3 unchanged sentences
These statements involve numerous risks and uncertainties, including those related to the anticipated impact on our business from, and our response to, the COVID-19 pandemic.
−Removed: Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in the section entitled “Risk Factors” in this Quarterly Report and in our
−Removed: Annual Report, as well as our other public filings with the SEC.
+Added: Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in the section entitled “Risk Factors” in this Quarterly Report and in our Annual Report, as well as our other public filings with the SEC.
Please also refer to the section of this Quarterly Report entitled "Cautionary Note Regarding Forward-Looking Statements" for additional information.
−Removed: Our mission is to revolutionize vertical industry businesses by providing great software and services.
−Removed: We offer industry-specific, cloud-based business software solutions, services and data analytics to our customers.
−Removed: Although specific functionality varies by product, our core solutions address common business operations and interactions of our customers' businesses.
−Removed: In addition to our core solutions, we offer a range of optional, but often business-critical, Value+ services.
−Removed: Our Value+ services are built to enhance, automate and streamline processes and support workflows essential to our customers' businesses.
+Added: We provide innovative software, services and data analytics to customers in the real estate industry.
+Added: Our industry-specific, cloud-based solutions are used primarily by property managers, and also by numerous other constituencies in the property management business ecosystem.
+Added: These other constituencies include property owners, rental prospects, tenants and service providers, whom we refer to collectively as "users".
+Added: 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.
+Added: 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.
+Added: Our Value+ services are generally available on an as-needed basis and enable our customers to adapt our offerings to their specific operational requirements.
+Added: Our property management solutions and services provide our customers with a system of record to automate essential business processes, a system of engagement to enhance business interactions between our customers and a variety of users and a system of intelligence designed to leverage data to predict and optimize business workflows to increase efficiency across our customers' businesses.
Our mobile-optimized software solutions are designed for use across multiple devices and operating systems.
−Removed: Our software solutions are offered as a service for our customers and hosted using a modern cloud-based architecture.
−Removed: This architecture leads to rich data sets that have a consistent schema across our customer base and enables us to deploy data-powered products and services for our customers.
−Removed: The significant majority of our customers in the real estate vertical use our property management solutions, which provide our property management customers, including third-party property managers and owner-operators who manage single- and multi-family residences, community associations, commercial properties, and student housing, as well as mixed real estate portfolios, 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 to leverage data to predict and optimize business workflows that enable superior customer experiences and increase efficiency across our customers' businesses.
−Removed: We also provide software solutions to real estate investment managers.
−Removed: We have focused on growing our revenue by providing cloud-based business software solutions, services and data analytics that are designed and developed with our customers’ industry-specific business needs in mind, increasing the size of our customer base in the markets we serve, increasing the number of units under management, introducing new or expanded Value+ services, retaining customers, and increasing the adoption and utilization of our Value+ services by new and existing customers.
−Removed: We evaluate the success of our business during the periods presented based on factors such as the development and launch of new and innovative core functionality and Value+ services, enhancements to user experience, customer satisfaction, growth in our revenue and customer base, fluctuations in costs and operating expenses as a percentage of revenue, operating loss or income and cash flows from operating activities.
−Removed: To date, we have experienced rapid revenue growth due to our investments in research and product development, sales and marketing, customer service and support, and infrastructure.
−Removed: We intend to continue to invest in growth areas, organically and via acquisition, based on our market validation findings and customer feedback.
−Removed: Over the long-term, these investments to grow our business are expected to continue to increase our costs and operating expenses on an absolute basis.
−Removed: Many of these investments will occur in advance of our realization of revenue or any other benefit, which will make it difficult to determine if we are allocating our resources effectively and efficiently.
−Removed: We expect our operating margins will improve over the long term, but this trend may be interrupted from time to time as a result of accelerated investment opportunities occurring in advance of realization of revenue.
−Removed: We have managed, and plan to continue to manage, our business towards the achievement of long-term growth that we believe will positively impact long-term stockholder value, and not towards the realization of short-term financial or business metrics, or short-term stockholder value.
−Removed: We have invested, and intend to continue to invest, in our business to capitalize on our market opportunity by working closely with our customers, prospects, partners and other industry participants to inform our product roadmap.
−Removed: Accordingly, if opportunities arise that might cause us to sacrifice our performance with respect to short-term financial or business metrics, but that we believe are in the best interests of our stockholders in the long term, we will take those opportunities.
−Removed: We believe our people are at the heart of our success and our customers’ success, and we have worked hard not only to attract, hire and retain quality individuals but also to nurture and develop our valuable human resources.
−Removed: The professionalism and dedication of our workforce to continue effectively developing and supporting our product and service offerings has persisted notwithstanding the current environment, and the morale and focus of our team, even while working remotely, remains high.
−Removed: We take the health and welfare of our people very seriously, and have encouraged safe practices designed to stem the infection and spread of COVID-19 within our workforce and beyond.
−Removed: At the same time, in an effort to ensure business continuity, we have developed both short and long-term succession plans for key individuals and roles throughout the business.
−Removed: With all of that said, if the COVID-19 pandemic requires remote working conditions for a prolonged period of time, it could have an adverse impact on the productivity of our employees, which would harm our business and impede our ability to achieve our strategic plan.
−Removed: Further, we have a limited history of remote work and the long-term impact on, and the resulting types of continuing investments necessary for, our employee base is uncertain.
−Removed: As of September 30, 2020, we had approximately 1,420 employees, which includes 118 MyCase employees who were terminated in connection with the MyCase Transaction.
−Removed: We continue to consider our relationship with our employees to be very good.
−Removed: We also hire temporary employees and consultants, and believe we have a similarly strong relationship with them.
−Removed: None of our employees is represented by a labor union or covered by a collective bargaining agreement.
−Removed: Our future growth depends, in part, upon our ability to continue to identify, attract and retain the necessary qualified personnel to support our growth plans and the continued service of our executive officers and other key employees.
−Removed: If we fail to do so, our business and operating results may suffer.
−Removed: Recent Developments
−Removed: As previously disclosed, on September 30, 2020, the Company completed the divestiture of 100% of the issued and outstanding equity interests of MyCase, the former wholly owned subsidiary of the Company that provided legal practice and case management software solutions to our legal customers, to an affiliate of certain funds advised by Apax Partners LLP for $193.0 million.
−Removed: In connection with the MyCase Transaction, our Credit Agreement was terminated and all obligations outstanding under the Term Loan and Revolving Facility, including all guarantees and security interests granted with respect to such obligations, were satisfied in full with proceeds from the sale and extinguished.
−Removed: Real Estate Overview
−Removed: In 2008, we entered the real estate vertical with our first product, AppFolio Property Manager ("APM"), a property management solution designed to address the unique operational and business requirements of property management companies.
−Removed: Recognizing that our customers and their stakeholders would benefit from additional business critical services, we launched a series of Value+ services beginning in 2009.
−Removed: Our first Value+ service assisted our customers in the marketing of their rental properties by offering property level website design and hosting services.
−Removed: One year later, we commenced the roll out of our electronic payment services, thereby facilitating the payment of rent via ACH by tenants.
−Removed: In 2011, we launched tenant screening services, further assisting our customers with the leasing process.
−Removed: In 2012, we introduced our legal liability to landlord insurance program, which protects property owners and managers from certain defined losses.
−Removed: We expanded our electronic payment services in 2013 by allowing residents to pay rent by electronic cash payment and credit or debit card.
−Removed: In 2014, we launched a tenant-facing contact center solution to assist our property managers with resolving incoming maintenance requests.
−Removed: In 2015, we expanded the marketing services offered to our property management customers with a premium leads service built on technology acquired with our acquisition of RentLinx, LLC ("RentLinx") and expanded our electronic payment services to facilitate payments made between our customers and property owners and vendors.
−Removed: In 2016, we introduced a tenant debt collection Value+ service to assist our property managers with running a more efficient business.
−Removed: We expanded our insurance services in 2017 to enable tenants to purchase renters insurance from within APM, protecting both our property management customers and their tenants.
−Removed: In 2018, we acquired substantially all of the assets of WegoWise, Inc.
−Removed: ("WegoWise"), a provider of cloud-based utility analytics software solutions, and began offering AppFolio Utility Management as a Value+ service to our property management customers in mid-2019.
−Removed: That same year, we released AppFolio Property Manager PLUS ("APM PLUS"), a new tier of APM designed for larger businesses with more complex needs.
−Removed: APM PLUS builds upon the core functionality of APM and also offers data analytics, configurable workflows, and revenue management and optimization functionality for our customers.
−Removed: In January 2019, we acquired Dynasty Marketplace, Inc.
−Removed: ("Dynasty"), a provider of advanced artificial intelligence ("AI") solutions for the real estate vertical, and began offering an AI Leasing Assistant, which we refer to as "Lisa", as a Value+ service to our property management customers in mid-2019.
−Removed: In April 2019, we launched AppFolio Investment Management, which enables real estate investment managers to better manage their investor relationships by increasing transparency and streamlining certain business processes.
−Removed: The significant majority of our customers in the real estate vertical use our property management solutions.
−Removed: We define our property management customer base as the number of customers subscribing to our property management core solutions.
−Removed: Customer count and property management units under management are presented in the table below:
+Added: Our software solutions are offered as a service, are hosted using a modern cloud-based architecture, and in part, use artificial intelligence technologies.
+Added: 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.
+Added: In 2008, we introduced APM, a property management solution designed to address the unique operational and business requirements of property management companies and their business ecosystems.
+Added: Recognizing that our customers and their business ecosystems would benefit from additional business critical services, we launched a series of Value+ services beginning in 2009.
+Added: Our Value+ services are tailored to the specific workflows of property management businesses and generally fall into the categories of marketing and leasing, electronic payment services, business optimization and risk mitigation.
+Added: In 2018, we introduced APM PLUS, a tier of APM designed for larger businesses with more complex needs.
+Added: APM PLUS builds upon the functionality of APM and additionally offers data analytics, configurable workflows, and revenue management and optimization functionality for our customers.
+Added: In April 2019, we launched AppFolio Investment Management, which is designed to enable real estate investment managers to better manage their investor relationships by increasing transparency and streamlining certain business processes.
+Added: We do not separately break out customer information at this time.
+Added: APM and APM PLUS serve our property management customers, including third-party property managers and owner operators, who typically manage single- and multi-family residential, and others who manage community association, and commercial properties.
+Added: Our solutions and services also serve other constituencies in the property management market, including property owners, rental prospects, tenants and service providers.
+Added: Revenue generated from each customer varies based on the type of property, the number of units under management, and the level of adoption and utilization of Value+ services by the customer and users.
+Added: Revenue per unit generated from each customer typically varies based on the type of property and the level of adoption and utilization of Value+ services by the customer and users.
+Added: For example, revenue generated per community association unit, which represent a growing percentage of our overall units, is lower than revenue generated per residential unit given the unique and complex needs of the residential rental lifecycle and resulting impact on the adoption and utilization of V+ services.
+Added: Property management customer count and property management units under management are presented in the table below.
+Added: We define property management customers as those paying for a subscription to our core solutions.
Quarter Ended
−Removed: September 30, June 30, March 31, December 31, September 30, June 30, March 31,
+Added: March 31, December 31, September 30, June 30, March 31,
Property manager customers 16,178 15,724 15,352 15,011 14,729
Property manager units under management (in millions) 5.62 5.36 5.12 4.94 4.80
−Removed: Legal Overview
−Removed: We entered the legal vertical with the acquisition of MyCase in 2012.
−Removed: As stated above, on September 30, 2020, we exited the legal vertical upon the completion of our divestiture of 100% of the issued and outstanding equity interests of MyCase to an affiliate of certain funds advised by Apax Partners LLP, for $193.0 million.
−Removed: As of September 30, 2020, our legal customers directly and indirectly accounted for approximately 10% of our annual revenue.
−Removed: We do not expect there will be a material impact to our operating income as a result of the MyCase Transaction.
−Removed: We formerly defined our legal customer base as the number of customers subscribed to MyCase core solutions, exclusive of free trial periods.
−Removed: Our historical legal customer count is summarized in the table below for the periods presented therein:
−Removed: Quarter Ended
−Removed: September 30, June 30, March 31, December 31, September 30, June 30, March 31,
−Removed: Law firm customers 11,592 11,305 11,115 10,971 10,781 10,631 10,485
−Removed: Trends and Uncertainties Related to the COVID-19 Pandemic
−Removed: During early calendar year 2020, the novel coronavirus disease ("COVID-19") spread globally, including to every state in the United States.
−Removed: 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 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.
−Removed: Such restrictions or orders, or the perception that such restrictions or orders could be implemented, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and the cancellation or postponement of events.
−Removed: 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.
−Removed: Beginning in March 2020, in an effort to protect our employees and comply with applicable government orders, we restricted non-essential employee travel and transitioned our employees to a remote work environment.
−Removed: We currently expect our employees to continue working remotely at least through the end of the first quarter of 2021.
−Removed: The professionalism and dedication of our workforce to continue effectively developing and supporting our product and service offerings has persisted notwithstanding the current environment, and the morale and focus of our team, even while working remotely, remains high.
−Removed: We take the health and welfare of our people very seriously, and have encouraged safe practices designed to stem the infection and spread of COVID-19 within our workforce and beyond.
−Removed: With all of that said, if the COVID-19 pandemic requires remote working conditions for a prolonged period of time, it could have an adverse impact on the productivity of our employees, which would harm our business and impede our ability to achieve our strategic plan.
−Removed: For example, certain our employees with younger children have been required to respond to ongoing school closures and adapt to a distance learning environment, and may be required to continue to do so for the foreseeable future.
−Removed: Further, we have a limited history of remote work and the long-term impact on, and the resulting types of continuing investments necessary for, our employee base is uncertain.
−Removed: We began fiscal year 2020 with healthy demand for our products and services, many of which are designed to enable our customers to manage their businesses virtually.
−Removed: During the three and nine months ended September 30, 2020, we experienced some variability in demand for certain Value+ services after government restrictions were implemented.
−Removed: We expect demand variability for our products and services could continue as a result of the COVID-19 pandemic, although it is presently unclear whether the cumulative impacts will be positive or negative.
−Removed: We continue to actively communicate with and listen to our customers to best ensure that we are responding to their needs in the current environment with innovative solutions that will not only be beneficial now but also over the long-term as well.
−Removed: However, our ability to interact with customers has been impacted by the current environment.
−Removed: For example, we believe that our inability to meet in-person with current or prospective customers, as well as the cancellation or postponement of Company-sponsored events or third-party events at which our products are featured, may have a negative impact on our business.
−Removed: We continue to monitor developments related to COVID-19 and remain flexible in our response to the challenges presented by the pandemic.
−Removed: To mitigate the adverse impact COVID-19 may have on our business and operations, we have implemented a number of measures to protect the health and safety of our employees, as well as to strengthen our financial position.
−Removed: These efforts include increasing our cash position and eliminating, reducing, or deferring non-essential expenditures, as well as complying with local and state government recommendations to protect our workforce.
−Removed: Our reported results for the three and nine months ended September 30, 2020 may not be reflective of current market conditions, or of our results for any future periods, which may be negatively impacted by the COVID-19 pandemic to a greater extent than the reported period.
−Removed: The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this Quarterly Report.
−Removed: Refer to Item 1A.
−Removed: “Risk Factors” in this Quarterly Report for a complete description of the material risks that we currently face.
+Added: To date, we have experienced rapid revenue growth due to strong relationships with our customers, our investments in research and product development, sales and marketing, customer service and support, and infrastructure.
+Added: We have invested, and intend to continue to invest, in our business to capitalize on our market opportunity by working closely with our customers, prospects, partners and other industry participants to inform our product strategy.
+Added: Over the long-term, these investments are expected to continue to increase our costs and operating expenses on an absolute basis.
+Added: Many of these investments will occur in advance of our realization of revenue or any other benefit, which will make it difficult to determine if we are allocating our resources effectively and efficiently.
+Added: We expect our operating margins will improve over the long-term, but this trend may be interrupted from time to time as a result of accelerated investment opportunities occurring in advance of realization of revenue.
+Added: We rely heavily on our talented team of employees to execute our growth plans and achieve our long-term strategic objectives.
+Added: We believe our people are at the heart of our success and our customers' success, and we have worked hard not only to attract and retain talented individuals, but also to provide a challenging and rewarding environment to motivate and develop our valuable human capital.
+Added: Beginning in March 2020, in an effort to protect our employees and comply with applicable government orders, we transitioned our employees to a remote work environment and restricted non-essential employee travel.
+Added: Our workforce has continued to effectively develop and support our software and services offerings notwithstanding the current environment.
+Added: We expect to slowly transition employees back to the workplace throughout 2021;
+Added: however, employees will have the option to work remotely for the remainder of the year.
+Added: If the COVID-19 pandemic once again requires full remote working conditions or otherwise slows our return to the workplace, it could have an adverse impact on the productivity of our employees as they navigate the challenges of daily life during a pandemic, which would harm our business and impede our ability to achieve our strategic objectives.
+Added: We take the health and welfare of our people very seriously.
+Added: We have encouraged, and will continue to encourage, safe practices designed to stem the infection and spread of COVID-19 within our workforce and beyond and to maintain the mental health and well-being of our employees.
+Added: While the COVID-19 pandemic may have long-term effects on the nature of the office environment and remote working, which may present operational and workplace culture challenges that may adversely affect our business, we are committed to our employees returning to the workplace in the long-term.
+Added: We recently constructed a new office space in Santa Barbara, California, extended the lease for our office in Richardson, Texas and leased new office space in San Diego, California.
+Added: During the three months ended March 31, 2020, we also provided software solutions and services to the legal vertical.
+Added: As previously disclosed, we completed our divestiture of MyCase, Inc.
+Added: on September 30, 2020.
+Added: In connection with the MyCase Transaction, our Credit Agreement was terminated and all obligations outstanding under the Term Loan and Revolving Facility, including all guarantees and security interests granted with respect to such obligations, were satisfied in full with proceeds from the sale and extinguished.
+Added: For additional details, see Note 3, Divestitures of our Condensed Consolidated Financial Statements in this Quarterly Report.
Key Components of Results of Operations
−Removed: We charge our customers on a subscription basis for our core solutions and certain of our Value+ services.
−Removed: Our subscription fees are designed to scale to the size of our customers’ businesses.
−Removed: We recognize subscription revenue over time on a straight-line basis over the contract term beginning on the date that our service is made available to the customer.
−Removed: We generally invoice our customers for subscription services in monthly or annual installments, typically in advance of the subscription period.
−Removed: Revenue from subscription services is impacted by a number of factors, including the change in the number and type of our customers, the size and needs of our customers’ businesses, our customer renewal rates, pricing for our solutions, and the level of adoption of our Value+ subscription services by new and existing customers.
−Removed: We also charge our customers usage-based fees for using certain Value+ services.
−Removed: Certain of the usage-based fees are paid by either our customers or clients of our customers.
+Added: Our core solutions and certain of our Value+ services are offered on a subscription basis.
+Added: Our core solutions subscription fees vary by property type and are designed to scale to the size of our customers’ businesses.
+Added: We recognize revenue for subscription-based services over time on a straight-line basis over the contract term beginning on the date that our service is made available.
+Added: We generally invoice monthly or annually in advance of the subscription period.
+Added: We also offer Value+ services that are not covered by subscription fees on a per use basis.
Usage-based fees are charged on a flat fee per transaction basis with no minimum usage commitments.
We recognize revenue for usage-based services in the period the service is rendered.
−Removed: We generally invoice our customers for usage-based services on a monthly basis for services rendered in the preceding month.
−Removed: Other usage-based fees are collected at the time of service.
−Removed: Revenue from usage-based services is impacted by a number of factors, including the number of new and existing customers that adopt and utilize our Value+ services, the size and needs of our customers, and our customer renewal rates.
−Removed: We experience limited seasonality in our Value+ services revenue, primarily with respect to certain leasing-related services we provide to our property management customers, including our tenant screening services and new tenant applications which impact electronic payment services revenue.
−Removed: Our property management customers historically have processed fewer applications for new tenants during the fourth quarter.
−Removed: As a result of this seasonal decline in activity, we have typically experienced overall slower sequential revenue growth or a sequential decline in revenue in the fourth quarter of each of our most recent fiscal years.
−Removed: We expect this seasonality to continue in the foreseeable future.
−Removed: We offer assistance to our customers with on-boarding to our core solutions, as well as website design services.
−Removed: We generally invoice our customers for these other services in advance of the services being completed.
−Removed: We recognize revenue for these other services upon completion of the related service.
−Removed: We generate revenue from RentLinx, WegoWise, and Dynasty stand-alone customers by providing services outside of our property management core solution platform.
−Removed: Revenue derived from customers using these services is recorded in Other revenue.
+Added: We generally invoice our usage-based services on a monthly basis or collect the fee at the time of service.
+Added: A significant majority of our Value+ services revenue comes directly and indirectly from the use of our electronic payment services, tenant screening services, and insurance services.
+Added: Usage-based fees are paid both by customers and users in our customers' business ecosystems.
+Added: We charge our customers for on-boarding assistance to our core solutions and certain other non-reoccurring services.
+Added: We generally invoice for these other services in advance of the services being completed and recognize revenue upon completion of the related service.
+Added: We generate revenue from RentLinx, WegoWise, and Dynasty standalone customers by providing services outside of our property management core solution platform.
+Added: Revenue derived from these services is recorded in Other revenue.
Costs and Operating Expenses
Cost of Revenue.
−Removed: 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, 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 and other costs.
+Added: Many of our Value+ services are facilitated by third-party service providers.
+Added: 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.
−Removed: We intend to continue to invest in customer service and support, and the expansion of our technology infrastructure as our business grows.
Sales and Marketing.
−Removed: 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 costs.
+Added: 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.
1 unchanged sentence
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.
−Removed: We intend to continue to invest in sales and marketing to increase our customer base and increase the adoption and utilization of Value+ services by our new and existing customers.
Research and Product Development.
−Removed: 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
−Removed: research and product development, fees for third-party development resources, and allocated shared costs.
+Added: 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.
1 unchanged sentence
Amortization of capitalized software development costs is included in depreciation and amortization expense.
−Removed: We intend to continue to invest in research and product development as we continue to introduce new core functionality, roll out new Value+ services, develop new products and services, and expand into adjacent markets and new verticals.
General and Administrative.
−Removed: 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, corporate development, legal, and administrative organizations.
−Removed: 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, regulatory fines and penalties, other corporate expenses, and allocated shared costs.
−Removed: We intend to continue to incur incremental general and administrative costs associated with supporting the growth of our business.
+Added: 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.
+Added: 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.
1 unchanged sentence
We depreciate or amortize property and equipment, software development costs, and intangible assets over their expected useful lives on a straight-line basis, which approximates the pattern in which the economic benefits of the assets are consumed.
−Removed: As we continue to invest in our research and product development organization and the development or acquisition of new technology, we expect to have increased capitalized software development costs and incremental amortization.
−Removed: Further, we may incur additional amortization expense to the extent we enter into additional arrangements to acquire or invest in new technologies or markets adjacent to those we serve today or entirely new verticals.
−Removed: Finally, as we expand our facilities footprint and increase our base of employees, we expect to have increased property and equipment expenditures and incremental depreciation expense.
−Removed: Other Income (Expense), Net.
−Removed: Other income (expense), net includes gains and losses associated with the sale of businesses, property and equipment and investment securities.
−Removed: Interest Expense, Net .
−Removed: Interest expense includes interest paid on outstanding borrowings under our former Credit Agreement.
+Added: Other Income, Net.
+Added: Other income, net includes gains and losses associated with the sale of property and equipment and investment securities and income from certain post-closing transition services to be provided by us to MyCase in connection with the MyCase Transaction.
+Added: Interest Income (Expense), Net.
+Added: Interest expense includes interest paid on any outstanding borrowings.
Interest income includes interest earned on investment securities, amortization and accretion of the premium and discounts paid from the purchase of investment securities, and interest earned on notes receivable and on cash deposited in our bank accounts.
−Removed: Provision for (Benefit from) Income Taxes.
−Removed: Provision for (benefit from) income taxes consists of federal and state income taxes in the United States.
+Added: (Benefit from) Provision for Income Taxes.
+Added: (Benefit from) provision for income taxes consists of federal and state income taxes in the United States.
Results of Operations
1 unchanged sentence
Three Months Ended
−Removed: September 30, Nine Months Ended
−Removed: September 30,
−Removed: 2020 2019 2020 2019
−Removed: Amount % Amount % Amount % Amount %
+Added: Amount % Amount %
Consolidated Statements of Operations Data:
11 unchanged sentences
Total costs and operating expenses 84,590 107.2 69,665 96.1
−Removed: Income from operations 3,360 4.0 4,134 6.1 12,535 5.3 6,372 3.4
−Removed: Other income (expense), net 187,747 223.3 (11) — 187,759 79.0 (68) —
−Removed: Interest expense, net (853) (1.0) (400) (0.6) (1,909) (0.8) (1,324) (0.7)
−Removed: Income before provision for (benefit from) income taxes 190,254 226.3 3,723 5.5 198,385 83.5 4,980 2.6
−Removed: Provision for (benefit from) income taxes 52,578 62.5 (1,255) (1.8) 39,469 16.6 (26,874) (14.2)
+Added: (Loss) income from operations (5,669) (7.2) 2,830 3.9
+Added: Other income, net 562 0.7 22 —
+Added: Interest income (expense), net 53 0.1 (494) (0.7)
+Added: (Loss) income before (benefit from) provision for income taxes (5,054) (6.4) 2,358 3.3
+Added: (Benefit from) provision for income taxes (5,533) (7.0) 375 0.5
Net income $ 479 0.6 % $ 1,983 2.7 %
1 unchanged sentence
Three Months Ended
−Removed: September 30, Nine Months Ended
−Removed: September 30,
−Removed: 2020 2019 2020 2019
Stock-based compensation expense included in costs and operating expenses:
4 unchanged sentences
Total stock-based compensation expense $ 2,776 $ 959
−Removed: Comparison of the Three and Nine Months Ended September 30, 2020 and 2019
+Added: Comparison of the Three Months Ended March 31, 2021 and 2020
Three Months Ended
−Removed: September 30, Change Nine Months Ended
−Removed: September 30, Change
−Removed: 2020 2019 Amount % 2020 2019 Amount %
+Added: March 31, Change
+Added: 2021 2020 Amount %
(dollars in thousands)
3 unchanged sentences
Total revenue $ 78,921 $ 72,495 $ 6,426 9 %
−Removed: For the three and nine months ended September 30, 2020 and 2019, we derived approximately 90% of our revenue directly and indirectly from the software solutions, services and data analytics we offer to our real estate vertical customers, most notably from our property management solutions.
−Removed: The majority of our revenue is derived from our property management core solutions and Value+ services utilized by property managers, residents, applicants and owners.
−Removed: The increase in core solutions and Value+ services revenue was mainly attributable to a growing base of property management customers and additional residents, applicants and owners utilizing our Value+ services.
−Removed: During the comparative three and nine months ended September 30, 2020, we experienced growth of 16% and 17%, respectively, in the average number of property management units under management resulting from 9% and 10% growth, respectively, in the average number of property management customers during the same periods.
−Removed: In addition, the increase in core solutions revenue was also attributable to growth of 7% in the average number of law firm customers coupled with a core solutions price increase rolled out during the period.
−Removed: A significant majority of our Value+ services revenue comes directly and indirectly from our customers' use of our electronic payment services, tenant screening services, and insurance services.
−Removed: Our electronic payment services experienced increased demand during the most recent quarter as residents, property managers, owners and customers transacted more business online.
−Removed: It is unclear whether the trend will continue over the long term.
−Removed: During the comparative periods, we also introduced new Value+ services and expanded the functionality of others, which resulted in incremental revenue.
−Removed: The decrease in Other revenue for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily attributable to a decrease in fees associated with our property management customers upgrading to a new website hosting platform, partially offset by increases in revenue from WegoWise and Dynasty.
−Removed: The increase in Other revenue for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily attributable to increases in revenue from WegoWise and Dynasty.
+Added: Revenue derived from our software and solutions offered to the real estate vertical for the three months ended March 31, 2021 and 2020, was $78.9 million and $64.9 million, respectively, an increase of $14.0 million, or 22%.
+Added: This increase was primarily attributable to the growth in the number of property management customers and units under management utilizing our software and services.
+Added: The remaining revenue was attributed to our legacy legal vertical.
+Added: Core solutions revenue derived from our real estate vertical for the three months ended March 31, 2021 and 2020 was $24.2 million and $20.5 million, respectively, an increase of $3.7 million or 18%.
+Added: Value+ services revenue derived from our real estate vertical for the three months ended March 31, 2021 and 2020 was $51.5 million and $40.9 million, respectively, an increase of $10.6 million or 26%.
+Added: This increase in core solutions and Value+ services revenue was mainly attributable to growth in our base of property management customers and growth in users of our subscription and usage-based services.
+Added: During this period we experienced growth of 16% in the average number of property management units under management resulting from 10% growth in the average number of property management customers during the period.
+Added: Our electronic payment services experienced increased demand during the comparative period as residents, property managers, owners and customers transacted more business online, which we attribute in part to the response to the COVID-19 pandemic.
+Added: During the comparative period, we also introduced new Value+ services and expanded the functionality of others, which resulted in incremental revenue.
+Added: A significant majority of our Value+ services revenue comes directly and indirectly from the use of our electronic payment services, tenant screening services, and the insurance services we make available to customers.
Cost of Revenue (Exclusive of Depreciation and Amortization)
Three Months Ended
−Removed: September 30, Change Nine Months Ended
−Removed: September 30, Change
−Removed: 2020 2019 Amount % 2020 2019 Amount %
+Added: March 31, Change
+Added: 2021 2020 Amount %
(dollars in thousands)
1 unchanged sentence
Percentage of revenue 42.2 % 39.9 %
−Removed: The increase in cost of revenue (exclusive of depreciation and amortization) for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, was primarily attributable to increased costs associated with servicing the incremental $16.2 million in revenue over the same period.
−Removed: For the three months ended September 30, 2020, expenditures to third-party service providers related to the delivery of our Value+ services increased $4.0 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the $11.7 million increase in Value+ services revenue.
−Removed: Personnel-related costs, including performance-based compensation, necessary to support growth and key investments in the business, increased $2.2 million.
−Removed: Allocated and other costs increased by $0.6 million primarily driven by an increase in platform infrastructure, payment processing and other costs associated with the delivery and provision of our Value+ services, partially offset by a reduction of workplace-related expenses and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.
−Removed: The increase in cost of revenue (exclusive of depreciation and amortization) for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was primarily attributable to increased costs associated with servicing the incremental $49.0 million in revenue over the same period, partially offset by third-party service provider incentives earned of $2.1 million.
−Removed: For the nine months ended September 30, 2020, expenditures to third-party service providers related to the delivery of our Value+ services increased $7.7 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the $34.7 million increase in Value+ services revenue.
−Removed: Partially offsetting this volume increase was $2.1 million of annual maximum incentives earned during the period from third-party service providers related to programs intended to increase adoption and utilization of online payments and favorable trends in loss reserves in our insurance services business.
−Removed: Personnel-related costs, including performance-based compensation, necessary to support growth and key investments in the business, increased $4.8 million.
−Removed: Allocated and other costs increased by $1.4 million primarily driven by an increase in platform infrastructure, payment processing and other costs associated with the delivery and provision of our Value+ services, partially offset by a reduction of workplace-related expenses and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.
−Removed: As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) fluctuates primarily based on the mix and prices of Value+ services utilized during the period, and investments made in advance of expected revenue generation.
−Removed: Excluding the third-party service provider incentives earned during the period, as a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) increased to 39.0% from 38.2% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, and decreased to 38.4% from 39.9% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.
−Removed: These fluctuations in cost as a percentage of revenue were primarily driven by the mix of Value+ services revenue with varying underlying costs.
+Added: Cost of revenue related to our software and solutions offered to the real estate vertical for the three months ended March 31, 2021 and 2020 was $33.1 million and $26.2 million, respectively, an increase of $6.9 million, or 26%.
+Added: This increase was primarily attributable to increased costs associated with servicing the incremental $14.0 million in revenue over the same period.
+Added: The remaining cost of revenue was attributed to our legacy legal vertical and such costs were reimbursed through our ongoing Transition Services Agreement and recorded in other income, net .
+Added: Expenditures to third-party service providers related to the delivery of our Value+ services to the real estate vertical increased $3.8 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the $10.6 million increase in Value+ services revenue to the real estate vertical.
+Added: Personnel-related costs, including performance-based compensation, necessary to support growth and key investments, increased $2.9 million.
+Added: Allocated shared and other costs increased by $0.3 million primarily driven by a $0.8 million increase in hosting-related, payment processing and other costs incurred in support of our overall growth, partially offset by a $0.5 million reduction of allocated expenses attributed to a decrease in workplace-related and other expenditures in response to the impact of the COVID-19 pandemic.
+Added: As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) fluctuates primarily based on the mix of Value+ services revenue in the period, given the varying percentage of revenue we pay to third-party service providers, and investments made in advance of expected revenue generation.
+Added: For the three months ended March 31, 2021, cost of revenue (exclusive of depreciation and amortization), as a percentage of revenue, increased to 42.0% from 40.4% for the three months ended March 31, 2020.
+Added: This increase in cost as a percentage of revenue was primarily driven by the mix of Value+ services revenue with varying underlying third-party costs.
Sales and Marketing
Three Months Ended
−Removed: September 30, Change Nine Months Ended
−Removed: September 30, Change
−Removed: 2020 2019 Amount % 2020 2019 Amount %
+Added: March 31, Change
+Added: 2021 2020 Amount %
(dollars in thousands)
1 unchanged sentence
Percentage of revenue 20.5 % 20.0 %
−Removed: The increase in sales and marketing expense for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, was primarily due to a $1.6 million increase in personnel-related costs, including performance-based compensation, necessary to support growth and key investments in the business.
−Removed: Advertising and promotion costs increased by $1.1 million due to increased online advertising and virtual marketing events aimed at increasing revenue and supporting growth in the business.
−Removed: In addition, there was a decrease in allocated and other costs of $0.4 million related to a reduction of workplace-related expenses, the elimination of event-related travel from cancelled or postponed events and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.
−Removed: The investment we make in sales and marketing is key to acquiring new customers, expanding the adoption and utilization of Value+ services, and growing revenue over time.
−Removed: We intend to continue to invest in sales and marketing to increase our customer base and increase the adoption and utilization of Value+ services over time.
−Removed: The increase in sales and marketing expense for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was primarily due to a $6.1 million increase in personnel-related costs, including performance-based compensation, necessary to support growth and key investments in the business.
+Added: Sales and marketing expense related to our software and solutions offered to the real estate vertical for the three months ended March 31, 2021 and 2020 was $16.1 million and $12.4 million, respectively, an increase of $3.7 million, or 30%.
+Added: This increase was primarily due to a $2.7 million increase in personnel-related costs, including performance-based compensation, necessary to support growth and key investments in the business.
Advertising and promotion costs increased by $1.3 million due to increased online advertising and virtual marketing events aimed at increasing revenue and supporting growth in the business.
−Removed: In addition, there was a decrease in allocated and other costs of $0.9 million related to a reduction of workplace-related expenses, the elimination of event-related travel from cancelled or postponed events and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.
−Removed: As a percentage of revenue, sales and marketing expense decreased to 17.7% from 18.6% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 and 18.1% from 19.7% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.
−Removed: This leverage in cost as a percentage of revenue was primarily driven by the reduction of event related travel and other non-essential expenditures as a result of the COVID-19 pandemic.
−Removed: Notwithstanding the leverage in cost as a percentage of revenue, we intend to continue to invest in sales and marketing to increase our customer base and increase the adoption and utilization of Value+ services over time.
+Added: In addition, there was a decrease in allocated shared and other costs of $0.3 million primarily related to a $0.5 million decrease in costs due to the elimination of event-related travel and the reduction of workplace-related and other non-essential expenditures in response to the impact of the COVID-19 pandemic, partially offset by an increase in other costs of $0.2 million in support of our overall growth.
+Added: The remaining sales and marketing expense was attributed to our legacy legal vertical and such costs were reimbursed through our ongoing Transition Services Agreement and recorded in other income, net .
+Added: As a percentage of revenue, sales and marketing expense increased to 20.4% from 19.1% for the three months ended March 31, 2021 compared to he three months ended March 31, 2020.
+Added: This increase was primarily driven by personnel-related investments made in advance of expected revenue generation associated with growth initiatives in the business.
Research and Product Development
Three Months Ended
−Removed: September 30, Change Nine Months Ended
−Removed: September 30, Change
−Removed: 2020 2019 Amount % 2020 2019 Amount %
+Added: March 31, Change
+Added: 2021 2020 Amount %
(dollars in thousands)
1 unchanged sentence
Percentage of revenue 18.2 % 15.5 %
−Removed: The increase in research and product development expense for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, was the result of an increase in personnel-related costs, net of capitalized software development costs, of $3.7 million due to investments in headcount growth within our research and product development organization.
−Removed: This increase was partially offset by a decrease in allocated and other costs of $0.8 million primarily related to a reduction of workplace-related expenses and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.
−Removed: The increase in research and product development expense for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was the result of an increase in personnel-related costs, net of capitalized software development costs, of $9.3 million due to investments in headcount growth within our research and product development organization.
−Removed: This increase was partially offset by a decrease in allocated and other costs of $0.9 million primarily related to a reduction of workplace related expenses and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.
+Added: Research and product development expense related to our software and solutions offered to the real estate vertical for the three months ended March 31, 2021 and 2020 was $14.3 million and $9.9 million, respectively, an increase of $4.4 million, or 44%.
+Added: This increase was the result of an increase in personnel-related costs, net of capitalized software development costs, of $4.7 million due to investments in headcount growth within our research and product development organization.
+Added: This increase was partially offset by a decrease in allocated shared and other costs of $0.3 million primarily related to the reduction of workplace-related and other non-essential expenditures in response to the impact of the COVID-19 pandemic.
+Added: The remaining research and development expense was attributed to our legacy legal vertical and such costs were reimbursed through our ongoing Transition Services Agreement and recorded in other income, net .
General and Administrative
Three Months Ended
−Removed: September 30, Change Nine Months Ended
−Removed: September 30, Change
−Removed: 2020 2019 Amount % 2020 2019 Amount %
+Added: March 31, Change
+Added: 2021 2020 Amount %
(dollars in thousands)
1 unchanged sentence
Percentage of revenue 16.9 % 11.8 %
−Removed: The increase in general and administrative expense for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to a $1.8 million increase in personnel-related costs, including performance-based compensation, due to investments in headcount growth within our general and administrative organizations.
−Removed: In addition, there was an increase in professional services fees and other costs of $2.3 million related to the MyCase Transaction.
−Removed: The increase in general and administrative expense for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was primarily due to a $5.0 million increase in personnel-related costs, including performance-based compensation, due to investments in headcount growth within our general and administrative organizations.
−Removed: In addition, there was a $4.3 million expense recorded during the current period related to the probable loss associated with the FTC Investigation.
−Removed: There was also an increase in professional services fees and other costs of $2.3 million related to the MyCase Transaction.
−Removed: Allocated and other costs decreased $0.7 million primarily due to a reduction of workplace-related expenses and the reduction of other non-essential expenditures in response to the impact of the COVID-19 pandemic.
−Removed: We expect stock-based compensation expense will continue to decrease for certain executives in light of our adoption of the Long-Term Cash Bonus Plan in 2018.
−Removed: No accrual has yet been made under this plan as a result of the high degree of uncertainty regarding potential future payments under the plan.
+Added: General and administrative expense related to our software and solutions offered to the real estate vertical and general corporate overhead expenses for three months ended March 31, 2021 and 2020 was $13.4 million and $8.5 million, respectively, an increase of $4.9 million, or 58%.
+Added: The increase in general and administrative expense was primarily due to a $1.2 million accrual made in connection with long-term executive cash incentive plans for certain executives and a $2.9 million increase in other personnel-related costs, including performance-based compensation, due to investments in headcount growth within our general and administrative organizations.
+Added: Allocated shared and other costs increased $0.8 million primarily due to an increase in professional services fees.
Depreciation and Amortization
Three Months Ended
−Removed: September 30, Change Nine Months Ended
−Removed: September 30, Change
−Removed: 2020 2019 Amount % 2020 2019 Amount %
+Added: March 31, Change
+Added: 2021 2020 Amount %
(dollars in thousands)
1 unchanged sentence
Percentage of revenue 9.3 % 8.8 %
−Removed: The increase in depreciation and amortization expense for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, was primarily due to increased amortization expense associated with higher accumulated capitalized software development balances.
−Removed: Other Income (Expense), net
+Added: Depreciation and amortization expense related to our software and solutions offered to the real estate vertical for the three months ended March 31, 2021 and 2020 was $7.4 million and $5.8 million, respectively, an increase of $1.6 million, or 28%.
+Added: This increase in depreciation and amortization expense was primarily due to increased amortization expense associated with higher accumulated capitalized software development balances.
+Added: Other Income, net
Three Months Ended
−Removed: September 30, Change Nine Months Ended
−Removed: September 30, Change
−Removed: 2020 2019 Amount % 2020 2019 Amount %
+Added: March 31, Change
+Added: 2021 2020 Amount %
(dollars in thousands)
−Removed: Other income (expense), net $ 187,747 $ (11) $ 187,758 n/a $ 187,759 $ (68) $ 187,827 n/a
+Added: Other income, net $ 562 $ 22 $ 540 *
Percentage of revenue 0.7 % — %
−Removed: The increase in other income (expense), net for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, was primarily due to the gain of $187.6 million associated with the MyCase Transaction.
−Removed: We expect to recognize additional other income beginning in the fourth quarter of 2020 relating to income from certain post-closing transition services to be provided by the Company to MyCase.
−Removed: Provision for (Benefit from) Income Taxes
+Added: *Percentage not meaningful
+Added: Other income, net related to our software and solutions offered to the real estate vertical for the three months ended March 31, 2021 and 2020 was $562 thousand and $22 thousand, respectively, an increase of $540 thousand.
+Added: The increase in other income, net was primarily due to $429 thousand in other income recorded during the three months ended March 31, 2021 related to certain post-closing transition services provided to MyCase.
+Added: (Benefit from) Provision for Income Taxes
Three Months Ended
−Removed: September 30, Change Nine Months Ended
−Removed: September 30, Change
−Removed: 2020 2019 Amount % 2020 2019 Amount %
+Added: March 31, Change
+Added: 2021 2020 Amount %
(dollars in thousands)
−Removed: Provision for (benefit from) income taxes $ 52,578 $ (1,255) $ 53,833 (4,289) % $ 39,469 $ (26,874) $ 66,343 (247) %
+Added: (Benefit from) provision for income taxes $ (5,533) $ 375 $ (5,908) *
Percentage of revenue (7.0) % 0.5 %
−Removed: We calculate our provision for income taxes on a quarterly basis by applying an estimated annual effective tax rate to income from operations and by calculating the tax effect of discrete items recognized during the quarter.
−Removed: For the three and nine months ended September 30, 2020, we recorded income tax expense of $52.6 million and $39.5 million, respectively.
−Removed: The tax provision for the three months ended September 30, 2020 includes a discrete tax expense of $47.9 million relating to the MyCase Transaction which includes $48.9 million of current tax expense less a $1.0 million benefit from the reversal of deferred tax liabilities.
+Added: *Percentage not meaningful
+Added: For the three months ended March 31, 2021 and 2020, we recorded an income tax benefit of $5.5 million and income tax expense of $0.4 million, respectively.
The effective tax rate as compared to the U.S.
federal statutory rate of 21% differs primarily due to the significance of the benefits associated with stock-based compensation expense and research and development tax credits in relation to the forecasted pre-tax results for the year.
−Removed: For the three and nine months ended September 30, 2019, we recorded an income tax benefit of $1.3 million and $26.9 million, respectively.
−Removed: The tax benefits recorded were primarily due to the release of the valuation allowance during the second quarter of 2019.
Liquidity and Capital Resources
−Removed: Cash and Cash Equivalents
−Removed: As of September 30, 2020, our principal sources of liquidity were cash and cash equivalents and investment securities, which had an aggregate balance of $181.9 million.
−Removed: During the nine months ended September 30, 2020, our cash and cash equivalents increased primarily as a result of the proceeds from the MyCase Transaction.
−Removed: Working Capital
−Removed: As of September 30, 2020, we had working capital of $145.7 million, compared to working capital of $14.3 million as of December 31, 2019.
−Removed: The increase in our working capital was primarily due to an increase in cash and cash equivalents as a result of the net proceeds from the MyCase Transaction, an increase in investment securities-current, a decrease in other current liabilities due to the payment of contingent consideration related to the Dynasty acquisition, a decrease in deferred revenue, and an increase in accounts receivable primarily driven by increased usage of our Value+ services.
−Removed: The increase in our working capital was partially offset by an increase in income taxes payable related to the MyCase Transaction, and increases in accrued expenses, accounts payable and accrued employee expenses.
−Removed: Liquidity Requirements
+Added: Our principal sources of liquidity continue to be comprised of our cash, cash equivalents, investment securities, as well as cash flows generated from our operations.
+Added: As of March 31, 2021, our cash, cash equivalents, and investment securities had an aggregate balance of $159.9 million.
+Added: We have financed our operations primarily through cash generated from operations.
We believe that our existing cash and cash equivalents, investment securities, and cash generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.
−Removed: Capital Requirements
Our future capital requirements will depend on many factors, including continued market acceptance of our software solutions, changes in the number of our customers, adoption and utilization of our Value+ services by new and existing customers, the timing and extent of the introduction of new core functionality, products and Value+ services, the timing and extent of our expansion into adjacent or new markets, the timing and extent of our investments across our organization, and the impact of the COVID-19 pandemic on the customers we serve and on our business.
4 unchanged sentences
The following table summarizes our cash flows for the periods indicated (in thousands):
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: Net cash provided by operating activities $ 45,216 $ 23,413
−Removed: Net cash provided by (used in) investing activities 152,542 (70,728)
−Removed: Net cash used in financing activities (69,541) (6,639)
−Removed: Net increase (decrease) in cash, cash equivalents and restricted cash $ 128,217 $ (53,954)
−Removed: Cash Provided by Operating Activities
+Added: Three Months Ended
+Added: Net cash (used in) provided by operating activities $ (4,437) $ 3,083
+Added: Net cash (used in) provided by investing activities (87,190) 5,729
+Added: Net cash (used in) provided by financing activities (3,892) 32,156
+Added: Net (decrease) increase in cash, cash equivalents and restricted cash $ (95,519) $ 40,968
+Added: Cash (Used in) Provided by Operating Activities
Our primary source of operating cash inflows is cash collected from our customers in connection with their use of our core solutions and Value+ services.
Our primary uses of cash from operating activities are for personnel-related expenditures and third-party costs incurred to support the delivery of our software solutions.
−Removed: For the nine months ended September 30, 2020, net cash provided by operating activities was $45.2 million resulting from net income of $158.9 million, adjusted by the gain on the sale of MyCase of $187.6 million, non-cash charges of $52.6 million and a net increase in our operating assets and liabilities of $21.3 million.
−Removed: The non-cash charges primarily consist of an increase in deferred taxes of $22.9 million, $19.8 million of depreciation and amortization costs, stock-based compensation expense of $6.8 million, and $3.0 million of amortization of operating lease right-of-use assets.
−Removed: The net increase in our operating assets and liabilities was mostly attributable to a $16.5 million increase in other liabilities primarily driven by income taxes payable due to the MyCase Transaction, a $5.9 million increase in accrued expenses which was primarily due to a $4.3 million accrual recorded during the current period related to our reasonable estimate of the probable loss associated with the FTC Investigation, a $1.9 million increase in accrued employee expenses primarily due to an increase in accrued paid time off, and a $0.8 million increase in deferred revenue driven by growth in the number of customers invoiced during the period.
−Removed: These increases were partially offset by a $2.2 million increase in accounts receivable primarily driven by growth of our Value+ services, a $1.1 million decrease in operating lease liabilities, and a $0.9 million increase in prepaid expenses and other current assets.
−Removed: For the nine months ended September 30, 2019, net cash provided by operating activities was $23.4 million resulting from net income of $31.9 million, adjusted by non-cash charges of $2.3 million and a net decrease in our operating assets and liabilities of $6.2 million.
−Removed: The non-cash charges primarily consist of a one-time benefit of $27.0 million related to the release of the valuation allowance for our deferred tax assets, offset by $16.2 million of depreciation and amortization of our property and equipment and capitalized software development costs, $5.4 million of stock-based compensation and $3.0 million of amortization of operating lease right-of-use ("ROU") assets in accordance with ASU 2016-02.
−Removed: The net decrease in our operating assets and liabilities was mostly attributable to an increase of $4.4 million in prepaid expenses and other current assets, a $2.9 million decrease in operating lease liabilities, and a $2.8 million increase in accounts receivable primarily driven by growth of our Value+ services.
−Removed: The decrease in our operating assets and liabilities was partially offset by a $1.1 million decrease in other assets, a $1.0 million increase in deferred revenue, a $1.0 million increase in other liabilities, and a $0.5 million increase in accrued employee expenses.
−Removed: Cash Provided by (Used in) Investing Activities
−Removed: Cash provided by (used in) investing activities is generally comprised of proceeds from divestitures, purchases, maturities and sales of investment securities, purchases of property and equipment, additions to capitalized software development, and cash paid for business acquisitions.
−Removed: For the nine months ended September 30, 2020, investing activities provided $152.5 million in cash primarily due to net proceeds from the MyCase Transaction of $191.4 million and the sales and maturities of investment securities of $13.9 million and $13.3 million, respectively.
−Removed: These sources of cash were partially offset by purchases of investment securities of $29.9 million, capitalized software development costs of $19.7 million, and capital expenditures of $16.6 million to purchase property and equipment for the continued growth and expansion of our business.
−Removed: For the nine months ended September 30, 2019, investing activities used $70.7 million in cash primarily due to $54.0 million used to acquire Dynasty, as well as capitalized software development costs of $15.7 million for the continued investment in our software development, purchases of investment securities of $10.7 million, and capital expenditures of $4.1 million to purchase property and equipment for the continued growth and expansion of our business.
−Removed: These uses were partially offset by sales and maturities of investment securities of $2.8 million and $11.0 million, respectively.
−Removed: Cash Used in Financing Activities
−Removed: Cash used in financing activities is generally comprised of proceeds from the exercise of stock options, net share settlements for employee tax withholdings associated with the vesting of RSUs, the payment of contingent consideration under acquisition arrangements, activities associated with our former Credit Facility, and activities related to the repurchase of our Class A common stock.
−Removed: For the nine months ended September 30, 2020, financing activities used $69.5 million in cash primarily as a result of the payment of all outstanding amounts due under the Credit Facility of $99.6 million, net share settlements for employee tax withholdings associated with the vesting of RSUs of $11.0 million, payment of contingent consideration related to the Dynasty acquisition of $6.0 million, and the repurchase of outstanding shares of Class A common stock in the amount of $4.2 million.
−Removed: These uses of cash were partially offset by net proceeds from the Revolving Facility of $50.8 million.
−Removed: For the nine months ended September 30, 2019, financing activities used $6.6 million in cash primarily as a result of net share settlements for employee tax withholdings associated with the vesting of RSUs of $5.5 million, as well as principal payments on debt of $2.6 million, and payments of debt issuance costs of $0.4 million, partially offset by proceeds from issuance of debt of $1.7 million and proceeds from stock option exercises of $0.3 million.
+Added: For the three months ended March 31, 2021, net cash used in operating activities was $4.4 million resulting from income of $0.5 million, non-cash charges of $4.9 million and a net decrease in our operating assets and liabilities of $9.8 million.
+Added: The non-cash charges primarily consist of an increase in deferred taxes of $5.7 million, $7.4 million of depreciation and amortization costs, stock-based compensation expense of $2.8 million, and $0.7 million of amortization of operating lease right-of-use ("ROU") assets.
+Added: The net decrease in our operating assets and liabilities was mostly attributable to a $6.5 million decrease in income taxes payable primarily driven by income taxes paid due to the MyCase Transaction, a $3.8 million decrease in accrued expenses which was primarily due to a $4.3 million settlement paid during the current period related to the FTC Investigation, and a $1.9 million increase in accounts receivable primarily driven by growth of our Value+ services.
+Added: These decreases were partially offset by a $1.2 million increase in accrued employee expenses-noncurrent due to an increase in accrued long-term management bonuses made in connection with long-term executive cash incentive plans for certain executives, a $0.9 million increase in accounts payable, a $0.7 million increase in accrued employee expenses primarily due to an increase in other short-term accrued management bonuses, and a $0.3 million increase in deferred revenue driven by growth in the number of customers invoiced during the period.
+Added: For the three months ended March 31, 2020, net cash provided by operating activities was $3.1 million resulting from net income of $2.0 million, adjusted by non-cash charges of $8.8 million and a net decrease in our operating assets and liabilities of $7.7 million.
+Added: The non-cash charges primarily consist of $6.4 million of depreciation and amortization costs, $1.1 million of amortization of operating lease ROU assets, stock-based compensation expense of $1.0 million, and a decrease in deferred taxes of $0.4 million.
+Added: The net decrease in our operating assets and liabilities was mostly attributable to a $5.4 million decrease in accrued employee expenses primarily due to the payout of accrued employee bonuses and commissions, an increase of $2.8 million in prepaid expenses and other current assets, and a $1.6 million increase in accounts receivable primarily driven by growth of our Value+ services.
+Added: These decreases were partially offset by a $0.8 million increase in operating lease liabilities, a $0.7 million increase in accrued expenses and a $0.7 million increase in deferred revenue.
+Added: Cash (Used in) Provided by Investing Activities
+Added: Cash (used in) provided by investing activities is generally comprised of purchases of investment securities, maturities and sales of investment securities, purchases of property and equipment, and additions to capitalized software development.
+Added: For the three months ended March 31, 2021, investing activities used $87.2 million in cash primarily due to purchases of investment securities of $99.0 million, capitalized software development costs of $6.1 million, and capital expenditures of $0.9 million to purchase property and equipment for the continued growth and expansion of our business.
+Added: These uses of cash were partially offset by sales and maturities of investment securities of $17.9 million and $1.0 million, respectively.
+Added: For the three months ended March 31, 2020, investing activities provided $5.7 million in cash primarily due to sales and maturities of investment securities of $13.9 million and $7.3 million, respectively.
+Added: These sources of cash were partially offset by capital expenditures of $8.0 million to purchase property and equipment for the continued growth and expansion of our business, capitalized software development costs of $6.8 million for the continued investment in our software development, and purchases of investment securities of $0.6 million.
+Added: Cash (Used in) Provided by Financing Activities
+Added: Cash (used in) provided by financing activities is generally comprised of proceeds from the exercise of stock options, net share settlements for employee tax withholdings associated with the vesting of RSUs, activities associated with our former Credit Facility, and activities related to the repurchase of our Class A common stock.
+Added: For the three months ended March 31, 2021, financing activities used $3.9 million in cash primarily as a result of net share settlements for employee tax withholdings associated with the vesting of RSUs of $4.0 million.
+Added: For the three months ended March 31, 2020, financing activities provided $32.2 million in cash primarily as a result of proceeds from the Revolving Facility of $49.4 million, partially offset by net share settlements for employee tax withholdings associated with the vesting of RSUs of $6.5 million, payment of contingent consideration related to the Dynasty acquisition of $6.0 million, and the repurchase of outstanding shares of Class A common stock in the amount of $4.2 million.
Contractual Obligations and Other Commitments
1 unchanged sentence
Off-Balance Sheet Arrangements
−Removed: As of September 30, 2020, we did not have any off-balance sheet arrangements.
+Added: As of March 31, 2021, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
1 unchanged sentence
The preparation of our Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
−Removed: COVID-19 has created and may continue to create significant uncertainty in a wide variety of industries and markets, 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.
−Removed: As of the date of our Condensed 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.
−Removed: However, these estimates 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.
−Removed: While we considered the effects of COVID-19 in our estimates and assumptions, due to the current level of uncertainty over the economic and operational impacts of COVID-19 on our business, there may be other judgments and assumptions that were not currently considered.
−Removed: Such judgments and assumptions could result in a meaningful impact to our financial statements in future periods.
−Removed: Actual results could differ from those estimates and any such differences may have a material impact on our financial statements.
There have been no changes to our critical accounting policies and estimates described in our Annual Report that have had a material impact on our Condensed Consolidated Financial Statements and related notes.
3 unchanged sentences
Interest Rate Risk
−Removed: Short-Term Investments
−Removed: As of September 30, 2020, we had cash and cash equivalents of $144.0 million consisting of bank deposits, money market funds, and treasury securities, and $37.8 million of investment securities consisting of treasury securities, United States government agency securities and corporate bonds.
−Removed: The primary objective of our investment policy is to invest in securities to support our liquidity and capital needs.
−Removed: We have not purchased investments for trading or speculative purposes and have not used any derivative financial instruments to manage our credit risk or interest rate risk exposure.
+Added: Investment Securities
+Added: As of March 31, 2021, we had cash and cash equivalents of $44.7 million consisting of bank deposits, money market funds, and treasury securities, and $115.1 million of investment securities consisting of United States government agency securities and treasury securities.
+Added: The primary objective of investing in securities is to support our liquidity and capital needs.
+Added: We did not purchase these investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
Our investment securities are exposed to market risk due to interest rate fluctuations.
1 unchanged sentence
Since our investment securities are held as available for sale, all changes in fair value impact our other comprehensive income unless an investment security is considered impaired in which case changes in fair value are reported in other expense.
−Removed: As of September 30, 2020 a hypothetical 100 basis point change in interest rates would not have resulted in a material change in the fair value of our investment securities.
−Removed: This estimate is based on a sensitivity model which measured an instant change in interest rates by 100 basis points as of September 30, 2020.
−Removed: Credit Facility
−Removed: We were exposed to interest rate risk as a result of our Credit Facility prior to its termination.
−Removed: Outstanding borrowings under the Credit Facility accrued interest as described in Note 8, Long-Term Debt, of our Condensed Consolidated Financial Statements.
−Removed: Our borrowings under the Credit Facility were subject to interest rate fluctuations, which could have had a material impact on our cash flows and results of operations depending on the magnitude of the fluctuations and the outstanding borrowings.
−Removed: In order to determine the potential impact of changes in interest rates on our cash flows and result of operations, we performed a sensitivity analysis.
−Removed: A hypothetical 100 basis point increase in interest rates during the period ended September 30, 2020 would not have had a material impact on our cash flows or results of operations.
−Removed: 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.
+Added: As of March 31, 2021, a hypothetical 100 basis point decrease in interest rates would not have resulted in a material change in the fair value of our investment securities and a hypothetical 100 basis point increase in interest rates would have resulted in a decrease in the fair value of our investment securities of approximately $0.6 million.
+Added: This estimate is based on a sensitivity model which measures an instant change in interest rates by 100 basis points at March 31, 2021.
Inflation Risk
1 unchanged sentence
Foreign Currency Risk
−Removed: We have not been exposed to, nor do we anticipate being exposed to, material risks relating to foreign currency fluctuations.
+Added: We have not been exposed to, nor do we anticipate being exposed to, material risks relating to foreign currency exchange rate fluctuations.
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.