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What changed in APPFOLIO INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of APPFOLIO INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+353 added−351 removedSource: 10-K (2025-02-06) vs 10-K (2024-02-01)

Top changes in APPFOLIO INC's 2024 10-K

353 paragraphs added · 351 removed · 258 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

54 edited+26 added−15 removed3 unchanged
Biggest changeWe will focus the efforts of our customer-facing teams on driving use and adoption of our products and services, helping customers to achieve success on our platform. We will gain leverage in our service experience through self-service and automation, as well as through our solution partners who will enable us to quickly expand the AppFolio service offering.
Biggest changeWe expect to continue to gain leverage in our service experience through self-service and automation, as well as through our third-party solution partners that enable us to quickly expand our service offerings. Additionally, we empower our customers and their networks of stakeholders through the continued development and adoption of our Value Added Services .
AppFolio Property Manager Plus AppFolio Property Manager Plus includes the functionality of AppFolio Property Manager Core and adds an expanded set of functionalities designed to meet the needs of more complex, growing property management businesses.
AppFolio Property Manager Plus includes the functionality of AppFolio Property Manager Core and adds an expanded set of functionalities designed to meet the needs of more complex, growing property management businesses.
AppFolio Property Manager Max AppFolio Property Manager Max includes the functionality of AppFolio Property Manager Plus and adds functionality designed to meet the needs of even larger property management businesses.
AppFolio Property Manager Max includes the functionality of AppFolio Property Manager Plus and adds functionality designed to meet the needs of even larger property management businesses.
We also experience competition from numerous cloud-based solution providers that focus almost exclusively on one or more point solutions in the real estate industry or in other industries. Continued consolidation among cloud-based point solution providers could significantly increase competition.
We also experience competition from numerous technology providers that focus almost exclusively on one or more point solutions in the real estate industry or in other industries. Continued consolidation among cloud-based point solution providers could significantly increase competition.
Some of our competitors may have greater financial, technical and other resources, greater name recognition and larger sales and marketing budgets; therefore, we may not always compare favorably with respect to some or all of the foregoing factors.
However, some of our competitors may have greater financial, technical and other resources, greater name recognition and larger sales and marketing budgets; therefore, we may not always compare favorably with respect to some or all of the foregoing factors.
We encourage employee volunteerism through our employee-led Give Back Committee and company-wide benefit of eight hours of paid volunteer time off annually. Our corporate philanthropy program “AppFolio Gives Back” supports housing affordability, an ongoing challenge in the real estate industry, through a combination of employee fundraising, team volunteering, and a corporate matching gift program. Environmental Stewardship.
We encourage employee volunteerism through our employee-led Give Back Committee and company-wide benefit of eight hours of paid volunteer time off annually. Our corporate philanthropy program “AppFolio Gives Back” supports 6 housing availability, an ongoing challenge in the real estate industry, through a combination of employee fundraising, team volunteering, and a corporate matching gift program. Environmental Stewardship.
As a result of our assistance with data migration matters, we are able to provide valuable insights into data integrity and work with our customers to help resolve any issues in their underlying business processes. We also assist our customers with the configuration of our products for particular property types, as appropriate.
As a result of our assistance with customer data migration matters, we are able to provide valuable insights into data integrity and work with our customers to help resolve issues in their underlying business processes. We also assist our customers with the configuration of our products for particular property types.
Our compensation and benefits programs support the wellness of our employees and their families so they feel they can live their best lives both at work and at home. Our competitive compensation packages may include base salary, commission or annual performance-based bonuses, and stock-based compensation.
Our compensation and benefits programs support the well-being of our employees and their families so they feel they can live their best lives both at work and at home. Our competitive compensation packages may include base salary, commission or annual performance-based bonuses, and stock-based compensation.
FolioGuard Smart Ensure is a software tool that allows property management customers to enforce insurance coverage requirements within their leases by tracking coverage of their units and adding uncovered units to a qualifying liability to landlord insurance policy via a licensed insurance broker.
FolioGuard Smart Ensure is a software tool that allows property managers to enforce insurance coverage requirements within their leases by tracking coverage of their units and adding uncovered units to a qualifying liability to landlord insurance policy via a licensed insurance broker.
We have also embraced a hybrid work model, where many of our employees work out of one of our offices several days a week and others work remotely.
We have embraced a work model, where many of our employees work out of one of our offices several days a week and others work remotely.
Examples of these requirements include recycling of all demolished or removed materials whenever possible, installation of energy efficient HVAC units, low power LED lighting and fixtures, and native, drought resistant landscaping. Compensation and Benefits. We build a culture of high performance that recognizes and rewards those who deliver meaningful results.
Examples of these requirements include recycling of all demolished or removed materials whenever possible, installation of energy efficient HVAC units, low power LED lighting and fixtures, and native, drought resistant landscaping. Compensation and Benefits. We build a culture of high performance that recognizes and rewards those who deliver meaningful results, as well as how those results were achieved.
We believe our competitors primarily fall into the following categories: • On-premise or cloud-based vertical real estate business management service providers that serve companies of all sizes in our markets; and • On-premise or cloud-based horizontal business management service providers that offer broad solutions across multiple industries.
We believe our competitors primarily fall into the following categories: • Vertical real estate business management service providers that serve companies of all sizes in our markets; and • Horizontal business management service providers that offer broad solutions across multiple industries.
We help our customers navigate an increasingly interconnected and growing network of stakeholders in their business ecosystems, including property owners, real estate investment managers, rental prospects, residents, and vendors, and provide key functionality related to critical transactions across the real estate lifecycle, including screening potential tenants, sending and receiving payments and providing insurance-related risk mitigation services.
We help our customers navigate an increasingly interconnected and growing network of stakeholders in their business ecosystems, including property managers, property investors, potential residents, residents, and vendors. We also provide key functionality related to critical transactions across the real estate lifecycle, including screening potential residents, sending and receiving payments, and providing insurance-related risk mitigation services.
Competition The overall market for business management solutions in the real estate and other industries is global, highly competitive, and continually evolving to respond to changes in technology, operational requirements, and ever-changing laws and regulations.
Competition The overall market for business management solutions in the real estate industry is global, highly competitive, and continually evolving to respond to changes in technology, operational requirements, and laws and regulations.
We will continue our efforts to efficiently and effectively scale our capabilities, processes, and systems to adapt and grow with our business, and continually align the value of our offerings to the size, scale, and complexity of our customers, while upholding a rigorous standard of privacy, protection, compliance, and ethics. 3 Great People and Culture.
We plan to continue our efforts to efficiently and effectively scale our capabilities, processes, and systems to adapt and grow with our business, and align the value of our offerings to the size, scale, and complexity of our customers, while upholding a rigorous standard of privacy, protection, compliance, and ethics.
We share insights on best practices for the markets we serve and dedicate resources to guide our customers through the adoption and utilization of our Value Added Services. Sales and Marketing We leverage a modern and scalable marketing approach along with marketing automation technology to attract and engage prospects and build brand recognition as an industry leader.
We dedicate resources to guide our customers through the adoption and utilization of our Value Added Services. Sales and Marketing We leverage a modern and scalable marketing approach along with marketing automation technology to attract and engage prospects and build brand recognition as an industry leader.
Our tenant screening services include background screening, credit checks, income verification, and a streamlined rental history verification process for use in connection with the rental application process. • Risk Mitigation. Through our FolioGuard™ brand, we offer risk mitigation products for residents and property managers.
Our tenant screening services include credit checks, criminal history, landlord-tenant history, income verification, employment verification, and identity verification for use in connection with the rental application process. • Risk Mitigation. Through our FolioGuard™ brand, we offer risk mitigation products for property managers and residents.
Our team is structured to deliver continuous service; this includes ongoing live and on-demand training, a library of resources, and personalized account management. We regularly measure our Net Promoter Score and solicit customer feedback in a variety of ways in an effort to continue to better serve our customers.
This includes live and on-demand training, a library of resources, and personalized account management. We regularly measure our Net Promoter Score, Customer Satisfaction Score, and solicit customer feedback in a variety of ways in an effort to continue to improve and better serve our customers.
As of December 31, 2023, we had 1,504 employees. We routinely engage temporary employees and consultants. We consider our relationships with our employees and consultants to be strong. To maintain this strong relationship and attract new talent, our human capital management efforts focus on the following initiatives: Diversity, Equity, and Inclusion.
As of December 31, 2024, we had 1,634 employees. We routinely engage temporary employees and consultants. We consider our relationships with our employees and consultants to be strong. To maintain this strong relationship and attract new talent, our human capital management efforts focus on the following initiatives: An Inclusive Workplace.
Our Customers We define customers as those paying for a subscription to our core solutions. As of December 31, 2023, we had 19,737 property management customers. Customer Service We believe our success is tied to long-term customer relationships, not a one-time sale.
Our Customers We define customers as those paying for a subscription to our core solutions. As of December 31, 2024, we had 20,784 property management customers. Customer Service We believe our success is tied to long-term customer relationships, not a one-time sale. Our team is structured to deliver continuous service.
Types of funds that may be collected include rental application fees, security deposits, rent payments, and other tenant charges; contributions from property owners; and periodic dues from those living in community associations. Property managers can also electronically send funds to various stakeholders, including property owners, vendors, and even to their own management company. • Screening.
The types of funds that may be collected include tenant charges, such as rental application fees, security deposits, and rent payments; contributions from property owners; and periodic dues from those living in community associations. Our customers can also electronically send funds to various stakeholders, including property investors and vendors. • Tenant Screening.
Our goal is to empower AppFolio employees to deliver exceptional value for customers and shareholders through continuous innovation, excellence, and meaningful work. We will continue to streamline our people processes, programs, and systems to fuel high performance. We believe fostering a connected and inclusive workplace is fundamental to AppFolio’s success.
Great People and Culture We believe fostering a connected and inclusive workplace is fundamental to AppFolio’s success. We empower AppFolio employees to deliver exceptional value for our customers and stockholders through continuous innovation, excellence, and meaningful work. We routinely evaluate and, when appropriate, invest in our people processes, programs, and systems to fuel high performance.
In particular, we have fine-grained control over the specific server and region on which each customer's data resides, and can move such data between different geographic regions in order to avoid service disruption or to increase service performance.
In particular, we have control over the specific server and region on which each customer's data resides, and we can move such data between different geographic regions to avoid service disruption or to increase service performance. We work to ensure that our customers and their communities are confident in our data practices.
We regularly solicit feedback to assess the well-being and needs of our employees and offer resources focused on mental health and physical wellness. Our office locations are intentional spaces where we fuel innovation, collaboration, and celebrate successes together .
We are committed to providing a safe workplace for our employees and assisting them in maintaining a healthy work-life balance. We regularly solicit feedback to assess the well-being and needs of our employees and offer resources focused on mental health and physical wellness. Our office locations are intentional spaces where we fuel connection, innovation, collaboration, and celebrate successes together .
Our electronic payment services allow property managers to streamline their receivables and payables through a variety of online payment options. Property managers can collect funds through our secure online portal, our mobile application and/or via electronic cash payments from various stakeholders, including applicants, residents, vendors, and property owners.
Property managers can collect funds through our secure online portal and mobile application, and/or via electronic cash payments from various stakeholders, including applicants, residents, vendors, and property owners.
We perform research and market validation efforts to guide our product roadmap. We believe that it is easier for our customers to adjust to continuous updates to our platform, which incrementally change and improve their user experience, than to adapt to infrequent, but more drastic, upgrades.
In addition, we believe that it is easier for our customers to adjust to frequent platform updates, which incrementally change and improve their user experience, than to adapt to infrequent, but more drastic, updates.
ITEM 1. BUSINESS Unless otherwise stated in this Annual Report, references to "AppFolio," "we," "us," and "our" refer to AppFolio, Inc. and its consolidated subsidiaries. Overview Founded in 2006, AppFolio is a leading provider of cloud business management solutions for the real estate industry.
ITEM 1. BUSINESS Unless otherwise stated in this Annual Report, references to "AppFolio," "we," "us," and "our" refer to AppFolio, Inc. and its consolidated subsidiaries. Overview Founded in 2006, AppFolio is a technology leader powering the future of the real estate industry. We provide a cloud-based platform on which our customers operate their businesses.
FolioGuard Renters Insurance provided by AppFolio Insurance Services, Inc., a wholly-owned subsidiary of AppFolio, protects the personal belongings of renters, as well as the property itself, from certain unexpected damages. We experience some seasonality in our Value Added Services revenue.
FolioGuard Renters Insurance, provided by AppFolio Insurance Services, Inc., a wholly-owned subsidiary of AppFolio, protects the personal belongings of renters, as well as the property itself, from certain unexpected damages. See Item 7, " Management's Discussion and Analysis of Financial Condition and Results of Operations " for information regarding the seasonality of our Value Added Services revenue.
The platform is enhanced with AppFolio Realm, a suite of AI-powered tools that assist with Leasing, Maintenance and Accounting and that includes generative AI to answer questions, perform tasks and automate common workflows. The platform also includes AppFolio Stack, our partner ecosystem that allows customers to connect our platform with specialized technology and services offered by third parties.
Our platform is enhanced with AppFolio Realm, a suite of AI-powered tools that assist with leasing, maintenance, accounting, and other business critical tasks. AppFolio Realm includes generative AI to answer questions, perform tasks and automate common workflows.
Utilization and adoption of our Value Added Services is typically higher for residential properties than community association or commercial properties because of the unique and complex needs of the residential rental lifecycle. We empower our customers and their network of stakeholders with a wide variety of Value Added Services, primarily: • Payments.
We strive to provide a seamless experience for our customers that increases their efficiency without sacrificing ease of use. Utilization and adoption of our Value Added Services is typically higher for residential properties than community association or commercial properties because of the unique and complex needs of the residential rental lifecycle.
Our solutions are offered as a service, and are hosted using a public cloud service provider. We rely on strategic partners and third-party service providers to deliver certain aspects of our solutions, and strive to provide a seamlessly integrated experience for our customers and their stakeholders.
We rely on strategic partners and third-party service providers to deliver certain aspects of our platform, and strive to provide a seamlessly integrated experience for our customers and their industry segment stakeholders. Core Solutions Our platform is offered as a service and made available via three subscription plans: • AppFolio Property Manager Core.
We utilize a tiered engagement model to align the value we deliver with the value we capture from our customers, including add-on offerings such as tailored training and certification programs. Onboarding consists of a dedicated team that works to ensure that customers are prepared to run their businesses on our platform.
We utilize a tiered engagement model to align the value we deliver with the value we capture from our customers, including add-on offerings such as tailored training and certification programs, and professional services delivered by our network of solution partners.
We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties. We also limit access to certain confidential information or trade secret information, including our source code, to those who have a need for such access.
We also limit access to certain confidential information or trade secret information, including our source code, to those who have a need for such access.
We also offer paid parental leave, paid sabbaticals, paid leave to care for family members, and access to fertility networks and discounts on fertility care. We review our programs periodically to ensure they remain competitive. Health, Safety, and Wellness. We are committed to providing a safe workplace for our employees and assisting them in maintaining a healthy work-life balance.
We also offer a flexible paid time off policy, paid parental leave, paid sabbaticals, paid leave to care for family members, and access to fertility networks and discounts on fertility care. We review our programs periodically to ensure they remain competitive to retain, motivate, and reward current employees and attract new employees. Health, Safety, and Wellness.
Our platform, which is designed for use across multiple devices and operating systems, is (i) a system of record to centralize and automate essential business processes, (ii) a system of engagement to enhance business interactions between our customers and their network of stakeholders, and (iii) a system of intelligence to leverage data to predict and optimize business workflows in order to enable exceptional customer experiences and increase efficiency across our customers' businesses.
Our platform is (i) a system of record to centralize and automate essential business processes, (ii) a system of engagement to enhance business interactions between our customers and their network of industry segment stakeholders, and (iii) a system of performance to leverage data to predict and optimize business workflows.
All critical transactions are completed and recorded in the system, giving our customers access to the data they need. It also serves as their system of engagement as they interact with key stakeholders in their business ecosystem, including residents living at their properties, owners and investors owning those properties, and vendors providing products and services to the properties.
It also serves as their system of engagement as they interact with key industry segments, including residents living at their properties, investors owning those properties, and vendors providing products and services to those properties.
Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours. Human Capital We believe our people are at the heart of our success and our customers' success.
Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours. 5 Government Regulation Our business activities are subject to various federal, state and local laws and regulations.
Further, the barrier to entry for competition in one or more areas we serve may be low, which could lead to competition from new entrants who solve similar problems in different ways.
Further, the barrier to entry for competition in one or more areas we serve may be low, which could lead to competition from new entrants who solve similar problems in different ways. Intellectual Property We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality procedures and contractual restrictions to establish and protect our proprietary rights in our services.
Through new, complementary products and services, our goal is to extend value throughout the property technology ecosystem, for both property managers and residents. Unlock Upmarket Customers. We will continue to focus on attracting larger operators with complex and diversified property portfolios, who derive value from managing their entire portfolio on a single platform.
We continue to focus on attracting larger property management customers with complex and diversified property portfolios, who derive value from managing their entire portfolio on a single platform.
Our computing platform and cloud infrastructure are primarily powered by Amazon Web Services platform. In order to ensure that data is not lost and that customer requests can be satisfied, production assets are securely replicated and regularly backed up to multiple geographic regions.
To help ensure that data is not lost and that customer requests can be satisfied, production assets are securely replicated and regularly backed up to multiple geographic regions. We monitor our production infrastructure to ensure high performance and availability, and our architecture provides us significant flexibility in achieving these goals.
Our sales representatives assist prospective customers as they evaluate our products. Our interactive sales methodology allows our sales team to quickly build relationships, assess our customers’ business challenges, and demonstrate the benefits of our core functionality and, where applicable, Value Added Services.
Our sales representatives assist prospective customers as they evaluate our products. Our interactive sales methodology allows our sales team to quickly build relationships, assess prospective customers' business challenges, and demonstrate the benefits of our platform. 4 Technology and Operations Our products are powered by a highly scalable computing platform and are designed with a focus on data security and availability.
Technology and Operations Our products are powered by a highly scalable computing platform and are designed with a strong focus on data security and availability. We take great care to keep our application framework and the rest of our software stack current in order to mitigate known security vulnerabilities.
We take great care to keep our application framework and the rest of our software stack current to mitigate known vulnerabilities. Our computing platform and cloud infrastructure are primarily powered by third-party service providers.
The platform is frequently updated to provide new innovations and respond to market trends and customer needs. AppFolio Property Manager Core AppFolio Property Manager Core provides the basic functionality required to operate a property management business. Centered on accounting, AppFolio Property Manager Core serves as our customers’ system of record.
AppFolio Property Manager Core provides the basic functionality required to operate a property management business. Centered on accounting, AppFolio Property Manager Core serves as our customers’ system of record. All critical transactions are completed and recorded in the system, giving our customers access to the data they need.
We drive our success by investing in our people, and cultivating an exceptional work destination where they want to be and stay.
See Item 1A, " Risk Factors " for additional details regarding risks related to government regulations. Human Capital We believe our people are at the heart of our success. We drive our success by investing in our people, and cultivating an exceptional work destination where they want to be and stay.
All sensitive data in our systems, including passwords, Social Security numbers, and tax identification numbers, is encrypted during transmission, and before being written to disk. We regularly evaluate our product and infrastructure security, including through third-party penetration testing.
Sensitive data in our systems is encrypted during transmission and before being written to disk. We regularly evaluate our product and infrastructure security, including through third-party penetration testing. In addition, our products allow our customers to define roles that provide different levels of access to users, allowing them to view and modify specific items depending on their role.
We participate in industry thought leadership and education, and we use a variety of inbound and outbound marketing techniques to promote AppFolio solutions. Our business development team acts in partnership with our marketing and sales teams to reach potential customers, generate sales opportunities, and accelerate the time from evaluation to close.
We encourage our existing and prospective customers to attend FUTURE to learn more about us and how our platform and services can help their businesses. Our business development team acts in partnership with our marketing and sales teams to reach potential customers, generate sales opportunities, and accelerate the time from evaluation to close.
This includes an end-to-end leasing funnel with built-in Customer Relationship Management ("CRM") functionality, increased customization with user-defined fields, full access to the customer database through an application programming interface, and dedicated customer success management. 2 Value Added Services AppFolio Property Manager offers Value Added Services that supplement our core services and are often mission-critical for enhancing, automating and streamlining business-critical processes and workflows.
Such functionality includes an end-to-end leasing funnel with built-in customer relationship management tools, increased customization with a large number of user-defined fields, full database access through a read/write application programming interface, and dedicated customer support resources.
Some sensitive customer actions require secondary verification via two-factor authentication, and any customer can enable two-factor authentication for logging into their account. 4 Research and Product Development We rely heavily on input from our customers and prospective customers in developing products that meet their needs and in anticipating developments in their businesses.
Research and Product Development We rely heavily on input from our customers and prospective customers in developing products that meet their needs and in anticipating developments in their businesses. We perform research and market validation efforts to guide our product roadmap. Our platform is frequently updated to provide new innovations and respond to market trends and customer needs.
Available Information Copies of the reports, proxy statements and other information may also be obtained, free of charge, electronically through our corporate website, at www.appfolioinc.com, as soon as reasonably practical after we file such material with, or furnish it to, the SEC.
We make available, free of charge, on or through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We believe our customer-centric culture drives a focus on customer satisfaction that leads to long-term retention and, ultimately, to our long-term success. 1 Our Core Solutions Our Platform AppFolio provides a cloud-based platform on which our customers operate their businesses, leveraging process automation and optimized workflows.
We believe our customer-centric culture drives a focus on customer satisfaction that leads to long-term retention and, ultimately, to our long-term success. We strive to operate with high efficiency and are continually evaluating opportunities to gain leverage across all aspects of our business.
Diversity is core to our values and, we believe, necessary to drive innovation and collective growth. Our commitment to diversity, equity and inclusion starts at the leadership level and cascades to our talented employees. Through employee-led resource groups, we strive to cultivate an environment where individual uniqueness is valued, fostering a sense of belonging.
Our commitment to diversity, equity and inclusion starts at the leadership level and cascades to our talented employees. We believe that reflecting the diversity of our customers and communities is essential to driving innovation, performance, and long-term success.
Advanced technologies, such as Realm and its generative AI capabilities, are designed to unlock increased productivity and efficiency gains for customers. Continued innovation in onboarding tools, processes, and workflows are designed to remove barriers for customers to switch to AppFolio, while accelerating use and adoption.
Advanced technologies, such as AppFolio Realm and its AI capabilities, are designed to unlock increased productivity and efficiency gains for customers through generative messaging capabilities, customizable workflow automation, and an interactive AI-powered assistant. Our data platform and APIs extend our capabilities and enable third-party integrations through our Stack TM marketplace.
We invest significant resources to develop the talent needed to remain at the forefront of innovation and make us an employer of choice. Employees throughout our organization have access to tailored training and learning programs designed both for our entire employee base as well as for distinct employee audiences.
By prioritizing performance, transparency, and engagement, we create a culture where diverse perspectives fuel better innovation and stronger outcomes. Employee Development. We invest significant resources to develop the talent needed to remain at the forefront of innovation and make us an employer of choice.
Our goal is to leverage our growing footprint to expand our share of the property management industry segment. Key components of our near and extended term growth strategy include: Differentiate to Win. We will strive to continue to create a differentiated product experience that solves customer needs and creates new revenue streams for AppFolio.
Our strategy is anchored on the following three strategic pillars that are designed to facilitate the expansion and retention of our customer base. Differentiate to Win We strive to continually create differentiated product experiences that solve customer needs and create new revenue streams for AppFolio and our customers.
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Our solutions are designed to enable our property manager customers to digitally transform their businesses, address critical 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 today requires powerful software solutions.
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Our services enable our customers to connect communities, increase operational efficiency, deliver exceptional customer experiences, and improve financial and operational performance. We believe our customer-centric culture leads to long-term customer retention and, ultimately, our long-term success. 1 Our Platform Our mission is to build the platform where the real estate industry comes to do business.
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AppFolio solutions are designed to meet that need in the real estate industry.
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Our platform is designed to deliver value to industry segments throughout the property management ecosystem. It is optimized for use across multiple devices and operating systems, and includes an intuitive interface and streamlined workflows.
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AppFolio’s intuitive interface, streamlined workflows, and artificial intelligence ("AI") powered automation services 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.
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The platform also includes Stack TM , our partner ecosystem that allows customers to connect our platform with specialized technology and services offered by third parties. Our platform is frequently updated to provide new innovations and respond to market trends and customer needs.
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Both aspects of the system are inherently interconnected so that day-to-day interactions, such as residents paying rent through the AppFolio Property Manager mobile app, are instantly reflected in the system of record. AppFolio Property Manager Core is best suited for small property management companies that need a system that is comprehensive yet easy to use.
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AppFolio Property Manager Core has access to a limited set of Stack TM Core Integrations, a basic set of third-party integrations, and AppFolio Realm assistant and messages. AppFolio Property Manager Core is generally suited for small property management companies that prefer an all-in-one system that is comprehensive and easy to use. • AppFolio Property Manager Plus.
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This includes support for affordable housing management, student housing management, more complex accounting needs, deeper leasing insights, bulk actions to support larger scale operations, role-based permissions to allow managing a larger team, Stack integrations to extend our platform's functionality, and enhanced customer support.
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This includes support for affordable housing management, student housing management, more complex accounting needs, advanced data analysis, increased customization with a small number of user-defined fields, and enhanced customer support.
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These services build on functionality and workflows in our core solutions and generally fall into the categories of marketing and leasing, electronic payment services, business optimization, and risk mitigation. We strive for a seamless experience for our customers that increases their efficiency while not sacrificing ease of use, whether services are offered by AppFolio or by a third-party partner.
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AppFolio Property Manage Plus also has 2 access to all of our Stack TM integrations, AI-powered customizable workflows through AppFolio Realm Flows, database access through a read application programming interface, and dedicated customer support resources. • AppFolio Property Manager Max.
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See Item 7, " Management's Discussion and Analysis of Financial Condition and Results of Operations " for additional details regarding seasonality of revenue. Our Growth Strategy Our growth strategy involves providing valuable business management solutions to new and existing customers in the real estate industry.
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Value Added Services AppFolio offers Value Added Services that supplement our core solutions and are designed to enhance, automate, and streamline business-critical processes and workflows. Our Value Added Services generally fall into the categories of electronic payment services, tenant screening, risk mitigation, maintenance, and business optimization.
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Through our AppFolio Stack marketplace, we extend the value of our platform by integrating with external partners who offer a diversified suite of everyday services. Elevate the Customer. We believe our growing customer base needs differentiated service experiences that are easy, and accessible.
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We empower our customers and their industry segment stakeholders with a wide variety of Value Added Services, most significantly with: • Electronic Payment Services. Our electronic payment services allow property managers to streamline their receivables and payables through a variety of online payment options.
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Additionally, we will empower our customers and their networks of stakeholders through the continued development and adoption of Value Added Services in such areas as payments, screening, and risk mitigation . Scale the Business. We strive to operate with high efficiency across our organization.
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Our Business and Growth Strategy Our growth strategy is centered on delivering value to all industry segments in the property management ecosystem, including, but not limited to, property managers, residents, vendors, and investors. Adding value to each of these industry segments improves retention and expansion opportunities for existing customers and creates a differentiated product experience to attract new customers.
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We monitor our production infrastructure to ensure high performance and availability, and our architecture allows our operators significant flexibility in achieving these goals.
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Continued innovation in onboarding tools, processes, and workflows are designed to remove barriers for customers to switch to AppFolio, while accelerating use and adoption of our services. Through new, innovative product features, our goal is to provide differentiated product experiences that extend value throughout the property technology ecosystem, for property managers, investors, vendors, and residents.
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In addition, our products allow our customers to define roles that provide different levels of access to users, allowing them to view and modify specific items depending on their role. Supervisors can distribute work to staff in a secure and controlled environment, while leadership retains visibility across the entire system.
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Ongoing innovation in the investor and 3 resident industry segments are intended to redefine how property managers connect with these critical stakeholders and create additional value for all groups through the use of our platform. Deliver Value Efficiently As our customer base grows, we strive to provide a scalable client service experience that is accessible and easy to use.
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Intellectual Property We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality procedures and contractual restrictions to establish and protect our proprietary rights in our core solutions and Value Added Services. We may pursue additional patent protection to the extent we believe it would be beneficial and cost-effective.
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This includes utilizing AI capabilities, technology systems, and third party partners. The efforts of our customer-facing teams are focused on driving use and adoption of our services and helping customers achieve success on our platform.
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Our commitment to transparency, open communication, and regular listening forums ensures that every employee's voice is not only heard but actively contributes to our inclusive culture.
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We have dedicated onboarding teams that work to ensure that customers are prepared to run their businesses on our platform, as well as self-service tools that reduce customers' time and rate of effort to achieve success with our products and services.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThere 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, including without limitation: • changes in the estimates of our operating results; • changes in recommendations by securities analysts; • announcements of new products, services, technologies, or pricing; • fluctuations in our valuation or the valuation of similarly situated companies; • changes to our management team; • trading activity by insiders or the market’s perception that insiders intend to sell their shares; • the trading volume of our Class A common stock, including sales upon exercise of outstanding options or vesting of equity awards; and • the overall performance of the equity markets.
Biggest changeThe market price of our Class A common stock could be subject to fluctuations in response to many of the risk factors discussed in this Annual Report and other factors beyond our control, including without limitation: • actual or anticipated fluctuations in our financial condition or results of operations; • changes in the estimates of our operating results; • changes in recommendations by securities analysts or the failure of securities analysts to maintain coverage of us; • announcements of new products, services, technologies, or pricing; • fluctuations in our valuation or the valuation of similarly situated companies; • changes to our management team; • trading activity by insiders or the market’s perception that insiders intend to sell their shares; • the trading volume of our Class A common stock, including sales upon exercise of outstanding options or vesting of equity awards; and • the overall performance of the equity markets as well as general economic and market conditions.
Unfavorable regulations, laws, and administrative or judicial decisions interpreting or applying laws and regulations could subject us to litigation or governmental investigation and increase our cost of doing business, any of which may adversely affect our operating results. Further, the evolution and expansion of our products and services may subject us to additional risks and regulatory requirements.
Unfavorable laws, regulations, and administrative or judicial decisions interpreting or applying laws and regulations could subject us to litigation or governmental investigation and increase our cost of doing business, any of which may adversely affect our operating results. Further, the evolution and expansion of our products and services may subject us to additional regulatory risks and requirements.
If we are unable to accept payment cards or are meaningfully limited in our ability to do so, our business would be adversely affected. We face risks in our tenant screening services business that could adversely affect our business and/or operating results.
If we are unable to accept payment cards or are meaningfully limited in our ability to do so, our business and operating results would be adversely affected. We face risks in our tenant screening services business that could adversely affect our business and/or operating results.
As new laws, regulations and industry standards take effect, and as we offer new services we will need to understand and comply with various new requirements, which may impede our plans for growth or result in significant additional costs.
As new laws, regulations and industry standards take effect and we offer new services, we will need to understand and comply with various new requirements, which may impede our plans for growth or result in significant additional costs.
Our corporate culture has contributed to our success and, if we cannot continue to foster this culture, 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.
Our corporate culture has contributed to our success and, if we cannot continue to foster this culture, we could lose the passion, creativity, teamwork, focus and innovation fostered by our culture. We believe that our corporate culture has been and will continue to be a key contributor to our success.
For us to maintain or increase our revenue and improve our operating results, it is important that our existing customers continue to use our core solutions, as well as increase their adoption and utilization of our Value Added Services.
For us to maintain or increase our revenue and improve our operating results, it is important that our existing customers continue to use our core solutions, as well as continue to use and increase their adoption and utilization of our Value Added Services.
Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, could decrease demand for our services, and could cause us to incur substantial expense. Our insurance may not be sufficient to cover losses or additional expenses that we may sustain.
Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, decrease demand for our services, and cause us to incur substantial expense. Our insurance may not be sufficient to cover losses or additional expenses that we may sustain.
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 solutions and develop new products; 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 Added Services by our new and existing customers; and maintaining and expanding our technology infrastructure and operational support to promote the security and availability of our products and solutions.
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 solutions and develop new products; our sales and marketing organization, including expansion of our sales and marketing programs, to increase the size of our customer base and increase adoption and utilization of new and existing Value Added Services by our new and existing customers; and maintaining and expanding our technology infrastructure and operational support to promote the security and availability of our products and solutions.
Therefore, despite our significant efforts to keep our systems, products and networks protected and up to date, we may be unable to 10 anticipate new modes for 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, harm to our reputation, litigation, fines, penalties, and potential liability.
Therefore, despite our significant efforts to keep our systems, products and networks protected and up to date, we may be unable to anticipate new modes for 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, harm to our reputation, litigation, fines, penalties, and potential liability.
If we are unable to protect our proprietary rights adequately or the security controls made available by our code hosting partners are compromised and our code is improperly accessed, which has previously occurred and could occur again in the future, our competitors could use the intellectual property we have developed to enhance their own products and services, which could harm our business.
If we are unable to protect our intellectual property rights adequately or the security controls made available by our code hosting partners are compromised and our code is improperly accessed, which has previously occurred and could occur again in the future, our competitors could use the intellectual property we have developed to enhance their own products and services, which could harm our business.
Moreover, AI technologies introduce heightened cybersecurity risks and ethical considerations, potentially affecting our reputation and operational performance. Should we introduce solutions that generate content that is misleading, biased, harmful or controversial due to perceived or actual societal impact, we may face potential harm to our brand and reputation, competitive disadvantages, or even legal liabilities.
Moreover, AI technologies introduce heightened cybersecurity risks and ethical considerations, potentially affecting our reputation and operational performance. Should we introduce solutions that generate content that is misleading, biased, harmful or controversial due to perceived or actual societal impact, we may face potential harm to our brand and reputation, competitive disadvantages, or legal liabilities.
If we fail to successfully maintain and enhance our brands, or if we make investments that are not offset by increased revenue, our operating results could be adversely affected. If we fail to manage our growth effectively, our costs and operating expenses may increase without corresponding increases in revenue, which would adversely affect our operating results.
If we fail to successfully maintain and enhance our brands, or if we make investments that are not offset by increased revenue, our operating results could be adversely affected. 14 If we fail to manage our growth effectively, our costs and operating expenses may increase without corresponding increases in revenue, which would adversely affect our operating results.
For example, as our electronic payments services business evolves, we may become subject to laws governing money transmission and anti-money laundering. Regulatory requirements vary throughout the markets in which we operate, and have increased over time as the scope and complexity of our products and services have expanded.
For example, as our electronic payments services business evolves, we may become directly subject to laws governing money transmission and anti-money laundering. Regulatory requirements vary throughout the markets in which we operate, and have increased over time as the scope and complexity of our products and services have expanded.
If our existing customers do not renew their subscriptions and increase their adoption and utilization of our existing or newly developed Value Added Services, our revenue may increase at a slower rate than we expect and may decline, which could adversely affect our financial condition and operating results.
If our existing customers do not renew their subscriptions and increase their adoption and utilization of our existing or newly developed Value Added Services, our revenue may increase at a slower rate than we expect and may even decline, which could adversely affect our financial condition and operating results.
In addition, some of our third-party service providers and partners also collect, store or process our sensitive information and our customers’ data on our behalf. These service providers and partners have been, and continue to be, subject to similar threats of cyber attacks and other malicious Internet-based activities.
In addition, some of our third-party service providers also collect, store or process our sensitive information and our customers’ data on our behalf. These service providers have been, and continue to be, subject to similar threats of cyber attacks and other malicious Internet-based activities.
Acceptance of our current and future solutions in new markets will depend on numerous factors, including our ability to provide more sophisticated functionality and features, the pricing of our solutions relative to competitive products, perceptions about the security, privacy and availability of our solutions relative to competitive products, and the time-to-market of updates and enhancements to our services and products.
Acceptance of our current and future solutions in new markets will depend on numerous factors, including our ability to provide more sophisticated functionality and features, the pricing of our solutions relative to competitive products, perceptions about the security, privacy and availability of our solutions relative to competitive products, and the time-to-market of updates and enhancements to our solutions.
Despite our efforts to implement 9 measures and develop our AI tools in a manner that enhances security and fairness, these issues may arise due to the direct interaction of users with generative AI models and the inherent unpredictability and power of these technologies.
Despite our efforts to implement measures and develop our AI tools in a manner that enhances security and fairness, these issues may arise due to the direct interaction of users with generative AI models and the inherent unpredictability and power of these technologies.
Computer malware, ransomware, viruses, social engineering (phishing, smishing and vishing attacks), denial of service or other attacks, employee theft or misuse, and increasingly sophisticated network attacks have become more prevalent in our industry, particularly against cloud service providers.
Computer malware, ransomware, viruses, social engineering (deepfakes, phishing, smishing and vishing attacks), denial of service or other attacks, employee theft or misuse, and increasingly sophisticated network attacks have become more prevalent in our industry, particularly against cloud service providers.
Such examining, auditing, and investigating authorities are generally vested with relatively broad discretion to grant, renew and revoke licenses and approvals, to implement and interpret rules and regulations, levy fines and penalties, and bring enforcement actions.
Such examining, auditing, and investigating regulatory authorities are generally vested with relatively broad discretion to grant, renew and revoke licenses and approvals, to implement and interpret rules and regulations, levy fines and penalties, and bring enforcement actions.
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. As we grow, we may find it difficult to maintain our corporate culture.
Any failure to preserve our culture could also negatively affect our ability to recruit and retain personnel and to effectively focus on and pursue our strategic objectives. As we grow, we may find it difficult to maintain our corporate culture.
Any claims or litigation, regardless of merit, could cause us to incur significant expenses, distract management, 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 solutions in their current form, including due to the unavailability of commercially reasonably licensing terms.
Any claims or litigation, regardless of merit, could cause us to incur significant expenses, distract management, 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 solutions in their current form, including due to the unavailability of commercially reasonable licensing terms.
As AI represents a rapidly evolving field, it inherently carries a spectrum of risks typical to emerging technologies. We anticipate the enactment of new regulations and laws pertaining to AI usage, potentially placing us under increased regulatory oversight, escalating litigation risks, and augmenting our existing obligations regarding confidentiality and privacy. Such developments could negatively impact our business operations.
As AI represents a rapidly evolving field, it inherently carries a spectrum of risks typical to emerging technologies. We anticipate the enactment of new laws and regulations pertaining to AI use, potentially placing us under increased regulatory oversight, escalating litigation risks, and augmenting our existing obligations regarding confidentiality and privacy. Such developments could negatively impact our business operations.
Among other things, these provisions authorize the issuance of preferred stock with powers, preferences and rights that may be senior to our common stock, provide for the adoption of a staggered three-class Board of Directors, prohibit our stockholders from filling vacancies on our Board of Directors or calling special stockholder meetings, require the vote of at least two-thirds of the combined voting power of our outstanding capital stock to approve amendments to our certificate of incorporation or bylaws, and require the approval of the holders of at least a majority of the outstanding shares of our Class B common stock voting as a separate class prior to consummating a change-in-control transaction.
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 a staggered three-class Board of Directors, prohibit our stockholders from filling vacancies on our Board of Directors or calling special stockholder meetings, require the vote of at least two-thirds of the combined voting power of our outstanding capital stock to approve amendments to our Amended and Restated 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.
If our security measures, or the security measures of our third-party service providers or partners, 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 personal data or other sensitive information, we could incur liability to our customers, employees, and to individuals or organizations whose information was being stored by us or our customers, as well as due to fines, penalties, or actions from payment processing networks or by governmental bodies.
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 third-party service providers' 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 personal data or other sensitive information, we could incur liability to our customers, employees, and to individuals or organizations whose information was being stored by us or our customers, as well as due to fines, penalties, or actions from payment processing networks or by governmental bodies.
For example, to grow our customer base and facilitate the continuous launch and refinement of our products and services we invest significantly in our sales, marketing, and product development organizations as well as software and systems to support the efficient operation of such organizations. There is no guarantee that these or similar expenditures to support our growth will be successful.
For example, to grow our customer base and facilitate the continuous launch and refinement of our products and services we invest significantly in our sales, marketing, and product development organizations as well as software and systems to support the efficient operation of such organizations. There is no guarantee that these or similar investments to support our growth will be successful.
We cannot predict the impact that our capital structure may have on our stock price. 16 Several shareholder advisory firms are opposed to the use of multiple class structures such as ours. 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.
We cannot predict the impact that our capital structure may have on our stock price. 18 Several shareholder advisory firms are opposed to the use of multiple class structures such as ours. 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.
Although we believe that these pricing changes will increase customer adoption and revenue, it is possible that they will not and may make our services less appealing, which could negatively impact our business, revenue, and operating results. If we are unable to successfully expand sales of our solutions to new markets, our business and operating results may suffer.
Although we believe that these pricing changes will increase customer adoption and revenue, it is possible that they will not and may make our services less appealing, which could negatively impact our business, revenue, and operating results. If we are unable to successfully expand sales of our solutions to new markets, our business, financial condition, and operating results may suffer.
We do not directly access the payment card networks, such as Visa and MasterCard, that enable our acceptance of credit cards and debit cards, including some types of prepaid cards. Accordingly, we must rely on banks or other payment 7 processors to process transactions and must pay fees for the services.
We do not directly access the payment card networks, such as Visa and MasterCard, that enable our acceptance of credit cards and debit cards, including some types of prepaid cards. Accordingly, we must rely on banks or other card payment processors to process transactions and must pay fees for their services.
Should development of in-use third-party software or open source 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 material adverse impact on our business and operating results.
Should development of in-use third-party software or open source software cease, significant engineering effort may be required to create an in-house solution. These risks could be difficult to eliminate or manage, and could a material adverse impact on our business and operating results.
We make product decisions and pursue opportunities that 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 results of operation and our stock price from period to period.
We make product decisions and pursue opportunities that are consistent with our strategic objective to achieve long-term growth. These decisions and opportunities may not be consistent with the short-term expectations of some investors, and may cause significant fluctuations in our results of operations and our stock price from period to period.
The frequency and sophistication of these malicious attacks has increased, and it appears that cyber crimes and cyber criminal networks, some of which may be state-supported, have been provided substantial resources and may target U.S. enterprises or our customers and their use of our products.
The sophistication of these malicious attacks has also increased, and it appears that cyber crimes and cyber criminal networks, some of which may be state-supported, have been provided substantial resources and may target U.S. enterprises or our customers and their use of our products.
From time to time, payment card networks have increased, and may increase in the future, the interchange fees and assessments that they charge for each transaction which accesses their networks. Our payment card processors may have the right to pass any increases in interchange fees and assessments on to us as well as increase their own fees for processing.
From time to time, payment card networks have increased, and may increase in the future, the interchange fees and assessments that they charge for each transaction which accesses their networks. Our card payment processors may have the right to pass any increases in interchange fees and assessments on to us and increase their own fees for processing.
To compete effectively, we must identify and innovate in the right technologies, accurately predict our customers’ evolving needs, and continually improve our own technology platform. If we fail to execute against any of the foregoing, our business and operating results may be harmed.
To compete effectively, we must identify and innovate in the right technologies, accurately predict our customers’ evolving needs, and continually improve our own technology platform. If we fail to execute against any of the foregoing, our business, financial condition and operating results may be harmed.
Regardless of size, our current and potential competitors may develop, market and sell new technologies with comparable functionality to our solutions, which could cause us to lose customers, slow the rate of growth of new customers and/or cause us to decrease our prices to remain competitive, which could harm our business.
Regardless of size, our current and potential competitors may develop, market and sell new technologies with comparable functionality to our solutions, which could cause us to lose customers, slow the rate of growth of new customers and/or cause us to decrease our prices to remain competitive.
In any such event, we may be required to expend additional resources to help correct the problem or 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.
In any such event, we may be required to expend additional resources to help correct the problem or we may choose to expend additional resources to take corrective action even when not required. The costs incurred in correcting any material errors, defects or other disruptions could be substantial.
In addition, 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, our competitors may be more successful than us in building cost-effective relationships with third parties that enhance their products and services, allow them to provide more competitive pricing, or offer other benefits to their customers.
Higher interest rates may make it difficult or impossible for our customers to obtain financing and may increase their cost of capital, which could negatively impact the demand for our solutions and services, increase customer churn, and impact our operating results.
Higher interest rates may make it difficult or impossible for our customers to obtain financing and increase their cost of capital, which could negatively impact the demand for our solutions and services, increase customer attrition, and impact our operating results.
If an acquisition fails to meet our expectations in terms of its contribution to our overall business strategy or results of operation, or if the costs of acquiring or integrating the acquired business exceed our estimates, our business, results of operation, strategic objectives, and financial condition may suffer.
If an acquisition fails to meet our expectations in terms of its contribution to our overall business strategy or results of operations, or if the costs of acquiring or integrating the acquired business exceed our estimates, our business, results of operations, strategic objectives, and financial condition may suffer.
Our failure to secure, protect and enforce our intellectual property rights could adversely affect our business and operating results. 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.
Our failure to secure, protect and enforce our intellectual property rights could adversely affect our business, financial condition and operating results. 16 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.
ITEM 1A. RISK FACTORS You should consider carefully the risks described below, together with all of the other information included in this Annual Report, as well as in our other filings with the SEC, in evaluating our business and/or an investment in our Class A common stock.
ITEM 1A. RISK FACTORS Investing in our securities involves risks. You should consider carefully the risks described below, together with all of the other information included in this Annual Report, as well as in our other filings with the SEC, in evaluating our business and/or an investment in our Class A common stock.
We face risks in our electronic payment services business that could adversely affect our business and/or results of operation. Our electronic payment services business facilitates the processing of inbound and outbound payments for our customers.
We face risks in our electronic payment services business that could adversely affect our business and/or results of operations. Our electronic payment services business facilitates the processing of inbound and outbound payments for our customers.
We are required by our processors to comply with payment card network operating rules, including special operating rules for payment service providers to merchants, and we have agreed to reimburse our processors for any fines they are assessed by payment card networks as a result of any rule violations by us or our merchants.
Our card payment processors require us to comply with payment card network operating rules, including special operating rules for electronic payment service providers to merchants, and we have agreed to reimburse our processors for any fines they are assessed by payment card networks as a result of any rule violations by us or our merchants.
Privacy laws and regulations could impose additional costs and reduce demand for our solutions. We collect, store, process, and transmit personal information relating to our employees, customers, prospective customers, and other individuals, and our customers use our technology platform to store and transmit a significant amount of personal information relating to their customers, vendors, employees and other industry participants.
Privacy laws and regulations could impose additional costs and reduce demand for our services. We collect, store, process, and transmit personal information relating to our employees, customers, prospective customers, and other individuals. Our customers use our platform to store and transmit a significant amount of personal information relating to their customers, vendors, employees and other industry participants.
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.
If any of the following risks actually occur, our business, financial condition, operating results, cash flows and 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 risks we face.
Further, the legal landscape regarding intellectual property rights in AI technologies remains unsettled in the United States, both in legislation and judicial precedent. Consequently, our engagement with AI technologies and features might lead to allegations of infringement or misappropriation of third-party intellectual property rights.
Further, the legal landscape regarding intellectual property rights in AI technologies remains unsettled in the United States, both in legislation and judicial precedent. Consequently, our employment of AI technologies and features might lead to allegations of infringement or misappropriation of third-party intellectual property rights.
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.
If we do not continue to preserve our corporate culture or maintain our core values as we grow and evolve, we may be unable to foster the 13 passion, creativity, teamwork, focus and innovation we believe we need to support our growth.
In addition, the payment card networks could adopt new operating rules or interpret or re-interpret existing rules that we or our processors might find difficult or even impossible to follow, or costly to implement. As a result, we could lose our ability to give consumers the option of using payment cards to fund their payments.
In addition, the payment card networks could adopt new operating rules or interpret or re-interpret existing rules that we or our processors might find difficult or even impossible to follow, or costly to implement. As a result, we could lose our ability to give customers and their residents the option of using payment cards to fund their payments.
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 orders, mandatory product changes, or other liabilities that could have an adverse effect on our business and operating results.
In the event that we are found to be in violation of our legal or regulatory requirements, we may be subject to monetary fines or penalties, cease-and-desist orders, mandatory product changes, or other liabilities that could have an adverse effect on our business (including damage to our reputation) and operating results.
In addition, notwithstanding our intention to make strategic decisions that positively impact long-term value, the decisions we make may not produce the long-term benefits we expect, which could materially affect our business, financial condition and results of operation. Our acquisition of other companies or technologies may subject us to risks.
In addition, notwithstanding our intention to make strategic decisions and pursue opportunities that positively impact long-term value, the decisions we make and opportunities we pursue may not produce the long-term benefits we expect, which could materially affect our business, financial condition and results of operation. Our acquisition of other companies may subject us to risks.
If we fail to maintain relationships with third-party partners that enable certain functionality within our solutions or provide our customers with specialized technology and services, our business and operating results may be harmed.
If we fail to maintain relationships with third-party service providers that enable certain functionality within our solutions or provide our customers with specialized technology and services, our business and operating results may be harmed.
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. Our quarterly results may fluctuate significantly and period-to-period comparisons of our results may not be meaningful.
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 keep pace with our expenses. Our quarterly results may fluctuate significantly and period-to-period comparisons of our results may not be meaningful.
In addition, the widespread adoption of quickly evolving disruptive technology products may significantly impact the real estate industry, even if such products are not specifically designed to apply directly to the real estate industry.
In addition, the widespread adoption of quickly evolving disruptive technology products, such as generative AI, may significantly impact the real estate industry, even if such products are not specifically designed to apply directly to the real estate industry.
Adverse global and regional economic conditions such as turmoil affecting the banking system or financial markets, including, but not limited to, recessionary or inflationary pressures, tightening in the credit markets, extreme volatility or distress in the financial markets, supply chain issues, reduced consumer confidence or economic activity, government fiscal and tax policies, geopolitical events, and other negative financial news or macroeconomic developments could have a material 17 adverse impact on the demand for our products and services or cause us to experience increased costs that could negatively affect our operating results.
Adverse global and regional economic conditions, including, but not limited to, recessionary or inflationary pressures, tightening in the credit markets, extreme volatility or distress in the financial markets, supply chain issues, reduced consumer confidence or economic activity, government fiscal and tax policies, geopolitical events, and other negative financial news or macroeconomic developments could have a material adverse impact on the demand for our products and services or cause us to experience increased costs that could negatively affect our operating results.
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.
Acquisitions of our third-party service providers 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.
Our contracts with these third parties may not provide us with adequate remedies in the event of such an incident which could also expose us to risk of loss, litigation, fines, penalties, and potential liability.
Our contracts with these third parties may not provide us with adequate remedies in the event of such an incident which could also expose us to risk of loss, litigation, fines, penalties, and potential liability as well as reputational damage.
If the industry itself declines, our customers may decide not to renew their subscriptions or they may cease using our Value Added Services to reduce costs to remain competitive.
If the real estate industry declines, our customers may decide not to renew their subscriptions or they may cease using our Value Added Services to reduce costs to remain competitive.
If third party bad actors again gain access to our systems or our customers’ systems, or our employees or partners’ employees misuse our payment systems for malicious purposes, we could experience significant financial loss that may affect our operating results. Changes to payment card networks or bank fees, rules, or practices could harm our business.
If third-party bad actors again gain access to our systems or our customers’ systems, or our employees or third-party service providers’ employees misuse our payment systems for malicious purposes, we could experience material financial loss that may affect our operating results. Changes to payment card networks or bank fees, rules, or practices could harm our business.
Certain functionality of our services is provided, supported or enhanced by third parties, including without limitation functions related to customer relationship management, cloud computing, texting, emailing, electronic payments, tenant screening, and insurance related offerings. In addition, our customers are able to integrate specialized, third-party technology and services through AppFolio Stack.
Certain functionality of our services is provided, supported or enhanced by third-party service providers, including without limitation functions related to customer relationship management, cloud computing, texting, emailing, electronic payments, tenant screening, and insurance related offerings. Our customers are also able to integrate specialized, third-party technology and services through AppFolio Stack.
In addition, entities such as the FTC and the Consumer Financial Protection Bureau have the authority to promulgate rules and regulations that may impact our customers and our business and have made various public statements that tenant screening is an area of focus for such agencies.
In addition, entities such as the FTC and the CFPB have the authority to promulgate rules and regulations that may impact our customers and our business and have made various public statements that tenant screening is an area of focus for such agencies.
In the event of such activity, we may incur liability to compensate our customers, our customers' stakeholders, or payment partners for losses incurred. While we take reasonable measures to secure our systems and payments infrastructure, it is not possible to entirely eliminate the risk of intentional wrongdoing.
In the event of such activity, we may incur liability to compensate our customers, our customers' stakeholders, or third-party electronic payment service providers for losses incurred. While we take reasonable measures to secure our systems and payments infrastructure, it is not possible to entirely eliminate the risk of intentional wrongdoing.
If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our customer base and revenue could be impaired, which could negatively impact our operating results.
If we are unsuccessful in establishing or 10 maintaining our relationships with third-party service providers, our ability to compete in the marketplace or to grow our customer base and revenue could be impaired, which could negatively impact our operating results.
If we do not accurately estimate our opportunities, we may fail to realize a return on our investment in various aspects of our business, which could lead to a failure to gain market share and negatively impact our long-term growth prospects.
If we do not accurately estimate our opportunities, we may fail to realize a return on our investment in various aspects of our business, which could lead to a failure to gain market share and negatively impact our long-term growth prospects. We could face antitrust challenges, which could harm our business and operating results.
The interests of our principal stockholders may be inconsistent with or adverse to those of holders of our Class A common stock.
The interests of the holders of our Class B common stock may be inconsistent with or adverse to those of the holders of our Class A common stock.
Maintaining and enhancing our brands is critical to achieving widespread awareness and acceptance of our solutions as well as maintaining and expanding our customer base. We expect the importance of brand recognition will increase, as 12 competition for our products and services increases.
Maintaining and enhancing our brands is critical to achieving widespread awareness and acceptance of our solutions as well as maintaining and expanding our customer base, which is a key component of our strategy. We expect the importance of brand recognition will increase, as competition for our products and services increases.
Likewise, institutional investors and certain investment funds may be precluded, reluctant or unwilling to invest in entities with multiple class structures due to a lack of ability to meaningfully influence corporate affairs and policies through voting.
In addition, certain institutional investors and investment funds may be prohibited from investing in, or reluctant or unwilling to invest in entities with multiple class structures due to a lack of ability to meaningfully influence corporate affairs and policies through voting.
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.
The dual class structure of our common stock concentrates voting control with a limited number of stockholders, including our directors and principal stockholders, effectively limiting other stockholders' ability to influence corporate matters. Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share.
Litigation or government regulation related to the use of AI may also adversely impact our ability to develop and offer products that use AI, as well as increase the cost and complexity of doing so.
Litigation or government regulation related to the use of AI may also adversely impact our ability to develop and offer products that use AI, as well as increase the cost and complexity of doing so. Potential government regulation related to AI use and ethics may also increase the burden and cost in this area.
In addition, we provide continuous updates to our products and these updates may contain undetected errors when first introduced. In the past, we have discovered errors, failures, vulnerabilities and bugs in our updates after they have been released, and similar problems may arise in the future.
In addition, we provide continuous updates to our products and these updates may contain undetected errors, defects or other disruptions when first introduced. In the past, we have discovered errors, defects, or other disruptions in our updates after they have been released, and similar problems may arise in the future.
As of December 31, 2023, the holders of the outstanding shares of our Class B common stock, including our executive officers, directors, and principal stockholders, collectively held approximately 87% of the combined voting power of our outstanding capital stock.
As of December 31, 2024, the holders of the outstanding shares of our Class B common stock, including our directors and principal stockholders, collectively held approximately 85% of the combined voting power of our outstanding capital stock.
Any of these outcomes could adversely affect our business and operating results. 11 Risks Related to Attracting and Retaining Talent We 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.
Risks Related to Attracting and Retaining Talent We 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.
Risks Related to Our 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.
Risks Related to Our 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.
Such restrictions, reluctance and unwillingness may 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. We do not expect to declare any dividends in the foreseeable future and may repurchase stock in accordance with our Share Repurchase Program.
Such prohibitions, reluctance and unwillingness may 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. We do not expect to pay any dividends in the foreseeable future.
Our customers use our products to manage critical aspects of their businesses, and any errors, defects or other disruptions in the performance of our products, or the products of our third-party partners upon which certain of our products are dependent, may result in loss of or damage to our customers’ data and disruption to our customers’ businesses, which could harm our reputation and subject us to potential liability.
Any errors, defects or other disruptions in our products, or the products of our third-party service providers upon which certain of our products are dependent, may result in loss of or damage to our customers’ data and disruption to our customers’ businesses, which could harm our reputation and subject us to potential liability.
The development and use of AI in connection with our products may result in reputational harm or liability, which could adversely affect our business and operating results. Our company employs machine learning and AI technologies, including generative AI, in our product and service offerings, and research into and continued development of such technologies remains ongoing.
The development and incorporation of AI in our services may result in reputational harm or liability, which could adversely affect our business and operating results. We employ machine learning and AI technologies, including generative AI, in our product and service offerings. Research into and continued development of such technologies remains ongoing.
Such factors 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.
Such factors 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.
Risks Related to Our Financial Results We expect to make substantial investments across our organization to grow our business, which may impact profitability. To implement our business and growth strategy, we have made and will continue to make substantial investments across our organization and, as a result, our expenses may increase significantly impacting profitability.
To implement our business and growth strategy, we have made and will continue to make substantial investments across our organization and, as a result, our expenses may increase significantly impacting profitability.
Our electronic payment services business also exposes us to risk in connection with theft, fraud and other malicious activity on the part of our employees, our partners’ employees, or third parties who improperly gain access to our systems or our customers’ systems.
Our electronic payment services business also exposes us to risk in connection with theft, fraud and other malicious activity by our employees, our third-party service providers’ employees, or third-parties who improperly gain access to our systems or our customers’ systems.
Maintaining adequate resources to meet the demands of our customers and the market is essential. If we are unable to develop our products and services, including through the development of emerging technologies, such as AI, we may miss market opportunities and our product may become less attractive to users.
If we are unable to develop our products and services, including through the development of emerging technologies, such as AI, we may miss market opportunities and our products may become less attractive to users.
Risks Related to Cybersecurity and Data Privacy Security vulnerabilities in our products, human error, or a breach of our security controls could result in the loss, theft, misuse, unauthorized disclosure, or unauthorized access to customer or employee data, or other confidential or sensitive information, which could harm our customer and/or employee relationships, harm our competitiveness, expose us to litigation, fines, or penalties, or harm our reputation.
If our customers are unable to access our platform or encounter difficulties in doing so, we may lose customers, which could harm our business and results of operations. 11 Risks Related to Cybersecurity and Data Privacy Security vulnerabilities in our products, human error, or a breach of our security controls could result in the loss, theft, misuse, unauthorized disclosure, or unauthorized access to customer or employee data, or other confidential or sensitive information, which could harm our customer and/or employee relationships, competitiveness and reputation, and expose us to litigation, fines, or penalties.
Furthermore, the risk of state-supported and geopolitical-related cyberattacks may increase in connection with ongoing global geopolitical tensions, such as the war in Ukraine and any related political or economic responses and counter-responses. In the past, we have had to take corrective action against cyber attackers to protect our cloud environment.
Furthermore, the risk of state-supported and geopolitical-related cyber attacks may increase in connection with ongoing global geopolitical tensions. In the past, we have had to take corrective action against cyber attackers to protect our cloud environment.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWe engage independent third parties to audit our adherence to our cybersecurity policies and conduct infrastructure and application security assessments and penetration testing. These third parties help us assess our internal preparedness, adherence to best practices and industry standards, and compliance with applicable laws and regulations as well as help us to identify areas for continued focus and improvement.
Biggest changeThese third parties help us assess our internal preparedness, adherence to best practices and industry standards, and compliance with applicable laws and regulations as well as help us to identify areas for continued focus and improvement. We conduct annual information security awareness training for employees involved in the systems or processes connected to confidential and sensitive information.
We have processes in place to assess and manage vendor cybersecurity risks, which include initial and periodic security program reviews and, in cases where personal information is shared, ongoing cybersecurity and privacy obligations that are documented in data processing agreements.
We have processes in place to assess, identify and manage vendor cybersecurity risks, which include initial and periodic security program reviews and, in cases where personal information is shared, ongoing cybersecurity and privacy obligations that are documented in data processing agreements.
The CISO oversees a team of information security professionals who are devoted full time to assessing and managing cybersecurity threats on a day-to-day basis. The CISO attends each quarterly meeting of the RCOC to brief members on information security matters and discuss cybersecurity risks generally.
The CISO oversees a team of information security professionals who are devoted full time to assessing, identifying and managing cybersecurity threats on a day-to-day basis. The CISO attends each quarterly meeting of the RCOC to brief members on information security matters and discuss cybersecurity risks generally.
Furthermore, in the event of a material or potentially material cybersecurity event, senior members of management are promptly informed of such event and oversee triage, response, and disclosure efforts pursuant to the terms of a documented incident response plan.
In the event of a material or potentially material cybersecurity incident, senior members of management are promptly informed of such incident and oversee response and disclosure efforts pursuant to the terms of a documented incident response plan.
We also have data and cybersecurity protection and 18 control policies to facilitate a secure environment for sensitive information and to ensure the availability of critical data and systems.
We also maintain data and cybersecurity protection and control policies to facilitate a secure environment for sensitive information and to ensure the availability of critical data and systems.
Our cybersecurity strategy was designed with the foregoing principles in mind and prioritizes detecting and responding to threats and effective management of security risks.
Our cybersecurity risk management strategy is designed with the foregoing principles in mind and prioritizes detecting and responding to threats and effective management of security risks.
ITEM 1C. CYBERSECURITY Our business involves the storage and transmission of a significant amount of confidential and sensitive information. As a result, we take the confidentiality, integrity, and availability of this highly sensitive information seriously and invest significant time, effort, and resources into protecting such information.
ITEM 1C. CYBERSECURITY Cybersecurity and Risk Management Strategy Our business involves the storage and transmission of a significant amount of confidential and sensitive information. As a result, we take the confidentiality, integrity, and availability of such information seriously and invest significant time, effort, and resources into protecting such information.
In addition, our management team has established an Enterprise Risk Management Program (the "ERM Program"), which includes processes designed to identify, assess, categorize, and monitor key current and evolving risks facing AppFolio, including cybersecurity risks. Management is made aware of current and evolving cybersecurity risks through ERM Program reporting.
In addition, our management team has established an Enterprise Risk Management Program (the "ERM Program"), which includes processes designed to assess, identify, manage, categorize, and monitor key current and evolving risks facing AppFolio, including cybersecurity risks. Management is made aware of current and evolving cybersecurity risks through ERM Program reporting and periodic updates at weekly executive leadership team meetings.
To implement our cybersecurity strategy, we maintain various safeguards to secure the data we hold, including encrypting sensitive data, utilizing a robust 24/7/365 security monitoring system, regularly assessing product features for security vulnerabilities, periodically conducting internal penetration tests, and providing our customers with multi-factor authentication options to help them effectively protect their information.
To implement our cybersecurity risk management strategy, we maintain comprehensive processes and safeguards to secure the data we hold and to assess, identify and manage material risks from cybersecurity threats, including: • encrypting sensitive data, utilizing a robust 24/7/365 security monitoring system; • regularly assessing product features for security vulnerabilities; • periodically conducting internal penetration tests; and • providing our customers with multi-factor authentication options to help them effectively protect their information.
Our information security team is led by our Chief Information Security Officer ("CISO"), who has served in the role since 2015 and has experience in application security, intrusion detection, penetration testing, complex threat modeling, and unconventional cyber-attack vectors.
The RCOC updates the full Board of Directors on cybersecurity matters as appropriate. 20 Our information security team is led by our Chief Information Security Officer ("CISO"), who has served in the role since 2015 and has experience in application security, intrusion detection, penetration testing, complex threat modeling, and unconventional cyber-attack vectors.
Like many other businesses, we have experienced, and are continually subject to, cyber-attacks. While these past cyber-attacks have not materially affected or, in our belief, are reasonably likely to materially affect us, future cybersecurity incidents and threats may materially affect us, including by affecting our business strategy, results of operations, or financial condition.
While these past cyber-attacks have not materially affected and, in our belief, are not reasonably likely to materially affect us, future cybersecurity incidents and threats may materially affect us, including by affecting our business strategy, results of operations, or financial condition. See Item 1A., " Risk Factors " for additional details regarding cybersecurity risks.
The Risk and Compliance Oversight Committee of our Board of Directors (the "RCOC") is responsible for overseeing and reviewing AppFolio's cybersecurity program and cybersecurity risk exposure and the steps taken to monitor and mitigate such exposure. The RCOC updates the full Board of Directors on cybersecurity matters as appropriate.
We also carry insurance that provides certain, limited protection against potential losses arising from a cybersecurity incident. Cybersecurity Governance The Risk and Compliance Oversight Committee of our Board of Directors (the "RCOC") is responsible for overseeing and reviewing AppFolio's cybersecurity program and cybersecurity risk exposure and the steps taken to monitor and mitigate such exposure.
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We conduct annual information security awareness training for employees involved in the systems or processes connected to confidential and sensitive information. We also carry insurance that provides certain, limited protection against potential losses arising from a cybersecurity incident.
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Our cybersecurity policies, standards, and processes are informed by a variety of industry standards and best practices, including the NIST Cybersecurity Framework and ISO 27001. We engage independent third parties to audit our adherence to our cybersecurity policies and conduct infrastructure and application security assessments and penetration testing.
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Notwithstanding the foregoing efforts, there can be no assurance that the security measures we employ will prevent malicious or unauthorized access to our systems or information. No security program can entirely eliminate the risk of human error, such as an employee or contractor’s failure to follow one or more security protocols.
Added
Notwithstanding the foregoing efforts, there can be no assurance that our cybersecurity risk management program will entirely eliminate all risks from cybersecurity threats or incidents. Like many other businesses, we have experienced, and expect to continually be subject to, cyber-attacks.
Removed
See Item 1A., "Risk Factors" for additional details regarding cybersecurity risks.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES Our corporate headquarters is located in Santa Barbara, California, where we lease approximately 86,000 square feet of space. We also lease office space in several other U.S. cities. We do not own any real estate.
Biggest changeITEM 2. PROPERTIES Our corporate headquarters is located in Santa Barbara, California, where we lease approximately 87,000 square feet of space. We also lease office space in several other U.S. cities. We do not own any real estate.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAlthough the results of such investigative inquiries, legal proceedings and other disputes cannot be predicted with certainty, we believe that we are not currently a party to any 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.
Biggest changeAlthough 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 inquires, 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.
For additional information regarding legal proceedings, refer to Note 11, Commitments and Contingencies of our Consolidated Financial Statements. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
For additional information regarding legal proceedings, refer to Note 12, Commitments and Contingencies of our Consolidated Financial Statements. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II ITEM 5.
In addition to the foregoing, 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.
ITEM 3. LEGAL PROCEEDINGS From time to time, we are involved in various 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.
Removed
ITEM 3. LEGAL PROCEEDINGS On February 10, 2023, a lawsuit was filed in the First Judicial District Court of New Mexico, Murphy, et al. v. AppFolio, Inc., et al. (No. D-101-CV-2022-02100), naming us as a defendant and alleging certain violations of the New Mexico Unfair Practices Act and negligent misrepresentation in connection with our tenant screening service (the “Murphy Litigation”).
Added
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for our Common Stock Our Class A common stock is listed on the NASDAQ Global Market under the symbol "APPF". Our Class B common stock is not listed or traded on any stock exchange.
Removed
In late November 2023, the parties agreed to settle the Murphy Litigation and plan to file a notice of settlement with the court. AppFolio did not admit any wrongdoing in connection with the settlement of the Murphy Litigation.
Added
Holders of Record At January 30, 2025, there were 30 holders of record of our Class A common stock and 55 holders of record of our Class B common stock.
Removed
The Company has assessed the potential liabilities related to this matter and has determined that it is probable a loss will be incurred. As of December 31, 2023, the Company has recorded a liability of $7.0 million in Accrued Expenses related to the potential loss in connection with the Murphy Litigation.
Added
Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. Dividend Policy 21 We have never declared or paid any cash dividends on our capital stock.
Removed
The Company expects that this loss will be covered by existing insurance policies.
Added
We do not anticipate declaring or paying any cash dividends to holders of our capital stock in the foreseeable future and intend to retain all future earnings for use in the growth of our business.
Removed
However, regardless of the merit of any 19 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.
Added
Stock Performance Graph The following performance graph compares the cumulative total return on our Class A common stock with that of the S&P 500 Index and the NASDAQ Computer Index.
Added
This graph assumes that, at the close of market on December 31, 2019, $100 was invested in our Class A common stock, the S&P 500 Index and the NASDAQ Computer Index, and assumes the reinvestment of any dividends.
Added
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.
Added
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any of our other filings under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. Unregistered Sales of Equity Securities and Purchases of Equity Securities None.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Removed
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for our Common Stock Our Class A common stock is listed on the NASDAQ Global Market under the symbol "APPF". Our Class B common stock is not listed or traded on any stock exchange.
Added
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. (b) Matthew S. Mazza has been appointed Chief Trust Officer of the Company, effective February 6, 2025. Mr.
Removed
Holders of Record At January 25, 2024, there were 34 holders of record of our Class A common stock and 59 holders of record of our Class B common stock.
Added
Mazza previously served as the Company's Chief Legal Officer, a position he held since 2021, and Corporate Secretary, a position he held since 2022. Before becoming Chief Legal Officer, Mr. Mazza served as the Company's General Counsel and Chief Compliance Officer, as well as in other senior legal and compliance roles, since 2016.
Removed
Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. Dividend Policy We have never declared or paid any cash dividends on our capital stock.
Added
(e) In connection with his appointment as Chief Trust Officer, Mr. Mazza entered into an employment agreement with the Company, dated as of February 6, 2025 (the “Employment Agreement”). The Employment Agreement provides for “at-will” employment and sets forth the terms and conditions of Mr. Mazza’s employment. Pursuant to the Employment Agreement, Mr.
Removed
We do not anticipate declaring or paying any cash dividends to holders of our capital stock in the foreseeable future and intend to retain all future earnings for use in the growth of our business.
Added
Mazza will be entitled to receive, among other things: (a) an annual base salary of $420,000; (b) an annual bonus opportunity under the Company’s corporate bonus plan equal to 60% of his annual base salary at target; and (c) for 2025, an award of restricted stock units covering a number of shares of Class A Common Stock of the Company having an aggregate value of approximately $1,800,000 on the date of grant, which will vest in accordance with the Company’s standard practices.
Removed
Stock Performance Graph The following performance graph compares the cumulative total return on our Class A common stock with that of the S&P 500 Index and the NASDAQ Computer Index.
Added
In addition, pursuant to the Employment Agreement, in the event the Company terminates Mr.
Removed
This chart assumes $100 was invested in our Class A common stock at the close of market on December 31, 2018, and in the S&P 500 Index and the NASDAQ Computer Index, and assumes the reinvestment of any dividends.
Added
Mazza’s employment without “cause” or he resigns for “good reason,” (as each term is defined therein) subject to his execution and non-revocation of a general release of claims in favor of the Company and his compliance with certain non-disparagement, confidentiality and other restrictive covenants, he will be entitled to receive: (i) nine months of base salary continuation; (ii) payment of any earned but unpaid annual bonus in respect of the prior completed fiscal year; (iii) a pro rata portion of any annual bonus for the fiscal year in which such termination occurs; and (iv) payment of monthly premiums under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) until the earlier of (x) nine months following the termination date and (y) the date on which Mr.
Removed
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock. 20 This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any of our other filings under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Added
Mazza first becomes eligible to obtain group health insurance through another employer or otherwise ceases to be eligible for continuation coverage under COBRA.
Removed
Unregistered Sales of Equity Securities and Purchases of Equity Securities None. ITEM 6. [RESERVED]
Added
The foregoing summary of the Employment Agreement is qualified in its entirety by reference to the full text of the Employment Agreement, which is filed as an Exhibit 10.25 to this Annual Report and incorporated herein by reference. ITEM 9C. DISCLOSURES REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS Not applicable. PART III

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe expect cost of revenue (exclusive of depreciation and amortization) for the year ending December 31, 2024, to decrease slightly as a percentage of revenue compared to the year ended December 31, 2023, as we continue to drive additional efficiencies. 24 Sales and Marketing Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Sales and marketing $ 107,602 $ 107,398 $ 204 — % Percentage of revenue 17.3 % 22.8 % Stock-based compensation, included above $ 5,983 $ 8,681 $ (2,698) (31) % Percentage of revenue 1.0 % 1.8 % Sales and marketing expense for the year ended December 31, 2023 was relatively flat compared to the prior year, reflecting a net increase in personnel-related costs, including stock-based and performance-based compensation, of $2.6 million, partially offset by a decrease in allocated shared and other costs of $1.9 million.
Biggest changeSales and Marketing Year Ended December 31, Change 2024 2023 Amount % (dollars in thousands) Sales and marketing $ 110,597 $ 107,602 $ 2,995 3 % Percentage of revenue 13.9 % 17.3 % Stock-based compensation, included above $ 8,030 $ 5,983 $ 2,047 34 % Percentage of revenue 1.0 % 1.0 % Sales and marketing expense for the year ended December 31, 2024 increased compared to the prior year, primarily due to a $2.4 million increase in advertising and promotion expense and a $3.4 million increase related to our FUTURE conference.
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.
The subscription fees for our core solutions 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 account for individual performance obligations separately if they are distinct. The performance obligations for 28 these contracts include access and use of our core solutions, implementation services, and customer support. Access and use of our core solutions and implementation services are considered distinct. The transaction price is allocated to each performance obligation on a relative standalone selling price basis.
We account for individual performance obligations separately if they are distinct. The performance obligations for these contracts include access and use of our core solutions, implementation services, and customer support. Access and use of our core solutions and implementation services are considered distinct. The transaction price is allocated to each performance obligation on a relative standalone selling price basis.
The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the Consolidated Statements of Operations in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.
The effect of a change in tax rates on deferred tax assets and liabilities is recognized in our Consolidated Statements of Operations in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.
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.
We generally invoice monthly or, to a lesser extent, annually in advance of a 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.
Usage-based fees are charged either as a percentage of the transaction amount (e.g., for certain of our electronic payment services) or on a flat fee per transaction basis generally 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.
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 usage of our Value Added Services.
We expect total revenue for the year ending December 31, 2025 to increase compared to the year ended December 31, 2024 as we continue to add new customers and property management units under management, along with increased adoption and usage of our Value Added Services.
Furthermore, our Board of Directors has authorized our management to repurchase 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.
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.
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.
Sales and marketing expense consists of personnel-related costs for our employees focused on sales and marketing (including salaries, sales commissions, cash bonuses, 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.
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.
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. Interest Income, Net.
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, corporate development and administrative organizations (including salaries, performance-based cash compensation, benefits, and stock-based compensation).
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, cash bonuses, benefits, and stock-based compensation).
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.
Research and product development expense consists of personnel-related costs for our employees focused on research and product development (including salaries, cash bonuses, benefits, and stock-based compensation), fees for third-party development resources, and allocated shared and other costs.
Cost of revenue also consists of 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 also includes personnel-related costs for our employees focused on customer service and the support of our operations (including salaries, cash bonuses, benefits, and stock-based compensation), platform infrastructure costs (such as data center operations and hosting-related costs), and allocated shared and other costs.
During the year ended December 31, 2023, we experienced growth of 13% in the number of property management units under management compared to 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, property managers, and owners transacted more business online.
During the year ended December 31, 2024, we experienced growth of 6% in the number of property management units under management compared to the prior year, which drove growth in both the number users and usage of our subscription and usage-based services. 24 Our electronic payment services experienced increased usage during the comparative periods as residents, property managers, and owners transacted more business online.
For additional information, refer to Note 2, Summary of Significant Accounting Policies of our Consolidated Financial Statements included elsewhere in this Annual Report. Revenue Recognition Many of our contracts with customers contain multiple performance obligations. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment.
For additional information, see Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report. Revenue Recognition Many of our contracts with customers contain multiple performance obligations. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment.
In evaluating the need for a valuation allowance, we consider the weighting of all available positive and negative evidence, which includes, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, and the duration of statutory carryforward periods.
In evaluating the need for a valuation allowance at each reporting period, we consider the weighting of all available positive and negative evidence, which includes, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, timing of the future reversal of existing temporary differences, and the duration of statutory carryforward periods.
For further information, see Note 8, Accrued Employee Expenses , and Note 16, Workforce Reduction , of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.
For additional information, see Note 9, Accrued Employee Expenses , and Note 17, Workforce Reduction , of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
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.
Many of our Value Added Services are facilitated by third-party service providers. Cost of revenue paid to these third-party service providers includes, without limitation, 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.
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 cash deposited in our bank accounts. Provision for Income Taxes.
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. (Benefit from) provision for income taxes. (Benefit from) provision for income taxes consists of federal and state income taxes in the United States.
The net increase in cash used in investing activities for the year ended December 31, 2023, compared to the prior year, was primarily due to higher purchases of available-for-sale investment securities.
The net increase in cash used in investing activities for the year ended December 31, 2024, compared to the prior year, was primarily due to higher purchases of available-for-sale investment securities and the cash paid in business acquisition, net of cash acquired.
Cash Used in Investing Activities Cash used in investing activities is generally composed of purchases of investment securities, maturities and sales of investment securities, purchases of property and equipment, and additions to capitalized software development.
Cash Used in Investing Activities Cash used in investing activities is generally composed of the cash paid in business acquisition, net of cash acquired, purchases of investment securities, maturities and sales of investment securities, purchases of property and equipment, and additions to capitalized software development.
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.
We expect research and product development expenses for the year ending December 31, 2025 to decrease as a percentage of revenue compared to the year ended December 31, 2024, as we continue to leverage headcount efficiencies.
We had 8.2 million and 7.3 million property management units under management, as of December 31, 2023 and 2022, respectively. Seasonality We have historically experienced seasonality in our Value Added Services revenue, primarily in our tenant screening revenue, due to seasonally higher leasing activities in the second quarter, which increase tenant screening transactions in that period.
We had 8.7 million and 8.2 million property management units under management, as of December 31, 2024 and 2023, respectively. Seasonality We have historically experienced seasonality in our Value Added Services revenue due to seasonally higher leasing activities in the second quarter.
For additional information, see Note 16, Workforce Reduction , of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
For additional information regarding the business combination, see Note 7 Business Combination, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
In addition, general and administrative expense includes fees for third-party professional services (including audit, legal, compliance, and tax services), transaction costs related to sales of subsidiary businesses, regulatory fees or fines, other corporate expenses, impairment of long-lived assets, and allocated shared and other costs. Depreciation and Amortization.
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.
The net increase in cash used in financing activities for the year ended December 31, 2023, compared to the prior year, was primarily due to an increase in net share settlements for employee tax withholdings associated with the vesting of equity awards. Off-Balance Sheet Arrangements As of December 31, 2023, we did not have any off-balance sheet arrangements.
The net increase in cash used in financing activities for the year ended December 31, 2024, compared to the prior year, was primarily due to an increase in net share settlements for employee tax withholdings associated with the vesting of equity awards.
Non-cancelable purchase commitments for business operations total $57.0 million as of December 31, 2023, due primarily over the next three years. Operating lease obligations totaling $55.5 million associated with leased facilities and have varying maturities with $31.1 million due over the next five years.
As of December 31, 2024, our non-cancelable purchase commitments for business operations totaled $57.5 million, which are due primarily over the next three years. Operating lease obligations total $50.4 million as of December 31, 2024 associated with leased facilities and have varying maturities with $32.9 million due over the next five years.
Cost of Revenue (Exclusive of Depreciation and Amortization) Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Cost of revenue (exclusive of depreciation and amortization) $ 238,076 $ 191,826 $ 46,250 24 % Percentage of revenue 38.4 % 40.7 % Stock-based compensation, included above $ 3,703 $ 2,640 $ 1,063 40 % Percentage of revenue 0.6 % 0.6 % Cost of revenue (exclusive of depreciation and amortization) for the year ended December 31, 2023, increased primarily due to increases in expenditures to third-party service providers related to the delivery of our Value Added Services of $34.9 million compared to the prior year.
Cost of Revenue (Exclusive of Depreciation and Amortization) Year Ended December 31, Change 2024 2023 Amount % (dollars in thousands) Cost of revenue (exclusive of depreciation and amortization) $ 282,067 $ 238,076 $ 43,991 18 % Percentage of revenue 35.5 % 38.4 % Stock-based compensation, included above $ 4,522 $ 3,703 $ 819 22 % Percentage of revenue 0.6 % 0.6 % Cost of revenue (exclusive of depreciation and amortization) for the year ended December 31, 2024, increased primarily due to increases in expenditures to third-party service providers related to the delivery of our Value Added Services of $40.7 million compared to the prior year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report.
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 Consolidated Financial Statements and the related notes included elsewhere in this Annual Report. 22 The following discussion and analysis of our financial condition and results of operations includes 2024 and 2023 items and year-over-year comparisons between 2024 and 2023.
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.
Our payments services fees are recorded gross of any 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 electronic payment services, tenant screening services, and risk mitigation services.
As we navigate the challenges of increased competition for talent, we continue to evolve our compensation and employee reward practices. Key Business Metric We monitor the key business metric set forth below to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. Property management units under management.
Key Business Metric We monitor the key business metric set forth below to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. Property management units under management.
For additional information regarding our Share Repurchase Program, refer to Note 12, Stockholders' Equity . 27 Cash Flows The following table presents our cash flows for the periods indicated (in thousands): Year Ended December 31, 2023 2022 Net cash provided by operating activities $ 60,283 $ 25,365 Net cash used in investing activities (55,582) (6,466) Net cash used in financing activities (25,961) (6,163) Net (decrease) increase in cash and cash equivalents $ (21,260) $ 12,736 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 Added Services.
Cash Flows The following table presents our cash flows for the periods indicated (in thousands): Year Ended December 31, 2024 2023 Net cash provided by operating activities $ 188,159 $ 60,283 Net cash used in investing activities (151,761) (55,582) Net cash used in financing activities (43,403) (25,961) Net (decrease) in cash and cash equivalents $ (7,005) $ (21,260) 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 Added Services.
Critical Accounting Policies and Estimates Our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report are prepared in accordance with generally accepted accounting principles in the United States.
Off-Balance Sheet Arrangements As of December 31, 2024, we did not have any off-balance sheet arrangements. 28 Critical Accounting Policies and Estimates Our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report are prepared in accordance with accounting principles generally accepted in the United States of America.
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.
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. 27 Capital Requirements Our future capital requirements 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.
For further information, see Note 3, Sale of Subsidiary Business, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.
For additional information, see Note 7, Business Combination, and Note 8, Goodwill and Intangible Assets, Net , of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
These seasonal factors could be heightened or lessened due to the impact of a change in macroeconomic factors that could impact tenant behavior or a change in our product portfolio mix or the adoption rate of our other less seasonally impacted Value Added Services.
Moreover, if macroeconomic factors in a given fiscal year impact tenant behavior, our product portfolio mix, or the adoption rate of our other less seasonally impacted Value Added Services, the effect that seasonal factors have on our revenue may be exacerbated.
Liquidity and Capital Resources Our principal sources of liquidity continue to be cash, cash equivalents, and investment securities, as well as cash flows generated from our operations. As of December 31, 2023, our cash and cash equivalents and investment securities had an aggregate balance of $211.7 million. We have financed our operations primarily through cash generated from operations.
As of December 31, 2024, our cash and cash equivalents and investment securities had an aggregate balance of $278.2 million. We have financed our operations primarily through cash generated from operations.
The increase in personnel-related costs for the year ended December 31, 2023 was driven primarily by the separation costs associated with our former Chief Executive Officer's Separation Agreement of $14.9 million and the severance related costs associated with the workforce reduction in the third quarter of 2023 of $2.5 million.
The decrease in personnel-related costs was primarily due to the $14.9 million separation costs incurred in the first quarter of 2023 in connection with our former Chief Executive Officer's separation and the $2.5 million severance related expenses from a workforce reduction in the third quarter of 2023.
Depreciation and Amortization Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Depreciation and amortization $ 28,988 $ 33,119 $ (4,131) (12)% Percentage of revenue 4.7 % 7.0 % Depreciation and amortization expense for the year ended December 31, 2023 decreased, compared to the prior year, primarily due to decreased amortization expense associated with capitalized software development and intangible balances.
We expect general and administrative expenses for the year ending December 31, 2025 to decrease as a percentage of revenue compared to the year ended December 31, 2024, as we continue to leverage headcount efficiencies. 26 Depreciation and Amortization Year Ended December 31, Change 2024 2023 Amount % (dollars in thousands) Depreciation and amortization $ 19,545 $ 28,988 $ (9,443) (33)% Percentage of revenue 2.5 % 4.7 % Depreciation and amortization expense for the year ended December 31, 2024 decreased, compared to the prior year, primarily due to decreased amortization expense associated with capitalized software development and intangible balances.
“Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022. 21 Overview We are a leading provider of cloud business management solutions for the real estate industry.
For discussion of 2022 items and year-over-year comparisons between 2023 and 2022, refer to Part II. Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023. Overview We are a technology leader powering the future of the real estate industry.
Allocated shared and other costs increased by $1.7 million for the year ended December 31, 2023, compared to the prior year, primarily related to platform infrastructure, software and other costs incurred in support of our overall growth.
This increase was directly associated with the increased adoption and utilization of our Value Added Services. Allocated shared and other costs increased by $3.5 million for the year ended December 31, 2024, compared to the prior year, primarily related to investment in platform infrastructure in support of our overall growth.
The net increase in cash provided by operating activities for the year ended December 31, 2023, compared to the prior year, was primarily due to a higher increase in cash collections from customers relative to the increase in operating expenditures, partially offset by the payment of separation costs related to our former Chief Executive Officer's Separation Agreement and the severance costs associated with the workforce reduction during the year ended December 31, 2023.
The net increase in cash provided by operating activities for the year ended December 31, 2024, compared to the prior year, was primarily due to a higher increase in cash collections from customers relative to the increase in operating expenditures during the year ended December 31, 2024.
Interest Income, Net Year Ended December 31, Change 2023 2022 Amount % Interest income, net $ 7,031 $ 1,184 $ 5,847 494 % Percentage of revenue 1.1 % 0.3 % Interest income for the year ended December 31, 2023 increased, compared to the prior year, primarily due to higher interest rates.
Interest Income, Net Year Ended December 31, Change 2024 2023 Amount % Interest income, net $ 13,981 $ 7,031 $ 6,950 99 % Percentage of revenue 1.8 % 1.1 % Interest income for the year ended December 31, 2024 increased, compared to the prior year, primarily due to higher interest rates and purchases of available-for-sale investment securities.
We recognize interest and 29 penalties accrued with respect to uncertain tax positions, if any, in our provision for income taxes in the Consolidated Statements of Operations. Recent Accounting Pronouncements For information regarding recent accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies of our Consolidated Financial Statements included elsewhere in this Annual Report.
Recent Accounting Pronouncements For information regarding recent accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies of our Consolidated Financial Statements included elsewhere in this Annual Report.
In addition, we stopped waiving the eCheck (ACH) transaction fee beginning in the third quarter of 2023. Our tenant screening and risk mitigation services usage also increased during the comparative periods in line with the increase in units under management. The decrease in other revenue is primarily attributable to the WegoWise Transaction during the year ended December 31, 2022.
In addition, we stopped waiving eCheck (ACH) transaction fees beginning in the third quarter of 2023. Our tenant screening and risk mitigation services usage also increased during the comparative periods, driven by higher adoption and growth in units under management, respectively.
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 balances.
We expect cost of revenue (exclusive of depreciation and amortization) for the year ending December 31, 2025, to stay relatively flat as a percentage of revenue compared to the year ended December 31, 2024.
Our estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Income Taxes We recognize deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.
Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Provision for Income Taxes Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Income (loss) before provision for income taxes $ 7,997 $ (66,717) $ 74,714 (112) % Provision for income taxes $ 5,295 $ 1,402 $ 3,893 278 % Effective tax rate 66.2 % (2.1) % The increase in our effective tax rate for the year ended December 31, 2023, as compared to the prior year, is primarily due to the significant increase in our pre-tax income, change in valuation allowance against deferred tax assets, higher non-deductible officers’ compensation, partially offset by higher tax benefits from stock-based compensation and research and development credits.
(Benefit from) provision for income taxes Year Ended December 31, Change 2024 2023 Amount % (dollars in thousands) Income (loss) before provision for income taxes $ 150,322 $ 7,997 $ 142,325 1780 % (Benefit from) provision for income taxes $ (53,746) $ 5,295 $ (59,041) (1,115) % Effective tax rate (35.8) % 66.2 % The decrease in our effective tax rate for the year ended December 31, 2024, as compared to the prior year, is primarily due to the valuation allowance release against our federal and state deferred tax assets, which was partially offset by higher tax expense due to a significant increase in our pre-tax income.
As a result of the seasonality of the rental lifecycle and the growth of our business, we have typically experienced a sequential increase in revenue in the first, second and third quarters and a sequential decline in revenue in the fourth quarter of each of our most recent fiscal years.
Because of the seasonality in our Value Added Services, we typically experience a sequential increase in revenue in the first, second, and third quarters and a sequential decline in revenue in the fourth quarter.
For additional information regarding the WegoWise Transaction, refer to Note 3, Sale of Subsidiary Business, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.
For additional information regarding our Share Repurchase Program, see Note 13, Stockholders' Equity, of the Notes to Consolidated Financial Statement included in Part II, Item 8 of this Annual Report.
Provision for income taxes consists of federal and state income taxes in the United States. 23 Results of Operations Revenue Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Core solutions $ 156,692 $ 132,541 $ 24,151 18 % Value Added Services 454,098 327,636 126,462 39 Other 9,655 11,706 (2,051) (18) Total revenue $ 620,445 $ 471,883 $ 148,562 31 % The increase in revenue for the year ended December 31, 2023, compared to the prior year, was primarily attributable to an increase in the usage of our payments, tenant screening, and risk mitigation services.
Results of Operations Revenue Year Ended December 31, Change 2024 2023 Amount % (dollars in thousands) Core solutions $ 180,605 $ 156,692 $ 23,913 15 % Value Added Services 605,011 454,098 150,913 33 Other 8,586 9,655 (1,069) (11) Total revenue $ 794,202 $ 620,445 $ 173,757 28 % The increase in revenue for the year ended December 31, 2024, compared to the prior year, was primarily attributable to an increase in the usage of our electronic payment, tenant screening, and risk mitigation 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 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 .
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 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. 25 General and Administrative Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) General and administrative $ 93,452 $ 100,792 $ (7,340) (7) % Percentage of revenue 15.1 % 21.4 % Stock-based compensation, included above $ 21,704 $ 13,584 $ 8,120 60 % Percentage of revenue 3.5 % 2.9 % General and administrative expense for the year ended December 31, 2023 decreased compared to the same period in the prior year primarily due to lease-related asset impairment charges of $22.0 million recognized in the year ended December 31, 2022 that did not recur in 2023.
General and Administrative Year Ended December 31, Change 2024 2023 Amount % (dollars in thousands) General and administrative $ 85,974 $ 93,452 $ (7,478) (8) % Percentage of revenue 10.8 % 15.1 % Stock-based compensation, included above $ 22,361 $ 21,704 $ 657 3 % Percentage of revenue 2.8 % 3.5 % General and administrative expense for the year ended December 31, 2024 decreased compared to the prior year, primarily due to a $15.4 million decrease in personnel-related costs, including cash bonuses and stock-based compensation, which was partially offset by a $7.8 million increase in allocated shared and other costs.
For additional information, see Note 16, Workforce Reduction, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. Allocated shared and other costs increased by $2.6 million year ended December 31, 2023 compared to the prior year, driven by costs supporting our overall growth.
For additional information, see Note 17, Workforce Reduction , of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. For the year ended December 31, 2024, stock-based compensation increased due to additional grants to current and new employees with higher grant date fair value.
For the year ended December 31, 2023, stock-based compensation increased due to additional grants to current and new employees and incremental expense associated with the workforce reduction in the third quarter of 2023.
For additional information, see Note 17, Workforce Reduction, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. For the year ended December 31, 2024, stock-based compensation increased due to additional grants to current and new employees with higher grant date fair value.
The increase in personnel-related costs was primarily due to headcount growth within our research and product development organization, higher salaries, and $3.4 million of severance and related personnel costs associated with the workforce reduction in the third quarter of 2023.
Additionally, there was a $4.2 million increase in allocated shared and other costs, largely due to higher technology expense. The increase in personnel costs was partially offset by $3.4 million in severance and related expenses from a workforce reduction in the third quarter of 2023.
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 vendors, and provide key functionality related to critical transactions across the real estate lifecycle, including screening potential tenants, sending and receiving payments and providing insurance-related risk mitigation services.
We also provide key functionality related to critical transactions across the real estate lifecycle, including screening potential residents, sending and receiving payments, and providing insurance-related risk mitigation services. Our services enable our customers to connect communities, increase operational efficiency, deliver exceptional customer experiences, and improve financial and operational performance.
Research and Product Development Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Research and product development $ 151,364 $ 111,118 $ 40,246 36 % Percentage of revenue 24.4 % 23.5 % Stock-based compensation, included above $ 20,974 $ 16,030 $ 4,944 31 % Percentage of revenue 3.4 % 3.4 % Research and product development expense for the year ended December 31, 2023 increased primarily due to an increase in personnel-related costs, including stock-based and performance-based compensation, net of capitalized software development costs, of $37.7 million, compared to the prior year.
We expect sales and marketing expense for the year ending December 31, 2025 to slightly increase as a percentage of revenue compared to the year ended December 31, 2024 as we increase awareness and presence through targeted go-to-market investment. 25 Research and Product Development Year Ended December 31, Change 2024 2023 Amount % (dollars in thousands) Research and product development $ 160,375 $ 151,364 $ 9,011 6 % Percentage of revenue 20.2 % 24.4 % Stock-based compensation, included above $ 25,414 $ 20,974 $ 4,440 21 % Percentage of revenue 3.2 % 3.4 % Research and product development expense for the year ended December 31, 2024 increased compared to the prior year.
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.
We expect depreciation and amortization expenses for the year ending December 31, 2025 to increase as a percentage of revenue compared to the year ended December 31, 2024 due to amortization of the intangible assets recognized from the acquisition of Move EZ, Inc. in the fourth quarter of 2024.
As of December 31, 2023 and 2022, we had 19,737 and 18,441 property management customers, respectively. 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.
We also generate revenue from the legacy customers of businesses we acquire that provide standalone services outside of our platform. Revenue derived from these services is recorded in Other revenue. As of December 31, 2024 and 2023, we had 20,784 and 19,737 property management customers, respectively. 23 Costs and Operating Expenses Cost of Revenue (Exclusive of Depreciation and Amortization).
We give significant weight to objectively verified evidence, such as historical cumulative losses, in our overall assessment. Judgment is required to measure the amount of tax benefits that can be recognized associated with uncertain tax positions.
Accordingly, we determined it is more likely than not that the deferred tax assets will be realized and we released our valuation allowance at December 31, 2024. Judgment is required to measure the amount of tax benefits that can be recognized in connection with uncertain tax positions.
Removed
This discussion and analysis contains forward-looking statements that are based on our current expectations and reflect our plans, estimates and anticipated future financial performance. These statements involve numerous risks and uncertainties.
Added
We provide a cloud-based platform on which our customers operate their businesses. We help our customers navigate an increasingly interconnected and growing network of stakeholders in their business ecosystems, including property managers, property investors, potential residents, residents, and vendors.
Removed
Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in the section of this Annual Report entitled "Risk Factors". See the section of this Annual Report entitled “Forward-Looking Statements” for additional information.
Added
Specifically, higher tenant applications in the second quarter typically result in increased use by our property management customers of our tenant screening services and, in the third quarter once resident move-ins have occurred, higher demand for our risk mitigation services.
Removed
The following discussion and analysis of our financial condition and results of operations includes 2023 and 2022 items and year-over-year comparisons between 2023 and 2022. For discussion of 2021 items and year-over-year comparisons between 2022 and 2021, refer to Part II. Item 7.
Added
These increases were partially offset by a $1.5 million reduction in personnel-related costs, including cash bonuses and stock-based compensation. The reduction in personnel-related costs included $3.8 million of severance and related personnel expenses from a workforce reduction in the third quarter of 2023.
Removed
Our solutions are designed to enable our property manager customers to digitally transform their businesses, address critical operations and deliver a better customer experience.
Added
The increase was mainly due to a $4.8 million rise in personnel-related costs, including cash bonuses and stock-based compensation. These costs, net of capitalized software development costs, were driven by headcount growth and higher salaries as we continued to invest in innovation.
Removed
AppFolio’s intuitive interface, streamlined workflows, and AI powered automation 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.
Added
The increase in allocated shared and other costs was primarily due to a $4.3 million lease modifications gain recognized in 2023 and a $3.5 million increase in technology and professional services expenses to support our growth in 2024.
Removed
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 designed to motivate and develop our valuable human capital.
Added
As of December 31, 2024, we recorded an income tax benefit of $53.7 million, primarily due to the release of our valuation allowance of certain U.S. federal and state deferred tax assets.
Removed
We generally experience decreased tenant screening revenue in the fourth quarter, when seasonally lower leasing activities occur. Corresponding to the higher tenant applications in the second quarter, our property manager customers typically experience an increase in new tenants in the third quarter, resulting in a higher demand for our insurance-related risk mitigation services in that period.
Added
In assessing all available evidence, we determined that there was sufficient positive evidence to overcome the negative evidence, including our past and current financial results, growth demonstrated in our top-line performance, as well as projected profitability.
Removed
A significant majority of our Value Added Services revenue comes from the use of our payment services, tenant screening services, and risk mitigation services. 22 We charge our customers for onboarding assistance to our core solutions and certain other non-recurring services.
Added
Accordingly, we determined it is more likely than not that the deferred tax assets will be realized and we released our valuation allowance at December 31, 2024. Liquidity and Capital Resources Our principal sources of liquidity continue to be cash, cash equivalents, and investment securities, as well as cash flows generated from our operations.
Removed
Other Income (Loss), Net. Other income, net includes gain on sale of our equity-method investments, gains and losses associated with the sale of businesses and property and equipment, and income from certain post-closing transition services provided by us to MyCase, Inc. during fiscal year 2021. Interest Income, Net.
Added
We have in the past entered into, and may in the future enter into, arrangements to acquire or invest in new technologies or markets.
Removed
This increase was directly associated with the increased adoption and utilization of our Value Added Services. Personnel-related costs, including stock-based and performance-based compensation, necessary to support growth and key investments, increased $9.6 million for the year ended December 31, 2023, compared to the prior year.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Interest Rate Risk Investment Securities As of December 31, 2023, we had $162.2 million of investment securities consisting of United States government agency securities, and treasury securities. The primary objective of investing in securities is to support our liquidity and capital needs.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Investment Securities As of December 31, 2024, we had $235.7 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.
This estimate is based on a sensitivity model which measured an instant change in interest rates by 100 basis points as of December 31, 2023.
This estimate is based on a sensitivity model which measured an instant change in interest rates by 100 basis points as of December 31, 2024. 30
As of December 31, 2023, 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 $0.8 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 $0.8 million.
As of December 31, 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 $0.9 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 $0.9 million.

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