appf-20250331

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, 2025.

☐ 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 17, 2025, the number of shares of the registrant’s Class A common stock outstanding was 23,047,322 and the number of shares of the registrant’s Class B common stock outstanding was 12,981,324.

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 3 1 , 202 5 and December 31, 202 4						3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31 , 202 5 and 202 4						4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2025 and 2024						5
Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2025 and 2024						6
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024						7
Notes to Condensed Consolidated Unaudited Financial Statements						8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						14
Item 3. Quantitative and Qualitative Disclosures about Market Risk						20
Item 4. Controls and Procedures						20
Part II. Other Information						21
Item 1. Legal Proceedings						21
Item 1A. Risk Factors						21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						21
Item 5. Other Information						22
Item 6. Exhibits						22
Signatures

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2025 (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 PSLRA 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" and "Risk Factors" in this Quarterly Report and "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (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.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

APPFOLIO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands)


	March 31, 2025		December 31, 2024
Assets
Current assets
Cash and cash equivalents	$	56,933	$	42,504
Investment securities—current	153,881		235,745
Accounts receivable, net	27,462		24,346
Prepaid expenses and other current assets	33,738		32,807
Total current assets	272,014		335,402

Property and equipment, net	23,413		24,483
Operating lease right-of-use assets	16,971		17,472
Capitalized software development costs, net	13,649		15,429
Goodwill	96,410		96,410
Intangible assets, net	46,500		49,057
Deferred income taxes	82,451		76,910
Other long-term assets	13,325		11,515
Total assets	$	564,733	$	626,678
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	4,934	$	2,378
Accrued employee expenses	21,775		30,157
Accrued expenses	15,724		14,658


Other current liabilities	16,173		16,087

Total current liabilities	58,606		63,280


Operating lease liabilities	36,328		37,476

Other liabilities	7,680		6,632
Total liabilities	102,614		107,388
Commitments and contingencies (Note 6)
Stockholders’ equity:

Class A common stock	2		2
Class B common stock	2		2
Additional paid-in capital	262,237		254,821
Accumulated other comprehensive (loss) Income	(34)		173
Treasury stock	(121,519)		(25,756)
Retained earnings	321,431		290,048
Total stockholders’ equity	462,119		519,290
Total liabilities and stockholders’ equity	$	564,733	$	626,678

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

APPFOLIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share amounts)


	Three Months Ended March 31,
	2025		2024
Revenue	$	217,702	$	187,430
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)(1)	79,498		64,646
Sales and marketing(1)	31,057		24,455
Research and product development(1)	43,758		37,895
General and administrative(1)	23,351		21,132
Depreciation and amortization	6,255		5,212
Total costs and operating expenses	183,919		153,340
Income from operations	33,783		34,090
Other income (loss), net	56		—
Interest income, net	2,953		2,992
Income before provision for income taxes	36,792		37,082
Provision (benefit from) for income taxes	5,409		(1,581)
Net income	$	31,383	$	38,663

Net income per common share:
Basic	$	0.86	$	1.07
Diluted	$	0.86	$	1.05
Weighted average common shares outstanding:
Basic	36,302		36,087
Diluted	36,648		36,674

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


	Three Months Ended March 31,
	2025		2024
Stock-based compensation expense included in costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)	$	1,287	$	960
Sales and marketing	2,848		1,510
Research and product development	6,931		5,682
General and administrative	5,305		5,322
Total stock-based compensation expense	$	16,371	$	13,474

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

APPFOLIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands)


	Three Months Ended March 31,
	2025		2024
Net income	$	31,383	$	38,663
Other comprehensive loss:
Changes in unrealized losses on investment securities, net of tax	(207)		(214)
Comprehensive income	$	31,176	$	38,449

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

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, 2024	23,241	$	2	13,163	$	2	$	254,821	$	173	$	(25,756)	$	290,048	$	519,290
Exercise of stock options	1	—		—	—		11		—		—		—		11
Stock-based compensation	—	—		—	—		16,483		—		—		—		16,483
Vesting of restricted stock units, net of shares withheld for taxes	60	—		—	—		(9,078)		—		—		—		(9,078)
Conversion of Class B common stock to Class A common stock	182	—		(182)	—		—		—		—		—		—
Repurchase on common stock	(445)	—		—	—		—		—		(95,763)		—		(95,763)
Other comprehensive loss	—	—		—	—		—		(207)		—		—		(207)
Net Income	—	—		—	—		—		—		—		31,383		31,383
Balance at March 31, 2025	23,039	$	2	12,981	$	2	$	262,237	$	(34)	$	(121,519)	$	321,431	$	462,119


									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

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


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

	Three Months Ended March 31,
	2025		2024
Cash from operating activities
Net income	$	31,383	$	38,663
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,255		5,211
Amortization of operating lease right-of-use assets	501		523
Amortization of costs capitalized to obtain revenue contracts	2,720		2,500

Deferred income taxes	(5,541)		—
Stock-based compensation, including as amortized	16,371		13,474


Other	(917)		(1,824)
Changes in operating assets and liabilities:
Accounts receivable	(3,116)		(5,470)
Prepaid expenses and other assets	(5,460)		6,349
Accounts payable	2,546		733
Operating lease liabilities	(1,051)		(475)
Accrued expenses and other liabilities	(5,226)		(16,730)
Net cash provided by operating activities	38,465		42,954
Cash from investing activities
Purchases of available-for-sale investments	(62,302)		(57,162)
Proceeds from sales of available-for-sale investments	102,718		—
Proceeds from maturities of available-for-sale investments	42,150		36,670
Purchases of property and equipment	(230)		(1,420)
Capitalization of software development costs	(636)		(1,125)

Cash paid in business acquisition, net of cash acquired	(906)		—
Net cash provided by (used in) investing activities	80,794		(23,037)
Cash from financing activities
Proceeds from stock option exercises	11		3,874
Tax withholding for net share settlement	(9,078)		(14,086)
Purchase of common stock	(95,763)		—
Net cash used in financing activities	(104,830)		(10,212)
Net increase in cash, cash equivalents and restricted cash	14,429		9,705
Cash, cash equivalents and restricted cash
Beginning of period	42,754		49,759
End of period	$	57,183	$	59,464
Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	$	56,933	$	59,214
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	$	57,183	$	59,464
Supplemental disclosure of cash flow information


Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows	1,558		1,483

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

APPFOLIO, INC.

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

1. Nature of Business

AppFolio, Inc. ("we," "us" or "our") is a technology leader powering the future of the real estate industry. We provide a cloud-based platform on which our customers operate their businesses. Our services enable our customers to connect communities, increase operational efficiency, deliver exceptional customer experiences, and improve financial and operational performance.

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 6, 2025. 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, 2025 are not necessarily indicative of the results expected for the full year ending December 31, 2025.

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 management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of 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 assets and liabilities assumed in business combinations, the fair value of financial instruments, useful lives of property and equipment and intangible assets, capitalized software development costs, incremental borrowing rate applied in lease accounting, impairment of goodwill and long-lived assets, the period of benefit associated with deferred costs, stock-based compensation, income taxes, and contingencies. Actual results could differ from those estimates and any such differences may have a material impact on our Consolidated Financial Statements.

Segment Information

Our chief operating decision maker ("CODM"), the Chief Executive Officer, allocates resources and assesses financial performance based upon discrete financial information at the consolidated level. There are no segment managers who are held accountable by our CODM, or anyone else, for operations, operating results and planning for levels or components below the consolidated unit level. Accordingly, we have determined that we operate as a single operating and reportable segment.

Our CODM uses consolidated net income (loss) as the sole measure of segment profit or loss. Significant segment expenses include cost of revenue (excluding depreciation and amortization), sales and marketing, research and product development, general and administrative expenses, and depreciation and amortization. For expenses incurred during the three months ended March 31, 2025 and 2024, refer to our Condensed Consolidated Statements of Operations. Stock-based compensation expense is also recognized as a significant segment expense. Details regarding this expense for the three months ended March 31, 2025 and 2024 was included in the parenthetical note to the respective Condensed Consolidated Statements of Operations.

Deferred Costs

Deferred costs were $17.4 million and $16.8 million as of March 31, 2025 and December 31, 2024, respectively, of which $9.1 million and $9.9 million, respectively, are included in Prepaid expenses and other current assets and $8.2 million and $6.9 million, respectively, are included in Other long-term assets in the accompanying Condensed Consolidated Balance Sheets. Amortization expense for deferred costs was $2.7 million, $2.5 million for the three months ended March 31, 2025 and 2024, respectively. For the three months ended March 31, 2025 and 2024, no impairments were identified in relation to the costs capitalized for the periods presented.

Net Income per Common Share

Net income 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 per common share (in thousands):


	Three Months Ended March 31,
	2025		2024
Basic net income per share:
Numerator
Net income	$	31,383	$	38,663
Less: undistributed earnings to participating securities	—		5
Net income attributable to common stockholders	$	31,383	$	38,658
Denominator
Weighted average common shares outstanding	36,302		36,092
Less: Weighted average unvested restricted shares subject to repurchase	—		5
Weighted average common shares outstanding; basic	36,302		36,087
Net income per common share; basic	$	0.86	$	1.07
Diluted net income per share:
Numerator
Net income attributable to common stockholders	$	31,383	$	38,658
Denominator
Weighted average common shares outstanding; basic	36,302		36,087
Add: Weighted average dilutive options outstanding	39		108
Add: Weighted average dilutive restricted stock units outstanding	307		479
Weighted average common shares outstanding; diluted	36,648		36,674
Net income per common share; diluted	$	0.86	$	1.05

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


	Three Months Ended March 31,
	2025	2024
Unvested restricted stock awards	—	4

Restricted stock units	45	170
Total potentially dilutive securities	45	174

3. Investment Securities and Fair Value Measurements

Investment Securities

Investment securities classified as available-for-sale consisted of the following as of March 31, 2025 and December 31, 2024 (in thousands):


	March 31, 2025
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value


U.S. government and agency securities	153,853		53		(25)		153,881
Total available-for-sale investment securities	$	153,853	$	53	$	(25)	$	153,881


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


U.S. government and agency securities	235,509		261		(25)		235,745
Total available-for-sale investment securities	$	235,509	$	261	$	(25)	$	235,745

As of March 31, 2025, 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, 2025 or December 31, 2024.

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


	March 31, 2025				December 31, 2024
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	153,853	$	153,881	$	235,509	$	235,745

Total available-for-sale investment securities	$	153,853	$	153,881	$	235,509	$	235,745

During the three months ended March 31, 2025 and 2024, we had sales and maturities of investment securities, as follows (in thousands):


	Three Months Ended March 31, 2025
	Gross Realized Gains		Gross Realized Losses		Gross Proceeds from Sales		Gross Proceeds from Maturities


U.S. government and agency securities	61		(5)		102,718		42,150
Total	$	61	$	(5)	$	102,718	$	42,150


	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

The tables above do not include our non-marketable debt securities of $2.0 million, which are recorded in Other long term assets in the Condensed Consolidated Balance Sheet as of March 31, 2025.

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, 2025 and December 31, 2024 by level within the fair value hierarchy (in thousands):


	March 31, 2025
	Level 1		Level 2		Total Fair Value
Cash equivalents:
Money market funds	$	32,019	$	—	$	32,019


Available-for-sale investment securities:


U.S. government and agency securities	—		153,881		153,881
Total	$	32,019	$	153,881	$	185,900


	December 31, 2024
	Level 1		Level 2		Total Fair Value
Cash equivalents:
Money market funds	$	25,167	$	—	$	25,167

Available-for-sale investment securities:


U.S. government and agency securities	—		235,745		235,745
Total	$	25,167	$	235,745	$	260,912

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. Accrued Employee Expenses

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


	March 31, 2025		December 31, 2024
Accrued bonuses	7,142		17,092
Accrued payroll and other	14,633		13,065
Total accrued employee expenses	$	21,775	$	30,157

5. Other Current Liabilities

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


	March 31, 2025		December 31, 2024
Unearned premium liabilities	$	5,767	$	5,455
Insurance reserves	$	4,041	$	3,908
Operating lease liabilities-current	4,369		4,273
Other	1,996		2,451
Total other current liabilities	$	16,173	$	16,087

Unearned premium liabilities are the refundable portion of commissions received in connection with the sale of renters insurance policies to residents through AppFolio Insurance Services, Inc., our wholly owned subsidiary. In the event a resident cancels their renters insurance policy prior to the end of such policy, we may be required to refund a pro rata portion of the commission paid on such policy.

For additional information for insurance reserves, refer to Note 6, Commitments and Contingencies.

6. Commitments and Contingencies

Legal Liability to Landlord Insurance

We have a wholly owned subsidiary, Terra Mar Insurance Company, Inc., which was established in connection with reinsuring liability to landlord insurance policies offered to our customers by our third-party service provider. We assume a 100% quota share of the liability to landlord insurance policies placed with our customers by our third-party service provider. We accrue for reported claims, and include an estimate of losses incurred but not reported by our property manager customers, in cost of revenue because we bear the risk related to all such claims. Our estimated liability for reported claims and incurred but not reported claims as of March 31, 2025 and December 31, 2024 was $4.0 million and $3.9 million, respectively, and is included in Other current liabilities on our Condensed Consolidated Balance Sheets.

Included in Prepaid expenses and other current assets as of March 31, 2025 and December 31, 2024 are $4.0 million and $6.7 million, respectively, of deposits held with a third party related to requirements to maintain collateral for this insurance service.

Legal Proceedings

From time to time, we are involved in various investigative inquiries, legal proceedings and disputes arising from or related to matters incident to the ordinary course of our business activities, including actions with respect to intellectual property, employment, labor, regulatory and contractual matters. Although the ultimate outcome of such investigative inquiries, legal proceedings and other disputes cannot be predicted with certainty, we do not believe that any such investigative inquires, legal proceedings and other disputes, if determined adversely to us, would, individually or taken together, have a material adverse effect on our business, operating results, financial condition or cash flows.

Indemnification

In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, business partners, investors, directors, officers, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of any applicable agreements, intellectual property infringement claims made by third parties, and other liabilities relating to or arising from our services or our acts or omissions. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions may not be subject to maximum loss clauses and is indeterminable. We have not incurred any costs as a result of such indemnification obligations and have not recorded any liabilities related to such obligations in the Consolidated Financial Statements.

7. Share Repurchase Program

On February 20, 2019, our Board of Directors (our "Board") authorized a $100.0 million share repurchase program (the "2019 Stock Repurchase Program") relating to our outstanding shares of Class A common stock. Under the 2019 Stock Repurchase Program, we were authorized to repurchase shares of our Class A common stock from time to time in open market purchases or privately negotiated transactions. The 2019 Stock Repurchase Program did not obligate us to repurchase any minimum dollar amount or number of shares, did not have an expiration date, and it could have been modified, suspended or terminated at any time and for any reason.

During the three months ended March 31, 2025, we repurchased 445,311 shares of our Class A common stock through open market repurchases under the 2019 Stock Repurchase Program at an average purchase price of $215.05 per share, inclusive of broker commissions, for an aggregate repurchase price of $95.8 million which was recorded as a reduction to stockholders' equity. As a result of the repurchases, we have substantially exhausted the remaining shares available for purchase under the 2019 Stock Repurchase Program. We did not repurchase any shares of our Class A common stock under the 2019 Stock Repurchase Program during the three months ended March 31, 2024.

On April 23, 2025, our Board authorized a $300.0 million share repurchase program (the "2025 Stock Repurchase Program") relating to our outstanding shares of Class A common stock. Under the 2025 Stock Repurchase Program, we are authorized to repurchase shares of our Class A common stock from time to time in open market purchases or privately negotiated transactions. The 2025 Stock Repurchase Program does not obligate us to repurchase any minimum dollar amount or number of shares, has no expiration date, and can be modified, suspended or terminated at any time and for any reason. The timing and actual number of shares repurchased will depend on a variety of factors, including price, corporate and legal requirements, market conditions and other factors. The 2025 Stock Repurchase Program replaces the 2019 Stock Repurchase Program.

8. Stock-Based Compensation

Restricted Stock Units

A summary of activity in connection with our restricted stock units ("RSUs") for the three months ended March 31, 2025, is as follows (number of shares in thousands):


	Number of Shares	Weighted Average Grant Date Fair Value per Share
Unvested as of December 31, 2024	785	$	160.0
Granted	332	225.0
Vested	(101)	153.5
Forfeited	(32)	149.2
Unvested as of March 31, 2025	983	$	182.9

Unvested RSUs as of March 31, 2025 were composed of 0.9 million RSUs with only service conditions and 0.1 million performance share units ("PSUs") with both service conditions and performance conditions. RSUs granted with only service conditions generally vest over a four-year period, assuming continued employment through the applicable vesting date. The number of PSUs granted, as included in the above table, assumes achievement of the performance metrics at 100% of the performance target. The unvested PSUs as of March 31, 2025, are subject to vesting based on the achievement of pre-established performance metrics for the year ending December 31, 2025 and will vest over a three year period, assuming continued employment through each vesting date. The actual number of shares to be issued at the end of the performance period will range from 0% to 171% of the target number of shares depending on achievement relative to the performance metrics over the applicable period.

We recognized stock-based compensation expense for the RSUs and PSUs of $16.0 million and $13.0 million for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, the total estimated remaining stock-based compensation expense for the aforementioned RSUs and PSUs was $142.8 million, which is expected to be recognized over a weighted average period of 2.5 years.

9. Income Taxes

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

For the three months ended March 31, 2025, we recorded income tax expense of $5.4 million, representing an effective tax rate of 14.7%. Our effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to excess tax benefits from stock-based compensation and research & development tax credits, partially offset by state income taxes and non-deductible officers' compensation. For the three months ended March 31, 2024, our effective tax rate as compared to the U.S. federal statutory rate of 21% differs primarily due to excess tax benefits from stock-based compensation, partially offset by change in valuation allowance against deferred tax assets, state income taxes and non-deductible officers' compensation.

We assess our ability to realize our deferred tax assets on a quarterly basis and we establish a valuation allowance if it is more-likely-than-not that some portion of deferred tax assets will not be realized. We weigh all available positive and negative evidence, including our earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. During the three months ended December 31, 2024, we assessed all available evidence and determined that there was sufficient positive evidence to overcome the negative evidence, including our past and current financial results, growth demonstrated in our top-line performance, as well as projected profitability. Accordingly, we determined it is more likely than not that the deferred tax assets will be realized and we released our valuation allowance at December 31, 2024.

There were no material changes to our unrecognized tax benefits during the three months ended March 31, 2025, and we do not expect to have any significant changes to unrecognized tax benefits through the remainder of the year.

10. Revenue and Other Information

The following table presents our revenue categories for the three months ended March 31, 2025 and 2024 (in thousands):


	Three Months Ended March 31,
	2025		2024
Core solutions	$	49,513	$	42,920
Value Added Services	164,706		142,331
Other	3,483		2,179
Total revenue	$	217,702	$	187,430

Our revenue is generated primarily from customers in the United States. Our property and equipment is primarily located in the United States.

11. Subsequent Event

On April 3, 2025, our Board (1) increased the number of directors that comprise the Board from eight to nine directors in accordance with our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, and (2) elected Robert Donald Casey III to the Board as a Class II Director effective immediately to fill the director’s office created by such increase. In connection with his election, the Board determined that Mr. Casey qualifies as an independent director under the Nasdaq rules.

On April 11, 2025, we entered into a strategic partnership (the "Strategic Partnership") with Second Nature Brands, Inc. ("Second Nature") that will, among other things, enable AppFolio's property management customers to offer Second Nature's suite of residential property services within the AppFolio Stack™ partner ecosystem.

In connection with entering into the Strategic Partnership, on April 11, 2025, we purchased a minority, non-controlling equity interest in Second Nature Holdings, L.P., the indirect parent of Second Nature, for $75.0 million, paid with cash on hand.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition, results of operations and liquidity should be read together with our Condensed Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report and in our Annual Report.

Overview

We are a technology leader powering the future of the real estate industry. We provide a cloud-based platform on which our customers operate their businesses. We help our customers navigate an increasingly interconnected and growing network of stakeholders in their business ecosystems, including property managers, property investors, potential residents, residents, and vendors. We also provide key functionality related to critical transactions across the real estate lifecycle, including screening potential residents, sending and receiving payments, and providing insurance-related risk mitigation services. Our services enable our customers to connect communities, increase operational efficiency, deliver exceptional customer experiences, and improve financial and operational performance.

Property management units under management. We believe that our ability to increase our number of property management units under management is an indicator of our market penetration, growth, and potential future business opportunities. We define property management units under management as active or committed units under management at the period end date. We had 8.8 million and 8.3 million property management units under management as of March 31, 2025 and 2024, respectively.

Key Components of Results of Operations

Revenue

Our core solutions and certain of our Value Added Services are offered on a subscription basis. The subscription fees for our core solutions vary by property type and are designed to scale with the size of our customers’ businesses. We recognize

revenue for subscription-based services on a straight-line basis over the contract term beginning on the date that our service is made available. We generally invoice monthly or, to a lesser extent, annually in advance of a subscription period.

We also offer certain Value Added Services, which are not covered by our subscription fees, on a per-use basis. Usage-based fees are charged either as a percentage of the transaction amount (e.g., for certain of our electronic payment services) or on a flat fee per transaction basis generally with no minimum usage commitments (e.g., for our tenant screening and risk mitigation services). We recognize revenue for usage-based services in the period the service is rendered. Our payments services fees are recorded gross of any interchange and payment processing related fees. We generally invoice our usage-based services on a monthly basis or collect the fee at the time of service. A significant majority of our Value Added Services revenue comes from the use of our electronic payment services, tenant screening services, and risk mitigation services.

In addition, we charge our customers for assistance onboarding onto our core solutions and for certain other non-recurring services. We generally invoice for these other services in advance of the services being completed and recognize revenue in the period the service is rendered. We also generate revenue from the legacy customers of businesses we acquire that provide standalone services outside of our platform. Revenue derived from these services is recorded in Other revenue. As of March 31, 2025 and 2024, we had 21,105 and 19,941 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. Cost of revenue paid to these third-party service providers includes, without limitation, the cost of electronic interchange and payment processing-related services to support our payments services, the cost of credit reporting services for our tenant screening services, and various costs associated with our risk mitigation service providers. These third-party costs vary both in amount and as a percentage of revenue for each Value Added Service offering. Cost of revenue also includes personnel-related costs for our employees focused on customer service and the support of our operations (including salaries, cash bonuses, benefits, and stock-based compensation), platform infrastructure costs (such as data center operations and hosting-related costs), and allocated shared and other costs. Cost of revenue excludes depreciation of property and equipment, amortization of capitalized software development costs and amortization of intangible assets.

Sales and Marketing. Sales and marketing expense consists of personnel-related costs for our employees focused on sales and marketing (including salaries, sales commissions, cash bonuses, benefits, and stock-based compensation), costs associated with sales and marketing activities, and allocated shared and other costs. Marketing activities include advertising, online lead generation, lead nurturing, customer and industry events, and the creation of industry-related content and collateral. We focus our sales and marketing efforts on generating awareness of our software solutions, creating sales leads, establishing and promoting our brands, and cultivating an educated community of successful and vocal customers.

Research and Product Development. Research and product development expense consists of personnel-related costs for our employees focused on research and product development (including salaries, cash bonuses, benefits, and stock-based compensation), fees for third-party development resources, and allocated shared and other costs. Our research and product development efforts are focused on expanding functionality and the ease of use of our existing software solutions by adding new core functionality, Value Added Services and other improvements, as well as developing new products and services. We capitalize our software development costs that meet the criteria for capitalization. Amortization of capitalized software development costs is included in depreciation and amortization expense.

General and Administrative. General and administrative expense consists of personnel-related costs for employees in our executive, finance, information technology, human resources, legal, compliance, and administrative organizations (including salaries, cash bonuses, benefits, and stock-based compensation). In addition, general and administrative expense includes fees for third-party professional services (including audit, legal, compliance, and tax services), regulatory fees, other corporate expenses, impairment of long-lived assets, gains on lease modifications, and allocated shared and other costs.

Depreciation and Amortization. Depreciation and amortization expense includes depreciation of property and equipment, amortization of capitalized software development costs, and amortization of intangible assets. We depreciate or amortize property and equipment, software development costs, and intangible assets over their expected useful lives on a straight-line basis, which approximates the pattern in which the economic benefits of the assets are consumed.

Interest Income, Net. Interest income, net includes interest earned on investment securities, amortization and accretion of the premium and discounts paid from the purchase of investment securities, and interest earned on cash deposited in our bank accounts.

Provision (benefit from) for income taxes. Provision (benefit from) for income taxes consists of federal and state income taxes in the United States.

Results of Operations

Revenue


	Three Months Ended March 31,				Change
	2025		2024		Amount		%
	(dollars in thousands)
Core solutions	$	49,513	$	42,920	$	6,593	15	%
Value Added Services	164,706		142,331		22,375		16	%
Other	3,483		2,179		1,304		60	%
Total revenue	$	217,702	$	187,430	$	30,272	16	%

The increase in revenue for the three months ended March 31, 2025, compared to the same period in the prior year, was primarily attributable to an increase in the usage of our payments, tenant screening, and risk mitigation services. During the three month periods ended March 31, 2025, we also experienced growth of 6% in the number of property management units under management compared to the same period in the prior year, which drove growth in users of our subscription and usage-based services.

Our payment services experienced increased usage during the comparative periods as residents and property managers transacted more business online.

We expect total revenue for the year ending December 31, 2025 to increase compared to the year ended December 31, 2024 as we continue to add new customers and property management units under management, along with increased adoption and usage of our Value Added Services.

Cost of Revenue (Exclusive of Depreciation and Amortization)

Three Months Ended
March 31,

Change