appf-20240331

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024.

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission File Number 001-37468

AppFolio, Inc.

(Exact name of registrant as specified in its charter)

Delaware

26-0359894

(State of incorporation or organization)

(I.R.S. Employer Identification No.)

70 Castilian Drive

93117

Santa Barbara,

California

(Address of principal executive offices)

(Zip Code)

(805) 364-6093

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 18, 2024, the number of shares of the registrant’s Class A common stock outstanding was 22,326,649 and the number of shares of the registrant’s Class B common stock outstanding was 13,886,648

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TABLE OF CONTENTS


						Page No.
Forward-Looking Statements						1
Part I. Financial Information						2
Item 1. Condensed Consolidated Financial Statements (Unaudited)						2
Condensed Consolidated Balance Sheets as of March 31 , 202 4 and December 31, 20 23						3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023						4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2024 and 2023						5
Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2024 and 2023						6
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023						7
Notes to Condensed Consolidated Unaudited Financial Statements						8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						16
Item 3. Q uantitative and Qualitative Disclosure s about Market Risk						22
Item 4. Controls and Procedures						22
Part II. Other Information						23
Item 1. Legal Proceedings						23
Item 1A. Risk Factors						23
Item 5. Other Information						23
Item 6. Exhibits						23
Signatures

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024 (this "Quarterly Report"), contains forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), which statements involve substantial risks and uncertainties. The forward-looking statements made in this Quarterly Report are intended to qualify for the protection of the safe harbor provided by the PLSRA and are based primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, cash flows and/or prospects. Forward-looking statements include all statements that are not statements of historical fact. Forward-looking statements can also be identified by words such as “may,” “will,” “should,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “future,” or “continue,” or the negative of these words or other similar terms or expressions. Examples of forward-looking statements include, among others, statements regarding changes in the competitive environment, responding to customer needs, research and product development plans, future products and services, growth in the size of our business and number of customers, strategic plans and objectives, business forecasts and plans, our future or assumed financial condition, results of operations and liquidity, trends affecting our business and industry, capital needs and financing plans, capital resource allocation plans, share repurchase plans, and commitments and contingencies, including with respect to the outcome of legal proceedings or regulatory matters. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those risks, uncertainties and other factors described in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report and "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (our "Annual Report"), as well as in the other reports we file with the Securities and Exchange Commission (the "SEC"). You should read this Quarterly Report, and the other documents we file with the SEC, with the understanding that our actual future results may be materially different from the results expressed or implied by these forward-looking statements. As such, you should not rely upon forward-looking statements as predictions of future events. Any forward-looking statement made by us in this Quarterly Report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law.

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

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APPFOLIO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands)


	March 31, 2024		December 31, 2023
Assets
Current assets
Cash and cash equivalents	$	59,214	$	49,509
Investment securities—current	184,298		162,196
Accounts receivable, net	26,179		20,709
Prepaid expenses and other current assets	36,975		39,943
Total current assets	306,666		272,357

Property and equipment, net	27,709		28,362
Operating lease right-of-use assets	18,762		19,285
Capitalized software development costs, net	18,974		21,562
Goodwill	56,060		56,060


Other long-term assets	10,599		11,263
Total assets	$	438,770	$	408,889
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	1,531	$	1,141
Accrued employee expenses	29,202		35,567
Accrued expenses	13,531		21,723


Other current liabilities	11,793		11,335

Total current liabilities	56,057		69,766


Operating lease liabilities	40,469		41,114



Other liabilities	3,049		697
Total liabilities	99,575		111,577
Commitments and contingencies (Note 8)
Stockholders’ equity:

Class A common stock	2		2
Class B common stock	2		2
Additional paid-in capital	240,419		236,985
Accumulated other comprehensive Income (loss)	(115)		99
Treasury stock	(25,756)		(25,756)
Retained earnings	124,643		85,980
Total stockholders’ equity	339,195		297,312
Total liabilities and stockholders’ equity	$	438,770	$	408,889

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

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APPFOLIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share amounts)


	Three Months Ended March 31,
	2024		2023
Revenue	$	187,430	$	136,100
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)(1)	64,646		56,208
Sales and marketing(1)	24,455		29,398
Research and product development(1)	37,895		37,662
General and administrative(1)	21,132		31,691
Depreciation and amortization	5,212		7,671
Total costs and operating expenses	153,340		162,630
Income (loss) from operations	34,090		(26,530)
Other income (loss), net	—		20
Interest income, net	2,992		1,361
Income (loss) before provision for income taxes	37,082		(25,149)
(Benefit from) provision for income taxes	(1,581)		9,961
Net income (loss)	$	38,663	$	(35,110)

Net income (loss) per common share:
Basic	$	1.07	$	(0.99)
Diluted	$	1.05	$	(0.99)
Weighted average common shares outstanding:
Basic	36,087		35,443
Diluted	36,674		35,443

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


	Three Months Ended March 31,
	2024		2023
Stock-based compensation expense included in costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)	$	960	$	768
Sales and marketing	1,510		2,417
Research and product development	5,682		5,439
General and administrative	5,322		5,279
Total stock-based compensation expense	$	13,474	$	13,903

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

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APPFOLIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands)


	Three Months Ended March 31,
	2024		2023
Net income (loss)	$	38,663	$	(35,110)
Other comprehensive income (loss):
Changes in unrealized (losses) gains on investment securities, net of tax	(214)		763
Comprehensive income (loss)	$	38,449	$	(34,347)

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

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APPFOLIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

(in thousands)


									Accumulated
							Additional		Other
	Common Stock			Common Stock			Paid-in		Comprehensive		Treasury		Retained
	Class A			Class B			Capital		Income (Loss)		Stock		Earnings		Total
	Shares	Amount		Shares	Amount
Balance at December 31, 2023	21,749	$	2	14,116	$	2	$	236,985	$	99	$	(25,756)	$	85,980	$	297,312
Exercise of stock options	244	—		—	—		3,874		—		—		—		3,874
Stock-based compensation	—	—		—	—		13,646		—		—		—		13,646
Vesting of restricted stock units, net of shares withheld for taxes	89	—		—	—		(14,086)		—		—		—		(14,086)
Conversion of Class B common stock to Class A common stock	199	—		(199)	—		—		—		—		—		—
Other comprehensive loss	—	—		—	—		—		(214)		—		—		(214)
Net Income	—	—		—	—		—		—		—		38,663		38,663
Balance at March 31, 2024	22,281	$	2	13,917	$	2	$	240,419	$	(115)	$	(25,756)	$	124,643	$	339,195


									Accumulated
							Additional		Other
	Common Stock			Common Stock			Paid-in		Comprehensive		Treasury		Retained
	Class A			Class B			Capital		Income (Loss)		Stock		Earnings		Total
	Shares	Amount		Shares	Amount
Balance at December 31, 2022	20,569	$	2	14,746	$	2	$	209,704	$	(1,684)	$	(25,756)	$	83,278	$	265,546
Exercise of stock options	64	—		—	—		834		—		—		—		834
Stock-based compensation	—	—		—	—		14,075		—		—		—		14,075
Vesting of restricted stock units, net of shares withheld for taxes	79	—		—	—		(5,539)		—		—		—		(5,539)
Conversion of Class B common stock to Class A common stock	27	—		(27)	—		—		—		—		—		—
Issuance of restricted stock awards	2	—		—	—		—		—		—		—		—
Other comprehensive income	—	—		—	—		—		763		—		—		763
Net loss	—	—		—	—		—		—		—		(35,110)		(35,110)
Balance at March 31, 2023	20,741	$	2	14,719	$	2	$	219,074	$	(921)	$	(25,756)	$	48,168	$	240,569

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

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

	Three Months Ended March 31,
	2024		2023
Cash from operating activities
Net Income (loss)	$	38,663	$	(35,110)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	4,693		6,937
Amortization of operating lease right-of-use assets	523		568

Gain on lease modification	—		(2,366)
Stock-based compensation, including as amortized	13,992		14,637


Other	(1,824)		(155)
Changes in operating assets and liabilities:
Accounts receivable	(5,470)		(914)
Prepaid expenses and other current assets	8,849		(2,399)
Accounts payable	733		(1,777)
Operating lease liabilities	(475)		(771)
Accrued expenses and other liabilities	(16,730)		22,923
Net cash provided by operating activities	42,954		1,573
Cash from investing activities
Purchases of available-for-sale investments	(57,162)		(1,285)
Proceeds from sales of available-for-sale investments	—		1,013
Proceeds from maturities of available-for-sale investments	36,670		37,890
Purchases of property and equipment	(1,420)		(794)
Capitalization of software development costs	(1,125)		(1,165)

Proceeds from sale of business, net of cash divested	—		629
Net cash (used in) provided by investing activities	(23,037)		36,288
Cash from financing activities
Proceeds from stock option exercises	3,874		834
Tax withholding for net share settlement	(14,086)		(5,539)
Net cash used in financing activities	(10,212)		(4,705)
Net increase in cash, cash equivalents and restricted cash	9,705		33,156
Cash, cash equivalents and restricted cash
Beginning of period	49,759		71,019
End of period	$	59,464	$	104,175
Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	$	59,214	$	103,925
Restricted cash included in prepaid expenses and other current assets	250		250
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	59,464	$	104,175
Supplemental disclosure of cash flow information


Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows	1,483		1,348

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APPFOLIO, INC.

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

1. Nature of Business

AppFolio, Inc. ("we," "us" or "our") is a leading provider of cloud business management solutions for the real estate industry. Our solutions are designed to enable our property manager customers to digitally transform their businesses, address critical business operations and deliver a better customer experience. Digital transformation is effectively a requirement for business success in the modern world, and the way we work and live requires powerful software solutions.

2. Summary of Significant Accounting Policies

Basis of Presentation and Significant Accounting Policies

The accompanying unaudited Condensed Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these Condensed Consolidated Financial Statements should be read in conjunction with our audited consolidated financial statements and the related notes included in our Annual Report, which was filed with the SEC on February 1, 2024. The year-end condensed balance sheet was derived from our audited consolidated financial statements. Our unaudited interim Condensed Consolidated Financial Statements include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of our Condensed Consolidated Financial Statements. The operating results for the three months ended March 31, 2024 are not necessarily indicative of the results expected for the full year ending December 31, 2024.

Reclassification

We reclassified certain amounts in our Condensed Consolidated Statements of Cash Flows within the cash flows from operating activities section in the prior year to conform to the current year's presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue, expenses, other income, and provision for income taxes during the reporting period. Assets and liabilities which are subject to judgment and use of estimates include the fair value of financial instruments, capitalized software development costs, period of benefit associated with deferred costs, incremental borrowing rate used to measure operating lease liabilities, the recoverability of goodwill and long-lived assets, income taxes, useful lives associated with property and equipment and intangible assets, contingencies, assumptions underlying performance-based compensation (whether cash or stock-based), and assumptions underlying stock-based compensation. Actual results could differ from those estimates and any such differences may have a material impact on our Condensed Consolidated Financial Statements.

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Net Income (Loss) per Common Share

Net income (loss) per common share was the same for shares of our Class A and Class B common stock because they are entitled to the same liquidation and dividend rights and are therefore combined in the table below. The following table sets forth the computation of basic and diluted net income (loss) per common share (in thousands):


	Three Months Ended March 31,
	2024		2023
Basic net income (loss) per share:
Numerator
Net income (loss)	$	38,663	$	(35,110)
Less: undistributed earnings to participating securities	5		—
Net income (loss) attributable to common stockholders	$	38,658	$	(35,110)
Denominator
Weighted average common shares outstanding	36,092		35,451
Less: Weighted average unvested restricted shares subject to repurchase	5		8
Weighted average common shares outstanding; basic	36,087		35,443
Net income (loss) per common share; basic	$	1.07	$	(0.99)
Diluted net income (loss) per share:
Numerator
Net income (loss) attributable to common stockholders	$	38,658	$	(35,110)
Denominator
Weighted average common shares outstanding; basic	36,087		35,443
Add: Weighted average dilutive options outstanding	108		—
Add: Weighted average dilutive RSUs outstanding	479		—
Weighted average common shares outstanding; diluted	36,674		35,443
Net income (loss) per common share; diluted	$	1.05	$	(0.99)

Potentially dilutive securities that are not included in the calculation of diluted net income (loss) per share because doing so would be antidilutive are as follows (in thousands):


	Three Months Ended March 31,
	2024	2023
Unvested Restricted Stock Awards	4	8
Options	—	572
Restricted Stock Units	170	1,620
Total potentially dilutive securities	174	2,200

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3. Investment Securities and Fair Value Measurements

Investment Securities

Investment securities classified as available-for-sale consisted of the following as of March 31, 2024 and December 31, 2023 (in thousands):


	March 31, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value


U.S. government and agency securities	184,377		17		(96)		184,298
Total available-for-sale investment securities	$	184,377	$	17	$	(96)	$	184,298


	December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value


U.S. government and agency securities	162,062		193		(59)		162,196
Total available-for-sale investment securities	$	162,062	$	193	$	(59)	$	162,196

As of March 31, 2024, the decline in fair value below amortized cost basis was not considered other than temporary as it is more likely than not we will hold the securities until maturity or recovery of the cost basis. No allowance for credit losses for available-for-sale investment securities was recorded as of March 31, 2024 or December 31, 2023.

The fair values of available-for-sale investment securities, by remaining contractual maturity, are as follows (in thousands):


	March 31, 2024				December 31, 2023
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	184,377	$	184,298	$	162,062	$	162,196

Total available-for-sale investment securities	$	184,377	$	184,298	$	162,062	$	162,196

During the three months ended March 31, 2024 and 2023, we had sales and maturities of investment securities, as follows (in thousands):


	Three Months Ended March 31, 2024
	Gross Realized Gains		Gross Realized Losses		Gross Proceeds from Sales		Gross Proceeds from Maturities


U.S. government and agency securities	—		—		—		36,670
Total	$	—	$	—	$	—	$	36,670


	Three Months Ended March 31, 2023
	Gross Realized Gains		Gross Realized Losses		Gross Proceeds from Sales		Gross Proceeds from Maturities
Corporate bonds	$	3	$	—	$	1,013	$	6,860

U.S. government and agency securities	—		—		—		31,030
Total	$	3			$	1,013	$	37,890

Fair Value Measurements

Recurring Fair Value Measurements

The following tables present our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 by level within the fair value hierarchy (in thousands):

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	March 31, 2024
	Level 1		Level 2		Total Fair Value
Cash equivalents:
Money market funds	$	42,400	$	—	$	42,400


Available-for-sale investment securities:


U.S. government and agency securities	—		184,298		184,298
Total	$	42,400	$	184,298	$	226,698


	December 31, 2023
	Level 1		Level 2		Total Fair Value
Cash equivalents:
Money market funds	$	37,100	$	—	$	37,100

Available-for-sale investment securities:


U.S. government and agency securities	—		162,196		162,196
Total	$	37,100	$	162,196	$	199,296

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of the short maturity of these items.

Fair value for our Level 1 investment securities is based on market prices for identical assets. Our Level 2 securities were priced by a pricing vendor. The pricing vendor utilizes the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, other observable inputs like market transactions involving comparable securities are used.

4. Capitalized Software Development Costs, net

Capitalized software development costs were as follows (in thousands):


	March 31, 2024		December 31, 2023
Capitalized software development costs, gross	$	125,890	$	126,606
Less: Accumulated amortization	(106,916)		(105,044)
Capitalized software development costs, net	$	18,974	$	21,562

Capitalized software development costs were $1.2 million and $1.0 million for the three months ended March 31, 2024 and 2023, respectively. Amortization expense with respect to capitalized software development costs totaled $3.7 million and $5.9 million for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024 and 2023, we disposed of $1.9 million and $2.2 million, respectively, of fully amortized capitalized software development costs.

Future amortization expense with respect to capitalized software development costs as of March 31, 2024 is estimated as follows (in thousands):


Years Ending December 31,
2024	$	9,074
2025	6,434
2026	2,816
2027	650

Total amortization expense	$	18,974

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5. Accrued Employee Expenses

Accrued employee expenses consisted of the following (in thousands):


	March 31, 2024		December 31, 2023
Accrued vacation	$	13,258	$	12,399
Accrued bonuses	5,694		14,795

Accrued payroll, severance and related personnel cost	10,250		8,373


Total accrued employee expenses	$	29,202	$	35,567

In the three months ended March 31, 2023, we expensed $14.9 million of severance related to separation costs associated with our former Chief Executive Officer's Transition and Separation Agreement, dated March 1, 2023 ("Separation Agreement").

6. Other Current Liabilities

Other Current Liabilities consisted of the following (in thousands):


	March 31, 2024		December 31, 2023
Insurance reserves	$	3,314	$	4,174
Operating lease liabilities-current	3,796		3,626
Other	4,683		3,535
Total other current liabilities	$	11,793	$	11,335

For additional information, refer to Note 8, Commitments and Contingencies and Note 7, Leases.

7. Leases

Operating leases for our corporate offices have remaining lease terms ranging from four months to nine years, some of which include options to extend the leases for up to ten years. These options to extend have not been recognized as part of our operating lease right-of-use assets and lease liabilities as it is not reasonably certain that we will exercise these options. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. Certain leases contain provisions for property-related costs that are variable in nature for which we are responsible, including common area maintenance, which are expensed as incurred.

The components of lease expense recognized in the Condensed Consolidated Statements of Operations were as follows (in thousands):


	Three Months Ended March 31,
	2024		2023
Operating lease cost	$	1,073	$	1,145
Variable lease cost	365		573
Total lease cost	$	1,438	$	1,718

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Lease-related assets and liabilities were as follows (in thousands):


	March 31, 2024	December 31, 2023
Assets

SEC Form 10-Q filed by AppFolio Inc.