AppFolio
Annual Report 2022

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________ FORM 10-K _________________ ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 ☐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 (State of incorporation or organization) 70 Castilian Drive Santa Barbara, California (Address of principal executive offices) 26-0359894 (I.R.S. Employer Identification No.) 93117 (Zip Code) (805) 364-6093 Registrant’s telephone number, including area code Securities registered pursuant to Section 12(b) of the Exchange Act: Title of each class Class A common stock, par value $0.0001 per share Trading Symbol(s) APPF Name of exchange on which registered The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Exchange Act: None _________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒ 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. (Check one): Large accelerated filer Non-accelerated filer ☒ ☐ 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the registrant’s Class A common stock on June 30, 2022 (the last business day of the registrant’s mostly recently completed second fiscal quarter), as reported on the NASDAQ Global Market on such date, was approximately $2.136 billion. Shares of the registrant’s Class A common stock and Class B common stock held by each executive officer, director and holder of 10% or more of the registrant’s outstanding Class A common stock and Class B common stock have been excluded from this calculation as such persons may be deemed to be affiliates. The determination of affiliate status for this purpose does not reflect a determination that any of such persons shall be deemed to be an affiliate of the registrant for any other purpose. At February 2, 2023, the number of shares of the registrant’s Class A common stock outstanding was 20,649,685 and the number of shares of the registrant’s Class B common stock outstanding was 14,746,432. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive Proxy Statement for the 2023 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed with the Securities and Exchange Commission (the “SEC”) pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K (this “Annual Report”), are incorporated by reference in Part III, Items 10-14 of this Annual Report. Except for the portions of the Proxy Statement specifically incorporated by reference in this Annual Report, the Proxy Statement shall not be deemed to be filed as part hereof. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ APPFOLIO, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022 TABLE OF CONTENTS Section Page No. Part I Part II Part III Part IV Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Item 9C. Item 10. Item 11. Item 12. Item 13. Item 14. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities [RESERVED] Management's Discussion and Analysis of Financial Condition and Results of Operation Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosures Controls and Procedures Other Information Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Item 15. Exhibits and Financial Statement Schedules Signatures 1 6 19 19 19 19 19 21 21 28 29 57 58 58 58 59 59 59 59 59 59 62 PART I FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K (this "Annual Report") contains forward-looking statements within the meaning of federal securities laws, which statements involve substantial risks and uncertainties. The forward-looking statements made in this Annual Report 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, and prospects and relate only to events as of the date on which the statements are made. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. 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. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report. As such, you should not rely upon forward-looking statements as predictions of future events. Examples of forward- looking statements include, among others, statements made 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. Any forward-looking statement made by us in this Annual 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 Annual Report to reflect events or circumstances after the date of this Annual Report or to reflect new information or the occurrence of unanticipated events, except as required by law. ITEM 1. BUSINESS Unless otherwise stated in this Annual Report, references to "AppFolio," "we," "us," and "our" refer to AppFolio, Inc. and its consolidated subsidiaries. Overview Founded in 2006, AppFolio is a leading provider of cloud business management solutions for the real estate industry. Our solutions are designed to enable our property manager customers to digitally transform their businesses, address critical business operations and deliver a better customer experience. Digital transformation is effectively a requirement for business success in the modern world, and the way we work and live today requires powerful software solutions. AppFolio solutions are designed to meet that need in the real estate industry. We help our customers navigate an increasingly interconnected and growing network of stakeholders in their business ecosystems, including property owners, real estate investment managers, rental prospects, residents, and service providers, and provide key functionality related to critical transactions across the real estate lifecycle, including screening potential tenants, sending and receiving payments and even providing insurance-related risk mitigation services. AppFolio’s intuitive interface, coupled with streamlined and automated workflows, makes it easier for our customers to eliminate redundant and manual processes so they can deliver a great experience for their network of stakeholders while improving financial and operational performance. Our platform and mobile-optimized solutions are designed for use across multiple devices and operating systems, and to be (a) a system of record to centralize and automate essential business processes, (b) a system of engagement to enhance business interactions between our customers and their network of stakeholders, and (c) a system of intelligence to leverage data to predict and optimize business workflows in order to enable exceptional customer experiences and increase efficiency across their businesses. Our solutions are offered as a service, and are hosted using a modern cloud-based architecture. We rely on strategic partners and third-party service providers to deliver certain aspects of our solutions, and strive to provide a seamlessly integrated experience for our customers and their stakeholders. We believe our customer-centric culture drives a focus on customer satisfaction that leads to long-term retention and, ultimately, to our long-term success. 1 Our Core Solutions Our Platform AppFolio’s platform addresses important aspects of workflows common to property management and is frequently updated in response to market trends and customer needs. Further, we believe that partnering and integrating with curated third party solutions to enable important functionality for our customers and their stakeholders while maintaining an elevated customer experience will benefit our customer base over time. Core functionality of our services addresses key operational issues, including accounting, business analytics and management, marketing and leasing functionality, maintenance and operational efficiency, as well as communications with key stakeholders in our customers' business ecosystems. AppFolio Property Manager AppFolio Property Manager provides the platform upon which property managers can run their business operations. Property management companies choose AppFolio Property Manager to leverage the benefits of process automation, an easy-to-use interface, and the optimization of common workflows. Customers include third-party property managers and owner-operators, who typically manage single- and multi-family residential properties, including single family homes, multi-family apartments, mobile homes, affordable housing, student housing, senior housing, and others who manage community association and commercial properties. AppFolio Property Manager serves as our customers’ system of record with accounting functionality at the core. All critical transactions are completed and recorded in the system and give our customers access to the data they need to run their business. AppFolio Property Manager is also the system of engagement that customers use to interact with key stakeholders in their business ecosystems, including residents living at their properties, owners and investors owning those properties, and vendors providing products and services to the properties. Both aspects of the system are inherently interconnected so that the day-to-day interactions, such as residents paying rent through the AppFolio Property Manager mobile app, are instantly reflected in the system of record. AppFolio Property Manager's mobile capabilities enable our customers' teams to be productive regardless of their location, responding to leasing inquiries, addressing work orders, or completing inspections on the go. Due to their distributed nature, this is especially relevant for our property management customers with a significant portion of single-family or small multi-family properties. 2 AppFolio Property Manager Plus We continue to serve customers with larger and more complex portfolios with AppFolio Property Manager Plus, recognizing the evolving needs these customers have for deeper business insights, automation, and more advanced experiences. These customers typically have a more diverse mix of property types, a wider geographical dispersion of their properties, and the larger teams necessary to manage those types of portfolios. AppFolio Property Manager Plus is designed to solve these challenges in multiple ways: customizable workflows allow customers to digitize their existing processes; performance insights help drive efficiency; intelligent revenue management helps maximize real estate asset potential; integrations with a growing list of technology partners open new and diverse technologies and experiences; dedicated strategic account managers help customers realize the full benefit of our platform and solutions. Value Added Services AppFolio Property Manager’s optional but often mission-critical Value Added Services are designed to enhance, automate and streamline business-critical processes and workflows. These services build on functionality and workflows in our core solutions and generally fall into the categories of marketing and leasing, electronic payment services, business optimization, and risk mitigation (e.g., insurance-related services). We strive for a seamless experience for our customers that increases their efficiency while not sacrificing ease of use of AppFolio Property Manager and AppFolio Property Manager Plus, whether services are offered by AppFolio or by a third-party partner. Utilization and adoption of our Value Added Services is typically higher for residential properties than community association or commercial properties because of the unique and complex needs of the residential rental lifecycle. We empower our customers and their network of stakeholders with a wide variety of Value Added Services, primarily: • • • Payments. Our electronic payment services allow property managers to streamline their receivables and payables through a variety of online payment options. Customers can collect funds through our secure online portal, our mobile application and/or via electronic cash payments from various stakeholders, including applicants, residents and property owners. Types of funds that may be collected include rental application fees, security deposits, rent payments, and other tenant charges; contributions from property owners; and periodic dues from those living in community associations. Customers can also electronically send funds to various stakeholders, including distributions to property owners, payments to service providers, and even payment to their own management company. Screening. Our tenant screening services include background screening, credit checks, income verification, and a streamlined rental history verification process for use in connection with the rental application process. Insurance. Through our FolioGuard™ brand, we offer risk mitigation products for residents and property managers. FolioGuard Smart Ensure, our liability to landlord insurance product, allows property management customers to enforce insurance coverage requirements within their leases by tracking coverage of their units and adding uncovered units to a qualifying liability to landlord insurance policy via a licensed insurance broker. FolioGuard Renters Insurance protects the personal belongings of renters, as well as the property itself, from certain unexpected damages. We experience some seasonality in our Value Added Services revenue. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional details regarding seasonality of revenue. Our Growth Strategy Our growth strategy is to provide increasingly valuable business management solutions to new and existing customers in the real estate industry. We are leveraging our growing footprint to expand within the property management market. Key components of our near and extended term growth strategy include: Keep Our Existing Customers Happy. We believe customer success is essential to our long-term success, and we strive to have loyal and engaged long-term customer relationships. We place significant emphasis on customer experience to differentiate our solutions from competing products. This emphasis will continue to be a critical component of our growth strategy in the future. We believe that maintaining our focus on customer success will lead to new product innovation, the referral of new customers from existing satisfied customers, and greater adoption and utilization of our solutions. Acquire New Customers. We believe new customer acquisition is essential to our long-term success. We expect to continue to grow our base of customers, and thus the number of units managed on our platform, with continued investments in the development of increasingly valuable business management solutions across not only the existing property types we currently serve but new ones as well, innovative sales and marketing programs, including evolving real estate industry thought leadership and education, and the referral power of satisfied customers. To continue to attract larger customers, we may increase our utilization of partnerships and integrations with select third parties to deliver key functionality. 3 Expand Adoption and Use by Existing Customers. We have made, and will continue to make, significant investments in our solutions that expand functionality and enhance or add new capabilities to meet the current and evolving needs of our customers. We intend to continue using our market validation techniques and close relationships with our customers as a key source of feedback to inform and direct our product strategy. We expect our satisfied customers will expand their adoption and usage of our Value Added Services to adapt our platform to their specific operational requirements. In addition, as our customers grow, we expect they will continue to use our solutions to manage their larger businesses. To facilitate the continued use of our solutions by larger customers, we may increase our utilization of partnerships and integrations with select third parties to deliver key functionality while maintaining an elevated customer experience. Our Customers We define customers as those paying for a subscription to our core solutions. As of December 31, 2022, we had 18,441 property management customers. No individual customer represented 10% or more of our total revenue for fiscal 2022. Customer Service We believe our success is tied to long-term customer relationships, not a one-time sale. Our team is structured to deliver ongoing service; this includes ongoing live and on-demand training, a library of resources, and personalized account management. We regularly measure our Net Promoter Score and solicit customer feedback in a variety of ways in an effort to continue to better serve our customers. Our solutions are designed to be easy to use and manage, and we offer training and support at no extra charge. Onboarding consists of a dedicated team that works to ensure that customers are prepared to run their businesses on our platform. As a result of our assistance with data migration matters, we are able to provide valuable insights into data integrity and work with our customers to help resolve any issues in their underlying business processes. We also assist our customers with the configuration of our products for particular property types, as appropriate. We share insights on best practices for the markets we serve and dedicate resources to guide our customers through the adoption and utilization of our Value Added Services. Sales and Marketing We leverage a modern and scalable marketing approach along with marketing automation technology to attract and engage prospects and build brand recognition as an industry leader. We participate in industry thought leadership and education, and we use a variety of inbound and outbound marketing techniques to promote AppFolio solutions. Our business development team acts in partnership with our marketing and sales teams to reach potential customers, generate sales opportunities, and accelerate the time from evaluation to close. Our sales representatives assist prospective customers as they evaluate our products. Our interactive sales methodology allows our sales team to quickly build relationships, assess our customers’ business challenges, and demonstrate the benefits of our core functionality and, where applicable, Value Added Services. Technology and Operations Our products are powered by a highly scalable computing platform and are designed with a strong focus on data security and availability. We take great care to keep our application framework and the rest of our software stack current in order to mitigate known security vulnerabilities. Our computing platform and cloud infrastructure are primarily powered by Amazon Web Services’ Elastic Compute Cloud (EC2) platform. In order to ensure that data is not lost and that customer requests can be satisfied, production assets are securely replicated and regularly backed up to multiple geographic regions. We monitor our production infrastructure to ensure high performance and availability, and our architecture allows our operators significant flexibility in achieving these goals. In particular, we have fine-grained control over the specific server and region on which each customer's data resides, and can move such data between different geographic regions in order to avoid service disruption or to increase service performance. All sensitive data in our systems, including passwords, Social Security numbers, and tax identification numbers, is encrypted during transmission, and before being written to disk. We regularly evaluate our product and infrastructure security, including through third-party penetration testing. In addition, our products allow our customers to define roles that provide different levels of access to users, allowing them to view and modify specific items depending on their role. Supervisors can distribute work to staff in a secure and controlled environment, while leadership retains visibility across the entire system. Some sensitive customer actions require secondary verification via two-factor authentication, and any customer can enable two-factor authentication for logging into their account. 4 Research and Product Development We rely heavily on input from our customers and prospective customers in developing products that meet their needs and in anticipating developments in their businesses. We perform research and market validation efforts to guide our product roadmap. We believe that it is easier for our customers to adjust to continuous updates to our platform, which incrementally change and improve their user experience than to adapt to infrequent, but more drastic, upgrades. Competition The overall market for business management solutions in the real estate and other industries is global, highly competitive, and continually evolving to respond to changes in technology, operational requirements, and ever-changing laws and regulations. We believe our competitors primarily fall into the following categories: • On-premise or cloud-based real estate business management service providers that serve companies of all sizes in our markets; and • On-premise or cloud-based horizontal business management service providers that offer broad solutions across multiple industries. We also experience competition from numerous cloud-based solutions providers that focus almost exclusively on one or more point solutions in the real estate industry or in other industries. Continued consolidation among cloud-based solution providers could significantly increase competition. Some of our competitors may have greater financial, technical and other resources, greater name recognition and larger sales and marketing budgets; therefore, we may not always compare favorably with respect to some or all of the foregoing factors. Further, the barrier to entry for competition in one or more areas we serve may be low, which could lead to competition from new entrants who solve similar problems in different ways. Intellectual Property We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality procedures and contractual restrictions to establish and protect our proprietary rights in our core solutions and Value Added Services. We may pursue additional patent protection to the extent we believe it would be beneficial and cost-effective. We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours. Human Capital We believe our people are at the heart of our success. Our employees’ dedication to and passion for creating and delivering transformative solutions provides us with a competitive advantage and creates long-lasting relationships with our customers. We believe our efforts in creating and maintaining strong connections — with our customers, partners, and team members — differentiates AppFolio as a great place to work. This has led to recognition that demonstrates our valued company culture and workplace: In 2022, Fortune recognized AppFolio as one of the Best Workplaces in Technology, and the Glassdoor Employees’ Choice Awards listed AppFolio as one of the Best Places to Work. Our company culture, driven by the following six core values, fuels our dedication and passion: Simpler Is Better • • Great, Innovative Products Are Key To A Great Business • Great People Make A Great Company • • • We Do The Right Thing; It’s Good For Business Listening To Customers Is In Our DNA Small, Focused Teams Keep Us Agile As of December 31, 2022, we had 1,785 employees. We routinely engage temporary employees and consultants. Approximately 3% of our workforce is represented by a union, the Communications Workers of America. While it is our firm belief that a direct relationship between employee and employer is best, we recognize the decision made by these employees. We consider our relationships with our employees and consultants to be strong. To maintain this strong relationship and attract new talent, our human capital management efforts focus on the following initiatives: 5 Diversity, Equity, and Inclusion. Diversity is core to our values and, we believe, necessary to drive innovation and collective growth. Our commitment to diversity, equity and inclusion starts at the leadership level and cascades to our talented employees. AppFolio’s employee-led resource groups aim to create an environment where everyone is valued for their uniqueness, while also feeling part of the larger whole. We work hard to make sure our employees’ voices are heard, from our practice of small, focused teams to setting annual company initiatives together as an organization. When we conducted a voluntary survey of our workforce in 2022, of those who elected to share, approximately 54% identified as men, 45% identified as women, and less than 1% identified as nonbinary. Additionally approximately 65% identified as White, 12% identified as Asian, 11% identified as Hispanic or Latino, 5% identified as Black or African American, less than 1% identified as American Indian or Alaska Native, less than 1% identified as Native Hawaiian or Other Pacific Islander, and 6% identified as two or more races. Our recruiting practices focus on attracting and hiring employees with diverse backgrounds, experiences, and approaches at all levels of the company. We have key partnerships with universities and professional organizations and provide ongoing education to our hiring teams that are focused on closing the diversity gap and growing our team. Employee Development. We invest significant resources to develop the talent needed to remain at the forefront of innovation and make us an employer of choice. Employees throughout our organization have access to tailored training and learning programs designed both for our entire employee base as well as for distinct employee audiences. Our annual engagement survey provides a platform for employees to provide anonymous feedback directly to their managers and our executives. Societal Impact. We believe in making an impactful contribution to the causes and communities that are meaningful to our employees in the context of the real estate industry. We encourage employee volunteerism through our employee-led Give Back Committee and company-wide benefit of eight hours of paid volunteer time off annually. Our corporate philanthropy program “AppFolio Gives Back” supports housing affordability, an ongoing challenge in the real estate industry, through a combination of employee fundraising, team volunteering, and a corporate matching gift program. Environmental Stewardship. We believe in a culture of environmental stewardship, and through our employee-led “Green Team” we strive to have a positive impact on our environment both in the workplace and at home by educating employees on environmental issues and encouraging action. Compensation and Benefits. Our compensation and benefits programs support the wellness of our employees and their families so they feel they can live their best lives both at work and at home. Our competitive compensation packages may include base salary, commission or annual performance- based bonuses, and stock-based compensation. We also offer paid parental leave, paid sabbaticals, paid leave to care for family members, and access to fertility networks and discounts on fertility care. We review our programs periodically to ensure they remain competitive. Health, Safety, and Wellness. We are committed to providing a safe workplace for our employees and assisting them in maintaining a healthy work-life balance. We regularly solicit feedback to assess the well-being and needs of our employees and offer resources focused on mental health and physical wellness. We have embraced Together@AppFolio, our hybrid work model, where many of our employees work out of one of our offices several days a week and others work remotely. Available Information Copies of the reports, proxy statements and other information may also be obtained, free of charge, electronically through our corporate website, at www.appfolioinc.com, as soon as reasonably practical after we file such material with, or furnish it to, the SEC. ITEM 1A. RISK FACTORS You should consider carefully the risks described below, together with all of the other information included in this Annual Report, as well as in our other filings with the SEC, in evaluating our business and/or an investment in our Class A common stock. If any of the following risks actually occur, our business, financial condition, operating results and future prospects could be materially and adversely affected. In that case, the trading price of our Class A common stock may decline and you might lose all or part of your investment. The risks described below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business, financial condition, operating results and prospects. Please be advised that certain of the risks and uncertainties described below contain “forward-looking statements.” See the section of this Annual Report entitled “Forward-Looking Statements” for additional information. 6 Risks Related to Growing Our Business If we fail to manage our growth effectively, our costs and operating expenses may increase without corresponding increases in revenue, which would adversely affect our operating results. We have experienced, and anticipate that we will continue to experience, significant growth in the size, complexity, and diversity of our business. This growth has placed, and we expect that it will continue to place, a significant strain on our administrative, operational, and financial resources. Our future success depends, in part, on our ability to manage this growth effectively. For example, to grow our customer base and facilitate the continuous launch and refinement of our products and services we invest significantly in our sales, marketing, and product development organizations as well as software and systems to support the efficient operation of such organizations. There is no guarantee that these or similar expenditures to support our growth will be successful. If we are unable to manage our growth successfully and efficiently, it could result in increased costs and operating expenses without corresponding increases in revenue, which would adversely affect our operating results. If we do not accurately predict and respond promptly to rapidly evolving technological developments and customer needs, the demand for our products and our business and operating results may be harmed. Customer demands are constantly changing in response to new technology and other market factors. To compete effectively, we must identify and innovate in the right technologies, accurately predict our customers’ evolving needs, and continually improve our own technology platform. If we fail to execute against any of the foregoing, our business and operating results may be harmed. In addition, the widespread adoption of quickly evolving disruptive technology products may significantly impact the real estate industry, even if such products are not specifically designed to apply directly to the real estate industry. The adoption of such new technologies could significantly reduce the volume or demand of our customers, thereby reducing our revenue, which could materially impact our business, financial condition and operating results. We participate in an intensely competitive market and our business could be harmed if we do not compete effectively. The market for cloud-based business management solutions has relatively low barriers to entry and is global, highly competitive and continually evolving in response to a number of factors, including changes in technology, operational requirements, and laws and regulations. We compete with both other real estate industry cloud-based solution providers and providers of broad cloud-based solutions across multiple industries. We also face competition from numerous cloud-based solution providers that focus almost exclusively on one or more point solutions. Our competitors include established vendors, as well as newer entrants in the market. Our established competitors may have greater name recognition, longer operating histories, and significantly greater resources, which allows them to respond more quickly and effectively to new or changing opportunities or challenges, technologies, operational requirements and industry standards. Our competitors who are new entrants to the market, and generally smaller, may have more nimble operations due to having fewer products and less overhead and may be willing to take legal and operational risks, which allows them to launch products and meet customer demand more quickly and efficiently. Regardless of size, our current and potential competitors may develop, market and sell new technologies with comparable functionality to our solutions, which could cause us to lose customers, slow the rate of growth of new customers and/or cause us to decrease our prices to remain competitive, which could harm our business. In addition, we have introduced and expect to continue to introduce variations to our pricing model that are intended to provide broader usage and better align the cost of our services to the value they provide our customers. Although we believe that these pricing changes will increase customer adoption and revenue, it is possible that they will not and may make our services less appealing, which could negatively impact our business, revenue, and operating results. If we are unable to successfully expand sales of our solutions to new markets and new industries, our business and operating results may suffer. Our growth strategy includes expanding sales of our solutions to new markets and, potentially, new industries. These new markets and industries, include larger customers within the real estate space, housing types outside of multi-family and single-family residential, and industries other than real estate. Acceptance of our current and future solutions in new markets and industries will depend on numerous factors, including our ability to provide more sophisticated functionality and features, the pricing of our solutions relative to competitive products, perceptions about the security, privacy and availability of our solutions relative to competitive products, and the time-to-market of updates and enhancements to our services and products. There is no guarantee we will be successful in achieving all or any of the foregoing. Additionally, sales to new markets and industries will involve risks that are not present, or are present to a lesser extent, in sales to the markets and industry we currently serve, and such risks may include new regulatory regimes, longer sale cycles, increased chance of litigation with customers, increased risk and impact of reputational harm, and increased competition. We may not be able to sufficiently mitigate such risks, which would impact our ability to successfully expand our business. If we are unable to successfully expand sales of our solutions to new markets and, potentially, industries, our revenue may increase at a slower rate than we expect and may even decline, which could adversely affect our operating results. 7 Our business depends substantially on existing customers renewing their subscriptions with us and expanding their use of our Value Added Services, and a decline in either could adversely affect our operating results. For us to maintain or increase our revenue and improve our operating results, it is important that our existing customers continue to use our core solutions, as well as increase their adoption and utilization of our Value Added Services. Our customers may not renew their subscriptions with us, continue to broaden their adoption and utilization of our Value Added Services, or use our Value Added Services at all. If our existing customers do not renew their subscriptions and increase their adoption and utilization of our existing or newly developed Value Added Services, our revenue may increase at a slower rate than we expect and may decline, which could adversely affect our financial condition and operating results. A reduction in the number of our existing customers, even if offset by an increase in new customers, could reduce our revenue and operating margins. Our inability to effectively maintain and enhance our brands could adversely affect our ability to attract new customers and negatively affect our business and operating results. Maintaining and enhancing our brands is critical to achieving widespread awareness and acceptance of our solutions as well as maintaining and expanding our customer base. We expect the importance of brand recognition will increase, as competition for our products and services increases. If we do not continue to build awareness of our brands, we will be at a competitive disadvantage compared to companies whose brands are, or become, more recognizable than ours. Maintaining and enhancing our brands requires us to make substantial investments, and these investments may not result in commensurate increases in our revenue. In addition, new and existing technologies, industry trends, and laws that restrict online advertising or affect our ability to customize and target advertising may require us to significantly increase our marketing costs to generate and capture demand and maintain our brand awareness, level of sales, and operating results. If we fail to successfully maintain and enhance our brands, or if we make investments that are not offset by increased revenue, our operating results could be adversely affected. We manage our business to achieve long-term growth, which may not be consistent with the short-term expectations of some investors. We make product decisions and pursue opportunities that are consistent with our strategic objective to achieve long-term growth. These decisions may not be consistent with the short-term expectations of some investors, and may cause significant fluctuations in our results of operation and our stock price from period to period. In addition, notwithstanding our intention to make strategic decisions that positively impact long-term value, the decisions we make may not produce the long-term benefits we expect, which could materially affect our business, financial condition and results of operation. 8 Our acquisition of other companies or technologies may subject us to risks. We have acquired, and may in the future acquire, other companies or technologies to complement or expand our products and solutions, optimize our technical capabilities, enhance our ability to compete, or otherwise offer growth or strategic opportunities. We have limited experience and success in acquiring other businesses and we may not be able to effectively integrate acquired assets, technologies, personnel and operations or achieve the anticipated synergies or other benefits from the acquired business due to the inherent risks associated with acquisitions. If an acquisition fails to meet our expectations in terms of its contribution to our overall business strategy or results of operation, or if the costs of acquiring or integrating the acquired business exceed our estimates, our business, results of operation, strategic objectives, and financial condition may suffer. Risks Related to Attracting and Retaining Talent We depend on highly skilled personnel and, if we are unable to retain or hire additional qualified personnel or if we lose key members of our management team, we may not be able to achieve our strategic objectives and our business may be harmed. Our success and future growth depend, in part, upon the continued services of our executive officers and other key employees. To execute our growth plan and achieve our strategic objectives, we must continue to attract and retain highly qualified and motivated personnel across our organization. In particular, to continue to enhance our products and solutions, add new and innovative core functionality and/or Value Added Services, as well as develop new products, it will be critical for us to increase the size of our research and product development organization, including hiring highly skilled software engineers. Further, for us to achieve broader market acceptance of our products and solutions, grow our customer base, and pursue new markets consistent with our strategic plan, we will need to continue to increase the size of our sales, marketing and customer service and support organizations. Competition for personnel is intense within our industry and there continues to be upward pressure on the compensation paid to these professionals. Identifying, recruiting, training and retaining qualified personnel is difficult and requires a significant investment of time and resources. Many of the companies with which we compete for experienced personnel have greater name recognition and financial resources than we have. As a result, we may have greater difficulty hiring and retaining skilled personnel than our competitors. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, we are unable to offer equity awards in competitive amounts, or if the price of our Class A common stock experiences significant volatility, this may adversely affect our ability to recruit and retain highly skilled employees. If we are unable to attract and retain the personnel necessary to execute our growth plan, we may be unable to achieve our strategic objectives and our operating results may suffer. Our corporate culture has contributed to our success and, if we cannot continue to foster this culture, we could lose the passion, creativity, teamwork, focus and innovation fostered by our culture. We believe that our culture has been and will continue to be a key contributor to our success. If we do not continue to develop our corporate culture or maintain our core values as we grow and evolve, we may be unable to foster the passion, creativity, teamwork, focus and innovation we believe we need to support our growth. Any failure to preserve our culture could negatively affect our ability to recruit and retain personnel and to effectively focus on and pursue our strategic objectives. As we grow, we may find it difficult to maintain our corporate culture. This difficulty may be exacerbated by our current commitment to remote work, which makes it more challenging for employees to interact and connect. 9 Risks Related to Cybersecurity and Data Privacy Security vulnerabilities in our products or a breach of our security controls could result in the loss, theft, misuse, unauthorized disclosure, or unauthorized access to customer or employee data, or other confidential or sensitive information, which could harm our customer and/or employee relationships, expose us to litigation or harm our reputation. Our business involves the storage and transmission of a significant amount of confidential and sensitive information, including sensitive and proprietary data and personal information collected by or on behalf of our customers, the personal information of our employees, customers, and prospective customers and our proprietary financial, operational and strategic information. Like many other businesses, we have experienced, and are continually at risk of being subject to, cyber attacks and data security incidents. As our business grows, the number of individuals using our products, as well as the amount of information we collect and store, is increasing, and our brands are becoming more widely recognized, which makes us a greater target for malicious activity. We have incurred, and expect to continue to incur, significant expenses in connection with our efforts to keep our systems, products and networks protected and up to date. However, there can be no assurance that the security measures we employ will prevent malicious or unauthorized access to our systems or information. Furthermore, no security program can entirely eliminate the risk of human error, such as an employee or contractor’s failure to follow one or more security protocols. Therefore, despite our significant efforts to keep our systems, products and networks protected and up to date, we may be unable to anticipate new modes for cyber attacks, detect security incidents or react to them in a timely manner, or implement adequate preventive measures, any of which may expose us to a risk of loss, litigation and potential liability. In addition, some of our third-party service providers and partners also collect and/or store our sensitive information and our customers’ data on our behalf, and these service providers and partners have been, and continue to be, subject to similar threats of cyber attacks and other malicious Internet-based activities. Our contracts with these third parties may not provide us with adequate remedies in the event of such an incident which could also expose us to risk of loss, litigation, and potential liability. If our security measures, or the security measures of our third-party service providers or partners, are breached as a result of wrongdoing or malicious activity on the part of our employees, our partners’ employees, our customers’ employees, or any third party, or as a result of any human error or neglect, product defect or otherwise, and this results in the loss, theft, misuse, unauthorized disclosure, or unauthorized access to customer data or other sensitive information, we could incur liability to our customers and to individuals or organizations whose information was being stored by us or our customers, as well as fines and actions from payment processing networks or by governmental bodies. If we experience a widespread security breach, our insurance coverage may not offset liabilities actually incurred and insurance may not continue to be available to us on reasonable terms, or at all. In addition, security breaches could result in reputational damage, adversely affect our ability to attract new customers and cause existing customers to reduce or discontinue the use of our products and solutions. Furthermore, the perception by our current or potential customers that our products could be vulnerable to exploitation or that our security measures are inadequate, even in the absence of a particular problem or threat, could reduce market acceptance of our products and solutions and cause us to lose customers. The legal and regulatory environment around data security and governance is evolving, and both regulators and consumers are increasingly taking action on data-related matters, which may contribute to increased reputational, economic and other harm in the event of a data security incident. Privacy and data security laws and regulations could impose additional costs and reduce demand for our solutions. We store and transmit personal information relating to our employees, customers, prospective customers, and other individuals, and our customers use our technology platform to store and transmit a significant amount of personal information relating to their customers, vendors, employees and other industry participants. Federal, state and foreign government bodies and agencies have adopted, and are increasingly adopting, laws and regulations regarding the collection, use, processing, storage and disclosure of personal or identifying information obtained from customers and other individuals. For example, in the United States new comprehensive privacy laws have or will be enacted in 2023 in Colorado, Utah, Connecticut and Virginia, and updates to existing laws and regulations in California also became effective on January 1, 2023. These obligations have and will likely continue to increase the cost and complexity of delivering our services. 10 In addition to government regulation, privacy advocates and industry groups may propose various self-regulatory standards that may legally or contractually apply to our business. As new laws, regulations and industry standards take effect, and as we offer new services in new markets, market segments and, potentially, new industries, we will need to understand and comply with various new requirements, which may impede our plans for growth or result in significant additional costs. These laws, regulations and industry standards have had, and will likely continue to have, negative effects on our business, including by increasing our costs and operating expenses, and/or delaying or impeding our deployment of new or existing core functionality or Value Added Services. Failure to comply with these laws, regulations and industry standards could result in negative publicity, subject us to fines or penalties, expose us to litigation, or result in demands that we modify or cease existing business practices. Furthermore, privacy and data security concerns may cause our customers’ clients, vendors, employees and other industry participants to resist providing the personal information necessary to allow our customers to use our applications effectively, which could reduce overall demand for our solutions. Any of these outcomes could adversely affect our business and operating results. Risks Related to Our Industry All of our revenues are presently generated by sales to customers in the real estate industry, and factors that adversely affect that industry, or our customers within it, could also adversely affect us. We expect that our real estate industry customers will continue to account for a significant portion or all of our revenue for the foreseeable future. Demand for our solutions and services could be affected by factors that are unique to and adversely affect the real estate industry and our customers within it. If the industry itself declines, our customers may decide not to renew their subscriptions or they may cease using our Value Added Services to reduce costs to remain competitive. For example, higher interest rates may make it difficult or impossible for our customers to obtain financing or may increase their cost of capital, which could negatively impact the demand for our solutions and services, increase customer churn, and impact our operating results. Further, we could lose real estate customers as a result of acquisitions or consolidations, bankruptcies or other financial difficulties facing our real estate customers, new or enhanced legal or regulatory regimes that negatively impact the real estate industry, and conditions or trends specific to the real estate industry such as the economic factors that impact the rental market. Our estimates of market opportunity are subject to significant uncertainty. We determine the level of our investment in various aspects of the business, in part, based on our market opportunity estimates. Market opportunity estimates are subject to significant uncertainty and are based on assumptions, including our internal analysis and industry experience. Assessing markets for cloud-based business management solutions in the real estate industry is particularly difficult due to a number of factors, including limited available information and rapid evolution of the industry and markets therein. If we do not accurately estimate our opportunities, we may fail to realize a return on our investment in various aspects of our business, which could lead to a failure to gain market share and negatively impact our long-term growth prospects. Risks Related to Our Products and Solutions If we are unable to deliver effective customer service, it could harm our relationships with our existing customers and adversely affect our ability to attract new customers and our operating results. Our business depends, in part, on our ability to satisfy our customers by providing onboarding services and ongoing customer service. Once our solutions are deployed, our customers depend on our customer service organization to resolve technical issues relating to their use of our solutions. Increased demand for our support services may increase our costs without corresponding revenue, which could adversely affect our operating results. Further, our sales process is highly dependent on the ease of use of our solutions, our reputation and positive recommendations from our existing customers. Any failure to maintain high-quality and responsive customer service, or a market perception that we do not maintain high-quality and responsive customer service, could harm our reputation, cause us to lose customers and adversely impact our ability to sell our solutions to prospective customers. 11 Errors, defects or other disruptions in our products could harm our reputation, cause us to lose customers, and result in significant expenditures to correct the problem. Our customers use our products to manage critical aspects of their businesses, and any errors, defects or other disruptions in the performance of our products, or the products of our third party partners upon which certain of our products are dependent, may result in loss of or damage to our customers’ data and disruption to our customers’ businesses, which could harm our reputation. Such product problems could be caused by a variety of factors, including infrastructure changes, power or network outages, fire, flood or other natural disasters, human or software errors, viruses, security breaches, fraud or other malicious activity, spikes in customer usage or distributed denial of service attacks. In addition, we provide continuous updates to our products and these updates may contain undetected errors when first introduced. In the past, we have discovered errors, failures, vulnerabilities and bugs in our updates after they have been released, and similar problems may arise in the future. Real or perceived errors, failures, vulnerabilities or bugs in our products could result in negative publicity, reputational harm, loss of customers, delay in market acceptance of our products and solutions, loss of competitive position, withholding or delay of payment to us, claims by customers for losses sustained by them and potential litigation or regulatory action. In any such event, we may be required to expend additional resources to help correct the problem or we may choose to expend additional resources to take corrective action even where not required. The costs incurred in correcting any material errors, defects or other disruptions could be substantial. In addition, we may not carry insurance sufficient to offset any losses that may result from claims arising from errors, defects or other disruptions in our products. We face risks in our electronic payment services business that could adversely affect our business and/or results of operation. Our electronic payment services business facilitates the processing of inbound and outbound payments for our customers. These payments are settled through our sponsoring clearing bank, card payment processors and other third-party electronic payment services providers that we contract with from time to time. Our electronic payment services subject us to a number of risks, including liability for customer costs related to disputed transactions. Additionally, with respect to the processing of electronic payment transactions by our third-party electronic payment services providers, we are exposed to financial risks that could affect our operating results. Electronic payment transactions between our customers and another individual may be returned for various reasons such as insufficient funds or stop payment orders. If we or any of our electronic payment services providers are unable to collect such amounts from the customer’s account, we bear the ultimate risk of loss for the transaction amount. Our electronic payment services business also exposes us to risk in connection with theft, fraud and other malicious activity on the part of our employees, our partners’ employees, or third parties who improperly gain access to our systems or our customers’ systems. In the event of such activity, we may incur liability to compensate our customers, our customers' stakeholders, or payment partners for losses incurred. While we take reasonable measures to secure our systems and payments infrastructure, it is not possible to entirely eliminate the risk of intentional wrongdoing. In the past, third party bad actors have gained improper access to our systems and our customers’ systems and we experienced financial loss as a result. If third party bad actors again gain access to our systems or our customers’ systems, or our employees or partners’ employees misuse our payment systems for malicious purposes, we could experience significant financial loss that may affect our operating results. Changes to payment card networks or bank fees, rules, or practices could harm our business. We do not directly access the payment card networks, such as Visa and MasterCard, that enable our acceptance of credit cards and debit cards, including some types of prepaid cards. Accordingly, we must rely on banks or other payment processors to process transactions and must pay fees for the services. From time to time, payment card networks have increased, and may increase in the future, the interchange fees and assessments that they charge for each transaction which accesses their networks. Our payment card processors may have the right to pass any increases in interchange fees and assessments on to us as well as increase their own fees for processing. Any changes in interchange fees and assessments could increase our operating costs and reduce our operating income. In addition, federal regulators have required Visa and MasterCard to reduce interchange fees, or have opened investigations as to whether Visa’s or MasterCard’s interchange fees and practices violate antitrust law. Any material change in credit or debit card interchange rates, including as a result of changes in interchange fee limitations, could have an adverse effect on our business. We are required by our processors to comply with payment card network operating rules, including special operating rules for payment service providers to merchants, and we have agreed to reimburse our processors for any fines they are assessed by payment card networks as a result of any rule violations by us or our merchants. The payment card networks set and interpret the card operating rules. From time to time, the networks have alleged that various aspects of our business model violate these operating rules. If such allegations are not resolved favorably, they may result in material fines and penalties or require changes in our business practices that may be costly. In addition, the payment card networks could adopt new operating rules or interpret or re-interpret existing rules that we or our processors might find difficult or even impossible to follow, or costly to implement. As a result, we could lose our ability to give consumers the option of using payment cards to fund their payments. If we are unable to accept payment cards or are meaningfully limited in our ability to do so, our business would be adversely affected. 12 We face risks in our tenant screening services business that could adversely affect our business and/or operating results. Our tenant screening services business is subject to a number of complex laws that are subject to varying interpretations, including the Fair Credit Reporting Act (the "FCRA"), the Fair Housing Act, and related regulations. The FCRA continues to be the subject of multiple class-based litigation proceedings, as well as numerous regulatory inquiries and enforcement actions. In addition, entities such as the Federal Trade Commission and the Consumer Financial Protection Bureau have the authority to promulgate rules and regulations that may impact our customers and our business and have made various public statements that tenant screening is an area of focus for such agencies. Although we attempt to structure our tenant screening services to comply with relevant laws and regulations, we have previously been accused of not complying with such laws and regulations and may be found to be in violation of them. In addition we have been and expect in the future to be subject to routine regulatory inquiries, enforcement actions, class-based litigation and/or indemnity demands. As previously disclosed, in January 2021, we entered into a settlement agreement with the Federal Trade Commission (the "FTC") to resolve allegations that we failed to comply with certain sections of the FCRA. In connection with the settlement, we paid a fine and agreed to ongoing compliance and reporting obligations. Our failure to comply with these obligations could result in material additional penalties or other actions by the FTC or other agencies, including enjoining our ability to provide screening services. Due to the large number of tenant screening transactions in which we participate, our potential liability in any enforcement action or a class action lawsuit could have a material impact on our business, especially given that certain applicable laws and regulations provide for fines or penalties on a per occurrence basis. The existence of any such enforcement action or class action lawsuit, whether meritorious or not, may adversely affect our ability to attract customers, result in the loss of existing customers, harm our reputation and cause us to incur defense costs or other expenses. If our property management customers stop requiring insurance coverage for their units, if insurance premiums decline or if insureds experience greater than expected losses, our operating results could be harmed. We generate a portion of our revenue by offering insurance-related services through wholly owned subsidiaries. If demand for rental housing declines, or if our property management customers believe that it may decline, these customers may stop requiring insurance coverage for their units to reduce the overall cost of renting and make their rental offerings more competitive. If our property management customers stop tracking and requiring insurance coverage for their units or elect to use other methods of tracking and acquiring insurance coverage, demand for our insurance-related products may drop and our revenues from our insurance related products could be adversely affected. In the event we are found to be in violation of the legal requirements applicable to our products and services, our business and operating results may be adversely affected. Many of our products and services are highly regulated or intended to be used in connection with other highly regulated activities. Some of the laws and regulations to which our products and services are subject include, without limitation: • • • • • • • the Fair Housing Act; the FCRA; Title VII of the Civil Rights Act; the Telephone Consumer Protection Act; the Americans with Disabilities Act; the Electronic Signatures in Global and National Commerce Act; and the Federal Trade Commission Act; State law equivalents of the foregoing, plus various state regulations related to insurance licensing and solicitation, utility billing practices and privacy also apply to certain of our products and services. In addition, the evolution and expansion of our products and services may subject us to additional risks and regulatory requirements. For example, as our electronic payments services business evolves, we may become directly subject to limitations, laws and regulations governing money transmission and anti-money laundering. In addition, we periodically undergo examinations, audits and investigations related to our services, including those related to the affairs of insurance companies and agencies and electronic payment services providers. Such examining, auditing, and investigating authorities are generally vested with relatively broad discretion to grant, renew and revoke licenses and approvals, to implement and interpret rules and regulations, levy fines and penalties, and bring enforcement actions. While we have implemented various programs, processes and controls focused on compliance with applicable laws and regulations throughout our business, there is no guarantee that we will not be subject to fines, penalties or other regulatory actions in one or more jurisdictions, or be required to adjust our business practices to accommodate future regulatory requirements. In the event that we are found to be in violation of our legal, regulatory or contractual requirements, we may be subject to monetary fines or penalties, cease-and-desist orders, mandatory product changes, or other liabilities that could have an adverse effect on our business and operating results. 13 If we fail to maintain relationships with third-party partners that enable certain functionality within our solutions, our business and operating results may be harmed. Certain functionality of our services is provided, supported or enhanced by third parties, including without limitation functions related to customer relationship management, utility billing management, cloud computing, texting, emailing, electronic payments, tenant screening, and insurance related offerings. If our third-party partners cease providing their products, if such third parties are acquired by competitors or if we are otherwise unable to integrate with such third-party products, our solutions and demand for our solutions could be adversely impacted and our business and operating results would be harmed. In addition, our competitors may be more effective than us in cost-effectively building relationships with third parties that enhance their products and services, allow them to provide more competitive pricing, or offer other benefits to their customers. Acquisitions of our partners by our competitors or others could result in a decrease in the number of current and potential strategic partners willing to establish or maintain relationships with us, and could increase the price at which products or services are available to us. If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our customer base and revenue could be impaired, which could negatively impact our operating results. If we are unable to ensure that our solutions interoperate and keep pace with other technology, our solutions may become less competitive and our operating results may be harmed. We depend on the interoperability of our platform with web browsers, and in the case of our mobile applications - operating systems, that we do not control. Any changes in such web browsers or systems that degrade the functionality of our solutions or give preferential treatment to competitive services could adversely affect the adoption and usage of our solutions. In addition, to deliver high quality solutions, we will need to continuously enhance and modify our functionality to keep pace with technical, contractual, and other changes in Internet-related hardware, mobile operating systems such as iOS and Android, browsers, communication, network and database technologies. We may not be successful in developing enhancements and modifications that operate effectively with these devices, operating systems, web browsers or other technologies or in bringing them to market in a timely manner. Furthermore, uncertainties regarding the timing or nature of new network platforms or technologies, and modifications to existing platforms or technologies, could increase our research and product development expenses. In the event that it is difficult for our customers to access and use our solutions, our solutions may become less competitive, and our operating results could be adversely affected. Risks Related to Intellectual Property Matters Failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brands, which could harm our business. We currently rely on patent, trademark, copyright and trade secret laws, trade secret protection, and confidentiality or license agreements with our employees, customers, partners and others to protect our intellectual property rights. In addition, we utilize third party platforms to host our code for version control and collaboration and rely on the security features made available by such platforms to prevent unauthorized access to our code. Our success and ability to compete depend, in part, on our ability to continue to protect our intellectual property, including our code, proprietary technology and brands. If we are unable to protect our proprietary rights adequately or the security controls made available by our code hosting partners are compromised and our code is improperly accessed, which has previously occurred and could occur again in the future, our competitors could use the intellectual property we have developed to enhance their own products and services, which could harm our business. In addition, third parties may independently develop technologies or products that compete with ours, and we may be unable to prevent such competition. To monitor and protect our intellectual property rights, we may be required to expend significant resources. Litigation brought to protect and enforce our intellectual property rights could be costly, time- consuming and distracting to management, and could result in the impairment or loss of portions of our intellectual property or require us to pay costly royalties. Accordingly, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our business and operating results. 14 We may be sued by third parties for alleged infringement of their proprietary rights, which could cause us to incur significant expenses and require us to pay substantial damages. Our success depends, in part, on us refraining from infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may legally own or claim to own intellectual property relating to our technology or solutions, including without limitation technology we develop and build internally and/or acquire. From time to time, our competitors or other third parties may claim that we are infringing upon their intellectual property rights. Any claims or litigation, regardless of merit, could cause us to incur significant expenses, distract management, and, if successfully asserted against us, could require that we pay substantial damages, settlement costs or ongoing royalty payments, require that we comply with other unfavorable license and other terms, or prevent us from offering our solutions in their current form. Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the attention of our management and key personnel from our business operations and harm our operating results. Our solutions contain both open source and third-party software, which may pose risks to our proprietary source code and/or introduce security vulnerabilities, and could have a material adverse impact on our business and operating results. We use open source software in our solutions and expect to continue to do so in the future. The terms of many open source licenses to which we are subject have not been interpreted by United States or foreign courts, and there is a risk that open source licenses could be construed in a manner that imposes unanticipated conditions, restrictions or costs on our ability to provide or distribute our solutions. Additionally, we may from time to time face claims from third parties alleging ownership of, or demanding release of, the open source software or of derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation, which could be costly for us to defend, and could require us to make our source code freely available, purchase a costly license or cease offering the implicated functionality unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and product development resources, and we may not be able to complete it successfully or in a timely manner. In addition to risks related to license requirements, usage of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. We also use third-party commercial software in our solutions and expect to continue to do so in the future. Third-party commercial software is developed outside of our direct control and may introduce security vulnerabilities that may be difficult to anticipate or mitigate. Further, there is no guarantee that third-party software developers or open source software providers will continue to maintain and update the third-party software that we use. Should development of in-use third-party software cease, significant engineering effort may be required to create an in-house solution. These risks could also be difficult to eliminate or manage, and could have a material adverse impact on our business and operating results. Risks Related to Our Financial Results We expect to make substantial investments across our organization to grow our business, which may impact profitability. To implement our business and growth strategy, we have made and will continue to make substantial investments across our organization and, as a result, our expenses may increase significantly impacting profitability. For example, we intend to continue to make substantial investments in, among other things: our research and product development organization to enhance the ease of use and functionality of our solutions and develop new products; our sales and marketing organization, including expansion of our direct sales organization and marketing programs, to increase the size of our customer base and increase adoption and utilization of new and existing Value Added Services by our new and existing customers; and maintaining and expanding our technology infrastructure and operational support to promote the security and availability of our products and solutions. Even if we are successful in growing our customer base and increasing revenue from new and existing customers, we may not be able to generate additional revenue in an amount that is sufficient to cover our expenses. Our quarterly results may fluctuate significantly and period-to-period comparisons of our results may not be meaningful. Our quarterly results, including the levels of our revenue, costs, operating expenses, and operating margins, may fluctuate significantly in the future, and period-to-period comparisons of our results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of our future performance. We may experience significant fluctuations in our operating results from period to period, including significant losses. This may make it difficult for us to effectively allocate our resources to achieve our strategic goals. Furthermore, if our quarterly results fall below the expectations of investors or any securities analysts who follow our stock, or below any financial guidance we may provide, the price of our common stock could decline substantially. 15 There are risks associated with potential future indebtedness that may adversely affect our financial condition and future financing agreements may contain restrictive operating and financial covenants. We may incur indebtedness in the future and/or enter into new financing arrangements. Our ability to meet expenses, to remain in compliance with the covenants under any future debt instruments, and to pay fees, interest and principal on our indebtedness will depend on, among other things, our operating performance and market conditions. Accordingly, our cash flow may not be sufficient to allow us to pay principal and interest on future indebtedness and meet our other business and customer obligations. In addition, increases in interest rates have increased the cost of borrowing and volatility in financial markets could impact our access to, or further increase the cost of, any new financing arrangements we may enter into. Past disruptions in the credit and equity markets made it more difficult for many businesses to obtain financing on acceptable terms. These conditions tended to increase the cost of borrowing in the past and if they recur, our borrowing costs could increase and it may be more difficult to obtain financing for our operations or investments. We may not be able to obtain financing on terms acceptable to us, if at all. Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited. Under Section 382 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50% over a rolling three-year period. Similar rules may apply under state tax laws. It is possible that our existing net operating loss and/or credit carryforwards may be subject to limitations arising from previous ownership changes, and future issuances of our stock could cause an ownership change. Furthermore, our ability to utilize net operating loss and/or credit carryforwards of companies that we have acquired or may acquire in the future may be subject to limitations. There is also a risk that due to legislative changes, such as suspensions on the use of net operating loss carryforwards, or other unforeseen reasons, our existing net operating loss carryforwards could expire or otherwise be unavailable to offset future income tax liabilities. Risks Related to Our Common Stock The market price of our Class A common stock may be volatile or may decline regardless of our operating performance, which could result in substantial losses for our stockholders. The market price of our Class A common stock has been, and is likely to continue to be, highly volatile, and fluctuations in the price of our Class A common stock could cause our stockholders to lose all or part of their investments. There are a wide variety of factors, many of which are outside our control, that could cause fluctuations in the market price of our Class A common stock, including without limitation: • • • • • • • • changes in the estimates of our operating results; changes in recommendations by securities analysts; announcements of new products, services or technologies; fluctuations in our valuation or the valuation of similarly situated companies; changes to our management team; trading activity by insiders or the market’s perception that insiders intend to sell their shares; the trading volume of our Class A common stock, including sales upon exercise of outstanding options or vesting of equity awards; and the overall performance of the equity markets. Such factors could cause the market price of our Class A common stock to decline or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate, and could impair our ability to raise capital through the sale of additional equity securities. 16 The dual class structure of our common stock concentrates voting control with a limited number of stockholders, including our executive officers, directors and principal stockholders, effectively limiting your ability to influence corporate matters. Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. As of December 31, 2022, the holders of the outstanding shares of our Class B common stock, including our executive officers, directors, and principal stockholders, collectively held approximately 88% of the combined voting power of our outstanding capital stock. Because of the 10-to-1 voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock collectively control a majority of the combined voting power of our outstanding capital stock and therefore control the election of a majority of our directors and thereby have the power to control our affairs and policies, including the appointment of management and strategic decisions, as well as matters that are submitted to a vote by our holders of our common stock. The interests of our principal stockholders may be inconsistent with or adverse to those of holders of our Class A common stock. This concentrated control may also have the effect of delaying, deterring or preventing a change-in-control transaction, depriving our stockholders of an opportunity to receive a premium for their capital stock or negatively affecting the market price of our Class A common stock. In addition, transfers by holders of our Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions. The conversion of our Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of the holders of our Class B common stock who retain their shares over the long term. We cannot predict the impact that our capital structure may have on our stock price. S&P Dow Jones, a provider of widely followed stock indices, has announced that companies with multiple classes of stock will not be eligible for inclusion in certain of their indices. As a result, our Class A common stock will not be eligible for those stock indices. Many investment funds are precluded from investing in companies that are not included in major indices, and these funds would be unable to purchase our Class A common stock. Exclusion from these and other indices could make our Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, shareholder advisory firms may publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock. We do not expect to declare any dividends in the foreseeable future and may repurchase stock in accordance with our Share Repurchase Program. We have never declared, and we do not anticipate declaring or paying, any cash dividends to holders of our Class A common stock in the foreseeable future. In addition, the terms of our future borrowing arrangements we may enter into from time to time may restrict our ability to pay dividends. Consequently, investors may need to rely on sales of our Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Price appreciation, which may never occur, may be further impacted by repurchases of our shares in accordance with our Share Repurchase Program. Repurchases of our shares could increase the volatility of the trading price of our shares, which could have a material adverse impact on the trading price of our shares. Similarly, the future announcement of the termination or suspension of the Share Repurchase Program, or our decision not to utilize the full authorized repurchase amount under the Share Repurchase Program, could result in a decrease in the trading price of our shares. In addition, the Share Repurchase Program could have the impact of diminishing our cash reserves, which may impact our ability to finance our growth, complete acquisitions and execute our strategic plan. For additional information regarding our Share Repurchase Program, refer to Note 11, Stockholders' Equity. Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt. Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could have the effect of rendering more difficult hostile takeovers, change-in-control transactions or changes in our Board of Directors or management. Among other things, these provisions authorize the issuance of preferred stock with powers, preferences and rights that may be senior to our common stock, provide for the adoption of a staggered three-class Board of Directors, prohibit our stockholders from filling vacancies on our Board of Directors or calling special stockholder meetings, require the vote of at least two-thirds of the combined voting power of our outstanding capital stock to approve amendments to our certificate of incorporation or bylaws, and require the approval of the holders of at least a majority of the outstanding shares of our Class B common stock voting as a separate class prior to consummating a change-in-control transaction. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which may delay, deter or prevent a change-in-control transaction. Section 203 imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock. Any provision of Delaware law, our amended and restated certificate of incorporation, or our amended and restated bylaws that has the effect of rendering more difficult, delaying, deterring or preventing a change-in-control transaction could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our Class A common stock. 17 We could be subject to securities class action litigation. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which could adversely affect our business, operating results, or financial condition. Additionally, the dramatic increase in the cost of directors’ and officers’ liability insurance may make it more expensive for us to obtain directors’ and officers’ liability insurance in the future and may require us to opt for lower overall policy limits and coverage or to forgo insurance that we may otherwise rely on to cover significant defense costs, settlements, and damages awarded to plaintiffs, or incur substantially higher costs to maintain the same or similar coverage. These factors could make it more difficult for us to attract and retain qualified executive officers and members of our board of directors. Risks Related to Macroeconomic Conditions Global and regional economic conditions could harm our business. Adverse global and regional economic conditions such as turmoil affecting the banking system or financial markets, including, but not limited to, recessionary or inflationary pressures, tightening in the credit markets, extreme volatility or distress in the financial markets, supply chain issues, reduced consumer confidence or economic activity, government fiscal and tax policies, the ongoing impact of COVID-19, geopolitical events, and other negative financial news or macroeconomic developments could have a material adverse impact on the demand for our products and services or cause us to experience increased costs that could negatively affect our operating results. Government regulations and laws are continuously evolving and unfavorable changes could adversely affect our operating results, subject us to litigation or governmental investigation, or otherwise harm our business. In addition to regulations and laws directly applicable to our products and services, we are subject to general business regulations and laws. Unfavorable regulations, laws, and administrative or judicial decisions interpreting or applying laws and regulations applicable to our business could subject us to litigation or governmental investigation and increase our cost of doing business, any of which may adversely affect our operating results. For example, the Inflation Reduction Act of 2022 contains several revisions to the Internal Revenue Code, including a 15% corporate minimum income tax on adjusted financial statement income for companies with profits greater than $1.0 billion and a nondeductible 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022. While the foregoing tax law changes have no immediate effect on our business, such changes or similar changes may adversely affect our operating results in the future. In addition, the application of federal, state, local and foreign tax laws to services provided electronically is continuously evolving. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted or amended at any time, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the Internet. These enactments or amendments could adversely affect our sales activity due to the inherent cost increase such taxes would represent and could ultimately result in a negative impact on our operating results. In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, modified or applied adversely to us, possibly with retroactive effect, which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties, as well as interest on past amounts. If we are unsuccessful in collecting such taxes due from our customers, we could be held liable for such costs, thereby adversely impacting our operating results. Health epidemics, including the COVID-19 pandemic, could have a material adverse impact on our operations, employees culture, customers, and business partners. The COVID-19 pandemic continues to have, and a future public health crisis could have, repercussions across local, regional, and global economies and financial markets. Travel restrictions, quarantines, and similar government orders to control the spread of COVID-19 or a future virus may result in business closures, work stoppages, slowdowns, and cancellation or postponement of events that, among other effects, could negatively impact our operations, as well as the operations of our customers, and business partners. The demand for our products and services, as well as our operating results, could be adversely impacted due to customers delaying decisions to adopt our products and services or terminating their use of our products and services, as they seek to reduce or delay spending to mitigate the impact of the COVID-19 pandemic or a future public health crisis on their businesses. 18 Natural disasters or other catastrophic events may cause damage or disruption to our operations, commerce and the global economy, and have a negative effect on our business and operations. Our business operations are subject to interruption by natural disasters, flooding, fire, power shortages, pandemics, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical instability, war, the effects of climate change (such as drought, wildfires, hurricanes, increased storm severity and sea level rise) and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, could decrease demand for our services, and could cause us to incur substantial expense. Our insurance may not be sufficient to cover losses or additional expenses that we may sustain. The majority of our research and development activities, offices, information technology systems, and other critical business operations are located near major seismic faults in California. Customer data could be lost, significant recovery time could be required to resume operations and our financial condition and operating results could be adversely affected in the event of a major natural disaster or catastrophic event. In addition, the impacts of climate change on the global economy and our industry are rapidly evolving. We may be subject to increased regulations, reporting requirements, standards or expectations regarding the environmental impacts of our business. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Our corporate headquarters is located in Santa Barbara, California, where we lease approximately 86,000 square feet of space. We also lease office space in several other U.S. cities. We do not own any real estate. We believe our current facilities are adequate for our current needs and that, should it be needed, suitable additional or alternative space will be available to us to accommodate any such expansion of our operations. ITEM 3. LEGAL PROCEEDINGS From time to time, we are involved in various investigative inquiries, legal proceedings and other disputes arising from or related to matters incident to the ordinary course of our business activities, including actions with respect to intellectual property, employment, labor, regulatory and contractual matters. Although the results of such investigative inquiries, legal proceedings and other disputes cannot be predicted with certainty, we believe that we are not currently a party to any matters which, if determined adversely to us, would, individually or taken together, have a material adverse effect on our business, operating results, financial condition or cash flows. However, regardless of the merit of any matters raised or the ultimate outcome, investigative inquiries, legal proceedings and other disputes may generally have an adverse impact on us as a result of defense and settlement costs, diversion of management resources, and other factors. For additional information regarding legal proceedings, refer to Note 10, Commitments and Contingencies of our Consolidated Financial Statements. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for our Common Stock Our Class A common stock is listed on the NASDAQ Global Market under the symbol "APPF". Our Class B common stock is not listed or traded on any stock exchange. 19 Holders of Record At February 2, 2023, there were 35 holders of record of our Class A common stock and 72 holders of record of our Class B common stock. Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. Dividend Policy We have never declared or paid any cash dividends on our capital stock. We do not anticipate declaring or paying any cash dividends to holders of our capital stock in the foreseeable future and intend to retain all future earnings for use in the growth of our business. Stock Performance Graph The following performance graph compares the cumulative total return on our Class A common stock with that of the S&P 500 Index and the NASDAQ Computer Index. This chart assumes $100 was invested in our Class A common stock at the close of market on December 31, 2017, and in the S&P 500 Index and the NASDAQ Computer Index, and assumes the reinvestment of any dividends. The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock. This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any of our other filings under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. Unregistered Sales of Equity Securities and Purchases of Equity Securities None. 20 ITEM 6. [RESERVED] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that are based on our current expectations and reflect our plans, estimates and anticipated future financial performance. These statements involve numerous risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in the section of this Annual Report entitled "Risk Factors". See the section of this Annual Report entitled “Forward-Looking Statements” for additional information. The following discussion and analysis of our financial condition and results of operations discusses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021. For discussion of 2020 items and year-over-year comparisons between 2021 and 2020, refer to Part II. Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021. Overview We are a leading provider of cloud business management solutions for the real estate industry. Our solutions are designed to enable our property manager customers to digitally transform their businesses, address critical business operations and deliver a better customer experience. Our products assist our customers with an interconnected and growing network of stakeholders in their business ecosystems, including property owners, real estate investment managers, rental prospects, residents, and service providers, and provide key functionality related to critical transactions across the real estate lifecycle, including screening potential tenants, sending and receiving payments and even providing insurance-related risk mitigation services. AppFolio’s intuitive interface, coupled with streamlined and automated workflows, make it easier for our customers to eliminate redundant and manual processes so they can deliver a great experience for their network of stakeholders while improving financial and operational performance. We rely heavily on our talented team of employees to execute our growth plans and achieve our long-term strategic objectives. We believe our people are at the heart of our success and our customers' success, and we have worked hard not only to attract and retain talented individuals, but also to provide a challenging and rewarding work environment to motivate and develop our valuable human capital. As we navigate the challenges of increased competition for talent, we continue to evolve our compensation and employee reward practices. Key Business Metric Property management units under management. We believe that our ability to increase our number of property management units under management is an indicator of our market penetration, growth, and potential future business opportunities. We define property management units under management as active or committed units under management at the period end date. We had 7.3 million and 6.3 million property management units under management as of December 31, 2022 and 2021, respectively. Seasonality We have historically experienced seasonality in our Value Added Services revenue, primarily in our tenant screening services, due to seasonally higher leasing activities in the second quarter which increases tenant screening transactions in that period. We generally experience decreased tenant screening revenue in the fourth quarter, when seasonally lower leasing activities occur. Corresponding to the higher tenant applications in the second quarter, our property manager customers typically experience an increase in new tenants in the third quarter, resulting in a higher demand for our insurance- related risk mitigation services in that period. As a result of the seasonality of the rental lifecycle and the growth of our business, we have typically experienced a sequential increase in revenue in the first, second and third quarters and a sequential decline in revenue in the fourth quarter of each of our most recent fiscal years. These seasonal factors could be heightened or lessened due to the impact of a change in macroeconomic factors that could impact tenant behavior or a change in the adoption rate of our other less seasonally impacted Value Added Services. Although these seasonal factors are common in the real estate industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance. 21 Key Components of Results of Operations Revenue Our core solutions and certain of our Value Added Services are offered on a subscription basis. Our core solutions subscription fees vary by property type and are designed to scale with the size of our customers’ businesses. We recognize revenue for subscription-based services on a straight-line basis over the contract term beginning on the date that our service is made available. We generally invoice monthly or, to a lesser extent, annually in advance of the subscription period. We also offer certain Value Added Services, which are not covered by our subscription fees, on a per-use basis. Usage-based fees are charged either as a percentage of the transaction amount (e.g., for certain of our payment services) or on a flat fee per transaction basis with no minimum usage commitments (e.g., for our tenant screening and risk mitigation services). We recognize revenue for usage-based services in the period the service is rendered. Our payments services fees are recorded gross of the interchange and payment processing related fees. We generally invoice our usage-based services on a monthly basis or collect the fee at the time of service. A significant majority of our Value Added Services revenue comes from the use of our payment services, tenant screening services, and risk mitigation services. We charge our customers for onboarding assistance to our core solutions and certain other non-recurring services. We generally invoice for these other services in advance of the services being completed and recognize revenue in the period the service is rendered. We generate revenue from the legacy customers of previously acquired businesses by providing services outside of our property management core solution platform. Revenue derived from these services is recorded in Other revenue. As of December 31, 2022 and 2021, we had 18,441 and 17,215 property management customers, respectively. Costs and Operating Expenses Cost of Revenue (Exclusive of Depreciation and Amortization). Many of our Value Added Services are facilitated by third-party service providers. Cost of revenue paid to these third-party service providers includes the cost of electronic interchange and payment processing-related services to support our payments services, the cost of credit reporting services for our tenant screening services, and various costs associated with our risk mitigation service providers. These third-party costs vary both in amount and as a percent of revenue for each Value Added Service offering. Cost of revenue also consists of personnel-related costs for our employees focused on customer service and the support of our operations (including salaries, performance-based compensation, benefits, and stock-based compensation), platform infrastructure costs (such as data center operations and hosting-related costs), and allocated shared and other costs. Cost of revenue 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, performance-based compensation, benefits, and stock-based compensation), costs associated with sales and marketing activities, and allocated shared and other costs. Marketing activities include advertising, online lead generation, lead nurturing, customer and industry events, and the creation of industry-related content and collateral. 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, performance-based compensation, 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, corporate development and administrative organizations (including salaries, performance- based cash compensation, 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), transaction costs related to sales of subsidiary businesses, regulatory fees, other corporate expenses, impairment of long-lived assets, and allocated shared and other costs. Depreciation and Amortization. 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. 22 Other Income, Net. Other income, net includes gain on sale of our equity-method investments, gains and losses associated with the sale of businesses and property and equipment, and income from certain post-closing transition services provided by us to MyCase, Inc. during fiscal year 2021. Interest Income (Expense), Net. Interest income includes interest earned on investment securities, amortization and accretion of the premium and discounts paid from the purchase of investment securities, and interest earned on cash deposited in our bank accounts. Interest expense includes interest paid on any outstanding borrowings during the year ended December 31, 2020. Provision for Income Taxes. Provision for income taxes consists of federal and state income taxes in the United States. Results of Operations Revenue Core solutions Value Added Services Other Total revenue Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) $ $ 132,541 $ 327,636 11,706 471,883 $ 105,148 $ 241,289 12,933 359,370 $ 27,393 86,347 (1,227) 112,513 26 % 36 (9) 31 % The increase in revenue for the year ended December 31, 2022, compared to the prior year, was primarily attributable to growth in our base of property management customers driving an increase in the number of property management units under management, and growth in users of our subscription and usage-based services. During the year ended December 31, 2022, we experienced growth of 15% in the number of property management units under management resulting from 7% growth in the number of property management customers, compared to the prior year. Our payment services experienced increased adoption during the comparative periods as residents, property managers, and owners transacted more business online. Our tenant screening and risk mitigation services usage also increased during the comparative periods in line with the increase in units under management. A significant majority of our Value Added Services revenue comes from the use of our payment services, tenant screening services, and the risk mitigation services we make available to customers. Cost of Revenue (Exclusive of Depreciation and Amortization) Cost of revenue (exclusive of depreciation and amortization) Percentage of revenue Stock-based compensation, included above Percentage of revenue Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) $ $ 191,826 40.7 % 2,640 0.6 % $ $ 143,944 40.1 % 2,024 0.6 % $ $ 47,882 616 33 % 30 % Cost of revenue (exclusive of depreciation and amortization) for the year ended December 31, 2022, increased primarily due to increases in expenditures to third-party service providers related to the delivery of our Value Added Services of $34.1 million compared to the prior year. This increase was directly associated with the increased adoption and utilization of our Value Added Services. Personnel-related costs, including performance-based compensation, necessary to support growth and key investments, increased $12.5 million for the year ended December 31, 2022, compared to the prior year. Allocated shared and other costs increased by $1.2 million for the year ended December 31, 2022, compared to the prior year, primarily related to platform infrastructure, software and other costs incurred in support of our overall growth. 23 As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) fluctuates primarily based on the mix of Value Added Services revenue in the period, given the varying percentage of revenue we pay to third-party service providers. We expect cost of revenue (exclusive of depreciation and amortization) for the year ending December 31, 2023 to decrease as a percentage of revenue compared to the year ended December 31, 2022, as we expect to leverage headcount efficiencies to offset an increase in expenditures to third-party service providers related to the delivery of our Value Added Services. Sales and Marketing Sales and marketing Percentage of revenue Stock-based compensation, included above Percentage of revenue Year Ended December 31, Change 2022 2021 Amount % $ $ 107,398 22.8 % 8,681 1.8 % $ $ (dollars in thousands) 73,200 $ 34,198 20.4 % 2,329 0.6 % $ 6,352 47 % 273 % Sales and marketing expense for the year ended December 31, 2022 increased primarily due to increases in personnel-related costs, including performance-based compensation, necessary to support growth in the business of $23.9 million compared to the prior year. Advertising and promotion costs increased by $2.1 million primarily due to increased advertising and promotion spending to support the growth and key investments in the business. Allocated shared and other costs increased by $8.2 million year ended December 31, 2022 compared to the prior year, primarily related to software and other costs incurred in support of our overall growth. We expect sales and marketing expense for the year ending December 31, 2023 to decrease as a percentage of revenue compared to the year ended December 31, 2022, as we continue to leverage headcount efficiencies. Research and Product Development Year Ended December 31, Change 2022 2021 Amount % Research and product development Percentage of revenue Stock-based compensation, included above Percentage of revenue $ $ 111,118 23.5 % 16,030 3.4 % $ $ (dollars in thousands) 65,980 $ 45,138 18.4 % 5,457 1.5 % $ 10,573 68 % 194 % Research and product development expense for the year ended December 31, 2022 increased primarily due to an increase in personnel-related costs including performance-based compensation, net of capitalized software development costs, of $42.8 million, compared to the prior year. Allocated shared and other costs increased by $2.3 million year ended December 31, 2022 compared to the prior year, primarily related to software and other costs incurred in support of our overall growth. We expect research and product development expenses for the year ending December 31, 2023 to increase as a percentage of revenue compared to the year ended December 31, 2022, as we continue to invest in our research and product development organization to support our strategy to expand the use cases of our product capabilities to the larger customer segment. 24 General and Administrative General and administrative Percentage of revenue Stock-based compensation, included above Percentage of revenue Year Ended December 31, Change 2022 2021 Amount % $ $ 100,792 21.4 % 13,584 2.9 % $ $ (dollars in thousands) 57,279 $ 43,513 15.9 % 5,531 1.5 % $ 8,053 76 % 146 % General and administrative expense for the year ended December 31, 2022 increased primarily due to a net ROU and other lease-related asset impairment of $22.0 million. Personnel-related costs, including performance-based compensation, increased $15.7 million for the year ended December 31, 2022, compared to the prior year. Allocated shared and other costs increased $3.9 million for the year ended December 31, 2022, compared to the prior year, for professional fees, education and training, insurance, software and other costs to support our growth. Additionally, offsetting general and administrative expense for the year ended December 31, 2021 was a $1.9 million insurance recovery related to our previously disclosed settlement with the Federal Trade Commission (the "FTC"). Excluding the impairment charge, we expect general and administrative expenses for the year ending December 31, 2023 to remain flat as a percentage of revenue compared to the year ended December 31, 2022. Depreciation and Amortization Depreciation and amortization Percentage of revenue Year Ended December 31, Change 2022 2021 Amount $ 33,119 $ (dollars in thousands) 30,845 $ 2,274 7.0 % 8.6 % % 7% Depreciation and amortization expense for the year ended December 31, 2022 increased, compared to the prior year, primarily due to increased amortization expense associated with accumulated capitalized software development balances. We expect depreciation and amortization expenses for the year ending December 31, 2023 to decrease as a percentage of revenue compared to the year ended December 31, 2022 due to a decrease in amortization of accumulated capitalized software development balances. Other Income, net Other income, net Percentage of revenue Year Ended December 31, Change 2022 2021 Amount % $ 4,469 $ (dollars in thousands) 13,111 $ (8,642) (66)% 0.9 % 3.6 % Other income, net for the year ended December 31, 2022 decreased, compared to the prior year, primarily due to a gain of $12.8 million related to the sale of our investment in SecureDocs during the year ended December 31, 2021. The decrease was offset by a gain of $4.2 million associated with the WegoWise Transaction during the year ended December 31, 2022. For additional information regarding the WegoWise Transaction, refer to Note 3, Sale of Subsidiary Businesses. Provision for Income Taxes Provision for income taxes Percentage of revenue Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) $ 1,402 $ 0.3 % $ 706 0.2 % 696 99% 25 The effective tax rate as compared to the U.S. federal statutory rate of 21% differs primarily due to change in valuation allowance against deferred taxes and non-deductible expenses, partially offset by state income taxes and tax benefits associated with stock-based compensation expense and research and development tax credits. Liquidity and Capital Resources Our principal sources of liquidity continue to be cash, cash equivalents, and investment securities, as well as cash flows generated from our operations. At December 31, 2022, our cash and cash equivalents and investment securities had an aggregate balance of $185.2 million. We have financed our operations primarily through cash generated from operations. We believe that our existing cash and cash equivalents, investment securities, and cash generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months. Capital Requirements Our future capital requirements will depend on many factors, including continued market acceptance of our software solutions, changes in the number of our customers, adoption and utilization of our Value Added Services by new and existing customers, the timing and extent of the introduction of new core functionality, products and Value Added Services, and the timing and extent of our investments across our organization. Non-cancelable purchase commitments for business operations total $23.4 million as of December 31, 2022, due primarily over the next three years. Operating lease obligations totaling $65.1 million associated with leased facilities and have varying maturities with $30.1 million due over the next five years. Furthermore, our Board of Directors has authorized our management to repurchase up to $100.0 million of shares of our Class A common stock from time to time. To date, we have repurchased $4.2 million of our Class A common stock under the Share Repurchase Program. For additional information regarding our Share Repurchase Program, refer to Note 11, Stockholders' Equity. Cash Flows The following table presents our cash flows for the periods indicated (in thousands): Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash Provided by Operating Activities Year Ended December 31, 2022 25,365 $ (6,466) (6,163) 12,736 $ 2021 35,391 (110,459) (7,348) (82,416) $ $ Our primary source of operating cash inflows is cash collected from our customers in connection with their use of our core solutions and Value Added Services. Our primary uses of cash from operating activities are for personnel-related expenditures and third-party costs incurred to support the delivery of our software solutions. Net cash provided by operating activities was $25.4 million for the year ended December 31, 2022 compared to net cash provided by operating activities of $35.4 million for the year ended December 31, 2021. The net decrease in cash provided by operating activities was primarily due to an increase in employee related costs and the settlement of accounts payable offset by an increase in cash collections from customers due to higher revenue growth and a decrease in income taxes paid related to the sale of MyCase, Inc. during the year ended December 31, 2021. Cash Used in Investing Activities Cash used in investing activities is generally composed of purchases of investment securities, maturities and sales of investment securities, purchases of property and equipment, and additions to capitalized software development. Net cash used in investing activities for the year ended December 31, 2022 was $6.5 million compared to $110.5 million for the year ended December 31, 2021. The net decrease in cash used in investing activities was primarily due to decreases in purchases of available-for-sale investment securities and capitalization of software development costs, offset by a decrease in proceeds from sales of available-for-sale investment securities and decrease in proceeds from sales of business and equity method investments. 26 Cash Used in Financing Activities Cash used in financing activities is generally composed of net share settlements for employee tax withholdings associated with the vesting of equity awards offset by proceeds from the exercise of stock options. Net cash used in financing activities for the year ended December 31, 2022 was $6.2 million compared to $7.3 million for the year ended December 31, 2021. The decrease in cash used in financing activities was primarily due to an increase in proceeds from stock option exercises. Off-Balance Sheet Arrangements At December 31, 2022, we did not have any off-balance sheet arrangements. Critical Accounting Policies and Estimates Our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our Consolidated Financial Statements 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 and expenses during the reporting period. Actual results could differ materially from those estimates. We believe that the following critical accounting policies involve a greater degree of judgment or complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to a full understanding and evaluation of our Consolidated Financial Statements. For additional information, refer to Note 2, Summary of Significant Accounting Policies of our Consolidated Financial Statements included elsewhere in this Annual Report. Revenue Recognition Many of our contracts with customers contain multiple performance obligations. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment. We account for individual performance obligations separately if they are distinct. The performance obligations for these contracts include access and use of our core solutions, implementation services, and customer support. Access and use of our core solutions and implementation services are considered distinct. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. Judgment is required to determine the standalone selling price for each distinct performance obligation. We typically have more than one standalone selling price for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we determine the standalone selling price based on our overall pricing objectives, taking into consideration customer demographics and other factors. Fees are fixed based on rates specified in the subscription agreements, which do not provide for any refunds or adjustments. Capitalized Software Development Costs We believe there are two key estimates within the capitalized software balance, which are the determination of the useful life of the software and the determination of the amounts to be capitalized. We determined that a three year life is appropriate for our internal-use software based on our best estimate of the useful life of the internally developed software after considering factors such as continuous developments in the technology, obsolescence and anticipated life of the service offering before significant upgrades. Based on our prior experience, internally generated software will generally remain in use for a minimum of three years before being significantly replaced or modified to keep up with evolving customer and company needs. While we do not anticipate any significant changes to this three year estimate, a change in this estimate could produce a material impact on our financial statements. We determine the amount of internal software costs to be capitalized based on the amount of time spent by our software engineers on projects. Costs associated with building or significantly enhancing our software solutions and new internally built software solutions are capitalized, while costs associated with planning new developments and maintaining our software solutions are expensed as incurred. There is judgment involved in estimating the stage of development as well as estimating time allocated to a particular project. A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods. 27 Impairment of long-lived assets We assess the recoverability of our long-lived assets when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable or that the useful lives of those assets are no longer appropriate. An impairment charge would be recognized when the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. Any impairments to operating lease right of use ("ROU") assets, leasehold improvements, or other assets as a result of a sublease, abandonment, or other similar factor are assessed for impairment when a decision to do so is made and recorded as an operating expense. Similar to other long-lived assets, management tests ROU assets for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. For ROU and other lease-related assets, such circumstances would include subleases that do not fully recover the costs of the associated leases or a decision to abandon the use of all or part of a leased asset. We recorded a net impairment of $22.0 million consisting of $17.6 million related to ROU assets and $4.4 million related to property and equipment associated with our leased office spaces as described further in Note 9, Leases. Significant judgment and estimates are required in assessing impairment of long-lived assets, including identifying whether events or changes in circumstances require an impairment assessment, estimating future cash flows, uncertainty associated with the time period it will take to obtain a sublessee, the anticipated sublease income and determining appropriate discount rates. Our estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Income Taxes We recognize deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the Consolidated Statements of Operations in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, we consider the weighting of all available positive and negative evidence, which includes, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, and the duration of statutory carryforward periods. Judgment is required to measure the amount of tax benefits that can be recognized associated with uncertain tax positions. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. We recognize interest and penalties accrued with respect to uncertain tax positions, if any, in our provision for income taxes in the Consolidated Statements of Operations. Recent Accounting Pronouncements For information regarding recent accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies of our Consolidated Financial Statements included elsewhere in this Annual Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Interest Rate Risk Investment Securities At December 31, 2022, we had $114.5 million of investment securities consisting of United States government agency securities, corporate bonds, and treasury securities. The primary objective of investing in securities is to support our liquidity and capital needs. We did not purchase these investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Our investment securities are exposed to market risk due to interest rate fluctuations. While fluctuations in interest rates do not impact our interest income from our investment securities as all of these securities have fixed interest rates, changes in interest rates may impact the fair value of the investment securities. Since our investment securities are held as available for sale, all changes in fair value impact our other comprehensive (loss) income unless an investment security is considered impaired in which case changes in fair value are reported in other expense. As of December 31, 2022, a hypothetical 100 basis point decrease in interest rates would have resulted in an increase in the fair value of our investment securities of approximately $0.7 million, and a hypothetical 100 basis point increase in interest rates would have resulted in a decrease in the fair value of our investment securities of approximately $0.7 million. This estimate is based on a sensitivity model which measured an instant change in interest rates by 100 basis points as of December 31, 2022. 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID 238) Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive (Loss) Income Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Page 30 32 33 34 35 36 38 29 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of AppFolio, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of AppFolio, Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive (loss) income, of stockholder’s equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 30 Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Impairment of Long-Lived Assets As described in Note 9 to the consolidated financial statements, the Company decided to exit and make available for sublease certain leased office spaces. Management reassessed the Company’s asset groupings and evaluated the recoverability of the Company’s right-of-use and other lease-related assets and determined that the carrying value of the respective asset groups was not fully recoverable. Management utilized discounted cash flow models to estimate the fair value of the asset groups taking into consideration the time period it will take to obtain a sublessee, the applicable discount rates and the anticipated sublease income and calculated the corresponding impairment loss. The Company recorded a net impairment of $22.0 million related to right-of-use assets and property and equipment associated with the leased office space. The principal considerations for our determination that performing procedures relating to the impairment of long-lived assets is a critical audit matter are (i) the significant judgment by management in developing the fair value estimate of the asset groups; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the time period it will take to obtain a sublessee and the anticipated sublease income; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the impairment of long-lived assets, including controls over the valuation of the asset groups. These procedures also included, among others (i) evaluating the reassessment of asset groupings and the recoverability of the right-of-use and other lease-related assets; (ii) testing management’s process for developing the fair value estimate of the asset groups; (iii) evaluating the appropriateness of the discounted cash flow models; (iv) testing the completeness and accuracy of underlying data used in the discounted cash flow models; and (v) evaluating the reasonableness of the significant assumptions used by management related to the time period it will take to obtain a sublessee and the anticipated sublease income. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the discounted cash flow models and evaluating the reasonableness of the significant assumptions related to the time period it will take to obtain a sublessee and the anticipated sublease income. /s/ PricewaterhouseCoopers LLP Los Angeles, California February 9, 2023 We have served as the Company’s auditor since 2012. 31 APPFOLIO, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par values) December 31, 2022 2021 Assets Current assets Cash and cash equivalents Investment securities—current Accounts receivable, net Prepaid expenses and other current assets Total current assets Investment securities—noncurrent Property and equipment, net Operating lease right-of-use assets Capitalized software development costs, net Goodwill Intangible assets, net Other long-term assets Total assets Liabilities and Stockholders’ Equity Current liabilities Accounts payable Accrued employee expenses Accrued expenses Other current liabilities Total current liabilities Operating lease liabilities Other liabilities Total liabilities Commitments and contingencies (Note 10) Stockholders’ equity: Preferred stock, $0.0001 par value, 25,000 shares authorized and no shares issued and outstanding as of December 31, 2022 and December 31, 2021 Class A common stock, $0.0001 par value, 250,000 shares authorized as of December 31, 2022 and December 31, 2021; 20,988 and 19,836 shares issued as of December 31, 2022 and December 31, 2021, respectively; 20,569 and 19,417 shares outstanding as of December 31, 2022 and December 31, 2021, respectively Class B common stock, $0.0001 par value, 50,000 shares authorized as of December 31, 2022 and December 31, 2021; 14,746 and 15,408 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively Additional paid-in capital Accumulated other comprehensive loss Treasury stock, at cost, 419 shares of Class A common stock as of December 31, 2022 and December 31, 2021 Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity $ $ $ $ 70,769 89,297 16,503 24,899 201,468 25,161 26,110 23,485 35,315 56,060 4,833 8,785 381,217 2,473 34,376 15,601 8,893 61,343 50,237 4,091 115,671 — 2 2 209,704 (1,684) (25,756) 83,278 265,546 381,217 $ $ $ $ 57,847 64,600 12,595 23,553 158,595 61,076 30,479 41,710 41,212 56,147 11,711 7,087 408,017 1,704 30,065 13,284 7,589 52,642 55,733 2,261 110,636 — 2 2 171,930 (194) (25,756) 151,397 297,381 408,017 The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. 32 APPFOLIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Revenue Costs and operating expenses: (1) Cost of revenue (exclusive of depreciation and amortization) Sales and marketing Research and product development General and administrative Depreciation and amortization (1) (1) (1) Total costs and operating expenses (Loss) income from operations Other income, net Interest income (expense), net (Loss) income before provision for income taxes Provision for income taxes Net (loss) income Net (loss) income per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted (1) Includes stock-based compensation expense as follows: Stock-based compensation expense included in costs and operating expenses: Cost of revenue (exclusive of depreciation and amortization) Sales and marketing Research and product development General and administrative Total stock-based compensation expense Year Ended December 31, 2022 2021 2020 $ 471,883 $ 359,370 $ 310,056 191,826 107,398 111,118 100,792 33,119 544,253 (72,370) 4,469 1,184 (66,717) 1,402 (68,119) $ (1.95) $ (1.95) $ 35,010 35,010 143,944 73,200 65,980 57,279 30,845 371,248 (11,878) 13,111 501 1,734 706 1,028 $ 0.03 $ 0.03 $ 34,578 35,701 119,029 58,445 48,529 47,480 26,790 300,273 9,783 188,897 (1,849) 196,831 38,428 158,403 4.62 4.44 34,264 35,713 Year Ended December 31, 2022 2021 2020 2,640 $ 8,681 16,030 13,584 40,935 $ 2,024 $ 2,329 5,457 5,531 15,341 $ 1,506 1,415 1,818 4,286 9,025 $ $ $ $ $ The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. 33 CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME APPFOLIO, INC. (in thousands) Net (loss) income Other comprehensive (loss) income: Changes in unrealized (losses) gains on investment securities Comprehensive (loss) income Year Ended December 31, 2022 2021 2020 (68,119) $ 1,028 $ 158,403 (1,490) (69,609) $ (250) 778 $ 23 158,426 $ $ The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. 34 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY APPFOLIO, INC. (in thousands) Common Stock Class A Common Stock Class B Shares Amount Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income Retained Earnings/ (Accumulated Deficit) Treasury Stock Total 17,594 $ 13 — 2 $ — — 161,509 $ 822 11,112 33 $ — — (21,562) $ — — (8,034) $ — — 131,950 822 11,112 Balance at December 31, 2019 Exercise of stock options Stock-based compensation Vesting of restricted stock units, net of shares withheld for taxes Conversion of Class B common stock to Class A common stock Issuance of restricted stock awards Other comprehensive income Repurchase of common stock Net income Balance at December 31, 2020 Exercise of stock options Stock-based compensation Vesting of restricted stock units, net of shares withheld for taxes Conversion of Class B common stock to Class A common stock Issuance of restricted stock awards Other comprehensive loss Net income Balance at December 31, 2021 Exercise of stock options Stock-based compensation Vesting of restricted stock units, net of shares withheld for taxes Conversion of Class B common stock to Class A common stock Issuance of restricted stock awards Other comprehensive loss Net loss 16,552 $ 106 — 166 1,948 5 — (48) — 18,729 238 — 111 335 4 — — 19,417 303 — 154 689 6 — — Balance at December 31, 2022 20,569 $ 2 — — — — — — — — 2 — — — — — — — 2 — — — — — — — 2 — (1,948) — — — — 15,659 84 — — (335) — — — 15,408 27 — — (689) — — — — — — — — — 2 — — — — — — — 2 — — — — — — — (12,196) — — — — — 161,247 2,614 18,031 (9,962) — — — — 171,930 4,474 43,937 (10,637) — — — — — — — 23 — — 56 — — — — — (250) — (194) — — — — — (1,490) — — — — — (4,194) — (25,756) — — — — — — — (25,756) — — — — — — — — (12,196) — — — — 158,403 150,369 — — — — — — 1,028 151,397 — — — — 23 (4,194) 158,403 285,920 2,614 18,031 (9,962) — — (250) 1,028 297,381 4,474 43,937 — (10,637) — — — (68,119) — — (1,490) (68,119) 265,546 14,746 $ 2 $ 209,704 $ (1,684) $ (25,756) $ 83,278 $ The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. 35 APPFOLIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Cash from operating activities Net (loss) income Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization Amortization of operating lease right-of-use assets Impairment, net Deferred income taxes Stock-based compensation, including as amortized Gain on sale of business Gain on sale of equity-method investment and recovery of note receivable Other Changes in operating assets and liabilities: Accounts receivable Prepaid expenses and other current assets Other assets Accounts payable Accrued employee expenses Accrued expenses Operating lease liabilities Other liabilities Net cash provided by operating activities Cash from investing activities Purchases of available-for-sale investments Proceeds from sales of available-for-sale investments Proceeds from maturities of available-for-sale investments Purchases of property and equipment Capitalization of software development costs Proceeds from sale of business, net of cash divested Proceeds from sale of equity-method investment Net cash (used in) provided by investing activities Cash from financing activities Proceeds from stock option exercises Tax withholding for net share settlement Payment of contingent consideration Proceeds from issuance of debt Principal payments on debt 36 Year Ended December 31, 2022 2021 2020 $ (68,119) $ 1,028 $ 158,403 30,820 3,187 22,022 (993) 43,234 (4,156) (40) 175 (4,198) (5,398) (1,883) 1,176 4,281 3,452 (2,524) 4,329 25,365 (79,279) 994 87,883 (6,540) (14,688) 5,124 40 (6,466) 4,474 (10,637) — — — 29,032 3,199 — 250 17,154 (380) (12,767) 249 (2,103) (2,168) (1,259) 497 11,264 (1,773) 1,268 (8,100) 35,391 (241,215) 43,198 107,354 (8,103) (24,615) 402 12,520 (110,459) 2,614 (9,962) — — — 25,507 3,701 — 29,002 10,308 (187,658) — 125 (2,782) (5,894) (519) (903) 2,799 6,878 (564) 9,896 48,299 (43,877) 16,711 27,330 (19,038) (26,042) 191,427 — 146,511 822 (12,196) (5,977) 50,752 (99,565) Purchase of treasury stock Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash, cash equivalents and restricted cash Beginning of period End of period — (6,163) 12,736 — (7,348) (82,416) $ 58,283 71,019 $ 140,699 58,283 $ (4,194) (70,358) 124,452 16,247 140,699 APPFOLIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Supplemental disclosure of cash flow information Cash paid for interest Cash paid for income taxes Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows Right-of-use assets obtained in exchange for operating lease liabilities $ — $ — $ 3,338 3,933 — 9,324 1,618 11,945 1,815 85 2,198 6,644 Year Ended December 31, 2022 2021 2020 The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same such amounts shown above (in thousands): Cash and cash equivalents Restricted cash included in other assets Total cash, cash equivalents and restricted cash 2022 70,769 $ 250 71,019 $ $ $ December 31, 2021 57,847 $ 436 58,283 $ 2020 140,263 436 140,699 The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. 37 NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS APPFOLIO, INC. 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. During the year ended December 31, 2020, we also provided cloud-based solutions and services to the legal industry via MyCase, a solution primarily designed for small and mid-sized law firms. As previously disclosed, we completed the sale of MyCase, Inc. on September 30, 2020. For additional details, see Note 3, Sales of Subsidiary Businesses. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Reclassification We reclassified certain amounts in our Consolidated Balance Sheets and 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. Principles of Consolidation The accompanying Consolidated Financial Statements include the operations of AppFolio, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. We accounted for our investment in SecureDocs, Inc. (“SecureDocs”) under the equity method of accounting as we had the ability to exert significant influence, but did not control and were not the primary beneficiary of the entity. Our investment in SecureDocs was not material and any income (loss) activity was not material individually or in the aggregate to our Consolidated Financial Statements for any period presented. In December 2021, we sold our interest in SecureDocs. Refer to Note 4, Investment Securities and Fair Value Measurements for additional information. 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 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 Consolidated Financial Statements. Segment Information Our chief operating decision maker reviews financial information presented on an aggregated and consolidated basis, together with revenue information for our core solutions, Value Added Services, and other service offerings, principally to make decisions about how to allocate resources and to measure our performance. Accordingly, we have determined that we have one reportable and operating segment. Concentrations of Credit Risk Financial instruments that potentially subject us to credit risk consist principally of cash, cash equivalents, restricted cash, accounts receivable, and investment securities. We maintain cash balances at financial institutions in excess of amounts insured by United States government agencies or payable by the United States government directly. We place our cash with high credit, quality financial institutions. We invest in investment securities with a minimum rating of A by Standard & Poor's or A-1 by Moody's and regularly monitor our investment security portfolio for changes in credit ratings. 38 Concentrations of credit risk with respect to accounts receivable and revenue are limited due to a large, diverse customer base. No individual customer represented 10% or more of accounts receivable at December 31, 2022 and 2021 or revenue for the years ended December 31, 2022, 2021 and 2020. Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, in the marketplace. Level 3 - Unobservable inputs that are supported by little or no market activity. Cash, Cash Equivalents and Restricted Cash We consider all highly liquid investments, readily convertible to cash, and which have a remaining maturity date of three months or less at the date of purchase, to be cash equivalents. Cash and cash equivalents are recorded at fair value and consist primarily of bank deposits and money market funds. Investment Securities Our investment securities currently consist of corporate bonds, United States government agency securities and treasury securities. We classify investment securities as available-for-sale at the time of purchase and reevaluate such classification at each balance sheet date. All investments are recorded at estimated fair value and investments with original maturities of less than one year at the time of purchase are classified as short-term. Unrealized gains and losses for available-for-sale investment securities are included in accumulated other comprehensive income, a component of stockholders' equity. For available-for-sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of these criteria is met, the security’s amortized cost basis is written down to fair value through income. For securities in an unrealized loss position that do not meet these criteria, we evaluate whether the decline in fair value has resulted from credit loss or other factors. If this assessment indicates a credit loss exists, the credit-related portion of the loss is recorded as an allowance for losses on the security. No allowance for credit losses for available-for-sale investment securities was recorded as of December 31, 2022 and 2021. Accounts Receivable Accounts receivable are recorded at the invoiced amount, net of an allowance for credit losses. The allowance for credit losses is based on historical loss experience, the number of days that receivables are past due, and an evaluation of the potential risk of loss associated with delinquent accounts. Accounts receivable considered uncollectible are charged against the allowance for credit losses when identified. We do not have any off-balance sheet credit exposure related to our customers. At December 31, 2022 and 2021, our allowance for credit losses was not material. Property and Equipment Property and equipment is stated at cost net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of assets as follows: Asset Type Computer equipment Furniture and fixtures Office equipment Leasehold improvements Depreciation Period 3 years 7 years 3 to 5 years Shorter of remaining life of lease or asset life 39 Leases We determine if an arrangement is a lease at inception. Operating lease right-of-use ("ROU") assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments, over the lease term at commencement date. As none of our leases provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU assets also include any lease payments made to the lessor before or at the lease commencement date and excludes lease incentives received and initial direct costs incurred. Our lease terms may include options to extend the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. We have lease arrangements with lease and non-lease components, which are generally accounted for as a single lease component. Leases with an initial term of twelve months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Capitalized Software Development Costs Software development costs consist of certain payroll and stock compensation costs incurred to develop functionality of our internal-use software solutions. We capitalize certain software development costs for new offerings as well as significant upgrades and enhancements to our existing software solutions. Capitalized software development costs are amortized using the straight-line method over an estimated useful life of three years. We do not transfer ownership of our software, license, or lease our software to third parties. Goodwill and Intangible Assets Goodwill is tested for impairment at least annually at the reporting unit level or at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A qualitative assessment is performed to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount. A quantitative assessment is performed if the qualitative assessment results in a more-likely-than-not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent that the reporting unit’s carrying value exceeds its fair value. We test for goodwill impairment annually during the fourth quarter of the calendar year. Based on the assessment performed at November 1, 2022, we determined it was not more likely than not that our reporting unit fair value was less than its carrying value and no quantitative impairment test assessment was required. No impairment losses were recorded for goodwill during the years ended December 31, 2022, 2021 and 2020. Intangible assets primarily consist of acquired database and technology, non-compete agreements, customer and partner relationships, trademarks and trade names, domain names and patents, which are recorded at cost, less accumulated amortization. We determine the appropriate useful life of our intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized over their estimated useful lives on a straight-line basis, which approximates the pattern in which the economic benefits of the assets are consumed. Impairment of Long-Lived Assets We assess the recoverability of our long-lived assets when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable or that the useful lives of those assets are no longer appropriate. An impairment charge would be recognized when the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. We recorded net lease- related impairment charges of $22.0 million for the year ended December 31, 2022. Refer to Note 9, Leases for additional information. There were no impairment charges related to the identified long-lived assets for the years ended December 31, 2021 and 2020. 40 Revenue Recognition We generate revenue from our customers primarily for subscriptions to access our core solutions and Value Added Services. Revenue is recognized upon transfer of control of promised services in an amount that reflects the consideration we expect to receive in exchange for those services. We enter into contracts that can include various combinations of services, which are generally capable of being distinct, distinct within the context of the contract, and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We recognize revenue in proportion to the amount we have the right to invoice for certain core solutions and Value Added Services revenue, as that amount corresponds directly with our performance completed to date. Refer to Note 14, Revenue and Other Information for the disaggregated breakdown of revenue between Core solutions, Value Added Services and Other revenue. Core Solutions We charge our customers on a subscription basis for our core solutions. Our customers do not have rights to the underlying software code of our solutions, and, accordingly, we recognize subscription revenue over time on a straight-line basis over the contract term beginning on the date that our service is made available to the customer. The terms of our subscription agreements are monthly, annual, and multiyear and we typically invoice our customers for subscription services in monthly or annual installments, in advance of the subscription period. Value Added Services We primarily charge our customers on a usage basis for our Value Added Services. 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 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 electronic payments services fees are recorded gross of the interchange and payment processing related fees. We generally invoice our customers for usage-based services on a monthly basis for services rendered in the preceding month. We also have certain Value Added Services which are charged on a subscription basis. We typically invoice our customers for subscription-based services in monthly installments, in advance of the subscription period. We recognize revenue for subscription-based services over time on a straight-line basis over the contract term beginning on the date that our service is made available to the customer. Some subscription or usage-based Value Added Services, such as fees for electronic payment services, are paid by either our customers or clients of our customers at the time the services are rendered. We work with third-party partners to provide certain of our Value Added Services. For these Value Added Services, we evaluate whether we are the principal, and report revenue on a gross basis, or the agent, and report revenue on a net basis. In this assessment we consider if we obtain control of the specified services before they are transferred to the customer, as well as other indicators such as whether we are the party primarily responsible for fulfillment, and whether we have discretion in establishing price. Other Revenue Other revenue include fees from one-time services related to the implementation of our software solutions and other recurring or one-time fees related to our customers who are not otherwise using our core solutions. This includes legacy customers of businesses we have acquired where the customers haven't migrated to our core solutions. The fees for implementation and data migration services are billed upon signing our core subscription contract and are recognized as revenue in the period the service is rendered. Other services are billed when the services rendered are completed and delivered to the customer or billed in advance and deferred over the subscription period. Deferred Revenue We record deferred revenue when cash payments are received in advance of our performance. Deferred revenue as of December 31, 2022 and 2021 was $0.9 million and $2.5 million, respectively. During the twelve months ended December 31, 2022 and 2021, we recognized revenue of $2.4 million and $2.2 million, respectively, that were included in the deferred revenue balances at December 31, 2021 and 2020, respectively. Remaining Performance Obligations Transaction price allocated to remaining performance obligations (“RPO”) represents contracted revenue that has not been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenue in future periods. RPO does not include revenue related to performance obligations that are part of a contract whose original expected duration is one year or less or related to usage-based Value Added Services that are billed in arrears. 41 As of December 31, 2022, the total non-cancelable RPO under our contracts with customers was $15 million, and we expect to recognize revenue on approximately 47% of these RPO over the following 12 months, with the balance to be recognized thereafter. Deferred Costs Deferred costs, which primarily consist of sales commissions, are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be three years. We typically do not pay commissions for contract renewals. We determined the period of benefit by taking into consideration our customer contract term, the useful life of our internal-use software, average customer life, and other factors. Amortization expense for the deferred costs is included within sales and marketing expense in the accompanying Consolidated Statements of Operations. Deferred costs were $15.8 million and $12.4 million at December 31, 2022 and 2021, respectively, of which $8.1 million and $6.4 million, respectively, are included in Prepaid expenses and other current assets and $7.7 million and $6.0 million, respectively, are included in Other assets in the accompanying Consolidated Balance Sheets. Amortization expense for deferred costs was $8.1 million, $6.8 million, and $5.8 million for the years ended December 31, 2022, 2021, and 2020, respectively. For the years ended December 31, 2022 and 2021, no impairments were identified in relation to the costs capitalized for the periods presented. 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 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 percent of revenue for each Value Added Service offering. Cost of revenue also consists of personnel-related costs for our employees focused on customer service and the support of our operations (including salaries, performance-based compensation, benefits, and stock-based compensation), platform infrastructure costs (such as data center operations and hosting-related costs), and allocated shared and other costs. Cost of revenue 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, performance-based compensation, benefits, and stock-based compensation), costs associated with sales and marketing activities, and allocated shared and other costs. Marketing activities include advertising, online lead generation, lead nurturing, customer and industry events, and the creation of industry-related content and collateral. 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. Advertising expenses were $9.2 million, $9.4 million and $7.0 million for each of the years ended December 31, 2022, 2021 and 2020, respectively, and are expensed as incurred. 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, performance-based compensation, 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 which 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, corporate development and administrative organizations (including salaries, performance-based compensation, 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), transaction costs related to sales of subsidiary businesses, regulatory f, other corporate expenses, impairment of long-lived assets, and allocated shared costs. 42 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. Stock-Based Compensation We recognize stock-based compensation expense for restricted stock awards ("RSAs") and restricted stock units ("RSUs") with only service conditions on a straight-line basis over the requisite service period. For RSUs with both service and performance conditions (performance share units ("PSUs")), compensation cost is recorded on a graded-vesting method, if it is probable that the performance condition will be achieved. Adjustments to compensation expense are made each period based on changes in our estimate of the number of PSUs that are probable of vesting. PSUs will vest on the vesting date and upon achievement of the relevant performance metric once such calculation is finalized in accordance with our internal policies. We estimate a forfeiture rate to calculate our stock-based compensation expense for our stock-based awards. Income Taxes We recognize deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the Consolidated Statements of Operations in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, we consider the weighting of all available positive and negative evidence, which includes, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, and the duration of statutory carryforward periods. Net (Loss) Income per Common Share Basic net (loss) income per share includes no dilution and is computed by dividing net (loss) income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The dilutive effect of outstanding options and equity incentive awards is reflected in diluted net income per share by application of the treasury stock method. The calculation of diluted net income per share excludes all anti-dilutive common shares. Net (loss) 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 presents a reconciliation of the weighted average number of shares of our Class A and Class B common stock used to compute net (loss) income per common share (in thousands): Weighted average common shares outstanding Less: Weighted average unvested restricted shares subject to repurchase Weighted average common shares outstanding; basic Weighted average common shares outstanding; basic Plus: Weighted average options, restricted stock units and restricted shares used to compute diluted net income per common share Weighted average common shares outstanding; diluted Year Ended December 31, 2022 2021 2020 35,015 5 35,010 34,583 5 34,578 34,269 5 34,264 35,010 34,578 34,264 — 35,010 1,123 35,701 1,449 35,713 For the years ended December 31, 2021 and 2020, an aggregate of 181,000 and 79,000 shares, respectively, underlying performance-based restricted stock units ("PSUs") were not included in the computations of diluted and anti-dilutive shares as they are considered contingently issuable upon satisfaction of pre-defined performance measures and their respective performance measures had not been met. Restricted stock units ("RSUs") with an anti-dilutive effect were excluded from the calculation of weighted average number of shares used to compute diluted net income per common share and they were not material for the years ended December 31, 2021 and 2020. Because we reported a net loss for the years ended December 31, 2022, all potentially dilutive common shares are anti-dilutive for these periods and have been excluded from the calculation of net loss per share. 43 Recent Accounting Pronouncements Not Yet Adopted In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, "Revenue from Contracts with Customers," as if the acquirer had originated the contracts. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. We expect to adopt ASU 2021-08 on January 1, 2023. 3. Sales of Subsidiary Businesses Sale of WegoWise In August 2022, we completed the sale of AppFolio Utility Management, Inc., dba WegoWise ("WegoWise"), a former wholly owned subsidiary of the Company that provided cloud-based utility analytics reporting software solutions to our customers. We sold WegoWise for $5.2 million (the “WegoWise Transaction”) and recognized a pre-tax gain on the sale of $4.2 million. Net assets divested are primarily comprised of intangible assets of $2.5 million and deferred revenue of $1.7 million. The gain on the sale is included within Other income, net in our Consolidated Statements of Operations. Sale of MyCase On September 30, 2020, we completed the sale of MyCase, Inc. ("MyCase"), a former wholly owned subsidiary that provided legal practice and case management software solutions to our legal customers, for $193.0 million, consisting of $192.2 million of cash proceeds, plus a $2.2 million employee retention bonus pool funded by us, less cash divested of $0.8 million and a preliminary working capital adjustment of $0.6 million (the "MyCase Transaction"). The retention bonus pool was refundable to the Company to the extent that MyCase employees were terminated prior to the retention period, which was one year from the closing date of the MyCase Transaction. We recognized a pre-tax gain on the sale of $188.0 million on the MyCase Transaction, consisting of cash proceeds of $192.2 million, less net assets divested of $4.6 million, plus an adjustment in the employee retention bonus pool of $0.4 million. Net assets divested is primarily comprised of capitalized software of $3.9 million, deferred revenue of $2.8 million and goodwill allocated to MyCase of $2.3 million. The gain on the sale was recorded within Other income, net. Income received during the twelve months ended December 31, 2021 and 2020 in relation to the transition services provided by us to MyCase was $2.4 million, and $1.1 million respectively, and is included within Other income, net in our Consolidated Statements of Operations. 44  4. Investment Securities and Fair Value Measurements Investment Securities Investment securities classified as available-for-sale consisted of the following at December 31, 2022 and 2021 (in thousands): Corporate bonds Agency securities Treasury securities Total available-for-sale investment securities Corporate bonds Agency securities Treasury securities Total available-for-sale investment securities Amortized Cost Gross Unrealized Gains Gross Unrealized Losses December 31, 2022 17,497 $ 17,507 81,605 116,609 $ 2 $ — — 2 $ (112) $ (484) (1,557) (2,153) $ Estimated Fair Value 17,387 17,023 80,048 114,458 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses December 31, 2021 29,080 $ 19,753 77,108 125,941 $ — $ — 2 2 $ (11) $ (27) (229) (267) $ Estimated Fair Value 29,069 19,726 76,881 125,676 $ $ $ $ As of December 31, 2022, 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 December 31, 2022 or 2021. The fair values of available-for-sale investment securities, by remaining contractual maturity, are as follows (in thousands): Due in one year or less Due after one year through three years Total available-for-sale investment securities December 31, 2022 December 31, 2021 Amortized Cost Estimated Fair Value Amortized Cost $ $ 90,822 $ 25,787 116,609 $ 89,297 $ 25,161 114,458 $ 64,627 $ 61,314 125,941 $ Estimated Fair Value 64,600 61,076 125,676 During the years ended December 31, 2022 and 2021, we had sales and maturities (which include calls) of investment securities, as follows (in thousands): Corporate bonds Agency securities Treasury securities Year Ended December 31, 2022 Gross Realized Losses Gross Proceeds from Sales Gross Proceeds from Maturities (3) $ — — (3) $ 994 $ — — 994 $ 28,998 2,250 56,635 87,883 Gross Realized Gains $ — $ — — — $ $ 45 Corporate bonds Agency securities Treasury securities SecureDocs Gross Realized Gains $ — $ — 6 6 $ $ Year Ended December 31, 2021 Gross Realized Losses Gross Proceeds from Sales Gross Proceeds from Maturities — $ — — — $ — $ — 43,198 43,198 $ 39,075 11,575 56,704 107,354 In December 2021, we sold all of our interest in SecureDocs. A gain of $12.8 million was recognized within Other income, net in our Consolidated Statements of Operations, a portion of which relates to the recovery of a $2.0 million note receivable which had been previously reserved. 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 December 31, 2022 and 2021 by level within the fair value hierarchy (in thousands): Cash equivalents: Money market funds Treasury securities Available-for-sale investment securities: Corporate bonds Agency securities Treasury securities Total Cash equivalents: Money market funds Available-for-sale investment securities: Corporate bonds Agency securities Treasury securities Total December 31, 2022 Level 1 Level 2 Total Fair Value 41,973 $ 1,287 — — 80,048 123,308 $ — $ — 17,387 17,023 — 34,410 $ 41,973 1,287 17,387 17,023 80,048 157,718 December 31, 2021 Level 1 Level 2 Total Fair Value 6,105 $ — $ 6,105 — — 76,881 82,986 $ 29,069 19,726 — 48,795 $ 29,069 19,726 76,881 131,781 $ $ $ $ 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. There were no changes to our valuation techniques used to measure asset and liability fair values on a recurring basis during the year ended December 31, 2022. The valuation techniques for the financial assets in the tables above are as follows: 46 Cash Equivalents At December 31, 2022 and 2021, cash equivalents include cash invested in money market funds and treasury securities with a maturity of three months or less. Fair value is based on market prices for identical assets. Available-for-Sale Investment Securities 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. 47  5. Property and Equipment, net Property and equipment, net consists of the following (in thousands): Computer equipment Furniture and fixtures Office equipment Leasehold improvements Construction in process Gross property and equipment Less: Accumulated depreciation Total property and equipment, net December 31, 2022 2021 $ $ 5,529 $ 5,747 3,800 23,625 544 39,245 (13,135) 26,110 $ 4,884 5,167 3,285 22,679 5,227 41,242 (10,763) 30,479 Depreciation expense for property and equipment totaled $5.1 million, $4.7 million, and $4.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. During the year ended December 31, 2022, we recorded an impairment of $4.4 million related to property and equipment associated with our leased office spaces. For additional information, see Note 9, Leases. 6. Capitalized Software Development Costs, net Capitalized software development costs, net were as follows (in thousands): Capitalized software development costs, gross Less: Accumulated amortization Capitalized software development costs, net December 31, 2022 2021 $ $ 129,749 $ (94,434) 35,315 $ 115,377 (74,165) 41,212 Capitalized software development costs were $17.7 million, $27.2 million and $27.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. Amortization expense with respect to software development costs totaled $23.6 million, $21.5 million and $17.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. During the years ended December 31, 2022 and 2021, we disposed of $3.3 million and $8.8 million, respectively, of fully amortized capitalized software development costs. Future amortization expense with respect to capitalized software development costs is estimated as follows (in thousands): Years Ending December 31, 2023 2024 2025 2026 Total amortization expense $ $ 19,237 11,407 4,377 294 35,315 48  7. Intangible Assets, net and Goodwill Intangible assets, net consisted of the following (in thousands, except years): Customer relationships Database Technology Trademarks and trade names Partner relationships Non-compete agreements Domain names Patents Total intangible assets, net Customer relationships Database Technology Trademarks and trade names Partner relationships Non-compete agreements Domain names Patents Total intangible assets, net Gross Carrying Value Accumulated Amortization Net Carrying Value Weighted Average Useful Life in Years December 31, 2022 1,670 $ 4,710 6,539 1,520 680 7,340 90 252 22,801 $ (1,448) $ (1,884) (6,539) (1,211) (680) (5,872) (82) (252) (17,968) $ December 31, 2021 222 2,826 — 309 — 1,468 8 — 4,833 Gross Carrying Value Accumulated Amortization Net Carrying Value Weighted Average Useful Life in Years 2,840 $ 8,330 6,539 1,890 680 7,400 90 252 28,021 $ (2,006) $ (2,620) (5,107) (1,128) (680) (4,444) (75) (250) (16,310) $ 834 5,710 1,432 762 — 2,956 15 2 11,711 5.0 10.0 4.0 5.0 3.0 5.0 5.0 5.0 4.7 5.0 10.0 4.0 5.0 3.0 5.0 5.0 5.0 6.3 $ $ $ $ During the year ended December 31, 2022, we divested intangible assets of $2.5 million as part of the WegoWise Transaction. For additional information see Note 3, Sales of Subsidiary Businesses. Amortization expense with respect to intangible assets totaled $4.4 million, $4.6 million and $4.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. Future amortization expense with respect to intangible assets is estimated as follows (in thousands): Years Ending December 31, 2023 2024 2025 2026 2027 Thereafter Total $ $ 2,476 473 471 471 471 471 4,833 Our goodwill balance is solely attributed to acquisitions. The change in the carrying amount of goodwill during the year ended December 31, 2022 is as follows (in thousands): Goodwill at December 31, 2021 Goodwill attributed to WegoWise Transaction Goodwill at December 31, 2022 $ $ 56,147 (87) 56,060 49  8. Accrued Employee Expenses Accrued employee expenses consisted of the following (in thousands): Accrued vacation Accrued bonuses Accrued payroll and other Total accrued employee expenses 9. Leases December 31, 2022 2021 $ $ 12,067 $ 13,806 8,503 34,376 $ 10,675 13,101 6,289 30,065 Operating leases for our corporate offices have remaining lease terms ranging from five months to ten 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 Consolidated Statements of Operations were as follows (in thousands): Operating lease cost Variable lease cost Total lease cost Lease-related assets and liabilities were as follows (in thousands, except years and %): Assets Prepaid expenses and other current assets Operating lease right-of-use assets Liabilities Other current liabilities Operating lease liabilities Total lease liabilities Weighted-average remaining lease term (years) Weighted-average discount rate 50 Year Ended December 31, 2022 2021 2020 $ $ 5,403 $ 1,058 6,461 $ 5,203 $ 1,463 6,666 $ 5,272 1,443 6,715 December 31, 2022 2021 $ $ $ — 23,485 3,357 50,237 53,594 $ $ $ 4,854 41,710 1,874 55,733 57,607 9.4 3.9 % 10.3 4.0 % Future minimum lease payments under non-cancellable leases as of December 31, 2022 were as follows (in thousands): (1) Years ending December 31, 2023 2024 2025 2026 2027 Thereafter Total future minimum lease payments Less: imputed interest Total $ $ 2,615 6,351 6,837 7,035 7,239 35,042 65,119 (11,525) 53,594 (1) Future minimum lease payments for the year ending December 31, 2023 are presented net of tenant improvement allowances of $3.5 million. During the current year, we decided to exit and make available for sublease certain leased office spaces. As a result, we reassessed our asset groupings and evaluated the recoverability of our right-of-use and other lease related assets, and determined that the carrying value of the respective asset groups was not fully recoverable. We utilized discounted cash flow models to estimate the fair value of the asset groups taking into consideration the time period it will take to obtain a sublessee, the applicable discount rates and the anticipated sublease income and calculated the corresponding impairment loss. We used prices and other relevant information generated primarily by recent market transactions involving similar or comparable assets, as well as our historical experience in real estate transactions. When available, we use valuation inputs from independent valuation experts, such as real estate appraisers and brokers, to corroborate our estimates of fair value. We recorded a net impairment of $22.0 million consisting of $17.6 million related to ROU assets and $4.4 million related to property and equipment associated with our leased office spaces. These amounts were recorded within General and administrative in our Consolidated Statements of Operations. 10. Commitments and Contingencies 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 December 31, 2022 and 2021 was $2.7 million and $1.7 million, respectively, and is included in Other current liabilities on our Consolidated Balance Sheets. Included in Prepaid expenses and other current assets as of December 31, 2022 and 2021 are $4.5 million and $3.0 million, respectively, of deposits held with a third party related to requirements to maintain collateral for this risk mitigation service. Legal Proceedings From time to time we may become involved in various legal proceedings, investigative inquiries, and other disputes arising from or related to matters incident to the ordinary course of our business activities. We are not currently a party to any legal proceedings, nor are we aware of any pending or threatened legal proceedings, that we believe would have a material adverse effect on our business, operating results, cash flows or financial condition should such proceedings be resolved unfavorably. 51 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. 11. Stockholders' Equity Amended and Restated Certificate of Incorporation Upon the effectiveness of our Amended and Restated Certificate of Incorporation on June 25, 2015, the number of shares of capital stock that is authorized to be issued was increased to 325,000,000 shares, of which 250,000,000 shares are Class A common stock, 50,000,000 shares are Class B common stock and 25,000,000 are undesignated preferred stock. The Class A common stock, Class B common stock and preferred stock have a par value of $0.0001 per share. Class A Common Stock and Class B Common Stock Except for voting rights, or as otherwise required by applicable law, the shares of our Class A common stock and Class B common stock have the same powers, preferences and rights and rank equally, share ratably and are identical in all respects as to all matters. The rights and preferences are as follows: Dividend Rights. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of outstanding shares of our Class A common stock and Class B common stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our Board of Directors may determine. Voting Rights. The holders of our Class A common stock are entitled to one vote per share, and holders of our Class B common stock are entitled to 10 votes per share. The holders of our Class A common stock and Class B common stock will vote together as a single class on all matters submitted to a vote of our stockholders, unless otherwise required by Delaware law or our amended and restated certificate of incorporation. Delaware law could require either holders of our Class A common stock or holders of our Class B common stock to vote separately. In addition, our amended and restated certificate of incorporation requires the approval of the holders of at least a majority of the outstanding shares of our Class B common stock, voting as a separate class to approve a change-in-control transaction. Conversion. Each share of our Class B common stock is convertible at any time at the option of the holder into one share of our Class A common stock. In addition, each share of our Class B common stock will convert into one share of our Class A common stock upon any transfer, whether or not for value, except for certain transfers described in our amended and restated certificate of incorporation, including, without limitation, (i) a transfer by a partnership or limited liability company that was a registered holder of our Class B common stock at the “effective time,” as defined in our amended and restated certificate of incorporation, to a partner or member thereof at the effective time or (ii) a transfer to a “qualified recipient,” as defined in our amended and restated certificate of incorporation. All the outstanding shares of our Class B common stock will convert automatically into shares of our Class A common stock upon the date when the number of outstanding shares of our Class B common stock represents less than 10% of all outstanding shares of our Class A common stock and Class B common stock. Once converted into our Class A common stock, our Class B common stock may not be reissued. Right to Receive Liquidation Distributions. Upon our dissolution, liquidation or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the holders of our Class A common stock and Class B common stock, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of preferred stock. 52 Preferred Stock Our Board of Directors is authorized, subject to limitations prescribed by Delaware law, to issue up to 25,000,000 shares of our preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further action by our stockholders. The number of authorized shares of any series of preferred stock may be increased or decreased, but not below the number of shares of that series then outstanding, by the affirmative vote of the holders of a majority of the voting power of our outstanding capital stock entitled to vote thereon, or such other vote as may be required by the certificate of designation establishing the series. Share Repurchase Program On February 20, 2019, our Board of Directors authorized a $100.0 million share repurchase program (the "Share Repurchase Program") relating to our outstanding shares of Class A common stock. Under the Share Repurchase Program, share repurchases may be made from time to time, as directed by a committee consisting of three directors, in open market purchases or in privately negotiated transactions at a repurchase price that the members of the committee unanimously believe is below intrinsic value conservatively determined. The Share Repurchase Program does not obligate us to repurchase any specific dollar amount or number of shares, there is no expiration date for the Share Repurchase Program, which may be modified, suspended or terminated at any time and for any reason. During the year ended December 31, 2020, we repurchased a total of 48,002 shares of our Class A common stock through open market repurchases, and recorded a $4.2 million reduction to stockholders' equity, which includes broker commissions. We have not made any other repurchases under the Share Repurchase Program. 12. Stock-Based Compensation We currently have two stock incentive plans, our 2007 Stock Incentive Plan (the "2007 Plan") and the 2015 Stock Incentive Plan (the "2015 Plan"). The 2007 Plan expired on February 14, 2017, however it will continue to govern outstanding awards granted under the 2007 Plan. Under the 2015 Plan, 2,000,000 shares of our Class A common stock were reserved and available for grant and issuance. On January 1 of each subsequent calendar year, the number of shares available for grant and issuance under the 2015 Plan increase by the lesser of (i) the number of shares of our Class A common stock subject to awards granted under the 2015 Plan during the preceding calendar year and (ii) such lesser number of shares of our Class A common stock determined by our Board of Directors. At December 31, 2022, we have reserved an aggregate of 4,450,726 shares of our Class A common stock for grant and issuance under the 2015 Plan. The number of shares of our Class A common stock is also subject to adjustment in the event of a recapitalization, stock split, reclassification, stock dividend or other change in our capitalization. The 2015 Plan authorizes the award of stock options, stock appreciation rights, RSAs, RSUs, performance awards and stock bonuses. The 2015 Plan provides for the grant of awards to our employees, directors, consultants and independent contractors, subject to certain exceptions. RSUs, PSUs, and RSAs have been issued during 2022 pursuant to the 2015 Plan. RSUs and PSUs represent the right on the part of the holder to receive shares of our Class A common stock at a specified date in the future or the achievement of performance conditions at the discretion of our compensation committee, subject to forfeiture of that right due to termination of employment. If an RSU or PSU has not been forfeited, then, on the specified date, we will deliver to the holder of the RSU or PSU shares of our Class A common stock. 53 Stock Options A summary of activity in connection with our stock options for the year ended December 31, 2022 is as follows (number of shares in thousands): Options outstanding as of December 31, 2021 Options exercised Options outstanding as of December 31, 2022 At December 31, 2022: Options vested and expected to vest Options exercisable Number of Shares Weighted Average Exercise Price per Share 13.15 13.56 Weighted Average Remaining Contractual Life in Years 3.0 846 $ (330) 516 $ 516 $ 516 $ 12.90 12.90 12.90 2.7 2.7 2.7 Our stock-based compensation expense for stock options were not material for the periods presented. No stock options were granted during the years ended December 31, 2022, 2021 or 2020. The total intrinsic value of options exercised in 2022, 2021 and 2020 was $31.1 million, $39.1 million, and $17.9 million, respectively. This intrinsic value represents the difference between the fair value of our common stock on the date of exercise and the exercise price of each option. Based on the fair value of our common stock at December 31, 2022, the total intrinsic value of all outstanding options, exercisable options, and options vested and expected to vest was $47.7 million. Restricted Stock Units A summary of activity in connection with our RSUs for the year ended December 31, 2022 is as follows (number of shares in thousands): Unvested as of December 31, 2021 Granted Vested Forfeited Unvested as of December 31, 2022 Number of Shares Weighted Average Grant Date Fair Value per Share 837 $ 726 (252) (149) 1,162 $ 118.27 110.61 111.03 104.09 116.88 Unvested RSUs as of December 31, 2022 were composed of 1.0 million RSUs with only service conditions and 0.2 million PSUs with both service conditions and performance conditions. RSUs granted with only service conditions generally vest over a four-year period. The number of PSUs granted, as included in the above table, assumes achievement of the performance metric at 100% of the performance target. Of the unvested PSUs as of December 31, 2022, 0.1 million are subject to vesting based on the achievement of pre-established performance metrics for the year ending December 31, 2022 and will vest over a three year period, assuming continued employment throughout the performance period. The actual number of shares to be issued at the end of the performance period will range from 0% to 150% of the target number of shares depending on achievement relative to the performance metric over the applicable period. The remaining 0.1 million PSUs unvested as of December 31, 2022 are subject to vesting based on the achievement of pre-established performance metrics for the years ending December 31, 2022 and 2023, assuming continued employment throughout the performance period. The actual number of shares to be issued at the end of the performance period will range from 0% to 100% of the initial target awards. Achievement of the performance metric between 100% and 150% of the performance target will result in a performance-based cash bonus payment between 0% and 65% of the initial target awards. 54 We recognized stock-based compensation expense for the RSUs and PSUs of $43.3 million, $17.3 million and $10.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. Excluded from stock-based compensation expense is capitalized software development costs of $3.0 million, $2.7 million, and $2.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, the total estimated remaining stock-based compensation expense for the aforementioned RSUs and PSUs was $100.1 million, which is expected to be recognized over a weighted average period of 2.6 years. The total fair value of RSUs and PSUs vested during the years ended December 31, 2022, 2021 and 2020 was approximately $27.5 million, $26.6 million and $32.0 million, respectively. Restricted Stock Awards A summary of activity in connection with our RSAs for the year ended December 31, 2022 is as follows (number of shares in thousands): Unvested as of December 31, 2021 Granted Vested Unvested as of December 31, 2022 Number of Shares Weighted- Average Grant Date Fair Value per Share 4 $ 6 (4) 6 $ 144.33 96.33 144.33 96.33 We have the right to repurchase any unvested RSAs subject to certain conditions. Restricted stock awards vest over a one-year period. Our stock- based compensation expense for RSAs was not material for the periods presented. As of December 31, 2022, the total estimated remaining stock-based compensation expense for unvested restricted stock awards with a repurchase right was $0.3 million, which is expected to be recognized over a weighted average period of 0.5 years. 13. Income Taxes The effective tax rate as compared to the U.S. federal statutory rate of 21% differs primarily due to change in valuation allowance against deferred taxes and non-deductible expenses, partially offset by state income taxes and tax benefits associated with stock-based compensation expense and research and development tax credits. Set forth below is a reconciliation of the components that caused our provision for income taxes to differ from amounts computed by applying the United States federal statutory rate: U.S. federal statutory income tax rate State and local income taxes, net of federal benefit Stock-based compensation expense Non-deductible officers' compensation Meals and entertainment Change in valuation allowance Other permanent differences Research and development tax credits Provision for income taxes 55 Year Ended December 31, 2022 2021 2020 21 % 9 7 (6) — (37) (1) 5 (2)% 21 % (214) (426) 47 3 795 20 (205) 41 % 21 % 3 (3) — — — 1 (2) 20 % The provision for income tax consists of the following (in thousands): Current Federal State and local Total current Deferred Federal State and local Total deferred Total income tax provision The components of deferred tax assets (liabilities) were as follows (in thousands): Deferred income tax assets: Net operating loss carryforwards Research and development tax credits Capitalized research and software costs Stock-based compensation Lease liability Other Total deferred tax assets Valuation allowance Deferred tax assets, net of valuation allowance Deferred tax liabilities: Capitalized research and software costs Property and equipment Intangible assets Capitalized commissions Lease asset Other Total deferred tax liabilities Total net deferred tax liabilities Year Ended December 31, 2022 2021 2020 $ $ 1,313 $ 686 1,999 (854) 257 (597) 1,402 $ 20 $ 346 366 (10,966) 11,306 340 706 $ 3,982 5,444 9,426 27,982 1,020 29,002 38,428 December 31, 2022 2021 $ 5,802 $ 18,558 14,706 5,105 14,260 3,614 62,045 (43,776) 18,269 — (4,914) (940) (4,217) (6,249) (2,634) (18,954) $ (685) $ 10,849 15,966 — 3,965 13,983 2,853 47,616 (17,217) 30,399 (9,972) (5,024) (1,558) (3,296) (11,056) (1,171) (32,077) (1,678) At December 31, 2022, we had state net operating loss carryforwards $66.0 million. The state net operating losses will begin to expire in 2028. At December 31, 2022, we also had federal and state research and development credit carryforwards of $8.7 million and $19.3 million, respectively. The federal credit carryforwards will begin to expire in 2040, while the state credit carryforwards apply indefinitely. Utilization of our net operating loss and credit carryforwards may be subject to annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. We have undertaken an analysis and have determined that there are no limitations on the tax attributes at December 31, 2022. 56 The change in the valuation allowance are as follows (in thousands): Valuation allowance, at beginning of year Increase in valuation allowance Valuation allowance, at end of year Year Ended December 31, 2022 2021 2020 $ $ 17,217 $ 26,559 43,776 $ — $ 17,217 17,217 $ — — — The following is a reconciliation of the total amounts of reserves for unrecognized tax benefits from uncertain tax positions (in thousands): Unrecognized tax benefit beginning of year Increases-tax positions in current year Unrecognized tax benefit end of year Year Ended December 31, 2022 2021 2020 $ $ 7,816 $ 1,639 9,455 $ 6,141 $ 1,675 7,816 $ 4,421 1,720 6,141 The unrecognized tax benefits are recorded as a reduction to the deferred tax assets and liabilities. At December 31, 2022 and 2021, we had no accrued interest and penalties related to uncertain income tax positions. We do not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. We are subject to taxation in the United States and various states. Due to the net operating loss carryforwards, our federal and state returns are open to examination by the Internal Revenue Service and state jurisdictions for all years since inception. 14. Revenue and Other Information The following table presents our revenue categories (in thousands): Core solutions Value Added Services Other Total revenue Year Ended December 31, 2022 2021 2020 $ $ 132,541 $ 327,636 11,706 471,883 $ 105,148 $ 241,289 12,933 359,370 $ 100,938 195,146 13,972 310,056 Our revenue is generated primarily from United States customers. All of our property and equipment is located in the United States. 15. Retirement Plans We have a 401(k) retirement and savings plan made available to all employees. We may, at our discretion, make matching contributions to the 401(k) plan. Cash contributions to the plan were $5.9 million, $4.0 million, and $3.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 57 ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the supervision and participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures at December 31, 2022, the last day of the period covered by this Annual Report. Disclosure controls and procedures include, without limitation, controls and other procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to its management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on our management's evaluation, our principal executive officer and principal financial officer have concluded that, at December 31, 2022, our disclosure controls and procedures were effective at the reasonable assurance level. Management's Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As of December 31, 2022, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth in the Internal Control – Integrated Framework (2013) as issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on our evaluation under the COSO criteria, our management concluded that our internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2022. The effectiveness of our internal control over financial reporting has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their audit report which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting at December 31, 2022. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13(a)-15(d) and 15d-15(d) under the Exchange Act that occurred during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION On February 8, 2023, the Company entered into an employment agreement (the “Employment Agreement”) with William Shane Trigg, the Company’s President and General Manager, Real Estate. Pursuant to the Employment Agreement, Mr. Trigg is entitled to receive (a) an annual base salary paid in accordance with the Company's regular payroll practices, (b) an annual cash bonus award, with a target set annually by the Board of Directors, (c) a performance-based restricted stock unit award, which award will vest if applicable performance conditions are achieved over a performance period of up to three years, and (d) a time-based restricted stock unit award, which award will vest consistent with the Company’s standard time-vesting schedule. In the event the Company terminates Mr. Trigg’s employment without “cause” or he resigns for “good reason,” he will be entitled to (i) twelve months of base salary continuation, (ii) a prorated cash bonus award for the year of termination, (iii) payment of COBRA premiums for twelve months, and (iv) payment of any earned but unpaid cash bonus awards. The foregoing description of the Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Employment Agreement, a copy of which is filed as an exhibit to this Annual Report. ITEM 9C. DISCLOSURES REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS Not applicable. PART III 58 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this item will be included in our definitive Proxy Statement or an amendment to this Annual Report, which will be filed with the SEC not later than 120 days after the end of our fiscal year ended December 31, 2022, and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be included in our definitive Proxy Statement or an amendment to this Annual Report, which will be filed with the SEC not later than 120 days after the end of our fiscal year ended December 31, 2022, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item will be included in our definitive Proxy Statement or an amendment to this Annual Report, which will be filed with the SEC not later than 120 days after the end of our fiscal year ended December 31, 2022, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item will be included in our definitive Proxy Statement or an amendment to this Annual Report, which will be filed with the SEC not later than 120 days after the end of our fiscal year ended December 31, 2022, and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item will be included in our definitive Proxy Statement or an amendment to this Annual Report, which will be filed with the SEC not later than 120 days after the end of our fiscal year ended December 31, 2022, and is incorporated herein by reference. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES The following documents are filed as part of this Annual Report: 1. Consolidated Financial Statements Our consolidated financial statements are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8, of this Annual Report. 2. Financial Statement Schedules All financial statement schedules have been omitted because they are not required or are not applicable, or the required information is shown in our Consolidated Financial Statements or the notes thereto. 3. Exhibits The documents listed in the Exhibit Index of this Annual Report are filed or furnished with, or incorporated by reference into, this Annual Report, in each case as indicated therein. 59 EXHIBIT INDEX Incorporated by Reference Exhibit Description Amended and Restated Certificate of Incorporation of the registrant as currently in effect. Amended and Restated Bylaws of the registrant as currently in effect. Specimen Certificate for Class A Common Stock. Amended and Restated Investor Rights Agreement, by and among the registrant and the investors named therein, dated November 26, 2013. Description of Capital Stock of the registrant. Industrial Lease, by and between the registrant and 50 Castilian Drive, LLC, effective December 6, 2019 (50 Castilian Drive, Goleta, CA 93117). Industrial Lease, by and between the registrant and 50 Castilian Drive, LLC, effective December 6, 2019 (70 Castilian Drive, Goleta, CA 93117). Industrial Lease, by and between the registrant and 50 Castilian Drive, LLC, effective December 6, 2019 (90 Castilian Drive, Goleta, CA 93117). First Amendment to Industrial Lease, by and between the registrant and 50 Castilian Drive, LLC, effective February 10, 2022 (50 Castilian Drive, Goleta, CA 93117). First Amendment to Industrial Lease, by and between the registrant and 50 Castilian Drive, LLC, effective February 10, 2022 (70 Castilian Drive, Goleta, CA 93117). First Amendment to Industrial Lease, by and between the registrant and 50 Castilian Drive, LLC, effective February 10, 2022 (90 Castilian Drive, Goleta, CA 93117). Umbrella Termination Agreement, by and between the registrant and Castilian 90, LLC, Castilian 70, LLC and Castilian 50, LLC, effective February 10, 2022. Employment agreement between the Company and Jason Randall. 2007 Stock Incentive Plan, as amended, and related form agreements. 2015 Stock Incentive Plan and related form agreements. 2015 Employee Stock Purchase Plan. Long-Term Cash Incentive Plan. Form of Long-Term Cash Incentive Award Offer. Form of Indemnification Agreement by and between the registrant and certain of its senior employees and directors. Employment agreement between the Company and Fay Sien Goon. Form 10-Q File No. 001-37468 Exhibit 3.1 Filing Date 8/6/2015 10-Q 001-37468 S-1/A S-1/A 10-K 8-K 333-204262 333-204262 001-37468 001-37468 3.1 4.1 4.2 4.3 10.1 8/3/2020 6/4/2015 6/4/2015 3/2/2020 12/11/2019 8-K 001-37468 10.2 12/11/2019 8-K 001-37468 10.3 12/11/2019 10-K 001-37468 10.4 2/28/2022 10-K 001-37468 10.5 2/28/2022 10-K 001-37468 10.6 2/28/2022 10-K 001-37468 10.7 2/28/2022 10-Q 001-37468 S-1/A 333-204262 S-1/A S-1/A 10-K 10-K 333-204262 333-204262 001-37468 001-37468 10.1 10.3 10.4 10.5 10.9 10.1 7/28/2022 6/4/2015 6/4/2015 6/4/2015 2/26/2018 2/26/2018 10-Q 001-37468 10.1 11/8/2021 Exhibit Number 3.1 3.1 4.1 4.2 4.3 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8# 10.9# 10.10# 10.11# 10.12# 10.13# 10.14 10.15# Filed Herewith X Exhibit Number 10.16# 10.17# 10.18# 10.19# 10.20# 10.21# 21.1 23.1 24.1 31.1 31.2 32.1* 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE 104 Exhibit Description Form of Restricted Stock Unit Award Agreement (New Hire) under 2015 Stock Incentive Plan. Form of Restricted Stock Unit Award Agreement (Refresh) under 2015 Stock Incentive Plan. Form of Restricted Stock Unit Award Agreement (PSU) under 2015 Stock Incentive Plan. Nonemployee Director Deferred Compensation Plan. Related form of Deferral Election under Nonemployee Director Deferred Compensation Plan. Employment agreement between the Company and William Shane Trigg. Subsidiaries of the registrant. Consent of independent registered public accounting firm. Power of Attorney (included on the signature page of this report). Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended. Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended. Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. XBRL Taxonomy Extension Schema Document. XBRL Taxonomy Extension Calculation Linkbase Document. XBRL Taxonomy Extension Definition Linkbase Document. XBRL Taxonomy Extension Label Linkbase Document. XBRL Taxonomy Extension Presentation Linkbase Document. Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Incorporated by Reference File No. 001-37468 001-37468 001-37468 001-37468 001-37468 Exhibit 10.16 Filing Date 2/28/2022 10.17 10.18 10.19 10.20 2/28/2022 2/28/2022 2/28/2022 2/28/2022 Form 10-K 10-K 10-K 10-K 10-K Filed Herewith X X X X X X X X X X X X X # * Indicates a management contract or compensatory plan or arrangement The certifications attached as Exhibit 32.1 accompany this Annual Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in any such filing. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized. SIGNATURES Date: February 9, 2023 Date: February 9, 2023 AppFolio, Inc. By: /s/ Jason Randall Jason Randall Chief Executive Officer (Principal Executive Officer) By: /s/ Fay Sien Goon Fay Sien Goon Chief Financial Officer (Principal Financial and Accounting Officer) SIGNATURE /s/ Jason Randall Jason Randall /s/ Fay Sien Goon Fay Sien Goon /s/ Andreas von Blottnitz Andreas von Blottnitz /s/ Timothy Bliss Timothy Bliss /s/ Agnes Bundy Scanlan Agnes Bundy Scanlan /s/ Janet Kerr Janet Kerr /s/ Klaus Schauser Klaus Schauser /s/ Winifred Webb Winifred Webb /s/ Alexander Wolf Alexander Wolf TITLE DATE President, Chief Executive Officer and Director (Principal Executive Officer) February 9, 2023 Chief Financial Officer (Principal Financial and Accounting Officer) February 9, 2023 Chairman of the Board February 9, 2023 Director Director Director Director Director Director February 9, 2023 February 9, 2023 February 9, 2023 February 9, 2023 February 9, 2023 February 9, 2023 Each of the individuals identified below is a party to an indemnification agreement with AppFolio, Inc. in the form attached herewith as Exhibit 10.14. LIST OF INDEMNITEES EXHIBIT 10.14 Name Jon Walker Timothy Bliss Andreas von Blottnitz Klaus Schauser Janet Kerr Jason Randall Winifred Webb Agnes Bundy Scanlan William Shane Trigg Fay Sien Goon Alex Wolf Nailya Dovletova Brian Hershokowitz Amy Meyer Luca Caporicci Evan Pickering Matthew Mazza Ronnie Lin Jay Choi -1- Date Signed December 12, 2022 December 4, 2022 November 17, 2022 November 18, 2022 December 7, 2022 November 18, 2022 November 17, 2022 November 30, 2022 November 19, 2022 November 16, 2022 December 5, 2022 November 18, 2022 November 19, 2022 November 23, 2022 November 16, 2022 November 16, 2022 November 16, 2022 December 12, 2022 November 21, 2022 This Indemnification Agreement (this “Agreement”), dated ________, 2022, is by and between AppFolio, Inc., a Delaware corporation (the “Company”), and _________________________________ (“Indemnitee”). This Agreement supersedes and replaces any and all previous Agreements between the Company and Indemnitee covering the subject matter of this Agreement. INDEMNIFICATION AGREEMENT A. Indemnitee is a director or an officer of the Company. RECITALS B. The board of directors of the Company (the “Board”) has determined that enhancing the ability of the Company to retain and attract as directors and officers the most capable persons is in the best interests of the Company and that the Company therefore should seek to assure such persons that indemnification is available. C. In recognition of the need to provide Indemnitee with substantial protection against personal liability, in order to procure Indemnitee’s service or continued service as a director or officer of the Company and to enhance Indemnitee’s ability to serve the Company in an effective manner, and in order to provide such protection pursuant to express contract rights (intended to be enforceable irrespective of, among other things, any amendment to the Company’s certificate of incorporation or bylaws (collectively, the “Constituent Documents”), any change in the composition of the Board or any change in control or business combination transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of, and the advancement of Expenses (as defined in Section 2 below) to, Indemnitee as set forth in this Agreement and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies. NOW, THEREFORE, in consideration of the foregoing and the Indemnitee’s agreement to serve or continue to provide services to the Company, the parties hereby agree as follows: 1. Services to the Company. Indemnitee agrees to serve or continue to serve as a director or officer of the Company for so long as Indemnitee is duly elected or appointed, until Indemnitee tenders Indemnitee’s resignation or until Indemnitee is terminated by the Company, as applicable. This Agreement shall not be deemed an employment agreement between the Company (or any of its subsidiaries or another Enterprise) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee’s service to the Company or any of its subsidiaries or another Enterprise (as defined in Section 2 below) is at will and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment agreement between Indemnitee and the Company (or any of its subsidiaries or another Enterprise), other applicable formal severance policies duly adopted by the Board or, with respect to service as a director or officer of the Company, by the Company’s Constituent Documents or Delaware law. This Agreement shall continue in force after Indemnitee has ceased to serve as a director or officer of the Company or, at the request of the Company, of any of its subsidiaries or Enterprise (as defined in Section 2 below). 2. Definitions. For purposes of this Agreement, the following terms shall have the following meanings: (a) (b) Act. “Agreement” shall have the meaning ascribed to it in the prefatory language above. “Beneficial Owner” has the meaning given to the term “beneficial owner” in Rule 13d-3 under the Exchange -2- (c) (d) (e) “Board” shall have the meaning ascribed to it in the Recitals above. “Business Combination” means a reorganization, a merger or a consolidation. “Change in Control” means the occurrence after the date of this Agreement of any of the following events: Acquisition of Stock by Third Party. Any Person (as defined below) becomes hereafter the Beneficial Owner, directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the Company’s Voting Securities, unless the change in the relative Beneficial Ownership of the Company’s securities by any Person results solely from a reduction in the aggregate number of outstanding Voting Securities; (i) (ii) Corporate Transactions. The consummation of a Business Combination, unless immediately following such Business Combination, (1) the Beneficial Owners of the Voting Securities of the Company immediately prior to such transaction beneficially own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the outstanding Voting Securities of the entity resulting from such transaction, (2) no Person (excluding any corporation resulting from such Business Combination) is the Beneficial Owner, directly or indirectly, of twenty percent (20%) or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation except to the extent that such ownership existed prior to the Business Combination and (3) at least a majority of the Board of Directors of the corporation resulting from such Business Combination were Continuing Directors (as defined below), at the time of the execution of the initial agreement or of the action of the Board, providing for such Business Combination; majority of the members of the Board; or (iii) Change in Board of Directors. The Continuing Directors cease for any reason to constitute at least a (iv) Liquidation. The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets (or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale, or disposition in one transaction or a series of related transactions). (f) “Claim” means: any threatened, pending or completed action, suit, claim, counterclaim, crossclaim, demand, proceeding, arbitration, mediation, alternative dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Corporation or otherwise and whether civil, criminal, administrative, arbitrative, investigative (formal or informal), legislative, regulatory or other, including any appeal therefrom, and whether made pursuant to federal, state or other law. Any situation that the Indemnitee determines in good faith might lead to the institution of a Claim shall be considered a Claim under this Agreement. (g) (h) “Company” shall have the meaning ascribed to it in the prefatory language above. “Constituent Documents” shall have the meaning ascribed to it in the Recitals above. -3- (i) “Continuing Directors” means, during a period of two consecutive years, not including any period prior to the execution of this Agreement, the individuals collectively who at the beginning of such period constituted the Board (including for this purpose any new directors whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved). (j) (k) “Delaware Court” means the Court of Chancery of the State of Delaware. “Disinterested Director” means a director of the Company who is not and was not a party to the Claim in respect of which indemnification is sought by Indemnitee. (l) (m) (n) “Enterprise” means, any corporation, limited liability company, partnership, joint venture, trust or other entity. “Exchange Act” means the Securities Exchange Act of 1934, as amended. “Expense Advance” means any payment of Expenses advanced to Indemnitee by the Company pursuant to Section 4 or Section 5 hereof. (o) “Expenses” means any and all reasonable attorneys’ fees and retainers, experts’ and other professionals’ fees, witness fees, court costs, transcript costs, travel expenses, duplicating, printing and binding costs, telephone charges, postage, delivery service fees and all other costs and expenses of the types customarily incurred in connection with, or as a result of, investigating, prosecuting, defending, being a witness or deponent in or otherwise participating in (including on appeal), or preparing to prosecute or defend, be a witness or deponent or otherwise participate in, any Claim. Expenses also shall include (i) Expenses incurred in connection with any appeal resulting from any Claim, including without limitation the premium, security for, and other costs relating to any cost bond, supersedes bond, or other appeal bond or its equivalent, (ii) Expenses incurred in connection with recovery under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee is ultimately determined to be entitled to such indemnification, advancement or Expenses or insurance recovery, as the case may be and (iii) for purposes of Section 5 only, Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee. (p) “Indemnifiable Event” means any event or occurrence, whether occurring before, on or after the date of this Agreement, related to the fact that Indemnitee is or was a director, officer, employee or agent of the Company or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, member, manager, trustee or agent of another Enterprise or by reason of an action or inaction by Indemnitee in any such capacity (whether or not serving in such capacity at the time any Loss (as defined below) is incurred for which indemnification can be provided under this Agreement). (q) “Indemnitee” shall have the meaning ascribed to it in the prefatory language above. (r) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporate law and neither presently performs, nor in the past five (5) years has performed, services for either: (i) the Company or Indemnitee (other than in connection with matters concerning other indemnitees under similar agreements) or (ii) any other party to the Claim giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of -4- professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. (s) “Losses” means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties (whether civil, criminal or other), ERISA excise taxes, amounts paid or payable in settlement, including any interest, assessments, any federal, state, local or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement and all other charges paid or payable in connection with investigating, prosecuting, defending, being a witness or deponent in or otherwise participating in (including on appeal), or preparing to prosecute, defend, be a witness or deponent or otherwise participate in, any Claim. (t) (u) “Notification Date” shall have the meaning ascribed to it in Section 10(c) below. “Other Indemnity Provisions” shall have the meaning ascribed to it in Section 14 below. “Person” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity and includes the meaning set forth in Sections 13(d) and 14(d) of the Exchange Act. (v) (w) (x) “Standard of Conduct Determination” shall have the meaning ascribed to it in Section 10(b) below. “Voting Securities” means any securities of the Company that vote generally in the election of directors. 3. Indemnification. Subject to the terms of this Agreement, the Company shall indemnify Indemnitee, to the fullest extent permitted by law, against any and all Losses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with a Claim if Indemnitee was or is or becomes a party to or participant in, or is threatened to be made a party to or participant in, any Claim by reason of or arising in part out of an Indemnifiable Event, including, without limitation, Claims brought by or in the right of the Company, Claims brought by third parties, and Claims in which the Indemnitee is solely a witness or deponent. The parties hereto intend that this Agreement shall provide to the fullest extent permitted by law for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Constituent Documents, vote of the Company’s stockholders or disinterested directors or applicable law. 4. Advancement of Expenses. Indemnitee shall have the right to advancement of expenses, to the fullest extent permitted by law, by the Company, prior to the final disposition of any Claim by final adjudication to which there are no further rights of appeal, of any and all Expenses actually and reasonably paid or incurred by Indemnitee in connection with any Claim arising out of an Indemnifiable Event. Indemnitee’s right to such advancement is not subject to the satisfaction of any standard of conduct. Without limiting the generality or effect of the foregoing, within twenty (20) calendar days after any receipt by the Company of a statement or statements requesting such advances from Indemnitee, the Company shall, in accordance with such request, (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses. In connection with any request for Expense Advances, Indemnitee shall not be required to provide any documentation or information to the extent that the provision thereof would undermine or otherwise jeopardize attorney-client privilege. Execution and delivery to the Company of this Agreement by Indemnitee constitutes an undertaking by the Indemnitee, pursuant to which Indemnitee hereby agrees, to repay any amounts paid, advanced or reimbursed by the Company pursuant to this Section 4 in respect of Expenses relating to, arising out of or resulting from any Claim in respect of which it shall be determined, -5- pursuant to Section 10, following the final disposition of such Claim, that Indemnitee is not entitled to indemnification hereunder. No other form of undertaking shall be required other than the execution of this Agreement. Indemnitee’s obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon. 5. Indemnification for Expenses in Enforcing Rights. To the fullest extent allowable under applicable law, the Company shall also indemnify against, and, if requested by Indemnitee, shall advance to Indemnitee (within ten days after receipt by the Company of a written request therefor) subject to and in accordance with Section 4, any Expenses actually and reasonably paid or incurred by Indemnitee in connection with any action or proceeding by Indemnitee for (a) indemnification or reimbursement or advance payment of Expenses by the Company under any provision of this Agreement, or under any other agreement or provision of the Constituent Documents now or hereafter in effect relating to Claims relating to Indemnifiable Events, and/or (b) recovery under any directors’ and officers’ liability insurance policies maintained by the Company. However, in the event that Indemnitee is ultimately determined not to be entitled to such indemnification or insurance recovery, as the case may be, then all amounts advanced under this Section 5 shall be repaid. 6. Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of any Losses in respect of a Claim related to an Indemnifiable Event but not for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. 7. Contribution in the Event of Joint Liability. To the fullest extent permissible under applicable law, if the indemnification and hold harmless rights provided for in this Agreement are unavailable to Indemnitee in whole or in part for any reason whatsoever, the Company, in lieu of indemnifying and holding harmless Indemnitee, shall contribute to the amount incurred by Indemnitee the entire amount incurred by Indemnitee, whether for judgments, liabilities, fines, penalties, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Claim relating to an Indemnifiable Event, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Indemnifiable Event in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees, trustees, fiduciaries and agents) and Indemnitee in connection with such event(s) and/or transaction(s). 8. Notification and Defense of Claims. (a) Notification of Claims. Indemnitee shall notify the Company in writing of any Claim which could relate to an Indemnifiable Event or for which Indemnitee could seek Expense Advances as soon as practicable following receipt by Indemnitee of written notice thereof. The written notification to the Company shall include a brief description (based upon information then available to Indemnitee) of the nature of, and the facts underlying, such Claim. The failure by Indemnitee to timely notify the Company hereunder shall not relieve the Company from any liability hereunder other than to the extent the Company’s ability to participate in the defense of such claim was materially and adversely prejudiced by such failure. (b) Defense of Claims. The Company shall be entitled to participate in the defense of any Claim relating to an Indemnifiable Event at its own expense and, except as otherwise provided below, to the extent the Company so wishes, it may assume the defense thereof with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense of any such Claim, the Company shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently directly incurred by Indemnitee in connection with Indemnitee’s defense of such Claim other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ its own legal counsel in such -6- Claim, but all Expenses related to such counsel incurred after notice from the Company of its assumption of the defense shall be at Indemnitee’s own expense; provided, however, that if (i) Indemnitee’s employment of its own legal counsel has been authorized by the Company, (ii) Indemnitee’s counsel has reasonably determined that there may be a conflict of interest between Indemnitee and the Company in the defense of such Claim, (iii) after a Change in Control, Indemnitee’s employment of its own counsel has been approved by the Independent Counsel or (iv) the Company shall not in fact have employed counsel to assume the defense of such Claim, then Indemnitee shall be entitled to retain its own separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any such Claim) and all Expenses related to such separate counsel shall be borne by the Company. 9. Procedure Upon Application for Indemnification. In order to obtain indemnification pursuant to this Agreement, Indemnitee shall submit to the Company a written request therefor, including in such request such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of the Claim. Indemnification shall be made insofar as the Company determines Indemnitee is entitled to indemnification in accordance with Section 10 below. -7- 10. Determination of Right to Indemnification. (a) Mandatory Indemnification; Indemnification as a Witness. (i) Mandatory Indemnification. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee shall have been successful on the merits or otherwise in defense of any Claim relating to an Indemnifiable Event or in defense of any issue or matter therein, in whole or in part, including without limitation the termination of any Claim by dismissal with or without prejudice, Indemnitee shall be indemnified against all Losses relating to such successfully resolved Claim or such successfully resolved issue or matter therein, as applicable, to the fullest extent allowable by law. (ii) Indemnification as a Witness. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee’s involvement in a Claim relating to an Indemnifiable Event is to prepare to serve and serve as a witness, is or was made (or asked to respond to discovery requests) or is otherwise asked to participate in a Claim, in each case, to which Indemnitee is not a party, the Indemnitee shall be indemnified against all Losses actually and reasonably incurred in connection therewith to the fullest extent allowable by law. (b) Standard of Conduct. To the extent that the provisions of Section 10(a) are inapplicable to a Claim related to an Indemnifiable Event that shall have been finally disposed of, any determination of whether Indemnitee has satisfied any applicable standard of conduct under Delaware law that is a legally required condition to indemnification of Indemnitee hereunder against Losses relating to such Claim and any determination that Expense Advances must be repaid to the Company (a “Standard of Conduct Determination”) shall be made as follows: (i) if no Change in Control has occurred, (A) by a majority vote of the Disinterested Directors, even if less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum (C) if there are no such Disinterested Directors or if such Disinterested Directors so direct, by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Board, by the stockholders of the Company; and if a Change in Control shall have occurred, (A) if the Indemnitee so requests in writing, by a majority vote of the Disinterested Directors, even if less than a quorum of the Board or (B) otherwise, by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee. (ii) The Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee in writing, shall reimburse Indemnitee for, or advance to Indemnitee, within twenty (20) calendar days of such request, any and all Expenses actually and reasonably incurred by Indemnitee in cooperating with the Person or Persons making such Standard of Conduct Determination (irrespective of the determination as to Indemnitee’s entitlement to indemnification). The Company promptly will advise Indemnitee in writing with respect to any determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has been denied. (c) Making the Standard of Conduct Determination. The Company shall use its reasonable best efforts to cause any Standard of Conduct Determination required under Section 10(b) to be made as promptly as practicable. Subject to the last sentence of this Section 10(c), if the Person or Persons designated to make the Standard of Conduct Determination under Section 10(b) shall not have made a determination within thirty (30) calendar days after the later of (A) receipt by the Company of a written request from Indemnitee for indemnification pursuant to Section 9 (the date of such receipt being the “Notification Date”) and (B) the selection of an Independent Counsel, if such -8- determination is to be made by Independent Counsel, then Indemnitee shall be deemed to have satisfied the applicable standard of conduct, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a final judicial determination that any or all such indemnification is expressly prohibited under applicable law; provided, however, that such thirty (30) calendar day period may be extended for a reasonable time, not to exceed an additional fifteen (15) calendar days, if the Person or Persons making such determination in good faith requires such additional time to obtain or evaluate information relating thereto and provided, further, that the foregoing provisions of this Section 10(c) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 10(b)(i) of this Agreement and if (i) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (ii) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat. Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement of Indemnitee to indemnification under this Agreement shall be required to be made prior to the final disposition of any Claim. (d) Payment of Indemnification. If, in regard to any Losses: (i) (ii) Indemnitee hereunder; or Indemnitee shall be entitled to indemnification pursuant to Section 10(a); no Standard of Conduct Determination is legally required as a condition to indemnification of the Standard of Conduct Determination, (iii) Indemnitee has been determined or deemed pursuant to Section 10(b) or Section 10(c) to have satisfied then the Company shall pay to Indemnitee, within twenty (20) calendar days after the later of (A) the Notification Date or (B) the earliest date on which the applicable criterion specified in clause (i), (ii) or (iii) is satisfied, an amount equal to the Losses to which such Indemnitee is entitled. (e) Selection of Independent Counsel for Standard of Conduct Determination. If a Standard of Conduct Determination is to be made by Independent Counsel pursuant to Section 10(b)(i), the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising Indemnitee of the identity of the Independent Counsel so selected. If a Standard of Conduct Determination is to be made by the Independent Counsel pursuant to Section 10(b)(ii), the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either case, Indemnitee or the Company, as applicable, may, within ten (10) calendar days after receiving written notice of selection from the other, deliver to the other a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not satisfy the criteria set forth in the definition of “Independent Counsel” in Section 2, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the individual or firm so selected shall act as Independent Counsel. If such written objection is properly and timely made and substantiated, (i) the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit; and (ii) the non-objecting party may, at its option, select an alternative Independent Counsel and give written notice to the other party advising such other party of the identity of the alternative Independent Counsel so selected, in which case the provisions of the two immediately preceding sentences, the -9- introductory clause of this sentence and numbered clause (i) of this sentence shall apply to such subsequent selection and notice. If applicable, the provisions of clause (ii) of the immediately preceding sentence shall apply to successive alternative selections. If no Independent Counsel that is permitted under the foregoing provisions of this Section 10(e) to make the Standard of Conduct Determination shall have been selected within twenty (20) calendar days after the Company gives its initial notice pursuant to the first sentence of this Section 10(e) or Indemnitee gives its initial notice pursuant to the second sentence of this Section 10(e), as the case may be, either the Company or Indemnitee may petition the Delaware Court to resolve any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or to appoint as Independent Counsel an individual or firm to be selected by the Court or such other person as the Court shall designate, and the individual or firm with respect to whom all objections are so resolved or the individual or firm so appointed will act as Independent Counsel. In all events, the Company shall pay all of the reasonable fees and expenses of the Independent Counsel incurred in connection with the Independent Counsel’s determination pursuant to Section 10(b) and shall fully indemnify and hold harmless such Independent Counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. (f) Presumptions and Defenses. (i) Indemnitee’s Entitlement to Indemnification. In making any Standard of Conduct Determination, the Person or Persons making such determination shall presume, to the fullest extent permitted by law, that Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9 of this Agreement, and the Company shall, to the fullest extent permitted by law, have the burden of proof to overcome that presumption and establish that Indemnitee is not so entitled. Any Standard of Conduct Determination that is adverse to Indemnitee may be challenged by the Indemnitee in the Delaware Court. No determination by the Company (including by its directors or any Independent Counsel) that Indemnitee has not satisfied any applicable standard of conduct or failure by the Company to reach such a determination may be used as a defense to any legal proceedings brought by Indemnitee to secure indemnification or reimbursement or advance payment of Expenses by the Company hereunder or create a presumption that Indemnitee has not met any applicable standard of conduct. (ii) Reliance as a Safe Harbor. For purposes of this Agreement, and without creating any presumption as to a lack of good faith if the following circumstances do not exist, Indemnitee shall be deemed to have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company if Indemnitee’s actions or omissions to act are taken in good faith reliance upon the records of the Company, including its financial statements, or upon information, opinions, reports or statements furnished to Indemnitee by the officers or employees of the Company or any of its subsidiaries in the course of their duties, or by committees of the Board or by any other Person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other Person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. In addition, the knowledge and/or actions, or failures to act, of any director, officer, agent or employee of the Company shall not be imputed to Indemnitee for purposes of determining the right to indemnity hereunder. The provisions of this Section 10(f)(ii) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. (iii) No Other Presumptions. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, will not (except as otherwise provided in this Agreement) of itself create a presumption that Indemnitee did not meet any applicable standard of conduct, or that indemnification hereunder is otherwise not permitted. -10- (iv) Defense to Indemnification and Burden of Proof. It shall be a defense to any action brought by Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a claim for Losses incurred in defending against a Claim related to an Indemnifiable Event in advance of its final disposition) that it is not permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed. In connection with any such action or any related Standard of Conduct Determination, the burden of proving such a defense or that the Indemnitee did not satisfy the applicable standard of conduct shall be on the Company. 11. obligated to: Exclusions from Indemnification. Notwithstanding anything in this Agreement to the contrary, the Company shall not be (a) indemnify or advance funds to Indemnitee for Expenses or Losses with respect to Claims initiated by Indemnitee, including any Claims against the Company or its directors, officers, employees or other indemnitees, except: (i) (ii) (iii) proceedings referenced in Section 5 above; if the Board has authorized the Claim prior to its initiation; if the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; or (iv) by Indemnitee in any Claim. if such payment arises in connection with any mandatory counterclaim or cross claim brought or raised (b) Indemnify and advance funds Indemnitee if a final decision by a court of competent jurisdiction determines that such indemnification is prohibited by applicable law. Indemnify or advance funds Indemnitee for an accounting of profits arising from the purchase or sale by Indemnitee of securities of the Company in violation of Section 16(b) of the Exchange Act, or any similar successor statute, state law or other law. (c) (d) indemnify or advance funds to Indemnitee for Indemnitee’s reimbursement to the Company of any bonus or other incentive-based or equity-based compensation previously received by Indemnitee or payment of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements under Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) in connection with an accounting restatement of the Company or the payment to the Company of profits arising from the purchase or sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act). (e) indemnify or advance funds to Indemnitee for any reimbursement of the Company by Indemnitee of any compensation pursuant to any compensation recoupment or clawback policy adopted by the Board or the compensation committee of the Board, including but not limited to any such policy adopted to comply with stock exchange listing requirements implementing Section 10D of the Exchange Act. (f) indemnify or advance funds for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision. 12. Settlement of Claims. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any threatened or pending Claim related to an Indemnifiable Event effected without the Company’s prior written consent, which shall not be -11- unreasonably withheld. The Company shall not settle any Claim related to an Indemnifiable Event in any manner that would impose any Losses on the Indemnitee without the Indemnitee’s prior written consent. The Company shall not, without the prior written consent of Indemnitee, effect any settlement of any Claim relating to an Indemnifiable Event which the Indemnitee is or could have been a party unless such settlement solely involves the payment of money and includes a complete and unconditional release of the Indemnitee from all liability on all claims that are the subject matter of such Claim. 13. Duration. All agreements and obligations of the Company contained herein shall continue during the period that Indemnitee is a director, officer, employee or agent of the Company or any subsidiary of the Company (or is serving at the request of the Company as a director, officer, employee, member, trustee or agent of another Enterprise) and shall continue thereafter (i) so long as Indemnitee may be subject to any possible Claim relating to an Indemnifiable Event (including any rights of appeal thereto) and (ii) throughout the pendency of any proceeding (including any rights of appeal thereto) commenced by Indemnitee to enforce or interpret his or her rights under this Agreement, even if, in either case, he or she may have ceased to serve in such capacity at the time of any such Claim or proceeding. 14. Non-Exclusivity. The rights of Indemnitee hereunder (i) shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Constituent Documents, any agreement, a vote of stockholders or a resolution of directors, or otherwise and (ii) shall be interpreted independently of, and without reference to, any other such rights to which Indemnitee may at any time be entitled. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by Indemnitee that is an Indemnifiable Event prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Constituent Documents and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. 15. Liability Insurance. For the duration of Indemnitee’s service as a director or officer of the Company, and thereafter for so long as Indemnitee shall be subject to any pending Claim relating to an Indemnifiable Event, the Company shall use commercially reasonable efforts (taking into account the scope and amount of coverage available relative to the cost thereof) to continue to maintain in effect policies of directors’ and officers’ liability insurance providing coverage that is at least substantially comparable in scope and amount to that provided by the Company’s policies of directors’ and officers’ liability insurance in effect on the date of this Agreement. The insurance provided pursuant to this Section 15 shall be primary insurance to the Indemnitee for any Indemnifiable Event and/or Expense to which such insurance applies. In all policies of directors’ and officers’ liability insurance maintained by the Company, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company’s directors, if Indemnitee is a director, or of the Company’s officers, if Indemnitee is an officer (and not a director) by such policy. Upon request, the Company will provide to Indemnitee copies of all directors’ and officers’ liability insurance applications, binders, policies, declarations, endorsements and other related materials. 16. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment to Indemnitee in respect of any Losses to the extent Indemnitee has otherwise received payment under any insurance policy, the Constituent Documents, Other Indemnity -12- Provisions or otherwise of the amounts otherwise (including from another Enterprise) indemnifiable by the Company hereunder; provided that the foregoing shall not affect the rights of Indemnitee or the Fund Indemnitors (as defined below) as set forth in Section 17. 17. Primacy of Indemnification. The Company hereby acknowledges that Indemnitee has or may have in the future certain rights to indemnification, advancement of expenses and/or insurance provided by Investment Group of Santa Barbara and certain of its affiliates (collectively, the “Fund Indemnitors”). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and (iii) that it shall be liable for the full amount of all Losses to the extent legally permitted and as required by the terms of this Agreement, the Constituent Documents and/or Other Indemnity Provisions, without regard to any rights Indemnitee may have against the Fund Indemnitors. The Company irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing, and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 17. 18. Subrogation. In the event of payment to Indemnitee under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee (other than against the Fund Indemnitors). Indemnitee shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 19. Amendments; Waivers. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be binding unless in the form of a writing signed by the party against whom enforcement of the waiver is sought, and no such waiver shall operate as a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as specifically provided herein, no failure to exercise or any delay in exercising any right or remedy hereunder shall constitute a waiver thereof. 20. Enforcement and Binding Effect. (a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve or continue to service as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving or continuing to serve as a director or officer of the Company. (b) Without limiting any of the rights of Indemnitee under any Other Indemnity Provisions as they may be amended from time to time, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Constituent Documents, any directors’ and officers’ insurance maintained by the Company and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder. -13- (c) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part of the business and/or assets of the Company, by written agreement in form and substances satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. 21. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any portion thereof) are held by a court of competent jurisdiction to be invalid, illegal, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible. 22. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand, against receipt, or mailed, by postage prepaid, certified or registered mail: (a) (b) if to Indemnitee, to the address set forth on the signature page hereto. if to the Company, to: AppFolio, Inc. Attn: Chief Legal Officer 70 Castilian Drive Santa Barbara, California 93117 Notice of change of address shall be effective only when given in accordance with this Section. All notices complying with this Section shall be deemed to have been received on the date of hand delivery or on the third business day after mailing. 23. Governing Law and Forum. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to its principles of conflicts of laws. The Company and Indemnitee hereby irrevocably and unconditionally: (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court and not in any other state or federal court in the United States or any other country, (b) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement and (c) waive, and agree not to plead or make, any claim that the Delaware Court lacks venue or that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum. 24. Headings. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof. 25. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original, but all of which together shall constitute one and the same Agreement. -14- [Remainder of Page Intentionally Left Blank; Signature Page Follows] -15- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. COMPANY: APPFOLIO, INC. By: Name: Its: INDEMNITEE: (Print Name) Address: 70 Castilian Drive Santa Barbara, CA 93117 [Signature Page to Indemnification Agreement]  This EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of February 8, 2023 (the “Effective Date”), between AppFolio, Inc., a Delaware corporation (the “Company”), and William Shane Trigg (the “Executive”). EMPLOYMENT AGREEMENT W I T N E S S E T H WHEREAS, the Company employs the Executive as the President and General Manager, Real Estate of the Company; and WHEREAS, the Company and the Executive desire to enter into this Agreement as to the terms of the Executive’s employment with the Company. NOW, THEREFORE, the parties to this Agreement agree as follows: 1. Employment Term. The Company agrees to employ the Executive pursuant to the terms of this Agreement, and the Executive agrees to be so employed, commencing as of the Effective Date. The Executive’s employment may be terminated in accordance with Sections 7 and 8 of this Agreement. The period of time between the Effective Date and the termination of the Executive’s employment is the “Employment Term.” 2. Position and Duties. (a) During the Employment Term, the Executive will serve as the President and General Manager, Real Estate of the Company, reporting to the Company’s Chief Executive Officer. In this capacity, the Executive will have the duties, authorities and responsibilities as are consistent with the Executive’s position. (b) During the Employment Term, the Executive shall devote all of the Executive’s business time, energy, business judgment, knowledge and skill and the Executive’s best efforts to the performance of the Executive’s duties with the Company. Notwithstanding the foregoing, the Executive may, subject to the Company’s policies, practices and procedures: (i) serve on the boards of directors of non-profit organizations and, in a manner consistent with the Company’s applicable policies and procedures and practices, other for-profit companies, (ii) participate in charitable, civic, educational, professional, community or industry affairs, and (iii) manage the Executive’s passive personal investments; provided that in each case of clauses (i)-(iii), so long as such activities in the aggregate do not interfere or conflict with the Executive’s duties under this Agreement or create a potential business or fiduciary conflict. 3. Base Salary. During the Employment Term, the Company will pay the Executive a base salary (the “Base Salary”) in accordance with the Company’s regular payroll practices. The Base Salary is subject to annual review by the Company’s Board of Directors (the “Board”). 4. Corporate Bonus Program. For each fiscal year of the Company completed during the Employment Term, the Executive will be eligible to earn an annual bonus under the Company’s Corporate Bonus Program (each annual bonus, an “Annual Bonus”). The Annual Bonus is subject to the Board’s approval and the Executive’s execution of any applicable participation agreement under the Corporate Bonus Program. In each case, the Annual Bonus will be subject to the terms and conditions of this Section 4 and the applicable plan documents. 5. Equity Awards. The Executive will be eligible to receive the following incentive equity awards: (a) Performance-Based Award. The Executive will be granted an award of RSUs that is tied to certain performance metrics over a performance period of up to three years (the “Performance-Based LTI Award”). Such Performance-Based LTI Award is subject to the Board’s approval and the Executive’s acceptance of related equity award grant agreements with the Company containing standard terms and conditions; and (b) Time-Based Award. The Executive will be granted an award of time-vesting RSUs (the “Time-Based LTI Award”). The Time-Based LTI Award will vest subject to a vesting schedule and the Executive’s continuous employment through the applicable vesting date. The Time-Based LTI Award is subject to the Board’s approval and the Executive’s acceptance of related equity award grant agreements with the Company containing standard terms and conditions. 6. Employee Benefits. (a) Benefit Plans; Vacation. During the Employment Term, the Executive will be eligible to participate in any employee benefit plan adopted by the Company for the benefit of its executive employees, subject to satisfying the applicable eligibility requirements, except to the extent such plans are duplicative of the benefits otherwise provided under this Agreement. The Executive shall be entitled to the same vacation policy for executive employees of the Company as in effect from time to time. Notwithstanding the foregoing, the Company may modify or terminate any employee benefit plan at any time. (b) Business Expenses. The Company will reimburse the Executive for all reasonable and necessary out-of-pocket business incurred by the Executive in connection with the performance of the Executive’s duties under this Agreement, including reasonable travel costs and expenses incurred in connection with the Executive’s commute to the Company’s headquarters, in accordance with the Company’s expense reimbursement policy. 7. to occur: Termination. The Executive’s employment and the Employment Term shall terminate on the first of the following (a) Disability. Immediately upon written notice by the Company to the Executive of termination due to Disability (capitalized terms in this Section 7 that have not been previously defined in this Agreement are defined in Section 11, below). (b) (c) Death. Automatically upon the date of death of the Executive. Cause. Immediately upon written notice by the Company to the Executive of a termination for Cause. (d) Without Cause. Immediately upon written notice by the Company to the Executive of an involuntary termination without Cause (other than for death or Disability). (e) Good Reason. Upon written notice by the Executive to the Company of a termination for Good Reason. (f) Without Good Reason. Upon thirty (30) days’ prior written notice by the Executive to the Company of the Executive’s voluntary termination of employment without Good Reason (which the Company may, in its sole discretion, make effective earlier than any notice date). 2 8. Consequences Of Termination. (a) Death; Disability. In the event that the Executive’s employment and/or the Employment Term ends on account of the Executive’s death or Disability, the Company shall pay to the Executive or the Executive’s estate, as the case may be, the Accrued Benefits (as defined in Section 11, below), and the Executive’s outstanding equity awards as of such termination date shall vest in accordance with the Equity Award Treatment (as defined in Section 11, below). Notwithstanding the foregoing, all rights and obligations to the Accrued Benefits shall be subject to state and federal laws governing disabilities and leaves of absence as well as the Company’s applicable policies. (b) Termination For Cause Or Voluntary Termination By Executive. If the Executive’s employment is terminated: (x) by the Company for Cause, or (y) by the Executive other than by reason of death, Disability or resignation for Good Reason, then the Company shall pay to the Executive the Accrued Benefits. (c) Termination Without Cause or Resignation for Good Reason. If the Executive’s employment by the Company is terminated by the Company other than for Cause (excluding due to Executive’s death or Disability) or the Executive resigns for Good Reason, the Company shall pay or provide the Executive with the following: (i) the Accrued Benefits; (ii) subject to the Executive’s continued compliance with Sections 9 and 10 of this Agreement, (1) an amount equal to the Executive’s monthly Base Salary (but not as an employee), paid in accordance with the Company’s normal payroll practices for a period of twelve (12) months following such termination; (2) a prorated portion of the Annual Bonus for the fiscal year in which such termination occurs, with such prorated portion determined based on the number of days the Executive was employed by the Company during such year, and achievement of the applicable performance goals determined by the Board at the time of such termination based on forecasted results (but no greater than target-level performance), payable on the first regularly scheduled pay period following the sixtieth (60th) day following such termination; and (3) payment of COBRA premiums (through premium reimbursement or direct payment to the insurer) for twelve (12) months following termination. Notwithstanding the foregoing, any such payment scheduled to occur pursuant to this Section 8(c)(ii) during the first sixty (60) days following the termination will not be paid until the first regularly scheduled pay period following the sixtieth (60th) day following such termination and will include payment of any amount that was otherwise scheduled to be paid prior thereto. (d) Corporate Transaction. In addition to the payments described in Sections 8(c)(i) and (ii), and subject to the Executive’s continued compliance with Sections 9 and 10 of this Agreement, if the Executive’s employment by the Company (or its successor) is terminated by the Company (or its successor) other than for Cause or the Executive resigns for Good Reason on or within twelve (12) months following the consummation of a Corporate Transaction (as defined in Section 11 below), all outstanding equity awards held by the Executive as of the applicable termination date shall accelerate and become fully-vested effective as of immediately prior to such termination. In addition, if the outstanding equity awards held by the Executive as of immediately prior to the consummation of a Corporate Transaction are not assumed or substituted for value upon such Corporate Transaction, such equity awards shall accelerate and become fully-vested effective as of immediately prior to such Corporate Transaction. (e) Resignation From All Other Positions. Upon any termination of the Employment Term, the Executive will promptly resign, and will be deemed to have automatically resigned, from all positions, if any, that the Executive holds as a member of the 3 Board (including any committees), officer, director, manager or fiduciary of the Company or any of its affiliates or subsidiaries. The Executive will take all actions reasonably requested by the Company to give effect to this Section 8(e). (f) Exclusive Remedy. The amounts payable to the Executive following termination of employment and the Employment Term pursuant to Sections 7 and 8 of this Agreement shall be in full and complete satisfaction of the Executive’s rights under this Agreement and any other claims that the Executive may have in respect of the Executive’s employment with the Company or any of its affiliates. The Executive acknowledges that such amounts are fair and reasonable and are the Executive’s sole and exclusive remedy, in lieu of all other remedies at law or in equity, with respect to the termination of the Executive’s employment or any breach of this Agreement. 9. Release; Continued Compliance. Any and all amounts payable and benefits or additional rights provided upon termination of employment pursuant to this Agreement beyond the Accrued Benefits pursuant to Section 8(c) (the “Severance Benefits”) shall be payable if and only if the Executive delivers to the Company, and does not revoke, a general release of claims in favor of the Company in substantially the form attached hereto as Exhibit A. Such release will be executed and delivered (and no longer subject to revocation, if applicable) within sixty (60) days following termination. During such time that the Executive is receiving the Severance Benefits, if (a) the Company discovers grounds constituting Cause existed before Executive’s termination or (b) the Executive breaches any of the restrictive covenants set forth in the Employee Proprietary Information and Invention Assignment Agreement attached to this Agreement as Exhibit B, the Executive’s right to receive the Severance Benefits will immediately cease and be forfeited and any previously paid Severance Benefits shall be repaid by the Executive to the Company. 10. Restrictive Covenants. The Executive acknowledges and agrees to be bound by the restrictive covenants set forth in the Employee Proprietary Information and Invention Assignment Agreement attached to this Agreement as Exhibit B. 11. Certain Defined Terms. As used in this Agreement, the following terms have the meanings set forth below: (a) “Accrued Benefits” means: (i) any accrued but unpaid Base Salary through the date of termination; (ii) reimbursement for any unreimbursed business expenses incurred through the date of termination; and (iii) all other accrued but unpaid payments, benefits or fringe benefits to which the Executive shall be entitled under the terms of any applicable compensation or benefit arrangement. Notwithstanding anything to the contrary, amounts due under prongs (i)-(iii) will be paid within sixty (60) days following termination of employment, or such earlier date as may be required by applicable law. (b) “Cause” means the Executive’s: (i) theft, dishonesty, misconduct, falsification of any employment or Company records, (ii) any act or omission that has a material detrimental effect on the Company’s reputation or business; (iii) conviction (including any plea of guilty or no contest) for any felony, or for any criminal act that materially impairs the Executive’s ability to perform the Executives duties to the Company; (iv) material breach of any agreement between the Executive and the Company; or (v) material violation of any Company policy; or (vi) the Executive’s willful failure to perform, or willful misconduct or gross negligence in the performance of, the Executive’s duties to the Company or the Executive’s failure to follow the lawful directives of the Board or any executive to which the Executive reports (other than as a result of death or Disability); provided that, in the case of clauses (iv), (v) and (vi), Executive shall have an opportunity to cure, if susceptible to cure, for a period of thirty (30) days following written notice by the Company. 4 (c) “Corporate Transaction” has the meaning set forth in the Company’s 2015 Stock Incentive Plan, as may be amended from time to time. (d) “Disability” or “Disabled” means the Executive becomes “disabled” or suffers from a “disability” as defined in Section 409A, or in any successor regulation, as determined by the Board in good faith. (e) “Equity Award Treatment” means (i) with respect to each outstanding equity award held by the Executive as of the applicable termination date that vests solely based on the Executive’s continued employment with the Company (whether strictly time-based awards or earned but not yet vested performance-based awards), the portion of such award that would have vested had the Executive remained employed with the Company for an additional twelve (12) months will accelerate and become vested effective as of immediately prior to such termination; and (ii) with respect to each outstanding equity award held by the Executive as of the applicable termination date that has not yet vested but is forecasted to vest (in whole or in part) based on achievement of applicable performance goals (each a “Performance-Vesting Award”), a prorated portion of such Performance- Vesting Award will accelerate and become vested effective as of immediately prior to such termination, with such prorated portion determined based on the number of days the Executive was employed by the Company during the applicable performance period for the Performance-Vesting Award, and achievement of the applicable performance goals determined by the Board at the time of such termination based on forecasted results (but no greater than target-level performance). (f) “Good Reason” means, without the Executive’s prior written consent: (i) a material reduction in the Executive’s base salary (other than a reduction pertaining to all similarly situated employees of the Company); (ii) a material diminution of the Executive’s duties inconsistent with the Executive’s position; (iii) a material breach by the Company or its affiliate of the Agreement or any other material written agreement with the Company; (iv) a material modification by the Company of the Executive’s flexible hybrid work arrangement involving both off-site services and in-person services at the Company’s headquarters; or (v) any change in Executive’s reporting structure such that Executive no longer reports to the Chief Executive Officer; provided that, “Good Reason” shall only exist if the Executive tenders written objection to the Company within thirty (30) days of the initial occurrence of such Good Reason setting forth in reasonable detail the circumstances alleged to give rise to Good Reason, the Company fails to remedy the condition within thirty (30) days after receiving such written objection notice, and the Executive gives notice of resignation from employment within thirty (30) days after the end of such cure period. (g) “RSUs” means restricted stock units covering a number of shares of Class A common stock of the Company that may be settled in cash and/or by issuance of shares of Class A common stock of the Company. (h) “Section 409A” means Section 409A of the Internal Revenue Code and the regulations and guidance promulgated under the Internal Revenue Code. 12. No Assignments. This Agreement is personal to each of the parties. Except as provided below, no party may assign or delegate any rights or obligations under this Agreement without first obtaining the written consent of the other party. The Company may assign this Agreement to any successor to all or substantially all of its business or assets. 13. Notice. All communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of delivery, if delivered by hand, (b) on the date of transmission, if delivered by electronic mail, or (c) on the first business day following the date of deposit, if delivered by guaranteed overnight delivery service: 5 If to the Executive: At the address (or to the email address) shown in the books and records of the Company. If to the Company: 70 Castilian Drive Santa Barbara, CA 93117 Attention: Chief Legal Officer or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 14. Interpretation. The section headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement. In the event of any inconsistency between the terms of this Agreement and any form, award, plan or policy of the Company, the terms of this Agreement shall govern and control. 15. Severability. The provisions of this Agreement shall be deemed severable. The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties shall be enforceable to the fullest extent permitted by applicable law. 16. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 17. Arbitration. Any dispute or controversy arising under or in connection with this Agreement or the Executive’s employment with the Company shall be settled exclusively by arbitration, conducted before a single arbitrator in Santa Barbara, California in accordance with the JAMS Employment Rules and Procedures then in effect (available at www.jamsdr.com). The decision of the arbitrator will be final and binding upon the parties. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. In connection with any such arbitration and regardless of outcome, (a) each party shall pay all of its own costs and expenses, including, without limitation, its own legal fees and expenses, and (b) the arbitration costs shall be borne by the Company. 18. Governing Law. This Agreement, the rights and obligations of the parties, and all claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of California (without regard to its choice of law provisions). 19. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer or director as may be designated by the Board. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement, together with all exhibits attached to this Agreement, sets forth the entire agreement of the parties in respect of the subject matter contained in this Agreement and supersedes any and all prior agreements or understandings between the Executive and the Company with respect to 6 the subject matter of this Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. In the event of any inconsistency between the terms of this Agreement and any equity award, the terms of this Agreement shall govern and control. 20. Representations. The Executive represents and warrants to the Company that: (a) the Executive has the legal right to enter into this Agreement and to perform all of the obligations on the Executive’s part to be performed under this Agreement; and (b) the Executive is not a party to any agreement or understanding, written or oral, and is not subject to any restriction, which, in either case, could prevent or impair the Executive from entering into this Agreement or performing the Executive’s duties and obligations under this Agreement. 21. Tax Matters. (a) Withholding. The Company may withhold from any and all amounts payable under this Agreement or otherwise such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation. (b) Section 409A Compliance. (i) The intent of the parties is that payments and benefits under this Agreement comply with, or are exempt from, Section 409A. Accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith or exempt therefrom. In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on the Executive by Section 409A or damages for failing to comply with Section 409A. (i) A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A. For purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.” Notwithstanding anything to the contrary in this Agreement, if the Executive is deemed on the date of termination to be a “specified employee” within the meaning of that term under Section 409A, then with regard to any payment or the provision of any benefit that is considered deferred compensation under Section 409A payable on account of a “separation from service,” such payment or benefit shall not be made or provided until the date which is the earlier of (A) the expiration of the six (6)-month period measured from the date of such “separation from service” of the Executive, and (B) the date of the Executive’s death, to the extent required under Section 409A. Upon the expiration of the foregoing delay period, all payments and benefits delayed pursuant to this Section 22(b)(ii) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. (ii) To the extent that reimbursements or other in-kind benefits under this Agreement constitute “nonqualified deferred compensation” for purposes of Section 409A, (A) all expenses or other reimbursements under this Agreement shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by the Executive, (B) any right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (C) no such reimbursement, expenses eligible for reimbursement, or in-kind benefits provided in any taxable year shall in any way affect the 7 expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year. (iii) For purposes of Section 409A, the Executive’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the sole discretion of the Company. (iv) Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment under this Agreement that constitutes “nonqualified deferred compensation” for purposes of Section 409A be subject to offset by any other amount unless otherwise permitted by Section 409A. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 8  IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. APPFOLIO, INC. By: Name: Title: /s/ Jason Randall Jason Randall President and Chief Executive Officer EXECUTIVE By: /s/ William Shane Trigg Name: William Shane Trigg Title: General Manger, Real Estate [Signature Page to Employment Agreement] Exhibit A GENERAL RELEASE I, Shane Trigg, in consideration of and subject to the performance by AppFolio, Inc. (together with its subsidiaries, the “Company”) of its obligations under that Employment Agreement, dated as of February 8, 2023 (the “Agreement”), do hereby release and forever discharge as of the date hereof the Company and its respective affiliates and all present, former and future managers, directors, officers, employees, successors and assigns of the Company and its affiliates and direct or indirect owners (collectively, the “Released Parties”) to the extent provided below (this “General Release”). The Released Parties are intended to be third-party beneficiaries of this General Release, and this General Release may be enforced by each of them in accordance with the terms hereof in respect of the rights granted to such Released Parties hereunder. Terms used herein but not otherwise defined shall have the meanings given to them in the Agreement. 1. 2. My employment or service with the Company and its affiliates terminated as of ________________, and I hereby resign from any position as an officer, member of the board of managers or directors (as applicable) or fiduciary of the Company or its affiliates (or reaffirm any such resignation that may have already occurred). I understand that the Severance Benefits represent, in part, consideration for signing this General Release and are not salary, wages or benefits to which I was already entitled. I understand and agree that I will not receive the Severance Benefits unless I execute this General Release and do not revoke this General Release within the time period permitted hereafter. I understand and agree that such payments and benefits are subject to the restrictive covenants set forth in Exhibit B attached to the Agreement, which (as noted below) expressly survive my termination of employment and the execution of this General Release. Such payments and benefits will not be considered compensation for purposes of any employee benefit plan, program, policy or arrangement maintained or hereafter established by the Company or its affiliates. Except as provided in paragraphs 5 and 6 below and except for the provisions of the Agreement which expressly survive the termination of my employment with the Company, I knowingly and voluntarily (for myself, my heirs, executors, administrators and assigns) release and forever discharge the Company and the other Released Parties from any and all claims, suits, controversies, actions, causes of action, cross-claims, counterclaims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date that this General Release becomes effective and enforceable) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties which I, my spouse, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment with, or my separation or termination from, the Company (including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common Exhibit A - 1 3. 4. 5. 6. 7. law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters) (all of the foregoing collectively referred to herein as the “Claims”). The released claims described in paragraph 2 hereof include all such claims, whether known or unknown by me. Therefore, I waive the effect of California Civil Code Section 1542 and any other analogous provision of applicable law of any jurisdiction. Section 1542 states: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.” I represent that I have made no assignment or transfer of any right, claim, demand, cause of action, or other matter covered by paragraph 2 above. I agree that this General Release does not waive or release any rights or claims that I may have under the Age Discrimination in Employment Act of 1967 which arise after the date I execute this General Release. I acknowledge and agree that my separation from employment with the Company in compliance with the terms of the Agreement shall not serve as the basis for any claim or action (including, without limitation, any claim under the Age Discrimination in Employment Act of 1967). I agree that I hereby waive all rights to sue or obtain equitable, remedial or punitive relief from any or all Released Parties of any kind whatsoever in respect of any Claim, including, without limitation, reinstatement, back pay, front pay, and any form of injunctive relief. Notwithstanding the above, I further acknowledge that I am not waiving and am not being required to waive any right that cannot be waived under law, including the right to file an administrative charge or participate in an administrative investigation or proceeding; provided, however, that I disclaim and waive any right to share or participate in any monetary award resulting from the prosecution of such charge or investigation or proceeding. Additionally, I am not waiving (i) any right to the Accrued Benefits or any severance benefits to which I am entitled under the Agreement, (ii) any claim relating to directors’ and officers’ liability insurance coverage or any right of indemnification under the Company’s organizational documents or otherwise, or (iii) my rights as an equity or security holder in the Company or its affiliates. In signing this General Release, I acknowledge and intend that it shall be effective as a bar to each and every one of the Claims hereinabove mentioned or implied. I expressly consent that this General Release shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Claims (notwithstanding any state or local statute that expressly limits the effectiveness of a general release of unknown, unsuspected and unanticipated Claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied. I acknowledge and agree that this waiver is an essential and material term of this General Release and that without such waiver the Company would not have agreed to the terms of the Agreement. I further agree that in the event I should bring a Claim seeking damages against the Company, or in the event I should seek to recover against the Company in any Claim brought by a governmental agency on my behalf, this General Release shall serve as a complete defense to such Claims to the maximum extent permitted by law. I further Exhibit A - 2 agree that I am not aware of any pending claim of the type described in paragraph 2 above as of the execution of this General Release. I agree that neither this General Release, nor the furnishing of the consideration for this General Release, shall be deemed or construed at any time to be an admission by the Company, any Released Party or myself of any improper or unlawful conduct. I agree that if I violate this General Release by suing the Company or the other Released Parties, I will pay all costs and expenses of defending against the suit incurred by the Released Parties, including reasonable attorneys’ fees. Any nondisclosure provision in this General Release does not prohibit or restrict me (or my attorney) from responding to any inquiry about this General Release or its underlying facts and circumstances by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), any other self regulatory organization or any governmental entity. I hereby acknowledge that Exhibit B of the Agreement shall survive as applicable therein my execution of this General Release. I represent that I am not aware of any claim by me other than the claims that are released by this General Release. I acknowledge that I may hereafter discover claims or facts in addition to or different than those which I now know or believe to exist with respect to the subject matter of the release set forth in paragraph 2 above and which, if known or suspected at the time of entering into this General Release, may have materially affected this General Release and my decision to enter into it. Notwithstanding anything in this General Release to the contrary, this General Release shall not relinquish, diminish, or in any way affect any rights or claims arising out of any breach by the Company or by any Released Party of the Agreement after the date hereof. 8. 9. 10. 11. 12. 13. 14. Whenever possible, each provision of this General Release shall be interpreted in, such manner as to be effective and valid under applicable law, but if any provision of this General Release is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this General Release shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT: 1. 2. I HAVE READ IT CAREFULLY; I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED; 3. I VOLUNTARILY CONSENT TO EVERYTHING IN IT; Exhibit A - 3 4. 5. 6. 7. 8. I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION, I HAVE CHOSEN NOT TO DO SO OF MY OWN VOLITION; I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE TO CONSIDER IT, AND THE CHANGES MADE SINCE MY RECEIPT OF THIS RELEASE ARE NOT MATERIAL OR WERE MADE AT MY REQUEST AND WILL NOT RESTART THE REQUIRED 21-DAY PERIOD;- I UNDERSTAND THAT I HAVE SEVEN (7) DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED; I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME. SIGNED:__________________________ DATED:_________________ Exhibit A - 4 Employee Proprietary Information and Invention Assignment Agreement Exhibit B (attached) Exhibit B - 1 List of Subsidiaries of the Registrant Subsidiary AppFolio Investment Management, Inc. Dynasty Marketplace, Inc. AppFolio Insurance Services, Inc. RentLinx LLC Terra Mar Insurance Company, Inc. Exhibit 21.1 Jurisdiction California Delaware California Michigan Hawaii CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Exhibit 23.1 We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-263096, No. 333-236818, No. 333-229970, No. 333-223231, No. 333-216274, No. 333-209792, and No. 333-206179) of AppFolio, Inc. of our report dated February 9, 2023 relating to the financial statements and the effectiveness of internal control over financial reporting which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Los Angeles, California February 9, 2023 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 31.1 I, Jason Randall, certify that: 1. 2. 3. 4. I have reviewed this Annual Report on Form 10-K of AppFolio, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have: a. b. c. d. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a. b. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 9, 2023 /s/ Jason Randall Jason Randall Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 31.2 I, Fay Sien Goon, certify that: 1. 2. 3. 4. I have reviewed this Annual Report on Form 10-K of AppFolio, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have: a. b. c. d. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a. b. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 9, 2023 /s/ Fay Sien Goon Fay Sien Goon Chief Financial Officer EXHIBIT 32.1 CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The following certifications are hereby made in connection with the Annual Report on Form 10-K of AppFolio, Inc. (the “Company”) for the period ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”): I, Jason Randall, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented. Date: February 9, 2023 By: /s/ Jason Randall Jason Randall President and Chief Executive Officer I, Fay Sien Goon, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented. Date: February 9, 2023 By: /s/ Fay Sien Goon Fay Sien Goon Chief Financial Officer 

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