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目錄
 美國
證券交易委員會
華盛頓特區20549
 
表格 10-Q
(請打勾)
☒ 根據1934年證券交易法第13或15(d)節的季度報告
截至季度末 2024年9月30日.
☐ 根據1934年證券交易法第13或15(d)節的轉型報告書
在從________到________的過渡期間。

委員會檔案編號 001-37468
appfolio公司
(根據其章程規定的註冊人準確名稱)
特拉華州26-0359894
（註冊或組織的國家）（納稅人識別號碼）
70 Castilian Drive93117
   聖塔芭芭拉，加利福尼亞州
(總部地址) (郵政編碼)
 (805) 364-6093
(註冊人電話號碼，包括區號)
無數據
（前名稱、地址及財政年度，如果自上次報告以來有更改）
根據法案第12（b）條註冊的證券：
每一類的名稱交易代碼在其上註冊的交易所的名稱
每股普通股A類股票，面值爲$0.0001APPF納斯達克全球市場
請勾選以下選項以指示註冊人是否在過去12個月內(或在註冊人需要提交此類報告的較短時間內)已提交證券交易法1934年第13或15(d)條所要求提交的所有報告，並且在過去90天內已受到此類報告提交要求的影響。是 ☒否☐
請在以下勾選方框表示註冊人是否已在Regulation S-T Rule 405規定的前12個月(或在註冊人需要提交此類文件的較短期間內)提交了每個互動數據文件。是 ☒否☐
勾選相應單選框以表示註冊人是大型加速文件提交者，加速文件提交者，非加速文件提交者，小型報告公司或新興增長公司。參見《交易所法規》第120億.2條中「大型加速文件提交者」，「加速文件提交者」，「小型報告公司」和「新興增長公司」的定義。
大型加速報告人
☒
加速文件申報人
☐
非加速文件提交人
☐  
更小的報告公司
☐
新興成長公司
☐
如果是新興成長公司，請在複覈者處標明勾選符號，說明註冊者是否選擇不使用依據證券交易法第13(a)條規定提供的任何新的或修訂後的財務會計準則的擴展過渡期。 ☐

請勾選以下選項以指示註冊人是否爲外殼公司(根據交易所法規則12b-2定義)。是☐否☒

截至2024年10月17日，註冊人的A類普通股股份總數爲 23,079,878 以及註冊人B類普通股的股份總數爲50,847,305 13,253,438.

目錄
目錄
 
頁碼。
三個月和 有九起類似訴訟針對JAVELIN的要約收購和合並被提起，稱違反信託責任，尋求公正補償，包括但不限於，禁止交易的達成、撤銷、解除已經交易的事項，以及發送費用、補貼成本，包括合理的律師費和費用。唯一的佛羅里達州訴訟從未向被告送達，該案件於2017年1月20日自願撤回並關閉。2016年4月25日，馬里蘭法院頒佈了一項命令，將馬里蘭案件合併成一起訴訟，標題爲JAVELIN Mortgage Investment Corp.股東訴訟（案號24-C-16-001542），並指定一個馬里蘭案件的律師作爲臨時首席聯合法律顧問。2016年5月26日，臨時首席律師提交了經修訂的釩化鐵質量投訴，聲稱違反信託責任的集體索賠，教唆和共謀違反信託責任以及浪費。2016年6月27日，被告提出了駁回合併修訂集體投訴申請的動議，聲稱未陳述可以獲得救濟的規定。在2017年3月3日，聽證會召開了駁回動議，法院保留了裁定。法院數次推遲動議陳述的裁定。2024年2月14日，法院頒佈裁定，支持被告的駁回動議，並駁回所有原告的權利，無需上訴。在2024年3月11日，原告提出了對法院裁定的上訴通知。2024年7月3日，原告自願撤回之前提出的上訴通知。 和202 九月 30、2024和2023年
綜合收益（損失）的精簡合併利潤表 三個月及 有九起類似訴訟針對JAVELIN的要約收購和合並被提起，稱違反信託責任，尋求公正補償，包括但不限於，禁止交易的達成、撤銷、解除已經交易的事項，以及發送費用、補貼成本，包括合理的律師費和費用。唯一的佛羅里達州訴訟從未向被告送達，該案件於2017年1月20日自願撤回並關閉。2016年4月25日，馬里蘭法院頒佈了一項命令，將馬里蘭案件合併成一起訴訟，標題爲JAVELIN Mortgage Investment Corp.股東訴訟（案號24-C-16-001542），並指定一個馬里蘭案件的律師作爲臨時首席聯合法律顧問。2016年5月26日，臨時首席律師提交了經修訂的釩化鐵質量投訴，聲稱違反信託責任的集體索賠，教唆和共謀違反信託責任以及浪費。2016年6月27日，被告提出了駁回合併修訂集體投訴申請的動議，聲稱未陳述可以獲得救濟的規定。在2017年3月3日，聽證會召開了駁回動議，法院保留了裁定。法院數次推遲動議陳述的裁定。2024年2月14日，法院頒佈裁定，支持被告的駁回動議，並駁回所有原告的權利，無需上訴。在2024年3月11日，原告提出了對法院裁定的上訴通知。2024年7月3日，原告自願撤回之前提出的上訴通知。 和202 九月 30、2024和2023年
三個月和一年的壓縮合並股東權益報表 有九起類似訴訟針對JAVELIN的要約收購和合並被提起，稱違反信託責任，尋求公正補償，包括但不限於，禁止交易的達成、撤銷、解除已經交易的事項，以及發送費用、補貼成本，包括合理的律師費和費用。唯一的佛羅里達州訴訟從未向被告送達，該案件於2017年1月20日自願撤回並關閉。2016年4月25日，馬里蘭法院頒佈了一項命令，將馬里蘭案件合併成一起訴訟，標題爲JAVELIN Mortgage Investment Corp.股東訴訟（案號24-C-16-001542），並指定一個馬里蘭案件的律師作爲臨時首席聯合法律顧問。2016年5月26日，臨時首席律師提交了經修訂的釩化鐵質量投訴，聲稱違反信託責任的集體索賠，教唆和共謀違反信託責任以及浪費。2016年6月27日，被告提出了駁回合併修訂集體投訴申請的動議，聲稱未陳述可以獲得救濟的規定。在2017年3月3日，聽證會召開了駁回動議，法院保留了裁定。法院數次推遲動議陳述的裁定。2024年2月14日，法院頒佈裁定，支持被告的駁回動議，並駁回所有原告的權利，無需上訴。在2024年3月11日，原告提出了對法院裁定的上訴通知。2024年7月3日，原告自願撤回之前提出的上訴通知。 和202 九月 30、2024和2023年
的現金流簡明彙總表 有九起類似訴訟針對JAVELIN的要約收購和合並被提起，稱違反信託責任，尋求公正補償，包括但不限於，禁止交易的達成、撤銷、解除已經交易的事項，以及發送費用、補貼成本，包括合理的律師費和費用。唯一的佛羅里達州訴訟從未向被告送達，該案件於2017年1月20日自願撤回並關閉。2016年4月25日，馬里蘭法院頒佈了一項命令，將馬里蘭案件合併成一起訴訟，標題爲JAVELIN Mortgage Investment Corp.股東訴訟（案號24-C-16-001542），並指定一個馬里蘭案件的律師作爲臨時首席聯合法律顧問。2016年5月26日，臨時首席律師提交了經修訂的釩化鐵質量投訴，聲稱違反信託責任的集體索賠，教唆和共謀違反信託責任以及浪費。2016年6月27日，被告提出了駁回合併修訂集體投訴申請的動議，聲稱未陳述可以獲得救濟的規定。在2017年3月3日，聽證會召開了駁回動議，法院保留了裁定。法院數次推遲動議陳述的裁定。2024年2月14日，法院頒佈裁定，支持被告的駁回動議，並駁回所有原告的權利，無需上訴。在2024年3月11日，原告提出了對法院裁定的上訴通知。2024年7月3日，原告自願撤回之前提出的上訴通知。 和202 September 30、2024和2023年
 


目錄
前瞻性聲明

本季度截至2024年9月30日的10-Q表格（本「季度報告」）包含根據聯邦證券法，包括1995年《私人證券訴訟改革法案》（PSLRA）含有前瞻性陳述，這些陳述涉及重大風險和不確定性。本季度報告中作出的前瞻性陳述旨在符合PSLRA提供的安全港保護，並主要基於我們對可能影響我們業務、財務狀況、運營結果、現金流和/或前景的未來事件和趨勢的當前期望和預測。 前瞻性陳述包括所有非歷史事實陳述。 前瞻性陳述還可以通過諸如「可能」、「將」、「應該」、「可能」、「期望」、「計劃」、「預期」、「可以」、「目標」、「項目」、「思考」、「認爲」、「估計」、「預測」、「潛在」、「未來」或「繼續」等字眼辨識出來，或這些詞的否定形式或其他類似詞語。前瞻性陳述示例包括但不限於，關於競爭環境變化、響應客戶需求、研究和產品開發計劃、未來產品和服務、業務規模和客戶數量增長、戰略計劃和目標、業務預測和計劃、我們未來的或假定的財務狀況、運營結果和流動性、影響我們業務和行業的趨勢、資本需求和融資計劃、資本資源分配計劃、股份回購計劃、以及承諾和事項，包括與法律訴訟或監管事務結果相關的事項。我們無法保證前瞻性陳述所反映的結果、事件和情況將會實現或發生，實際結果、事件或情況可能與前瞻性陳述中描述的有實質性不同。在這些前瞻性陳述中描述的事件結果受到風險、不確定性和其他因素的影響，包括在本季度報告的「管理討論與分析」部分和我們截至2023年12月31日的財年10-k的「風險因素」部分以及我們向證券交易委員會（SEC）提交的其他報告中描述的那些風險、不確定性和其他因素。您應該在了解到我們實際未來結果可能與這些前瞻性陳述所表達或暗示的結果存在實質差異的情況下閱讀本季度報告，以及我們向SEC提交的其他文件。因此，您不應將前瞻性陳述作爲對未來事件的預測依據。我們在本季度報告中所作出的任何前瞻性陳述僅基於目前我們掌握的信息，並僅於其發表之日起發揮作用。我們不承擔更新本季度報告中所作出的任何前瞻性陳述以反映本季度報告日期後的事件或情況，或反映新信息或意外事件的發生的義務，除非法律要求。


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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
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APPFOLIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
 September 30,
2024		December 31,
2023
Assets
Current assets
Cash and cash equivalents$62,417 $49,509 
Investment securities—current268,951 162,196 
Accounts receivable, net25,581 20,709 
Prepaid expenses and other current assets38,194 39,943 
Total current assets395,143 272,357 
Property and equipment, net25,478 28,362 
Operating lease right-of-use assets17,744 19,285 
Capitalized software development costs, net16,330 21,562 
Goodwill56,060 56,060 
Other long-term assets12,542 11,263 
Total assets$523,297 $408,889 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$509 $1,141 
Accrued employee expenses33,625 35,567 
Accrued expenses14,899 21,723 
Other current liabilities14,664 11,335 
Total current liabilities63,697 69,766 
Operating lease liabilities38,402 41,114 
Other liabilities8,371 697 
Total liabilities110,470 111,577 
Commitments and contingencies (Note 8)
Stockholders’ equity:
Class A common stock2 2 
Class B common stock2 2 
Additional paid-in capital250,790 236,985 
Accumulated other comprehensive Income (loss)475 99 
Treasury stock(25,756)(25,756)
Retained earnings187,314 85,980 
Total stockholders’ equity412,827 297,312 
Total liabilities and stockholders’ equity$523,297 $408,889 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)

 
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2024202320242023
Revenue$205,733 $165,440 $590,538 $448,615 
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)(1)
71,631 62,739 205,878 176,801 
Sales and marketing(1)
25,406 29,701 77,161 86,101 
Research and product development(1)
40,662 41,592 118,079 116,517 
General and administrative(1)
21,139 23,907 62,525 74,417 
Depreciation and amortization4,327 7,568 14,209 22,055 
Total costs and operating expenses163,165 165,507 477,852 475,891 
Income (loss) from operations42,568 (67)112,686 (27,276)
Other income (loss), net— (249)— (283)
Interest income, net4,014 1,788 10,482 4,627 
Income (loss) before provision for income taxes46,582 1,472 123,168 (22,932)
Provision for (benefit from) income taxes13,576 (24,973)21,834 4,634 
Net income (loss)$33,006 $26,445 $101,334 $(27,566)
Net income (loss) per common share:
Basic$0.91 $0.74 $2.80 $(0.78)
Diluted$0.90 $0.72 $2.76 $(0.78)
Weighted average common shares outstanding:
Basic36,306 35,691 36,211 35,567 
Diluted36,756 36,482 36,752 35,567 
(1) Includes stock-based compensation expense as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2024202320242023
Stock-based compensation expense included in costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)$1,126 $1,149 $3,261 $2,905 
Sales and marketing2,071 2,041 5,284 4,902 
Research and product development7,471 6,064 19,625 15,851 
General and administrative5,367 6,003 16,133 16,274 
Total stock-based compensation expense$16,035 $15,257 $44,303 $39,932 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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

 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2024202320242023
Net income (loss)$33,006 $26,445 $101,334 $(27,566)
Other comprehensive income:
    Changes in unrealized gains on investment securities, net of tax659 578 376 1,675 
Comprehensive income (loss) $33,665 $27,023 $101,710 $(25,891)
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
Accumulated
AdditionalOther
Common StockCommon StockPaid-inComprehensiveTreasuryRetained
Class AClass BCapital
Income (Loss)
StockEarningsTotal
SharesAmountSharesAmount
Balance at December 31, 202321,749 $2 14,116 $2 $236,985 $99 $(25,756)$85,980 $297,312 
Exercise of stock options244 — — — 3,874 — — — 3,874 
Stock-based compensation— — — — 13,646 — — — 13,646 
Vesting of restricted stock units, net of shares withheld for taxes89 — — — (14,086)— — — (14,086)
Conversion of Class B common stock to Class A common stock199 — (199)— — — — — — 
Other comprehensive loss— — — — — (214)— — (214)
Net Income— — — — — — — 38,663 38,663 
Balance at March 31, 202422,281 $2 13,917 $2 $240,419 $(115)$(25,756)$124,643 $339,195 
Exercise of stock options3 — — — 25 — — — 25 
Stock based compensation— — — — 15,032 — — — 15,032 
Vesting of restricted stock units, net of shares withheld for taxes71 — — — (12,436)— — — (12,436)
Conversion of Class B common stock to Class A common stock644 — (644)— — — — — — 
Other comprehensive loss— — — — — (69)— — (69)
Net Income— — — — — — — 29,665 29,665 
Balance at June 30, 202422,999 $2 13,273 $2 $243,040 $(184)$(25,756)$154,308 $371,412 
Exercise of stock options3 — — — 14 — — — 14 
Stock based compensation— — — — 16,315 — — — 16,315 
Vesting of restricted stock units, net of shares withheld for taxes57 — — — (8,579)— — — (8,579)
Conversion of Class B common stock to Class A common stock20 — (20)— — — — — — 
Other comprehensive income— — — — — 659 — — 659 
Net Income— — — — — — — 33,006 33,006 
Balance at September 30, 202423,079 $2 13,253 $2 $250,790 $475 $(25,756)$187,314 $412,827 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.


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Accumulated
AdditionalOther
Common StockCommon StockPaid-inComprehensiveTreasuryRetained
Class AClass BCapital
Income (Loss)
StockEarningsTotal
SharesAmountSharesAmount
Balance at December 31, 202220,569 $2 14,746 $2 $209,704 $(1,684)$(25,756)$83,278 $265,546 
Exercise of stock options64 — — — 834 — — — 834 
Stock-based compensation— — — — 14,075 — — — 14,075 
Vesting of restricted stock units, net of shares withheld for taxes79 — — — (5,539)— — — (5,539)
Conversion of Class B common stock to Class A common stock27 — (27)— — — — — — 
Issuance of restricted stock awards2 — — — — — — — — 
Other comprehensive income— — — — — 763 — — 763 
Net loss— — — — — — — (35,110)(35,110)
Balance at March 31, 202320,741 $2 14,719 $2 $219,074 $(921)$(25,756)$48,168 $240,569 
Exercise of stock options95 — — — 668 — — — 668 
Stock-based compensation— — — — 11,000 — — — 11,000 
Vesting of restricted stock units, net of shares withheld for taxes82 — — — (7,717)— — — (7,717)
Issuance of restricted stock awards4 — — — — — — — — 
Other comprehensive income— — — — — 334 — — 334 
Net loss— — — — — — — (18,901)(18,901)
Balance at June 30, 202320,922 $2 14,719 $2 $223,025 $(587)$(25,756)$29,267 $225,953 
Exercise of stock options59 — — — 683 — — — 683 
Stock-based compensation— — — — 15,508 — — — 15,508 
Vesting of restricted stock units, net of shares withheld for taxes61 — — — (6,511)— — — (6,511)
Conversion of Class B common stock to Class A common stock602 — (602)— — — — — — 
Other comprehensive income—————578——578
Net income———————26,44526,445
Balance at September 30, 202321,644 $2 14,117 $2 $232,705 $(9)$(25,756)$55,712 $262,656 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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APPFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine Months Ended
September 30,
 20242023
Cash from operating activities
Net Income (loss)
$101,334 $(27,566)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization12,804 20,115 
Amortization of operating lease right-of-use assets1,541 1,618 
Gain on lease modification— (4,281)
Stock-based compensation, including as amortized45,707 41,872 
Other(6,146)(1,514)
Changes in operating assets and liabilities:
Accounts receivable(4,872)(3,857)
Prepaid expenses and other current assets1,111 (712)
Accounts payable(291)(1,485)
Operating lease liabilities(3,196)(3,080)
Accrued expenses and other liabilities3,601 7,990 
Net cash provided by operating activities151,593 29,100 
Cash from investing activities
Purchases of available-for-sale investments(265,319)(108,919)
Proceeds from sales of available-for-sale investments— 1,013 
Proceeds from maturities of available-for-sale investments163,755 94,252 
Purchases of property and equipment(1,821)(5,932)
Capitalization of software development costs(4,112)(3,394)
Proceeds from sale of business, net of cash divested— 629 
Net cash used in investing activities(107,497)(22,351)
Cash from financing activities
Proceeds from stock option exercises3,913 2,185 
Tax withholding for net share settlement(35,101)(19,766)
Net cash used in financing activities(31,188)(17,581)
Net increase (decrease) in cash, cash equivalents and restricted cash12,908 (10,832)
Cash, cash equivalents and restricted cash
Beginning of period49,759 71,019 
End of period$62,667 $60,187 
Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents$62,417 $59,937 
Restricted cash included in prepaid expenses and other current assets
250 250 
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows$62,667 $60,187 
Supplemental disclosure of cash flow information
Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows4,421 7,253 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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APPFOLIO, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
 1. Nature of Business
AppFolio, Inc. ("we," "us" or "our") is a leading provider of cloud business management solutions for the real estate industry. Our solutions are designed to enable our property manager customers to digitally transform their businesses, address critical business operations and deliver a better customer experience. Digital transformation is effectively a requirement for business success in the modern world, and the way we work and live requires powerful software solutions.
 2. Summary of Significant Accounting Policies
Basis of Presentation and Significant Accounting Policies
The accompanying unaudited Condensed Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these Condensed Consolidated Financial Statements should be read in conjunction with our audited consolidated financial statements and the related notes included in our Annual Report, which was filed with the SEC on February 1, 2024. The year-end condensed balance sheet was derived from our audited consolidated financial statements. Our unaudited interim Condensed Consolidated Financial Statements include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of our Condensed Consolidated Financial Statements. The operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results expected for the full year ending December 31, 2024.

Reclassification
We reclassified certain amounts in our Condensed Consolidated Statements of Cash Flows within the cash flows from operating activities section in the prior year to conform to the current year's presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue, expenses, other income, and provision for income taxes during the reporting period. Assets and liabilities which are subject to judgment and use of estimates include the fair value of financial instruments, capitalized software development costs, period of benefit associated with deferred costs, incremental borrowing rate used to measure operating lease liabilities, the recoverability of goodwill and long-lived assets, income taxes, useful lives associated with property and equipment and intangible assets, contingencies, assumptions underlying performance-based compensation (whether cash or stock-based), and assumptions underlying stock-based compensation. Actual results could differ from those estimates and any such differences may have a material impact on our Condensed Consolidated Financial Statements.
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Net Income (Loss) per Common Share
Net income (loss) per common share was the same for shares of our Class A and Class B common stock because they are entitled to the same liquidation and dividend rights and are therefore combined in the table below. The following table sets forth the computation of basic and diluted net income (loss) per common share (in thousands):
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2024202320242023
Basic net income (loss) per share:
Numerator
Net income (loss)$33,006 $26,445 $101,334 $(27,566)
Less: undistributed earnings to participating securities— 5 8 — 
Net income (loss) attributable to common stockholders$33,006 $26,440 $101,326 $(27,566)
Denominator— — 
Weighted average common shares outstanding36,306 35,697 36,214 35,574 
Less: Weighted average unvested restricted shares subject to repurchase— 6 3 7 
Weighted average common shares outstanding; basic 36,306 35,691 36,211 35,567 
Net income (loss) per common share; basic$0.91 $0.74 $2.80 $(0.78)
Diluted net income (loss) per share:
Numerator
Net income (loss) attributable to common stockholders$33,006 $26,440 $101,326 $(27,566)
Denominator
Weighted average common shares outstanding; basic36,306 35,691 36,211 35,567 
Add: Weighted average dilutive options outstanding41 306 64 — 
Add: Weighted average dilutive RSUs outstanding409 485 477 — 
Weighted average common shares outstanding; diluted36,756 36,482 36,752 35,567 
Net income (loss) per common share; diluted$0.90 $0.72 $2.76 $(0.78)
Potentially dilutive securities that are not included in the calculation of diluted net income (loss) per share because doing so would be antidilutive are as follows (in thousands):
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2024202320242023
Unvested Restricted Stock Awards— 6 — 6 
Options— 120 — 418 
Restricted Stock Units4 — 17 1,214 
Total potentially dilutive securities4 126 17 1,638 

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 3. Investment Securities and Fair Value Measurements
Investment Securities
Investment securities classified as available-for-sale consisted of the following as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
U.S. government and agency securities268,440 513 (2)268,951 
Total available-for-sale investment securities$268,440 $513 $(2)$268,951 
December 31, 2023
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
U.S. government and agency securities162,062 193 (59)162,196 
Total available-for-sale investment securities$162,062 $193 $(59)$162,196 
As of September 30, 2024, the decline in fair value below amortized cost basis was not considered other than temporary as it is more likely than not we will hold the securities until maturity or recovery of the cost basis. No allowance for credit losses for available-for-sale investment securities was recorded as of September 30, 2024 or December 31, 2023.
The fair values of available-for-sale investment securities, by remaining contractual maturity, are as follows (in thousands):
September 30, 2024December 31, 2023
Amortized CostEstimated Fair ValueAmortized CostEstimated Fair Value
Due in one year or less$268,440 $268,951 $162,062 $162,196 
Total available-for-sale investment securities$268,440 $268,951 $162,062 $162,196 
During the nine months ended September 30, 2024 and 2023, we had sales and maturities of investment securities, as follows (in thousands):
Nine Months Ended September 30, 2024
Gross Realized GainsGross Realized LossesGross Proceeds from Sales Gross Proceeds from Maturities
U.S. government and agency securities— — — 163,755 
Total$— $— $— $163,755 
Nine Months Ended September 30, 2023
Gross Realized GainsGross Realized LossesGross Proceeds from SalesGross Proceeds from Maturities
Corporate bonds$3 $— $1,013 $16,497 
U.S. government and agency securities— — — 77,755 
Total$3 $1,013 $94,252 
The tables above do not include our non-marketable debt securities of $1.3 million, which are recorded in Other long term assets in the Condensed Consolidated Balance Sheet as of September 30, 2024.
Fair Value Measurements
Recurring Fair Value Measurements
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The following tables present our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 by level within the fair value hierarchy (in thousands):
September 30, 2024
Level 1Level 2Total Fair
Value
Cash equivalents:
Money market funds$44,707 $— $44,707 
Available-for-sale investment securities:
   U.S. government and agency securities— 268,951 268,951 
Total$44,707 $268,951 $313,658 
December 31, 2023
Level 1Level 2Total Fair
Value
Cash equivalents:
Money market funds$37,100 $— $37,100 
Available-for-sale investment securities:
U.S. government and agency securities— 162,196 162,196 
Total$37,100 $162,196 $199,296 
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of the short maturity of these items.
Fair value for our Level 1 investment securities is based on market prices for identical assets. Our Level 2 securities were priced by a pricing vendor. The pricing vendor utilizes the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, other observable inputs like market transactions involving comparable securities are used.
 4. Capitalized Software Development Costs, net
Capitalized software development costs were as follows (in thousands):
September 30,
2024		December 31,
2023
Capitalized software development costs, gross$124,075 $126,606 
Less: Accumulated amortization(107,745)(105,044)
Capitalized software development costs, net$16,330 $21,562 
Capitalized software development costs were $1.9 million and $1.6 million for the three months ended September 30, 2024 and 2023, respectively, and $4.6 million and $3.9 million for the nine months ended September 30, 2024 and 2023, respectively. Amortization expense with respect to capitalized software development costs totaled $2.9 million and $4.4 million for the three months ended September 30, 2024 and 2023, respectively, and $9.8 million and $15.2 million for the nine months ended September 30, 2024 and 2023, respectively. We disposed of fully amortized capitalized software development costs of $3.2 million and $2.8 million, during the three months ended September 30, 2024 and 2023, respectively, and $7.1 million and $6.3 million, during the nine months ended September 30, 2024 and 2023, respectively.
Future amortization expense with respect to capitalized software development costs as of September 30, 2024 is estimated as follows (in thousands):
Years Ending December 31,
2024$2,551 
20257,583 
20263,965 
20272,231 
    Total amortization expense$16,330 
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 5. Accrued Employee Expenses
Accrued employee expenses consisted of the following (in thousands):
September 30,
2024		December 31,
2023
Accrued vacation$13,772 $12,399 
Accrued bonuses7,256 14,795 
Accrued payroll, severance and related personnel cost12,597 8,373 
    Total accrued employee expenses$33,625 $35,567 
In the third quarter of 2023, we accrued $10.3 million of severance and related personnel costs associated with our workforce reduction. Refer to Note 12, Workforce Reduction for additional information.

6. Other Current Liabilities
Other Current Liabilities consisted of the following (in thousands):
September 30,
2024		December 31,
2023
Insurance reserves$3,543 $4,174 
Operating lease liabilities-current3,141 3,626 
Other7,980 3,535 
    Total other current liabilities$14,664 $11,335 
For additional information, refer to Note 8, Commitments and Contingencies and Note 7, Leases.
7. Leases
Operating leases for our corporate offices have remaining lease terms ranging from seven years to nine years, some of which include options to extend the leases for up to ten years. These options to extend have not been recognized as part of our operating lease right-of-use assets and lease liabilities as it is not reasonably certain that we will exercise these options. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. Certain leases contain provisions for property-related costs that are variable in nature for which we are responsible, including common area maintenance, which are expensed as incurred.
The components of lease expense recognized in the Condensed Consolidated Statements of Operations were as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024202320242023
Operating lease cost$1,024 $1,027 $3,167 $3,303 
Variable lease cost335 372 989 1,393 
  Total lease cost$1,359 $1,399 $4,156 $4,696 
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Lease-related assets and liabilities were as follows (in thousands):
September 30,
2024		December 31,
2023
Assets
Operating lease right-of-use assets$17,744 $19,285 
Liabilities
Other current liabilities$3,141 $3,626 
Operating lease liabilities38,402 41,114 
Total lease liabilities$41,543 $44,740 
In January 2023, we entered into an amendment to the lease agreement for our San Diego facility. We remeasured the lease liability and recorded a reduction to the lease liability and right-of-use asset using the discount rate at the modification date, which resulted in a gain of $2.4 million in the Condensed Consolidated Statements of Operations.
In June 2023, we entered into a second amendment to reduce the rentable square footage and our future rental payment obligations under the San Diego Lease pursuant to which we made a one-time payment of $2.9 million. We again remeasured the lease liability and recorded a reduction to the lease liability using the discount rate at the modification date. As a result, we recorded a gain of $1.9 million in the Consolidated Statements of Operations.
In July 2023, we entered into an agreement to sublet one of our office spaces in Santa Barbara through December 31, 2031 (the "Santa Barbara 90 Sublease"). The total rental commitment over the term of the Santa Barbara 90 Sublease is $6.1 million. We performed impairment testing in accordance with ASC 360, and no impairment related to the right-of-use assets was recorded for the three months ended September 30, 2023.
Future minimum lease payments under non-cancellable leases as of September 30, 2024 were as follows (in thousands):
Years ending December 31,
2024$526 
20256,168 
20266,345 
20276,528 
20286,717 
Thereafter24,373 
Total future minimum lease payments50,657 
Less: imputed interest(9,114)
Total$41,543 
 8. Commitments and Contingencies
Legal Liability to Landlord Insurance
We have a wholly owned subsidiary, Terra Mar Insurance Company, Inc., which was established in connection with reinsuring liability to landlord insurance policies offered to our customers by our third-party service provider. We assume a 100% quota share of the liability to landlord insurance policies placed with our customers by our third-party service provider. We accrue for reported claims, and include an estimate of losses incurred but not reported by our property manager customers, in cost of revenue because we bear the risk related to all such claims. Our estimated liability for reported claims and incurred but not reported claims as of September 30, 2024 and December 31, 2023 was $3.5 million and $4.2 million, respectively, and is included in Other current liabilities on our Condensed Consolidated Balance Sheets.
Included in Prepaid expenses and other current assets as of September 30, 2024 and December 31, 2023 are $3.8 million and $5.1 million, respectively, of deposits held with a third party related to requirements to maintain collateral for this insurance service.
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Legal Proceedings
From time to time, we are involved in various other investigative inquiries, legal proceedings and disputes arising from or related to matters incident to the ordinary course of our business activities, including actions with respect to intellectual property, employment, labor, regulatory and contractual matters. Although the ultimate outcome of such investigative inquiries, legal proceedings and other disputes cannot be predicted with certainty, we do not believe that any such pending investigative inquiries, legal proceedings and other disputes, 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.

Indemnification
In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, business partners, investors, directors, officers, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of any applicable agreements, intellectual property infringement claims made by third parties, and other liabilities relating to or arising from our services or our acts or omissions. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions may not be subject to maximum loss clauses and is indeterminable. We have not incurred any costs as a result of such indemnification obligations and have not recorded any liabilities related to such obligations in the Condensed Consolidated Financial Statements.
 9. Stock-Based Compensation
Stock Options
A summary of activity in connection with our stock options for the nine months ended September 30, 2024, is as follows (number of shares in thousands):
Number of
Shares		Weighted
Average
Exercise
Price per Share		Weighted
Average
Remaining
Contractual Life
in Years
Options outstanding as of December 31, 2023381 $51.49 3.4
Options exercised(250)15.64 
Options cancelled/forfeited(1)3.28 
Options outstanding as of September 30, 2024130 $120.72 7.8
Our stock-based compensation expense for stock options were not material for the periods presented.
As of September 30, 2024, the total estimated remaining stock-based compensation expense for the aforementioned stock options was $5.4 million, which is expected to be recognized over a weighted average period of 3.3 years.
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Restricted Stock Units
A summary of activity in connection with our restricted stock units ("RSUs") for the nine months ended September 30, 2024, is as follows (number of shares in thousands):
Number of SharesWeighted Average Grant Date Fair Value per Share
Unvested as of December 31, 2023943 $121.61 
Granted323 214.65 
Vested(324)128.23 
Forfeited(41)135.58 
Unvested as of September 30, 2024901 $151.95 
Unvested RSUs as of September 30, 2024 were composed of 0.8 million RSUs with only service conditions and 0.1 million performance share units ("PSUs") with both service conditions and performance conditions. RSUs granted with only service conditions generally vest over a four-year period, assuming continued employment through the applicable vesting date. The number of PSUs granted, as included in the above table, assumes achievement of the performance metric at 100% of the performance target. The unvested PSUs as of September 30, 2024, are subject to vesting based on the achievement of pre-established performance metrics for the year ending December 31, 2024 and will vest over a three year period, assuming continued employment through each vesting date. The actual number of shares to be issued at the end of the performance period will range from 0% to 170% of the target number of shares depending on achievement relative to the performance metric over the applicable period.
We recognized stock-based compensation expense for the RSUs and PSUs of $15.9 million and $14.8 million for the three months ended September 30, 2024 and 2023, respectively, and $43.4 million and $39.0 million for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, the total estimated remaining stock-based compensation expense for the aforementioned RSUs and PSUs was $107.2 million, which is expected to be recognized over a weighted average period of 2.1 years.
 10. Income Taxes

In determining the interim benefit from income taxes for the three and nine months ended September 30, 2024, we utilized the annual estimated effective tax rate applied to the actual year-to-date income and added the tax effects of any discrete items in the reporting period in which they occur. In determining the interim benefit from income taxes for the three and nine months ended September 30, 2023, we utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes – Interim Reporting.”

For the three and nine months ended September 30, 2024, we recorded income tax expense of $13.6 million and $21.8 million, respectively, representing an effective tax rate of 29.1% and 17.7%, respectively. For the three months ended September 30, 2024, our effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to the change in valuation allowance against deferred tax assets, state income taxes and non-deductible officers' compensation partially offset by excess tax benefits from stock-based compensation. For the nine months ended September 30, 2024, our effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to excess tax benefits from stock-based compensation.

We assess our ability to realize our deferred tax assets on a quarterly basis and we establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. We weigh all available positive and negative evidence, including our earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. Due to a history of cumulative losses, including permanent adjustments, and assessing all available positive and negative evidence, we have determined that it is more likely than not that our federal and state deferred tax assets would not be realized. Accordingly, we have been maintaining full valuation allowance against our deferred tax assets. However, based on our current and projected future earnings, we believe that there is reasonable possibility that sufficient positive evidence of sustained profitability may be achieved during the current year to reach a conclusion that part or all of our deferred tax assets may become realizable, resulting in a possible release of all or a portion of the valuation allowance. Such valuation allowance release may result in a material increase to our deferred tax assets and a corresponding decrease in income tax expense. The exact timing and amount of the valuation allowance release are subject to our projection of earnings and level of profitability.
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There were no material changes to our unrecognized tax benefits during the three and nine months ended September 30, 2024, and we do not expect to have any significant changes to unrecognized tax benefits through the remainder of the year.
 11. Revenue and Other Information
The following table presents our revenue categories for the three and nine months ended September 30, 2024 and 2023 (in thousands): 
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2024202320242023
Core solutions$46,030 $39,756 $132,974 $115,440 
Value Added Services157,726 123,188 451,677 326,108 
Other1,977 2,496 5,887 7,067 
Total revenue$205,733 $165,440 $590,538 $448,615 
Our revenue is generated primarily from customers in the United States. All of our property and equipment is located in the United States.
12. Workforce Reduction
During the three months ended September 30, 2023, we announced a plan to reduce our workforce by 149 employees in order to scale the business more efficiently. Impacted employees were notified in August 2023. There were no workforce reductions during the three and nine months ended September 30, 2024.
The following table presents the total severance and related personnel costs by function, for the three and nine months ended September 30, 2023 (in thousands):
Severance and Related Personnel Cost
Cost of revenue$2,367 
Sales and marketing3,795 
Research and product development3,407 
General and administrative2,514 
Total(1)
$12,083 
(1) Total severance and related personnel costs include $1.8 million of accelerated stock-based compensation expense recognized during the three months ended September 30, 2023.
The following is a summary of changes in the accrued severance and related personnel cost, within Accrued Employee Expenses on the Condensed Consolidated Balance Sheets (in thousands):
Accrued Severance and Related Personnel Cost
Balance as of December 31, 2022$— 
Severance and related personnel cost10,278 
Cash Payments(1,801)
Balance as of September 30, 2023$8,477 
For the balance as of September 30, 2023, $7.6 million of accrued severance was paid in the fourth quarter of 2023, and the remainder was paid in 2024.
13. Subsequent Event

On October 22, 2024, we acquired all of the outstanding shares of Move EZ, Inc., a concierge platform providing moving and home services throughout the resident onboarding process, for approximately $80 million in cash, subject to customary adjustment.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition, results of operations and liquidity should be read together with our Condensed Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report and in our Annual Report.
Overview
We are a technology leader powering the future of the real estate industry. Our solutions are designed to enable our property manager customers to digitally transform their businesses, address critical business operations and deliver a better customer experience. Our products assist our customers with an interconnected and growing network of stakeholders in their business ecosystems, including property owners, real estate investment managers, rental prospects, residents, and service providers, and provide key functionality related to critical transactions across the real estate lifecycle, including screening potential tenants, sending and receiving payments and risk mitigation services. AppFolio’s intuitive interface, coupled with streamlined and automated workflows, make it easier for our customers to eliminate redundant and manual processes so they can deliver a great experience for their network of stakeholders while improving financial and operational performance.
We rely heavily on our talented team of employees to execute our growth plans and achieve our long-term strategic objectives. We believe our people are at the heart of our success and our customers' success, and we have worked hard not only to attract and retain talented individuals, but also to provide a challenging and rewarding work environment to motivate and develop our valuable human capital. As we navigate the challenges of increased competition for talent, we continue to evolve our compensation and employee reward practices.
Property management units under management. We believe that our ability to increase our number of property management units under management is an indicator of our market penetration, growth, and potential future business opportunities. We define property management units under management as active or committed units under management at the period end date. We had 8.5 million and 7.8 million property management units under management as of September 30, 2024 and 2023, respectively.

Key Components of Results of Operations
Revenue
Our core solutions and certain of our Value Added Services are offered on a subscription basis. Our core solutions subscription fees vary by property type and are designed to scale with the size of our customers’ businesses. We recognize revenue for subscription-based services on a straight-line basis over the contract term beginning on the date that our service is made available. We generally invoice monthly or, to a lesser extent, annually in advance of the subscription period.
We also offer certain Value Added Services, which are not covered by our subscription fees, on a per-use basis. Usage-based fees are charged either as a percentage of the transaction amount (e.g., for certain of our payment services) or on a flat fee per transaction basis with no minimum usage commitments (e.g., for our tenant screening and risk mitigation services). We recognize revenue for usage-based services in the period the service is rendered. Our payments services fees are recorded gross of the interchange and payment processing related fees. We generally invoice our usage-based services on a monthly basis or collect the fee at the time of service. A significant majority of our Value Added Services revenue comes from the use of our payment services, tenant screening services, and risk mitigation services.
In addition, we charge our customers for assistance onboarding onto our core solutions and for certain other non-recurring services. We generally invoice for these other services in advance of the services being completed and recognize revenue in the period the service is rendered. We generate revenue from the legacy customers of previously acquired businesses by providing services outside of our property management core solution platform. Revenue derived from these services is recorded in Other revenue. As of September 30, 2024 and 2023, we had 20,403 and 19,418 property management customers, respectively.
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Costs and Operating Expenses
Cost of Revenue (Exclusive of Depreciation and Amortization). Many of our Value Added Services are facilitated by third-party service providers. Cost of revenue paid to these third-party service providers includes the cost of electronic interchange and payment processing-related services to support our payments services, the cost of credit reporting services for our tenant screening services, and various costs associated with our risk mitigation service providers. These third-party costs vary both in amount and as a percent of revenue for each Value Added Service offering. Cost of revenue also includes personnel-related costs for our employees focused on customer service and the support of our operations (including salaries, performance-based compensation, benefits, and stock-based compensation), platform infrastructure costs (such as data center operations and hosting-related costs), and allocated shared and other costs. Cost of revenue excludes depreciation of property and equipment, amortization of capitalized software development costs and amortization of intangible assets.
Sales and Marketing. Sales and marketing expense consists of personnel-related costs for our employees focused on sales and marketing (including salaries, sales commissions, performance-based compensation, benefits, and stock-based compensation), costs associated with sales and marketing activities, and allocated shared and other costs. Marketing activities include advertising, online lead generation, lead nurturing, customer and industry events, and the creation of industry-related content and collateral. We focus our sales and marketing efforts on generating awareness of our software solutions, creating sales leads, establishing and promoting our brands, and cultivating an educated community of successful and vocal customers.
Research and Product Development. Research and product development expense consists of personnel-related costs for our employees focused on research and product development (including salaries, performance-based compensation, benefits, and stock-based compensation), fees for third-party development resources, and allocated shared and other costs. Our research and product development efforts are focused on expanding functionality and the ease of use of our existing software solutions by adding new core functionality, Value Added Services and other improvements, as well as developing new products and services. We capitalize our software development costs that meet the criteria for capitalization. Amortization of capitalized software development costs is included in depreciation and amortization expense.
General and Administrative. General and administrative expense consists of personnel-related costs for employees in our executive, finance, information technology, human resources, legal, compliance, and administrative organizations (including salaries, performance-based compensation, benefits, and stock-based compensation). In addition, general and administrative expense includes fees for third-party professional services (including audit, legal, compliance, and tax services), regulatory fees, other corporate expenses, impairment of long-lived assets, gains on lease modifications, and allocated shared and other costs.
Depreciation and Amortization. Depreciation and amortization expense includes depreciation of property and equipment, amortization of capitalized software development costs, and amortization of intangible assets. We depreciate or amortize property and equipment, software development costs, and intangible assets over their expected useful lives on a straight-line basis, which approximates the pattern in which the economic benefits of the assets are consumed.
Other Income (Loss), Net. Other income (loss), net includes gains and losses associated with the sale of businesses and property and equipment.
Interest Income, Net. Interest income, net 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 cash deposited in our bank accounts.
Provision for (benefit from) income taxes. Provision for (benefit from) income taxes consists of federal and state income taxes in the United States.
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Results of Operations

Revenue
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20242023Amount%20242023Amount%
 (dollars in thousands)
Core solutions$46,030 $39,756 $6,274 16 %$132,974 $115,440 $17,534 15 %
Value Added Services157,726 123,188 34,538 28 %451,677 326,108 125,569 39 %
Other1,977 2,496 (519)(21)%5,887 7,067 (1,180)(17)%
Total revenue$205,733 $165,440 $40,293 24 %$590,538 $448,615 $141,923 32 %

The increase in revenue for the three and nine months ended September 30, 2024, compared to the same period in the prior year, was primarily attributable to an increase in the usage of our payments, tenant screening, and risk mitigation services. During the three and nine- month periods ended September 30, 2024, we also experienced growth of 9% in the number of property management units under management compared to the same periods in the prior year, which drove growth in users of our subscription and usage-based services.
Our payment services experienced increased usage during the comparative periods as residents and property managers transacted more business online.
We expect total revenue for the year ending December 31, 2024 to increase compared to the year ended December 31, 2023 as we continue to add new customers and property management units under management, along with increased adoption and utilization of our Value Added Services.

Cost of Revenue (Exclusive of Depreciation and Amortization)
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20242023Amount%20242023Amount%
 (dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization)$71,631 $62,739 $8,892 14 %$205,878 $176,801 $29,077 16 %
Percentage of revenue34.8 %37.9 %34.9 %39.4 %
Stock-based compensation, included above$1,126 $1,149 $(23)(2)%$3,261 $2,905 $356 12 %
Percentage of revenue0.5 %0.7 %0.6 %0.6 %

For the three and nine months ended September 30, 2024, the cost of revenue (exclusive of depreciation and amortization) increased, primarily due to higher expenditures related to third-party service providers for delivering our Value Added Services, which increased by $10.4 million and $30.6 million, respectively, compared to the same period in the prior year. The increases in expenditures related to third-party service providers were (1) driven by greater adoption and utilization of our Value Added Services and (2) partially offset by decreases of $2.5 million and $2.8 million for the three and nine months ended September 30, 2024, respectively, in personnel-related costs, including stock-based and performance-based compensation. The decreases included $2.4 million in severance and related personnel costs we incurred from the workforce reduction in the third quarter of 2023.
We expect cost of revenue (exclusive of depreciation and amortization) for the year ending December 31, 2024, to decrease as a percentage of revenue compared to the year ended December 31, 2023, primarily due to increased revenue from eCheck transaction fees, product mix, and continued leverage from headcount efficiencies.
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Sales and Marketing
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20242023Amount%20242023Amount%
 (dollars in thousands)
Sales and marketing$25,406 $29,701 $(4,295)(14)%$77,161 $86,101 $(8,940)(10)%
Percentage of revenue12.3 %18.0 %13.1 %19.2 %
Stock-based compensation, included above$2,071 $2,041 $30 1 %$5,284 $4,902 $382 8 %
Percentage of revenue1.0 %1.2 %0.9 %1.1 %
Sales and marketing expense for the three and nine months ended September 30, 2024 decreased, compared to the same period in the prior year, primarily due to reductions of $3.7 million and $7.2 million, respectively, in personnel-related costs, including stock-based and performance-based compensation. The reductions were driven by reduced headcount and $3.8 million in severance and related personnel costs we incurred from the workforce reduction in the third quarter of 2023.
We expect sales and marketing expense for the year ending December 31, 2024 to decrease as a percentage of revenue compared to the year ended December 31, 2023, as we continue to leverage headcount efficiencies.
Research and Product Development
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20242023Amount%20242023Amount%
 (dollars in thousands)
Research and product development$40,662 $41,592 $(930)(2)%$118,079 $116,517 $1,562 1 %
Percentage of revenue19.8 %25.1 %20.0 %26.0 %
Stock-based compensation, included above$7,471 $6,064 $1,407 23 %$19,625 $15,851 $3,774 24 %
Percentage of revenue3.6 %3.7 %3.3 %3.5 %
Research and product development expense decreased slightly for the three months ended September 30, 2024, compared to the same period in the prior year, primarily due to a $1.5M reduction in personnel-related costs, including stock-based and performance-based compensation. This included $3.4 million in severance and related personnel costs we incurred from the workforce reduction in the third quarter of 2023.
Research and product development expense increased for the nine months ended September 30, 2024, compared to the same period in the prior year, primarily due to a $3.2 million increase in allocated shared and other costs, driven by higher technology costs. This increase in allocated shared and other costs was partially offset by a $1.6 million reduction in personnel-related costs, including stock-based and performance-based compensation. This reduction included $3.4 million in severance and related personnel costs we incurred from the workforce reduction in the third quarter of 2023.
We expect research and product development expenses for the year ending December 31, 2024 to decrease as a percentage of revenue compared to the year ended December 31, 2023, as we continue to leverage headcount efficiencies.
General and Administrative
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20242023Amount%20242023Amount%
 (dollars in thousands)
General and administrative$21,139 $23,907 $(2,768)(12)%$62,525 $74,417 $(11,892)(16)%
Percentage of revenue10.3 %14.5 %10.6 %16.6 %
Stock-based compensation, included above$5,367 $6,003 $(636)(11)%$16,133 $16,274 $(141)(1)%
Percentage of revenue2.6 %3.6 %2.7 %3.6 %
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General and administrative expense decreased for the three months ended September 30, 2024, compared to the same period in the prior year, primarily due to a $3.4 million reduction in personnel-related costs, including stock-based and performance-based compensation. The reduction included $2.5 million in severance and related personnel costs we incurred from the workforce reduction in the third quarter of 2023.
General and administrative expense decreased for the nine months ended September 30, 2024, compared to the same period in the prior year, primarily due to a $18.8 million reduction in personnel-related costs, including stock-based and performance-based compensation. which was partially offset by a $6.9 million increase in allocated shared and other costs, The decrease in personnel-related costs was primarily due to severance costs associated with our former Chief Executive Officer's separation in the first quarter of 2023 and the severance related costs we incurred from the workforce reduction in the third quarter of 2023. The increase in allocated shared and other costs was primarily due to a $4.3 million decrease in gains related to lease modifications recognized in the nine months ended September 30, 2023, and an increase in allocated shared and other costs of $2.6 million, driven by expenses to support our growth.
We expect general and administrative expenses for the year ending December 31, 2024 to decrease as a percentage of revenue compared to the year ended December 31, 2023, as we continue to leverage headcount efficiencies.
Depreciation and Amortization
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20242023Amount%20242023Amount%
 (dollars in thousands)
Depreciation and amortization$4,327 $7,568 $(3,241)(43)%$14,209 $22,055 $(7,846)(36)%
Percentage of revenue2.1 %4.6 %2.4 %4.9 %
Depreciation and amortization expense for the three and nine months ended September 30, 2024 decreased, compared to the same period in the prior year, primarily due to decreased amortization expense associated with capitalized software development and intangible balances.
We expect depreciation and amortization expenses for the year ending December 31, 2024 to decrease as a percentage of revenue compared to the year ended December 31, 2023 due to a decrease in amortization of accumulated capitalized software development costs and intangible assets balances.
Interest Income, Net
Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20242023Amount%20242023Amount%
(dollars in thousands)
Interest income, net$4,014 $1,788 $2,226 124 %$10,482 $4,627 $5,855 127 %
Percentage of revenue2.0 %1.1 %1.8 %1.0 %

Interest income for the three and nine months ended September 30, 2024 increased, compared to the same period in the prior year, primarily due to higher interest rates and purchases of available-for-sale investment securities.
Provision for (benefit from) Income Taxes
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20242023Amount%20242023Amount%
 (dollars in thousands)
Income (loss) before provision for income taxes$46,582 $1,472 $45,110 3,065 %$123,168 $(22,932)$146,100 (637)%
Provision for (benefit from) income taxes$13,576 $(24,973)$38,549 *$21,834 $4,634 $17,200 *
Effective tax rate29.1 %(1,696.5)%17.7 %(20.2)%
*Percentage not meaningful
For the three months ended September 30, 2024, our effective tax rate differed from the U.S. federal statutory rate of 21% primarily due to a change in valuation allowance against deferred tax assets, state income taxes and non-deductible
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officers' compensation partially offset by excess tax benefits from stock-based compensation. For the nine months ended September 30, 2024, our effective tax rate differed from the U.S. federal statutory rate of 21% primarily due to excess tax benefits from stock-based compensation. Our effective tax rates for the three and nine months ended September 30, 2023 differed from the U.S. federal statutory rate of 21% primarily due to the change in valuation allowance against deferred tax assets, non-deductible officers' compensation and state income taxes, partially offset by tax benefits from stock-based compensation research and development tax credits.
Our effective tax rates for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, are significantly different primarily due to the substantial increase in our pre-tax income in the current year and changes in discrete tax benefits year over year.
Liquidity and Capital Resources
Our principal sources of liquidity continue to be cash, cash equivalents, and investment securities totaling $331.4 million, as well as cash flows generated from our operations. We have financed our operations primarily through cash generated from operations. We believe that our existing cash and cash equivalents, investment securities, and cash generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.
Capital Requirements
Our future capital requirements will depend on many factors, including continued market acceptance of our software solutions, changes in the number of our customers, adoption and utilization of our Value Added Services by new and existing customers, the timing and extent of the introduction of new core functionality, products and Value Added Services, and the timing and extent of our investments across our organization. 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. Furthermore, our Board of Directors has authorized the repurchase of up to $100.0 million of shares of our Class A common stock from time to time. To date, we have repurchased $4.2 million of our Class A common stock under the share repurchase program.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
 Nine Months Ended
September 30,
 20242023
Net cash provided by operating activities$151,593 $29,100 
Net cash used in investing activities(107,497)(22,351)
Net cash used in financing activities(31,188)(17,581)
Net increase (decrease) in cash, cash equivalents and restricted cash$12,908 $(10,832)
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 Added 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.
The net increase in cash provided by operating activities for the nine months ended September 30, 2024, compared to the same period in the prior year, was primarily due to an increase in cash collections from customers.
Investing Activities
Cash used in investing activities is generally composed of purchases of investment securities, maturities of investment securities, purchases of property and equipment, and additions to capitalized software development.
The net increase in cash used in investing activities for the nine months ended September 30, 2024, compared to the same period in the prior year, was primarily due to higher purchases of available-for-sale investment securities.
Financing Activities
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Cash used in financing activities is generally composed of net share settlements for employee tax withholdings associated with the vesting of equity awards offset by proceeds from the exercise of stock options.
The net increase in cash used in financing activities for the nine months ended September 30, 2024, compared to the same period in the prior year, was primarily due to an increase in net share settlements for employee tax withholdings associated with the vesting of equity awards.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements and the related notes are prepared in accordance with GAAP. The preparation of our Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
There have been no material 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Investment Securities
As of September 30, 2024, we had $269.0 million of investment securities consisting of United States government and agency securities. The primary objective of investing in securities is to support our liquidity and capital needs. We did not purchase these investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
Our investment securities are exposed to market risk due to interest rate fluctuations. While fluctuations in interest rates do not impact our interest income from our investment securities as all of these securities have fixed interest rates, changes in interest rates may impact the fair value of the investment securities. Since our investment securities are held as available for sale, all changes in fair value impact our other comprehensive (loss) income unless an investment security is considered impaired in which case changes in fair value are reported in other expense. As of September 30, 2024, a hypothetical 100 basis point decrease in interest rates would have resulted in an increase in the fair value of our investment securities of approximately $1.1 million and a hypothetical 100 basis point increase in interest rates would have resulted in a decrease in the fair value of our investment securities of approximately $1.1 million. This estimate is based on a sensitivity model which measures an instant change in interest rates by 100 basis points at September 30, 2024.
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 defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were designed at the reasonable assurance level and 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
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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal proceedings, refer to Note 8, Commitments and Contingencies of our Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
An investment in our Class A common stock involves risks. Before making an investment decision, you should carefully consider all of the information in this Quarterly Report, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Condensed Consolidated Financial Statements and related notes. In addition, you should carefully consider the risks and uncertainties described in the section entitled “Risk Factors” in our Annual Report, which was filed with the SEC on February 1, 2024. If any of the identified risks are realized, our business, financial condition, operating results and prospects could be materially and adversely affected. In that case, the trading price of our Class A common stock may decline. In addition, other risks of which we are currently unaware, or which we do not currently view as material, could have a material adverse effect on our business, financial condition, operating results and prospects. As of the date of this Quarterly Report, there have been no material changes to the risk factors previously disclosed under the section entitled "Risk Factors" in Part I, Item IA of our 2023 Annual Report.

Item 5. Other Information

None.
Item 6. Exhibits
  Exhibit
Number		  Description of Document
  31.1  
  31.2  
  32.1*  
  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
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*The certifications attached as Exhibit 32.1 accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act, and are not to be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in any such filing.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AppFolio, Inc.
Date:October 24, 2024By:/s/ Shane Trigg
Shane Trigg
Chief Executive Officer
(Principal Executive Officer)
Date:October 24, 2024By:/s/ Fay Sien Goon
Fay Sien Goon
Chief Financial Officer
(Principal Financial and Accounting Officer)