in prepaid expenses and other current assets, investment securities-current, and accounts receivable due to~~ an increase in ~~revenue from Value+ services.~~

~~Revolving Facility~~

~~As of September 30, 2019, we had a $50.0 million revolving line of credit, ("~~income taxes payable related to the ~~Revolving Facility"), under the terms of the Credit Agreement, as further described~~MyCase Transaction, and increases in ~~Note 8,~~ ~~Long-Term Debt~~ ~~of our Condensed Consolidated Financial Statements. As of both September 30, 2019~~accrued expenses, accounts payable and ~~December 31, 2018, we had no outstanding balance under the Revolving Facility.~~

accrued employee expenses.

Liquidity Requirements

We believe that our existing cash and cash equivalents, investment securities, ~~available borrowing capacity of $50.0 million under the 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 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, the timing and extent of our expansion into adjacent or new markets, ~~and~~ 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 of Directors has authorized our management to repurchase up to $100.0 million of shares of our Class A common stock ~~in open market transactions, privately negotiated transactions or otherwise.~~from time to time. To date, we have repurchased $4.2 million of our Class A common stock under the Share Repurchase Program. For additional information regarding our share repurchase program, refer to Note 10, Share Repurchase Program, of our Condensed Consolidated Financial Statements.

Cash Flows

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


	Nine Months Ended September 30,
	2020		2019
Net cash provided by operating activities	$	45,216	$	23,413
Net cash provided by (used in) investing activities	152,542		(70,728)
Net cash used in financing activities	(69,541)		(6,639)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	128,217	$	(53,954)

Nine Months Ended
September 30,
2019 2018
Net cash provided by operating activities $ 23,413
$ 24,601
Net cash used in investing activities (70,728 ) (24,784 )
Net cash used in financing activities (6,639 ) (2,181 )
Net decrease in cash, cash equivalents and restricted cash $ (53,954 ) $ (2,364 )

~~Net~~ Cash Provided by Operating Activities

Our primary source of operating cash inflows is cash collected from our customers in connection with their use of our core solutions and Value+ services. Our primary uses of cash from operating activities are for personnel-related expenditures and third-party costs incurred to support the delivery of our software solutions.

For the nine months ended September 30, 2020, net cash provided by operating activities was $45.2 million resulting from net income of $158.9 million, adjusted by the gain on the sale of MyCase of $187.6 million, non-cash charges of $52.6 million and a net increase in our operating assets and liabilities of $21.3 million. The non-cash charges primarily consist of an increase in deferred taxes of $22.9 million, $19.8 million of depreciation and amortization costs, stock-based compensation expense of $6.8 million, and $3.0 million of amortization of operating lease right-of-use assets. The net increase in our operating assets and liabilities was mostly attributable to a $16.5 million increase in other liabilities primarily driven by income taxes payable due to the MyCase Transaction, a $5.9 million increase in accrued expenses which was primarily due to a $4.3 million accrual recorded during the current period related to our reasonable estimate of the probable loss associated with the FTC Investigation, a $1.9 million increase in accrued employee expenses primarily due to an increase in accrued paid time off, and a $0.8 million increase in deferred revenue driven by growth in the number of customers invoiced during the period. These increases were partially offset by a $2.2 million increase in accounts receivable primarily driven by growth of our Value+ services, a $1.1 million decrease in operating lease liabilities, and a $0.9 million increase in prepaid expenses and other current assets.

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For the nine months ended September 30, 2019, net cash provided by operating activities was $23.4 million resulting from net income of $31.9 million, adjusted by non-cash charges of $2.3 million and a net decrease in our operating assets and liabilities of $6.2 million. The non-cash charges primarily consist of a one-time benefit of $27.0 million related to the release of the valuation allowance for our deferred tax assets, offset by $16.2 million of depreciation and amortization of our property and equipment and capitalized software development costs, $5.4 million of stock-based compensation and $3.0 million of amortization of operating lease right-of-use ("ROU") assets in accordance with ASU 2016-02. The net decrease in our operating assets and liabilities was mostly attributable to an increase of $4.4 million in prepaid expenses and other current assets, a $2.9 million decrease in operating lease liabilities, and a $2.8 million increase in accounts receivable primarily driven by growth of our Value+ services. The decrease in our operating assets and liabilities was partially offset by a $1.1 million decrease in other assets, a $1.0 million increase in deferred revenue, a $1.0 million increase in other liabilities, and a $0.5 million increase in accrued employee expenses.

Cash Provided by (Used in) Investing Activities

Cash 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.

For the nine months ended September 30, ~~2018,~~2020, investing activities provided $152.5 million in cash primarily due to net ~~cash provided by operating activities was $24.6 million resulting~~proceeds from ~~net income~~the MyCase Transaction of ~~$17.3 million, adjusted by non-cash charges of $15.4~~$191.4 million and the sales and maturities of investment securities of $13.9 million and $13.3 million, respectively. These sources of cash were partially offset by ~~a net decrease in our operating assets and liabilities~~purchases of ~~$8.1 million. The non-cash charges primarily consist~~investment securities of ~~$10.8~~$29.9 million, ~~of depreciation and amortization of our property and equipment and~~ capitalized software development costs of $19.7 million, and ~~$4.4~~capital expenditures of $16.6 million ~~of stock-based compensation. The net decrease in our operating assets~~to purchase property and ~~liabilities was mostly attributable to a $5.0 million increase in other assets due to~~equipment for the capitalization of deferred costs in accordance with ASU 2014-09, a $4.2 million decrease in deferred revenue due to an increase in the number of customers invoiced monthly versus annually, a $3.9 million increase in prepaid expensescontinued growth and other current assets, a $3.2 million decrease in accrued employee expenses due to the payout of accrued employee bonuses, and a $1.5 million increase in accounts receivable primarily driven by growthexpansion of our ~~Value+ services. This decrease in our operating assets and liabilities was partially offset by an increase in other liabilities of $5.9 million and an increase in accrued expenses of $3.4 million.~~

~~Net Cash Used in Investing Activities~~

Net cash used in investing activities is generally comprised of purchases, maturities and sales of investment securities, additions to capitalized software development, cash paid for business acquisitions and capital expenditures.business.

For the nine months ended September 30, 2019, investing activities used $70.7 million in cash primarily due to $54.0 million used to acquire Dynasty, as well as capitalized software development costs of $15.7 million for the continued investment in our software development, purchases of investment securities of $10.7 million, and capital expenditures of $4.1 million to purchase property and equipment 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 $11.0 million, respectively.

For the nine months ended September 30, 2018, investing activities used $24.8 million in cash primarily as a result of $28.8 million of investment securities purchased, partially offset by $28.5 million of maturities of investment securities. In addition, we used $14.4 million of cash to acquire WegoWise, incurred capitalized software development costs of $9.0 million for the continued investment in our software development, and capital expenditures of $1.7 million to purchase property and equipment for the continued growth and expansion of our business.

~~Net~~ Cash Used in Financing Activities

~~Net cash~~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 ~~restricted stock units ("RSUs"), and~~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 nine months ended September 30, 2020, financing activities used $69.5 million in cash primarily as a result of the payment of all outstanding amounts due under the Credit Facility of $99.6 million, net share settlements for employee tax withholdings associated with the vesting of RSUs of $11.0 million, payment of contingent consideration related to the Dynasty acquisition of $6.0 million, and the repurchase of outstanding shares of Class A common stock in the amount of $4.2 million. These uses of cash were partially offset by net proceeds from the Revolving ~~Facility.~~Facility of $50.8 million.

For the nine months ended September 30, 2019, financing activities used $6.6 million in cash primarily as a result of net share settlements for employee tax withholdings associated with the vesting of RSUs of $5.5 million, as well as principal payments on debt of $2.6 million, and payments of debt issuance costs of $0.4 million, partially offset by proceeds from issuance of debt of $1.7 million and proceeds from stock option exercises of $0.3 million.

For the nine months ended September 30, 2018, financing activities used $2.2 million in cash primarily as a result of net share settlements for employee tax withholdings associated with the vesting of RSUs of $2.9 million, partially offset by proceeds from stock option exercises of $0.7 million.

Contractual Obligations and Other Commitments

There have been no material changes to our contractual obligations and other commitments as disclosed in our Annual Report.

Off-Balance Sheet Arrangements

As of September 30, ~~2019,~~2020, we did not have any off-balance sheet arrangements.

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Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements and the related notes are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

COVID-19 has created and may continue to create significant uncertainty in a wide variety of industries and markets, 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. As of the date of our Condensed Consolidated Financial Statements, we are not aware of any specific event or circumstance that would require us to update our estimates or judgments, or to revise the carrying value of our assets or liabilities. However, these estimates 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 current level of uncertainty over the economic and operational impacts of COVID-19 on our business, there may be other judgments and assumptions that were not currently considered. Such judgments and assumptions could result in a meaningful impact to our financial statements in future periods. Actual results could differ ~~materially~~ from those ~~estimates.~~estimates and any such differences may have a material impact on our financial statements.

~~Except for the accounting policies for leases that were updated as a result of adopting ASU 2016-02, there~~There have been no changes to our critical accounting policies and estimates described in our Annual Report that have had a material impact on our Condensed Consolidated Financial Statements and related notes.

~~Leases~~

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets, other current liabilities, and operating lease liabilities on our Condensed 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 and excludes lease incentives 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.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. We have lease arrangements with lease and non-lease components, which are generally accounted for as a single lease component. Leases with an initial term of 12 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.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies, of our Condensed Consolidated Financial Statements.

Item 3. Qualitative and Quantitative Disclosure about Market Risk

Interest Rate Risk

Short-Term Investments

AtAs of September 30, ~~2019,~~2020, we had cash and cash equivalents of ~~$20.1~~$144.0 million consisting of bank deposits, money market funds, and treasury securities, and ~~$25.1~~$37.8 million of investment securities consisting of ~~corporate bonds,~~treasury securities, United States government agency securities and ~~treasury securities.~~corporate bonds. The primary objective of ~~investing~~our investment policy is to invest in securities is to support our liquidity and capital needs. We ~~did~~have not ~~purchase these~~purchased investments for trading or speculative purposes and have not used any derivative financial instruments to manage our credit risk or interest rate risk exposure.

Our investment securities are exposed to market risk due to interest rate fluctuations. While fluctuations in interest rates do not impact our interest income from our investment securities as all of these securities have fixed interest rates, changes in interest rates may impact the fair value of the investment securities. Since our investment securities are held as available for sale, all changes in fair value impact our other comprehensive income unless an investment security is considered impaired in which case changes in fair value are reported in other expense. As of September 30, ~~2019,~~2020 a hypothetical 100 basis point ~~decrease~~change in interest rates would not have resulted in ~~an immaterial impact on~~a material change in the fair value of our investment securities. This estimate is based on a sensitivity model which measured an instant change in interest rates by 100 basis points as of September 30, 2020.

~~Revolving~~Credit Facility

~~At September 30, 2019, we had~~We were exposed to interest rate risk as a ~~$49.1 million balance outstanding~~result of our Credit Facility prior to its termination. Outstanding borrowings under ~~our Term Loan, which bears~~the Credit Facility accrued interest ~~at a variable rate (refer to~~as described in Note 8, Long-Term Debt,of our Condensed Consolidated Financial ~~Statements for additional information). If interest rates rise, our debt service obligations on the~~Statements. Our borrowings under the ~~Revolving~~Credit Facility ~~would increase even if the amount borrowed remained the same,~~were subject to interest rate fluctuations, which ~~would affect~~could have had a material impact on our cash flows and results of ~~operations. At September 30, 2019,~~operations depending on the magnitude of the fluctuations and the outstanding borrowings. In order to determine the potential impact of 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 period ended September 30, 2020 would not have had ~~an immaterial~~a material impact on our ~~interest expense~~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 outstanding under ~~our~~the Term ~~Loan.~~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.

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Inflation Risk

We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in inflation rates.

~~As of September 30, 2019, except as discussed above, there were no~~Foreign Currency Risk

We have not been exposed to, nor do we anticipate being exposed to, material ~~changes in the market~~ risks ~~described in the section of our Annual Report entitled “Quantitative and Qualitative Disclosure about Market Risk.”~~relating to foreign currency fluctuations.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the supervision and participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and other procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Based on our management's evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such

information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

~~Except as set forth below, there~~There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

During the nine months ended September 30, 2019, we implemented changes to our internal control processes in response to the adoption of the new leasing standard that became effective January 1, 2019. This implementation resulted in We have not experienced any material changes to our internal controls ~~relating~~over financial reporting despite the fact that all non-essential employees are working remotely due to the ~~evaluation, accounting and disclosure~~COVID-19 pandemic. We are continually monitoring the impact of ~~leases. The~~COVID-19 on the operating ~~effectiveness of these changes will be evaluated as part of our annual assessment of the~~ effectiveness of our internal control over financial reporting.

Inherent Limitations on Effectiveness of Disclosure Controls

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in various investigative inquiries, legal proceedings and other disputes arising from or related to ~~claims~~matters incident to the ordinary course of our business activities, including ~~without limitation~~ actions ~~involving~~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 investigatory inquiries and legal proceedings, refer to Note 9, Commitments and Contingencies, of our Condensed Consolidated Financial Statements.

Item 1A. Risk Factors

~~An investment in our Class A common stock involves risks.~~ You should consider carefully the risks described below, together with all of the other information included in this Quarterly Report, as well as in our other filings with the SEC, in evaluating our ~~business.~~business and/or an investment in our Class A common stock. If any of the following risks actually occur, our business, financial condition, operating results and future prospects could be materially and adversely affected. In that case, the trading price of our Class A common stock may decline and you might lose all or part of your investment. The risks described below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business, financial condition, operating results and prospects.

Please be advised that certain of the risks and uncertainties described below contain “forward-looking statements.” See the section of this Quarterly Report entitled “Cautionary Note Regarding Forward-Looking Statements” for additional information.

Risks Related to Our Business and Our Industry

Health epidemics, including the COVID-19 pandemic, have had, and could in the future have, a material adverse impact on our operations, the operations of our customers and other business partners, and the markets and communities in which we and our customers and partners operate.

In December 2019, a novel coronavirus disease, referred to as COVID-19, was reported and has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States government declared a national emergency with respect to COVID-19. The COVID-19 pandemic has had, and another public health crisis or epidemic in the future could have, repercussions across local, regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has adversely impacted global economic activity and has contributed to volatility in and negative pressure on financial markets. In response to the COVID-19 pandemic, many state, local, and foreign governments have put in place, and others in the future may put in place, travel restrictions, quarantines, shelter-in-place orders, and similar government orders and restrictions, in an attempt to control the spread of the disease. Such restrictions or orders, or the perception that such restrictions or orders could be implemented, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, and cancellation or postponement of events, among other effects that could negatively impact our operations, as well as the operations of our customers and business partners. These potential impacts are only amplified by the length of time they remain in place, as the cumulative effect upon our customers and their businesses may exacerbate the potential harm to our business and results of operations.

Beginning in March 2020, we restricted non-essential employee travel and transitioned our employees to a remote work environment. We currently expect our employees to continue working remotely at least through the first quarter of 2021. Although we have not experienced a material impact from shifting our employees to a remote work environment, there is no guarantee that our employees will be as effective while working remotely due to a number of factors, including the inability of team members to communicate as effectively in a remote environment, the reality that employees may have additional personal needs to attend to (such as looking after children as a result of school closures or family members who become sick), and employees may become sick themselves and unable to work. If the COVID-19 pandemic requires remote working conditions for a prolonged period of time, it could have an adverse impact on the productivity of our employees, which would harm our business and impede our ability to achieve our strategic plan. Further, we have a limited history of remote work and the long-term impact on, and the resulting types of continuing investments necessary for, our employee base is uncertain. In addition, in an effort to manage the financial uncertainty involved with the COVID-19 pandemic, we have delayed the hiring of certain non-essential employees.

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The COVID-19 pandemic has resulted in a rapid rise in unemployment and a sudden decrease in global economic activity, and many businesses have experienced, or are anticipating that they may experience, a significant negative impact on their operating results. While we did not experience a significant impact on the demand for our core products and Value+ services during the period ended September 30, 2020, we anticipate greater demand impacts in future periods, although the timing and magnitude of these impacts is difficult to estimate. In addition, our inability to meet in-person with current or prospective customers, or the cancellation or postponement of Company-sponsored events or third-party events at which our products are featured, could have a negative impact on our customer engagement efforts, which could further impact demand in future periods. Furthermore, the demand for our products and services, as well as our operating results, could be adversely impacted due to a number of other factors, including the following:

▪customers delaying decisions to adopt our core products, or expand the use of our Value+ services, as they seek to reduce or delay spending in response to the impacts of COVID-19 on their own businesses;

▪a complete or partial closure of, or other operational issues at, properties owned by our customers resulting from government restrictions or orders;

▪a deterioration in our ability, or the ability of our customers, to operate in affected geographic areas;

▪bankruptcies or other financial difficulties facing our customers, which could cause them to delay making payments to us, or result in them terminating or reducing their use of our core products or Value+ services;

▪the inability of tenants to meet their obligations to our customers, resulting in tenant evictions or the sale of properties;

▪the failure of key business partners to provide services needed for our efficient operations, including with respect to electronic payments and tenant screening;

▪a decrease in the reliability or availability of our core products or Value+ services as a result of errors, defects or service interruptions caused by the remote work environment;

▪an increase in risks related to cyber-attacks or fraud designed to exploit perceived or actual gaps in security as a result of the remote work environment; and

▪a decrease in the availability or utility of our customer service organization caused by the remote work environment.

Any of the factors described above, or any number of other risks related to the COVID-19 pandemic, could disrupt our business, which could have a material adverse impact on our business, operations and financial results. The global impact of COVID-19 continues to rapidly evolve, and it is not currently possible to ascertain all of the current or future impacts to our business. The ultimate impact of the COVID-19 pandemic, or a similar public health crisis in the future, on our business is highly uncertain and subject to change. Further, we expect that any further spread of the COVID-19 pandemic, or even the threat or perception that this could occur, could further exacerbate any negative impacts on our business, financial condition and operating results.

We manage our business ~~towards the achievement of~~to achieve long-term growth, which may not be consistent with the short-term expectations of some investors.

We plan to continue to manage our business towards the achievement of long-term growth ~~that we believe will~~to positively impact long-term stockholder value, and not towards the realization of short-term ~~financial or business~~ metrics or short-term stockholder value. If opportunities arise that might cause us to sacrifice our performance with respect to short-term financial or business metrics, but that we believe are in the best interests of our stockholders, we will take those opportunities.

We focus on growing our customer base by launching new and innovative core functionality and Value+ services to address our customers’ evolving business needs, developing and/or acquiring new products for adjacent markets and additional verticals, and improving the experience of our users across our targeted verticals. We prioritize product innovation and user experience over short-term financial or business metrics. We will make product decisions and pursue opportunities that may reduce our short-term operating results if we believe that these decisions are consistent with our strategic objective to achieve long-term growth. These decisions may not be consistent with the short-term expectations of some investors, and may cause significant fluctuations in our operating results and our stock price from period to period. In addition, notwithstanding our intention to make strategic decisions that positively impact long-term stockholder value, the decisions we make may not produce the long-term benefits we expect.

~~Our~~ Furthermore, our executive officers, directors and principal stockholders control a majority of the combined voting power of our outstanding capital stock. As a result, they are able to exercise significant influence and control over the establishment and implementation of our future business plans and strategic objectives, as well as control all matters submitted to our stockholders for approval. These persons may manage our business in ways with which you disagree and which may be adverse to your interests.

~~If we fail~~

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Failure to manage our growth effectively it could adversely affect our operating results and preclude ~~us from achieving~~our achievement of our strategic ~~objectives.~~plans.

We ~~have experienced significant growth since our formation in 2006, and we~~ anticipate that we will continue to experience growth and expansion of our ~~operations.~~operations, although the rate of growth may be negatively impacted by the COVID-19 pandemic. This growth in the size, complexity and diversity of our business has placed, and we expect it will continue to place, a significant strain on our management, administrative, operational and financial resources, as well as our company culture. Our future success will depend, in part, on our ability to manage this growth ~~effectively.~~effectively, which we expect to be more challenging in the current environment as we seek to respond to the uncertainty and disruption caused by the COVID-19 pandemic. To manage the expected growth of our operations, we will need to continue to develop and improve our operational and financial controls

and our reporting systems and procedures, ~~continue to~~ attract and retain highly qualified and motivated personnel across our organization, and ~~continue to~~ nurture and build on our company culture. Failure to effectively manage growth could adversely impact our business, including by resulting in errors or delays in deploying new core functionality to our customers, delays or difficulties in introducing new Value+ services or other products, declines in the quality or responsiveness of our customer service organization, ~~enhanced~~exposure to legal, regulatory and ~~regulatory~~operational risks inherent in our business and resulting from any new products or services we provide to our customers or to our customers’ customers, increases in costs and operating expenses, and other operational difficulties. We expect these risks will only be increased as a result of our recent launch of AppFolio Investment Management and acquisitions of WegoWise and Dynasty, and any future acquisitions or adjacent markets we may pursue. If any of these risks actually occur, it could adversely affect our operating results, and preclude us from achieving our strategic objectives.

We ~~have a limited operating history and limited experience selling our solutions. We~~ expect to make substantial investments across our organization to grow our business and may not sustain profitability.

In order to implement our business and growth strategy, we have made and will continue to make substantial investments across our organization and, as a result, we expect our ~~financial results may fluctuate~~expenses to increase significantly ~~from period to period~~ and we may not ~~sustain profitability.~~

We were formed in 2006 and in 2008 entered the real estate market with our first product, APM, to serve property managers. Recently, we expanded our offerings to the real estate market with the launch of APM PLUS in late 2018 and AppFolio Investment Management in April 2019. In 2012, we entered the legal vertical through the acquisition of MyCase. As a result, we have a limited operating history and limited experience selling our software solutions in two continually evolving vertical markets. These and other factors combine to make it more difficult for us to accurately forecast our future operating results, which in turn makes it more difficult for us to prepare accurate budgets and implement strategic plans. We expect that this uncertainty will continue to exist in our business for the foreseeable future, and will be ~~exacerbated to the extent we introduce new functionality, or enter adjacent markets or new verticals, or complete additional acquisitions.~~

~~We have made substantial investments across our organization to develop our software solutions and capitalize on our market opportunity. In order to implement our business strategy,~~consistently profitable. For example, we intend to continue to make substantial investments in, among other things:

▪

our research and product development organization to enhance the ease of use and functionality of our software solutions and develop new products; our continued efforts to identify acquisition targets that enhance the depth and/or functionality of our software solutions or Value+ services; our customer service organization to deepen our relationships with our customers and promote customer retention; our sales and marketing organization, including expansion of our direct sales organization and marketing programs, to increase the size of our customer base and increase adoption and utilization of new and existing Value+ services by our new and existing customers; maintaining and expanding our technology infrastructure and operational support to promote the security and availability of our software solutions; our general and administrative functions, to support our growth and assist us in maintaining compliance with legal, regulatory and other compliance-related obligations; and 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 continued strategic efforts to identify acquisition targets that enhance the depth or functionality of our software solutions or Value+ services, or that enable our expansion into adjacent markets or new vertical markets;


▪	~~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; and


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

~~As a result of our continuing investments to grow our business in these and other areas, we expect our expenses to increase significantly, and we may not be consistently profitable.~~ Even if we are successful in growing our customer base and increasing revenue from new and existing customers, we may not be able to generate additional revenue in an amount that is sufficient to cover our expenses. We cannot assure you that we will continue to achieve profitability in the near term or that we will sustain profitability on a sequential quarterly basis or over any particular period of time.

Our quarterly results may fluctuate significantly and period-to-period comparisons of our results may not be meaningful.

Our quarterly results, including the levels of our revenue, costs, operating expenses, and operating margins, may fluctuate significantly in the future, and period-to-period comparisons of our results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of our future performance. Our focus on managing our business towards the achievement of long-term growth, rather than the realization of short-term metrics, may also exacerbate fluctuations in our quarterly results, which could negatively impact the value of our Class A common stock. We may incur significant losses in a particular period for a number of reasons, and may experience significant fluctuations in our operating results from period to ~~period,~~period. These and other factors, including ~~as a result~~the significant disruption and uncertainty caused by the COVID-19 pandemic, combine to make it difficult for us to accurately forecast our future operating results, which in turn makes it difficult for us to prepare accurate budgets and implement strategic plans. Furthermore, if our quarterly results fall below the expectations of investors or any securities analysts who follow our stock, or below any financial guidance we may provide, the price of our Class A common stock could decline substantially.

Our estimates of market opportunity are subject to significant uncertainty and, even if the markets in which we compete meet or exceed our size estimates, we could fail to increase our revenue or market share.

We determine the level of our investment in various aspects of the ~~other risks and uncertainties described elsewhere~~business, in this Quarterly Report. We cannot assure you that we will continue to achieve profitability in the near term or that we will sustain profitability over any particular period of time. Any additional operating losses will have a negative impactpart, based on our ~~stockholders’ equity.~~market opportunity estimates. Market opportunity estimates are subject to significant uncertainty and are based on assumptions and estimates, including our internal analysis and industry experience. Assessing the market for industry-specific, cloud-based business management software is particularly difficult due to a number of factors, including limited available information and rapid evolution of the market. Further, market opportunity estimates sometimes change based on relevant macro-trends and market conditions, or evolving assessment methodologies. The disruptions and impacts caused by the COVID‑19 pandemic may ultimately require us to significantly reduce our estimates of the market opportunities in certain markets or industry verticals, which could negatively impact our long-term growth prospects.

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We have acquired, and may in the future acquire, other companies or technologies which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations.

We have acquired, and may in the future acquire, other companies or technologies to complement or expand our software solutions, optimize our technical capabilities, enhance our ability to compete in our targeted verticals, provide an opportunity to expand into an adjacent market or new vertical, or otherwise offer growth or strategic opportunities. For example, in our real estate vertical, we acquired substantially all of the assets of WegoWise in 2018 and completed the acquisition of Dynasty in 2019. The ~~pursuit~~identification, investigation and negotiation of acquisitions may divert the attention of management and cause us to incur various expenses, ~~in identifying, investigating and pursuing suitable acquisitions,~~ whether or not they are consummated.

We have limited experience acquiring other ~~businesses. We~~businesses and we may not be able to effectively integrate acquired assets, technologies, personnel and operations ~~successfully~~ or achieve the anticipated synergies or other benefits from the acquired business due to ~~a number of~~the inherent risks associated with ~~acquisitions, including:~~


▪	~~the aggregate cost, whether in cash or equity securities, to acquire the business;~~


▪	~~difficulties integrating the assets, technologies, personnel or operations of the acquired business in a cost-effective manner;~~


▪	~~difficulties and additional expenses associated with supporting legacy products and services of the acquired business;~~


▪	~~difficulties converting the customers of the acquired business to our software solutions and contract terms;~~


▪	~~diversion of management’s attention from our business to address acquisition and integration challenges, as well as post-acquisition disputes;~~


▪	~~adverse effects on our existing business relationships with customers and strategic partners as a result of the acquisition;~~


▪	~~cultural challenges associated with integrating employees from the acquired organization into our company;~~


▪	~~the loss of key employees;~~


▪	~~use of resources that are needed in other parts of our business;~~


▪	~~use of substantial portions of our available cash resources to consummate the acquisition or pay acquisition-related expenses; and~~


▪	~~unanticipated costs or liabilities associated with the acquisition.~~

acquisitions. If an acquisition fails to meet our expectations in terms of its contribution to our overall business strategy or operating results, or if the costs of acquiring or integrating the acquired business exceed our estimates, our business, operating results and financial condition may suffer. In addition, acquisitions could result in the issuance of equity securities, which would result in immediate dilution to our stockholders, or the incurrence of debt, which could impose debt service obligations and restrictions on our ability to operate our business. Furthermore, a significant portion of the purchase price of companies we may acquire could be allocated to goodwill and other intangible assets, which must be assessed for impairment. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our operating results.

Security vulnerabilities in our software solutions or a breach of our security controls could result in the loss, theft, misuse, unauthorized disclosure, or unauthorized access tocustomer or employee data, or other confidential ~~and~~or sensitive information, which could harm our ~~relationships with customers~~ customer and/or ~~employees,~~employee relationships, expose us to litigation or ~~regulatory proceedings, or~~ harm our ~~reputation, any of which could materially harm our business and operating results.~~reputation.

Our business involves the storage and transmission of a significant amount of confidential and sensitive information, including the personal information of our employees and other individuals, customer data, and our proprietary financial, operational and strategic information. In providing our software solutions, we store and transmit large amounts of our customers’ data, including sensitive and proprietary data and personal information collected by or on behalf of our customers. Our software solutions are typically the system of record, system of engagement and, increasingly, the system of intelligence for all or a portion of our customers’ businesses, and the data processed through our software solutions is critical to their businesses. ~~Cyber-attacks and other malicious Internet-based activities continue on a regular basis, as evidenced by the recent targeting of a number of high profile companies and organizations.~~ Like many other businesses, we have experienced, and are continually at risk of being subject to, cyber attacks and data security incidents. As our business grows, the number of users of our software solutions, as well as the amount of information we collect and store, is increasing, and our brands are becoming more widely ~~recognized. We believe these factors combine to make~~recognized which makes us an even greater target for ~~this type of~~ malicious activity. ~~Although we take data security seriously, there~~There can be no assurance that the security measures we employ will prevent malicious or unauthorized access to our systems and information.

~~Techniques used to sabotage, or to obtain unauthorized access to, systems or networks change frequently and may not recognized until launched against a target.~~ Furthermore, no security program can eliminate entirely the risk of non-malicious human error, such as an employee or contractor’s failure to follow one or more security protocols. Therefore, despite our significant efforts to keep our systems and networks protected and up to date, we may be unable to anticipate cyber attacks, detect security incidents or react to them in a timely manner, or implement adequate preventive measures, any of which may expose us to a risk of loss, litigation and potential liability. In addition, some of our third-party service providers also collect and/or store our sensitive information and our customers’ data on our behalf, , and these service providers are subject to similar threats of ~~cyber-attacks~~cyber attacks and other malicious Internet-based activities.

If our security measures, or the security measures of our third-party service providers, are breached as a result of wrongdoing or malicious activity on the part of our employees, our partners’ employees, our customers’ employees, or any third party, or as a result of any human error or neglect, product defect or otherwise, and this results in the loss, theft, misuse, unauthorized disclosure, or unauthorized access to customer data or other sensitive information, we could incur liability to our customers and to individuals or organizations whose information was being stored by us or our customers, as well as ~~for example,~~ fines from payment processing networks ~~and/or~~and regulatory action by governmental bodies. If we experience a widespread security breach, we cannot be certain that our insurance coverage will be sufficient to compensate us for liabilities actually incurred or that insurance will continue to be available to us on reasonable terms, or at all. In addition, ~~any~~ security breaches could result in reputational damage, adversely affect our ability to attract new customers and cause existing customers to reduce or discontinue the use of our software ~~solutions, any of which could harm our business and operating results.~~solutions. Furthermore, the perception by our current or potential customers that our software solutions could be vulnerable to exploitation or that our security measures are inadequate, even in the absence of a particular problem or threat, could reduce market acceptance of our software solutions and cause us to lose customers. The legal and regulatory environment around data security and governance is significantly evolving, and both regulators and consumers are increasingly taking action on data-related matters, which may contribute to increased reputational, economic and other harm in the event of a data security incident.

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Service outages ~~due to malicious activities or~~and other infrastructure performance problems ~~associated with our technology infrastructure~~ could harm our reputation and adversely affect our ability to attract ~~new customers~~ and ~~cause us to lose existing~~retain customers.

~~We have experienced significant growth in the number of users and the amount of data that our technology infrastructure supports, and we expect this growth to continue.~~ We seek to maintain sufficient excess capacity in our technology infrastructure to meet the needs of all of our customers, including ~~to facilitate~~facilitating the expansion of existing customer deployments and the provisioning of new customer deployments. In addition, we need to properly manage our technology infrastructure in order to support version control, changes in hardware and software parameters, and the evolution of our software solutions. However, the provision of new hosting infrastructure requires significant lead-time.

We have experienced, and may in the future experience, website disruptions, service outages and other performance problems with our technology infrastructure. These problems may be caused by a variety of factors, including infrastructure changes, power or network outages, fire, flood or other natural disasters affecting our data centers, human or software errors, viruses, security breaches, fraud or other malicious activity, spikes in customer usage and distributed denial of service attacks. ~~In some instances, we may not be able to identify the cause or causes of these service outages and performance problems within an acceptable period of time.~~ If our technology infrastructure fails to keep pace with the increased number of users and amount of data, or if we are unable to avoid service outages and performance problems, or to resolve them quickly, this could adversely affect our ability to attract new customers, result in the loss of existing customers and harm our reputation, any or all of which could adversely affect our business and operating results.

Errors, defects or other disruptions in our software solutions could harm our reputation, cause us to lose customers, and result in significant expenditures to correct the problem.

Our customers use our software solutions to manage critical aspects of their businesses, and any errors, defects or other disruptions in the performance of our software solutions, including with respect to third party partners upon which certain of our software solutions are dependent, may result in loss of or damage to our customers’ data and disruption to our customers’ businesses, which could harm our reputation. We provide continuous updates to our software solutions and ~~while our software updates undergo extensive testing prior to their release,~~ these updates may contain undetected errors when first introduced. In the past, we have discovered errors, failures, vulnerabilities and bugs in our software updates after they have been released, and similar problems may arise in the future. Real or perceived errors, failures, vulnerabilities or bugs in our software solutions could result in negative publicity, reputational harm, loss of customers, delay in market acceptance of our software solutions, loss of competitive position, withholding or delay of payment to us, claims by customers for losses sustained by them and potential ~~litigation.~~litigation or regulatory action. In any such event, we may be required to expend additional resources in order to help correct the problem or ~~in order to address customer service or reputational concerns,~~ we may choose to expend additional resources to take corrective action even where not required. The costs incurred in correcting any material errors, defects or other disruptions could be substantial and there may not be any corresponding increase in revenue to offset these costs. In addition, we may not carry insurance sufficient to compensate us for any losses that may result from claims arising from errors, defects or other disruptions in our software solutions.

Privacy and data security laws and regulations could impose additional costs and reduce demand for our software solutions.

We store and transmit personal information relating to our employees and other individuals, and our customers use our technology platform to store and transmit a significant amount of personal information relating to their clients, vendors, employees and other industry participants. Federal, state and foreign government bodies and agencies have in the past adopted, and may in the future adopt, laws and regulations regarding the collection, use, processing, storage and disclosure of personal or identifying information obtained from customers and other individuals. For instance, the California Consumer Privacy Act, which went into effect on January 1, 2020, creates new data privacy and security rights for California residents. Similarly, there are a number of existing and proposed laws and regulations in the European Union and the United States at both the federal and state level, as well as other jurisdictions that could impose new obligations in areas affecting our business. These new obligations could increase the cost and complexity of delivering our services, and divert our managements’ attention from pursuing strategic objectives.

In addition to government regulation, privacy advocates and industry groups may propose various self-regulatory standards that may legally or contractually apply to our business. As new laws, regulations and industry standards take effect, and as we expand into new jurisdictions, adjacent markets or verticals consistent with our strategic plan, we will need to understand and comply with various new requirements, which may result in significant additional costs. These laws, regulations and industry standards could have negative effects on our business, including by increasing our costs and operating expenses, and/or delaying or impeding our deployment of new or existing core functionality or Value+ services. Failure to comply with these laws, regulations and industry standards could result in negative publicity, subject us to fines or penalties, expose us to litigation, or result in demands that we modify or cease existing business practices. In addition, the costs of compliance with, and other burdens imposed by, such laws, regulations and industry standards may adversely affect our customers’ ability or desire to collect, use, process and store personal information using our software solutions, which could reduce overall demand for them. Furthermore, privacy and data security concerns may cause our customers’ clients, vendors, employees and other industry participants to resist providing the personal information necessary to allow our customers to use our applications effectively. Any of these outcomes could adversely affect our business and operating results.

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We face ~~a number of~~ risks in our electronic payment services business that could adversely affect our business and/or operating results.

In our electronic payments services business, we facilitate the processing of both inbound and outbound payments for our customers. These payments are settled through our sponsoring clearing bank, card payment processors, and other third-party electronic payment services providers that we may contract with from time to time. Our electronic payment services subject us to a number of risks, including, but not limited ~~to:~~


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


▪	~~electronic processing limits on the amounts that any single electronic payment services provider, or collectively all of our electronic payment services providers, will underwrite;~~


▪	~~our reliance on sponsoring clearing banks, card payment processors and other electronic payment providers to process electronic transactions;~~


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


▪	~~continually evolving laws and regulations governing money transmission and anti-money laundering, the application or interpretation of which is not clear in some jurisdictions;~~


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


▪	our inability to increase our fees when our electronic payment services providers increase their transaction processing fees, or to increase our fees in a sufficient amount to maintain our existing margins.

~~If any of these risks~~ related to disputed or fraudulent transactions and other incidences of fraud in our electronic payment services were to materialize, our business or operating results could be negatively affected. Although we attempt to structure and adapt our electronic payment services to comply with complex and evolving laws, regulations and standards, our underwriting efforts do not guarantee compliance.ecosystem. In the event that we are found to be in violation of our legal, regulatory or contractual requirements, we may be subject to monetary fines or penalties, ~~cease and desist~~cease-and-desist orders, mandatory product changes, or other liabilities that could have an adverse effect on our operating results.

Additionally, with respect to the processing of electronic payment transactions by our third-party electronic payment services providers, we are exposed to financial risk. Electronic payment transactions between our customer and another user may be returned for various reasons such as insufficient funds, fraud or stop payment orders. If we or our electronic payment services provider is unable to collect such amounts from the customer’s account, ~~(such as if the customer is illegitimate, or if the customer refuses or is unable to reimburse us for the amounts charged back),~~ we bear the ultimate risk of loss for the transaction amount. ~~While we have not experienced material losses resulting from amounts charged back in the past, there can be no assurance that we will not experience these types of significant losses in the future.~~

~~In addition to the risks associated with our electronic payment services,~~Further, there is an overarching risk stemming from the potential widespread adoption of quickly evolving financial technology products, including, for example, blockchain or other distributed ledger technologies, that could materially impact the manner in which payments are processed, the mix of payment methodologies conventionally utilized by payors and payees, and the regulatory framework applicable to such payments. The adoption of disruptive financial technologies could significantly reduce the volume of our electronic payment services business and/or change the transaction costs associated with ~~or potential revenue derived from~~ those payments, thereby reducing our revenue and increasing our associated expenses, which could materially impact our business, financial condition, and operating ~~results and, ultimately, our stock price.~~

results.

Evolution and expansion of our electronic payment services may subject us to additional risks and regulatory requirements.

The evolution and expansion of our electronic payment services may subject us to additional risks and regulatory requirements, including, without limitation, laws and regulations governing money transmission and anti-money laundering. These requirements vary throughout the markets in which we operate, and several jurisdictions lack clarity with respect to the application and interpretation of these rules. Our efforts to comply with these rules could require significant management time and effort, as well as significant expenditures, and will not guarantee our compliance with all regulatory requirements, especially given that the applicable regulatory frameworks are constantly changing and subject to evolving interpretation. While we maintain a compliance program focused on applicable laws and regulations throughout our applicable industries, there is no guarantee that we will not be subject to fines, penalties or other regulatory actions in one or more jurisdictions, or be required to adjust our business practices to accommodate future regulatory requirements.

We face ~~a number of~~ risks in our tenant screening services business that could adversely affect our business and/or operating results.

Our tenant screening services business is subject to a number of complex laws that are subject to varying interpretations, including ~~without limitation~~ the ~~Fair Credit Reporting Act (the "FCRA")~~FCRA and related regulations. The FCRA has recently been the subject of multiple class-based litigation proceedings, as well as numerous regulatory inquiries and enforcement actions. In addition, entities such as the ~~Federal Trade Commission (the "FTC")~~FTC and the Consumer Financial Protection Bureau ("CFPB") have the authority to promulgate rules and regulations that may impact our customers and our business. Although we attempt to structure ~~and adapt~~ our tenant screening services to comply with ~~these and other~~the relevant laws and regulations, we may ~~from time to time~~ be found to be in violation of ~~them. Further, regardless of our compliance with applicable laws~~them and ~~regulations,~~ we ~~may from time to time~~ be subject to routine regulatory inquiries, enforcement actions, class-based litigation or indemnity demands.

As ~~we have discussed, we recently settled a class action lawsuit related to alleged violations of the FCRA. In addition, and as~~ previously ~~announced,~~disclosed, we received a ~~CID~~Civil Investigative Demand from the FTC in December 2018 requesting certain information relating to our compliance with the FCRA in connection with our tenant screening services ~~business. Further,~~business (the "FTC Investigation"). On April 30, 2020, the FTC staff informed us of its belief that there is a reasonable basis for asserting claims against us for our alleged failure to comply with certain sections of the FCRA that could result in monetary penalty and injunctive relief. Notwithstanding our disagreement with the FTC's position and vigorous defense of our position, and primarily in an effort to avoid protracted litigation and potential distraction to our business, we have entered into settlement negotiations with the FTC to resolve all claims and allegations arising out of or relating to the FTC Investigation. Although the final outcome of the FTC Investigation is subject to ongoing settlement discussions and therefore remains uncertain, we have determined that a loss is probable and that a reasonable estimate of the loss is approximately $4.3 million. Accordingly, we recognized an accrual of $4.3 million within accrued expenses on our Condensed Consolidated Balance Sheet for the nine month period ended September 30, 2020. While this amount represents our best judgment of the probable loss based on information currently available to us, it is subject to significant estimates and numerous factors beyond our control, including without limitation the FTC's position with respect to the ongoing settlement negotiations. In the event that the FTC Investigation results in a settlement payment by us, or a judgment against us, in an amount significantly in excess of our accrual, the resulting liability could have a material adverse effect upon our financial condition, results of operations and liquidity.

In addition, we received a Request for Information from the ~~Civil Rights Division (Housing and Civil Enforcement Section) of the U.S. Department of Justice~~DOJ in July 2019 requesting certain information relating to our compliance with the ~~Servicemembers Civil Relief Act~~SCRA in connection with our tenant screening services business. ~~(For additional information regarding legal proceedings, refer~~On November 6, 2020, the DOJ issued a no action letter, declining to ~~Note 9,~~ ~~Commitments~~take any action against us and ~~Contingencies~~closing its investigation.

Table of ~~our Condensed Consolidated Financial Statements.)~~ Contents

Due to the large number of tenant screening transactions in which we participate, our potential liability in anany enforcement action or a class action lawsuit could ~~be significant,~~have a material impact on our business, especially given that certain applicable laws and regulations provide for fines or penalties on a per occurrence basis. The existence of any such enforcement action or class action lawsuit, whether meritorious or not, may adversely affect our ability to attract customers, result in the loss of existing customers, harm our reputation and cause us to incur defense costs or other expenses. ~~Any of the foregoing events may negatively affect our business, financial condition, operating results and, ultimately, our stock price.~~

We use third-party service providers for ~~important~~ electronic payment and tenant screening services, and their failure to fulfill their contractual obligations could harm our reputation, disrupt our business and adversely affect our operating results.

We use third-party electronic payment services providers to enable us to provide electronic payment services, ~~to our customers,~~ and third-party tenant screening services providers to enable us to provide tenant screening services such as background and credit checks to our customers. We rely on these service providers to provide us with accurate and timely information, and therefore have significantly less control over our electronic payment and tenant screening services than if we were to maintain and operate them ourselves. In some cases, functions necessary to our business are performed on proprietary third-party systems and software to which we have no access. ~~We also generally do not have long-term contracts with these service providers. In addition, some of these service providers compete with us directly or indirectly in the markets we serve.~~ The failure of these service providers to provide us with accurate and timely information, to fulfill their contractual obligations ofto us, or to renew their contracts with us, could result in direct liability to us, harm our reputation, result in significant disruptions to our business, and adversely affect our operating results.

~~Privacy and data security laws and regulations could impose additional costs on us and reduce the demand for our software solutions.~~

processing, storage and disclosure of personal or identifying information obtained from customers and other individuals. For instance, the California Consumer Privacy Act, which is scheduled to take effect on January 1, 2020, creates new data privacy and security rights for California residents. Similarly, there are a number of existing and proposed laws and regulations in the European Union, the United States, at both the federal and state level, as well as other jurisdictions that could impose new obligations in areas affecting our business. These new obligations could increase the cost and complexity of delivering our services, and divert our managements’ attention from pursuing strategic objectives.

In addition to government regulation, privacy advocates and industry groups may propose various self-regulatory standards that may legally or contractually apply to our business. Because the interpretation and application of many privacy and data security laws, regulations and applicable industry standards are uncertain, it is possible that these laws, regulations and standards may be interpreted and applied in a manner inconsistent with our existing privacy and data management practices. As new laws, regulations and industry standards take effect, and as we expand into new jurisdictions or verticals, we will need to understand and comply with various new requirements, which may result in significant additional costs.

To the extent applicable to our business or the businesses of our customers, these laws, regulations and industry standards could have negative effects on our business, including by increasing our costs and operating expenses, and/or delaying or impeding our deployment of new or existing core functionality or Value+ services. Compliance with these laws, regulations and industry standards requires significant management time and attention, and failure to comply could result in negative publicity, subject us to fines or penalties, expose us to litigation, or result in demands that we modify or cease existing business practices. In addition, the costs of compliance with, and other burdens imposed by, such laws, regulations and industry standards may adversely affect our customers’ ability or desire to collect, use, process and store personal information using our software solutions, which could reduce overall demand for them. Even the perception of privacy and data security concerns, whether or not valid, may inhibit market acceptance of our software solutions in certain verticals. Furthermore, privacy and data security concerns may cause our customers’ clients, vendors, employees and other industry participants to resist providing the personal information necessary to allow our customers to use our applications effectively. Any of these outcomes could adversely affect our business and operating results.

~~The markets in which we participate are intensely competitive and, if we do not compete effectively, our business could be harmed.~~

The overall market for business management software is global, highly competitive and continually evolving in response to a number of factors, including changes in technology, operational requirements, and laws and regulations. Although relatively early in its development, the market for cloud-based business management software is also highly competitive and subject to similar market factors.

While we focus on providing industry-specific, cloud-based business management software solutions in our targeted verticals, we compete with other vertical cloud-based solution providers, as well as with horizontal cloud-based solution providers that provide broad cloud-based solutions across multiple verticals. Our competitors include established vertical software vendors, as well as newer entrants in the market. We also face competition from numerous cloud-based solution providers that focus almost exclusively on one or more point solutions. Continued consolidation among cloud-based providers could lead to significantly increased competition.

Although the domain expertise required to successfully develop, market and sell cloud-based business management software solutions in the real estate and legal verticals may hinder new entrants that are unable to invest the necessary resources to develop and deploy cloud-based solutions with the same level of functionality as ours, many of our competitors and potential competitors are larger and have greater name recognition, longer operating histories, and significantly greater resources than we do. As a result, our competitors may be able to respond more quickly and effectively to new or changing opportunities, technologies, operational requirements and industry standards. Some of these competitors may have more established customer relationships or strategic partnerships with third parties that enhance their products and services. Other competitors may offer products or services that address one or a number of business functions on a standalone basis at lower prices or bundled as part of a broader product sale, or with greater depth than our software solutions. In addition, our current and potential competitors may develop, market and sell new technologies with comparable functionality to our software solutions, which could cause us to lose customers, slow the rate of growth of new customers and cause us to decrease our prices in order to remain competitive. For all of these reasons, we may not be able to compete effectively against our current and future competitors, which could harm our business.

Business management software for SMBs is a relatively new and developing market and, if the market is smaller than we estimate or develops more slowly than we expect, our operating results could be adversely affected.

We provide cloud-based business management software for SMBs in the real estate and legal markets and, as part of our business strategy, we will assess entry into new markets. While the overall market for cloud-based business management software is rapidly growing, it is not as mature as the market for legacy on-premise software applications. In addition, when compared to

larger enterprises, SMBs have not historically purchased enterprise resource planning or other enterprise-wide software systems to manage their businesses due to the cost and complexity of implementing such systems, which generally did not address their industry-specific needs. Furthermore, a number of widely adopted cloud-based solutions have not traditionally targeted SMBs. As a result, many SMBs still run their businesses using manual processes and disparate software systems that are not web-optimized, while others may have invested substantial resources to integrate a variety of point solutions into their organizations to address one or more specific business needs and, therefore, may be reluctant to migrate to a vertical cloud-based solution designed to apply to their entire business. Our success will depend, in part, on the widespread adoption by SMBs of cloud computing in general and of cloud-based business management software in particular.

The market for industry-specific, cloud-based business management software for SMBs, both generally, and specifically within the real estate and legal markets, is evolving and, in comparison to the overall market for cloud-based solutions, is relatively small. The continued expansion of this market depends on numerous factors, including:


▪	~~the cost and perceived value associated with cloud-based business management software relative to on-premise software applications and disparate point solutions;~~


▪	~~the ability of cloud-based solution providers to offer SMBs the functionality they need to operate and grow their businesses;~~


▪	the willingness of SMBs to transition from their existing software systems, or otherwise alter their existing businesses practices, to migrate their businesses to a vertical cloud-based business management software solution; and


▪	~~the ability of cloud-based solution providers to address security, privacy, availability and other concerns.~~

If cloud-based business management software does not achieve widespread market acceptance among SMBs, our revenue may increase at a slower rate than we expect and may even decline, which could adversely affect our operating results. In addition, it is difficult to estimate the rate at which SMBs will be willing to transition to vertical cloud-based business management software in any particular period, which makes it difficult to estimate the overall size and growth rate of the market for cloud-based business management software for SMBs at any given point in time or to forecast growth in our revenue or market share.

Market opportunity estimates are subject to significant uncertainty and are based on assumptions and estimates, including our internal analysis and industry experience. Assessing the market for industry-specific, cloud-based business management software is particularly difficult due to a number of factors, including limited available information and rapid evolution of the market. If we had made different assumptions, our estimates of market opportunity could be materially different.

In addition, even if the markets in which we compete meet or exceed our size estimates, our software solutions could fail to gain market acceptance and our business may not grow in line with our forecasts, or at all, which would have a material adverse impact on our financial condition and operating results.

If we are unable to introduce successful enhancements, including new and innovative core functionality and Value+ services for our existing markets and verticals, or new products for adjacent markets or additional verticals, our operating results could be adversely affected.

The software industry in general, and our targeted verticals in particular, are characterized by rapid technological advances, changing industry standards, evolving customer requirements and intense competition. Our ability to attract new customers, increase revenue from our existing customers, and expand into adjacent markets or new verticals depends, in part, on our ability to enhance the functionality of our existing software solutions by introducing new and innovative core functionality and Value+ services that keep pace with technological developments, and provide functionality that addresses the evolving business needs of our customers. In addition, our growth over the long term depends, in part, on our ability to introduce new products for adjacent markets and additional verticals that we identify through our market validation process. Market acceptance of our current and future software solutions will depend on numerous factors, including:


▪	~~the unique functionality and ease of use of our software solutions and the extent to which our software solutions meet the business needs of our customers;~~


▪	~~the perceived benefits and security of our cloud-based business management software solutions relative to on-premise software applications or other competitive products;~~


▪	~~the pricing of our software solutions relative to competitive products;~~


▪	~~perceptions about the security, privacy and availability of our software solutions relative to competitive products;~~


▪	~~time-to-market of the updates and enhancements to our core functionality, Value+ services and new products; and~~


▪	~~perceptions about the quality and responsiveness of our customer service organization.~~

If we are unable to successfully enhance the functionality of our existing software solutions, including our core solutions and Value+ services, and develop or acquire new products that gain market acceptance in adjacent markets and additional verticals, our revenue may increase at a slower rate than we expect and may even decline, which could adversely affect our operating results.

Our business depends substantially on existing customers renewing their subscriptions with us and expanding their use of our Value+ services, and a decline in customer renewal rates, or failure to convince existing customers to adopt and utilize our Value+ services, could adversely impact our operating results.

In order for us to maintain or increase our revenue and improve our operating results, it is important that our existing customers continue to pay subscription fees for the use of our core solutions, which tend to incrementally rise over time, as well as increase their adoption and utilization of our Value+ services. Our customers have no obligation to renew their subscriptions with us upon expiration of their subscription periods, which typically range from one month to one year. We cannot assure you that our customers will renew their subscriptions with us. In addition, our law firm customers that start their accounts using a 10-day free trial have no obligation to begin a paid subscription. Furthermore, although a significant portion of our revenue growth has historically resulted from the adoption and utilization of our Value+ services by our existing customers, we cannot assure you that our existing customers will continue to broaden their adoption and utilization of our Value+ services, or use our Value+ services at all. If our existing customers do not renew their subscriptions and increase their adoption and utilization of our existing or newly developed Value+ services, our revenue may increase at a slower rate than we expect and may even decline, which could adversely impact our financial condition and operating results.

Word-of-mouth referrals represent a significant source of new customers for us and provide us with an opportunity to cost-effectively market and sell our software solutions. The loss of our existing customers could have a significant impact on our reputation in our targeted verticals and our ability to acquire new customers cost-effectively. A reduction in the number of our existing customers, even if offset by an increase in new customers, could have the impact of reducing our revenue and operating margins.

In an effort to retain our customers and to expand our customers’ adoption and utilization of our Value+ services, we may choose to use increasingly costly sales and marketing efforts. In addition, we may make significant investments in research and product development to introduce Value+ services that ultimately are not broadly adopted by our customers. In either of those cases, we could incur significantly increased costs without a corresponding increase in revenue. Furthermore, we may fail to identify Value+ services that our customers need for their businesses, in which case we could miss opportunities to increase our revenue.

Pricing pressure may cause us to change our pricing model, which could hurt our renewal rates and our ability to attract new customers, as well as our ability to increase adoption and usage of our Value+ services, which could adversely affect our operating results.

As the markets for our existing software solutions mature, or as current and future competitors introduce new products or services that compete with ours, we may experience pricing pressure and be unable to renew our subscription agreements with existing customers or increase adoption and usage of our Value+ services, or attract new customers at prices that are consistent with our current pricing model and operating budget. If this were to occur, it is possible that we would have to change our pricing model, offer pricing incentives, or generally reduce our prices, which may adversely affect our revenue even if adoption and utilization remain constant. In addition, many of our customers are smaller companies or firms, which are typically more cost sensitive than larger enterprises. Changes to our pricing model could harm our customer retention rates and our ability to attract new customers, whether in connection with our core solutions or our Value+ services, which could adversely affect our operating results.

We expect to continue to derive a significant portion of our revenue from our property manager customers, and factors resulting in a loss of these customers could adversely affect our operating results.

Historically, more than 90% of our revenue has been derived from APM, and we expect that our property manager customers will continue to account for a significant portion of our revenue for the foreseeable future. We could lose property manager customers as a result of numerous factors, including:


▪	~~the expiration and non-renewal of subscriptions or termination of subscription agreements;~~


▪	~~the introduction of competitive products or technologies;~~


▪	~~our failure to provide updates and enhancements to our core functionality and Value+ services, and to introduce new Value+ services to our customers;~~


▪	~~changes in pricing policies by us or our competitors;~~


▪	~~acquisitions or consolidations within the property management industry;~~


▪	~~bankruptcies or other financial difficulties facing our customers; and~~


▪	~~conditions or trends that are specific to the property management industry such as the economic factors that impact the rental market.~~

The loss of a significant number of our property manager customers, or the loss of even a small number of our larger property manager customers, could cause our revenue to increase at a slower rate than we expect or even decline. In addition, even if we are able to retain our property manager customers, we may be unable to grow revenue from these property manager customers by increasing their adoption and utilization of our Value+ services. Any of these outcomes could adversely affect our operating results.

~~Our quarterly results may fluctuate significantly and period-to-period comparisons of our results may not be meaningful.~~


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


▪	~~the timing of our recognition of revenue;~~


▪	~~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 associated with assessing or entering adjacent markets or new verticals;~~


▪	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 proceedings, enforcement actions, regulatory inquiries or similar matters;~~


▪	~~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~~


▪	~~general economic and market conditions.~~

Our focus on managing our business towards the achievement of long-term growth, rather than the realization of short-term financial or business metrics, may serve to exacerbate the fluctuations in our quarterly results, which could result in downward pressure on the market price of our Class A common stock. In addition, fluctuations in quarterly results may negatively impact the value of our Class A common stock, regardless of whether they impact or reflect the overall performance of our business. Furthermore, if our quarterly results fall below the expectations of investors or any securities analysts who follow our stock, or below any financial guidance we may provide, the price of our Class A common stock could decline substantially.

Our corporate culture has contributed to our success and, if we cannot continue to foster this culture as we grow, we could lose the passion, creativity, teamwork, focus and innovation fostered by our culture.

We believe that our culture has been and will continue to be a key contributor to our success. If we do not continue to develop our corporate culture or maintain our core values as we grow and evolve, we may be unable to foster the passion, creativity, teamwork, focus and innovation we believe we need to support our growth. Any failure to preserve our culture could negatively affect our ability to recruit and retain personnel and to effectively focus on and pursue our strategic objectives. Moreover, liquidity available to our employee security holders could lead to disparities of wealth among our employees, which could adversely impact relations among employees and our culture in general. As we grow and mature as a public company, we may find it difficult to maintain our corporate culture. This difficulty will only be exacerbated by the COVID-19 pandemic, which has resulted in travel restrictions, quarantines, shelter-in-place orders and similar government orders and restrictions that collectively make it more difficult for employees to interact, communicate and innovate.

IfWe depend on highly skilled personnel and, if we are unable to retain or hire additional qualified personnel or if we lose key members of our management team, we may not be able to achieve our strategic objectives and our business may be harmed.

Our success and future growth depend, in part, upon the continued services of our executive officers and other key employees. ~~From time to time, there~~There may be changes in our executive officers or other key employees resulting from the hiring or departure of these personnel, which may disrupt our business. Our executive officers and other key employees are generally employed on an at-will basis, which means that these personnel could terminate their employment with us at any time. Additionally, the equity awards held by many of our executive officers and other key employees are close to fully vested, and these employees may not have sufficient financial incentive to stay with us. The loss of one or more of our executive officers or other key employees ~~or the failure by our executive team to work effectively with our employees and lead our company,~~ could have an adverse effect on our business.

~~We depend on highly skilled personnel and, if we are unable~~ In addition, to ~~retain or hire additional qualified personnel, we may not be able to achieve our strategic objectives.~~

To execute our growth plan and achieve our strategic objectives, we must continue to attract and retain highly qualified and motivated personnel across our organization. In particular, in order to continue to enhance our software solutions, add new and innovative core functionality ~~and~~and/or Value+ services, as well as develop new products, it will be critical for us to increase the size of our research and product development organization, including hiring highly skilled software engineers. Competition for software engineers is intense within our industry and there continues to be upward pressure on the compensation paid to these professionals. ~~In addition,~~Further, in order for us to achieve broader market acceptance of our software solutions, grow our customer base, and pursue adjacent markets and new verticals consistent with our strategic plan, we will need to continue to increase the size of our sales and marketing and customer service and support organizations. Identifying, recruiting, training and ~~recruiting~~retaining qualified personnel ~~training them in the use of our software solutions and ensuring they are well-equipped to provide great service to our customers~~is difficult requires a significant investment of time and ~~resources, and it can be particularly difficult to retain these individuals.~~resources.

Many of the companies with which we compete for experienced personnel have greater name recognition and financial resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that we or these employees have breached their legal obligations, resulting in a diversion of our time and resources. In addition, our headquarters are located in Santa Barbara, California, which is not generally recognized as a prominent commercial center, and it is challenging to attract qualified professionals due to our geographic location. As a result, we may have even greater difficulty hiring and retaining skilled personnel than our competitors. If we ~~are unable~~hire employees from other companies, their former employers may attempt to ~~attract~~assert that we or these employees have breached their legal obligations, resulting in a diversion of our time and ~~retain the personnel necessary to execute our growth plan, we may be unable to achieve our strategic objectives and our operating results may suffer.~~

resources. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, or if the price of our Class A common stock experiences significant volatility, this may adversely affect our ability to recruit and retain highly skilled employees. If we ~~fail~~are unable to attract and retain the personnel necessary to execute our growth plan, we may be unable to achieve our strategic objectives and our operating results may suffer.

The markets we participate in are intensely competitive and our business could be harmed if we do not compete effectively.

The overall market for cloud-based business management software is global, highly competitive and continually evolving in response to a number of factors, including changes in technology, operational requirements, and laws and regulations. While we focus on providing industry-specific, cloud-based business management software solutions, we compete with other vertical cloud-based solution providers, as well as with horizontal cloud-based solution providers that provide broad cloud-based solutions across multiple verticals. Our competitors include established vertical software vendors, as well as newer entrants in the market. We also face competition from numerous cloud-based solution providers that focus almost exclusively

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on one or more point solutions. Continued consolidation among cloud-based providers could lead to significantly increased competition. Many of our competitors and potential competitors are larger and have greater name recognition, longer operating histories, and significantly greater resources. As a result, our competitors may be able to respond more quickly and effectively to new ~~personnel~~ or changing opportunities, technologies, operational requirements and industry standards, as well as to ~~retain and motivate~~new challenges such as those resulting from the COVID-19 pandemic. In addition, our current ~~personnel,~~and potential competitors may develop, market and sell new technologies with comparable functionality to our software solutions, which could cause us to lose customers, slow the rate of growth of new customers and/or cause us to decrease our prices in order to remain competitive. For all of these reasons, we may not be able to ~~achieve~~compete effectively against our current and future competitors, which could harm our business.

As the markets for our existing software solutions mature, or as current and future competitors introduce new products or services that compete with ours, we may experience pricing pressure and be unable to renew our subscription agreements with existing customers or increase adoption and usage of our Value+ services, or attract new customers at prices that are consistent with our current pricing model and operating budget. We may ultimately have to change our pricing model or offer pricing incentives which may adversely affect our revenue even if adoption and utilization remain constant. Changes to our pricing model could harm our customer retention rates and our ability to attract new customers, whether in connection with our core solutions or our Value+ services, which could adversely affect our operating results.

Business management software for small and medium-sized businesses ("SMBs") is a new and developing market. If the market is smaller than estimated or develops more slowly than expected, our operating results could be adversely affected.

We provide cloud-based business management software for SMBs in the real estate market and will assess entry into new or adjacent markets consistent with our strategic ~~objectives.~~plan. Our success will depend, in part, on the continued widespread adoption by SMBs of cloud computing in general and of cloud-based business management software in particular. The market for industry-specific, cloud-based business management software for SMBs, both generally, and specifically within the real estate market, is evolving and is relatively small. The continued expansion of this market depends on numerous factors, including the cost and perceived value associated with cloud-based business management software relative to on-premise software applications and disparate point solutions, the ability of cloud-based solution providers to offer SMBs the functionality they need to operate and grow their businesses, the willingness of SMBs to transition from their existing software systems or otherwise alter their existing businesses practices to migrate their businesses to a vertical cloud-based business management software solution, and the ability of cloud-based solution providers to address security, privacy, availability and other concerns. If cloud-based business management software does not continue to achieve widespread market acceptance among SMBs, our revenue may increase at a slower rate than we expect and may even decline, which could adversely affect our operating results. In addition, it is difficult to estimate the rate at which SMBs will be willing to transition to vertical cloud-based business management software in any particular period, which makes it difficult to estimate the overall size and growth rate of the market for cloud-based business management software at any point in time or to forecast revenue growth or market share. This transition rate may be negatively impacted by the COVID-19 pandemic as customers may delay decisions to adopt our core products, or expand the use of our Value+ services, as they seek to reduce or delay spending within their businesses.

If we are unable to increase sales of our software solutions to larger customers while mitigating the risks associated with serving such customers, our business and operating results may suffer.

While we plan to continue to market and sell our software solutions to smaller companies or firms, our growth strategy is dependent, in part, upon increasing sales of our software solutions to larger customers within the real estate vertical. Sales to larger customers may involve risks that are not present, or are present to a lesser extent, in sales to smaller businesses. As we seek to increase our sales to larger customers, we may invest considerably greater amounts of time and financial resources in our sales and marketing efforts. In addition, we may face longer sales cycles and experience less predictability and greater competition in completing some of our sales. Our ability to sell our software solutions to larger customers may be dependent, in part, on our ability to develop functionality, or to implement pricing policies, that are unique to particular customers or are necessary for success in a market segment dominated by larger customers. Also, because security breaches or other performance problems with respect to larger customers may result in greater economic harm to these customers and more adverse publicity, there is increased financial and reputational risk associated with serving such customers. If we are unable to increase sales of our software solutions to larger customers, while mitigating the risks associated with serving such customers, our business and operating results may suffer.

If we are unable to introduce successful enhancements, including new and innovative core functionality and/or Value+ services, or new products for adjacent markets or additional verticals, our operating results could be adversely affected.

The software industry is characterized by rapid technological advances, changing industry standards, evolving customer requirements and intense competition. Our ability to attract new customers, increase revenue from our existing customers, and expand into adjacent markets or, potentially, new verticals depends, in part, on our ability to enhance the functionality of our existing software solutions by introducing new and innovative core functionality and/or Value+ services that keep pace with technological developments and address the evolving business needs of our customers. In addition, our growth over the long term depends, in part, on our ability to introduce new products for adjacent markets and, potentially, additional verticals that we identify through our market validation process consistent with our strategic plan. Market acceptance

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of our current and future software solutions will depend on numerous factors, including the pricing of our software solutions relative to competitive products, perceptions about the security, privacy and availability of our software solutions relative to competitive products, and the time-to-market of our updates and enhancements to our core functionality, Value+ services and products. If we are unable to successfully enhance the functionality of our existing software solutions and timely develop or acquire new products that gain market acceptance in adjacent markets and additional verticals consistent with our strategic plan, our revenue may increase at a slower rate than we expect and may even decline, which could adversely affect our operating results.

Our business depends substantially on existing customers renewing their subscriptions with us and expanding their use of our Value+ services, and a decline in either could adversely impact our operating results.

In order for us to maintain or increase our revenue and improve our operating results, it is important that our existing customers continue to pay subscription fees for the use of our core solutions, which tend to incrementally rise over time, as well as increase their adoption and utilization of our Value+ services. We cannot assure you that our customers will renew their subscriptions with us, that our existing customers will continue to broaden their adoption and utilization of our Value+ services, or that they will use our Value+ services at all. If our existing customers do not renew their subscriptions and increase their adoption and utilization of our existing or newly developed Value+ services, our revenue may increase at a slower rate than we expect and may even decline, which could adversely impact our financial condition and operating results. The loss of our existing customers could have a significant impact on our reputation and our ability to acquire new customers cost-effectively via word-of-mouth. A reduction in the number of our existing customers, even if offset by an increase in new customers, could reduce our revenue and operating margins. We may need to employ increasingly costly sales and marketing efforts and make significant investments in research and product development to introduce Value+ services that ultimately are not broadly adopted by our customers. In either of those cases, we could incur significantly increased costs without a corresponding increase in revenue. Furthermore, we may fail to identify Value+ services that our customers need for their businesses, in which case we could miss opportunities to increase our revenue. We may experience lower rates of subscription renewals, as well as lower rates of adoption and utilization of Value+ services, as a result of the COVID-19 pandemic as customers may seek to reduce or delay spending within their businesses.

All of our revenues are presently generated by sales to customers in the real estate vertical, and factors that adversely affect that vertical, or our customers within it, could also adversely affect us.

We expect that our real estate customers will continue to account for a significant portion or all of our revenue for the foreseeable future. Demand for our software solutions and services could be affected by factors that are unique to and adversely affect the real estate vertical and our customers within it. If the vertical itself declines, our customers may decide not to renew their subscriptions or they may cease using our Value+ services in order to reduce costs to remain competitive. Further, we could lose real estate customers as a result of acquisitions or consolidations within the real estate vertical, bankruptcies or other financial difficulties facing our real estate customers, new or enhanced legal or regulatory regimes that negatively impact the real estate vertical, and conditions or trends specific to the real estate vertical such as the economic factors that impact the rental market. It is possible that the significant increase in unemployment rates, regulation and financial uncertainty caused by the COVID-19 pandemic could have a disproportionate impact on businesses within the real estate vertical, which may, in turn, disproportionately affect our customers and, therefore, our business, financial condition and operating results. In addition to the foregoing risks, there is an overarching risk stemming from potential widespread adoption of quickly evolving financial or other disruptive technology products that could significantly impact the real estate vertical, even if the disruptive technology is not specifically designed to apply directly to it. The adoption of these new technologies could significantly reduce the volume or demand of our customers, thereby reducing our revenue, which could materially impact our business, financial condition and operating results.

Our growth depends in part on ~~the success of~~ our strategic relationships with third parties and, if we are unsuccessful in establishing or maintaining these relationships, our ability to compete in ~~the market place~~our targeted markets or grow our revenue could be impaired.

In order to grow our business, we anticipate that we will continue to depend on our relationships with third parties, including our data center operators, cloud computing service providers, electronic payment, tenant screening and insurance services providers, and other third parties that support delivery of our software solutions. Identifying partners, negotiating agreements and maintaining relationships requires significant time and resources. Our competitors may be more effective than us in cost-effectively building relationships with third parties that enhance their products and services, allow them to provide more competitive pricing, or offer other benefits to their customers. In addition, acquisitions of our partners by our competitors or others could result in a decrease in the number of current and potential strategic partners willing to establish or maintain relationships with us, and could increase the price at which products or services are available to us. If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenue could be impaired, which could negatively impact our operating results. ~~Even if we are successful, we cannot assure you that these relationships will result in increased customer adoption and usage~~

Table of our software solutions or improved operating results. Furthermore, if our partners fail to perform as expected, we may be subjected to litigation, our reputation may be harmed, and our business and operating results could be adversely affected. Contents

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

We currently serve our customers through a combination of our own servers located in ~~third-party~~third party data center facilities, and ~~servers and data centers~~computing resources operated by Amazon and other third ~~parties.~~party cloud computing service providers. While we control and have access to our own servers and the other components of our network that are located in our ~~third-party~~third party data centers, we do not control the operation of any of these ~~third-party~~third party data center facilities. The owners of our data center facilities have no obligation to renew their agreements with ~~us on commercially reasonable terms, or at all.~~us. If we are unable to renew these agreements on commercially reasonable terms, or if one of our ~~third-party~~third party data center operators is acquired, we may be required to transfer our servers and other infrastructure to new ~~data center~~ facilities, and we may incur significant costs and possible service ~~interruptions in connection with doing so.~~interruptions. Further, our ~~third-party~~third party data center providers could experience significant outages outside of our control that could adversely affect our business.

Problems faced by our ~~third-party~~third party data center operators, or with any of the service providers with whom we or they contract, could adversely affect the experience of our customers. Our third-party data center operators could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by our third-party data center operators, or any of the service providers with whom we or they contract, may have negative effects on our business. Additionally, if our data centers are unable to keep up with our growing needs for capacity or any spikes in customer demand, this could ~~have an adverse effect on~~result in loss of or damage to our ~~business.~~customers’ stored information and service interruptions, which could harm our reputation, impair our ability to attract and retain customers, and subject us to potential liability, any of which could adversely affect our operating results.

The cloud computing service providers with which we contract may experience service interruptions across multiple regions that are outside of our control. Furthermore, they may not be able to provide us with additional computing resources needed to scale our infrastructure ahead of our growing customer base. If any of these issues arise, we may be required to migrate our cloud computing resources, or add new computing resources, to other cloud computing service providers. It may require significant effort to migrate all of our services to a different region if we are forced to recover from a data center’s severe impairment or total destruction, or from a regional, or multi-regional, outage by any of our cloud computing service providers. Any changes in ~~third-party~~ service levels atby our ~~data centers~~cloud computing service providers could result in loss of or damage to our customers’ stored information and service interruptions, which could harm our ~~reputation. These issues could also cause us to lose customers, harm our ability to attract new customers, and~~reputation, subject us to potential liability, ~~any of which could~~and adversely affect our operating results.

Our systems are not yet fully redundant and, although the redundancies we do have in place will permit us to respond, at least to some degree, to service outages, our third-party data centers are vulnerable in the event of failure. We do not yet have adequate structure or systems in place to recover from a data center’s severe impairment or total destruction, and recovery from the total destruction or severe impairment of any of our third-party data centers could be difficult or may not be possible at all.

Our platform must integrate with a variety of devices, operating systems and browsers that are developed by others, and if we are unable to ensure that our software solutions interoperate with such devices, operating systems and browsers, our software solutions may become less competitive and our operating results may be harmed.

We offer our software solutions across a variety of operating systems and through the Internet. We ~~are dependent~~depend on the interoperability of our platform with ~~third-party~~third party devices, desktop and mobile operating systems, as well as web browsers that we do not control. Any changes in such devices, systems or web browsers that degrade the functionality of our software solutions or give preferential treatment to competitive services could adversely affect the adoption and usage of our software solutions. In addition, in order to deliver high quality software solutions, we will need to continuously enhance and modify our functionality to keep pace with changes in Internet-related hardware, mobile operating systems such as iOS and Android, browsers and other software, communication, network and database technologies. We may not be successful in developing enhancements and modifications that operate effectively with these devices, operating systems, web browsers and other technologies or in bringing them to market in a timely manner. Furthermore, uncertainties regarding the timing or nature of new network platforms or technologies, and modifications to existing platforms or technologies, could increase our research and product development expenses. In the event that it is difficult for our customers to access and use our software solutions, our software solutions may become less competitive,

and our operating results could be adversely affected.

If our property ~~manager~~management customers stop requiring residents to provide proof of legal liability to landlord insurance, if insurance premiums decline or if insureds experience greater than expected losses, our operating results could be harmed.

We generate revenue by offering legal liability to landlord insurance through a wholly owned subsidiary. Some of our property ~~manager~~management customers require residents to provide proof of legal liability to landlord insurance and offer to enroll residents in their legal liability to landlord insurance policy. If demand for rental housing declines, or if our property ~~manager~~management customers believe that it may decline, these customers may reduce their rental rates and stop requiring residents to provide proof of legal liability to landlord insurance in order to reduce the overall cost of renting and make their rental offerings more competitive. If our property ~~manager~~management customers stop requiring residents to provide proof of legal liability to landlord insurance or elect to enroll residents in insurance programs offered by competing providers, or if insurance premiums otherwise decline, our revenues from insurance services could be adversely affected.

Additionally, we underwrite our legal liability to landlord insurance policies, ~~are underwritten by us,~~ and we are required by our insurance partner to maintain a reserve to cover potential claims under the policies. While our policies have ~~a limit of $100,000 per occurrence,~~per-occurrence limits, there is no limit on the dollar amount of claims that could be made against us in any particular period or in the aggregate. In the event that claims by the insureds increase unexpectedly, our reserve may not be sufficient to cover our resulting liability under the policies. ~~To the extent~~If we are required to pay out significantly higher amounts to insureds ~~that are significantly higher~~ than our current reserves, this could have a material adverse ~~effect~~impact on our operating results.

Our insurance business is subject to state governmental regulation, which could limit the growth of our insurance business and impose additional costs on us.

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Our insurance-related wholly owned subsidiaries and third-party service providers maintain licenses with a number of individual state departments of insurance. Collectively, we are subject to state governmental regulation and supervision in connection with the operation of our insurance business, which includes both our legal liability to landlord insurance and ~~renters'~~renters insurance businesses. ~~This state governmental~~Such supervision could limit the growth of our insurance business by increasing the costs of regulatory compliance, limiting or restricting the products or services we provide or the methods by which we provide them, and subjecting us to ~~the possibility of~~ regulatory actions or proceedings. Our continued ability to maintain these insurance licenses in the jurisdictions in which we are licensed depends on our compliance with the rules and regulations promulgated from time to time by the regulatory authorities in each of these jurisdictions. Furthermore, we are routinely subject to periodic state ~~insurance departments conduct periodic~~ examinations, audits and investigations of the affairs of insurance companies and agencies, any of which could result in the expenditure of significant management time or financial resources.

~~In all jurisdictions, the applicable laws and regulations are subject to amendment and interpretation by regulatory authorities.~~ Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licenses and approvals and to implement and interpret rules and regulations. Accordingly, we may be precluded or temporarily suspended from carrying on some or all of the activities of our insurance business or otherwise be fined or ~~penalized in a given jurisdiction.~~penalized. No assurances can be given that our insurance business can continue to be conducted in any given jurisdiction as it has been conducted in the past or that we will be able to expand our insurance business in the future.

If we are unable to enter new verticals, or if our software solution for any new vertical fails to achieve market acceptance, our operating results could be adversely affected and we may be required to reconsider our growth strategy.

Our growth strategy is dependent, in part, on our ability to expand into new verticals, beyond the real estate and legal markets. However, we may be unable to identify new verticals that meet our criteria for selecting industries that cloud-based solutions are ideally suited to address. In addition, our market validation process may not support entry into selected verticals due to our perception of the overall market opportunity or of the willingness of market participants within those verticals to adopt our software solutions. Further, instead of pursuing new verticals, we may prefer for various reasons to pursue alternative growth strategies, such as entry into markets that are adjacent to the markets in which we currently participate within our existing verticals, or the development of additional products or services for our existing markets.

Even if we choose to enter new verticals, our market validation process does not guarantee our success. We may be unable to develop a software solution for a new vertical or, in the event that we enter a new vertical by way of a strategic acquisition, we may be unable to leverage the acquired software solution in time to take advantage of the identified market opportunity, and any delay in our time-to-market could expose us to additional competition or other factors that could impede our success. In addition, any software solution we develop or acquire for a new vertical may not provide the functionality required by potential customers and, as a result, may not achieve widespread market acceptance within the new vertical. To the extent we choose to enter new verticals, whether organically or via strategic acquisition, we may invest significant resources to develop and expand the functionality of our software solutions to meet the needs of customers in those verticals, which investments will occur in advance

~~of our realization of revenue from them.~~

In addition, while we expedited our entry into the legal vertical through the acquisition of MyCase in 2012, our practice and case management solution is in an earlier stage of development than APM, our property management solution, and we are at an earlier stage in the process of expanding the core functionality and Value+ services associated with our legal software. We face significant competition in the legal market from both vertical software vendors and cloud-based solution providers that offer one or more point solutions. There can be no assurance that we will be able to achieve market acceptance for our legal software at or near the levels achieved by our property management software. The success of our vertical market strategy depends, in part, on our ability to continue to significantly increase the number and size of our law firm customers and the revenue derived from them, and our failure to achieve these objectives could have an adverse impact on our operating results.

~~All of our revenues are generated by sales to customers in our targeted verticals, and factors that adversely affect the applicable industry could also adversely affect us.~~

Currently, all of our sales are to customers in the real estate market and, to a lesser extent, the legal market. Demand for our software solutions could be affected by factors that are unique to and adversely affect our targeted verticals. In particular, the real estate and legal markets are highly regulated, subject to intense competition and impacted by changes in general economic and market conditions. For example, changes in applicable laws and regulations could significantly impact the software functionality demanded by our customers and require us to expend significant resources to ensure our software solutions continue to meet their evolving needs. In addition, other industry-specific factors, such as industry consolidation or the introduction of competing or disruptive technology, could lead to a significant reduction in the number of customers that use our software solutions within a particular vertical or the Value+ services demanded by these customers. Further, if the real estate or legal markets decline, our customers may decide not to renew their subscriptions or they may cease using our Value+ services in order to reduce costs to remain competitive. As a result, our ability to generate revenue from our real estate and legal market customers could be adversely affected by specific factors that affect the real estate or legal markets.

In addition to the foregoing risks associated with our targeted verticals themselves, there is an overarching risk stemming from potential widespread adoption of quickly evolving financial or other disruptive technology products that could significantly impact our targeted verticals, even if that technology is not specifically designed to apply directly to our targeted verticals. The adoption of these new technologies could significantly reduce the volume or demand of customers in our targeted verticals, thereby reducing our revenue, which could materially impact our business, financial condition, operating results and, ultimately, our stock price.

~~If we are unable to increase sales of our software solutions to larger customers while mitigating the risks associated with serving such customers, our business and operating results may suffer.~~

While we plan to continue to market and sell our software solutions to smaller companies or firms, our growth strategy is dependent, in part, upon increasing sales of our software solutions to larger customers within the real estate and legal markets. Sales to larger customers may involve risks that are not present, or are present to a lesser extent, in sales to smaller businesses. As we seek to increase our sales to larger customers, we may invest considerably greater amounts of time and financial resources in our sales and marketing efforts. In addition, we may face longer sales cycles and experience less predictability and greater competition in completing some of our sales than we have in selling our software solutions to smaller businesses. Although we generally have not configured our software solutions or negotiated our pricing for specific customers, which has historically resulted in reduced upfront selling costs, our ability to successfully sell our software solutions to larger customers may be dependent, in part, on our ability to develop functionality, or to implement pricing policies, that are unique to particular customers. It may also be dependent on our ability to attract and retain sales personnel with experience selling to larger organizations. Also, because security breaches or other performance problems with respect to larger customers may result in greater economic harm to these customers and more adverse publicity, there is increased financial and reputational risk associated with serving such customers. If we are unable to increase sales of our software solutions to larger customers, while mitigating the risks associated with serving such customers, our business and operating results may suffer.

If we are unable to deliver effective customer service and/or effectively maintain and promote our brands, it could harm our relationships with our existing customers and adversely affect our ability to attract new ~~customers.~~customers and our operating results.

Our business depends, in part, on our ability to satisfy our customers, both by providing software solutions that address their business needs, and by providing onboarding services and ongoing customer ~~service, which contributes to retaining customers and increasing adoption and utilization of our Value+ services by our existing customers.~~service. Once our software solutions are deployed, our customers depend on our customer service organization to resolve technical issues relating to their use of our solutions. We may be unable to respond quickly to accommodate short-term increases in customer demand for support services or may otherwise encounter a customer issue that is difficult to resolve. If a customer is not satisfied with the quality or responsiveness of our customer service, we could incur additional costs to address the situation. As we do not separately charge our customers for support

services, increased demand for our support services would increase costs without corresponding revenue, which could adversely affect our operating results. ~~In addition, regardless of the quality or responsiveness of~~Further, our ~~customer service efforts, a customer that is not satisfied with an outcome may choose to terminate, or not to renew, their relationship with us.~~

~~Our~~ sales process is highly dependent on the ease of use of our software solutions, our reputation and positive recommendations from our existing customers. Any failure to maintain high-quality or responsive customer service, or a market perception that we do not maintain high-quality or responsive customer service, could harm our reputation, cause us to lose customers and adversely impact our ability to sell our software solutions to prospective customers.

Our software solutions address functions within the heavily regulated real estate and legal markets, and our customers’ failure to comply with applicable laws and regulations could subject us to litigation.

We sell our software solutions to customers within the real estate market and, to a lesser extent, the legal market. Our customers use our software solutions for business activities that are subject to a number of laws and regulations, including without limitation federal, state and local real property laws and legal ethics rules. Any failure by our customers to comply with laws and regulations applicable to their businesses could result in fines, penalties or claims for substantial damages against our customers. To the extent our customers believe that our software solutions or our customer service organization caused or contributed to such failures, our customers may make claims for damages against us, regardless of whether we are responsible for the failure. As a result, we may be subject to lawsuits that, even if unsuccessful, could divert our resources and our management’s attention and adversely affect our business, and our insurance coverage may not be sufficient to cover such claims against us.

If we are unable to maintain and promote our brands, or to do so in a cost-effective manner, our ability to maintain and expand our customer base will be impaired, and our operating results could be adversely affected.

We believe that maintaining and promoting our brands is critical to achieving widespread awareness and acceptance of our software solutions, and maintaining and expanding our customer base. We also believe that the importance of brand recognition will increase as competition in our targeted verticals increases. If we do not continue to build awareness of our brands, we could be placed at a competitive disadvantage as compared to companies whose brands are, or become, more recognizable than ours. Maintaining and promoting our brands will depend, in part, on our ability to continue to provide new and innovative core functionality and Value+ services and best-in-class customer service, as well as the effectiveness of our sales and marketing efforts. If we fail to deliver products and functionality that address our customers’ business needs, or if we fail to meet our customers’ expectations for customer service, it could weaken our brands and harm our reputation. Additionally, the actions of third parties which are out of our control may affect our brands and reputation if customers do not have a positive experience using the services of our third-party partners that support our software solutions. Maintaining and enhancing our brands may require us to make substantial investments, and these investments may not result in commensurate increases in our revenue. If we fail to successfully maintain and promote our brands, or if we make investments that are not offset by increased revenue, our operating results could be adversely affected.

Failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brands, which could harm our business.

We currently rely on patent, trademark, copyright and trade secret laws, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect our intellectual property rights. Our success and ability to compete depend, in part, on our ability to continue to protect our intellectual property, including our proprietary technology and our brands. If we are unable to protect our proprietary rights adequately, our competitors could use the intellectual property we have developed to enhance their own products and services, which could harm our business.

In order to monitor and protect our intellectual property rights, we may be required to expend significant resources. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management, and could result in the impairment or loss of portions of our intellectual property or require us to pay costly royalties. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Accordingly, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our business and operating results.

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We may be sued by third parties for alleged infringement of their proprietary rights, which could cause us to incur significant expenses and require us to pay substantial damages.

~~There is considerable patent, trademark, copyright, trade secret and other intellectual property development activity in our industry.~~ Our success depends, in part, on our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may legally own or claim to own intellectual property relating to our technology

or software solutions, including without limitation technology we develop and build internally ~~and that which we~~and/or acquire. From time to time, our competitors or other third parties may claim that we are infringing upon their intellectual property rights. ~~However, we may be unaware of the intellectual property rights that others may claim cover some or all of our technology or software solutions.~~ Any claims or litigation, regardless of merit, could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages, settlement costs or ongoing royalty payments, require that we comply with other unfavorable license and other terms, or prevent us from offering our software solutions in their current form. Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the attention of our management and key personnel from our business operations and harm our operating results.

We have incurred and will continue to incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to compliance with legal requirements and corporate governance initiatives.

As a public company, we have incurred and expect to continue to incur significant legal, accounting, compliance and other expenses. We are subject to the reporting requirements of the Exchange Act, the listing requirements of the NASDAQ Global Market, and other applicable securities rules and regulations. Compliance with these rules and regulations will continue to increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on our systems and resources, particularly now that we are no longer an “emerging growth company” as defined in the JOBS Act.

For example, the Exchange Act requires that we publicly file annual, quarterly and current reports with respect to our business and operating results, and the Sarbanes-Oxley Act of 2002, or SOX, requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to meet these requirements, significant resources and management oversight will be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results.

Because we are no longer an “emerging growth company,” we are subject to, among other things, the requirement under Section 404 of SOX to obtain an attestation report on internal control over financial reporting from our independent registered public accounting firm, enhanced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and the requirement to hold a nonbinding advisory vote on executive compensation. Compliance with these additional requirements will only further increase our legal and financial compliance costs.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure requirements are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more difficult and time consuming. These laws, regulations and standards are subject to varying interpretations and their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us, which could result in a material adverse impact on our business.

Compliance with the requirements of Section 404 of SOX will be costly and divert management resources, and we and our independent registered public accounting firm may be unable to conclude that our internal control over financial reporting is effective.

Pursuant to Section 404 of SOX, we are required to furnish an annual report by our management on our internal control over financial reporting. Because we are no longer an "emerging growth company," we are required to include in our Annual Report an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve and maintain compliance with Section 404, we have been and will continue to be engaged in a process to document and evaluate our internal control over financial reporting, which will be costly and result in a diversion of management resources. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting.

Despite our efforts, there is a risk that in the future neither we nor our independent registered public accounting firm will be able to conclude that our internal control over financial reporting is effective as required by Section 404. If this were to occur, we could be subject to investigations or enforcement actions by the SEC or other regulatory authorities, stockholder lawsuits or other adverse actions, any of which could require us to incur defense costs, pay fines, settlements or judgments, or incur other

~~costs or expenses. Furthermore, investor perceptions of our business may suffer if deficiencies are found, which could cause a decline in the market price of our Class A common stock.~~

Irrespective of our compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated results of operations and harm our reputation. If we are unable to implement these requirements effectively, it could harm our business, and could result in an adverse opinion on our internal control over financial reporting from our independent registered public accounting firm.

Because we recognize revenue from subscriptions for our software solutions over the term of each subscription agreement, downturns or upturns in new business may not be immediately reflected in our operating results.

~~We recognize revenue from customers ratably over the term of each subscription agreement, which typically ranges from one month to one year. As a result, some~~A portion of the revenue we report in each period is derived from the recognition of deferred revenue relating to subscription agreements entered into during previous periods. Consequently, while a decline in new or renewed subscriptions in any one period may not be reflected in our revenue results for that ~~period. However,~~period, any such decline will negatively affect our revenue in future quarters. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription period. Accordingly, the effect of downturns or upturns in our sales, the market acceptance of our software solutions, and potential changes in our customer retention rates, may not be apparent in our operating results until future periods.

Because our invoicing is generally for periods less than one year, our revenue growth is heavily dependent on new subscription sales, consumption of our usage-based Value+ services and renewals of our subscription services in the current year.

Our growth is heavily dependent on subscription sales, adoption and consumption of our usage-based Value+ services and renewals of our subscription services in the current year. We offer our core solutions and Value+ subscription services to customers pursuant to subscription agreements with relatively short terms, typically ranging 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. We do not currently intend to extend the typical terms of our subscription agreements with any regularity, or to invoice our customers less frequently, and we expect that we will continue to depend on current-year sales and renewals to drive our growth.

Our software solutions contain both third-party and open source software, which may pose risks to our proprietary source code and/or introduce security vulnerabilities, and could have a negative impact on our business and operating results.

We use open source software in our software solutions and expect to continue to do so in the future. The terms of many open source licenses to which we are subject have not been interpreted by United States or foreign courts, and there is a risk that open source licenses could be construed in a manner that imposes unanticipated conditions, restrictions or costs on our ability to provide or distribute our software solutions. Additionally, we may from time to time face claims from third parties alleging ownership of, or demanding release of, the open source software or of derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation, which could be costly for us to defend, and could require us to make our source code freely available, purchase a costly license or cease offering the implicated ~~core~~ functionality ~~and Value+ services~~ unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and product development resources, and we may not be able to complete it successfully or in a timely manner. In addition to risks related to license requirements, usage of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. ~~These risks could be difficult to eliminate or manage, and could have a negative impact on our business and operating results.~~

We also use third-party commercial software in our software solutions and expect to continue to do so in the future. Third-party commercial software is developed outside of our direct control and may introduce security vulnerabilities that may be difficult to anticipate or mitigate. Further, there is no guarantee that third-party software developers or open source software providers will continue active work on the third-party software that we use. Should development of in-use third-party software cease, significant engineering effort may be required to create an in-house solution. These risks could also be difficult to eliminate or manage, and could have a negative impact on our business and operating results.

There are risks associated with our outstanding and future indebtedness that may adversely affect our financial condition andour existing and future financing agreements may contain restrictive operating and financial covenants.

~~Changes~~On September 30, 2020, our Credit Agreement with Wells Fargo was terminated and all obligations outstanding under the Term Loan and Revolving Facility thereunder were satisfied in ~~laws~~full and ~~regulations related~~extinguished. We may, however, incur additional indebtedness in the future and/or enter into new financing arrangements. Our ability to meet expenses, to remain in compliance with the covenants under our existing and future debt instruments, and to pay fees, interest and principal on our indebtedness will depend on, among other things, our operating performance and market conditions. Accordingly, our cash flow may not be sufficient to allow us to pay principal and interest on our debt and meet our other obligations.

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

As of September 30, 2020, we had federal and state net operating loss carryforwards, which, if not utilized, will begin to expire in 2031 for federal purposes and in 2028 for state purposes. As of September 30, 2020, we also had federal and state research and development credit carryforwards. The federal credit carryforwards will begin to expire in 2027, while the majority state credits 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% over a rolling three-year period. Similar rules may apply under state tax laws. It is possible that our existing net operating loss and/or credit carryforwards may be subject to limitations arising from previous ownership changes, and future issuances of our stock could cause an ownership change. Furthermore, our ability to utilize net operating loss and/or credit carryforwards of companies that we have acquired or may acquire in the future may be subject to limitations. There is also a risk that due to legislative changes, such as suspensions on the use of net operating loss carryforwards, or other unforeseen reasons, our existing net operating loss carryforwards could expire or otherwise be unavailable to offset future income tax liabilities. In addition, under the Tax Cuts and Jobs Act, the amount of net operating loss carryforwards from taxable years beginning after December 31, 2017 that we are permitted to deduct in any taxable year is limited to 80% of our taxable income in such year, where taxable income is determined without regard to the ~~Internet~~net operating loss carryforward deduction itself. However, the Coronavirus Aid, Relief, and Economic Security Act (also known as the "CARES Act') suspended this limitation for taxable years beginning before January 1, 2021. Nonetheless, for aforementioned reasons, we may not be able to realize a tax benefit, or ~~changes~~may realize less tax benefit, from the use of our net operating loss carryforwards. Any such limitations on our ability to use our net operating loss carryforwards and other tax assets could adversely impact our business, financial condition and operating results.

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

To date, we have realized an immaterial amount of revenue from customers outside the United States. To the extent that we decide to expand our operations to international markets, such expansion will require significant resources and management attention and will subject us to regulatory, economic, geographic and political risks, including but not limited to the risk of disruptions caused by regional natural disasters or health epidemics, that are different from those in the ~~Internet infrastructure itself~~United States. Because of our limited experience with international operations and significant differences between the United States and international markets, any international expansion efforts may ~~diminish the~~not be successful in creating demand for our software solutions outside of the United States or in effectively selling our software solutions in any international markets we may enter. The significant disruptions caused by the COVID-19 pandemic, especially in certain countries in the European Union and Asia, could have a prolonged negative impact on our ability to expand our sales to customers outside the United States. If we invest substantial time and resources to expand our international operations and are unable to do so successfully, our business and operating results could suffer.

Risks Related to Our Class A Common Stock

The market price of our Class A common stock may be volatile or may decline regardless of our operating performance, which could result in substantial losses for our stockholders.

The market price of our Class A common stock has been, and is likely to continue to be, highly volatile, and fluctuations in the price of our Class A common stock could cause you to lose all or part of your investment. There are a wide variety of factors, many of which are outside our control, that could cause fluctuations in the market price of our Class A common stock and, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. If instituted against us, any such litigation, regardless of its merit or final outcome, could result in substantial costs and a diversion of our management’s attention, thereby adversely affecting our operating results and/or the price of our Class A common stock.

The dual class structure of our common stock concentrates voting control with a limited number of stockholders, including our executive officers, directors and principal stockholders, effectively limiting your ability to influence corporate matters.

Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. As of September 30, 2020, the holders of the outstanding shares of our Class B common stock, including our executive officers, directors, and principal stockholders, collectively held approximately 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 of our future business plans and strategic objectives, as well as to control all matters submitted to our stockholders for approval. These persons may manage our business in ways with which you disagree and which may be adverse to your interests. 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.

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In addition, transfers by holders of our Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions. The conversion of our Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of the holders of our Class B common stock who retain their shares over the long term.

We cannot predict the impact that our capital structure may have on our stock price.

S&P Dow Jones, a provider of widely followed stock indices, has announced that companies with multiple classes of stock will not be eligible for inclusion in certain of their indices. As a result, our Class A common stock will not be eligible for those stock indices. Additionally, FTSE Russell, another provider of widely followed stock indices, requires new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders. Many investment funds are precluded from investing in companies that are not included in such indices, and these funds would be unable to purchase our Class A common stock. Exclusion from these and other indices could make our Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, shareholder advisory firms may publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.

Future sales of shares of our Class A common stock, or the perception that these sales could occur, could depress the market price of our Class A common stock.

Sales of a substantial number of shares of our Class A common stock in the public market, or the perception that these sales might occur, could cause the market price of our Class A common stock to decline or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate, and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales, or the perception that our shares may be available for sale, will have on the prevailing market price of our Class A common stock. As of September 30, 2020, we had an aggregate of 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 September 30, 2020, we had 0.5 million RSUs, outstanding which, if fully vested and settled in shares, would result in the issuance of additional shares of Class A common stock. All of the shares of Class A common stock issuable upon the exercise of options (or upon conversion of shares of Class B common stock issued upon the exercise of options), or upon the vesting and settlement of RSUs, have been registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance. In addition, certain holders of our Class A common stock and Class B common stock have rights, subject to certain conditions, to require us to file registration statements for the public resale of such shares (in the case of Class B common stock, the Class A common stock issuable upon conversion of such shares) or to include such shares in registration statements that we may file for us or other stockholders. Any sales of securities by these stockholders could have a material adverse effect on the market price of our Class A common stock.

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

We have never declared, and we do not anticipate declaring or paying, any cash dividends to holders of our Class A common stock in the foreseeable future. In addition, the terms of our future borrowing arrangements we may enter into from time to time may restrict our ability to pay dividends. Consequently, investors may need to rely on sales of our Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

Price appreciation, which may never occur, may be further impacted by repurchases of our shares in accordance with our Share Repurchase Program. Repurchases of our shares could increase the volatility of the trading price of our shares, which could have a negative impact on the trading price of our shares. Similarly, the future announcement of the termination or suspension of the Share Repurchase Program, or our decision not to utilize the full authorized repurchase amount under the Share Repurchase Program, could result in a decrease in the trading price of our shares. In addition, the Share Repurchase Program could have the impact of diminishing our cash reserves, which may impact our ability to finance our growth, complete acquisitions and execute our strategic plan. For additional information regarding our Share Repurchase Program, refer to Note 10, Share Repurchase Program, of our Condensed Consolidated Financial Statements.

General Risk Factors

Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could have the effect of rendering more difficult hostile takeovers, change-in-control transactions or changes in our Board of Directors or management. Among other things, these provisions authorize the issuance of preferred stock with powers, preferences and rights that may be senior to our common stock, provide for the adoption of a staggered three-class Board of

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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.

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.

~~The future success of our~~We are subject to general business ~~depends upon~~regulations and laws, as well as regulations and laws specifically governing the ~~continued use of~~highly regulated real estate market, electronic payment, background screening and insurance services markets, the Internet ~~as a primary medium for commerce, communication and business services. Federal, state or foreign government bodies or agencies have in the past adopted, and may~~

~~in the future adopt, laws or regulations affecting~~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, ~~as a commercial medium. Changes in these~~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 ~~including laws impacting net neutrality,~~ could ~~decrease~~diminish the demand for, or availability of, our ~~software solutions~~products and services, ~~and/~~subject us to litigation or governmental investigation and increase our cost of doing business, ~~or require us to modify~~any of which may adversely affect our ~~software solutions to comply with or otherwise address any new or changed laws or regulations.~~

operating results. In addition, ~~government agencies or private organizations may begin~~the application of federal, state, local and foreign tax laws to ~~impose taxes, fees~~services provided electronically is continuously evolving. New income, sales, use or other ~~charges for accessing the Internet,~~tax laws, statutes, rules, regulations or ~~for the commerce conducted via~~ordinances could be enacted or amended at any time, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the Internet. These ~~laws~~enactments or ~~charges~~amendments could ~~limit~~adversely affect our sales activity due to the ~~growth of Internet-related commerce or communications generally,~~inherent cost increase such taxes would represent and could ultimately result in ~~reductions in the demand for Internet-based business services such as ours, and cause us to incur significant expenses.~~

~~The use of the Internet in general~~a negative impact on our operating results. In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, modified or applied adversely ~~affected by delays in the development~~to us, possibly with retroactive effect, which could require us or ~~adoption of new standards and protocols~~our customers to handle increased demands of Internet activity, accessibility, reliability, security, cost, ease of use and quality of service. In addition, the use of the Internet as a medium for commerce, communication and business services may have been, and may continue to be, adversely affected by concerns regarding network outages, software errors, viruses, security breaches, fraud or other malicious activity. If the use of the Internet is adversely affected by these issues, demand for our software solutions could decrease.

Financing agreements that we are party to or may become party to may contain operating and financial covenants that restrict our business and financing activities. Failure to comply with these covenants, or other restrictions, could result in default under these agreements.

Our existing credit agreement with Wells Fargo as administrative agent, and the lenders that are parties thereto, which we refer to as the Second Amendment of our Original 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,pay additional tax amounts, as well as ~~those contained~~require us or our customers to pay fines or penalties, as well as interest on past amounts. If we are unsuccessful in ~~any future financing agreements that~~collecting such taxes due from our customers, we ~~may enter into, may restrict~~could be held liable for such costs, thereby adversely impacting 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 the Second Amendment of our Original Credit Agreement and any future financing agreements that we may enter into. If not waived, defaults could cause any outstanding indebtedness under the Second Amendment of our Original Credit Agreement and any future financing agreements that we may enter into to become immediately due and payable.operating results.

We may require additional capital to support our operations or the growth of our business, and we cannot be certain that this capital will be available on favorable terms, ~~when required,~~ or at ~~all.~~

Weall, which may ~~need additional capital to grow~~adversely affect our business and ~~meet our strategic objectives.~~ financial condition.

Our ability to obtain additional capital, if and when required, will depend on numerous factors, including investor and lender demand, our compliance with debt obligations, our historical and forecasted financial and operating performance, our ~~market~~liquidity position, ~~and~~ the overall condition of the capital ~~markets.~~markets, and the global economy as a whole. We cannot guarantee that additional financing will be available to us on favorable terms when required, or at all. In addition, if we raise additional funds through the issuance of equity securities, those securities may have powers, preferences or rights senior to the rights of our Class A common stock, and our existing stockholders may experience immediate dilution. If we raise additional funds through the issuance of debt securities, we may incur interest expense or other costs to service the indebtedness, we may be required to encumber certain assets, and we may become subject to restrictions on our ability to conduct business, any of which could negatively impact our operating results. Furthermore, if we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support the growth of our business and the achievement of our strategic objectives could be significantly impaired and our operating results may be harmed.

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

As of December 31, 2018, the date of our most recent audited financial statements, we had federal net operating loss carryforwards of approximately $57.7 million and state net operating loss carryforwards of approximately $41.2 million, which begin to expire in 2031 and 2023, respectively. We also had federal and state research and development credit carryforwards of $7.4 million and $7.5 million, respectively. The federal credits carryforwards will begin to expire in 2031, while the majority of 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% 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 such limitations on our ability to use our 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 or ordinances could be enacted or amended at any time, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the Internet. These enactments or amendments could adversely affect our sales activity due to the inherent cost increase 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 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 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.

~~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.

~~Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.~~

Generally accepted accounting principles in the United States, are subject to interpretation by the Financial Accounting Standards Board, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant impact on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

~~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, from September 30, 2018 to September 30, 2019, the share price of our Class A common stock on the NASDAQ Global Market fluctuated between $54.36 and $107.70.

~~There are numerous factors that could cause fluctuations in the market price of our Class A common stock, including:~~


▪	~~volatility in the trading volume of our Class A common stock;~~

~~price and volume fluctuations in the overall stock market;~~


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


▪	~~changes in operating performance and stock market valuations of 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, and any actual share repurchases that we may undertake from time to time;~~


▪	~~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;~~


▪	~~legal proceedings, enforcement actions or regulatory inquiries relating to us or 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 or the industries in which we operate;~~


▪	~~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, the price of our Class A common stock.

The dual class structure of our common stock has the effect of concentrating voting control with a limited number of stockholders, including our executive officers, directors and principal stockholders, which will limit 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. At December 31, 2018, the holders of the outstanding shares of our Class B common stock, including our executive officers, directors, and principal stockholders, collectively hold approximately 92% 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 of our future business plans and strategic objectives, as well as to control all matters submitted to our stockholders for approval. These persons may manage our business in ways with

which you disagree and which may be adverse to your interests. 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 by holders of our Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions. The conversion of our Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of the holders of our Class B common stock who retain their shares over the long term.

~~We cannot predict the impact that our capital structure may have on our stock price.~~

S&P Dow Jones, a provider of widely followed stock indices, has announced that companies with multiple classes of stock, will not be eligible for inclusion in certain of their indices. As a result, our Class A common stock will not be eligible for those stock indices. Additionally, FTSE Russell, another provider of widely followed stock indices, requires new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders. At September 30, 2019, the holders of the outstanding shares of our Class B common stock, including our executive officers, directors, and principal stockholders, collectively hold approximately 92% 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 in the future. Exclusion from indices could make our Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected.

In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our common stock may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.

Share repurchases could increase the volatility of the trading price of our common stock and diminish our cash reserves, and we cannot guarantee that our share repurchase program will enhance long-term stockholder value.

In October 2018, our Board of Directors adopted a $30.0 million Share Repurchase Program relating to our outstanding shares of our Class A common stock. In February 2019, our Board of Directors adopted a $100.0 million Share Repurchase Program relating to our outstanding shares of our Class A common stock, which is inclusive of, and not in addition to, the remaining availability under the October 2018 authorization. Although our Board of Directors has authorized the Repurchase Program, it does not obligate us to repurchase any specific dollar amount or number of shares, there is no expiration date for the Repurchase Program, and the Repurchase Program may be modified, suspended or terminated at any time and for any reason. The timing and actual number of shares repurchased under the Repurchase Program will depend on a variety of factors, including the acquisition price of the shares, our liquidity position, general market and economic conditions, legal and regulatory requirements and other considerations. Our ability to repurchase shares may also be limited by restrictive covenants in our existing credit agreement or in future borrowing arrangements we may enter into from time to time.

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 Repurchase Program, or our decision not to utilize the full authorized repurchase amount under the Repurchase Program, could result in a decrease in the trading price of our shares. In addition, the 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. There can be no assurance that any share repurchases we do elect to make will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased our shares. Although our share repurchase program is intended to enhance long-term stockholder value, we cannot guarantee that it will do so and short-term stock price fluctuations could reduce the effectiveness of the Repurchase Program.

~~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.~~


▪	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.~~

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.

~~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.~~

At September 30, 2019, we had an aggregate of 1.4 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, at September 30, 2019, we had 0.6 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 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.~~

We have never declared or paid any cash dividends on our existing common stock. 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. In addition, the terms of our Credit Agreement 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 not purchase our Class A common stock with the expectation of receiving cash dividends.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

~~None.~~

~~Item 3. Defaults Upon Senior Securities~~

~~None.~~

~~Item 4. Mine Safety Disclosures~~

~~Not applicable.~~

~~Item 5. Other Information~~

~~None.~~

Item 6. Exhibits

~~See the Exhibit Index immediately following the signature page~~

Table of ~~this Quarterly Report, which is incorporated herein by reference.~~

~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~

Contents



			Exhibit Number	~~AppFolio, Inc.~~

~~Date:~~	~~October 28, 2019~~	~~By:~~	~~/s/ Ida Kane~~
			~~Ida Kane~~
			~~Chief Financial Officer~~
			~~(Principal Financial and Accounting Officer)~~

~~EXHIBIT INDEX~~

Description of Document

2.3

Stock Purchase Agreement, dated as of September 7, 2020, by and among Mockingbird AcquisitionCo, Inc. and MyCase, Inc.†(1)

31.1

~~Exhibit~~

~~Number~~

~~Description of Document~~

~~31.1~~

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

32.1*

Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(1)

Filed as Exhibit 2.1 to the registrant’s Current Report on Form 8-K (File No. 001-37468) filed with the U.S. Securities and Exchange Commission on September 8, 2020, and incorporated herein by reference.

†

Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the U.S. Securities and Exchange Commission upon request.

The certifications attached as Exhibit 32.1 accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act, and are not to be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in any such filing.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AppFolio, Inc.

Date:

November 9, 2020

By:

/s/ Ida Kane

Ida Kane

Chief Financial Officer

(Principal Financial and Accounting Officer)


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



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



Section		Page No.
Cautionary Note Regarding Forward-Looking Statements		1
Part I. Financial Information		2
Item 1. Condensed Consolidated Financial Statements (Unaudited)		2
Condensed Consolidated Balance Sheets as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019		23
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019		34
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019		45
Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019		56
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019		78
Notes to Condensed Consolidated Unaudited Financial Statements		910
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2523
Item 3. Qualitative and Quantitative Disclosure about Market Risk		3736
Item 4. Controls and Procedures		3837
Part II. Other Information		4038
Item 1. Legal Proceedings		4038
Item 1A. Risk Factors		4038
Item ~~2. Unregistered Sales of Equity Securities and Use of Proceeds~~6. Exhibits		6252
~~Item 3. Defaults Upon Senior Securities~~Signatures		62
~~Item 4. Mine Safety Disclosures~~	62
~~Item 5. Other Information~~	62
~~Item 6. Exhibits~~	62
~~Signatures~~
~~Exhibit Index~~


	September 30, 2019			December 31, 2018				September 30, 2020		December 31, 2019
Assets							Assets
Current assets							Current assets
Cash and cash equivalents	$	20,121		$	74,076		Cash and cash equivalents	$	144,028	$	15,813
Investment securities—current	20,355			16,631			Investment securities—current	32,689		22,876
Accounts receivable, net	8,039			5,516			Accounts receivable, net	9,416		7,562
Prepaid expenses and other current assets	16,150			11,775			Prepaid expenses and other current assets	15,720		15,540
Total current assets	64,665			107,998			Total current assets	201,853		61,791
Investment securities—noncurrent	4,698			11,256			Investment securities—noncurrent	5,135		12,089
Property and equipment, net	9,842			6,871			Property and equipment, net	26,565		14,744
Operating lease right-of-use assets	16,433			—			Operating lease right-of-use assets	24,645		27,803
Capitalized software, net	27,621			20,485			Capitalized software, net	33,543		30,023
Goodwill	58,392			15,548			Goodwill	56,147		58,425
Intangible assets, net	22,678			5,895			Intangible assets, net	17,544		21,377
Deferred taxes	23,196			—			Deferred taxes	14,826		27,574
Other long-term assets	6,303			7,688			Other long-term assets	6,014		6,276
Total assets	$	233,828		$	175,741		Total assets	$	386,272	$	260,102
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities							Current liabilities
Accounts payable	$	1,539		$	1,481		Accounts payable	$	3,591	$	1,927
Accrued employee expenses	13,101			12,377			Accrued employee expenses	18,379		17,758
Accrued expenses	9,166			8,281			Accrued expenses	13,546		10,833
Deferred revenue	4,163			3,414			Deferred revenue	2,457		4,586
Income tax payable							Income tax payable	13,571		0
Other current liabilities	13,093			1,447			Other current liabilities	4,607		11,139
Long-term debt, net—current portion	1,208			1,213
Term loan, net—current portion							Term loan, net—current portion	0		1,208
Total current liabilities	42,270			28,213			Total current liabilities	56,151		47,451
Operating lease liabilities	18,448			—			Operating lease liabilities	32,755		33,312
Long-term debt, net	47,677			48,602

Term loan, net							Term loan, net	0		47,375
Deferred taxes							Deferred taxes	10,130		0
Other long-term liabilities	16			7,080			Other long-term liabilities	2,720		14
Total liabilities	108,411			83,895			Total liabilities	101,756		128,152
Commitments and contingencies (Note 9)							Commitments and contingencies (Note 9)
Stockholders’ equity:							Stockholders’ equity:
Preferred stock, $0.0001 par value, 25,000 authorized and no shares issued and outstanding at September 30, 2019 and December 31, 2018	—			—
Class A common stock, $0.0001 par value, 250,000 shares authorized at September 30, 2019 and December 31, 2018; issued - 16,743 and 16,159, shares at September 30, 2019 and December 31, 2018; outstanding - 16,373 and 15,789 shares at September 30, 2019 and December 31, 2018, respectively;	2			2
Class B common stock, $0.0001 par value, 50,000 shares authorized at September 30, 2019 and December 31, 2018; 17,685 and 18,109 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively;	2			2
Preferred stock, $0.0001 par value, 25,000 shares authorized and no shares issued and outstanding as of September 30, 2020 and December 31, 2019							Preferred stock, $0.0001 par value, 25,000 shares authorized and no shares issued and outstanding as of September 30, 2020 and December 31, 2019	0		0
Class A common stock, $0.0001 par value, 250,000 shares authorized as of September 30, 2020 and December 31, 2019; 18,450 and 16,923 shares issued as of September 30, 2020 and December 31, 2019, respectively; 18,031 and 16,552 shares outstanding as of September 30, 2020 and December 31, 2019, respectively							Class A common stock, $0.0001 par value, 250,000 shares authorized as of September 30, 2020 and December 31, 2019; 18,450 and 16,923 shares issued as of September 30, 2020 and December 31, 2019, respectively; 18,031 and 16,552 shares outstanding as of September 30, 2020 and December 31, 2019, respectively	2		2
Class B common stock, $0.0001 par value, 50,000 shares authorized as of September 30, 2020 and December 31, 2019; 16,282 and 17,594 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively							Class B common stock, $0.0001 par value, 50,000 shares authorized as of September 30, 2020 and December 31, 2019; 16,282 and 17,594 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	2		2
Additional paid-in capital	159,399			157,898			Additional paid-in capital	159,296		161,509
Accumulated other comprehensive income (loss)	38			(178		)
Treasury stock, at cost, 370 Class A shares at September 30, 2019 and December 31, 2018	(21,562		)	(21,562		)
Accumulated deficit	(12,462		)	(44,316		)
Accumulated other comprehensive income							Accumulated other comprehensive income	90		33
Treasury stock, at cost, 419 and 371 shares of Class A common stock as of September 30, 2020 and December 31, 2019, respectively							Treasury stock, at cost, 419 and 371 shares of Class A common stock as of September 30, 2020 and December 31, 2019, respectively	(25,756)		(21,562)
Retained earnings (accumulated deficit)							Retained earnings (accumulated deficit)	150,882		(8,034)
Total stockholders’ equity	125,417			91,846			Total stockholders’ equity	284,516		131,950
Total liabilities and stockholders’ equity	$	233,828		$	175,741		Total liabilities and stockholders’ equity	$	386,272	$	260,102



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

	Nine Months Ended September 30,
	2019			2018
Cash from operating activities
Net income	$	31,854		$	17,318
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	16,169			10,784
Amortization of operating lease right-of-use assets	3,016			—
Stock-based compensation	5,431			4,419
Deferred income taxes	(27,032		)	—
Other	136			165
Changes in operating assets and liabilities:
Accounts receivable	(2,778		)	(1,465		)
Prepaid expenses and other current assets	(4,403		)	(3,902		)
Other assets	1,129			(5,003		)
Accounts payable	270			477
Accrued employee expenses	486			(3,225		)
Accrued expenses	(14		)	3,397
Deferred revenue	1,039			(4,247		)
Operating lease liabilities	(2,886		)	—
Other liabilities	996			5,883
Net cash provided by operating activities	23,413			24,601
Cash from investing activities
Purchases of property and equipment	(4,085		)	(1,740		)
Additions to capitalized software	(15,669		)	(8,997		)
Purchases of investment securities	(10,690		)	(28,784		)
Sales of investment securities	2,750			701
Maturities of investment securities	11,000			28,477
Acquisition, net of cash acquired	(54,004		)	(14,441		)
Purchases of intangible assets	(30		)	—
Net cash used in investing activities	(70,728		)	(24,784		)
Cash from financing activities
Proceeds from stock option exercises	259			713
Tax withholding for net share settlement	(5,541		)	(2,894		)
Proceeds from issuance of debt	1,697			93
Principal payments on debt	(2,634		)	(93		)
Payment of debt issuance costs	(420		)	—
Net cash used in financing activities	(6,639		)	(2,181		)
Net decrease in cash, cash equivalents and restricted cash	(53,954		)	(2,364		)
Cash, cash equivalents and restricted cash
Beginning of period	74,506			16,537
End of period	$	20,552		$	14,173


									Accumulated				Retained
							Additional		Other				Earnings/
	Common Stock			Common Stock			Paid-in		Comprehensive		Treasury		(Accumulated
	Class A			Class B			Capital		Income		Stock		Deficit)		Total
	Shares	Amount		Shares	Amount
Balance as of December 31, 2019	16,552	$	2	17,594	$	2	$	161,509	$	33	$	(21,562)	$	(8,034)	$	131,950
Exercise of stock options	17	—		—	—		97		—		—		—		97
Stock-based compensation	—	—		—	—		1,365		—		—		—		1,365
Vesting of restricted stock units, net of shares withheld for taxes	91	—		—	—		(6,458)		—		—		—		(6,458)
Conversion of Class B stock to Class A stock	58	—		(58)	—		—		—		—		—		0

Other comprehensive income	—	—		—	—		—		132		—		—		132
Repurchase of common stock	(48)	—		—	—		—		—		(4,194)		—		(4,194)
Net income	—	—		—	—		—		—		—		1,983		1,983
Balance as of March 31, 2020	16,670	$	2	17,536	$	2	$	156,513	$	165	$	(25,756)	$	(6,051)	$	124,875
Exercise of stock options	32	—		—	—		232		—		—		—		232
Stock-based compensation	—	—		—	—		3,406		—		—		—		3,406
Vesting of restricted stock units, net of shares withheld for taxes	50	—		—	—		(3,232)		—		—		—		(3,232)
Conversion of Class B stock to Class A stock	197	—		(197)	—		—		—		—		—		0
Issuance of restricted stock awards	3	—		—	—		—		—		—		—		0
Other comprehensive loss	—	—		—	—		—		(34)		—		—		(34)
Net income	—	—		—	—		—		—		—		19,257		19,257
Balance as of June 30, 2020	16,952	$	2	17,339	$	2	$	156,919	$	131	$	(25,756)	$	13,206	$	144,504
Exercise of stock options	10	—		—	—		74		—		—		—		74
Stock-based compensation	—	—		—	—		3,572		—		—		—		3,572
Vesting of restricted stock units, net of shares withheld for taxes	12	—		—	—		(1,269)		—		—		—		(1,269)
Conversion of Class B stock to Class A stock	1,057	—		(1,057)	—		—		—		—		—		0
Other comprehensive loss	—	—		—	—		—		(41)		—		—		(41)
Net income	—	—		—	—		—		—		—		137,676		137,676
Balance as of September 30, 2020	18,031	$	2	16,282	$	2	159,296		$	90	$	(25,756)	$	150,882	$	284,516



	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	—		16,945			16,945

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


	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



	Amount (in thousands)		Estimated Useful Life (in years)
Net tangible assets	$	270
Identified intangible assets:
Customer relationships	1,170		5.0
Database	3,620		10.0
Trademark and trade name	370		10.0
Non-compete agreement	60		5.0
Backlog	140		1.0
Total intangible assets subject to amortization	5,360		8.6
Goodwill	8,811		Indefinite
Purchase consideration, paid in cash	$	14,441


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Revenue	$	67,935	$	188,685
Net income	4,978		27,911


	September 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

Agency securities	$	3,104	$	34	$	0	$	3,138

Treasury securities	34,618		68		0		34,686
Total available-for-sale investment securities	$	37,722	$	102	$	0	$	37,824


	September 30, 2019										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	$	12,606	$	31	$	(9	)	$	12,628	Corporate bonds	$	9,597	$	18	$	(1)	$	9,614
Agency securities	5,556		15		—			5,571		Agency securities	11,101		17		0		11,118

Treasury securities	6,853		2		(1		)	6,854		Treasury securities	14,222		12		(1)		14,233
Total available-for-sale investment securities	$	25,015	$	48	$	(10	)	$	25,053	Total available-for-sale investment securities	$	34,920	$	47	$	(2)	$	34,965



	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate bonds	$	23,720	$	—	$	(163	)	$	23,557
Agency securities	4,345		4		(19		)	4,330
Total available-for-sale investment securities	$	28,065	$	4	$	(182	)	$	27,887


	Nine Months Ended September 30, 2020
	Gross Realized Gains		Gross Realized Losses		Gross Proceeds from Sales		Gross Proceeds from Maturities
Corporate bonds	$	5	$	0	$	4,006	$	5,600
Agency securities	25		0		7,878		1,900

Treasury securities	4		0		2,058		5,800
Total	$	34	$	0	$	13,942	$	13,300



	Nine Months Ended September 30, 2018
	Gross Realized Gains		Gross Realized Losses			Gross Proceeds from Sales		Gross Proceeds from Maturities
Corporate bonds	$	—	$	(1	)	$	—	$	16,457
Agency securities	—		—			—		6,000
Certificates of deposit	—		—			—		2,490
Treasury securities	—		—			701		3,530
Total sales and maturities (including calls) of investment securities	$	—	$	(1	)	$	701	$	28,477


Years Ending December 31,
2020	$	4,424
2021	15,834
2022	10,608
2023	2,677
Total amortization expense	$	33,543



Years Ending December 31,
2019	$	3,710
2020	12,538
2021	8,652
2022	2,721
Total amortization expense	$	27,621


	September 30, 2020
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted Average Useful Life in Years
Customer relationships	$	2,840	$	(1,436)	$	1,404	5.0
Database	8,330		(1,578)		6,752		10.0
Technology	6,539		(3,250)		3,289		4.0
Trademarks and trade names	1,890		(633)		1,257		5.0
Partner relationships	680		(680)		0		3.0
Non-compete agreements	7,400		(2,594)		4,806		5.0
Domain names	90		(68)		22		5.0
Patents	252		(238)		14		5.0

	$	28,021	$	(10,477)	$	17,544	6.3


	September 30, 2020
	Level 1		Level 2		Level 3		Total Fair Value
Cash equivalents:
Money market funds	$	4,781	$	0	$	0	$	4,781
Treasury securities	600		0		0		600
Available-for-sale investment securities:
Corporate bonds	0		0		0		0
Agency securities	0		3,138		0		3,138

Treasury securities	34,686		0		0		34,686
Total	$	40,067	$	3,138	$	0	$	43,205



	September 30, 2019			December 31, 2018
Internal use software development costs, gross	$	75,307		$	58,237
Less: Accumulated amortization	(47,686		)	(37,752		)
Internal use software development costs, net	$	27,621		$	20,485



Goodwill at December 31, 2018	$	15,548
Goodwill from acquisition of Dynasty	42,844
Goodwill at September 30, 2019	$	58,392


Goodwill at December 31, 2019	$	58,425
Goodwill attributed to MyCase divestiture	(2,278)
Goodwill at September 30, 2020	$	56,147



Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,595
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	2,505


Years ending December 31,
2020(1)	$	(1,027)
2021(1)	2,240
2022	4,085
2023	3,977
2024	3,908
Thereafter	29,590
Total future minimum lease payments	42,773
Less: imputed interest	(10,898)
Total(2)	$	31,875



Years ending December 31,
2019	$	1,407
2020	5,840
2021	4,639
2022	3,136
2023	2,485
Thereafter	9,384
Total future minimum lease payments	26,891
Less: imputed interest	(3,461		)
Total	$	23,430



Years Ending December 31,
2019	$	4,211
2020	4,889
2021	4,038
2022	2,717
2023	2,053
Thereafter	9,128
Total lease commitments	$	27,036



Principal amounts due under term loan	$	49,063
Less: Debt financing costs	(178		)
Long-term debt, net of unamortized debt financing costs	48,885
Less: Current portion of long-term debt	(1,208		)
Total long-term debt, net of current portion	$	47,677



	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life in Years
Options outstanding at December 31, 2018	1,513		$	11.31	6.4
Options granted	—		—
Options exercised	(46	)	5.57
Options cancelled/forfeited	(51	)	13.44
Options outstanding at September 30, 2019	1,416		$	11.43	6.0



	Number of Shares		Weighted Average Grant Date Fair Value per Share
Unvested at December 31, 2018	674		$	32.61
Granted	148		80.35
Vested	(180	)	25.19
Forfeited	(39	)	43.74
Unvested at September 30, 2019	603		$	45.22


	Number of Shares	Weighted Average Grant Date Fair Value per Share
Unvested as of December 31, 2019	646	$	52.42
Granted	164	109.29
Vested	(247)	34.75
Forfeited	(57)	69.16
Unvested as of September 30, 2020	506	$	77.63


	Number of Shares	Weighted Average Grant Date Fair Value per Share
Unvested as of December 31, 2019	5	$	105.88
Granted	3	160.34
Vested	(3)	111.38
Forfeited	0	0
Unvested as of September 30, 2020	5	$	139.72