appf-20221027
0001433195false00014331952022-10-272022-10-27

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K

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

Date of Report (Date of earliest event reported): October 27, 2022
AppFolio, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation)
001-3746826-0359894
(Commission File Number)(IRS Employer Identification Number)
70 Castilian Drive
Santa Barbara, CA 93117
(Address of principal executive offices)
Registrant’s telephone number, including area code: (805) 364-6093
N/A
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A Common Stock, $0.0001 par valueAPPFNASDAQ Global Market


Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
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. ☐


Item 2.02. Results of Operations and Financial Condition.
On October 27, 2022, AppFolio, Inc. (the “Company”) issued a press release announcing its financial results for its third quarter ended September 30, 2022. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
The information contained in this Item 2.02, including the press release attached as Exhibit 99.1 hereto, is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that Section. Such information shall not be deemed to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing, except as otherwise expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits.
(d) Exhibits:
Exhibit Number
Description
99.1
104Cover Page Interactive Data File (embedded within the Inline XBRL document)



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: October 27, 2022
AppFolio, Inc.
By: /s/ Fay Sien Goon
Name: Fay Sien Goon
Title: Chief Financial Officer











primary-inc_wordmark.jpg



AppFolio, Inc. Announces Third Quarter Financial Results
Revenue grows 31%

SANTA BARBARA, Calif., October 27, 2022 (GLOBE NEWSWIRE) -- AppFolio, Inc. (NASDAQ: APPF) ("AppFolio" or the "Company"), a leading provider of cloud business management solutions for the real estate industry, today announced its financial results for the third quarter ended September 30, 2022.

“AppFolio increased the number of units served year-over-year by more than one million units for the second consecutive quarter – a clear testament that our customers rely on AppFolio products to optimize their operations, maximize their revenue and profits, and solve their staffing challenges,” said Jason Randall, President and CEO, AppFolio. “Our strategy for long-term growth is rooted in keeping existing customers happy, acquiring new customers, expanding adoption and usage, and delivering new capabilities and product value – all on a foundation of operational excellence.”

Financial Highlights
•Revenue: Total revenue was $125.1 million in the third quarter of 2022, a 31% increase from $95.8 million in the third quarter of 2021.
•Units Served: Total units on the AppFolio Property Manager platform increased to approximately 7.1 million in the third quarter of 2022 from approximately 6.0 million at the end of the third quarter of 2021.
•Income (Loss) from Operations: GAAP loss from operations in the third quarter of 2022 was $7.8 million, or 6% of revenue, compared to GAAP break-even in the same quarter of 2021. Non-GAAP income from operations in the third quarter of 2022 was $4.7 million, or 4% of revenue, compared to Non-GAAP income from operations of $3.8 million, or 4% of revenue, in the third quarter of 2021.
•Cash: Cash, cash equivalents, and investment securities were $184.5 million as of September 30, 2022. Non-GAAP free cash flow was $11.9 million, or 10% of revenue, in the third quarter of 2022, compared to $6.8 million, or 7% of revenue, in the same quarter of 2021.


Financial Outlook
Based on information available as of October 27, 2022, AppFolio's outlook for fiscal year 2022 follows:
•Full year revenue is expected to be in the range of $462 million to $466 million.
•Full year non-GAAP operating margin as a percentage of revenue is expected to be a loss of 1.5-2.5%.
•Weighted average shares outstanding are expected to be approximately 35 million for the full year.





Conference Call Information
As previously announced, the Company will host a conference call today, October 27, 2022, at 2:00 p.m. Pacific Time (PT), 5:00 p.m. Eastern Time (ET), to discuss the company’s third quarter 2022 financial results. A live webcast of the call will be available at: https://edge.media-server.com/mmc/p/b7297keo. To access the call by phone, please go to the following link: https://register.vevent.com/register/BIf67920663fb34bef80ab9b99d00c89ec, and you will be provided with dial in details. A replay of the webcast will also be available for a limited time on AppFolio’s Investor Relations website at https://ir.appfolioinc.com/news-events/events.

The Company also provides announcements regarding its financial results and other matters, including SEC filings, investor events, and press releases, on its Investor Relations website at https://ir.appfolioinc.com/, as a means of disclosing material nonpublic information and for complying with AppFolio's disclosure obligations under Regulation FD.

About AppFolio, Inc.
AppFolio is a leading provider of cloud business management solutions for the real estate industry. Our solutions enable our customers to digitally transform their businesses, address critical business operations and deliver a better customer experience. For more information about AppFolio, visit www.appfolioinc.com.

Investor Relations Contact:
Lori Barker
[email protected]


Use of Non-GAAP Financial Measures
Reconciliations of non-GAAP financial measures to AppFolio’s financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled “Statement Regarding the Use of Non-GAAP Financial Measures.” In this earnings release we are including certain non-GAAP financial measures for prior periods for which such measures were not previously reported to enhance comparability between periods.

Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements are subject to considerable risks and uncertainties. Forward-looking statements include all statements that are not statements of historical fact contained in this press release, and can be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts, “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those expressions. In particular, forward-looking statements contained in this press release relate to future operating results and financial position, including the Company's fiscal year 2022 financial outlook, anticipated future expenses and investments, the Company's business opportunities, and the impact of the Company's strategic actions and initiatives.




Forward-looking statements represent AppFolio's current beliefs and assumptions based on information currently available. Forward-looking statements involve numerous known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Some of the risks and uncertainties that may cause the Company's actual results to materially differ from those expressed or implied by these forward-looking statements are described in the section entitled “Risk Factors” in AppFolio's Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 28, 2022, as well as in the Company's other filings with the SEC. You should read this press release with the understanding that the Company's actual future results may be materially different from the results expressed or implied by these forward looking statements.

Except as required by applicable law or the rules of the NASDAQ Global Market, AppFolio assumes no obligation to update any forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.






CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
 September 30,
2022		December 31,
2021
Assets
Current assets
Cash and cash equivalents$67,232 $57,847 
Investment securities—current72,018 64,600 
Accounts receivable, net14,884 12,595 
Prepaid expenses and other current assets22,660 23,553 
Total current assets176,794 158,595 
Investment securities—noncurrent45,200 61,076 
Property and equipment, net27,633 30,479 
Operating lease right-of-use assets28,539 41,710 
Capitalized software development costs, net36,002 41,212 
Goodwill56,060 56,147 
Intangible assets, net5,810 11,711 
Other long-term assets8,844 7,087 
Total assets$384,882 $408,017 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$1,508 $1,704 
Accrued employee expenses—current29,496 30,065 
Accrued expenses16,161 13,284 
Other current liabilities10,600 7,589 
Total current liabilities57,765 52,642 
Operating lease liabilities53,256 55,733 
Other liabilities1,989 2,261 
Stockholders’ equity271,872 297,381 
Total liabilities and stockholders’ equity$384,882 $408,017 




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)

 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2022202120222021
Revenue$125,079 $95,809 $347,825 $263,770 
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)(1)
50,707 38,730 141,484 104,847 
Sales and marketing(1)
25,644 19,362 77,558 53,255 
Research and product development(1)
28,959 16,500 79,966 46,389 
General and administrative(1)
19,347 13,404 76,258 40,971 
Depreciation and amortization8,241 7,826 24,977 22,844 
Total costs and operating expenses132,898 95,822 400,243 268,306 
Loss from operations(7,819)(13)(52,418)(4,536)
Other income (loss), net4,221 (353)4,256 705 
Interest income374 65 632 173 
Loss before provision for (benefit from) income taxes(3,224)(301)(47,530)(3,658)
Provision for (benefit from) income taxes938 (160)889 (6,017)
Net (loss) income$(4,162)$(141)$(48,419)$2,359 
Net (loss) income per common share:
Basic$(0.12)$— $(1.39)$0.07 
Diluted$(0.12)$— $(1.39)$0.07 
Weighted average common shares outstanding:
Basic35,043 34,614 34,936 34,525 
Diluted35,043 34,614 34,936 35,695 
(1) Includes stock-based compensation expense as follows:

Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization)$789 $575 $1,873 $1,509 
Sales and marketing2,023 738 5,496 1,587 
Research and product development4,330 1,451 11,160 3,522 
General and administrative3,688 1,299 9,680 3,435 
Total stock-based compensation expense$10,830 $4,063 $28,209 $10,053 




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2022202120222021
Cash from operating activities
Net (loss) income$(4,162)$(141)$(48,419)$2,359 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization7,658 7,355 23,295 21,545 
Amortization of operating lease right-of-use assets689 913 2,498 2,312 
Impairment— — 19,792 — 
Deferred income taxes158 (308)(1,392)(6,394)
Stock-based compensation, including as amortized11,413 4,534 29,891 11,352 
Gain on sale of business(4,156)(21)(4,156)(380)
Other(92)309 (86)89 
Changes in operating assets and liabilities:
Accounts receivable345 2,657 (2,579)(1,350)
Prepaid expenses and other current assets(507)(1,387)(3,159)(3,558)
Other assets(321)(199)(1,629)(1,181)
Accounts payable214 83 231 1,384 
Accrued employee expenses—current2,395 (1,303)(822)6,335 
Accrued expenses809 1,621 3,991 (1,426)
Operating lease liabilities(437)310 (1,748)1,995 
Other liabilities1,997 1,375 3,576 (6,623)
Net cash provided by operating activities16,003 15,798 19,284 26,459 
Cash from investing activities
Purchases of available-for-sale investments(25,494)(18,748)(70,394)(167,041)
Proceeds from sales of available-for-sale investments— 1,000 — 43,198 
Proceeds from maturities of available-for-sale investments33,100 47,004 76,598 73,754 
Purchases of property and equipment(844)(2,362)(5,943)(5,166)
Capitalization of software development costs(3,275)(6,600)(10,468)(18,511)
Proceeds from sale of business, net of cash divested5,124 — 5,124 — 
Net cash provided by (used in) investing activities8,611 20,294 (5,083)(73,766)
Cash from financing activities
Proceeds from stock option exercises1,976 145 2,579 791 
Tax withholding for net share settlement(1,984)(403)(7,581)(9,303)
Net cash used in financing activities(8)(258)(5,002)(8,512)
Net increase decrease) in cash and cash equivalents and restricted cash24,606 35,834 9,199 (55,819)
Cash, cash equivalents and restricted cash
Beginning of period42,876 49,046 58,283 140,699 
End of period$67,482 $84,880 $67,482 $84,880 




RECONCILIATION FROM GAAP TO NON-GAAP RESULTS
(UNAUDITED)
(in thousands, except per share data)

Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Costs and operating expenses:
GAAP cost of revenue (exclusive of depreciation and amortization)$50,707 $38,730 $141,484 $104,847 
Less: Stock-based compensation expense789 575 1,873 1,509 
Non-GAAP cost of revenue (exclusive of depreciation and amortization)$49,918 $38,155 $139,611 $103,338 
GAAP cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue41 %40 %41 %40 %
Non-GAAP cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue40 %40 %40 %39 %
GAAP sales and marketing$25,644 $19,362 $77,558 $53,255 
Less: Stock-based compensation expense2,023 738 5,496 1,587 
Non-GAAP sales and marketing$23,621 $18,624 $72,062 $51,668 
GAAP sales and marketing as a percentage of revenue21 %20 %22 %20 %
Non-GAAP sales and marketing as a percentage of revenue19 %19 %21 %20 %
GAAP research and product development$28,959 $16,500 $79,966 $46,389 
Less: Stock-based compensation expense4,330 1,451 11,160 3,522 
Non-GAAP research and product development$24,629 $15,049 $68,806 $42,867 
GAAP research and product development as a percentage of revenue23 %17 %23 %18 %
Non-GAAP research and product development as a percentage of revenue20 %16 %20 %16 %
GAAP general and administrative$19,347 $13,404 $76,258 $40,971 
Less: Stock-based compensation expense3,688 1,299 9,680 3,435 
Less: Impairment— — 19,792 — 
Less: Legal costs and insurance recoveries— (1,900)— (1,900)
Non-GAAP general and administrative$15,659 $14,005 $46,786 $39,436 
GAAP general and administrative as a percentage of revenue15 %14 %22 %16 %
Non-GAAP general and administrative as a percentage of revenue13 %15 %13 %15 %
GAAP depreciation and amortization$8,241 $7,826 $24,977 $22,844 
Less: Amortization of stock-based compensation capitalized in software development costs584 471 1,682 1,299 
Less: Amortization of purchased intangibles1,093 1,153 3,396 3,494 
Non-GAAP depreciation and amortization$6,564 $6,202 $19,899 $18,051 
GAAP depreciation and amortization as a percentage of revenue7 %8 %7 %9 %
Non-GAAP depreciation and amortization as a percentage of revenue5 %6 %6 %7 %





Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Loss from operations:
GAAP loss from operations$(7,819)$(13)$(52,418)$(4,536)
Less: Stock-based compensation expense10,830 4,063 28,209 10,053 
Less: Amortization of stock-based compensation capitalized in software development costs584 471 1,682 1,299 
Less: Amortization of purchased intangibles1,093 1,153 3,396 3,494 
Less: Impairment— — 19,792 — 
Less: Legal costs and insurance recoveries— (1,900)— (1,900)
Non-GAAP income from operations$4,688 $3,774 $661 $8,410 
Operating margin:
GAAP operating margin(6.3)%— %(15.1)%(1.7)%
Stock-based compensation expense as a percentage of revenue8.7 4.2 8.1 3.8 
Amortization of stock-based compensation capitalized in software development costs as a percentage of revenue0.5 0.5 0.5 0.5 
Amortization of purchased intangibles as a percentage of revenue0.9 1.2 1.0 1.3 
Impairment as a percentage of revenue— — 5.7 — 
Legal costs and insurance recoveries as a percentage of revenue— (2.0)— (0.7)
Non-GAAP operating margin3.7 %3.9 %0.2 %3.2 %
Net (loss) income:
GAAP net (loss) income$(4,162)$(141)$(48,419)$2,359 
Less: Stock-based compensation expense10,830 4,063 28,209 10,053 
Less: Amortization of stock-based compensation capitalized in software development costs584 471 1,682 1,299 
Less: Amortization of purchased intangibles1,093 1,153 3,396 3,494 
Less: Impairment— — 19,792 — 
Less: Legal costs and insurance recoveries— (1,900)— (1,900)
Less: Gain on sale of business(4,156)— (4,156)— 
Less: Income tax effect of adjustments234 1,104 (724)8,120 
Non-GAAP net income$3,955 $2,542 $1,228 $7,185 
Net (loss) income per share, basic:
GAAP net (loss) income per share, basic$(0.12)$— $(1.39)$0.07 
Non-GAAP adjustments to net income0.23 0.08 1.42 0.14 
Non-GAAP net income per share, basic$0.11 $0.08 $0.03 $0.21 
Net (loss) income per share, diluted:
GAAP net (loss) income per share, diluted$(0.12)$— $(1.39)$0.07 
Non-GAAP adjustments to net income0.23 0.08 1.39 0.14 
Non-GAAP net income per share, diluted$0.11 $0.08 $— $0.21 
Weighted-average shares used in GAAP per share calculation
Basic35,043 34,614 34,936 34,525 
Diluted35,043 34,614 34,936 35,695 
Weighted-average shares used in non-GAAP per share calculation
Basic35,043 34,614 34,936 34,525 
Diluted35,710 35,653 35,695 35,695 





Three Months Ended
September 30,		Nine Months Ended
September 30,
2022
2021(1)
20222021
Free cash flow:
GAAP net cash provided by operating activities$16,003 $15,798 $19,284 $26,459 
Purchases of property and equipment(844)(2,362)(5,943)(5,166)
Capitalized software development costs(3,275)(6,600)(10,468)(18,511)
Non-recurring expenses paid related to the sale of MyCase— — — 7,759 
Legal costs and insurance recoveries— — — 4,250 
Non-GAAP free cash flow$11,884 $6,836 $2,873 $14,791 
Free cash flow margin:
GAAP net cash provided by operating activities as a percentage of revenue12.8 %16.5 %5.5 %10.0 %
Purchases of property and equipment as a percentage of revenue(0.7)(2.5)(1.7)(2.0)
Capitalized software development costs as a percentage of revenue(2.6)(6.9)(3.0)(7.0)
Non-recurring expenses paid related to the sale of MyCase as a percentage of revenue— — — 2.9 
Legal costs and insurance recoveries as a percentage of revenue— %— %— %1.6 %
Non-GAAP free cash flow margin9.5 %7.1 %0.8 %5.6 %

(1) Amounts have been revised from those previously reported to reflect certain insurance recoveries received in the fourth quarter of fiscal year 2021 that had previously been reported in the third quarter of fiscal year 2021.





Three Months Ended
March 31,June 30,September 30,December 31,
2021202120212021
Costs and operating expenses:
GAAP cost of revenue (exclusive of depreciation and amortization)$33,298 $32,819 $38,730 $39,097 
Less: Stock-based compensation expense471 463 575 515 
Non-GAAP cost of revenue (exclusive of depreciation and amortization)$32,827 $32,356 $38,155 $38,582 
GAAP cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue42 %37 %40 %41 %
Non-GAAP cost of revenue (exclusive of depreciation and amortization) as a percentage of revenue42 %36 %40 %40 %
GAAP sales and marketing$16,179 $17,714 $19,362 $19,945 
Less: Stock-based compensation expense402 447 738 742 
Non-GAAP sales and marketing$15,777 $17,267 $18,624 $19,203 
GAAP sales and marketing as a percentage of revenue21 %20 %20 %21 %
Non-GAAP sales and marketing as a percentage of revenue20 %19 %19 %20 %
GAAP research and product development$14,383 $15,506 $16,500 $19,591 
Less: Stock-based compensation expense857 1,214 1,451 1,935 
Non-GAAP research and product development$13,526 $14,292 $15,049 $17,656 
GAAP research and product development as a percentage of revenue18 %17 %17 %20 %
Non-GAAP research and product development as a percentage of revenue17 %16 %16 %18 %
GAAP general and administrative$13,361 $14,206 $13,404 $16,308 
Less: Stock-based compensation expense1,046 1,090 1,299 2,096 
Less: Legal costs and insurance recoveries— — (1,900)— 
Non-GAAP general and administrative$12,315 $13,116 $14,005 $14,212 
GAAP general and administrative as a percentage of revenue17 %16 %14 %17 %
Non-GAAP general and administrative as a percentage of revenue16 %15 %15 %15 %
GAAP depreciation and amortization$7,369 $7,649 $7,826 $8,001 
Less: Amortization of stock-based compensation capitalized in software development costs398 430 471 513 
Less: Amortization of purchased intangibles1,187 1,153 1,153 1,153 
Non-GAAP depreciation and amortization$5,784 $6,066 $6,202 $6,335 
GAAP depreciation and amortization as a percentage of revenue9 %9 %8 %8 %
Non-GAAP depreciation and amortization as a percentage of revenue7 %7 %6 %7 %














Three Months Ended
March 31,June 30,September 30,December 31,
2021202120212021
Loss from operations:
GAAP (loss) income from operations$(5,669)$1,146 $(13)$(7,342)
Less: Stock-based compensation expense2,776 3,214 4,063 5,288 
Less: Amortization of stock-based compensation capitalized in software development costs398 430 471 513 
Less: Amortization of purchased intangibles1,187 1,153 1,153 1,153 
Less: Legal costs and insurance recoveries— — (1,900)— 
Non-GAAP (loss) income from operations$(1,308)$5,943 $3,774 $(388)
Operating margin:
GAAP operating margin(7.2)%1.3 %— %(7.7)%
Stock-based compensation expense as a percentage of revenue3.5 3.6 4.2 5.5 
Amortization of stock-based compensation capitalized in software development costs as a percentage of revenue0.5 0.5 0.5 0.5 
Amortization of purchased intangibles as a percentage of revenue1.5 1.3 1.2 1.2 
Legal costs and insurance recoveries as a percentage of revenue— — (2.0)— 
Non-GAAP operating margin(1.7)%6.7 %3.9 %(0.4)%
Net income (loss):
GAAP net income (loss)$479 $2,021 $(141)$(1,331)
Less: Stock-based compensation expense2,776 3,214 4,063 5,288 
Less: Amortization of stock-based compensation capitalized in software development costs398 430 471 513 
Less: Amortization of purchased intangibles1,187 1,153 1,153 1,153 
Less: Legal costs and insurance recoveries— — (1,900)— 
Less: Income tax effect of adjustments5,206 1,810 1,104 (6,820)
Non-GAAP net (loss) income$(366)$5,008 $2,542 $12,443 
Net income (loss) per share, basic:
GAAP net income (loss) per share, basic$0.01 $0.06 $— $(0.04)
Non-GAAP adjustments to net income (loss)(0.02)0.09 0.08 0.40 
Non-GAAP net (loss) income per share, basic$(0.01)$0.15 $0.08 $0.36 
Net income (loss) per share, diluted:
GAAP net income (loss) per share, diluted$0.01 $0.06 $— $(0.04)
Non-GAAP adjustments to net income (loss)(0.02)0.08 0.08 0.39 
Non-GAAP net (loss) income per share, diluted$(0.01)$0.14 $0.08 $0.35 
Weighted-average shares used in GAAP per share calculation
Basic34,409 34,548 34,614 34,738 
Diluted35,712 35,674 34,614 34,738 
Weighted-average shares used in non-GAAP per share calculation
Basic34,409 34,548 34,614 34,738 
Diluted34,409 35,674 35,653 35,675 








Three Months Ended
March 31,June 30,September 30,December 31,
2021(1)
2021
2021(1)
2021(1)
Free cash flow:
GAAP net cash (used in) provided by operating activities$(4,437)$15,098 $15,798 $8,932 
Purchases of property and equipment(938)(1,866)(2,362)(2,937)
Capitalized software development costs(6,140)(5,771)(6,600)(6,104)
Non-recurring expenses paid related to the sale of MyCase5,185 2,574 — — 
Legal costs and insurance recoveries4,250 — — (1,900)
Non-GAAP free cash flow$(2,080)$10,035 $6,836 $(2,009)
Free cash flow margin:
GAAP net cash (used in) provided by operating activities as a percentage of revenue(5.6)%17.0 %16.5 %9.3 %
Purchases of property and equipment as a percentage of revenue(1.2)(2.1)(2.5)(3.1)
Capitalized software development costs as a percentage of revenue(7.8)(6.5)(6.9)(6.4)
Non-recurring expenses paid related to the sale of MyCase as a percentage of revenue6.6 2.9 — — 
Legal costs and insurance recoveries as a percentage of revenue5.4 — — (2.0)
Non-GAAP free cash flow margin(2.6)%11.3 %7.1 %(2.1)%

(1) Amounts have been revised from those previously reported to reflect (i) certain insurance recoveries received in the fourth quarter of fiscal year 2021 that had previously been reported in the third quarter of fiscal year 2021, (ii) receipt of proceeds from certain post-closing transition services provided by the Company to MyCase in the first quarter of fiscal year 2021, and (iii) payment of certain legal costs in the first quarter of fiscal year 2021.

























Statement Regarding the Use of Non-GAAP Financial Measures

We disclose the following non-GAAP financial measures in this press release: non-GAAP income (loss) from operations, non-GAAP operating expenses (cost of revenue (exclusive of depreciation and amortization), sales and marketing, research and product development, general and administrative, and depreciation and amortization), non-GAAP net income (loss), non-GAAP net income (loss) per share, and free cash flow.

•Non-GAAP presentation of income (loss) from operations, operating expenses, net income (loss), and net income (loss) per share. These measures exclude certain non-cash or non-recurring items, including stock-based compensation expense, amortization of stock-based compensation capitalized in software development costs, amortization of purchased intangibles, impairment, legal costs and insurance recoveries, gain on sale of business, and the related income tax effect of these adjustments, as applicable and described below.

•Free cash flow. Free cash flow is defined as net cash from operating activities, less purchases of property and equipment, capitalization of software development costs, and insurance recoveries, plus legal costs and non-recurring expenses paid related to the sale of MyCase. We use free cash flow to evaluate our generation of cash from operations that is available for purposes other than capital expenditures and capitalized software development costs. Additionally, we believe that information regarding free cash flow provides investors with a perspective on the cash available to fund ongoing operations, because we review cash flows generated from operations after taking into consideration capital expenditures and the capitalization of software development costs due to the fact that these expenditures are considered to be a necessary component of ongoing operations.

We use each of these non-GAAP financial measures internally to assess and compare operating results across reporting periods, for internal budgeting and forecasting purposes, and to evaluate our financial performance. We believe these adjustments also provide useful supplemental information to investors and facilitate the analysis of our operating results and comparison of operating results across reporting periods.

In particular, we believe these non-GAAP financial measures are useful to investors and others in assessing our operating performance due to the following factors:

•Stock-based compensation expense and amortization of stock-based compensation capitalized in software development costs. We utilize stock-based compensation to attract and retain employees. It is principally aimed at aligning their interests with those of our stockholders while ensuring long-term retention, rather than to address operational performance for any particular period. As a result, stock-based compensation expenses vary for reasons that are generally unrelated to financial and operational performance in any particular period.

•Amortization of purchased intangibles. We view amortization of purchased intangible assets as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are evaluated for impairment regularly, amortization of the cost of purchased intangibles is an expense that is not typically affected by operations during any particular period.

•Impairment. We believe that impairment charges do not reflect future operating expenses, and are generally unrelated to financial and operational performance in any particular period.

•Significant legal costs and insurance recoveries. Significant legal litigation costs, settlement expenses or proceeds, other associated expenses, and insurance recoveries of such costs do not relate to the ongoing operation of the business and tend to vary significantly based on the circumstances of each transaction. This is not indicative of our core operating performance and may not be meaningful in comparison to our past operating performance.




•Gains and non-recurring costs related to the sale of businesses. In August 2022 we completed the sale of AppFolio Utility Management, Inc. and in September 2020 we completed the sale of MyCase, Inc., each a former wholly owned subsidiary. We have excluded any gains and charges related to these sales, as we do not consider such amounts to be part of the ongoing operation of our business.

•Income tax effects of adjustments. We utilize a fixed long-term projected tax rate in our computation of non-GAAP income tax effects to provide better consistency across interim reporting periods. In projecting this long-term non-GAAP tax rate, we utilize a financial projection that excludes the direct impact of other non-GAAP adjustments. The projected rate considers other factors such as our current operating structure, existing tax positions in various jurisdictions, and key legislation in major jurisdictions where we operate. For the quarter ended September 30, 2022, we have determined the projected non-GAAP tax rate to be 25%. We periodically re-evaluate this tax rate, as necessary, for significant events, based on relevant tax law changes, and material changes in the forecasted geographic earnings mix.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because non-GAAP financial measures are not prepared in accordance with GAAP and can exclude expenses that may have a material impact on our reported financial results. As such, non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. A reconciliation of the historical non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the tables above. We encourage investors to review the reconciliation of these historical non-GAAP financial measures to their most directly comparable GAAP financial measures.











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