APPFOLIO INC

Previous wording

Property management units under management. We believe that our ability to increase our number of property management units under management is an indicator of our market penetration, growth, and potential future business opportunities. We define property management units under management as active or committed units under management at the period end date. We had 8.9 million and 8.4 million property management units under management as of June 30, 2025 and 2024, respectively.

Current wording

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 9.1 million and 8.5 million property management units under management as of September 30, 2025 and 2024, respectively.

Previous wording

In addition, we charge our customers for assistance onboarding onto our core solutions and for certain other non-recurring services. We generally invoice for these other services in advance of the services being completed and recognize revenue in the period the service is rendered. We also generate revenue from the legacy customers of businesses we acquire that provide standalone services outside of our platform. Revenue derived from these services is recorded in Other revenue. As of June 30, 2025 and 2024, we had 21,403 and 20,167 property management customers, respectively.

Current wording

In addition, we charge our customers for assistance onboarding onto our core solutions and for certain other non-recurring services. We generally invoice for these other services in advance of the services being completed and recognize revenue in the period the service is rendered. We also generate revenue from the legacy customers of businesses we acquire that provide standalone services outside of our platform. Revenue derived from these services is recorded in Other revenue. As of September 30, 2025 and 2024, we had 21,759 and 20,403 property management customers, respectively.

Previous wording

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

Current wording

Sales and Marketing. Sales and marketing expense consists of personnel-related costs for our employees focused on sales and marketing (including salaries, sales commissions, cash bonuses, benefits, and stock-based compensation), costs associated with sales and marketing activities, and allocated shared and other costs. Marketing activities include advertising, online lead generation, lead nurturing, customer and industry events, and the creation of industry-related content and collateral.

Previous wording

The increase in revenue for the three and six months ended June 30, 2025, compared to the same periods in the prior year, was primarily attributable to an increase in the usage of our payments, tenant screening, and risk mitigation services. During the three and six month periods ended June 30, 2025, we also experienced growth of 6% in the number of property management units under management compared to the same period in the prior year, which drove growth in users of our subscription and usage-based services.

Current wording

The increase in revenue for the three and nine months ended September 30, 2025, compared to the same periods in the prior year, was primarily attributable to an increase in the usage of our payments, tenant screening, and risk mitigation services. During the three and nine month periods ended September 30, 2025, we also experienced growth of 7% in the number of property management units under management compared to the same period in the prior year, which drove growth in users of our subscription and usage-based services.

Previous wording

Cost of revenue (exclusive of depreciation and amortization) increased for the three and six months ended June 30, 2025, compared to the same periods in the prior year. The increase was primarily driven by higher third-party service provider costs of $13.0 million and $25.9 million, respectively, due to increased adoption and usage of our Value Added Services.

Current wording

Cost of revenue (exclusive of depreciation and amortization) increased for the three and nine months ended September 30, 2025, compared to the same periods in the prior year. The increase was primarily driven by higher third-party service provider costs of $15.4 million and $41.3 million, respectively, due to increased adoption and usage of our Value Added Services, combined with a $3.4 million and $4.6 million increase in personnel-related costs, including stock-based and performance-based compensation, to support growth in the business, for the respective three and nine-month periods.

Previous wording

Sales and marketing expense increased for the three and six months ended June 30, 2025, compared to the same periods in the prior year. The increase was primarily due to a $5.2 million and $9.3 million increase in personnel-related costs, including stock-based and performance-based compensation, to support growth in the business, combined with a $2.0 million and $2.7 million increase in advertising and promotion expense due to increased targeted go-to-market investment, for the respective three and six-month periods.

Current wording

Sales and marketing expense increased for the three and nine months ended September 30, 2025, compared to the same periods in the prior year. The increase was primarily due to a $8.1 million and $17.4 million increase in personnel-related costs, including stock-based and performance-based compensation, to support growth in the business, combined with a $1.1 million and $3.8 million increase in advertising and promotion expense due to increased targeted go-to-market investment, for the respective three and nine-month periods.

Previous wording

We expect sales and marketing expense for the year ending December 31, 2025 to stay relatively flat as a percentage of revenue compared to the year ended December 31, 2024.

Current wording

We expect sales and marketing expense for the year ending December 31, 2025 to slightly increase as a percentage of revenue compared to the year ended December 31, 2024.

Previous wording

Research and product development expense increased for the three and six months ended June 30, 2025, compared to the same periods in the prior year. The increase was primarily due to a $5.5 million and $9.2 million increase in personnel-related costs, including stock-based and performance-based compensation, net of capitalized software development costs driven by headcount growth, combined with a $0.8 million and $1.3 million increase in software license fees, for the respective three and six-month periods.

Current wording

Research and product development expense increased for the three and nine months ended September 30, 2025, compared to the same periods in the prior year. The increase was primarily due to a $11.1 million and $20.3 million increase in personnel-related costs, including stock-based and performance-based compensation, net of capitalized software development costs driven by headcount growth, for the respective three and nine-month periods.

Previous wording

General and administrative expense increased for the three and six months ended June 30, 2025, compared to the same periods in the prior year. The increase was primarily due to a $3.2 million and $6.0 million increase in personnel-related costs, including stock-based and performance-based compensation, driven by headcount growth, for the respective three and six-month periods.

Current wording

General and administrative expense increased for the three and nine months ended September 30, 2025, compared to the same periods in the prior year. The increase was primarily due to a $7.4 million and $13.4 million increase in personnel-related costs, including stock-based and performance-based compensation, driven by headcount growth, for the respective three and nine-month periods.

Previous wording

Depreciation and amortization expense for the three and six months ended June 30, 2025 increased, compared to the same periods in the prior year, primarily due to amortization of the intangible assets recognized from the acquisition of Move EZ, Inc. in the fourth quarter of 2024.

Current wording

Depreciation and amortization expense for the three and nine months ended September 30, 2025 increased, compared to the same periods in the prior year, primarily due to amortization of the intangible assets recognized from the acquisition of Move EZ, Inc. in the fourth quarter of 2024.

Previous wording

Interest income for the three and six months ended June 30, 2025 decreased, compared to the same periods in the prior year, primarily due to the sale of available-for-sale investment securities and lower interest rates.

Current wording

Interest income for the three and nine months ended September 30, 2025 decreased, compared to the same periods in the prior year, primarily due to the sale of available-for-sale investment securities and lower interest rates.

Previous wording

For the three and six months ended June 30, 2025, we recorded income tax expense of $6.0 million and $11.4 million, representing an effective tax rate of 14.3% and 14.5%, respectively. Our effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to excess tax benefits from stock-based compensation and research & development tax credits, partially offset by state income taxes and non-deductible officers' compensation. For the three and six months ended June 30, 2024, our effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to excess tax benefits from stock-based compensation and changes in valuation allowance against deferred tax assets.

Current wording

For the three and nine months ended September 30, 2025, we recorded income tax expense of $3.1 million and $14.5 million, representing an effective tax rate of 8.4% and 12.5%, respectively. Our effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to excess tax benefits from stock-based compensation and research & development tax credits, partially offset by state income taxes and non-deductible officers' compensation. For the three and nine months ended September 30, 2024, our effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to changes in valuation allowance against deferred tax assets and excess tax benefits from stock-based compensation.

Previous wording

The decrease in our effective tax rate for the three months ended June 30, 2025, as compared to the same period in 2024, is primarily due to a valuation allowance released at December 31, 2024 and an increase in tax benefits from research & development tax credits. The increase in our effective tax rate for the six months ended June 30, 2025, as compared to the same period in 2024, is primarily attributable to a decrease in excess tax benefits from stock-based compensation and changes in valuation allowance.

Current wording

The decrease in our effective tax rate for the three months ended September 30, 2025, as compared to the same period in 2024, is primarily due to a valuation allowance released at December 31, 2024 and an increase in tax benefits from stock-based compensation and research & development tax credits. The decrease in our effective tax rate for the nine months ended September 30, 2025, as compared to the same period in 2024, is primarily attributable to changes in valuation allowance and increase in tax benefits from research & development tax credits partially offset by a decrease in excess tax benefits from stock-based compensation.

Previous wording

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law. Included in this legislation are provisions that allow for the immediate expensing of domestic United States research and development expenses, immediate expensing of certain capital expenditures, and other changes to the U.S. taxation of profits derived from foreign operations. We believe the impact of the relevant OBBBA provisions to our income tax expense is not material and are currently in the process of evaluating the impact on our Condensed Consolidated Financial Statements.

Current wording

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law. Included in this legislation are provisions that allow for the immediate expensing of domestic United States research and development expenses, immediate expensing of certain capital expenditures, and other changes to the U.S. taxation of profits derived from foreign operations. We believe the impact of the relevant OBBBA provisions to our income tax expense is not material and are currently expect a favorable impact to our cash flows. We will continue to monitor and assess the impact of OBBBA on our Condensed Consolidated Financial Statements.

Previous wording

Our principal sources of liquidity continue to be cash, cash equivalents, and investment securities totaling $127.6 million, as well as cash flows generated from our operations. 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.

Current wording

Our principal sources of liquidity continue to be cash, cash equivalents, and investment securities, as well as cash flows generated from our operations. As of September 30, 2025, we had $200.1 million in cash, cash equivalents, and investment securities. We have financed our operations primarily through cash generated from operations.

Previous wording

During the first quarter of 2025, we substantially exhausted the shares remaining available for purchase under the 2019 Stock Repurchase Program. On April 23, 2025, our Board authorized the repurchase of up to $300.0 million of shares of our Class A common stock from time to time pursuant to the 2025 Stock Repurchase Program. For more information regarding our repurchases under the 2019 Stock Repurchase Program and the 2025 Stock Repurchase Program, refer to Note 7, Share Repurchase Program, of our Condensed Consolidated Financial Statements and Part 2, Item 2, "Unregistered Sales of Equity Securities and Use of Proceeds" of this Quarterly Report.

Current wording

During the first quarter of 2025, we substantially exhausted the shares remaining available for purchase under the 2019 Stock Repurchase Program. On April 23, 2025, our Board authorized the repurchase of up to $300.0 million of shares of our Class A common stock from time to time pursuant to the 2025 Stock Repurchase Program. For more information regarding our repurchases under the 2019 Stock Repurchase Program and the 2025 Stock Repurchase Program, refer to Note 6, Share Repurchase Program, of our Condensed Consolidated Financial Statements of this Quarterly Report.

Previous wording

The net decrease in cash provided by operating activities for the six months ended June 30, 2025, compared to the same period in the prior year, was primarily due to a higher increase in operating expenditures related to personnel-related costs.

Current wording

The net increase in cash provided by operating activities for the nine months ended September 30, 2025, compared to the same period in the prior year, was primarily due to higher cash collections from customers relative to the increase in operating expenditures.

Previous wording

The net increase in cash provided by (used in) investing activities for the six months ended June 30, 2025, compared to the same period in the prior year, was primarily due to higher sales and maturities of investment securities, and lower purchases of available-for-sale investment securities, which was partially offset by cash paid for purchasing our strategic investment in Second Nature. For additional information, see Note 3. Investment Securities and Fair Value Measurements, of our Condensed Consolidated Financial Statements.

Current wording

The net increase in cash provided by (used in) investing activities for the nine months ended September 30, 2025, compared to the same period in the prior year, was primarily due to higher sales and maturities of investment securities, and lower purchases of available-for-sale investment securities, which was partially offset by cash paid for purchasing our strategic investment in Second Nature. For additional information, see Note 3. Investment Securities and Fair Value Measurements, of our Condensed Consolidated Financial Statements.

Previous wording

Cash used in financing activities is generally composed of net share settlements for employee tax withholdings associated with the vesting of equity awards and repurchases of our Class A common stock offset by proceeds from the exercise of stock options.

Current wording

Cash used in financing activities is generally composed of net share settlements for employee tax withholdings associated with the vesting of equity awards and repurchases of our Class A common stock offset by proceeds from the exercise of stock options and issuance of common stock under the employee stock purchase plan.

Previous wording

The net increase in cash used in financing activities for the six months ended June 30, 2025, compared to the same period in the prior year, was primarily due to repurchases of our Class A common stock.

Current wording

The net increase in cash used in financing activities for the nine months ended September 30, 2025, compared to the same period in the prior year, was primarily due to repurchases of our Class A common stock.

Previous wording

There have been no material changes to our critical accounting policies and estimates described in our Annual Report that have had a material impact on our Condensed Consolidated Financial Statements and related notes, expect the critical accounting policies and estimates Strategic Investments, which are disclosed in Note 2, Summary of Significant Accounting Policies of our Condensed Consolidated Financial Statements.

Current wording

There have been no material changes to our critical accounting policies and estimates described in our Annual Report that have had a material impact on our Condensed Consolidated Financial Statements and related notes, except the critical accounting policies and estimates for Strategic Investments, which are disclosed in Note 2, Summary of Significant Accounting Policies of our Condensed Consolidated Financial Statements.