What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-08 compared with 2021-08-09 · 120 added, 112 removed, 225 unchanged (51% of the section changed)

30 unchanged sentences

Quarter Ended

June 30, March 31, December 31, September 30, June 30, March 31,

September 30, June 30, March 31, December 31, September 30, June 30, March 31,

Property manager customers 16,844 16,532 16,178 15,724 15,352 15,011 14,729

9 unchanged sentences

Our workforce has continued to effectively develop and support our software and services offerings notwithstanding the current environment.

We expect to slowly transition employees back to the workplace and resume employee travel throughout 2021;

however, employees will have the option to work remotely for the remainder of the year.

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.

We are slowly transitioning employees back to the workplace on a voluntary basis and have resumed limited employee business travel.

Given the ongoing uncertainties surrounding COVID-19, we have pushed our return to office into 2022 and will continue to provide employees the option to work remotely until further notice.

If the COVID-19 pandemic once again requires full remote working conditions or otherwise continues to slow 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.

We take the health and welfare of our people very seriously.

1 unchanged sentence

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.

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.

During the six months ended June 30, 2020, we also provided software solutions and services to the legal industry via MyCase, a software solution primarily designed for small and mid-sized law firms.

During the nine months ended September 30, 2020, we also provided software solutions and services to the legal industry via MyCase, a software solution primarily designed for small and mid-sized law firms.

As previously disclosed, we completed our divestiture of MyCase, Inc.

24 unchanged sentences

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

Marketing activities include advertising, online lead generation, lead nurturing, customer and industry events, and the creation of industry-related content and collateral.

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, which we have determined to be three years.

11 unchanged sentences

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.

Other Income (Loss), Net.

Other income (loss), net includes gains and losses associated with the sale of property, equipment and investment securities, as well as income from certain post-closing transition services to be provided by us to MyCase in connection with the MyCase Transaction.

Other (Loss) Income, Net.

Other (loss) income, net includes gains and losses associated with the sale of property, equipment and investment securities, as well as income from certain post-closing transition services provided by us to MyCase in connection with the MyCase Transaction.

Interest Income (Expense), Net.

1 unchanged sentence

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.

Benefit from Income Taxes.

Benefit from income taxes consists of federal and state income taxes in the United States.

(Benefit from) Provision for Income Taxes.

( 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

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

13 unchanged sentences

Total costs and operating expenses 95,822 100.0 80,726 96.0 268,306 101.7 225,089 94.7

Income (loss) from operations 1,146 1.3 6,345 7.8 (4,523) (2.7) 9,175 6.0

Other income (loss), net 496 0.6 (10) — 1,058 0.6 12 —

(Loss) income from operations (13) — 3,360 4.0 (4,536) (1.7) 12,535 5.3

Other (loss) income, net (353) (0.4) 187,747 223.3 705 0.3 187,759 79.0

Interest income (expense), net 65 0.1 (853) (1.0) 173 0.1 (1,909) (0.8)

Income (loss) before benefit from income taxes 1,697 1.9 5,773 7.1 (3,357) (2.0) 8,131 5.3

Benefit from income taxes (324) (0.4) (13,484) (16.6) (5,857) (3.5) (13,109) (8.5)

Net income $ 2,021 2.3 % $ 19,257 23.8 % $ 2,500 1.5 % $ 21,240 13.8 %

(Loss) income before (benefit from) provision for income taxes (301) (0.3) 190,254 226.3 (3,658) (1.4) 198,385 83.5

(Benefit from) provision for income taxes (160) (0.2) 52,578 62.5 (6,017) (2.3) 39,469 16.6

Net (loss) income $ (141) (0.1) % $ 137,676 163.7 % $ 2,359 0.9 % $ 158,916 66.9 %

(1) Includes stock-based compensation expense as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

5 unchanged sentences

Total stock-based compensation expense $ 4,063 $ 3,096 $ 10,053 $ 6,808

Comparison of the Three and Six Months Ended June 30, 2021 and 2020

Comparison of the Three and Nine Months Ended September 30, 2021 and 2020

Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2021 2020 Amount % 2021 2020 Amount %

4 unchanged sentences

Total revenue $ 95,809 $ 84,086 $ 11,723 14 % $ 263,770 $ 237,624 $ 26,146 11 %

Revenue derived from our software and solutions offered to the real estate vertical for the three months ended June 30, 2021 and 2020, was $89.0 million and $72.8 million, respectively, an increase of $16.2 million, or 22%.

Revenue for the three months ended September 30, 2021 and 2020, was $95.8 million and $84.1 million, respectively, an increase of $11.7 million, or 14%.

This increase was primarily attributable to the growth in the number of property management customers and units under management utilizing our software and services.

The remaining revenue in 2020 was attributed to our legacy legal vertical.

Revenue derived from our software and solutions offered to the real estate vertical for the six months ended June 30, 2021 and 2020, was $168.0 million and $137.7 million, respectively, an increase of $30.3 million, or 22%.

Revenue in 2020 includes $9.5 million attributable to our legacy legal vertical.

Excluding this amount, revenue derived from our software and solutions offered to the real estate vertical for the three months ended September 30, 2021 and 2020 increased $21.2 million, or 28%.

Revenue for the nine months ended September 30, 2021 and 2020, was $263.8 million and $237.6 million, respectively, an increase of $26.1 million, or 11%.

This increase was primarily attributable to the growth in the number of property management customers and units under management utilizing our software and services.

The remaining revenue in 2020 was attributed to our legacy legal vertical.

Core solutions revenue derived from our real estate vertical for the three months ended June 30, 2021 and 2020 was $25.4 million and $21.2 million, respectively, an increase of $4.2 million or 20%.

Core solutions revenue derived from our real estate vertical for the six months ended June 30, 2021 and 2020 was $49.5 million and $41.7 million, respectively, an increase of $7.8 million or 19%.

Value+ services revenue derived from our real estate vertical for the three months ended June 30, 2021 and 2020 was $60.4 million and $48.2 million, respectively, an increase of $12.2 million or 25%.

Value+ services revenue derived from our real estate vertical for the six months ended June 30, 2021 and 2020 was $112.0 million and $89.1 million, respectively, an increase of $22.9 million or 26%.

These increases in core solutions and Value+ services revenue for the three and six months ended June 30, 2021 and 2020 were mainly attributable to growth in our base of property management customers and growth in users of our subscription and usage-based services.

During the three and six month periods we experienced growth of 17% and 17%, respectively, in the average number of property management units under management resulting from 10% and 10%, respectively, growth in the average number of property management customers during the periods.

Revenue in 2020 includes $25.3 million attributable to our legacy legal vertical.

Excluding this amount, revenue derived from our software and solutions offered to the real estate vertical for the nine months ended September 30, 2021 and 2020 increased $51.5 million, or 24%.

Core solutions revenue derived from our real estate vertical for the three months ended September 30, 2021 and 2020 was $26.9 million and $22.0 million, respectively, an increase of $4.9 million or 23%.

Core solutions revenue derived from our real estate vertical for the nine months ended September 30, 2021 and 2020 was $76.5 million and $63.7 million, respectively, an increase of $12.8 million or 20%.

Value+ services revenue derived from our real estate vertical for the three months ended September 30, 2021 and 2020 was $65.6 million and $49.1 million, respectively, an increase of $16.5 million or 34%.

Value+ services revenue derived from our real estate vertical for the nine months ended September 30, 2021 and 2020 was $177.5 million and $138.2 million, respectively, an increase of $39.3 million or 28%.

These increases in core solutions and Value+ services revenue for the three and nine months ended September 30, 2021 and 2020 were mainly attributable to growth in our base of property management customers and growth in users of our subscription and usage-based services.

During the three and nine month periods we experienced growth of 18% and 17%, respectively, in the average number of property management units under management resulting from 10% growth in the average number of property management customers during each of the periods.

Our electronic payment services experienced increased demand during the comparative periods as residents, property managers, owners and customers transacted more business online.

3 unchanged sentences

Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2021 2020 Amount % 2021 2020 Amount %

2 unchanged sentences

Percentage of revenue 40.4 % 39.0 % 39.7 % 37.5 %

Cost of revenue (exclusive of depreciation and amortization) related to our software and solutions offered to the real estate vertical for the three months ended June 30, 2021 and 2020 was $32.8 million and $24.5 million, respectively, an increase of $8.3 million, or 34%.

Cost of revenue (exclusive of depreciation and amortization) related to our software and solutions offered to the real estate vertical for the three months ended September 30, 2021 and 2020 was $38.7 million and $29.3 million, respectively, an increase of $9.4 million, or 32%.

This increase was primarily attributable to increased costs associated with servicing the incremental $21.2 million in revenue over the same period.

The remaining cost of revenue was attributed to our legacy legal vertical and such costs for 2021 were reimbursed through our ongoing Transition Services Agreement and recorded in Other income (loss), net .

For the three months ended June 30, 2021 and 2020, expenditures to third-party service providers related to the delivery of our Value+ services to the real estate vertical increased $5.6 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the $12.2 million increase in Value+ services revenue to the real estate vertical.

The remaining cost of revenue in 2020 was attributed to our legacy legal vertical.

For the three months ended September 30, 2021 and 2020, expenditures to third-party service providers related to the delivery of our Value+ services to the real estate vertical increased $5.8 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the $16.5 million increase in Value+ services revenue to the real estate vertical.

Personnel-related costs, including performance-based compensation, necessary to support growth and key investments, increased $2.3 million.

Allocated shared and other costs increased by $1.3 million primarily driven by increases in software, payment processing and other costs incurred in support of our overall growth.

Cost of revenue (exclusive of depreciation and amortization) related to our software and solutions offered to the real estate vertical for the six months ended June 30, 2021 and 2020 was $65.9 million and $50.6 million, respectively, an increase of $15.3 million, or 30%.

Cost of revenue (exclusive of depreciation and amortization) related to our software and solutions offered to the real estate vertical for the nine months ended September 30, 2021 and 2020 was $104.7 million and $80.0 million, respectively, an increase of $24.7 million, or 31%.

This increase was primarily attributable to increased costs associated with servicing the incremental $51.5 million in revenue over the same period.

For the six months ended June 30, 2021 and 2020, expenditures to third-party service providers related to the delivery of our Value+ services to the real estate vertical increased $9.4 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the $22.9 million increase in Value+ services revenue to the real estate vertical.

For the nine months ended September 30, 2021 and 2020, expenditures to third-party service providers related to the delivery of our Value+ services to the real estate vertical increased $15.2 million, which was directly associated with the increased adoption and utilization of our Value+ services, as evidenced by the $39.3 million increase in Value+ services revenue to the real estate vertical.

Personnel-related costs, including performance-based compensation, necessary to support growth and key investments, increased $7.1 million.

1 unchanged sentence

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.

For the three months ended June 30, 2021, cost of revenue (exclusive of depreciation and amortization), as a percentage of revenue, increased to 36.8% from 33.6% for the three months ended June 30, 2020, and increased to 39.3% from 36.8% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

These increases in cost as a percentage of revenue were primarily driven by the mix of Value+ services revenue with varying underlying third-party costs.

For the three months ended September 30, 2021, cost of revenue (exclusive of depreciation and amortization), as a percentage of revenue, increased to 40.4% from 39.3% for the three months ended September 30, 2020, and increased to 39.7% from 37.7% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Sales and Marketing

Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2021 2020 Amount % 2021 2020 Amount %

2 unchanged sentences

Percentage of revenue 20.2 % 17.7 % 20.2 % 18.1 %

Sales and marketing expense related to our software and solutions offered to the real estate vertical for the three months ended June 30, 2021 and 2020 was $17.7 million and $11.9 million, respectively, an increase of $5.8 million, or 49%.

Sales and marketing expense related to our software and solutions offered to the real estate vertical for the three months ended September 30, 2021 and 2020 was $19.4 million and $13.1 million, respectively, an increase of $6.3 million, or 48%.

This increase was primarily due to a $3.6 million increase in personnel-related costs, including performance-based compensation, necessary to support growth and key investments in the business.

1 unchanged sentence

In addition, there was an increase in allocated shared and other costs of $0.8 million primarily driven by increases in software and other costs incurred in support of our overall growth.

The remaining sales and marketing expense was attributed to our legacy legal vertical and such costs for 2021 were reimbursed through our ongoing Transition Services Agreement and recorded in Other income (loss), net .

Sales and marketing expense related to our software and solutions offered to the real estate vertical for the six months ended June 30, 2021 and 2020 was $33.8 million and $24.3 million, respectively, an increase of $9.5 million, or 39%.

This increase was primarily due to a $4.9 million increase in personnel-related costs, including performance-based compensation, necessary to support growth and key investments in the business.

The remaining sales and marketing expense in 2020 was attributed to our legacy legal vertical.

Sales and marketing expense related to our software and solutions offered to the real estate vertical for the nine months ended September 30, 2021 and 2020 was $53.1 million and $37.3 million, respectively, an increase of $15.8 million, or 42%.

This increase was primarily due to an $8.5 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 $6.2 million due in part to lower spending in 2020 due to the cancellation or postponement of in person events and the reduction of online marketing spend, as well as increased advertising and promotion spending in 2021 to support the growth and key investments in the business in 2021 and beyond.

In addition, there was an increase in allocated shared and other costs of $0.7 million primarily related to software, offset by a $0.4 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.

The remaining

sales and marketing expense was attributed to our legacy legal vertical and such costs for 2021 were reimbursed through our ongoing Transition Services Agreement and recorded in Other income (loss), net .

As a percentage of revenue, sales and marketing expense increased to 19.9% from 16.3% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 and increased to 20.1% from 17.6% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was due in part to lower advertising and promotion costs in 2020 as a result of fewer events and lower online marketing spend as well as increased spend in 2021 to support the growth of the business.

The increase for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was due to in part to lower advertising and promotion costs in 2020 as a result of fewer events and lower online marketing spend as well as increased spend in 2021 to support the growth of the business.

In addition, there was an increase in allocated shared and other costs of $1.1 million primarily related to software and other costs incurred in support of our overall growth.

As a percentage of revenue, sales and marketing expense increased to 20.2% from 17.6% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and increased to 20.1% from 17.6% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The increase for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 was due in part to lower advertising and promotion costs in 2020 as a result of fewer events and lower online marketing spend, as well as increased spend in 2021 to support the growth of the business.

Research and Product Development

Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2021 2020 Amount % 2021 2020 Amount %

2 unchanged sentences

Percentage of revenue 17.2 % 16.0 % 17.6 % 15.5 %

Research and product development expense related to our software and solutions offered to the real estate vertical for the three months ended June 30, 2021 and 2020 was $15.5 million and $10.7 million, respectively, an increase of $4.8 million, or 45%.

Research and product development expense related to our software and solutions offered to the real estate vertical for the three months ended September 30, 2021 and 2020 was $16.5 million and $11.7 million, respectively, an increase of $4.8 million, or 41%.

This increase was the result of an increase in personnel-related costs, including performance based compensation, net of capitalized software development costs, of $4.1 million due to investments in headcount growth within our research and product development organization.

Allocated shared and other costs increased by $0.7 million primarily related to software and other costs to support our overall growth.

The remaining research and development expense was attributed to our legacy legal vertical and such costs for 2021 were reimbursed through our ongoing Transition Services Agreement and recorded in Other income (loss), net .

Research and product development expense related to our software and solutions offered to the real estate vertical for the six months ended June 30, 2021 and 2020 was $29.8 million and $20.6 million, respectively, an increase of $9.2 million, or 45%.

The remaining research and development expense for 2020 was attributed to our legacy legal vertical.

Research and product development expense related to our software and solutions offered to the real estate vertical for the nine months ended September 30, 2021 and 2020 was $46.3 million and $32.3 million, respectively, an increase of $14.0 million, or 43%.

This increase was the result of an increase in personnel-related costs, including performance based compensation, net of capitalized software development costs, of $13.3 million due to investments in headcount growth within our research and product development organization.

Allocated shared and other costs increased $0.3 million primarily related to software costs, and were offset by a $0.3 million reduction of workplace-related and other non-essential expenditures in response to the impact of the COVID-19 pandemic.

Allocated shared and other costs increased $0.7 million primarily related to software and other costs to support our overall growth.

General and Administrative

Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2021 2020 Amount % 2021 2020 Amount %

2 unchanged sentences

Percentage of revenue 14.0 % 15.4 % 15.5 % 15.3 %

General and administrative expense related to our software and solutions offered to the real estate vertical and general corporate overhead expenses for the three months ended June 30, 2021 and 2020 was $14.2 million and $14.5 million, respectively, a decrease of $0.3 million, or 2%.

The decrease in general and administrative expense was primarily due to a one-time $4.3 million legal expense accrued during the three months ended June 30, 2020 and paid in the three months ended March 31, 2021 related to our previously disclosed settlement with the Federal Trade Commission (the "FTC").

This decrease was offset by an increase of $2.1 million in personnel related costs due to investments in headcount growth within our general and administrative organizations, a $1.0 million one-time expense related to separation pay in connection with the departure of our Chief Financial Officer ("CFO") during the three months ended June 30, 2021, and a $1.1 million increase in allocated shared and other costs to support our overall growth, all of which was partially offset by a net decrease of $0.2 million in connection with long-term executive cash incentive plans for certain executives, including certain of our named executive officers.

General and administrative expense related to our software and solutions offered to the real estate vertical and general corporate overhead expenses for the three months ended September 30, 2021 and 2020 was $13.4 million and $12.0 million, respectively, an increase of $1.4 million, or 12%.

The increase in general and administrative expense was primarily due to an increase of $1.9 million in personnel related costs due to investments in headcount growth within our general and administrative organizations, a $1.3 million increase in connection with long-term executive cash incentive plans for certain executives, including certain of our named executive officers, and a $1.1 million increase in allocated shared and other costs to support our overall growth.

We expect to incur additional expense in future periods under the long-term executive cash incentive plans throughout the remaining service periods.

General and administrative expense related to our software and solutions offered to the real estate vertical and general corporate overhead expenses for the six months ended June 30, 2021 and 2020 was $27.6 million and $23.0 million, respectively, an increase of $4.6 million, or 20%.

The increase in general and administrative expense was primarily due to $5.0 million increase in personnel-related costs for investments in headcount, $1.0 million expense related to CFO separation pay, a $1.0 million expense in connection with long-term executive cash incentive plans for certain executives, and an increase of $1.9 million in allocated shared and other costs for professional and legal fees, education and training, insurance, software and other costs to support our overall growth.

These increases were offset by the $4.3 million legal expense accrued during the three months ended June 30, 2020 and paid in the three months ended March 31, 2021 related to our settlement with the FTC.

These increases were offset by a $1.9 million insurance recovery related to our previously disclosed settlement with the Federal Trade Commission (the "FTC") and a $1.0 million decrease in legal fees related to the MyCase Transaction.

The remaining general and administrative expense for 2020 was attributed to our legacy legal vertical.

General and administrative expense related to our software and solutions offered to the real estate vertical and general corporate overhead expenses for the nine months ended September 30, 2021 and 2020 was $41.0 million and $35.0 million, respectively, an increase of $6.0 million, or 17%.

The increase in general and administrative expense was primarily due to a $7.1 million increase in personnel-related costs for investments in headcount, a $2.0 million expense in connection with long-term executive cash incentive plans for certain executives, $1.0 million expense related to severances, and an increase of $3.0 million in allocated shared and other costs for professional fees, education and training, insurance, software and other costs to support our overall growth.

These increases were offset by a $1.9 million insurance recovery received during the nine months ended September 30, 2021 and a decrease in legal costs of $5.3 million related to our $4.3 million settlement with the FTC and a decrease in legal fees of $1.0 million related to the MyCase transaction during the nine months ended September 30, 2020.

The remaining general and administrative expense for 2020 was attributed to our legacy legal vertical and such costs for 2021 were reimbursed through our ongoing Transition Services Agreement and recorded in Other (loss) income, net .

Depreciation and Amortization

Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2021 2020 Amount % 2021 2020 Amount %

2 unchanged sentences

Percentage of revenue 8.2 % 7.9 % 8.7 % 8.3 %

Depreciation and amortization expense related to our software and solutions offered to the real estate vertical for the three months ended June 30, 2021 and 2020 was $7.6 million and $6.0 million, respectively, an increase of $1.6 million, or 28%.

Depreciation and amortization expense related to our software and solutions offered to the real estate vertical for the six months ended June 30, 2021 and 2020 was $15.0 million and $11.8 million, respectively, an increase of $3.2 million, or 27%.

Depreciation and amortization expense related to our software and solutions offered to the real estate vertical for the three months ended September 30, 2021 and 2020 was $7.8 million and $6.2 million, respectively, an increase of $1.6 million, or 26%.

Depreciation and amortization expense related to our software and solutions offered to the real estate vertical for the nine months ended September 30, 2021 and 2020 was $22.8 million and $18.0 million, respectively, an increase of $4.8 million, or 27%.

These increases in depreciation and amortization expense were primarily due to increased amortization expense associated with higher accumulated capitalized software development balances.

Other Income (Loss), net

The remaining depreciation and amortization expense for 2020 was attributed to our legacy legal vertical.

Other (Loss) Income, net

Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2021 2020 Amount % 2021 2020 Amount %

(dollars in thousands)

Other income (loss), net $ 496 $ (10) $ 506 * $ 1,058 $ 12 $ 1,046 *

Other (loss) income, net $ (353) $ 187,747 $ (188,100) * $ 705 $ 187,759 $ (187,054) *

Percentage of revenue (0.4) % 223.3 % 0.3 % 79.0 %

*Percentage change not meaningful

Other income (loss), net related to our software and solutions offered to the real estate vertical for the three months ended June 30, 2021 and 2020 was $0.5 million and $(10) thousand, respectively, an increase of $0.5 million.

The increase in Other income (loss), net was primarily due to $0.3 million in other income recorded during the three months ended June 30, 2021 related to certain post-closing transition services provided to MyCase, and $0.2 million in other income recorded during the three months ended June 30, 2021 related to post-closing adjustments to the sales price of MyCase.

Other income (loss), net related to our software and solutions offered to the real estate vertical for the six months ended June 30, 2021 and 2020 was $1.1 million and $12 thousand, respectively, an increase of $1.0 million.

The increase in Other income (loss), net was primarily due to $0.7 million in other income recorded during the six months ended June 30, 2021 related to certain post-closing transition services provided to MyCase, and $0.4 million in other income recorded during the six months ended June 30, 2021 related to post-closing adjustments to the sales price of MyCase.

Benefit from Income Taxes

Other loss, net related to our software and solutions offered to the real estate vertical for the three months ended September 30, 2021 was $0.4 million compared to other income of $187.7 million for the three months ended September 30, 2020, a decrease of $188.1 million.

The decrease in other (loss) income, net was primarily due to the gain of $187.6 million associated with the MyCase Transaction in September 2020.

Other income, net related to our software and solutions offered to the real estate vertical for the nine months ended September 30, 2021 and 2020 was $0.7 million and $187.8 million, respectively, a decrease of $187.1 million.

The decrease in other income, net was primarily due to the gain of $187.6 million associated with the MyCase Transaction in September 2020.

The decrease was offset by $0.7 million in other income recorded during the nine months ended September 30, 2021 related to certain post-closing transition services provided to MyCase, and $0.4 million in other income recorded during the nine months ended September 30, 2021 related to post-closing adjustments to the sales price of MyCase.

(Benefit from) Provision for Income Taxes

Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2021 2020 Amount % 2021 2020 Amount %

(dollars in thousands)

Benefit from income taxes $ (324) $ (13,484) $ 13,160 * $ (5,857) $ (13,109) $ 7,252 (55) %

(Benefit from) provision for income taxes $ (160) $ 52,578 $ (52,738) * $ (6,017) $ 39,469 $ (45,486) *

Percentage of revenue (0.2) % 62.5 % (2.3) % 16.6 %

*Percentage not meaningful

We calculate our benefit from 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.

For the three and six months ended June 30, 2021, we recorded an income tax benefit of $0.3 million and $5.9 million, respectively.

We calculate our (benefit from) 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.

For the three and nine months ended September 30, 2021, we recorded an income tax benefit of $0.2 million and $6.0 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.

For the three and six months ended June 30, 2020, we recorded an income tax benefit of $13.5 million and $13.1 million, respectively.

For the three and nine months ended September 30, 2020 we recorded an income tax expense of $52.6 million and $39.5 million, respectively.

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.

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

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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.

As of June 30, 2021, our cash, cash equivalents, and investment securities had an aggregate balance of $163.1 million.

As of September 30, 2021, our cash, cash equivalents, and investment securities had an aggregate balance of $169.8 million.

We have financed our operations primarily through cash generated from operations.

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The following table summarizes our cash flows for the periods indicated (in thousands):

Six Months Ended

Nine Months Ended

September 30,

Net cash provided by operating activities $ 26,459 $ 45,216

Net cash used in investing activities (94,060) (18,712)

Net cash (used in) provided by financing activities (8,254) 28,840

Net cash (used in) provided by investing activities (73,766) 152,542

Net cash used in financing activities (8,512) (69,541)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (55,819) $ 128,217

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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.

For the six months ended June 30, 2021, net cash provided by operating activities was $10.7 million resulting from income of $2.5 million, non-cash charges of $15.7 million and a net decrease in our operating assets and liabilities of $7.6 million.

The non-cash charges primarily consist of an increase in deferred taxes of $6.1 million, $15.0 million of depreciation and amortization costs, $1.4 million of amortization of operating lease right-of-use ("ROU") assets, and stock-based compensation expense of $6.0 million.

The net decrease in our operating assets and liabilities was mostly attributable to a $9.0 million decrease in income taxes payable primarily driven by income taxes paid due to the MyCase Transaction, a $3.0 million decrease in accrued expenses which was primarily due to a $4.3 million legal expense accrued during the three months ended June 30, 2020 and paid in the three months ended March 31, 2021 related to our settlement with the FTC, a $2.2 million increase in prepaid expenses and other current assets primarily attributable to an increase in tenant improvement allowance receivable, and a $4.0 million increase in accounts receivable primarily driven by growth of our Value+ services.

These decreases were partially offset by a $1.7 million increase in operating lease liabilities, a $1.0 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 $7.6 million increase in accrued employee expenses-current primarily due to an increase in other short-term accrued management bonuses, and a $1.3 million increase in accounts payable.

For the six months ended June 30, 2020, net cash provided by operating activities was $27.4 million resulting from net income of $21.2 million, adjusted by non-cash charges of $5.7 million and a net increase in our operating assets and liabilities of $0.4 million.

For the nine months ended September 30, 2021, net cash provided by operating activities was $26.5 million resulting from income of $2.4 million, non-cash charges of $28.5 million and a net decrease in our operating assets and liabilities of $4.4 million.

The non-cash charges primarily consist of $22.8 million of depreciation and amortization costs, stock-based compensation expense of $10.1 million, a decrease in deferred taxes of $6.4 million, and $2.3 million of amortization of operating lease right-of-use ("ROU") assets.

The net decrease in our operating assets and liabilities was mostly attributable to an $8.9 million decrease in income taxes payable primarily driven by income taxes paid due to the MyCase Transaction, a $3.6 million increase in prepaid expenses and other current assets primarily attributable to a $1.9 million insurance recovery received related to our previously disclosed settlement with the FTC, and an increase in prepaid expenses to support our overall growth, a $1.4 million decrease in accrued expenses which was primarily due to a $4.3 million legal expense accrued during the nine months ended September 30, 2020 and paid in the three months ended March 31, 2021 related to our settlement with the FTC, and a $1.4 million increase in accounts receivable primarily driven by growth of our Value+ services.

These decreases were partially offset by a $6.3 million increase in accrued employee expenses-current primarily due to an increase in other short-term accrued management bonuses, an increase in payroll expense based on the number of days accrued, and an increase in accrued paid time off, a $2.0 million increase in operating lease liabilities, a $1.4 million increase in accounts payable, and a $2.1 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.

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.

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.

The net increase in our operating assets and liabilities was mostly attributable to a $5.1 million increase in accounts receivable primarily driven by growth of our Value+ services, partially offset by a $4.5 million increase in accrued expenses which was primarily due to a $4.3 million legal expense accrued during the three months ended June 30, 2020 and paid in the three months ended March 31, 2021 related to our settlement with the FTC, a $0.7 million increase in accrued employee expenses primarily due to an increase in accrued paid time off and partially offset by a decrease in accrued performance-based cash compensation and a $0.5 million increase in deferred revenue driven by growth in the number of customers invoiced during the period.

Cash Used in Investing Activities

Cash used in 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.

For the six months ended June 30, 2021, investing activities used $94.1 million in cash primarily due to purchases of investment securities of $148.3 million, capitalized software development costs of $11.9 million, and capital expenditures of $2.8 million to purchase property and equipment for the continued growth and expansion of our business.

These uses of cash were partially offset by sales and maturities of investment securities of $42.2 million and $26.8 million, respectively.

For the six months ended June 30, 2020, investing activities used $18.7 million in cash primarily due to capital expenditures of $14.3 million to purchase property and equipment for the continued growth and expansion of our business, purchases of investment securities of $13.4 million, and capitalized software development costs of $12.7 million for the continued investment in our software development.

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.

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.

Cash (Used in) Provided by Investing Activities

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.

For the nine months ended September 30, 2021, investing activities used $73.8 million in cash primarily due to purchases of investment securities of $167.0 million, capitalized software development costs of $18.5 million, and capital expenditures of $5.2 million to purchase property and equipment for the continued growth and expansion of our business.

These uses of cash were partially offset by sales and maturities of investment securities of $43.2 million and $73.8 million, respectively.

Cash (Used in) Provided by Financing Activities

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, which was terminated in connection with the divestiture of MyCase Inc.

(For additional details, refer to Note 3.

Divestitures ), and activities related to the repurchase of our Class A common stock.

For the six months ended June 30, 2021, financing activities used $8.3 million in cash primarily as a result of net share settlements for employee tax withholdings associated with the vesting of RSUs of $8.9 million.

For the six months ended June 30, 2020, financing activities provided $28.8 million in cash primarily as a result of proceeds from our prior revolving credit facility of $50.2 million, partially offset by net share settlements for employee tax withholdings associated with the vesting of RSUs of $9.7 million, payment of contingent consideration related to the Dynasty acquisition completed in January 2019 of $6.0 million, the repurchase of outstanding shares of Class A common stock in the amount of $4.2 million, and principal payments on debt of $1.8 million.

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.

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.

Cash Used in Financing Activities

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, activities associated with our former credit facility, which was terminated in connection with the divestiture of MyCase Inc.

(For additional details, refer to Note 3, Divestitures ), and activities related to the repurchase of our Class A common stock.

For the nine months ended September 30, 2021, financing activities used $8.5 million in cash primarily as a result of net share settlements for employee tax withholdings associated with the vesting of RSUs of $9.3 million, offset by proceeds from stock option exercises of $0.8 million.

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.

These uses of cash were partially offset by net proceeds from the Revolving Facility of $50.8 million.

Contractual Obligations and Other Commitments

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Off-Balance Sheet Arrangements

As of June 30, 2021, we did not have any off-balance sheet arrangements.

As of September 30, 2021, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

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Investment Securities

As of June 30, 2021, we had cash and cash equivalents of $48.6 million consisting of bank deposits, money market funds, commercial paper, and treasury securities, and $114.5 million of investment securities consisting of United States government agency securities, corporate bonds, and treasury securities.

As of September 30, 2021, we had cash and cash equivalents of $84.4 million consisting of bank deposits, money market funds, and treasury securities, and $85.3 million of investment securities consisting of United States government agency securities, corporate bonds, and treasury securities.

The primary objective of investing in securities is to support our liquidity and capital needs.

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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.

As of June 30, 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 $0.5 million.

This estimate is based on a sensitivity model which measures an instant change in interest rates by 100 basis points at June 30, 2021.

As of September 30, 2021, a hypothetical 100 basis point decrease in interest rates would not have resulted in 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 $0.4 million.

This estimate is based on a sensitivity model which measures an instant change in interest rates by 100 basis points at September 30, 2021.

Inflation Risk

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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-Q

Item 2. Management’s Discussion and Analysis