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What changed in APPFOLIO INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of APPFOLIO INC's 2022 and 2023 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 2023 report.

+270 added−228 removedSource: 10-K (2024-02-01) vs 10-K (2023-02-09)

Top changes in APPFOLIO INC's 2023 10-K

270 paragraphs added · 228 removed · 183 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

31 edited+24 added−26 removed17 unchanged
Biggest changeOur Growth Strategy Our growth strategy is to provide increasingly valuable business management solutions to new and existing customers in the real estate industry. We are leveraging our growing footprint to expand within the property management market. Key components of our near and extended term growth strategy include: Keep Our Existing Customers Happy.
Biggest changeOur 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 solutions are designed to enable our property manager customers to digitally transform their businesses, address critical business operations and deliver a better customer experience. Digital transformation is effectively a requirement for business success in the modern world, and the way we work and live today requires powerful software solutions.
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.
We also experience competition from numerous cloud-based solutions 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 solution providers could significantly increase competition.
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 believe our competitors primarily fall into the following categories: • On-premise or cloud-based 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: • 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.
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. • Insurance. Through our FolioGuard™ brand, we offer risk mitigation products for residents and property managers.
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 electronic payment services allow property managers to streamline their receivables and payables through a variety of online payment options. Customers can collect funds through our secure online portal, our mobile application and/or via electronic cash payments from various stakeholders, including applicants, residents and property owners.
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.
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 service providers, and provide key functionality related to critical transactions across the real estate lifecycle, including screening potential tenants, sending and receiving payments and even 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 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.
Our solutions are offered as a service, and are hosted using a modern cloud-based architecture. 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.
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.
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. Customers can also electronically send funds to various stakeholders, including distributions to property owners, payments to service providers, and even payment to their own management company. • Screening.
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.
FolioGuard Smart Ensure, our liability to landlord insurance product, 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 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.
Our platform and mobile-optimized solutions are designed for use across multiple devices and operating systems, and to be (a) a system of record to centralize and automate essential business processes, (b) a system of engagement to enhance business interactions between our customers and their network of stakeholders, and (c) a system of intelligence to leverage data to predict and optimize business workflows in order to enable exceptional customer experiences and increase efficiency across their businesses.
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.
AppFolio’s intuitive interface, coupled with streamlined and automated workflows, makes 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.
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.
Additionally approximately 65% identified as White, 12% identified as Asian, 11% identified as Hispanic or Latino, 5% identified as Black or African American, less than 1% identified as American Indian or Alaska Native, less than 1% identified as Native Hawaiian or Other Pacific Islander, and 6% identified as two or more races.
Additionally, approximately 5 63% identified as White, 14% identified as Asian, 11% identified as Hispanic or Latino, 7% identified as two or more races, 4% identified as Black, and less than 1% identified as American Indian, Alaska Native, Native Hawaiian or Pacific Islander. Employee Development.
Both aspects of the system are inherently interconnected so that the day-to-day interactions, such as residents paying rent through the AppFolio Property Manager mobile app, are instantly reflected in the system of record.
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.
When we conducted a voluntary survey of our workforce in 2022, of those who elected to share, approximately 54% identified as men, 45% identified as women, and less than 1% identified as nonbinary.
When we conducted a voluntary survey of our workforce in 2023, of those who elected to share, approximately 57% identified as men, 42% identified as women, and 1% identified as outside of the gender binary.
Onboarding consists of a dedicated team that works to ensure that customers are prepared to run their businesses on our platform. 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.
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.
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. We monitor our production infrastructure to ensure high performance and availability, and our architecture allows our operators significant flexibility in achieving these goals.
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.
We take great care to keep our application framework and the rest of our software stack current in order to mitigate known security vulnerabilities. Our computing platform and cloud infrastructure are primarily powered by Amazon Web Services’ Elastic Compute Cloud (EC2) platform.
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.
AppFolio Property Manager is also the system of engagement that customers use to interact with key stakeholders in their business ecosystems, including residents living at their properties, owners and investors owning those properties, and vendors providing products and services to the properties.
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.
We strive for a seamless experience for our customers that increases their efficiency while not sacrificing ease of use of AppFolio Property Manager and AppFolio Property Manager Plus, whether services are offered by AppFolio or by a third-party partner.
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.
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. 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.
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.
FolioGuard Renters Insurance 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. See Item 7, " Management's Discussion and Analysis of Financial Condition and Results of Operations " for additional details regarding seasonality of 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. We experience some seasonality in our Value Added Services revenue.
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. 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.
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.
We regularly solicit feedback to assess the well-being and needs of our employees and offer resources focused on mental health and physical wellness. We have embraced Together@AppFolio, our 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 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.
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. Our sales representatives assist prospective customers as they evaluate our products.
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.
Our company culture, driven by the following six core values, fuels our dedication and passion: • Simpler Is Better • Great, Innovative Products Are Key To A Great Business • Great People Make A Great Company • Listening To Customers Is In Our DNA • Small, Focused Teams Keep Us Agile • We Do The Right Thing; It’s Good For Business As of December 31, 2022, we had 1,785 employees.
Our company culture, driven by the following six core values, fuels our purpose and results: • Great people make a great company. • Listening to customers is in our DNA. • Innovation powers success. • Simpler is better. • Do the right thing; it’s good for business. • Build trust every day.
We also assist our customers with the configuration of our products for particular property types, as appropriate. 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.
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 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’s platform addresses important aspects of workflows common to property management and is frequently updated in response to market trends and customer needs.
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.
Our annual engagement survey provides a platform for employees to provide anonymous feedback directly to their managers and our executives. Societal Impact. We believe in making an impactful contribution to the causes and communities that are meaningful to our employees in the context of the real estate industry.
Our quarterly engagement survey provides a platform for employees to provide anonymous feedback directly to their managers and our executives. Societal Impact. We create a culture of impact by striving to be a force for good for our customers, communities, and each other.
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. Our solutions are designed to be easy to use and manage, and we offer training and support at no extra charge.
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.
To maintain this strong relationship and attract new talent, our human capital management efforts focus on the following initiatives: 5 Diversity, Equity, and Inclusion. 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.
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.
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Further, we believe that partnering and integrating with curated third party solutions to enable important functionality for our customers and their stakeholders while maintaining an elevated customer experience will benefit our customer base over time.
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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.
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Core functionality of our services addresses key operational issues, including accounting, business analytics and management, marketing and leasing functionality, maintenance and operational efficiency, as well as communications with key stakeholders in our customers' business ecosystems. AppFolio Property Manager AppFolio Property Manager provides the platform upon which property managers can run their business operations.
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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.
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Property management companies choose AppFolio Property Manager to leverage the benefits of process automation, an easy-to-use interface, and the optimization of common workflows.
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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.
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Customers include third-party property managers and owner-operators, who typically manage single- and multi-family residential properties, including single family homes, multi-family apartments, mobile homes, affordable housing, student housing, senior housing, and others who manage community association and commercial properties. AppFolio Property Manager serves as our customers’ system of record with accounting functionality at the core.
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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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All critical transactions are completed and recorded in the system and give our customers access to the data they need to run their business.
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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.
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AppFolio Property Manager's mobile capabilities enable our customers' teams to be productive regardless of their location, responding to leasing inquiries, addressing work orders, or completing inspections on the go.
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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.
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Due to their distributed nature, this is especially relevant for our property management customers with a significant portion of single-family or small multi-family properties. 2 AppFolio Property Manager Plus We continue to serve customers with larger and more complex portfolios with AppFolio Property Manager Plus, recognizing the evolving needs these customers have for deeper business insights, automation, and more advanced experiences.
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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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These customers typically have a more diverse mix of property types, a wider geographical dispersion of their properties, and the larger teams necessary to manage those types of portfolios.
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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.
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AppFolio Property Manager Plus is designed to solve these challenges in multiple ways: customizable workflows allow customers to digitize their existing processes; performance insights help drive efficiency; intelligent revenue management helps maximize real estate asset potential; integrations with a growing list of technology partners open new and diverse technologies and experiences; dedicated strategic account managers help customers realize the full benefit of our platform and solutions.
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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.
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Value Added Services AppFolio Property Manager’s optional but often mission-critical Value Added Services are designed to enhance, automate and streamline business-critical processes and workflows. 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 (e.g., insurance-related services).
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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 believe customer success is essential to our long-term success, and we strive to have loyal and engaged long-term customer relationships. We place significant emphasis on customer experience to differentiate our solutions from competing products. This emphasis will continue to be a critical component of our growth strategy in the future.
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We 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.
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We believe that maintaining our focus on customer success will lead to new product innovation, the referral of new customers from existing satisfied customers, and greater adoption and utilization of our solutions. Acquire New Customers. We believe new customer acquisition is essential to our long-term success.
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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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We expect to continue to grow our base of customers, and thus the number of units managed on our platform, with continued investments in the development of increasingly valuable business management solutions across not only the existing property types we currently serve but new ones as well, innovative sales and marketing programs, including evolving real estate industry thought leadership and education, and the referral power of satisfied customers.
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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.
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To continue to attract larger customers, we may increase our utilization of partnerships and integrations with select third parties to deliver key functionality. 3 Expand Adoption and Use by Existing Customers.
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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.
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We have made, and will continue to make, significant investments in our solutions that expand functionality and enhance or add new capabilities to meet the current and evolving needs of our customers. We intend to continue using our market validation techniques and close relationships with our customers as a key source of feedback to inform and direct our product strategy.
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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.
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We expect our satisfied customers will expand their adoption and usage of our Value Added Services to adapt our platform to their specific operational requirements. In addition, as our customers grow, we expect they will continue to use our solutions to manage their larger businesses.
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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.
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To facilitate the continued use of our solutions by larger customers, we may increase our utilization of partnerships and integrations with select third parties to deliver key functionality while maintaining an elevated customer experience. Our Customers We define customers as those paying for a subscription to our core solutions. As of December 31, 2022, we had 18,441 property management 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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No individual customer represented 10% or more of our total revenue for fiscal 2022. Customer Service We believe our success is tied to long-term customer relationships, not a one-time sale. Our team is structured to deliver ongoing service; this includes ongoing live and on-demand training, a library of resources, and personalized account management.
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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.
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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 participate in industry thought leadership and education, and we use a variety of inbound and outbound marketing techniques to promote AppFolio solutions.
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We drive our success by investing in our people, and cultivating an exceptional work destination where they want to be and stay.
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Human Capital We believe our people are at the heart of our success. Our employees’ dedication to and passion for creating and delivering transformative solutions provides us with a competitive advantage and creates long-lasting relationships with our customers.
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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.
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We believe our efforts in creating and maintaining strong connections — with our customers, partners, and team members — differentiates AppFolio as a great place to work.
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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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This has led to recognition that demonstrates our valued company culture and workplace: In 2022, Fortune recognized AppFolio as one of the Best Workplaces in Technology, and the Glassdoor Employees’ Choice Awards listed AppFolio as one of the Best Places to Work.
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We believe in a culture of environmental stewardship and strive to create environmentally friendly workplaces. We maintain sustainability requirements that all contractors who work in or around our buildings are required to follow.
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We routinely engage temporary employees and consultants. Approximately 3% of our workforce is represented by a union, the Communications Workers of America. While it is our firm belief that a direct relationship between employee and employer is best, we recognize the decision made by these employees. We consider our relationships with our employees and consultants to be strong.
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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.
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AppFolio’s employee-led resource groups aim to create an environment where everyone is valued for their uniqueness, while also feeling part of the larger whole. We work hard to make sure our employees’ voices are heard, from our practice of small, focused teams to setting annual company initiatives together as an organization.
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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 .
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Our recruiting practices focus on attracting and hiring employees with diverse backgrounds, experiences, and approaches at all levels of the company. We have key partnerships with universities and professional organizations and provide ongoing education to our hiring teams that are focused on closing the diversity gap and growing our team. Employee Development.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

91 edited+43 added−9 removed110 unchanged
Biggest changeThe demand for our products and services, as well as our operating results, could be adversely impacted due to customers delaying decisions to adopt our products and services or terminating their use of our products and services, as they seek to reduce or delay spending to mitigate the impact of the COVID-19 pandemic or a future public health crisis on their businesses. 18 Natural disasters or other catastrophic events may cause damage or disruption to our operations, commerce and the global economy, and have a negative effect on our business and operations.
Biggest changeIn addition, defending our tax positions or disputing the positions taken by tax authorities may be costly and a distraction to management, which may affect our operating results. Natural disasters, health epidemics, or other catastrophic events may cause damage or disruption to our operations, commerce and the global economy, and have a negative effect on our business and operations.
In addition, new and existing technologies, industry trends, and laws that restrict online advertising or affect our ability to customize and target advertising may require us to significantly increase our marketing costs to generate and capture demand and maintain our brand awareness, level of sales, and operating results.
In addition, new and existing technologies, industry trends, and laws that restrict online advertising or that affect our ability to customize and target advertising may require us to significantly increase our marketing costs to generate and capture demand and maintain our brand awareness, level of sales, and operating results.
Competition for personnel is intense within our industry and there continues to be upward pressure on the compensation paid to these professionals. Identifying, recruiting, training and retaining qualified personnel is difficult and requires a significant investment of time and resources.
Competition for personnel is intense within our industry and there continues to be upward pressure on the compensation paid to these professionals. Retaining, identifying, recruiting, and training qualified personnel is difficult and requires a significant investment of time and resources.
Many of the companies with which we compete for experienced personnel have greater name recognition and financial resources than we have. As a result, we may have greater difficulty hiring and retaining skilled personnel than our competitors. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment.
Many of the companies with which we compete for experienced personnel have greater name recognition and financial resources than we have. As a result, we may have greater difficulty retaining and hiring skilled personnel than our competitors. In addition, existing and prospective employees often consider the value of the equity awards they receive in connection with their employment.
If the perceived value of our equity awards declines, we are unable to offer equity awards in competitive amounts, or if the price of our Class A common stock experiences significant volatility, this may adversely affect our ability to recruit and retain highly skilled employees.
If the perceived value of our equity awards declines, we are unable to offer equity awards in competitive amounts, or if the price of our Class A common stock experiences significant volatility, this may adversely affect our ability to retain and recruit highly skilled employees.
If we are unable to attract and retain the personnel necessary to execute our growth plan, we may be unable to achieve our strategic objectives and our operating results may suffer.
If we are unable to retain and attract the personnel necessary to execute our growth plan, we may be unable to achieve our strategic objectives and our operating results may suffer.
Third-party commercial software is developed outside of our direct control and may introduce security vulnerabilities that may be difficult to anticipate or mitigate. Further, there is no guarantee that third-party software developers or open source software providers will continue to maintain and update the third-party software that we use.
Third-party commercial software or open source software is developed outside of our direct control and may introduce security vulnerabilities that may be difficult to anticipate or mitigate. Further, there is no guarantee that third-party software developers or open source software providers will continue to maintain and update the third-party software that we use.
There are a wide variety of factors, many of which are outside our control, that could cause fluctuations in the market price of our Class A common stock, including without limitation: • changes in the estimates of our operating results; • changes in recommendations by securities analysts; • announcements of new products, services or technologies; • 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.
There are a wide variety of factors, many of which are outside our control, that could cause fluctuations in the market price of our Class A common stock, 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.
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. 8 Our acquisition of other companies or technologies may subject us to risks.
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.
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 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 payment 7 processors to process transactions and must pay fees for the services.
Our failure to secure, protect and enforce our intellectual property rights could adversely affect our business and operating results. 14 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 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 solutions contain both open source and third-party software, which may pose risks to our proprietary source code and/or introduce security vulnerabilities, and could have a material adverse impact on our business and operating results. We use open source software in our solutions and expect to continue to do so in the future.
Our solutions contain open source and third-party software, which may pose risks to our proprietary source code and/or introduce security vulnerabilities, and could have a material adverse impact on our business and operating results. We use open source software in our solutions and expect to continue to do so in the future.
Acceptance of our current and future solutions in new markets and industries 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 services and products.
These conditions tended to increase the cost of borrowing in the past and if they recur, our borrowing costs could increase and it may be more difficult to obtain financing for our operations or investments. We may not be able to obtain financing on terms acceptable to us, if at all.
These conditions tended to increase the cost of borrowing in the past and if they recur, our borrowing costs could increase and it may be more 15 difficult to obtain financing for our operations or investments. We may not be able to obtain financing on terms acceptable to us, if at all.
In addition, some of our third-party service providers and partners also collect and/or store our sensitive information and our customers’ data on our behalf, and 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 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.
Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the attention of our management and key personnel from our business operations and harm our operating results.
Even if the claims do not result in 14 litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the attention of our management and key personnel from our business operations and harm our operating results.
As our business grows, the number of individuals using our products, as well as the amount of information we collect and store, is increasing, and our brands are becoming more widely recognized, which makes us a greater target for malicious activity.
As our business grows, the number of individuals using our products, as well as the amount of information we collect, store, and process is increasing, and our brands are becoming more widely recognized, which makes us a greater target for malicious activity.
For example, higher interest rates may make it difficult or impossible for our customers to obtain financing or 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 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.
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 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. We expect the importance of brand recognition will increase, as 12 competition for our products and services increases.
If we are unable to accept payment cards or are meaningfully limited in our ability to do so, our business would be adversely affected. 12 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 would be adversely affected. We face risks in our tenant screening services business that could adversely affect our business and/or operating results.
We may experience significant fluctuations in our operating results from period to period, including significant losses. This may make it difficult for us to effectively allocate our resources to achieve our strategic goals.
In addition, we may experience significant fluctuations in our operating results from period to period, including significant losses. This may make it difficult for us to effectively allocate our resources to achieve our strategic goals.
Any failure to maintain high-quality and responsive customer service, or a market perception that we do not maintain high-quality and responsive customer service, could harm our reputation, cause us to lose customers and adversely impact our ability to sell our solutions to prospective customers. 11 Errors, defects or other disruptions in our products could harm our reputation, cause us to lose customers, and result in significant expenditures to correct the problem.
Any failure to maintain high-quality and responsive customer service, or a market perception that we do not maintain high-quality and responsive customer service, could harm our reputation, cause us to lose customers and adversely impact our ability to sell our solutions to prospective customers. 8 Errors, defects or other disruptions in our products could harm our reputation, cause us to lose customers, and result in significant expenditures to correct the problem.
Additionally, sales to new markets and industries will involve risks that are not present, or are present to a lesser extent, in sales to the markets and industry we currently serve, and such risks may include new regulatory regimes, longer sale cycles, increased chance of litigation with customers, increased risk and impact of reputational harm, and increased competition.
Additionally, sales to new markets will involve risks that are not present, or are present to a lesser extent, in sales to the markets we currently serve, and such risks may include new regulatory regimes, longer sale cycles, increased chance of litigation with customers, increased risk and impact of reputational harm, and increased competition.
The adoption of such new technologies could significantly reduce the volume or demand of our customers, thereby reducing our revenue, which could materially impact our business, financial condition and operating results. We participate in an intensely competitive market and our business could be harmed if we do not compete effectively.
The adoption of such new technologies could significantly reduce the number or demand of our customers, thereby reducing our revenue, which could materially impact our business, financial condition and operating results. We participate in an intensely competitive market and our business could be harmed if we do not compete effectively.
Should development of in-use third-party software cease, significant engineering effort may be required to create an in-house solution. These risks could also be difficult to eliminate or manage, and could have a 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 also be difficult to eliminate or manage, and could have a material adverse impact on our business and operating results.
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 customer data or other sensitive information, we could incur liability to our customers and to individuals or organizations whose information was being stored by us or our customers, as well as fines and actions from payment processing networks or by governmental bodies.
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.
Our success and future growth depend, in part, upon the continued services of our executive officers and other key employees. To execute our growth plan and achieve our strategic objectives, we must continue to attract and retain highly qualified and motivated personnel across our organization.
Our success and future growth depend, in part, upon the continued services of our executive officers and other key employees. To execute our growth plan and achieve our strategic objectives, we must continue to retain and hire highly qualified and motivated personnel across our organization.
In addition, the Share Repurchase Program could have the impact of diminishing our cash reserves, which may impact our ability to finance our growth, complete acquisitions and execute our strategic plan. For additional information regarding our Share Repurchase Program, refer to Note 11, Stockholders' Equity .
In addition, the Share Repurchase Program could have the impact of diminishing our cash reserves, which may impact our ability to finance our growth, complete acquisitions and execute our strategic plan. For additional information regarding our Share Repurchase Program, refer to Note 12, Stockholders' Equity .
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, 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.
In addition we have been and expect in the future to be subject to routine regulatory inquiries, enforcement actions, class-based litigation and/or indemnity demands. As previously disclosed, in January 2021, we entered into a settlement agreement with the Federal Trade Commission (the "FTC") to resolve allegations that we failed to comply with certain sections of the FCRA.
In addition, we have been and expect in the future to be subject to routine regulatory inquiries, enforcement actions, class-based litigation and/or indemnity demands. As previously disclosed, in January 2021, we entered into a settlement agreement with the FTC to resolve allegations that we failed to comply with certain sections of the FCRA.
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, the ongoing impact of COVID-19, 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.
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.
Further, we could lose real estate customers as a result of acquisitions or consolidations, bankruptcies or other financial difficulties facing our real estate customers, new or enhanced legal or regulatory regimes that negatively impact the real estate industry, and conditions or trends specific to the real estate industry such as the economic factors that impact the rental market.
In addition, we could lose real estate customers as a result of acquisitions or consolidations, bankruptcies or other financial difficulties facing our real estate customers, new or enhanced legal or regulatory regimes that negatively impact the real estate industry, and conditions or trends specific to the real estate industry such as the economic factors that impact the rental market.
If our property management customers stop tracking and requiring insurance coverage for their units or elect to use other methods of tracking and acquiring insurance coverage, demand for our insurance-related products may drop and our revenues from our insurance related products could be adversely affected.
If our property management customers stop tracking and requiring insurance coverage for their units or elect to use other methods of tracking and acquiring insurance coverage, demand for our insurance-related risk mitigation products may drop and our revenues from such products could be adversely affected.
In the event we are found to be in violation of the legal requirements applicable to our products and services, our business and operating results may be adversely affected. Many of our products and services are highly regulated or intended to be used in connection with other highly regulated activities.
Risks Related to Our Products and Solutions In the event we are found to be in violation of the legal requirements applicable to our products and services, our business and operating results may be adversely affected. Many of our products and services are highly regulated or intended to be used in connection with other highly regulated activities.
Our tenant screening services business is subject to a number of complex laws that are subject to varying interpretations, including the Fair Credit Reporting Act (the "FCRA"), the Fair Housing Act, and related regulations. The FCRA continues to be the subject of multiple class-based litigation proceedings, as well as numerous regulatory inquiries and enforcement actions.
Our tenant screening services business is subject to a number of complex laws that are subject to varying interpretations, including the FCRA, the Fair Housing Act, and related federal and state regulations. The FCRA continues to be the subject of multiple class-based litigation proceedings, as well as numerous regulatory inquiries and enforcement actions.
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.
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.
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, litigation 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 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.
Risks Related to Our Products and Solutions If we are unable to deliver effective customer service, it could harm our relationships with our existing customers and adversely affect our ability to attract new customers and our operating results. Our business depends, in part, on our ability to satisfy our customers by providing onboarding services and ongoing customer service.
If we are unable to deliver effective customer service, it could harm our relationships with our existing customers and adversely affect our ability to attract new customers and our operating results. Our business depends, in part, on our ability to satisfy our customers by providing onboarding services and ongoing customer service.
In addition, entities such as the Federal Trade Commission 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 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.
Our business operations are subject to interruption by natural disasters, flooding, fire, power shortages, pandemics, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical instability, war, the effects of climate change (such as drought, wildfires, hurricanes, increased storm severity and sea level rise) and other events beyond our control.
Our business operations are subject to interruption by natural disasters, flooding, fire, power shortages, health epidemics, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical instability, war, the effects of climate change (such as drought, wildfires, hurricanes, and increased storm severity) and other events beyond our control.
Any provision of Delaware law, our amended and restated certificate of incorporation, or our amended and restated bylaws that has the effect of rendering more difficult, delaying, deterring or preventing a change-in-control transaction could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our Class A common stock. 17 We could be subject to securities class action litigation.
Any provision of Delaware law, our amended and restated certificate of incorporation, or our amended and restated bylaws that has the effect of rendering more difficult, delaying, deterring or preventing a change-in-control transaction could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our Class A common stock.
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.
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.
As new laws, regulations and industry standards take effect, and as we offer new services in new markets, market segments and, potentially, new industries, 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 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.
The existence of any such enforcement action or class action lawsuit, whether meritorious or not, may adversely affect our ability to attract customers, result in the loss of existing customers, harm our reputation and cause us to incur defense costs or other expenses.
The existence of any such proceeding, whether meritorious or not, may adversely affect our ability to attract customers, result in the loss of existing customers, harm our reputation and cause us to incur defense costs or other expenses.
If our third-party partners cease providing their products, if such third parties are acquired by competitors or if we are otherwise unable to integrate with such third-party products, our solutions and demand for our solutions could be adversely impacted and our business and operating results would be harmed.
If our third-party partners cease providing their products or making them available through AppFolio Stack, if such third parties are acquired by competitors or if we are otherwise unable to integrate with such third-party products, our solutions and demand for our solutions could be adversely impacted and our business and operating results would be harmed.
Our estimates of market opportunity are subject to significant uncertainty. We determine the level of our investment in various aspects of the business, in part, based on our market opportunity estimates. Market opportunity estimates are subject to significant uncertainty and are based on assumptions, including our internal analysis and industry experience.
Our estimates of market opportunity are subject to significant uncertainty. We determine the level of our investment in various aspects of our business, in part, based on our market opportunity estimates. Market opportunity estimates are subject to significant uncertainty, especially in a volatile economic environment, and are based on assumptions, including our internal analysis and industry experience.
Due to the large number of tenant screening transactions in which we participate, our potential liability in any enforcement action or a class action lawsuit could have a material impact on our business, especially given that certain applicable laws and regulations provide for fines or penalties on a per occurrence basis.
Our potential liability in any enforcement action, a class action lawsuit, or a significant single plaintiff action could have a material impact on our business, especially given that certain applicable laws and regulations provide for fines or penalties on a per occurrence basis and we participate in a large number of tenant screening transactions.
Our business involves the storage and transmission of a significant amount of confidential and sensitive information, including sensitive and proprietary data and personal information collected by or on behalf of our customers, the personal information of our employees, customers, and prospective customers and our proprietary financial, operational and strategic information.
Our business involves the storage and transmission of sensitive and proprietary data and personal information collected by or on behalf of our customers, the personal information of our employees, customers, and prospective customers and our proprietary financial, operational and strategic information.
Additionally, we may from time to time face claims from third parties alleging ownership of, or demanding release of, the open source software or of derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license.
Additionally, we may from time to time face claims from third parties alleging ownership of, or demanding release of, the open source software or of derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license in a manner that would harm our business or competitive position.
Although we attempt to structure our tenant screening services to comply with relevant laws and regulations, we have previously been accused of not complying with such laws and regulations and may be found to be in violation of them.
Although we attempt to structure our tenant screening services to comply with relevant laws and regulations, we are routinely accused of not complying with such laws and regulations and have been and may again in the future be found to be in violation of them.
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.
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.
We may incur indebtedness in the future and/or enter into new financing arrangements. Our ability to meet expenses, to remain in compliance with the covenants under any future debt instruments, and to pay fees, interest and principal on our indebtedness will depend on, among other things, our operating performance and market conditions.
Our ability to meet expenses, to remain in compliance with the covenants under any future debt instruments, and to pay fees, interest and principal on our indebtedness will depend on, among other things, our operating performance and market conditions.
Further, for us to achieve broader market acceptance of our products and solutions, grow our customer base, and pursue new markets consistent with our strategic plan, we will need to continue to increase the size of our sales, marketing and customer service and support organizations.
Further, for us to achieve broader market acceptance of our products and solutions, grow our customer base, and pursue new markets consistent with our strategic plan, we will need to maintain and, over time, grow the current skill set and abilities of our sales, marketing and customer service and support organizations.
Furthermore, privacy and data security concerns may cause our customers’ clients, vendors, employees and other industry participants to resist providing the personal information necessary to allow our customers to use our applications effectively, which could reduce overall demand for our solutions. Any of these outcomes could adversely affect our business and operating results.
Furthermore, privacy concerns may cause our customers’ clients, vendors, employees and other industry participants to resist providing the personal information necessary to allow our customers to use our applications effectively, which could reduce overall demand for our solutions.
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. 13 If we fail to maintain relationships with third-party partners that enable certain functionality within our solutions, our business and operating results may be harmed.
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.
The conversion of our Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of the holders of our Class B common stock who retain their shares over the long term. We cannot predict the impact that our capital structure may have on our stock price.
The conversion of our Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of the holders of our Class B common stock who retain their shares over the long term.
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.
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.
Certain functionality of our services is provided, supported or enhanced by third parties, including without limitation functions related to customer relationship management, utility billing management, cloud computing, texting, emailing, electronic payments, tenant screening, and insurance related offerings.
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.
If demand for rental housing declines, or if our property management customers believe that it may decline, these customers may stop requiring insurance coverage for their units to reduce the overall cost of renting and make their rental offerings more competitive.
We generate a portion of our revenue by offering insurance-related risk mitigation services through wholly owned subsidiaries. If demand for rental housing declines, or if our property management customers believe that it may decline, these customers may stop requiring insurance coverage for their units to reduce the overall cost of renting and make their rental offerings more competitive.
Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. As of December 31, 2022, the holders of the outstanding shares of our Class B common stock, including our executive officers, directors, and principal stockholders, collectively held approximately 88% of the combined voting power of our outstanding capital stock.
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.
Our quarterly results, including the levels of our revenue, costs, operating expenses, and operating margins, may fluctuate significantly in the future, and period-to-period comparisons of our results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of our future performance.
Our quarterly results, including the levels of our revenue, costs, operating expenses, and operating margins, may fluctuate significantly in the future, and period-to-period comparisons of our results may not be meaningful.
In particular, to continue to enhance our products and solutions, add new and innovative core functionality and/or Value Added Services, as well as develop new products, it will be critical for us to increase the size of our research and product development organization, including hiring highly skilled software engineers.
In particular, to continue to enhance our products and solutions, add new and innovative core functionality and/or Value Added Services, as well as develop new products, it will be critical for us to maintain and, over time, grow the current skill set and abilities of our research and product development organization.
As a result, shareholder advisory firms may publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.
Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.
Some of the laws and regulations to which our products and services are subject include, without limitation: • the Fair Housing Act; • the FCRA; • Title VII of the Civil Rights Act; • the Telephone Consumer Protection Act; • the Americans with Disabilities Act; • the Electronic Signatures in Global and National Commerce Act; and • the Federal Trade Commission Act; State law equivalents of the foregoing, plus various state regulations related to insurance licensing and solicitation, utility billing practices and privacy also apply to certain of our products and services.
Some of the laws and regulations to which our products and services are subject include, without limitation: • the Fair Housing Act; • the Fair Credit Reporting Act (the "FCRA"); • Title VII of the Civil Rights Act; 6 • the Telephone Consumer Protection Act; • the Americans with Disabilities Act; • the Electronic Signatures in Global and National Commerce Act; and • the Federal Trade Commission Act.
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. 16 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.
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.
We store 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 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.
These new markets and industries, include larger customers within the real estate space, housing types outside of multi-family and single-family residential, and industries other than real estate.
Our growth strategy requires expanding sales of our solutions to new markets within the real estate space. These new markets include larger customers and housing types outside of multi-family and single-family residential.
Electronic payment transactions between our customers and another individual may be returned for various reasons such as insufficient funds or stop payment orders. If we or any of our electronic payment services providers are unable to collect such amounts from the customer’s account, we bear the ultimate risk of loss for the transaction amount.
If we or any of our electronic payment services providers are unable to collect such amounts from the customer’s account, we bear the ultimate risk of loss for the transaction amount.
In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which could adversely affect our business, operating results, or financial condition.
This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which could adversely affect our business, operating results, or financial condition.
These obligations have and will likely continue to increase the cost and complexity of delivering our services. 10 In addition to government regulation, privacy advocates and industry groups may propose various self-regulatory standards that may legally or contractually apply to our business.
In addition to government regulation, privacy advocates and industry groups may propose various self-regulatory standards that may legally or contractually apply to our business.
This difficulty may be exacerbated by our current commitment to remote work, which makes it more challenging for employees to interact and connect. 9 Risks Related to Cybersecurity and Data Privacy Security vulnerabilities in our products 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, expose us to litigation or harm our reputation.
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.
We do not expect to declare any dividends in the foreseeable future and may repurchase stock in accordance with our Share Repurchase Program. We have never declared, and we do not anticipate declaring or paying, any cash dividends to holders of our Class A common stock in the foreseeable future.
We have never declared, and we do not anticipate declaring or paying, any cash dividends to holders of our Class A common stock in the foreseeable future. In addition, the terms of our future borrowing arrangements we may enter into from time to time may restrict our ability to pay dividends.
Our electronic payment services business facilitates the processing of inbound and outbound payments for our customers. These payments are settled through our sponsoring clearing bank, card payment processors and other third-party electronic payment services providers that we contract with from time to time.
These payments are settled through our sponsoring clearing bank, card payment processors and other third-party electronic payment services providers that we contract with from time to time. Our electronic payment services subject us to a number of risks, including liability for customer costs related to disputed transactions.
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. We manage our business to achieve long-term growth, which may not be consistent with the short-term expectations of some investors.
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.
In addition, the terms of our future borrowing arrangements we may enter into from time to time may restrict our ability to pay dividends. Consequently, investors may need to rely on sales of our Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Consequently, investors may need to rely on sales of our Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Price appreciation, which may never occur, may be further impacted by repurchases of our shares in accordance with our Share Repurchase Program.
In addition, the evolution and expansion of our products and services may subject us to additional risks and regulatory requirements. For example, as our electronic payments services business evolves, we may become directly subject to limitations, laws and regulations governing money transmission and anti-money laundering.
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.
In addition, we periodically undergo examinations, audits and investigations related to our services, including those related to the affairs of insurance companies and agencies and electronic payment services providers.
These new regulatory requirements may impact our ability to offer or our customers' ability and willingness to utilize certain of our services, which may impact our operating results. We periodically undergo examinations, audits and investigations related to our services, including those related to the affairs of insurance companies and agencies and electronic payment services providers.
Price appreciation, which may never occur, may be further impacted by repurchases of our shares in accordance with our Share Repurchase Program. Repurchases of our shares could increase the volatility of the trading price of our shares, which could have a material adverse impact on the trading price of our shares.
Repurchases of our shares could increase the volatility of the trading price of our shares, which could have a material adverse impact on the trading price of our shares.
Furthermore, 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.
Furthermore, 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, which has previously occurred and we expect will occur again despite our efforts to train our employees and contractors on cybersecurity issues and enforce our security protocols.
If we are unable to successfully expand sales of our solutions to new markets and, potentially, industries, our revenue may increase at a slower rate than we expect and may even decline, which could adversely affect our operating results. 7 Our business depends substantially on existing customers renewing their subscriptions with us and expanding their use of our Value Added Services, and a decline in either could adversely affect our operating results.
Our business depends substantially on existing customers renewing their subscriptions with us and expanding their use of our Value Added Services, and a decline in either could adversely affect our operating results.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we are involved in various investigative inquiries, legal proceedings and other 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.
Biggest changeIn 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.
However, regardless of the merit of any 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.
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.
For additional information regarding legal proceedings, refer to Note 10, 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 11, Commitments and Contingencies of our Consolidated Financial Statements. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
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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”).
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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.
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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.
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The Company expects that this loss will be covered by existing insurance policies.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis 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.
Biggest changeThe 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.
This chart assumes $100 was invested in our Class A common stock at the close of market on December 31, 2017, and in the S&P 500 Index and the NASDAQ Computer Index, and assumes the reinvestment of any dividends.
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.
Unregistered Sales of Equity Securities and Purchases of Equity Securities None. 20 ITEM 6. [RESERVED]
Unregistered Sales of Equity Securities and Purchases of Equity Securities None. ITEM 6. [RESERVED]
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".
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.
Our Class B common stock is not listed or traded on any stock exchange. 19 Holders of Record At February 2, 2023, there were 35 holders of record of our Class A common stock and 72 holders of record of our Class B common stock.
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.
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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.

Item 7. Management's Discussion & Analysis

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

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Biggest changeSales and Marketing Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Sales and marketing $ 107,398 $ 73,200 $ 34,198 47 % Percentage of revenue 22.8 % 20.4 % Stock-based compensation, included above $ 8,681 $ 2,329 $ 6,352 273 % Percentage of revenue 1.8 % 0.6 % Sales and marketing expense for the year ended December 31, 2022 increased primarily due to increases in personnel-related costs, including performance-based compensation, necessary to support growth in the business of $23.9 million compared to the prior year.
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.
Although these seasonal factors are common in the real estate industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance. 21 Key Components of Results of Operations Revenue Our core solutions and certain of our Value Added Services are offered on a subscription basis.
Although these seasonal factors are common in the real estate industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance. Key Components of Results of Operations Revenue Our core solutions and certain of our Value Added Services are offered on a subscription basis.
We recognize interest and 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.
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.
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.
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 believe our people are at the heart of our success and our customers' success, and we have worked hard not only to attract and retain talented individuals, but also to provide a challenging and rewarding work environment to motivate and develop our valuable human capital.
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.
Our solutions are designed to enable our property manager customers to digitally transform their businesses, address critical business operations and deliver a better customer experience.
Our solutions are designed to enable our property manager customers to digitally transform their businesses, address critical operations and deliver a better customer experience.
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, 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), 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.
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 (Expense), Net.
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.
We expect depreciation and amortization expenses for the year ending December 31, 2023 to decrease as a percentage of revenue compared to the year ended December 31, 2022 due to a decrease in amortization of accumulated capitalized software development balances.
We expect depreciation and amortization expenses for the year ending December 31, 2024 to decrease as a percentage of revenue compared to the year ended December 31, 2023 due to a decrease in amortization of accumulated capitalized software development balances.
We expect sales and marketing expense for the year ending December 31, 2023 to decrease as a percentage of revenue compared to the year ended December 31, 2022, as we continue to leverage headcount efficiencies.
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.
Our products assist our customers with an interconnected and growing network of stakeholders in their business ecosystems, including property owners, real estate investment managers, rental prospects, residents, and service providers, and provide key functionality related to critical transactions across the real estate lifecycle, including screening potential tenants, sending and receiving payments and even providing insurance-related risk mitigation services.
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.
“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, 2021. Overview We are a leading provider of cloud business management solutions for the real estate industry.
“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.
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 the adoption rate of our other less seasonally impacted Value Added Services.
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.
AppFolio’s intuitive interface, coupled with streamlined and automated workflows, make it easier for our customers to eliminate redundant and manual processes so they can deliver a great experience for their network of stakeholders while improving financial and operational performance. We rely heavily on our talented team of employees to execute our growth plans and achieve our long-term strategic objectives.
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.
The following discussion and analysis of our financial condition and results of operations discusses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021. For discussion of 2020 items and year-over-year comparisons between 2021 and 2020, refer to Part II. Item 7.
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.
Many of our Value Added Services are facilitated by third-party service providers. Cost of revenue paid to these third-party service providers includes the cost of electronic interchange and payment processing-related services to support our payments services, the cost of credit reporting services for our tenant screening services, and various costs associated with our risk mitigation service providers.
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.
This increase was directly associated with the increased adoption and utilization of our Value Added Services. Personnel-related costs, including performance-based compensation, necessary to support growth and key investments, increased $12.5 million for the year ended December 31, 2022, compared to the prior year.
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.
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. At December 31, 2022, our cash and cash equivalents and investment securities had an aggregate balance of $185.2 million. We have financed our operations primarily through cash generated from operations.
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.
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. 22 Other Income, Net.
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.
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. For additional information regarding our Share Repurchase Program, refer to Note 11, Stockholders' Equity .
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.
Non-cancelable purchase commitments for business operations total $23.4 million as of December 31, 2022, due primarily over the next three years. Operating lease obligations totaling $65.1 million associated with leased facilities and have varying maturities with $30.1 million due over the next five years.
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.
Allocated shared and other costs increased by $2.3 million year ended December 31, 2022 compared to the prior year, primarily related to software and other costs incurred in support of our overall growth.
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.
Judgment is required to measure the amount of tax benefits that can be recognized associated with uncertain tax positions. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
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. Interest expense includes interest paid on any outstanding borrowings during the year ended December 31, 2020. Provision for Income Taxes.
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.
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.
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.
Cost of Revenue (Exclusive of Depreciation and Amortization) Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Cost of revenue (exclusive of depreciation and amortization) $ 191,826 $ 143,944 $ 47,882 33 % Percentage of revenue 40.7 % 40.1 % Stock-based compensation, included above $ 2,640 $ 2,024 $ 616 30 % Percentage of revenue 0.6 % 0.6 % Cost of revenue (exclusive of depreciation and amortization) for the year ended December 31, 2022, increased primarily due to increases in expenditures to third-party service providers related to the delivery of our Value Added Services of $34.1 million compared to the prior year.
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.
Our payments services fees are recorded gross of the interchange and payment processing related fees. We generally invoice our usage-based services on a monthly basis or collect the fee at the time of service. A significant majority of our Value Added Services revenue comes from the use of our payment services, tenant screening services, and risk mitigation services.
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.
During the year ended December 31, 2022, we experienced growth of 15% in the number of property management units under management resulting from 7% growth in the number of property management customers, compared to the prior year. Our payment services experienced increased adoption during the comparative periods as residents, property managers, and owners transacted more business online.
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.
Off-Balance Sheet Arrangements At December 31, 2022, we did not have any off-balance sheet arrangements. 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.
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.
Depreciation and Amortization Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Depreciation and amortization $ 33,119 $ 30,845 $ 2,274 7% Percentage of revenue 7.0 % 8.6 % Depreciation and amortization expense for the year ended December 31, 2022 increased, compared to the prior year, primarily due to increased amortization expense associated with accumulated capitalized software development balances.
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.
Research and Product Development Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Research and product development $ 111,118 $ 65,980 $ 45,138 68 % Percentage of revenue 23.5 % 18.4 % Stock-based compensation, included above $ 16,030 $ 5,457 $ 10,573 194 % Percentage of revenue 3.4 % 1.5 % Research and product development expense for the year ended December 31, 2022 increased primarily due to an increase in personnel-related costs including performance-based compensation, net of capitalized software development costs, of $42.8 million, compared to the prior year.
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.
Cash Flows The following table presents our cash flows for the periods indicated (in thousands): Year Ended December 31, 2022 2021 Net cash provided by operating activities $ 25,365 $ 35,391 Net cash used in investing activities (6,466) (110,459) Net cash used in financing activities (6,163) (7,348) Net increase (decrease) in cash and cash equivalents $ 12,736 $ (82,416) 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.
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.
Excluding the impairment charge, we expect general and administrative expenses for the year ending December 31, 2023 to remain flat as a percentage of revenue compared to the year ended December 31, 2022.
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.
Our primary uses of cash from operating activities are for personnel-related expenditures and third-party costs incurred to support the delivery of our software solutions. Net cash provided by operating activities was $25.4 million for the year ended December 31, 2022 compared to net cash provided by operating activities of $35.4 million for the year ended December 31, 2021.
Our primary uses of cash from operating activities are for personnel-related expenditures and third-party costs incurred to support the delivery of our software solutions.
A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods. 27 Impairment of long-lived assets We assess the recoverability of our long-lived assets when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable or that the useful lives of those assets are no longer appropriate.
Impairment of long-lived assets We assess the recoverability of our long-lived assets when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable or that the useful lives of those assets are no longer appropriate.
Other Income, net Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Other income, net $ 4,469 $ 13,111 $ (8,642) (66)% Percentage of revenue 0.9 % 3.6 % Other income, net for the year ended December 31, 2022 decreased, compared to the prior year, primarily due to a gain of $12.8 million related to the sale of our investment in SecureDocs during the year ended December 31, 2021.
Other Income, net 26 Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Other income, net $ 3 $ 4,469 $ (4,466) (100)% Percentage of revenue — % 0.9 % Other income, net for the year ended December 31, 2023 decreased, compared to the prior year, primarily due to a gain of $4.2 million associated with the WegoWise Transaction during the year ended December 31, 2022.
The net decrease in cash used in investing activities was primarily due to decreases in purchases of available-for-sale investment securities and capitalization of software development costs, offset by a decrease in proceeds from sales of available-for-sale investment securities and decrease in proceeds from sales of business and equity method investments. 26 Cash Used in Financing Activities Cash used in financing activities is generally composed of net share settlements for employee tax withholdings associated with the vesting of equity awards offset by proceeds from the exercise of stock options.
Cash Used in Financing Activities Cash used in financing activities is generally composed of net share settlements for employee tax withholdings associated with the vesting of equity awards offset by proceeds from the exercise of stock options.
As we navigate the challenges of increased competition for talent, we continue to evolve our compensation and employee reward practices. Key Business Metric Property management units under management . We believe that our ability to increase our number of property management units under management is an indicator of our market penetration, growth, and potential future business opportunities.
We believe that our ability to increase the number of property management units under management is an indicator of our market penetration, growth, and potential future business opportunities. We define property management units under management as active or committed units under management at the period end date.
We expect research and product development expenses for the year ending December 31, 2023 to increase as a percentage of revenue compared to the year ended December 31, 2022, as we continue to invest in our research and product development organization to support our strategy to expand the use cases of our product capabilities to the larger customer segment. 24 General and Administrative Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) General and administrative $ 100,792 $ 57,279 $ 43,513 76 % Percentage of revenue 21.4 % 15.9 % Stock-based compensation, included above $ 13,584 $ 5,531 $ 8,053 146 % Percentage of revenue 2.9 % 1.5 % General and administrative expense for the year ended December 31, 2022 increased primarily due to a net ROU and other lease-related asset impairment of $22.0 million.
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.
Seasonality We have historically experienced seasonality in our Value Added Services revenue, primarily in our tenant screening services, due to seasonally higher leasing activities in the second quarter which increases tenant screening transactions in that period. We generally experience decreased tenant screening revenue in the fourth quarter, when seasonally lower leasing activities occur.
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 charge our customers for onboarding assistance to our core solutions and 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 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 .
Provision for Income Taxes Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Provision for income taxes $ 1,402 $ 706 $ 696 99% Percentage of revenue 0.3 % 0.2 % 25 The effective tax rate as compared to the U.S. federal statutory rate of 21% differs primarily due to change in valuation allowance against deferred taxes and non-deductible expenses, partially offset by state income taxes and tax benefits associated with stock-based compensation expense and research and development tax credits.
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.
Our tenant screening and risk mitigation services usage also increased during the comparative periods in line with the increase in units under management. A significant majority of our Value Added Services revenue comes from the use of our payment services, tenant screening services, and the risk mitigation services we make available to customers.
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.
Net cash used in investing activities for the year ended December 31, 2022 was $6.5 million compared to $110.5 million for the year ended December 31, 2021.
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 decrease in cash provided by operating activities was primarily due to an increase in employee related costs and the settlement of accounts payable offset by an increase in cash collections from customers due to higher revenue growth and a decrease in income taxes paid related to the sale of MyCase, Inc. during the year ended December 31, 2021.
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.
We generate revenue from the legacy customers of previously acquired businesses by providing services outside of our property management core solution platform. Revenue derived from these services is recorded in Other revenue. As of December 31, 2022 and 2021, we had 18,441 and 17,215 property management customers, respectively. Costs and Operating Expenses Cost of Revenue (Exclusive of Depreciation and Amortization).
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.
Results of Operations Revenue Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Core solutions $ 132,541 $ 105,148 $ 27,393 26 % Value Added Services 327,636 241,289 86,347 36 Other 11,706 12,933 (1,227) (9) Total revenue $ 471,883 $ 359,370 $ 112,513 31 % The increase in revenue for the year ended December 31, 2022, compared to the prior year, was primarily attributable to growth in our base of property management customers driving an increase in the number of property management units under management, and growth in users of our subscription and usage-based services.
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.
Advertising and promotion costs increased by $2.1 million primarily due to increased advertising and promotion spending to support the growth and key investments in the business. Allocated shared and other costs increased by $8.2 million year ended December 31, 2022 compared to the prior year, primarily related to software and other costs incurred in support of our overall growth.
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.
We expect cost of revenue (exclusive of depreciation and amortization) for the year ending December 31, 2023 to decrease as a percentage of revenue compared to the year ended December 31, 2022, as we expect to leverage headcount efficiencies to offset an increase in expenditures to third-party service providers related to the delivery of our Value Added Services.
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.
Removed
We define property management units under management as active or committed units under management at the period end date. We had 7.3 million and 6.3 million property management units under management as of December 31, 2022 and 2021, respectively.
Added
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.
Removed
Depreciation and amortization expense includes depreciation of property and equipment, amortization of capitalized software development costs, and amortization of intangible assets.
Added
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.
Removed
Provision for income taxes consists of federal and state income taxes in the United States.
Added
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.
Removed
Allocated shared and other costs increased by $1.2 million for the year ended December 31, 2022, compared to the prior year, primarily related to platform infrastructure, software and other costs incurred in support of our overall growth. 23 As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) fluctuates primarily based on the mix of Value Added Services revenue in the period, given the varying percentage of revenue we pay to third-party service providers.
Added
Included in the increase in personnel-related costs was $2.4 million of severance and related personnel costs associated with the workforce reduction in the third quarter of 2023. 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.
Removed
Personnel-related costs, including performance-based compensation, increased $15.7 million for the year ended December 31, 2022, compared to the prior year. Allocated shared and other costs increased $3.9 million for the year ended December 31, 2022, compared to the prior year, for professional fees, education and training, insurance, software and other costs to support our growth.
Added
Included in the increase in personnel-related costs was $3.8 million of severance and related personnel costs associated with the workforce reduction in the third quarter of 2023. 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.
Removed
Additionally, offsetting general and administrative expense for the year ended December 31, 2021 was a $1.9 million insurance recovery related to our previously disclosed settlement with the Federal Trade Commission (the "FTC").
Added
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.
Removed
The decrease was offset by a gain of $4.2 million associated with the WegoWise Transaction during the year ended December 31, 2022. For additional information regarding the WegoWise Transaction, refer to Note 3, Sale of Subsidiary Businesses .
Added
In addition, there was a decrease of $4.3 million due to gains related to lease modifications for the year ended December 31, 2023, compared to the prior year. This was partially offset by an increase in personnel-related costs, including stock-based and performance-based compensation, in the year ended December 31, 2023 of $17.2 million compared to the prior year.
Removed
Net cash used in financing activities for the year ended December 31, 2022 was $6.2 million compared to $7.3 million for the year ended December 31, 2021. The decrease in cash used in financing activities was primarily due to an increase in proceeds from stock option exercises.
Added
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.
Removed
We recorded a net impairment of $22.0 million consisting of $17.6 million related to ROU assets and $4.4 million related to property and equipment associated with our leased office spaces as described further in Note 9, Leases.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods.
Added
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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWhile fluctuations in interest rates do not impact our interest income from our investment securities as all of these securities have fixed interest rates, changes in interest rates may impact the fair value of the investment securities.
Biggest changeWhile all of our investment securities have fixed interest rates, changes in interest rates may impact the fair value of the investment securities and our interest income over time as funds from maturing positions are reinvested.
This estimate is based on a sensitivity model which measured an instant change in interest rates by 100 basis points as of December 31, 2022. 28
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.
As of December 31, 2022, 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 $0.7 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 $0.7 million.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Interest Rate Risk Investment Securities At December 31, 2022, we had $114.5 million of investment securities consisting of United States government agency securities, corporate bonds, and treasury securities. The primary objective of investing in securities is to support our liquidity and capital needs.
ITEM 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.

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