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Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-03-01 · 166 added, 403 removed, 675 unchanged (46% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Consolidated Balance Sheets

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Notes to Consolidated Financial Statements

The supplementary financial information required by this Item 8 is included in Item 7 of this Annual Report in the section entitled "Quarterly Results of Operations."

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with customers in 2018.

Basis for Opinions

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Los Angeles, California

March 1, 2021

February 28, 2022

We have served as the Company’s auditor since 2012.

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Intangible assets, net 11,711 16,357

Deferred taxes 12,181 27,574

Deferred income taxes—noncurrent — 12,181

Other long-term assets 7,087 6,213

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Accounts payable $ 1,704 $ 1,040

Accrued employee expenses 18,888 17,758

Accrued employee expenses—current 30,065 18,888

Accrued expenses 13,284 14,069

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Other current liabilities 4,941 4,451

Term loan, net—current portion — 1,208

Total current liabilities 52,642 49,805

Accrued employee expenses—noncurrent 583 —

Operating lease liabilities 55,733 40,146

Term loan, net — 47,375

Deferred taxes 13,609 —

Deferred income taxes—noncurrent 1,678 13,609

Total liabilities 110,636 103,560

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Additional paid-in capital 171,930 161,247

Accumulated other comprehensive income 56 33

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

Accumulated other comprehensive (loss) income ( 194 ) 56

Treasury stock, at cost, 419 shares of Class A common stock as of December 31, 2021 and December 31, 2020

( 25,756 ) ( 25,756 )

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

Retained earnings 151,397 150,369

Total stockholders’ equity 297,381 285,920

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Total costs and operating expenses 371,248 300,273 249,551

Income from operations 9,783 6,461 19,656

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

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

(Loss) income from operations ( 11,878 ) 9,783 6,461

Other income, net 13,111 188,897 16

Interest income (expense), net 501 ( 1,849 ) ( 1,654 )

Income before provision for (benefit from) income taxes 1,734 196,831 4,823

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Net income $ 1,028 $ 158,403 $ 36,282

Other comprehensive income:

Changes in unrealized gains on investment securities 23 211 31

Other comprehensive (loss) income:

Changes in unrealized (losses) gains on investment securities ( 250 ) 23 211

Comprehensive income $ 778 $ 158,426 $ 36,493

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Common Stock Common Stock Paid-in Comprehensive Treasury (Accumulated

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

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

Shares Amount Shares Amount

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Repurchase of common stock — — — — — — — — —

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

— — — — — — — 2,964 2,964

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

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

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

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

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Issuance of restricted stock awards 4 — — — — — — — —

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

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

Other comprehensive loss — — — — — ( 250 ) — — ( 250 )

Net income — — — — — — — 1,028 1,028

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Deferred income taxes 250 29,002 ( 31,455 )

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

Stock-based compensation, including as amortized 17,154 10,308 8,065

Gain on sale of business ( 380 ) ( 187,658 ) —

Gain on sale of equity-method investment and recovery of note receivable ( 12,767 ) — —

Other 249 125 32

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Accounts payable 497 ( 903 ) 511

Accrued employee expenses 2,799 4,542 1,219

Accrued employee expenses—current 11,264 2,799 4,542

Accrued expenses ( 1,773 ) 6,878 55

Deferred revenue ( 186 ) 530 1,193

Income tax payable ( 8,959 ) 9,095 292

Accrued employee expenses—noncurrent 583 — —

Operating lease liabilities 1,268 ( 564 ) ( 2,662 )

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Proceeds from sale of business, net of cash divested 402 191,427 —

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

Proceeds from sale of equity-method investment and recovery of note receivable 12,520 — —

Net cash (used in) provided by investing activities ( 110,459 ) 146,511 ( 89,874 )

Cash from financing activities

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Purchase of treasury stock — ( 4,194 ) —

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

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

Net cash used in financing activities ( 7,348 ) ( 70,358 ) ( 7,272 )

Net (decrease) increase in cash and cash equivalents ( 82,416 ) 124,452 ( 58,259 )

Cash, cash equivalents and restricted cash

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Purchase consideration for acquisitions included in other current liabilities — — 5,977

Debt issuance and other financing costs accrued, not paid — — 371

The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same such amounts shown above (in thousands):

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AppFolio, Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(the "Company," "we," "us" or "our") is a leading provider of cloud business management solutions for the real estate industry.

Our solutions enable our customers to digitally transform their businesses, automate and streamline critical business operations and deliver a better customer experience.

We were founded in 2006 with the vision to revolutionize vertical industry businesses by providing great software and services.

Our mission is even more relevant today, digital transformation is effectively a requirement for business success in the modern world, and the way we work and live today requires powerful software solutions to enable a more seamless experience.

During the years ended December 31, 2020 and 2019, we also provided cloud-based solutions and services to the legal industry via MyCase, a solution primarily designed for small and mid-sized law firms.

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

on September 30, 2020.

For additional details, see Note 3, Divestitures .

Summary of Significant Accounting Policies

Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Reclassification

We reclassified certain amounts in our Consolidated Balance Sheet in the prior year to confirm to the current year's presentation.

We reclassified certain amounts in our Consolidated Statements of Cash Flows within the cash flows from operating activities section in the prior year to conform to the current year's presentation.

Principles of Consolidation

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Our investment in SecureDocs is not material and any income (loss) activity is not material individually or in the aggregate to our Consolidated Financial Statements for any period presented.

In December 2021, we sold our interest in SecureDocs.

Refer to Note 4, Investments for additional information.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue, expenses, other income, and provision for income taxes during the reporting period.

Assets and liabilities which are subject to judgment and use of estimates include the fair value of assets and liabilities assumed in business combinations, fair value of financial instruments, capitalized software development costs, period of benefit associated with deferred costs, incremental borrowing rate used to measure operating lease liabilities, the recoverability of goodwill and long-lived assets, income taxes, useful lives associated with property and equipment and intangible assets, contingencies, and valuation and assumptions underlying stock-based compensation and other equity instruments.

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

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

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

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

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

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

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

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

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

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

Assets and liabilities which are subject to judgment and use of estimates include the fair value of financial instruments, capitalized software development costs, period of benefit associated with deferred costs, incremental borrowing rate used to measure operating lease liabilities, the recoverability of goodwill and long-lived assets, income taxes, useful lives associated with property and equipment and intangible assets, contingencies, assumptions underlying performance-based compensation (whether cash or stock-based), and valuation and assumptions underlying stock-based compensation and other equity instruments.

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

Segment Information

Our chief operating decision maker reviews financial information presented on an aggregated and consolidated basis, together with revenue information for our core solutions, Value+ and other service offerings, principally to make decisions about how to allocate resources and to measure our performance.

Accordingly, management has determined that we have one reportable and operating segment.

Our chief operating decision maker reviews financial information presented on an aggregated and consolidated basis, together with revenue information for our core solutions, Value Added Services, and other service offerings, principally to make decisions about how to allocate resources and to measure our performance.

Accordingly, we have determined that we have one reportable and operating segment.

Concentrations of Credit Risk

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We maintain cash balances at financial institutions in excess of amounts insured by United States government agencies or payable by the United States government directly.

We place our cash with high credit, quality financial institutions.

place our cash with high credit, quality financial institutions.

We invest in investment securities with a minimum rating of A by Standard & Poor's or A-1 by Moody's and regularly monitor our investment security portfolio for changes in credit ratings.

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Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

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

Accounting Standard Codification 820, Fair Value Measurements and Disclosures , describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities or funds.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We use a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, in the marketplace.

Level 3 - Unobservable inputs that are supported by little or no market activity.

Cash, Cash Equivalents and Restricted Cash

We consider all highly liquid investments, readily convertible to cash, and which have a remaining maturity date of three months or less at the date of purchase, to be cash equivalents.

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

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

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

Investment Securities

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We classify investment securities as available-for-sale at the time of purchase and reevaluate such classification at each balance sheet date.

All investments are recorded at estimated fair value.

All investments are recorded at estimated fair value and investments with original maturities of less than one year at the time of purchase are classified as short-term.

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

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

For available-for-sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.

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If this assessment indicates a credit loss exists, the credit-related portion of the loss is recorded as an allowance for losses on the security.

No allowance for credit losses for available-for-sale investment securities was recorded as of December 31, 2020.

No allowance for credit losses for available-for-sale investment securities was recorded as of December 31, 2021 and 2020.

Accounts Receivable

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Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation.

Depreciation is calculated using the straight-line method over the estimated useful lives of assets.

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

Property and equipment is stated at cost net of accumulated depreciation.

Depreciation is calculated using the straight-line method over the estimated useful lives of assets as follows:

Asset Type Depreciation Period

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Leasehold improvements Shorter of remaining life of lease or asset life

Repair and maintenance costs are expensed as incurred.

Renewals and improvements are capitalized.

Assets disposed of or retired are removed from the cost and accumulated depreciation accounts and any resulting gain or loss is reflected in our results of operations.

We determine if an arrangement is a lease at inception.

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

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments, over the lease term at commencement date.

As none of our leases provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

As none of our leases provide an implicit rate, we use our incremental borrowing rate based on the information available at

commencement date in determining the present value of future payments.

The operating lease ROU assets also include any lease payments made to the lessor before or at the lease commencement date and excludes lease incentives received and initial direct costs incurred.

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Capitalized Software Development Costs

Software development cost consist of certain payroll and stock compensation costs incurred to develop functionality of our internal-use software solutions.

Software development costs consist of certain payroll and stock compensation costs incurred to develop functionality of our internal-use software solutions.

We capitalize certain software development costs for new offerings as well as significant upgrades and enhancements to our existing software solutions.

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

We believe there are two key estimates within the capitalized software balance, which are the determination of the useful life of the software and the determination of the amounts to be capitalized.

We determined that a three year life is appropriate for our internal-use software based on our best estimate of the useful life of the internally developed software after considering factors such as continuous developments in the technology, obsolescence and anticipated life of the service offering before significant upgrades.

Based on our prior experience, internally generated software will generally remain in use for a minimum of three years before being significantly replaced or modified to keep up with evolving customer and company needs.

While we do not anticipate any significant changes to this three year estimate, a change in this estimate could produce a material impact on our financial statements.

We determine the amount of internal software costs to be capitalized based on the amount of time spent by our software engineers on projects.

Costs associated with building or significantly enhancing our software solutions and new internally built software solutions are capitalized, while costs associated with planning new developments and maintaining our software solutions are expensed as incurred.

There is judgment involved in estimating the stage of development as well as estimating time allocated to a particular project.

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

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired in business combinations.

Goodwill is tested for impairment at least annually at the reporting unit level or at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We have the option to assess goodwill for possible impairment by performing a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

A qualitative assessment is performed to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount.

A quantitative assessment is performed if the qualitative assessment results in a more-likely-than-not determination or if a qualitative assessment is not performed.

The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent that the reporting unit’s carrying value exceeds its fair value.

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

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

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

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

We test for goodwill impairment annually during the fourth quarter of the calendar year.

Based on the assessment performed at November 1, 2021, we determined it was unlikely that our reporting unit fair value was less than its carrying value and no quantitative impairment test assessment was required.

No impairment losses were recorded for goodwill during the years ended December 31, 2021, 2020 and 2019.

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There were no impairment charges related to the identified long-lived assets for the years ended December 31, 2021, 2020 and 2019.

Business Combinations

The results of a business acquired in a business combination are included in our Consolidated Financial Statements from the date of acquisition.

We allocate the purchase price, including the fair value of contingent consideration, to the identifiable assets and liabilities of the acquired business at their acquisition date fair values.

The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill.

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

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

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

Revenue Recognition

We generate revenue from our customers primarily for subscriptions to access our core solutions and Value+ services for our cloud-based software solutions.

We generate revenue from our customers primarily for subscriptions to access our core solutions and Value Added Services.

Revenue is recognized upon transfer of control of promised services in an amount that reflects the consideration we expect to receive in exchange for those services.

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Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

Refer to Note 15, Revenue and Other Information for the disaggregated breakdown of revenue between core solutions, Value+ services and other revenue.

We do not disclose the value of unsatisfied performance obligations for contracts with an original expected term of one year or less.

We recognize revenue in proportion to the amount we have the right to invoice for certain core solutions and Value Added Services revenue, as that amount corresponds directly with our performance completed to date.

Refer to Note 14, Revenue and Other Information for the disaggregated breakdown of revenue between Core solutions, Value Added Services and Other revenue.

Core Solutions

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We typically invoice our customers for subscription services in monthly or annual installments, in advance of the subscription period.

Value+ Services

We charge our customers on a subscription or usage basis for our Value+ services.

Value Added Services

We charge our customers on a subscription or usage basis for our Value Added Services.

Subscription-based fees are charged on a per-unit basis.

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We recognize revenue for subscription-based services over time on a straight-line basis over the contract term beginning on the date that our service is made available to the customer.

Usage-based fees are charged on a flat rate per transaction basis with no minimum usage commitments.

Usage-based fees are charged either as a percentage of the transaction amount (e.g., for certain of our electronic payment services) or on a flat fee per transaction basis with no minimum usage commitments (e.g., for our tenant screening and risk mitigation services).

We recognize revenue for usage-based services in the period the service is rendered.

Our electronic payments services fees are recorded gross of the interchange and payment processing related fees.

We generally invoice our customers for usage-based services on a monthly basis for services rendered in the preceding month.

In addition, some subscription or usage-based Value+ services, such as fees for electronic payment services, are paid by either our customers or clients of our customers at the time the services are rendered.

We work with third-party partners to provide certain of our Value+ services.

For these Value+ services, we evaluate whether we are the principal, and report revenue on a gross basis, or the agent, and report revenue on a net basis.

In addition, some subscription or usage-based Value Added Services, such as fees for electronic payment services, are paid by either our customers or clients of our customers at the time the services are rendered.

We work with third-party partners to provide certain of our Value Added Services.

For these Value Added Services, we evaluate whether we are the principal, and report revenue on a gross basis, or the agent, and report revenue on a net basis.

In this assessment we consider if we obtain control of the specified services before they are transferred to the customer, as well as other indicators such as whether we are the party primarily responsible for fulfillment, and whether we have discretion in establishing price.

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Other services are billed when the services rendered are completed and delivered to the customer or billed in advance and deferred over the subscription period.

Contracts with Multiple Performance Obligations

Many of our contracts with customers contain multiple performance obligations.

Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment.

We account for individual performance obligations separately if they are distinct.

The performance obligations for these contracts include access and use of our core solutions, implementation services, and customer support.

Access and use of our core solutions and implementation services are considered distinct.

The transaction price is allocated to each performance obligation on a relative standalone selling price basis.

Judgment is required to determine the standalone selling price for each distinct performance obligation.

We typically have more than one standalone selling price for individual products and services due to the stratification of those products and services by customers and circumstances.

In these instances, we determine the standalone selling price based on our overall pricing objectives, taking into consideration customer demographics and other factors.

Fees are fixed based on rates specified in the subscription agreements, which do not provide for any refunds or adjustments.

Deferred Revenue

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During the twelve months ended December 31, 2021 and 2020, we recognized revenue of $ 2.2 million and $ 4.5 million, respectively, that were included in the deferred revenue balances at December 31, 2020 and 2019, respectively.

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

The time between invoicing and when payment is due is not significant.

In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts do not include a significant financing component.

Practical Expedients

In determining the transaction price, we have applied the practical expedient which allows us not to adjust the consideration for the effects of the time value of money as long as the time between when we transfer the promised service to a customer and when a customer pays is one year or less.

We do not disclose the value of unsatisfied performance obligations for contracts with an original expected term of one year or less.

We recognize revenue in proportion to the amount we have the right to invoice for certain core solutions and Value+ services revenue, as that amount corresponds directly with our performance completed to date.

Deferred Costs

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Cost of Revenue

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.

Many of our Value Added Services are facilitated by third-party service providers.

Cost of revenue paid to these third-party service providers includes the cost of electronic interchange and payment processing related services to support our electronic payments services, the cost of credit reporting services for our tenant screening services, and various costs associated with our risk mitigation service providers.

These third-party costs vary both in amount and as a percent of revenue for each Value Added Service offering.

Cost of revenue also consists of personnel-related costs for our employees focused on customer service and the support of our operations (including salaries, performance-based compensation, benefits, and stock-based compensation), platform infrastructure costs (such as data center operations and hosting-related costs), and allocated shared and other costs.

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

Sales and Marketing

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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.

Sales commissions and other incremental costs to acquire customers and grow adoption and utilization of our Value Added 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.

We focus our sales and marketing efforts on generating awareness of our software solutions, creating sales leads, establishing and promoting our brands, and cultivating an educated community of successful and vocal customers.

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Research and product development 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.

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 Added Services and other improvements, as well as developing new products and services for new and existing markets.

We capitalize our software development costs which meet the criteria for capitalization.

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Stock-Based Compensation

We recognize stock-based compensation expense for stock-based awards granted to employees and directors that can be settled in shares of our common stock.

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

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

Stock Options

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

Restricted Stock Units

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

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

Performance-Based Equity Awards

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

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

Compensation cost is recorded if it is probable that the performance condition will be achieved.

We recognize stock-based compensation expense for restricted stock awards ("RSAs") and restricted stock units ("RSUs") with only service conditions on a straight-line basis over the requisite service period.

For RSUs with both service and performance conditions (performance-based RSUs or performance share units ("PSUs")), compensation cost is recorded on a graded-vesting method, if it is probable that the performance condition will be achieved.

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

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

Forfeiture Rate

We estimate a forfeiture rate to calculate our stock-based compensation expense for our stock-based awards.

The forfeiture rate is based on an analysis of actual forfeitures.

We will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and other factors.

Changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the estimated forfeiture rate is changed.

If a revised forfeiture rate is higher than the previously-estimated forfeiture rate, an adjustment is made that will result in a decrease to our stock-based compensation expense recognized in our Consolidated Financial Statements.

If a revised forfeiture rate is lower than the previously-estimated forfeiture rate, an adjustment is made that will result in an increase to our stock-based compensation expense recognized in our Consolidated Financial Statements.

We recognize deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be

recovered or settled.

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the Consolidated Statements of Operations in the period that includes the enactment date.

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In evaluating the need for a valuation allowance, management considers the weighting of all available positive and negative evidence, which includes, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, and the duration of statutory carryforward periods.

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

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

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

We recognize interest and penalties accrued with respect to uncertain tax positions, if any, in our provision for income taxes in the Consolidated Statements of Operations.

Net Income per Share

Net Income per Common Share

Basic net income per share includes no dilution and is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period.

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The calculation of diluted net income per share excludes all anti-dilutive common shares.

The net income per common share was the same for our Class A and Class B common shares because they are entitled to the same liquidation and dividend rights and are therefore combined in the table below.

The following table presents a reconciliation of our weighted average number of Class A and Class B common shares used to compute net income per share (in thousands):

Net income per common share was the same for shares of our Class A and Class B common stock because they are entitled to the same liquidation and dividend rights and are therefore combined in the table below.

The following table presents a reconciliation of the weighted average number of shares of our Class A and Class B common stock used to compute net income per common share (in thousands):

Year Ended December 31,

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diluted 35,701 35,713 35,567

For the years ended December 31, 2020, 2019 and 2018, an aggregate of 79,000 , 187,000 and 358,000 shares, respectively, underlying PSOs and PSUs were not included in the computations of diluted and anti-dilutive shares as they are considered contingently issuable upon satisfaction of pre-defined performance measures and their respective performance measures have not been met.

For the years ended December 31, 2021, 2020 and 2019, an aggregate of 181,000 , 79,000 and 187,000 shares, respectively, underlying performance-based stock options and PSUs were not included in the computations of diluted and anti-dilutive shares as they are considered contingently issuable upon satisfaction of pre-defined performance measures and their respective performance measures have not been met.

RSUs with an anti-dilutive effect were excluded from the calculation of weighted average number of shares used to compute diluted net income per common share and they were not material for the years ended December 31, 2021, 2020 and 2019.

Recent Accounting Pronouncements Adopted in 2021

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

The New Revenue Standard also includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers , which discusses the deferral of incremental costs of obtaining a contract with a customer.

We adopted the New Revenue Standard at January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed at that date.

We recognized the cumulative effect of initially applying the New Revenue Standard as an adjustment to the opening balance of retained earnings.

The adoption of the New Revenue Standard did not have an impact on our revenues.

It did, however, have a significant impact related to the deferral of incremental costs of obtaining contracts.

Prior to the adoption of the New Revenue Standard, our commissions were expensed as incurred.

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

December 31, 2017 Adjustments Balance at

January 1, 2018

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

Other assets 1,238 1,816 3,054

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

Recent Accounting Pronouncements Adopted in 2019

In February 2016, the FASB issued ASU No.

2016-02, Leases ("ASU 2016-02"), which requires an entity to recognize ROU assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements.

ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions.

Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

In July 2018, the FASB issued ASU No.

2018-11, Leases (Topic 842):

Targeted Improvements ("ASU 2018-11").

Among other things, ASU 2018-11 provides administrative relief by allowing entities to implement the lease standard on a modified retrospective basis (the "Optional Transition Method").

Effectively, the Optional Transition Method permits us to adopt the lease standard through a cumulative effect adjustment to our opening balance sheet as of January 1, 2019, and report under the new lease standard on a post-adoption basis.

We adopted ASU 2016-02 effective January 1, 2019, using the Optional Transition Method.

We elected the package of practical expedients permitted under the transition guidance, which allows us to carry forward our historical lease classification, our assessment of whether a contract is or contains a lease, and our initial direct costs for any leases that existed prior to adoption of the new lease standard.

The comparative information has not been recast and continues to be reported under the accounting standards in effect for those periods.

We updated our accounting policies, processes, internal controls and information systems that were required to meet the new lease standard's reporting and disclosure requirements.

The adoption of ASU 2016-02 had a material impact on our Consolidated Balance Sheets, but did not have an impact on our Consolidated Statements of Operations or our Consolidated Statements of Cash Flows.

The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

We also reclassified prepaid and deferred rent to the ROU asset balance as of January 1, 2019.

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

December 31, 2018 Adjustments Balance at

January 1, 2019

Prepaid expenses and other current assets $ 11,775 $ ( 317 ) $ 11,458

Operating lease right-of-use assets — 16,945 16,945

Liabilities and Stockholders’ Equity

Other current liabilities $ 1,447 $ 3,493 $ 4,940

Operating lease liabilities — 20,056 20,056

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

Recent Accounting Pronouncements Adopted in 2020

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

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

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which amends the current accounting guidance and requires the measurement of all expected losses based on historical experience, current conditions and reasonable and supportable forecasts.

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

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

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

In August 2018, the FASB issued ASU No.

2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), a series of amendments which align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license).

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

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

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

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No.

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

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

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

Divestitures and Business Combinations

We adopted ASU 2019-12 on January 1, 2021.

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

Recent Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, " Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ," which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, " Revenue from Contracts with Customers ," as if the acquirer had originated the contracts.

ASU 2021-08 is effective for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2022.

We will adopt ASU 2021-08 on January 1, 2023 on a prospective basis to business combinations that occur on or after the adoption date.

The Company is currently evaluating the effect, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows and disclosures.

Divestiture of MyCase

On September 30, 2020, we completed the MyCase Transaction for $ 193.0 million, consisting of $ 192.2 million of cash proceeds, plus a $ 2.2 million employee retention bonus pool funded by us, less cash divested of $ 0.8 million and a preliminary working capital adjustment of $ 0.6 million.

The retention bonus pool is refundable to us to the extent that MyCase employees are terminated prior to the retention period, which is one year from the closing date of the MyCase Transaction.

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

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

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

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

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

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

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

Acquisition of Dynasty

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

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

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

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

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

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

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

(in thousands) Estimated Useful Life (in years)

Total current assets $ 305

Identified intangible assets:

Technology 5,730 4.0

Database 4,710 10.0

Customer relationships 1,110 5.0

Backlog 470 1.0

Trademark & trade name 1,390 10.0

Non-compete agreement 7,340 5.0

Total intangible assets subject to amortization 20,750 6.0

Goodwill 42,877 Indefinite

Other noncurrent assets 35

Total assets acquired 63,967

Accrued and other liabilities 48

Deferred tax liability, net 3,711

Total liabilities assumed 3,759

Purchase consideration $ 60,208

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

federal income tax purposes.

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

Pro Forma Results of Operations

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

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

however, they are not necessarily indicative of the consolidated results of operations had the acquisitions occurred at the beginning of the periods presented, or of future results of operations.

The unaudited pro forma results are as follows (in thousands):

Year Ended December 31,

Revenue $ 256,047 $ 193,405

Net income 32,339 5,937

Investment Securities and Fair Value Measurements

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

("MyCase"), a former wholly owned subsidiary that provided legal practice and case management software solutions to our legal customers, for $ 193.0 million, consisting of $ 192.2 million of cash proceeds, plus a $ 2.2 million employee retention bonus pool funded by us, less cash divested of $ 0.8 million and a preliminary working capital adjustment of $ 0.6 million (the "MyCase Transaction").

The retention bonus pool was refundable to the Company to the extent that MyCase employees were terminated prior to the retention period, which was one year from the closing date of the MyCase Transaction.

We recognized a pre-tax gain on the sale of $ 188.0 million on the MyCase Transaction, consisting of cash proceeds of $ 192.2 million, less net assets divested of $ 4.6 million, plus an adjustment in the employee retention bonus pool of $ 0.4 million.

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

The gain on the sale was recorded within Other income, net .

Income received during the twelve months ended December 31, 2021 and 2020 in relation to the transition services provided by us to MyCase was $ 2.4 million and $ 1.1 million, respectively, and is included within Other income, net in our Consolidated Statements of Operations.

Investments and Fair Value Measurements

Investment Securities

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Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

Corporate bonds $ 29,080 $ — $ ( 11 ) $ 29,069

Agency securities 19,753 — ( 27 ) 19,726

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Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

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

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

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Total available-for-sale investment securities $ 34,951 $ 76 $ ( 1 ) $ 35,026

At December 31, 2019, the unrealized losses on investment securities which have been in a net loss position for twelve months or greater were not material.

These unrealized losses are considered temporary and there were no impairments considered to be "other-than-temporary" based on our evaluation of available evidence, which includes our intent to hold these investments to maturity or a recovery of the cost basis.

At December 31, 2021 and 2020, the contractual maturities of our investments did not exceed 36 months.

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

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

In December 2021, we sold all of our interest in SecureDocs.

A gain of $ 12.8 million was recognized within Other income, net in our Consolidated Statements of Operations, a portion of which relates to the recovery of a $ 2.0 million note receivable which had been previously reserved.

Fair Value Measurements

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Money market funds $ 6,105 $ — $ — $ 6,105

Treasury securities 97,433 — — 97,433

Available-for-sale investment securities:

Corporate bonds — 29,069 — 29,069

Agency securities — 19,726 — 19,726

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

Treasury securities 97,433 — — 97,433

Available-for-sale investment securities:

Corporate bonds — 9,614 — 9,614

Agency securities — 17,132 — 17,132

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

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

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

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

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

There were no changes to our valuation techniques used to measure asset and liability fair values on a recurring basis during the year ended December 31, 2021.

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The pricing vendor utilizes the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, other observable inputs like market transactions involving comparable securities are used.

Non-Recurring Fair Value Measurements

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

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

Property and Equipment, net

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

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

Computer equipment $ 4,884 $ 4,597

Furniture and fixtures 5,167 6,021

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Depreciation expense for property and equipment totaled $ 4.7 million, $ 4.0 million, and $ 3.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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

Capitalized Software Development Costs, net

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Amortization expense with respect to software development costs totaled $ 21.5 million, $ 17.9 million and $ 14.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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

During the year ended December 31, 2021, we disposed of $ 8.8 million of fully amortized capitalized software development costs.

Future amortization expense with respect to capitalized software development costs at December 31, 2021 is estimated as follows (in thousands):

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Total amortization expense $ 41,212

Intangible Assets, net and Goodwill

Intangible Assets, net

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

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Patents 252 ( 240 ) 12 5.0

Backlog 470 ( 470 ) — 1.0

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

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Total amortization expense $ 11,711

Our goodwill balance is solely attributed to acquisitions.

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

There have been no impairment charges recorded against goodwill.

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

Goodwill at December 31, 2019 $ 58,425

Goodwill attributed to MyCase divestiture ( 2,278 )

Goodwill at December 31, 2020 $ 56,147

Accrued Employee Expenses

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Accrued payroll taxes and other 1,173 1,057

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

Total accrued employee expenses—current $ 30,065 $ 18,888

Accrued employee expenses—noncurrent $ 583 $ —

Operating leases for our corporate offices have remaining lease terms ranging from one to eleven years , some of which include options to extend the leases for up to ten years .

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Our lease agreements do not contain any residual value guarantees or material restrictive covenants.

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

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

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

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

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

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

The components of lease expense recognized in the Consolidated Statements of Operations were as follows (in thousands):

Year Ended December 31,

2021 2020 2019

Operating lease cost $ 5,203 $ 5,272 $ 5,102

Variable lease cost 1,463 1,443 1,087

Total lease cost $ 6,666 $ 6,715 $ 6,189

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

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imputed interest ( 13,855 )

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

(1) Future minimum lease payments for the years ending December 31, 2022, 2023 and 2024 are presented net of tenant improvement allowances of $ 6.0 million, $ 0.8 million, and $ 0.2 million, respectively.

(2) Total future minimum lease payments include the current portion of lease liabilities recorded in Prepaid expenses and other current assets of $ 4.9 million on our Consolidated Balance Sheets, which relates to certain of our leases for which the lease incentives to be received exceed the minimum lease payments to be paid over the next twelve months.

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

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

The total commitment under this lease is $ 11.6 million.

Long-term Debt

Credit Agreement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Debt Financing Costs

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

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

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

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

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

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

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

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

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

2020 December 31,

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

Unamortized debt financing costs — ( 167 )

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

Commitments and Contingencies

Legal Liability to Landlord Insurance

We have a wholly owned subsidiary, Terra Mar Insurance Company, Inc., which was established to provide our customers with the option to purchase legal liability to landlord insurance.

If our customers choose to use our insurance services, they are issued an insurance policy underwritten by our third-party service provider.

The policy has a limit of $ 100,000 per incident for each insured residence.

We have entered into a reinsurance agreement with our third-party service provider and, as a result, we assume a 100 % quota share of the legal liability to landlord insurance provided to our customers through our third-party service provider.

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

Our liability for reported claims and incurred but not reported claims at December 31, 2020 and 2019 was $ 1.5 million and $ 1.8 million, respectively, and is included in other current liabilities on our Consolidated Balance Sheets.

Included in prepaid expenses and other current assets as of December 31, 2020 and 2019 are $ 2.7 million and $ 1.3 million, respectively, of deposits held with a third party related to requirements to maintain collateral for our insurance services.

Liability to Landlord Insurance

We have a wholly owned subsidiary, Terra Mar Insurance Company, Inc., which was established in connection with reinsuring liability to landlord insurance policies offered to our customers by our third-party service provider.

Each policy has a limit of $ 100 thousand per incident.

We assume a 100 % quota share of the liability to landlord insurance policies placed with our customers by our third-party service provider.

We accrue for reported claims, and include an estimate of losses incurred but not reported by our property manager customers, in cost of revenue because we bear the risk related to all such claims.

Our liability for reported claims and incurred but not reported claims as of December 31, 2021 and 2020 was $ 1.7 million and $ 1.5 million, respectively, and is included in Other current liabilities on our Consolidated Balance Sheets.

Included in Prepaid expenses and other current assets as of December 31, 2021 and 2020 are $ 3.0 million and $ 2.7 million, respectively, of deposits held with a third party related to requirements to maintain collateral for this risk mitigation service.

Legal Proceedings

In July 2019, we received a Request for Information from the Civil Rights Division (Housing and Civil Enforcement Section) of the U.S.

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

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

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

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

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

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

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

We admitted no wrongdoing in connection with the settlement.

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

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

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

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

Although the results of such investigatory inquiries and legal proceedings cannot be predicted with certainty, we believe that we are not currently a party to any investigatory inquiries or legal proceeding(s) which, if determined adversely to us, would, individually or taken together, have a material adverse effect on our business, operating results, financial condition or cash flows.

From time to time we may become involved in various legal proceedings, investigative inquiries, and other disputes arising from or related to matters incident to the ordinary course of our business activities.

We are not currently a party to any legal proceedings, nor are we aware of any pending or threatened legal proceedings, that would have a material adverse effect on our business, operating results, cash flows or financial condition should such proceedings be resolved unfavorably.

Indemnification

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These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions may not be subject to maximum loss clauses and is indeterminable.

We have never paid a material claim, nor have any legal claims been brought against us, in connection with these indemnification arrangements.

At December 31, 2020 and 2019, we have not accrued a liability for these indemnification arrangements because we determined that the likelihood of incurring a payment obligation, if any, in connection with these indemnification arrangements is not probable or reasonably possible and the amount or range of amounts of any such liability is not reasonably estimable.

We have not incurred any costs as a result of such indemnification obligations and have not recorded any liabilities related to such obligations in the Consolidated Financial Statements.

Stockholders’ Equity

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Preferred Stock

Effective upon the filing of our amended and restated certificate of incorporation in June 2015, no shares of preferred stock were outstanding because all outstanding shares of our convertible preferred stock converted into our Class B common stock.

Pursuant to the terms of our amended and restated certificate of incorporation, our Board of Directors will be authorized, subject to limitations prescribed by Delaware law, to issue up to 25,000,000 shares of our preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further action by our stockholders.

Our Board of Directors is authorized, subject to limitations prescribed by Delaware law, to issue up to 25,000,000 shares of our preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further action by our stockholders.

The number of authorized shares of any series of preferred stock may be increased or decreased, but not below the number of shares of that series then outstanding, by the affirmative vote of the holders of a majority of the voting power of our outstanding capital stock entitled to vote thereon, or such other vote as may be required by the certificate of designation establishing the series.

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

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

During the three months ended March 31, 2020, we repurchased a total of 48,002 shares of our Class A common stock through open market repurchases, and recorded a $ 4.2 million reduction to stockholders' equity, which includes broker commissions.

We have not made any repurchases under the Share Repurchase Program subsequent to the three months ended March 31, 2020.

The Share Repurchase Program does not obligate us to repurchase any

specific dollar amount or number of shares, there is no expiration date for the Share Repurchase Program, which may be modified, suspended or terminated at any time and for any reason.

During the year ended December 31, 2020, we repurchased a total of 48,002 shares of our Class A common stock through open market repurchases, and recorded a $ 4.2 million reduction to stockholders' equity, which includes broker commissions.

We have not made any other repurchases under the Share Repurchase Program.

Stock-Based Compensation

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Stock Options

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

A summary of activity in connection with our stock options for the year ended December 31, 2021 is as follows (number of shares in thousands):

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

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Options exercisable 846 $ 13.15 3.0

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

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

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

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

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

Our stock-based compensation expense for stock options were not material for all periods presented.

No stock options were granted during the years ended December 31, 2021, 2020 or 2019.

The total intrinsic value of options exercised in 2021, 2020 and 2019 was $ 39.1 million, $ 17.9 million, and $ 11.5 million, respectively.

This intrinsic value represents the difference between the fair value of our common stock on the date of

exercise and the exercise price of each option.

This intrinsic value represents the difference between the fair value of our common stock on the date of exercise and the exercise price of each option.

Based on the fair value of our common stock at December 31, 2021, the total intrinsic value of all outstanding options, exercisable options, and options vested and expected to vest was $ 91.3 million.

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

Restricted Stock Units

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Unvested as of December 31, 2021 837 $ 118.27

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

Unvested RSUs as of December 31, 2021 were comprised of 0.6 million RSUs with only service conditions and 0.2 million PSUs with both service conditions and performance conditions.

RSUs granted with only service conditions generally vest over a four-year period.

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

The actual number of shares to be issued at the end of the performance period will range from 0 % to 100 % of the initial target awards.

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

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

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

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

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

Of the unvested PSUs as of December 31, 2021, 0.1 million are subject to vesting based on the achievement of pre-established performance metrics for the year ending December 31, 2022 and will vest over a three year period, assuming continued employment throughout the performance period.

The actual number of shares to be issued at the end of the performance period will range from 0 % to 150 % of the target number of shares depending on achievement relative to the performance metric over the applicable period.

The remaining 0.1 million PSUs unvested as of December 31, 2021 are subject to vesting based on the achievement of pre-established performance metrics for the years ending December 31, 2021, 2022 and 2023, assuming continued employment throughout the performance period.

The actual number of shares to be issued at the end of the performance period will range from 0 % to 100 % of the initial target awards.

Achievement of the performance metric between 100 % and 150 % of the performance target will result in a performance-based cash bonus payment between 0 % and 65 % of the initial target awards.

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

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

Our stock-based compensation expense for the RSUs and PSUs for the years ended December 31, 2020, 2019 and 2018, was $ 10.4 million, $ 8.3 million and $ 5.5 million, respectively.

At December 31, 2020, the total remaining stock-based compensation expense for these RSUs was $ 23.4 million, which is expected to be recognized over a weighted average period of 2.2 years.

We recognized stock-based compensation expense for the RSUs and PSUs of $ 17.3 million, $ 10.4 million and $ 8.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Excluded from stock-based compensation expense is capitalized software development costs of $ 2.7 million, $ 2.1 million, and $ 1.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021, the total estimated remaining stock-based compensation expense for the aforementioned RSUs and PSUs was $ 76.5 million, which is expected to be recognized over a weighted average period of 2.7 years.

The total fair value of RSUs and PSUs vested during the years ended December 31, 2021, 2020 and 2019 was approximately $ 26.6 million, $ 32.0 million and $ 16.3 million, respectively.

Restricted Stock Awards

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

RSAs vest over a one-year period.

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

Restricted stock awards vest over a one-year period.

We recognized stock-based compensation expense for restricted stock awards of $ 0.7 million and for each of the years ended December 31, 2021, and 2020 and $ 0.3 million for the ended December 31, 2019.

During 2021, the grant date fair value of the shares vested was $ 0.7 million.

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

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

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

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

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

As of December 31, 2021, the total estimated remaining stock-based compensation expense for unvested restricted stock awards with a repurchase right was $ 0.3 million, which is expected to be recognized over a weighted average period of 0.5 years.

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

federal statutory rate of 21% differs primarily due to state income taxes and the benefits associated with stock-based compensation expense and research and development tax credits.

Set forth below is a reconciliation of the components that caused our provision for income taxes to differ from amounts computed by applying the United States federal statutory rate for the years ended December 31, 2020, 2019, and 2018:

federal statutory rate of 21 % differs primarily due to the significance of the benefits associated with stock-based compensation expense, research and development tax credits, and the change in the valuation allowance against deferred taxes.

Set forth below is a reconciliation of the components that caused our provision for (benefit from) income taxes to differ from amounts computed by applying the United States federal statutory rate :

Year Ended December 31,

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Stock-based compensation 3,965 2,783

Lease asset 9,992 8,291

Lease liability 13,983 9,992

Other 2,853 2,196

Total deferred tax assets 47,616 28,550

Valuation allowance ( 17,217 ) —

Deferred tax assets, net of valuation allowance 30,399 28,550

Deferred tax liabilities:

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State taxes — ( 2,350 )

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

Lease asset ( 11,056 ) ( 8,064 )

Other ( 1,171 ) ( 751 )

Total deferred tax liabilities ( 32,077 ) ( 29,978 )

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

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

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

Total net deferred tax liabilities $ ( 1,678 ) $ ( 1,428 )

At December 31, 2021, we had federal and state net operating loss carryforwards of $ 23.8 million and $ 69.6 million, respectively.

The federal net operating loss carryovers do not expire and the state net operating losses will begin to expire in 2028.

At December 31, 2021, we also had federal and state research and development credit carryforwards of $ 8.5 million and $ 15.2 million, respectively.

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

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

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

We have undertaken an IRC Section 382 analysis and have determined that there are no limitations on the tax attributes at December 31, 2021.

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

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

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

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

As of December 31, 2021, we have approximately $ 1.7 million of net deferred tax liabilities.

During the fourth quarter of 2021, to assess the need for a valuation allowance against deferred tax assets, we evaluated all available positive and negative evidence.

Due to the amount of negative evidence, particularly the expected increase in forecasted expenses, at this time, we consider it more likely than not that we may not have sufficient taxable income in the future that will allow us to realize all of our deferred tax assets.

As a result,we determined a valuation allowance was necessary against all of the net deferred income tax assets, which primarily consist of state R&D tax credit carryforwards, effective December 31, 2021.

The change in the valuation allowance are as follows (in thousands):

Year Ended December 31,

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

Decrease in valuation allowance — ( 23,002 ) ( 825 )

Increase (decrease) in valuation allowance 17,217 — ( 23,002 )

Valuation allowance, at end of year $ 17,217 $ — $ —

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Due to the net operating loss carryforwards, our federal and state returns are open to examination by the Internal Revenue Service and state jurisdictions for all years since inception.

We are not currently under audit by any taxing authorities.

We are under audit only by the State of New York.

Revenue and Other Information

The following table presents our revenue categories for the years ended December 31, 2020, 2019 and 2018 (in thousands):

The following table presents our revenue categories (in thousands):

Year Ended December 31,

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Core solutions $ 105,148 $ 100,938 $ 88,581

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

Value Added Services 241,289 195,146 153,994

Other 12,933 13,972 13,437

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We have a 401(k) retirement and savings plan made available to all employees.

The 401(k) plan allows each participant to contribute up to an amount not to exceed an annual statutory maximum.

We may, at our discretion, make matching contributions to the 401(k) plan.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data