What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-01 compared with 2020-03-02 · 393 added, 384 removed, 685 unchanged (53% of the section changed)

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To the Board of Directors and Stockholders of AppFolio, Inc.

Opinion on the Financial Statements and Internal Control over Financial Reporting

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of AppFolio, Inc.

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Dynasty from its assessment of internal control over financial reporting as of December 31, 2019 because it was acquired by the Company in a purchase business combination during 2019.

We have also excluded Dynasty from our audit of internal control over financial reporting.

Dynasty is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting each represent 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2019.

Definition and Limitations of Internal Control over Financial Reporting

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Acquisition of Dynasty Marketplace, Inc.

("Dynasty") - Valuation of technology and database intangible assets

As described in Notes 2 and 3 to the consolidated financial statements, in 2019 the Company completed the acquisition of Dynasty for total purchase consideration of $60.2 million, which resulted in $20.8 million of intangible assets, including technology of $5.7 million and database of $4.7 million, being recorded.

Management applied significant judgment in estimating the fair value of the technology and database intangible assets acquired, which involved the use of significant estimates and assumptions, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates, the software decay rate and database ramp up rate.

The principal considerations for our determination that performing procedures relating to the valuation of the technology and database intangible assets from the acquisition of Dynasty is a critical audit matter are (i) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the technology and database intangible assets acquired due to the significant amount of judgment by management when developing the estimate, (ii) significant audit effort was required in evaluating the significant assumptions, including the software decay rate and the database ramp up rate, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.

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 acquisition accounting, including controls over management’s valuation of the technology and database intangible assets and controls over the development of the assumptions related to the valuation of intangible assets, including the software decay rate and database ramp up rate.

These procedures also included, among others, (i) reading the purchase agreement, (ii) testing management’s process for estimating the fair value of the technology and database intangible assets, and (iii) evaluating the reasonableness of the significant assumptions utilized by management, including the software decay rate and database ramp up rate, using professionals with specialized skill and knowledge to assist in doing so.

Testing management’s process included evaluating the appropriateness of the valuation methodologies and the reasonableness of significant assumptions, including the software decay rate and the database ramp up rate.

Evaluating the reasonableness of the software decay rate assumption involved considering historical time to develop the software, future expected use of software acquired including planned enhancements, consistency with external market and industry data, and whether the assumption was consistent with evidence obtained in other areas of the audit.

Evaluating the reasonableness of the database ramp up rate assumption involved considering historical time to acquire data, future expected data collection from sales, consistency with competitor and industry data, and whether the assumption was consistent with evidence obtained in other areas of the audit.

Realizability of deferred tax assets

As described in Notes 2 and 13 to the consolidated financial statements, the Company has recorded deferred tax assets of $53.1 million as of December 31, 2019.

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, management considers the weighting of all available positive and negative evidence, which included, 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.

In 2019, management evaluated all available positive and negative evidence, including the Company’s sustained profitability in 2018 and 2019, the impact of recent acquisitions and future projections of profitability and determined that all of its deferred tax assets were more likely than not to be realized and reversed the valuation allowance against those deferred tax assets.

The principal considerations for our determination that performing procedures relating to the realizability of deferred tax assets is a critical audit matter are there was significant judgment by management in determining the amount of deferred tax assets that were more-likely-than-not to be realized in the future, including the determination to reverse the valuation allowance on deferred tax assets.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate positive and negative evidence relating to management’s determination of the amount of deferred tax assets that were more-likely-than-not to be realized in the future, including the nature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, and the duration of statutory carryforward periods.

Also, the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the evidence obtained from these procedures.

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.

Uncertain Tax Positions

As described in Notes 2 and 14 to the consolidated financial statements, the Company has recorded reserves for unrecognized tax benefits from uncertain tax positions of $6.1 million as of December 31, 2020.

Judgment is required to measure the amount of tax benefits that can be recognized associated with uncertain tax positions.

Management recognizes 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.

The tax benefits recognized from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized.

The principal considerations for our determination that performing procedures relating to uncertain tax positions is a critical audit matter are (i) the significant judgment by management when determining uncertain tax positions and measuring the amount of reserve required to be recognized, (ii) the significant auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s identification of uncertain tax positions and measurement of the amount of tax benefits recognized associated with uncertain tax positions, 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 realizability of deferred tax assets.

These procedures also included, among others, evaluating positive and negative evidence used in determining the amount of deferred tax assets that were more-likely-than-not to be realized in the future, including evaluating the nature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, and the duration of statutory carryforward periods.

Evaluating management’s future projections of profitability involved evaluating whether the projections were reasonable considering (i) historical profitability of the Company, (ii) consistency with industry data and economic trends, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skills and knowledge were used to assist in the evaluation of the nature, frequency and severity of current and cumulative taxable income or losses and in the duration of statutory carryforward periods.

These procedures included testing the effectiveness of controls relating to the identification and recognition of the reserves for uncertain tax positions.

These procedures also included, among others (i) evaluating management’s process for identifying uncertain tax positions and measuring the amount of the reserve required, (ii) testing the completeness of management’s assessment of the identification of uncertain tax positions, and (iii) testing the reasonableness of management’s assessment of the technical merits of the tax positions and estimates of the amount of tax benefit expected to be realized .

Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s uncertain tax positions related to the application of relevant tax laws.

/s/ PricewaterhouseCoopers LLP

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Operating lease right-of-use assets 30,561 27,803

Capitalized software, net

Capitalized software development costs, net 35,459 30,023

Goodwill 56,147 58,425

Intangible assets, net 16,357 21,377

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Other long-term assets 6,213 6,276

Total assets $ 389,480 $ 260,102

Liabilities and Stockholders’ Equity

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Deferred revenue 2,262 4,600

Income tax payable 9,095 —

Other current liabilities 4,451 11,139

Long-term debt, net—current portion

Term loan, net—current portion — 1,208

Total current liabilities 49,805 47,465

Operating lease liabilities 40,146 33,312

Long-term debt, net

Other long-term liabilities

Term loan, net — 47,375

Deferred taxes 13,609 —

Total liabilities 103,560 128,152

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Stockholders’ equity:

Preferred stock, $0.0001 par value, 25,000 authorized and no shares issued and outstanding at December 31, 2019 and December 31, 2018

Class A common stock, $0.0001 par value, 250,000 shares authorized at December 31, 2019 and December 31, 2018;

issued - 16,923 and 16,160, shares at December 31, 2019 and December 31, 2018, respectively;

outstanding - 16,552 and 15,789 shares at December 31, 2019 and December 31, 2018, respectively;

Class B common stock, $0.0001 par value, 50,000 shares authorized at December 31, 2019 and December 31, 2018;

17,594 and 18,109 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively;

Preferred stock, $ 0.0001 par value, 25,000 shares authorized and no shares issued and outstanding as of December 31, 2020 and December 31, 2019

Class A common stock, $ 0.0001 par value, 250,000 shares authorized as of December 31, 2020 and December 31, 2019;

19,148 and 16,923 shares issued as of December 31, 2020 and December 31, 2019, respectively;

18,729 and 16,552 shares outstanding as of December 31, 2020 and December 31, 2019, respectively

Class B common stock, $ 0.0001 par value, 50,000 shares authorized as of December 31, 2020 and December 31, 2019;

15,659 and 17,594 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively

Additional paid-in capital 161,247 161,509

Accumulated other comprehensive income (loss)

Treasury stock, at cost, 371 Class A shares at December 31, 2019 and December 31, 2018

Accumulated deficit

Accumulated other comprehensive income 56 33

Treasury stock, at cost, 419 and 371 shares of Class A common stock as of December 31, 2020 and December 31, 2019, respectively

( 25,756 ) ( 21,562 )

Retained earnings (accumulated deficit) 150,369 ( 8,034 )

Total stockholders’ equity 285,920 131,950

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Year Ended December 31,

2020 2019 2018

Revenue $ 310,056 $ 256,012 $ 190,071

Costs and operating expenses:

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Other income (expense), net 188,897 16 ( 56 )

Interest income (expense), net

Interest (expense) income, net ( 1,849 ) ( 1,654 ) 787

Income before provision for (benefit from) income taxes 196,831 4,823 20,387

Provision for (benefit from) income taxes 38,428 ( 31,459 ) 420

Net income $ 158,403 $ 36,282 $ 19,967

Net income per common share:

Basic $ 4.62 $ 1.07 $ 0.59

Diluted $ 4.44 $ 1.02 $ 0.56

Weighted average common shares outstanding:

Basic 34,264 34,016 34,128

Diluted 35,713 35,567 35,562

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

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Year Ended December 31,

Other comprehensive income (loss):

Changes in unrealized gains (losses) on investment securities

2020 2019 2018

Net income $ 158,403 $ 36,282 $ 19,967

Other comprehensive income:

Changes in unrealized gains on investment securities 23 211 31

Comprehensive income $ 158,426 $ 36,493 $ 19,998

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(in thousands)

Comprehensive

Income (Loss)

Accumulated Retained

Additional Other Earnings/

Common Stock Common Stock Paid-in Comprehensive Treasury (Accumulated

Class A Class B Capital Income (Loss) Stock Deficit) Total

Shares Amount Shares Amount

Balance at December 31, 2017 14,879 $ 1 19,102 $ 3 $ 152,531 $ ( 209 ) $ — $ ( 67,247 ) $ 85,079

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Issuance of restricted stock awards 5 — — — — — — — —

Other comprehensive loss

Other comprehensive income — — — — — 31 — — 31

Repurchase of common stock ( 371 ) — — — — — ( 21,562 ) — ( 21,562 )

Cumulative-effect adjustment resulting from adoption of ASU 2014-09

— — — — — — — 2,964 2,964

Net income — — — — — — — 19,967 19,967

Balance at December 31, 2018 15,789 2 18,109 2 157,898 ( 178 ) ( 21,562 ) ( 44,316 ) 91,846

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Other comprehensive income — — — — — 211 — — 211

Repurchase of common stock

Cumulative-effect adjustment resulting from adoption of ASU 2014-09

Net income — — — — — — — 36,282 36,282

Balance at December 31, 2019 16,552 2 17,594 2 161,509 33 ( 21,562 ) ( 8,034 ) 131,950

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Vesting of restricted stock units, net of shares withheld for taxes 166 — — — ( 12,196 ) — — — ( 12,196 )

Vesting of early exercised shares

Conversion of Class B stock to Class A stock 1,948 — ( 1,948 ) — — — — — —

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Other comprehensive income — — — — — 23 — — 23

Repurchase of common stock ( 48 ) — — — — — ( 4,194 ) — ( 4,194 )

Net income — — — — — — — 158,403 158,403

Balance at December 31, 2020 18,729 $ 2 15,659 $ 2 $ 161,247 $ 56 $ ( 25,756 ) $ 150,369 $ 285,920

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Year Ended December 31,

2020 2019 2018

Cash from operating activities

Net income $ 158,403 $ 36,282 $ 19,967

Adjustments to reconcile net income to net cash provided by operating activities:

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Amortization of operating lease right-of-use assets 3,701 4,130 —

Stock-based compensation

Deferred income taxes 29,002 ( 31,455 ) —

Stock-based compensation 9,025 7,309 6,337

Gain on sale of business ( 187,658 ) — —

Other 125 32 224

Changes in operating assets and liabilities:

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Prepaid expenses and other current assets ( 5,894 ) ( 4,031 ) ( 6,073 )

Other assets ( 519 ) 1,376 ( 4,447 )

Accounts payable ( 903 ) 511 614

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Cash from investing activities

Purchases of available-for-sale investments ( 43,877 ) ( 25,198 ) ( 29,516 )

Proceeds from sales of available-for-sale investments 16,711 2,750 20,900

Proceeds from maturities of available-for-sale investments 27,330 15,660 32,819

Purchases of property, equipment and intangible assets ( 19,038 ) ( 8,084 ) ( 2,102 )

Additions to capitalized software

Purchases of investment securities

Sales of investment securities

Maturities of investment securities

Acquisition, net of cash acquired

Net cash used in investing activities

Capitalization of software development costs ( 26,042 ) ( 20,998 ) ( 12,304 )

Cash paid in business acquisition, net of cash acquired — ( 54,004 ) ( 14,441 )

Proceeds from sale of business, net of cash divested 191,427 — —

Net cash provided by (used in) investing activities 146,511 ( 89,874 ) ( 4,644 )

Cash from financing activities

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Tax withholding for net share settlement ( 12,196 ) ( 6,155 ) ( 3,127 )

Purchase of treasury stock

Payment of contingent consideration ( 5,977 ) — —

Proceeds from issuance of debt 50,752 2,169 50,138

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Payment of debt issuance costs — ( 420 ) —

Purchase of treasury stock ( 4,194 ) — ( 21,562 )

Net cash (used in) provided by financing activities ( 70,358 ) ( 7,272 ) 26,346

Net increase (decrease) in cash and cash equivalents 124,452 ( 58,259 ) 57,970

Cash, cash equivalents and restricted cash

Beginning of period 16,247 74,506 16,536

End of period $ 140,699 $ 16,247 $ 74,506

APPFOLIO, INC.

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Year Ended December 31,

Net (decrease) increase in cash and cash equivalents

Cash, cash equivalents and restricted cash

Beginning of period

End of period

2020 2019 2018

Supplemental disclosure of cash flow information

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Cash paid for income taxes 85 545 82

Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows 2,198 5,007 —

Right-of-use assets obtained in exchange for operating lease liabilities 6,644 14,986 —

Noncash investing and financing activities

Purchases of property and equipment included in accounts payable and accrued expenses $ 370 $ 3,447 $ 518

Additions of capitalized software included in accrued and accrued employee expenses

Capitalization of software development costs included in accrued expenses and accrued employee expenses 383 1,187 825

Stock-based compensation capitalized for software development 2,087 1,844 1,087

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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):

2020 2019 2018

Cash and cash equivalents $ 140,263 $ 15,813 $ 74,076

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Nature of Business

AppFolio, Inc.'s (“we,” "us" or "our") mission is to revolutionize vertical industry businesses by providing great software and services.

Today we offer industry-specific, cloud-based business software solutions, services and data analytics to the real estate market, which represents over 90% of our revenue, and, to a lesser extent, to the legal market.

Our real estate software solutions provide our property management customers with a system of record to automate essential business processes, a system of engagement to enhance business interactions between our customers and their clients and other stakeholders, and a system of intelligence designed to leverage data to predict and optimize business workflows in order to enable superior customer experiences and increase efficiency across our customers' businesses.

Although specific functionality varies by product, our core solutions address common business operations and interactions of businesses in our targeted verticals.

In addition to our core solutions, we offer a range of optional, but often business-critical, Value+ services.

Our Value+ services are built to enhance, automate and streamline property management processes and support workflows essential to our customers' businesses.

We also provide software solutions to the legal market that enable law firms to administer their practice and manage their caseloads more efficiently by centralizing case details in a single system of record and system of engagement.

The significant majority of our customers in the real estate market use our property management solutions.

Our property management customers include third-party property managers and owner-operators who manage single- and mutli- family residences, community associations, commercial properties, and student housing, as well as mixed real estate portfolios.

Our legal customers are typically small law firms that directly and indirectly account for less than 10% of our annual revenue.

AppFolio, Inc.

("we," "us" or "our") provides innovative software, services and data analytics to the real estate industry.

Our industry-specific, cloud-based solutions are used primarily by property managers, and also by numerous other constituencies in the property management business ecosystem.

These other constituencies include property owners, rental prospects, tenants and service providers, whom we refer to collectively as "users".

Although specific functionality varies by product, our core solutions are designed to enable our customers to digitally transform their businesses, address critical business operations and enable exceptional customer service.

In addition to our core solutions, we offer an array of optional, but often business-critical, Value+ services that are designed to enhance, automate and streamline processes and workflows that are essential to our customers' businesses.

Our Value+ services are generally available on an as-needed basis and enable our customers to adapt our offerings to their specific operational requirements.

Our solutions and services are designed to be a system of record to automate essential business processes, a system of engagement to enhance business interactions between our customers and their business ecosystems and a system of intelligence designed to leverage data to predict and optimize business workflows in order to enable exceptional customer experiences and increase efficiency across our customers' businesses.

Our mobile-optimized software solutions are designed for use across multiple devices and operating systems.

Our software solutions are offered as a service, are hosted using a modern cloud-based architecture, and in part, use artificial intelligence technologies.

This architecture leads to rich data sets that have a consistent schema across our customer and user base and enables us to deploy data-powered products and services for our customers and users.

For the years ended December 31, 2020, 2019 and 2018, our revenue was $ 310.1 million, $ 256.0 million and $ 190.1 million, respectively of which $ 284.7 million, $ 231.1 million and $ 172.4 million, respectively, are derived from our software and services offered to the real estate vertical.

During certain periods covered by this Annual Report, we also provided software solutions and services to the legal vertical.

On September 30, 2020, we completed our divestiture of 100 % of the issued and outstanding equity interests of MyCase, Inc.

("MyCase"), a former wholly owned subsidiary that provided such legal practice and case management software solutions to our legal customers.

We sold MyCase to Mockingbird AcquisitionCo Inc., a Delaware corporation (“Buyer”) affiliated with funds advised by Apax Partners LLP, for $ 193.0 million pursuant to a Stock Purchase Agreement, dated September 7, 2020 (the “Purchase Agreement”), by and among Buyer, us and MyCase (the “MyCase Transaction”).

In connection with the closing of the MyCase Transaction, and in accordance with the terms of the Purchase Agreement, we entered into certain ancillary agreements with MyCase, including relating to certain post-closing transition services to be provided by us to MyCase at fair market value, as well as an intellectual property licensing agreement for certain software and patents for which no ongoing licensing fees will be received.

We recognized a pre-tax gain on the sale of $ 187.7 million on the MyCase Transaction.

Summary of Significant Accounting Policies

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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 Sheet in the prior year to confirm to the current year's presentation.

Principles of Consolidation

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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 and expenses during the reporting period.

Actual results could differ materially from those estimates.

Assets and liabilities which are subject to judgment and use of estimates include the fair value of assets and liabilities assumed in business combinations, fair value of financial instruments, capitalized software 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, and valuation and assumptions underlying stock-based compensation and other equity instruments.

On an ongoing basis, management evaluates its estimates based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Assets and liabilities which are subject to judgment and use of estimates include the fair value of assets and liabilities assumed in business combinations, 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, and valuation and assumptions underlying stock-based compensation and other equity instruments.

During early calendar year 2020, the novel coronavirus disease ("COVID-19") spread globally, including to every state in the United States.

The global pandemic has created and may continue to create significant uncertainty in a wide variety of industries and markets and has prompted many federal, state, local, and foreign governments to adopt various orders and restrictions in an attempt to control the spread and mitigate the impact of the disease, which may reduce demand for our core solutions and/or Value+ services, impact the productivity of our workforce, reduce our access to capital, and harm our business and results of operations.

These potential impacts are only amplified by the length of time they remain in place, as the cumulative effect upon our customers and their businesses may only exacerbate potential harm to our business and results of operations.

In light of the unknown duration and severity of COVID-19, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting policies.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of COVID-19 as of December 31, 2020 and through the date of this report.

The accounting matters assessed included, but were not limited to, our allowance for credit losses, the carrying value of goodwill and other long-lived assets, performance-based compensation and income taxes.

As of the date of our Consolidated Financial Statements, we are not aware of any specific event or circumstance that would require us to update our estimates or judgments or to revise the carrying value of our assets or liabilities.

However, these estimates and judgments may change as new events occur and additional information is obtained, which may result in changes being recognized in our consolidated financial statements in future periods.

While we considered the effects of COVID-19 in our estimates and assumptions, due to the level of uncertainty regarding the economic and operational impacts of COVID-19 on our business, there may be other judgments and assumptions that we have not considered.

Such judgments and assumptions could result in a meaningful impact on our Consolidated Financial Statements in future periods.

Actual results could differ from those estimates and any such differences may have a material impact on our Consolidated Financial Statements.

Segment Information

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Concentrations of Credit Risk

Financial instruments that potentially subject us to credit risk consist principally of cash, accounts receivable, investment securities and notes receivable.

Financial instruments that potentially subject us to credit risk consist principally of cash, cash equivalents, restricted cash, accounts receivable, investment securities and notes receivable.

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.

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Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Accounting Standard Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”), describes 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:

Accounting Standard Codification 820, Fair Value Measurements and Disclosures , describes 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 or funds.

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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.

Cash and cash equivalents are recorded at fair value and consist primarily of bank deposits, treasury securities, and money market funds.

Restricted cash of $ 0.4 million at December 31, 2020 and 2019, is comprised of certificates of deposits relating to collateral requirements for customer automated clearing house and credit card chargebacks and minimum collateral requirements for our insurance services, which are recorded in other long-term assets.

Investment Securities

Our investment securities currently consist of corporate bonds, United States government agency securities ("Agency Securities") and treasury 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.

Unrealized gains and losses for available-for-sale investment securities are included in accumulated other comprehensive income (loss), a component of stockholders’ equity.

Unrealized gains and losses for available-for-sale investment securities are included in accumulated other comprehensive income, a component of stockholders’ equity.

We classify our investments as current when the period of time between the reporting date and the contractual maturity is twelve months or less and as noncurrent when the period of time between the reporting date and the contractual maturity is more than twelve months.

We evaluate our investments to assess whether those with unrealized loss positions are other than temporarily impaired.

We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis.

Declines in value judged to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net in the Consolidated Statements of Operations.

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, 2020.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts.

The allowance for doubtful accounts 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 doubtful accounts when identified.

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, 2019 and 2018 , our allowance for doubtful accounts was not material.

At December 31, 2020 and 2019, our allowance for credit losses was not material.

Property and Equipment

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The estimated useful lives of our property and equipment are as follows:

Depreciation Period

Data center and computer equipment

Furniture and fixtures

Office equipment

Leasehold improvements

Shorter of remaining life of lease or asset life

Asset Type Depreciation Period

Computer equipment 3 years

Furniture and fixtures 7 years

Office equipment 3 to 5 years

Leasehold improvements Shorter of remaining life of lease or asset life

Repair and maintenance costs are expensed as incurred.

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We determine if an arrangement is a lease at inception.

Operating leases are included in prepaid expenses and other current assets, operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities on our Consolidated Balance Sheets.

Operating leases are included in prepaid expenses and other current assets , operating lease ROU assets , other current liabilities , and operating lease liabilities on our Consolidated Balance Sheets.

Operating lease 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 and excludes lease incentives received and initial direct costs incurred.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

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.

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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, or lease our software, to third parties.

We do not transfer ownership of our software, license, or lease our software to third parties.

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.

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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.

A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense.

Goodwill and Intangible Assets

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We have one reporting unit and we test for goodwill impairment annually during the fourth quarter of the calendar year.

Based on the assessment performed November 1, 2019 , we determined it was unlikely that our reporting unit fair value was less than its carrying value and no quantitative impairment test assessment was required.

There were no indicators that our goodwill has become impaired since that date, and as such, there was no impairment of goodwill as of November 1, 2019 or December 31, 2019 .

Additionally, in connection with the disposal of goodwill associated with the MyCase Transaction, we performed a goodwill impairment assessment as of September 30, 2020 on our remaining goodwill balance.

Based on the assessments performed at September 30, 2020 and November 1, 2020, we determined it was unlikely that our reporting unit fair value was less than its carrying value and no quantitative impairment test assessment was required.

There were no indicators that our goodwill has become impaired since that date, and as such, there was no impairment charges recorded.

No impairment losses were recorded for goodwill during the years ended December 31, 2020, 2019 and 2018.

Intangible assets primarily consist of acquired database and technology, non-compete agreements, customer and partner relationships, trademarks, domain names and patents, which are recorded at cost, less accumulated amortization.

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.

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Determining the fair value of assets acquired and liabilities assumed requires management to make significant judgments and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies.

The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination.

We engage the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination.

Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an operating expense in the period in which the costs are incurred.

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We record deferred revenue when cash payments are received in advance of our performance.

During the twelve months ended December 31, 2019 and 2018 , we recognized $ 3.4 million and $ 7.1 million , respectively, that were included in the deferred revenue balances at December 31, 2018 and 2017 , respectively.

During the twelve months ended December 31, 2020 and 2019, we recognized revenue of $ 4.5 million and $ 3.4 million, respectively, that were included in the deferred revenue balances at December 31, 2019 and 2018, respectively.

Our payment terms vary by the type of our customer and the products or services offered.

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Amortization expense for the deferred costs is allocated based on the employee's department and included within sales and marketing expense in the accompanying Consolidated Statements of Operations.

Prior to the adoption of Accounting Standards Update ("ASU") No.

2014-09, Revenue from Contracts with Customers ("ASU 2014-09" or the "New Revenue Standard")

ASU 2014-09, our commissions were expensed as incurred.

Deferred costs were $ 10.3 million and $ 9.5 million at December 31, 2020 and 2019, respectively, of which $ 5.5 million and $ 4.8 million, respectively, are included in prepaid expenses and other current assets and $ 4.8 million and $ 4.6 million, respectively, are included in other assets in the accompanying Consolidated Balance Sheets.

Amortization expense for deferred costs was $ 4.2 million and $ 2.0 million for the years ended December 31, 2019 and 2018 , respectively.

Amortization expense for deferred costs was $ 5.8 million, $ 4.2 million, and $ 2.0 million for the years ended December 31, 2020, 2019, and 2018, respectively.

For the years ended December 31, 2020 and 2019, no impairments were identified in relation to the costs capitalized for the periods presented.

Cost of Revenue

Cost of revenue consists of fees paid to third-party service providers associated with delivering certain of our Value+ services (including legal fees and costs associated with the delivery and provision of those services, as well as loss reserves and other costs associated with our legal liability to landlord insurance services), personnel-related costs (including salaries, incentive-based compensation, benefits, and stock-based compensation) for our employees focused on customer service and the support of our operations, platform infrastructure costs (such as data center operations and hosting-related costs), payment processing fees, and allocated shared costs.

We typically allocate shared costs across our organization based on headcount within the applicable part of our organization.

Cost of revenue includes the fees paid to these third-party service providers (including legal fees and costs associated with the delivery and provision of those services, as well as loss reserves and other costs associated with our legal liability to landlord insurance services), which vary both in cost and as a percent of revenue for each Value+ service offering, personnel-related costs (including salaries, performance-based compensation, benefits, and stock-based compensation) for our employees focused on customer service and the support of our operations, platform infrastructure costs (such as data center operations and hosting-related costs), payment processing fees and allocated shared costs.

Cost of revenue excludes depreciation of property and equipment, and amortization of capitalized software development costs and intangible assets.

Sales and Marketing

Sales and marketing expense consists of personnel-related costs (including salaries, sales commissions, incentive-based compensation, benefits, and stock-based compensation) for our employees focused on sales and marketing, costs associated with sales and marketing activities, and allocated shared costs.

Sales and marketing expense consists of personnel-related costs (including salaries, sales commissions, performance-based compensation, benefits, and stock-based compensation) for our employees focused on sales and marketing, 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.

Sales commissions and other incremental costs to acquire customers and grow adoption and utilization of our Value+ services by our new and existing customers are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be three years.

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.

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Research and Product Development

Research and product development expense consists of personnel-related costs (including salaries, incentive-based compensation, benefits, and stock-based compensation) for our employees focused on research and product development, fees for third-party development resources, and allocated shared costs.

Our research and product development efforts are focused on enhancing the ease of use and functionality of our existing software solutions by adding new core functionality, Value+ services and other improvements, as well as developing new products and services for new and existing markets.

We capitalize the portion of our software development costs that meets the criteria for capitalization.

Research and product development expense consists of personnel-related costs (including salaries, performance-based compensation, benefits, and stock-based compensation) for our employees focused on research and product development, fees for third-party development resources, and allocated shared and other costs.

Our research and product development efforts are focused on enhancing functionality and the ease of use of our existing software solutions by adding new core functionality, Value+ services and other improvements, as well as developing new products and services for new and existing markets.

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 (including salaries, a majority of total incentive-based compensation, benefits, and stock-based compensation) for employees in our executive, finance, information technology, human resources, corporate development, legal and administrative organizations.

In addition, general and administrative expense includes fees for third-party professional services (including audit, legal, tax, and consulting services), transaction costs related to business combinations, other corporate expenses, and allocated shared costs.

General and administrative expense consists of personnel-related costs (including salaries, a majority of total performance-based compensation, benefits, and stock-based compensation) for employees in our executive, finance, information technology, human resources, legal, compliance, corporate development and administrative organizations.

In addition, general and administrative expense includes fees for third-party professional services (including audit, legal, compliance, tax, and consulting services), transaction costs related to business combinations and divestitures, regulatory fines and penalties, other corporate expenses, and allocated shared costs.

Depreciation and Amortization

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We estimate the fair value of stock options and performance-based stock options ("PSOs"), using the Black-Scholes option-pricing model.

We estimate the fair value of RSAs, RSUs and performance-based RSUs or PSU's based on the fair value of our common stock on the date of grant.

We estimate the fair value of restricted stock awards ("RSAs"), restricted stock units ("RSUs") and performance-based RSUs or performance share units ("PSUs") based on the fair value of our common stock on the date of grant.

Stock Options

For the years ended December 31, 2020, 2019, and 2018 we did not grant time-based stock options or PSOs.

For the year ended December 31, 2017, we determined the fair value of awards using the Black-Scholes option-pricing model which requires the use of subjective assumptions.

Key assumptions used in this model were (1) the fair value of the underlying ordinary shares, (2) the time period for which we expect the options will be outstanding (the expected term), (3) the expected volatility of our stock price, (4) the risk-free interest rate, and (5) the expected dividend yield.

Expected term and expected volatility are the judgments that we believe are subjective in estimating fair value (and related share-based compensation expense) of our option awards.

For the year ended December 31, 2017, the expected term was determined using the simplified method, which is calculated as the midpoint of the stock option vesting term and the expiration date of the stock option.

We considered historical average volatilities of publicly traded industry peers, in estimating expected volatility for options.

Other assumptions used include risk-free interest rate and expected dividend yield.

The risk-free interest rate is based on the yield for a U.S.

Treasury security having a maturity similar to the expected term of the related option grant.

This assumption was dependent on the assumed expected term.

The dividend yield of 0 % is based on us not paying or anticipating paying any cash dividends in the foreseeable future.

Restricted Stock Units

RSUs vest in equal tranches over four annual periods and are expensed on a straight-line basis over the vesting period.

RSUs generally vest in equal tranches over four annual periods and are expensed on a straight-line basis over the vesting period.

The shares underlying the RSU grants are not issued and outstanding until the applicable vesting date.

Performance-Based Equity Awards

Our PSOs and PSUs, include performance conditions that require us to estimate the probable outcome of the performance condition.

Our PSUs include performance conditions that require us to estimate the probable outcome of the performance condition.

This assessment is based on management's judgment using internally developed forecasts and assessed at each reporting period.

Compensation cost is recorded 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 PSOs and PSUs that are probable of vesting.

PSOs and PSUs will vest upon achievement of the relevant performance metric once such calculation is reviewed and approved by our Board of Directors.

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 upon achievement of the relevant performance metric once such calculation is reviewed and approved by our Board of Directors.

Forfeiture Rate

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In evaluating the need for a valuation allowance, management considers 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.

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Year Ended December 31,

2020 2019 2018

Weighted average common shares outstanding 34,269 34,020 34,139

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Weighted average common shares outstanding;

basic 34,264 34,016 34,128

Weighted average common shares outstanding;

basic 34,264 34,016 34,128

Weighted average options, restricted stock units and restricted shares used to compute diluted net income per common share 1,449 1,551 1,434

Weighted average common shares outstanding;

Approximately 187,000 , 358,000 and 548,000 shares of PSOs and PSUs are not included in the computations of diluted and anti-dilutive shares for the years ended December 31, 2019 , 2018 and 2017, respectively, as they are considered contingently issuable upon the satisfaction of pre-defined performance measures and their respective performance measures have not been met.

The following table presents the number of anti-dilutive common shares excluded from the calculation of weighted average number of shares used to compute diluted net income per share for the years ended December 31, 2019 , 2018 and 2017 (in thousands):

Unvested restricted stock units

Contingent restricted stock units (1)

Total shares excluded from diluted net income per common share

(1) The reported shares are based on fixed price RSU commitments for which the number of shares has not been determined at the grant date.

The number of shares have been determined by dividing the fixed price commitment to issue shares in the future by the closing price of our common stock at the applicable reporting period date.

Recently Adopted Accounting Pronouncements

diluted 35,713 35,567 35,562

For the years ended December 31, 2020, 2019 and 2018, an aggregate of 79,000 , 187,000 and 358,000 shares, respectively, underlying PSOs and 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 have not been met.

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, 2020, 2019 and 2018.

Recent Accounting Pronouncements Adopted in 2018

In May 2014, the Financial Accounting Standards Board ("FASB") issued the New Revenue Standard, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.

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The cumulative effects of the changes made to our Consolidated Balance Sheet at January 1, 2018 for the adoption of the New Revenue Standard were as follows (in thousands):

December 31, 2017

December 31, 2017 Adjustments Balance at

January 1, 2018

Prepaid expenses and other current assets $ 4,546 $ 1,148 $ 5,694

Other assets 1,238 1,816 3,054

Accumulated deficit $ ( 67,247 ) $ 2,964 $ ( 64,283 )

Recent Accounting Pronouncements Adopted in 2019

In February 2016, the FASB issued ASU No.

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The cumulative effect of the changes made to our Consolidated Balance Sheet at January 1, 2019 for the adoption of the new lease standard was as follows (in thousands):

December 31, 2018

December 31, 2018 Adjustments Balance at

January 1, 2019

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Other long-term liabilities 7,080 ( 6,921 ) 159

In March 2017, the FASB issued ASU No.

2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”).

ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium.

Specifically, ASU 2017-08 requires the premium to be amortized to the earliest call date.

ASU 2017-08 does not require an accounting change for securities held at a discount;

the discount continues to be amortized to maturity.

The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment made directly to retained earnings at the beginning of the period of adoption.

The adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or disclosures.

In June 2018, the FASB issued ASU No.

2018-07, Compensation - Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07").

This amendment expands the scope of Topic 718, Compensation—Stock Compensation (which only included share-based payments to employees) to include share-based payments issued to nonemployees for goods or services.

Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned.

The adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No.

Recent Accounting Pronouncements Adopted in 2020

In June 2016, the FASB issued Accounting Standards Update ("ASU") No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

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This guidance amends the accounting for credit losses for available-for-sale investment securities and purchased financial assets with credit deterioration.

ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods.

We do not expect the adoption of ASU 2016-13 will have a material impact on our financial condition, results of operations, cash flows or disclosures.

We adopted ASU 2016-13 on January 1, 2020.

The adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or disclosures.

In August 2018, the FASB issued ASU No.

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The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments.

For public business entities, the amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019.

We adopted ASU 2018-15 on January 1, 2020, on a prospective basis for all implementation costs incurred after the date of adoption.

We do not expect the adoption of this guidance will have a material impact on our financial condition, results of operations, cash flows or disclosures.

We adopted ASU 2018-15 on January 1, 2020.

The adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No.

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Further, ASU 2019-12 adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax basis goodwill and allocating taxes to members of a consolidated group.

ASU 2019-12 is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2020.

We do not expect the adoption of ASU 2019-12 will have a material impact on our financial condition, results of operations, cash flows or disclosures.

Business Combinations

This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities.

Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law.

This guidance is effective for interim and annual periods beginning after December 15, 2020 with early adoption permitted.

We do not expect the adoption of this guidance to have a material impact on our financial condition, results of operations, cash flows or disclosures.

Divestitures and Business Combinations

Divestiture of MyCase

On September 30, 2020, we completed the MyCase Transaction 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 retention bonus pool is refundable to us to the extent that MyCase employees are terminated prior to the retention period, which is one year from the closing date of the MyCase Transaction.

A portion of the cash proceeds was used to pay all outstanding borrowings under the Credit Facility.

Refer to Note 10, Long-Term Debt, of our Consolidated Financial Statements for more information about the termination of the Credit Facility.

We recognized a pre-tax gain on the sale of $ 187.7 million on the MyCase Transaction, consisting of cash proceeds of $ 192.2 million, less net assets divested of $ 4.6 million.

Net assets divested is primarily comprised of capitalized software development costs of $ 3.9 million, deferred revenue of $ 2.8 million and goodwill allocated to MyCase of $ 2.3 million.

The gain on the sale is included within Other income (expense), net in our Consolidated Statements of Operations.

Income received in relation to the transition services provided by us to MyCase of $ 1.1 million is included within Other income (expense), net in our Consolidated Statements of Operations.

Refer to Note 1, Nature of Business , of our Consolidated Financial Statements for more information about the MyCase Transaction.

Acquisition of Dynasty

On January 7, 2019, we acquired 100 % of the voting equity interest of Dynasty, a provider of advanced AI solutions for the real estate market.

Dynasty offers advanced conversational AI solutions that automate leasing communications, replace manual tasks and help customers grow their portfolios.

Dynasty’s technology is designed to enable operational efficiency in the leasing process including consistent prospect experience, lead conversion, and improved market insights.

The total purchase consideration was $ 60.2 million , of which $ 6.0 million (the "Holdback Amount") was retained by the Company to satisfy any such adjustments, including without limitation certain indemnification claims.

On January 7, 2019, we acquired 100 % of the voting equity interest of Dynasty Marketplace, Inc.

("Dynasty") for $ 60.2 million, of which $ 6.0 million the "Holdback Amount") was retained by us to satisfy any necessary adjustments, including without limitation certain indemnification claims.

The balance of the Holdback Amount, less any amount retained with respect to any unresolved indemnification claims, was released to the stockholders of Dynasty on January 10, 2020 in accordance with the terms of the purchase agreement.

The Holdback Amount is recorded in other current liabilities on the Consolidated Balance Sheet as of December 31, 2019 .

Dynasty is a provider of advanced artificial intelligence solutions for the real estate vertical, which automate leasing communications, replace manual tasks and help customers grow their portfolios.

The transaction was accounted for using the acquisition method and, as a result, assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date.

Determining the fair value of assets acquired and liabilities assumed requires management to make significant judgments and estimates, including the selection of valuation methodologies and comparable companies, estimates of future revenue and cash flows, discount rates, and the software decay rate and database ramp up rate.

The following table summarizes the final purchase price allocation (in thousands) as well as the estimated useful lives of the acquired intangible assets over which they are amortized on a straight-line basis, as this approximates the pattern in which economic benefits are consumed:

(in thousands)

Estimated Useful Life (in years)

The following table summarizes the final purchase price allocation (in thousands), as well as the estimated useful lives of the acquired intangible assets over which they are amortized on a straight-line basis, as this approximates the pattern in which we expect the economic benefits will be consumed:

(in thousands) Estimated Useful Life (in years)

Total current assets $ 305

Identified intangible assets:

Technology 5,730 4.0

Database 4,710 10.0

Customer relationships 1,110 5.0

Backlog 470 1.0

Trademark & trade name 1,390 10.0

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Total intangible assets subject to amortization 20,750 6.0

Goodwill 42,877 Indefinite

Other noncurrent assets 35

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federal income tax purposes.

We incurred a total of $ 291,000 in transaction costs related to the acquisition and expensed all transaction costs incurred during the period in which such service was received.

The results of operations of Dynasty since the acquisition are included in our Consolidated Statements of Operations for the Year Ended December 31, 2019 .

Revenue and net loss attributable to Dynasty in the period from the acquisition date of January 7, 2019 through December 31, 2019 , was $ 2.8 million and $ 9.2 million , respectively.

Acquisition of WegoWise

On August 31, 2018, we completed the acquisition of substantially all of the assets of WegoWise, Inc.

("WegoWise"), a provider of cloud-based utility analytics software solutions serving the real estate market.

The WegoWise platform empowers building owners and third-party property managers to better manage operating and capital expenditures relating to utilities.

Earlier this year we launched our AppFolio Utility Management Value+ service, which has been developed from certain key aspects of the WegoWise platform, and is a fully integrated offering that provides enhanced functionality to our real estate customers for utility analytics and management.

The consideration paid in cash for the assets was $ 14.4 million .

The transaction was accounted for using the acquisition method, and as a result, assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date.

(in thousands)

Estimated Useful Life (in years)

Net tangible assets

Identified intangible assets:

Customer relationships

Trademark and trade name

Non-compete agreement

Total intangible assets subject to amortization

Purchase consideration, paid in cash

Goodwill is mainly attributable to synergies expected from the acquisition and assembled workforce and is deductible for U.S.

federal income tax purposes.

We incurred a total of $ 240,000 in transaction costs related to the acquisition and expensed all transaction costs incurred during the period in which such service was received.

The results of operations of WegoWise since the acquisition are included in our Consolidated Statements of Operations for the year ended December 31, 2018.

Revenue and net loss attributable to WegoWise, in the period from the acquisition date of August 31, 2018 through December 31, 2018, were $ 0.4 million and $ 1.4 million , respectively.

We incurred a total of $ 0.3 million in transaction costs related to the acquisition and expensed all transaction costs incurred during the period in which such service was received.

Pro Forma Results of Operations

The following unaudited pro forma information has been prepared for illustrative purposes only, and assumes that the aforementioned Dynasty and WegoWise acquisitions occurred on January 1, 2018 and January 1, 2017, respectively, and includes pro forma adjustments related to the amortization of acquired intangible assets, elimination of historical interest and amortization expense, income taxes, compensation arrangements, and the transaction costs incurred.

The following unaudited pro forma information has been prepared for illustrative purposes only, and assumes that the aforementioned Dynasty acquisition occurred on January 1, 2018, and includes pro forma adjustments related to the amortization of acquired intangible assets, elimination of historical interest and amortization expense, income taxes, compensation arrangements, and the transaction costs incurred.

The unaudited pro forma results have been prepared based on estimates and assumptions, which we believe are reasonable;

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Year Ended December 31,

Revenue $ 256,047 $ 193,405

Net income 32,339 5,937

Investment Securities and Fair Value Measurements

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December 31, 2020

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

Corporate bonds

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

Agency securities $ 17,104 $ 29 $ ( 1 ) $ 17,132

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December 31, 2019

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

Corporate bonds $ 9,597 $ 18 $ ( 1 ) $ 9,614

Agency securities 11,101 17 — 11,118

Treasury securities 14,222 12 ( 1 ) 14,233

Total available-for-sale investment securities $ 34,920 $ 47 $ ( 2 ) $ 34,965

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

December 31, 2019

December 31, 2018

Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair Value

December 31, 2020 December 31, 2019

Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

Due in one year or less $ 28,197 $ 28,256 $ 22,846 $ 22,876

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Year Ended December 31, 2020

Gross Realized Gains

Gross Realized Losses

Gross Proceeds from Sales

Gross Proceeds from Maturities

Gross Realized Gains Gross Realized Losses Gross Proceeds from Sales Gross Proceeds from Maturities

Corporate bonds $ 6 $ — $ 4,006 $ 5,600

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Treasury securities 4 ( 2 ) 4,827 19,830

$ 35 $ ( 2 ) $ 16,711 $ 27,330

Year Ended December 31, 2019

Gross Realized Gains

Gross Realized Losses

Gross Proceeds from Sales

Gross Proceeds from Maturities

Gross Realized Gains Gross Realized Losses Gross Proceeds from Sales Gross Proceeds from Maturities

Corporate bonds $ — $ ( 1 ) $ 2,750 $ 11,350

Agency securities 6 — — 3,625

Certificates of deposit

Treasury securities — — — 685

$ 6 $ ( 1 ) $ 2,750 $ 15,660

For the years ended December 31, 2020, 2019 and 2018 we received interest income net of the amortization and accretion of the premium and discount of $ 0.3 million, $ 0.6 million, and $ 1.0 million, respectively.

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Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The following tables presents our financial assets and liabilities measured at fair value on a recurring basis at December 31, 2019 and 2018 , by level within the fair value hierarchy (in thousands):

The following tables present our financial assets and liabilities measured at fair value on a recurring basis at December 31, 2020 and 2019, by level within the fair value hierarchy (in thousands):

December 31, 2020

Level 1 Level 2 Level 3 Total Fair

Cash equivalents:

Money market funds $ 4,749 $ — $ — $ 4,749

Treasury securities 97,433 — — 97,433

Available-for-sale investment securities:

Corporate bonds

Agency securities — 17,132 — 17,132

Treasury securities 17,894 — — 17,894

Total $ 120,076 $ 17,132 $ — $ 137,208

December 31, 2019

Level 1 Level 2 Level 3 Total Fair

Cash equivalents:

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Agency securities — 11,118 — 11,118

Treasury securities 14,233 — — 14,233

Total $ 14,570 $ 20,732 $ — $ 35,302

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

The estimated fair value of the term loan made available to us by Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, and the lenders that are parties thereto ("Term Loan"), approximates its carrying value due to the variable interest rates.

We consider the fair value of the Term Loan to be a Level 2 measurement as the Term Loan is not actively traded.

We carry the Term Loan at face value less the unamortized discount on our Consolidated Balance Sheets.

Refer to Note 9, Long-Term Debt of our Consolidated Financial Statements for more information about the Term Loan.

As of December 31, 2019, the estimated fair value of the $ 50.0 million term loan issued by Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, and the lenders that are parties thereto ("Term Loan") and the $ 50.0 million revolving credit facility made available to us by Wells Fargo and the lenders that are parties thereto ("Revolving Facility," and, together with the Term Loan, the "Credit Facility"), approximated their carrying values due to the variable interest rates.

We considered the fair value of the Credit Facility to be Level 2 measurements as these debt instruments were not actively traded.

We carried the Term Loan at face value less the unamortized discount.

Refer to Note 10, Long-Term Debt, of our Consolidated Financial Statements for more information about our since-terminated Credit Facility.

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, 2020.

The valuation techniques for the items in the table above are as follows:

The valuation techniques for the financial assets in the tables above are as follows:

Cash Equivalents

At December 31, 2019 and 2018 , cash equivalents include cash invested in money market funds with a maturity of three months or less.

At December 31, 2020 and 2019, 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.

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Non-Recurring Fair Value Measurements

Certain assets, including goodwill, intangible assets and our note receivable with SecureDocs, are also subject to measurement at fair value on a non-recurring basis using Level 3 measurement, but only when they are deemed to be impaired as

a result of an impairment review.

Certain assets, including goodwill, intangible assets and our note receivable with SecureDocs, Inc., are also subject to measurement at fair value on a non-recurring basis using Level 3 measurement, but only when they are deemed to be impaired.

For the years ended December 31, 2020, 2019 and 2018, no impairments were identified on those assets required to be measured at fair value on a non-recurring basis.

Property and Equipment

Property and equipment consists of the following at December 31, 2019 and 2018 (in thousands):

Property and Equipment, net

Property and equipment, net consists of the following (in thousands):

Data center and computer equipment $ 4,597 $ 7,983

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Depreciation expense for property and equipment totaled $ 4.0 million, $ 3.1 million, and $ 2.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Internal-Use Software Development Costs

Internal-use software development costs were as follows (in thousands):

Internal use software development costs, gross

During September 2020, $ 13.9 million of capitalized costs, principally comprised of furniture and fixtures and leasehold improvements related to our corporate headquarters in Santa Barbara, California were ready for their intended use and were placed into service.

Capitalized Software Development Costs, net

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

Capitalized software development costs, gross $ 96,974 $ 81,475

Accumulated amortization ( 61,515 ) ( 51,452 )

Internal use software development costs, net

Capitalized software development costs, net $ 35,459 $ 30,023

Capitalized software development costs were $ 27.3 million, $ 23.6 million and $ 13.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Amortization expense with respect to software development costs totaled $ 17.9 million, $ 14.0 million and $ 11.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

During the year ended December 31, 2020, $ 3.9 million in capitalized software development costs were divested in connection with the MyCase Transaction.

Future amortization expense with respect to capitalized software development costs at December 31, 2020 is estimated as follows (in thousands):

Years Ending December 31,

2021 $ 18,008

Total amortization expense $ 35,459

Goodwill and Intangible Assets

Intangible assets consisted of the following at December 31, 2019 and 2018 (in thousands, except years):

Intangible Assets, net and Goodwill

Intangible assets, net consisted of the following (in thousands, except years):

December 31, 2020

Gross Carrying

Value Accumulated

Amortization Net Carrying

Value Weighted

Average Useful

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Customer relationships $ 2,840 $ ( 1,550 ) $ 1,290 5.0

Database 8,330 ( 1,787 ) 6,543 10.0

Technology 6,539 ( 3,641 ) 2,898 4.0

Trademarks and trade names 1,890 ( 732 ) 1,158 5.0

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Non-compete agreements 7,400 ( 2,964 ) 4,436 5.0

Domain names 90 ( 70 ) 20 5.0

Patents 252 ( 240 ) 12 5.0

Total intangible assets, net $ 28,021 $ ( 11,664 ) $ 16,357 6.3

December 31, 2019

Gross Carrying

Value Accumulated

Amortization Net Carrying

Value Weighted

Average Useful

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Customer relationships $ 3,070 $ ( 1,296 ) $ 1,774 5.0

Database 8,330 ( 954 ) 7,376 10.0

Technology 10,541 ( 6,074 ) 4,467 5.0

Trademarks and trade names 2,690 ( 898 ) 1,792 6.0

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Non-compete agreements 7,400 ( 1,484 ) 5,916 5.0

Domain names 301 ( 276 ) 25 5.0

Patents 252 ( 225 ) 27 5.0

Backlog 470 ( 470 ) — 1.0

Total intangible assets, net $ 33,734 $ ( 12,357 ) $ 21,377 6.2

Amortization expense with respect to intangible assets totaled $ 4.9 million, $ 5.3 million and $ 1.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Future a mortization expense with respect to intangible assets is estimated as follows (in thousands):

Future amortization expense with respect to intangible assets is estimated as follows (in thousands):

Years Ending December 31,

Thereafter 2,378

Total amortization expense $ 16,357

Our goodwill balance is solely attributed to acquisitions.

As a result of the disposal of goodwill associated with the MyCase Transaction, we performed a goodwill impairment assessment as of September 30, 2020 on our remaining goodwill balance.

There have been no impairment charges recorded against goodwill.

Goodwill recorded during the twelve months ended December 31, 2019 , which related to the acquisition of Dynasty was attributed to our one reporting unit.

The change in the carrying amount of goodwill is as follows (in thousands):

The change in the carrying amount of goodwill during the twelve months ended December 31, 2020 is as follows (in thousands):

Goodwill at December 31, 2019 $ 58,425

Goodwill from acquisition of Dynasty

Goodwill attributed to MyCase divestiture ( 2,278 )

Goodwill at December 31, 2020 $ 56,147

We have operating leases for our corporate offices and data centers.

Our leases have remaining lease terms ranging from one to twelve years, some of which include options to extend the leases for up to 10 years.

These options to extend have not been recognized as part of our operating lease ROU assets and lease liabilities as it is not reasonably certain that we will exercise these options.

Accrued Employee Expenses

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

Accrued vacation $ 8,277 $ 5,554

Accrued bonuses 5,638 3,872

Accrued commissions 1,995 1,860

Accrued payroll 1,921 5,202

Accrued payroll taxes and other 1,057 1,270

Total accrued employee expenses $ 18,888 $ 17,758

Operating leases for our corporate offices have remaining lease terms ranging from one to eleven 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.

We have lease agreements with lease and non-lease components, which we have elected to combine for all asset classes.

The total lease cost associated with our operating leases for the twelve months ended December 31, 2019 was $ 5.1 million .

Lease-related assets and liabilities were as follows at December 31, 2019 (in thousands):

Certain leases contain provisions for property-related costs that are variable in nature for which the Company is responsible, including common area maintenance.

Operating lease cost associated with our operating leases for the twelve months ended December 31, 2020 and 2019 was $ 5.3 million and $ 5.1 million, respectively.

Variable lease cost associated with our operating leases for the twelve months ended December 31, 2020 and 2019 was $ 1.4 million and $ 1.1 million, respectively.

We recorded rent expense of $ 2.6 million for the year ended December 31, 2018.

Lease-related assets and liabilities were as follows (in thousands, except years and %):

Prepaid expenses and other current assets $ 3,972 $ 3,908

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Weighted-average discount rate 4.5 % 4.7 %

Supplemental cash flow information related to leases was as follows for the twelve months ended December 31, 2019 (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

Future minimum lease payments under non-cancellable leases as of December 31, 2020 were as follows (in thousands):

Years ending December 31,

Thereafter 32,040

Total future minimum lease payments 49,982

imputed interest ( 11,963 )

(1) Future minimum lease payments for the years ending December 31, 2020 and 2021 are presented net of tenant improvement allowances of $ 5.5 million and $ 2.3 million , respectively.

(2) Total future minimum lease payments include the current portion of lease liabilities recorded in prepaid expenses and other current assets of $ 3.9 million which relates to certain of the Company's leases for which the lease incentives to be received exceed the minimum lease payments to be paid over the next twelve months.

A summary of our future minimum payments for obligations under non-cancellable operating leases as of December 31, 2018 was as follows (in thousands):

Years Ending December 31,

Total lease commitments

We recorded rent expense of $ 2.6 million and $ 2.1 million for the years ended December 31, 2018 and 2017 , respectively.

On April 1, 2019, we signed a new lease with Rose Studios, LLC to lease approximately 5,000 square feet of office space located in Venice, California.

The lease is for a five-year term commencing August 1, 2019 ending on July 31, 2024.

The total commitment under this lease is $ 2.0 million for which the remaining amount due at December 31, 2019 is included in the maturities table above.

On December 6, 2019, we signed three new leases for certain premises located in the Castilian Technical Center at 50, 70, and 90 Castilian Drive in Santa Barbara, California.

The leases replaced the Company's prior lease agreements with the previous landlord with respect to the premises.

The leases commenced December 6, 2019 and are for a twelve -year term ending on February 29, 2032, with two consecutive five-year renewal periods, each at the Company's option.

The total commitment under these lease agreements is $ 36.5 million for which the remaining amount due at December 31, 2019 is included in the maturities table above.

(1) Future minimum lease payments for the year ending December 31, 2021 are presented net of tenant improvement allowances of $ 4.8 million.

(2) Total future minimum lease payments include the current portion of lease liabilities recorded in Prepaid expenses and other current assets of $ 4.0 million on our Consolidated Balance Sheets, which relates to certain of our leases for which the lease incentives to be received exceed the minimum lease payments to be paid over the next twelve months.

On December 17, 2020, we entered into a lease amendment for 1707 N Plano Road, Richardson, Texas.

The amendment expands the current leased space with three additional suites totaling approximately 23,833 square feet and extends the lease term to March 31, 2032.

The total commitment under this lease is $ 11.6 million.

Long-term Debt

The following is a summary of our long-term debt at December 31, 2019 (in thousands):

Principal amounts due under term loan

Debt financing costs

Long-term debt, net of unamortized debt financing costs

Current portion of long-term debt

Total long-term debt, net of current portion

Scheduled principal payments for the Term Loan at December 31, 2019 are as follows (in thousands):

Years Ending December 31,

Total principal payments

Credit Agreement

On December 24, 2018, we amended our credit agreement (Amendment Number Two to the Credit Agreement, or the "Second Amendment") with Wells Fargo, as administrative agent, and the lenders that are parties thereto (as amended, the "Credit Agreement").

Under the terms of the Second Amendment, the lenders have made available to us a $ 50.0 million term loan (the "Term Loan") and have increased the existing $ 25.0 million Revolving Facility to $ 50.0 million .

The maturity date of the Term Loan and Revolving Facility is December 24, 2023.

In addition, we are now permitted to make certain restricted junior payments, including without limitation stock repurchases and enter into acquisitions in which we are the purchaser ("Acquisitions"), with no dollar cap on such Acquisitions, so long as we maintain certain specified liquidity requirements and leverage ratios.

The Second Amendment also modifies certain financial covenants by, among other things, requiring us to maintain (i) an EBITDA to interest expense ratio of not less than 3.0 to 1.0, and (ii) a funded indebtedness to EBITDA ratio of not more than 3.5 :1.0 (the "Required Leverage Ratio") (decreasing by 0.25 per year until the Required Leverage Ratio is 2.5 to 1.0);

provided, however, that we are not required to maintain the foregoing ratios if our liquidity (sum of remaining borrowing capacity and available cash) has equaled or exceeded the greater of $ 20.0 million and 20% of the sum of the outstanding principal amount of the Term Loan and commitments under the Revolving Facility.

If we enter into an Acquisition with a purchase price greater than or equal to $ 20.0 million , then the Required Leverage Ratio will be increased by 0.5 for the 12-month period immediately following the consummation of such Acquisition.

The Credit Agreement contains customary affirmative, negative and financial covenants.

The affirmative covenants require us to, among other things, disclose financial and other information to the lenders, maintain our business and properties, and maintain adequate insurance.

The negative covenants restrict us from, among other things, incurring additional indebtedness, prepaying certain types of indebtedness, encumbering or disposing of our assets, making fundamental changes to our corporate structure, and making certain dividends and distributions.

At December 31, 2019 , we were in compliance with the financial covenants under the Credit Agreement.

Under the terms of the Second Amendment, borrowings under the Credit Agreement will bear interest at a fluctuating rate per annum equal to, at our option, (i) the adjusted London Interbank Offered Rate ("LIBOR") or (ii) an alternate base rate, in each case plus the applicable interest rate margin.

Borrowings will fluctuate between adjusted LIBOR plus 1.5 % per annum and adjusted LIBOR plus 2.0 % per annum (or between the alternate base rate plus 0.5 % per annum and the alternate base rate plus 1.0 % per annum), based upon our leverage ratio.

The average interest rate during the twelve months ended December 31, 2019 was 3.9 % .

Fees payable on the unused portion of the Revolving Facility will be 25 basis points per annum, unless the average usage of the Revolving Facility is equal to or less than $ 30.0 million for the applicable period, in which case the fees on the unused portion of the Revolving Facility will be 0.375 % per annum.

At December 31, 2019 and 2018 , there was no outstanding balance under the Revolving Facility.

On December 24, 2018, we entered into Amendment Number Two to the Credit Agreement (the "Second Amendment") with Wells Fargo, as administrative agent, and the lenders that were parties thereto (as amended, the "Credit Agreement").

Under the terms of the Second Amendment, the lenders issued the Term Loan to us and increased the amount available under the Revolving Facility to $ 50.0 million.

The maturity date of the Term Loan and Revolving Facility was December 24, 2023.

In addition, pursuant to the Second Amendment, we were permitted to make certain restricted junior payments, including, without limitation, repurchases of our common stock, and to enter into acquisitions with no value limitation, so long as we maintained specified liquidity requirements and leverage ratios.

The Second Amendment also modified certain financial covenants by, among other things, requiring us to maintain (i) an EBITDA to interest expense ratio of not less than 3.0 to 1.0, and (ii) a funded indebtedness to EBITDA ratio of not more than 3.5 :1.0 (the "Required Leverage Ratio") (decreasing by 0.25 per year until the Required Leverage Ratio is 2.5 to 1.0);

provided, however, that we were not required to maintain the foregoing ratios if our liquidity (defined as the sum of the remaining borrowing capacity under the Credit Agreement and available cash) had equaled or exceeded the greater of $ 20.0 million and 20% of the sum of the outstanding principal amount of the Term Loan and commitments under the Revolving Facility.

If we entered into an acquisition with a purchase price greater than or equal to $ 20.0 million, then the Required Leverage Ratio would be increased by 0.5 for the 12-month period immediately following the consummation of such acquisition.

The Credit Agreement contained customary affirmative, negative and financial covenants.

The affirmative covenants required us to, among other things, disclose financial and other information to the lenders, maintain our business and properties, and maintain adequate insurance.

The negative covenants restricted us from, among other things, incurring additional indebtedness, prepaying certain types of indebtedness, encumbering or disposing of our assets, making fundamental changes to our corporate structure, and making certain dividends and distributions.

Under the terms of the Second Amendment, borrowings under the Credit Agreement would bear interest at a fluctuating rate per annum equal to, at our option, (i) LIBOR or (ii) an alternate base rate, in each case plus the applicable interest rate margin.

Borrowings would fluctuate between LIBOR plus 1.5 % per annum and adjusted LIBOR plus 2.0 % per annum (or between the alternate base rate plus 0.5 % per annum and the alternate base rate plus 1.0 % per annum), based upon our Required Leverage Ratio.

Fees payable on the unused portion of the Revolving Facility were 0.25 % per annum, unless the average usage of the Revolving Facility was equal to or less than $ 30.0 million for the applicable period, in which case the fees on the unused portion of the Revolving Facility would have been 0.375 % per annum.

In connection with the MyCase Transaction, and as required by the terms of the Credit Agreement, the Credit Agreement was terminated and all obligations outstanding under the Term Loan and Revolving Facility thereunder, including all guarantees and security interests granted with respect to such obligations, were satisfied in full with proceeds from the MyCase Transaction and extinguished.

Immediately prior to the repayment of amounts owed under, and termination of, the Credit Agreement, there were approximately $ 48.1 million in term loans outstanding and $ 49.1 million in revolving borrowings outstanding.

Refer to Note 1, Nature of Business , and Note 3, Divestitures and Business Combinations , of our Consolidated Financial Statements for more information about the MyCase Transaction.

Debt Financing Costs

As a result of the Second Amendment, we incurred $ 0.4 million in financing fees that were capitalized and will be amortized over the remaining life of the related debt, $ 0.2 million of which was related to the Term Loan and $ 0.2 million of which was related to the Revolving Facility.

As a result of the Second Amendment, we incurred $ 0.4 million in financing fees that were capitalized and amortized over the remaining life of the related debt, $ 0.2 million of which was related to the Term Loan and $ 0.2 million of which was related to the Revolving Facility.

Pursuant to GAAP, the Second Amendment is accounted for as a debt modification.

As a result, the unamortized deferred debt financing costs related to the Revolving Facility prior to the Second Amendment were added to the $ 0.2 million of deferred debt financing costs related to the Second Amendment and will be amortized over the remaining life of the Revolving Facility.

Debt financing costs are deferred and amortized, using the straight-line method, which approximates the effective interest method, for costs related to the Term Loan and the straight-line method for costs related to the Revolving Facility over the term of the debt arrangement;

such amortization is included in interest expense in the Consolidated Statements of Operations.

As a result, the unamortized deferred debt financing costs related to the Revolving Facility prior to the Second Amendment were added to the $ 0.2 million of deferred debt financing costs related to the Second Amendment and amortized over the remaining life of the Revolving Facility.

Debt financing costs were deferred and amortized, using the straight-line method, which approximated the effective interest method, for costs related to the Term Loan and the straight-line method for costs related to the Revolving Facility over the term of the arrangement;

such amortization is included in Interest expense, net in the Consolidated Statements of Operations.

Amortization of deferred debt financing costs was not material for the years ended December 31, 2020, 2019 and 2018.

At December 31, 2019 and 2018 , the remaining unamortized deferred debt financing costs were $ 0.4 million and $ 0.5 million , of which, at December 31, 2019 and 2018 , $ 0.2 million was offset against debt.

At December 31, 2019 and 2018 , $ 0.3 million of the remaining unamortized deferred debt financing costs were recorded in prepaid expenses and other current assets and other assets on the Consolidated Balance Sheets, as they pertained to the Revolving Facility.

At December 31, 2019, the remaining unamortized deferred debt financing costs were $ 0.4 million, of which $ 0.2 million was offset against debt.

As of December 31, 2019, $ 0.3 million of the remaining unamortized deferred debt financing costs were recorded in Prepaid expenses and other current assets and Other long-term assets on our Condensed Consolidated Balance Sheets, as they pertained to the Revolving Facility.

The following is a summary of our long-term debt as of December 31, 2020 and December 31, 2019 (in thousands):

2020 December 31,

Principal amounts due under Term Loan $ — $ 48,750

Unamortized debt financing costs — ( 167 )

Long-term debt, net of unamortized debt financing costs $ — $ 48,583

Commitments and Contingencies

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Included in cost of revenue we accrue for reported claims, and an estimate of losses incurred but not reported by our property management customers, as we bear the risk related to claims.

Our liability for reported claims and incurred but not reported claims at December 31, 2019 and 2018 was $ 1.8 million and $ 0.6 million , respectively, and is included in other current liabilities on the Consolidated Balance Sheets.

Our liability for reported claims and incurred but not reported claims at December 31, 2020 and 2019 was $ 1.5 million and $ 1.8 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, 2020 and 2019 are $ 2.7 million and $ 1.3 million, respectively, of deposits held with a third party related to requirements to maintain collateral for our insurance services.

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Department of Justice ("DOJ") requesting certain information relating to our compliance with the Servicemembers Civil Relief Act in connection with our tenant screening Value+ service.

We continue to fully cooperate with the DOJ, and do not presently have sufficient information to predict the outcome of, or any potential costs or penalties associated with, the DOJ investigation.

In December 2018, we received a Civil Investigative Demand from the Federal Trade Commission ("FTC") requesting certain information relating to our compliance with the Fair Credit Reporting Act in connection with our tenant screening Value+ service.

We continue to fully cooperate with the FTC, and do not presently have sufficient information to predict the outcome of, or any potential costs or penalties associated with, the FTC investigation.

In addition, from time to time, we are involved in various other investigatory inquiries or legal proceedings arising from or related to matters incident to the ordinary course of our business activities, including actions with respect to intellectual property, employment, regulatory and contractual issues.

On November 6, 2020, the DOJ issued a no action letter, declining to take any action against us and closing its investigation.

On April 30, 2020, the FTC staff informed us of its belief that there is a reasonable basis for asserting claims against us for our alleged failure to comply with certain sections of the FCRA that could result in monetary penalty and/or injunctive relief.

We disagree with the stated belief of the FTC and vigorously defended our position.

Notwithstanding our disagreement with the FTC's position, and primarily in an effort to avoid protracted litigation and potential distraction to our business, we entered into settlement negotiations with the FTC in an effort to resolve all claims and allegations arising out of or relating to the FTC Investigation.

Those settlement negotiations resulted in a final agreement between the parties that is memorialized in a Stipulated Order for Permanent Injunction and Civil Penalty Judgment filed in the United States District Court for the District of Columbia on January 12, 2021.

We admitted no wrongdoing in connection with the settlement.

In the second quarter of 2020, we determined that a loss stemming from the FTC Investigation was probable and that a reasonable estimate of the loss was approximately $ 4.3 million.

Accordingly, an accrual of $ 4.3 million is included within accrued expenses on our Consolidated Balance Sheet as of December 31, 2020.

The ultimate settlement amount of $ 4.3 million was paid in January 2021.

In addition to the foregoing, from time to time, we are involved in various other investigatory inquiries or legal proceedings arising from or related to matters incident to the ordinary course of our business activities, including actions with respect to intellectual property, employment, regulatory and contractual issues.

Although the results of such investigatory inquiries and legal proceedings cannot be predicted with certainty, we believe that we are not currently a party to any investigatory inquiries or legal proceeding(s) 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.

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The Class A common stock, Class B common stock and preferred stock have a par value of $ 0.0001 per share.

At December 31, 2019 , there were 16,552,000 shares of Class A common stock outstanding, 17,594,000 shares of Class B common stock outstanding and no preferred shares outstanding.

Class A Common Stock and Class B Common Stock

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Share Repurchase Program

On February 20, 2019, the Board of Directors (the "Board") authorized a $ 100.0 million Share Repurchase Program (the "Program") of our outstanding Class A Common Stock.

Under the Program, share repurchases may be made from time to time, as directed by a Committee consisting of three Directors, in open market purchases or privately negotiated transactions at a repurchase price that the members of the Committee unanimously believe is below intrinsic value conservatively determined.

The Program does not obligate us to repurchase any specific dollar amount or number of shares, there is no expiration date to the Program, and it may be modified, suspended or terminated at any time and for any reason.

We did not repurchase any Class A Common Stock under the Program during the year ended December 31, 2019 .

In October 2018, our Board authorized a $ 30.0 million Share Repurchase Program of its outstanding Class A Common Stock.

Pursuant to this program , the Company has repurchased 370,751 shares for an aggregate purchase price of $ 21.6 million .

The balance of $ 8.4 million remaining under the October authorization is included within the $ 100.0 million Share Repurchase Program authorized on February 20, 2019.

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, and it may be modified, suspended or terminated at any time and for any reason.

During the three months ended March 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 repurchases under the Share Repurchase Program subsequent to the three months ended March 31, 2020.

Stock-Based Compensation

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2007 Stock Incentive Plan

On February 14, 2007, our Board of Directors adopted the 2007 Stock Incentive Plan (the “2007 Plan”) as an amendment and restatement to an original 2006 Equity Incentive Plan and was most recently amended in July 2014.

On February 14, 2007, our Board of Directors adopted the 2007 Stock Incentive Plan (the “2007 Plan”).

Following our IPO, our Board of Directors determined not to make any further awards under the 2007 Plan.

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A summary of our stock option activity for the year ended December 31, 2020 is as follows (number of shares in thousands):

Number of Shares

Weighted Average Exercise Price per Share

Weighted Average Remaining Contractual Life in Years

Options outstanding at December 31, 2018

Number of Shares Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Life in Years

Options outstanding as of December 31, 2019 1,342 $ 11.84 5.9

Options granted — —

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Options cancelled/forfeited ( 55 ) 23.75

Options outstanding at December 31, 2019

Options outstanding as of December 31, 2020 1,168 $ 11.77 5.0

At December 31, 2020:

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Options exercisable 1,168 $ 11.77 5.0

(1) Included in the options exercisable is 15,000 shares which have an early exercise option.

The weighted average exercise price of these options is $ 5.64 per share and the weighted average contractual life in years is 5.1 years.

Included in the options outstanding as of December 31, 2019 are 172,000 PSOs granted in 2017.

Vesting of these PSOs is based on the achievement of pre-established performance targets for the year ending December 31, 2019 and continued employment throughout the performance period.

Of these PSOs, 132,000 shares vest based on the achievement of a pre-established free cash flow performance target for the year ending December 31, 2019, assuming achievement of the performance metric at the maximum level, which is 150 % of the performance target, resulting in a maximum payout of 100 % of the initial target award.

The remaining 40,000 PSOs have a pre-established adjusted gross margin target for the year ending December 31, 2019.

PSOs tied to the gross margin performance target have two levels of vesting, with 50 % vesting based on the achievement of 110 % of the targeted amount and the remaining 50 % vesting based on the achievement of 115 % of the targeted amount.

During the year ended December 31, 2019 , 200,000 PSOs vested based on the achievement of 120 % of the pre-established free cash flow performance target for the year ended December 31, 2018.

We recognize expense for the PSOs based on the grant date fair value of the PSOs that we determine are probable of vesting.

Adjustments to compensation expense are made each period based on changes in our estimate of the number of PSOs that are probable of vesting.

Our stock-based compensation expense for stock options for the years ended December 31, 2019 , 2018 and 2017 was $ 0.6 million , $ 1.6 million , and $ 2.9 million , respectively.

During the year ended December 31, 2020, 77,000 PSOs vested based on the achievement of 95 % of the pre-established free cash flow performance target for the year ended December 31, 2019, and 40,000 PSOs vested based on the achievement of 115 % of the pre-established gross margin target for the year ended December 31, 2019.

Our stock-based compensation expense for stock options for the years ended December 31, 2020 was not material.

Our stock-based compensation expense for stock options for the years ended December 31, 2019 and 2018 was $ 0.6 million and $ 1.6 million, respectively.

At December 31, 2020, the total remaining stock-based compensation expense for unvested stock options was no t material.

The fair value of stock options is estimated on their date of grant using the Black-Scholes option-pricing model.

No stock options were granted during the years ended December 31, 2019 and 2018 .

At December 31, 2019 , the total remaining stock-based compensation expense for unvested stock options was $ 0.1 million , which is expected to be recognized over a weighted average period of 0.9 years.

No stock options were granted during the years ended December 31, 2020, 2019 or 2018.

The total intrinsic value of options exercised in 2020, 2019 and 2018 was $ 17.9 million, $ 11.5 million, and $ 7.5 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, 2019 , the total intrinsic value of all outstanding options was $ 131.7 million .

The total intrinsic value of exercisable options at December 31, 2019 was $ 129.8 million .

The total intrinsic value of options vested and expected to vest at December 31, 2019 was $ 131.7 million .

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, 2020, the total intrinsic value of all outstanding options, exercisable options, and options vested and expected to vest was $ 196.6 million.

The excess tax benefit realized from option exercises during the years ended December 31, 2020, 2019 and 2018 was $ 30.1 million, $ 20.5 million, and $ 7.7 million, respectively.

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A summary of activity in connection with our RSUs for the year ended December 31, 2020 is as follows (number of shares in thousands):

Number of Shares

Weighted Average Grant Date Fair Value per Share

Unvested at December 31, 2018

Unvested at December 31, 2019

During the year ended December 31, 2019 , we granted a total of 216,000 RSUs and PSUs:

173,000 RSUs vest annually over four years ;

37,000 PSUs vest based on the achievement of a pre-established consolidated net revenue growth target for each of the years ending December 31, 2020, 2021 and 2022 and continued employment throughout the performance period;

and 6,000 PSUs were granted and vested as a result of the achievement of a pre-established free cash flow performance target for the year ended December 31, 2018.

The number of PSUs granted, as included in the above table, assumes achievement of the performance metric at 100 % of the targeted performance metric.

Number of Shares Weighted Average Grant Date Fair Value per Share

Unvested as of December 31, 2019 646 $ 52.42

Granted 174 112.24

Vested ( 268 ) 36.58

Forfeited ( 69 ) 70.52

Unvested as of December 31, 2020 483 $ 80.20

During the year ended December 31, 2020, we granted a total of 160,000 RSUs that are subject to time-based vesting in equal annual installments over four years , and 14,000 PSUs that are subject to vesting based on the achievement of pre-established consolidated net revenue growth targets for the years ending December 31, 2020, 2021 and 2022, assuming continued employment throughout the performance period.

The number of PSUs granted, as included in the above table, assumes achievement of the performance metric at 100 % of the performance target.

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 target between 100 % and 150 % of the performance target will result in a performance-based cash bonus payment between 100 % and 165 % of the initial target awards.

During the year ended December 31, 2019 , 29,000 of the PSUs vested and an additional 6,000 PSUs were granted and vested based on the achievement of 120 % of the pre-established free cash flow performance target for the year ended December 31, 2018.

Achievement of the performance metric between 100 % and 150 % of the performance target will result in a performance-based cash bonus payment between 100 % and 165 % of the initial target awards.

During the year ended December 31, 2020, 84,000 PSUs vested and 4,000 PSUs were cancelled based on the achievement of 95 % of the pre-established free cash flow performance target for the year ended December 31, 2019.

Included in the unvested RSUs and PSUs at December 31, 2020 are 32,000 and 82,000 PSUs granted in 2019 and 2018, respectively.

Of the PSUs granted in 2018, 54,000 vest based on the achievement of a pre-established consolidated net revenue growth target for the year ending December 31, 2020 and 41,000 vest based on the achievement of a pre-established consolidated net revenue growth target for the year ending December 31, 2021.

Vesting of the PSUs granted in 2017 is based on the achievement of pre-established free cash flow performance targets for the year ending December 31, 2019, and continued employment throughout the performance period.

Of these PSUs, 48,000 are subject to vesting based on the achievement of a pre-established consolidated net revenue growth target for the year ending December 31, 2020, 42,000 are subject to vesting based on the achievement of a pre-established consolidated net revenue growth target for the year ending December 31, 2021, and 24,000 are subject to vesting based on the achievement of a pre-established consolidated net revenue growth target for the year ending December 31, 2022.

The number of PSUs granted assumes achievement of the performance metric at 100 % of the performance target.

For the PSUs granted in 2018, 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 target between 100 % and 150 % of the performance target will result in a performance based cash bonus payment between 100 % and 165 % of the initial target awards.

For the PSUs granted in 2017, the actual number of shares to be issued at the end of the performance period will range from 0 % to 165 % of the initial target award.

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 100 % and 165 % of the initial target awards.

We recognize expense for the PSUs based on the grant date fair value of the PSUs that we determine are probable of vesting.

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A summary of activity in connection with our RSAs for the year ended December 31, 2020 is as follows (number of shares in thousands):

Number of Shares

Weighted- Average Grant Date Fair Value per Share

Unvested at December 31, 2018

Unvested at December 31, 2019

Number of Shares Weighted- Average Grant Date Fair Value per Share

Unvested as of December 31, 2019 5 $ 105.88

Granted 5 153.41

Vested ( 5 ) 105.88

Forfeited — —

Unvested as of December 31, 2020 5 $ 153.41

We have the right to repurchase any unvested RSAs subject to certain conditions.

RSAs vest over a four -year period for employees and over a one -year period for non-employee directors.

RSAs vest over a one-year period.

For the years ended December 31, 2020, 2019 and 2018, we recognized stock-based compensation expense for RSAs of $ 0.7 million, $ 0.3 million and $ 0.3 million, respectively.

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At December 31, 2020, the total remaining stock-based compensation expense for unvested RSAs was $ 0.4 million, which is expected to be recognized over a weighted average period of 0.7 years.

For the year ended December 31, 2019 , we recorded an income tax benefit of $ 31.5 million .

During the second quarter of 2019, the Company evaluated all available positive and negative evidence, including the Company's sustained profitability in 2018 and 2019, the impact of recent acquisitions and future projections of profitability.

As a result, the Company determined that all of its deferred tax assets were more likely than not to be realized and reversed the valuation allowance against those deferred tax assets accordingly.

For the years ended December 31, 2018 and 2017, we recorded income tax expense of $ 420,000 and $ 58,000 , respectively, associated with state taxes and the amortization of tax deductible goodwill that is not an available source of income to realize the deferred tax asset.

Our effective tax rate differs from the United States federal statutory rate of 21 % primarily because, in years prior to 2019, our reported losses were offset by a valuation allowance due to uncertainty as to the realization of those losses while, in 2019, we released such valuation allowance.

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 of 21 % for the years ended December 31, 2019 and 2018 , and 34 % for the year ended December 31, 2017 :

For the year ended December 31, 2020, we recorded income tax expense of $ 38.4 million.

The tax provision for the year ended December 31, 2020 includes tax expense of $ 51.3 million relating to the MyCase Transaction which includes $ 52.3 million of current tax expense on the gain on the sale of MyCase, less a $ 1.0 million benefit on the reversal of deferred tax liabilities relating to MyCase.

For tax purposes, we plan to file an election to treat the transaction as a sale of assets.

As such, the tax impact takes into consideration the tax basis of the assets on the date of sale and the availability of net operating losses and research and development tax credits.

The effective tax rate as compared to the U.S.

federal statutory rate of 21% differs primarily due to state income taxes and the 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 for the years ended December 31, 2020, 2019, and 2018:

Year Ended December 31,

Income tax benefit at the statutory rate

2020 2019 2018

federal statutory income tax rate 21 % 21 % 21 %

State and local income taxes, net of federal benefit 3 ( 53 ) ( 3 )

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Change in valuation allowance — ( 475 ) ( 1 )

Change in federal rate

Other permanent differences 1 — —

Research and development tax credits ( 2 ) ( 64 ) ( 9 )

Provision for (benefit from) income taxes 20 % ( 652 ) % 2 %

The provision for income tax consists of the following (in thousands):

The provision for (benefit from) income tax consists of the following (in thousands):

Year Ended December 31,

2020 2019 2018

Federal $ 3,982 $ — $ —

State and local 5,444 ( 15 ) 339

Current income tax expense

Total current 9,426 ( 15 ) 339

Federal 27,982 ( 18,761 ) 65

State and local 1,020 ( 12,683 ) 16

Deferred income tax (benefit) expense

Total deferred 29,002 ( 31,444 ) 81

Total income tax provision (benefit) $ 38,428 $ ( 31,459 ) $ 420

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Research and development tax credits 9,467 17,700

Intangible assets

Stock-based compensation 2,783 2,895

Gross deferred tax assets

Valuation allowance

Deferred tax assets, net of valuation allowance

Lease asset 9,992 8,291

Other 2,196 1,692

Total deferred tax assets 28,550 53,103

Deferred tax liabilities:

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Capitalized commissions ( 2,708 ) ( 2,492 )

State taxes ( 2,350 ) ( 2,563 )

Lease liability ( 8,064 ) ( 7,152 )

Other ( 751 ) ( 1,590 )

Total deferred tax liabilities ( 29,978 ) ( 25,529 )

Total net deferred tax assets (liabilities)

At December 31, 2019 , we had federal net operating loss carryforwards of $ 82.1 million , which will begin to expire in 2031 .

Total net deferred tax (liabilities) assets $ ( 1,428 ) $ 27,574

At December 31, 2020, we had no federal net operating loss carryforwards.

At December 31, 2020, we had state net operating loss carryforwards of $ 46.5 million, which will begin to expire in 2028.

At December 31, 2020, we also had federal and state research and development credit carryforwards of $ 4.1 million and $ 11.5 million, respectively.

The federal credit carryforwards will begin to expire in 2027, while the majority of state credits carryforwards apply indefinitely.

The Internal Revenue Code of 1986, as amended (“IRC”), imposes substantial restrictions on the utilization of NOLs and other tax attributes in the event of an “ownership change” of a corporation.

Accordingly, a company’s ability to use pre-change NOLs may be limited as prescribed under IRC Section 382.

Events which may cause limitation in the amount of the NOLs and credits that we utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a rolling three-year period.

We have undertaken an NOL/382 analysis and have determined that there are no limitations on the NOL carryforwards at December 31, 2019 .

The federal credit carryforwards will begin to expire in 2040, while the state credit carryforwards apply indefinitely.

The Internal Revenue Code of 1986, as amended (“IRC”), imposes substantial restrictions on the utilization of tax attributes in the event of an “ownership change” of a corporation.

Accordingly, a company’s ability to use pre-change tax attributes may be limited as prescribed under IRC Section 382.

Events which may cause limitation in the amount of the tax attributes that we utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a rolling three-year period.

We have undertaken an IRC Section 382 analysis and have determined that there are no limitations on the tax attributes at December 31, 2020.

For the years ended December 31, 2019 and 2018, we recorded an income tax benefit of $ 31.5 million and income tax expense of $ 0.4 million.

During the second quarter of 2019, we evaluated all available positive and negative evidence, including our sustained profitability in 2018 and 2019, the impact of recent acquisitions and future projections of profitability.

As a result, we determined that all of our deferred tax assets were more likely than not to be realized and reversed the valuation allowance against those deferred tax assets accordingly.

The change in the valuation allowance for the years ended December 31, 2020, 2019 and 2018 was as follows (in thousands):

Year Ended December 31,

2020 2019 2018

Valuation allowance, at beginning of year $ — $ 23,002 $ 23,827

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Valuation allowance, at end of year $ — $ — $ 23,002

The following is a reconciliation of the total amounts of unrecognized tax benefits (in thousands):

The following is a reconciliation of the total amounts of reserves for unrecognized tax benefits from uncertain tax positions (in thousands):

Year Ended December 31,

2020 2019 2018

Unrecognized tax benefit beginning of year $ 4,421 $ 2,977 $ 2,105

Decreases-tax positions in prior year

Increases-tax positions in current year 1,720 1,444 872

Unrecognized tax benefit end of year $ 6,141 $ 4,421 $ 2,977

The unrecognized tax benefits are recorded as a reduction to the deferred tax assets.

The unrecognized tax benefits are recorded as a reduction to the deferred tax assets and liabilities.

At December 31, 2020 and 2019, we had no accrued interest and penalties related to uncertain income tax positions.

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Year Ended December 31,

2020 2019 2018

Core solutions $ 100,938 $ 88,581 $ 70,549

Value+ services 195,146 153,994 113,072

Other 13,972 13,437 6,450

Total revenue $ 310,056 $ 256,012 $ 190,071

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data