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Item 8. Financial Statements and Supplementary Data

2026-02-05 compared with 2025-02-06 · 250 added, 237 removed, 671 unchanged (42% of the section changed)

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

and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of operations and comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the "consolidated financial statements").

We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Acquisition of Move EZ, Inc.– Valuation of Customer Relationships and Developed Technology

As described in Notes 2 and 7 to the consolidated financial statements, on October 22,2024, the Company completed the acquisition of Move EZ, Inc.

(Move EZ) for total cash purchase consideration of $78.5 million.

Of the acquired intangible assets, $39.0 million of customer relationships and $9.8 million of developed technology were recorded.

Management determined the fair value of customer relationships and developed technology utilizing a replacement cost approach.

Determining the fair value of these intangible assets requires management to make significant judgments and estimates, including the selection of valuation methodologies and assumptions.

The significant assumptions used to value customer relationships and developed technology include the profit margin and rate of return.

The principal considerations for our determination that performing procedures relating to the valuation of customer relationships and developed technology acquired in the acquisition of Move EZ is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the customer relationships and developed technology acquired;

(ii) a high degree of auditor judgment and effort in performing procedures and evaluating management’s significant assumptions related to the profit margin and rate of return;

and (iii) the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the customer relationships and developed technology acquired.

These procedures also included, among others (i) reading the purchase agreement;

(ii) testing management’s process for developing the fair value estimate of the customer relationships and developed technology acquired;

(iii) evaluating the appropriateness of the replacement cost approach used by management;

(iv) testing the completeness and accuracy of underlying data used in the replacement cost approach;

and (v) evaluating the reasonableness of the significant assumptions used by management related to the profit margin and rate of return.

Evaluating management’s assumptions related to profit margin and rate of return for customer relationships and developed technology involved considering (i) the current and past performance of the Move EZ, Inc business;

(ii) the consistency with external market and industry data;

and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating the (i) appropriateness of the replacement cost approach and (ii) the reasonableness of the profit margin and rate of return assumptions used by management.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition

As described in Notes 2 and 3 to the consolidated financial statements, the Company’s total revenue was $950.8 million for the year ended December 31, 2025.

The Company generates revenue from customers primarily for subscriptions to access the core solutions and Value Added Services.

The Company generates revenue from customers primarily for subscriptions to access the Subscription Services and Value Added Services.

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

The Company enters into contracts that can include various combinations of services, which are generally capable of being distinct, distinct within the context of the contract, and accounted for as separate performance obligations.

The Company enters into contracts that can include various combinations of services, which are generally capable of being distinct within the context of the contract, and accounted for as separate performance obligations.

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

The Company recognizes revenue in proportion to the amount they have the right to invoice for certain core solutions and Value Added Services revenue, as that amount corresponds directly with the performance completed to date.

The Company recognizes revenue in proportion to the amount they have the right to invoice for certain Subscription Services and Value Added Services, as that amount corresponds directly with the performance completed to date.

The principal consideration for our determination that performing procedures relating to revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating

to the revenue recognition process.

These procedures included testing the effectiveness of controls relating to the revenue recognition process.

These procedures also included, among others (i) evaluating revenue transactions by either (a) testing the issuance and settlement of invoices and credit memos, tracing transactions not settled to a detailed listing of accounts receivable, and testing the completeness and accuracy of data provided by management or (b) testing, on a sample basis, revenue transactions by obtaining and inspecting source documents, such as executed contracts, invoices, and cash receipts and (ii) confirming, on a sample basis, outstanding customer invoice balances as of year-end and, and for confirmations not returned, obtaining and inspecting source documents, such as executed contracts, invoices, and subsequent cash receipts.

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Deferred income taxes 58,823 76,910

Long-term investments 77,033 2,033

Other long-term assets 14,085 9,482

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Operating lease liabilities 33,287 37,476

Deferred tax liabilities — 697

Other liabilities 6,254 6,632

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Additional paid-in capital 284,054 254,821

Accumulated other comprehensive Income (loss) 173 99

Treasury stock, at cost, 419 shares of Class A common stock as of December 31, 2024 and December 31, 2023

Accumulated other comprehensive (loss) Income 30 173

Treasury stock, at cost, 1,108 and 419 shares of Class A common stock as of December 31, 2025 and December 31, 2024, respectively

( 172,480 ) ( 25,756 )

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Total costs and operating expenses 797,905 658,558 619,482

Income (loss) from operations 135,644 963 ( 72,370 )

Other income (loss), net 697 3 4,469

Income from operations 152,917 135,644 963

Other income, net 38 697 3

Interest income, net 8,157 13,981 7,031

Income (loss) before provision for income taxes 150,322 7,997 ( 66,717 )

(Benefit from) provision for income taxes ( 53,746 ) 5,295 1,402

Net income (loss) $ 204,068 $ 2,702 $ ( 68,119 )

Net income (loss) per common share:

Income before provision for income taxes 161,112 150,322 7,997

Provision for (benefit from) income taxes 20,189 ( 53,746 ) 5,295

Net income $ 140,923 $ 204,068 $ 2,702

Net income per common share:

Basic $ 3.91 $ 5.63 $ 0.08

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2025 2024 2023

Net income (loss) $ 204,068 $ 2,702 $ ( 68,119 )

Net income $ 140,923 $ 204,068 $ 2,702

Other comprehensive income (loss):

Changes in unrealized gains (losses) on investment securities, net of tax 74 1,783 ( 1,490 )

Comprehensive income (loss) $ 204,142 $ 4,485 $ ( 69,609 )

Changes in unrealized losses on investment securities, net of tax ( 143 ) 74 1,783

Comprehensive income $ 140,780 $ 204,142 $ 4,485

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

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Issuance of restricted stock awards 6 — — — — — — — —

Other comprehensive loss — — — — — ( 1,490 ) — — ( 1,490 )

Net loss — — — — — — — ( 68,119 ) ( 68,119 )

Other comprehensive income — — — — — 1,783 — — 1,783

Net income — — — — — — — 2,702 2,702

Balance at December 31,2023 21,749 2 14,116 2 236,985 99 ( 25,756 ) 85,980 297,312

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Conversion of Class B common stock to Class A common stock 953 — ( 953 ) — — — — — —

Issuance of restricted stock awards 6 — — — — — — — —

Other comprehensive income — — — — — 74 — — 74

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Balance at December 31, 2024 23,241 $ 2 13,163 $ 2 $ 254,821 $ 173 $ ( 25,756 ) $ 290,048 $ 519,290

Exercise of stock options 251 — — — 3,924 — — — 3,924

Exercise of stock options and issuance of common stock under the Employee Stock Purchase Plan 13 — — — 1,084 — — — 1,084

Stock-based compensation — — — — 71,397 — — — 71,397

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Conversion of Class B common stock to Class A common stock 1,508 1 ( 1,508 ) ( 1 ) — — — — —

Other comprehensive income — — — — — 74 — — 74

Repurchase of common stock ( 689 ) — — — — — ( 146,724 ) — ( 146,724 )

Other comprehensive loss — — — — — ( 143 ) — — ( 143 )

Net income — — — — — — — 140,923 140,923

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Cash from operating activities

Net income (loss) $ 204,068 $ 2,702 $ ( 68,119 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income $ 140,923 $ 204,068 $ 2,702

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

Depreciation and amortization 22,651 19,543 28,989

Amortization of operating lease right-of-use assets 2,221 2,030 2,132

Impairment, net — — 22,022

Amortization of costs capitalized to obtain revenue contracts, net 11,115 9,985 9,515

Gain on lease modification — — ( 4,281 )

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Stock-based compensation, including as amortized 70,790 60,328 52,363

Gain on sale of business — — ( 4,156 )

Other ( 2,119 ) ( 8,220 ) ( 3,108 )

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Capitalization of software development costs ( 3,440 ) ( 5,170 ) ( 4,825 )

Proceeds from sale of business, net of cash divested — — 5,124

Proceeds from equity-method investment — 629 40

Purchases of long-term investments ( 75,000 ) — 629

Cash paid in business acquisition, net of cash acquired ( 906 ) ( 77,421 ) —

Net cash used in investing activities ( 151,761 ) ( 55,582 ) ( 6,466 )

Net cash provided by (used in) investing activities 10,244 ( 151,761 ) ( 55,582 )

Cash from financing activities

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Tax withholding for net share settlement ( 43,248 ) ( 47,327 ) ( 28,556 )

Proceeds from the issuance of common stock under the employee stock purchase plan 951 — —

Purchase of common stock ( 145,723 ) — —

Net cash used in financing activities ( 187,886 ) ( 43,403 ) ( 25,961 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 7,005 ) ( 21,260 ) 12,736

Net increase (decrease) in cash, cash equivalents and restricted cash 64,463 ( 7,005 ) ( 21,260 )

Cash, cash equivalents and restricted cash

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AppFolio, Inc.

("we," "us" or "our") is a technology leader powering the future of the real estate industry.

("we," "us" or "our") is a technology leader powering the future of real estate.

We provide a cloud-based platform on which our customers operate their businesses.

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Reclassification

We reclassified certain amounts in our Consolidated Balance Sheet and Consolidated Statements of Cash Flows within the cash flows from operating activities section in the prior year.

We made those changes to conform 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.

We also reclassified long-term investments from other long-term assets in our Consolidated Balance Sheets in the prior year to conform to the current year's presentation.

Principles of Consolidation

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As of December 31, 2025, (i) no individual customer exceeded 10% of our total revenues in any of the periods presented, and (ii) 22 % of our accounts receivable balance was attributable to amounts due from a risk mitigation provider.

purposes of assessing concentration of credit risk and significant customers, a group of residents that are receiving services from a third party that controls and transfers the specified services are regarded as one single customer.

For purposes of assessing concentration of credit risk and significant customers, a group of residents that are receiving services from a third party that controls and transfers the specified services are regarded as one single customer.

Business Combinations

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No allowance for credit losses for available-for-sale investment securities was recorded as of December 31, 2025 and 2024.

Strategic Investments

Our strategic investments consist of non-marketable equity investments in privately-held companies in which we do not have a controlling interest or significant influence.

We record these strategic investments as long-term investments in our Consolidated Balance Sheets.

We have elected to apply the measurement alternative for equity investments in privately-held companies that do not have readily determinable fair values, measuring them at cost, less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

An impairment loss is recorded when an event or circumstance indicates a decline in value has occurred.

In determining the estimated fair value of our strategic investments in privately held companies, we use the most recent and available data.

Valuations of privately held securities are inherently complex due to the lack of readily available market data and require the use of judgment.

The determination of whether an orderly transaction is for an identical or similar

investment requires use of significant judgment.

In our evaluation, we consider factors such as differences in the rights and preferences of the investments and the extent to which those differences would affect the fair values of those investments.

Our impairment analysis encompasses an assessment of both qualitative and quantitative factors including the investee's financial metrics, market acceptance of the investee's product or technology, general market conditions and liquidity considerations.

Accounts Receivable

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Any excess of the carrying value of the asset or asset group above its fair value is recognized as an impairment loss.

We recorded net lease-related impairment charges of $ 22.0 million for the year ended December 31, 2022.

Refer to Note 11, Leases for additional information.

There were no impairment charges related to the identified long-lived assets for the years ended December 31, 2025, 2024 and 2023.

Revenue Recognition

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

We generate revenue from our customers primarily from our Subscription Services 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.

We enter into contracts that can include various combinations of services, which are generally capable of being distinct, distinct within the context of the contract, and accounted for as separate performance obligations.

We enter into contracts that can include various combinations of services, which are generally capable of being distinct within the context of the contract and accounted for as separate performance obligations.

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

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

Refer to Note 16, Revenue and Other Information for the disaggregated breakdown of revenue between Core solutions, Value Added Services and Other revenue.

Core Solutions

We charge our customers on a subscription basis for our core solutions.

Our customers do not have rights to the underlying software code of our solutions, and, accordingly, we recognize subscription revenue over time on a straight-line basis over the contract term beginning on the date that our service is made available to the customer.

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

Refer to Note 3, Revenue and Other Information for the disaggregated breakdown of revenue between Subscription Services, Value Added Services and Other revenue.

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 Subscription Services, implementation services, and customer support.

Access and use of our Subscription Services 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.

Subscription Services

We charge our customers on a subscription basis for our Subscription Services.

Our customers do not have rights to the underlying software code of our products and services, and, accordingly, we recognize subscription revenue over time on a straight-line basis over the contract term beginning on the date that our service is made available to the customer.

The terms of our subscription agreements are monthly, annual, and multiyear and we typically invoice our customers for subscription services in monthly or annual installments, in advance of the subscription period.

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We also have certain Value Added Services which are charged on a subscription basis.

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

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.

Revenue from these services is recognized in a similar manner as the above-described Subscription Services.

Some subscription or usage-based Value Added Services, such as fees for electronic payment services, are paid by either our customers or our customers' stakeholders at the time the services are rendered.

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Other Revenue

Other revenue include fees from one-time services related to the implementation of our software solutions and other recurring or one-time fees related to our customers who are not otherwise using our core solutions.

This includes legacy customers of businesses we have acquired where the customers haven't migrated to our core solutions.

This includes legacy customers of businesses we have acquired where the customers haven't migrated to our Subscription Services.

The fees for implementation and data migration services are billed upon signing our core subscription contract and are recognized as revenue in the period the service is rendered.

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Amortization expense for deferred costs is included within sales and marketing expense in the accompanying Consolidated Statements of Operations.

Deferred costs were $ 16.8 million and $ 15.9 million as of December 31, 2024 and 2023, respectively, of which $ 9.9 million and $ 8.7 million, respectively, are included in Prepaid expenses and other current assets and $ 6.9 million and $ 7.2 million, respectively, are included in Other long-term assets in the accompanying Consolidated Balance Sheets.

Amortization expense for deferred costs was $ 10.0 million, $ 9.5 million, and $ 8.1 million for the years ended December 31, 2024, 2023, and 2022, respectively.

For the years ended December 31, 2024 and 2023, no impairments were identified in relation to the costs capitalized for the periods presented.

Cost of Revenue (Exclusive of Depreciation and Amortization)

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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.

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.

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

Advertising expenses were $ 14.3 million, $ 10.6 million and $ 8.6 million for each of the years ended December 31, 2025, 2024 and 2023, respectively, and are expensed as incurred.

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

Our research and product development efforts are focused on expanding 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.

Our research and product development efforts are focused on expanding functionality and the ease of use of our existing products and services by adding new core functionality, Value Added Services and other improvements, as well as developing new products and services.

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

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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.

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.

A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.

In evaluating the need for a valuation allowance at each reporting period, we consider 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, timing of the future reversal of existing temporary differences and the duration of statutory carryforward periods.

Net Income (Loss) per Common Share

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

Diluted net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period.

The dilutive effect of outstanding options and equity incentive awards is reflected in diluted net income per share by application of the treasury stock method.

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

Net income (loss) 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 sets forth the computation of basic and diluted net income (loss) per common share (in thousands):

Year Ended December 31,

2024 2023 2022

Basic net income (loss) per share:

Net income (loss) $ 204,068 $ 2,702 $ ( 68,119 )

undistributed earnings to participating securities 12 — —

Net income (loss) attributable to common stockholders

$ 204,056 $ 2,702 $ ( 68,119 )

Weighted average common shares outstanding 36,254 35,636 35,015

Weighted average unvested restricted shares subject to repurchase 2 7 5

Weighted average common shares outstanding;

basic 36,252 35,629 35,010

Net income (loss) per common share;

basic $ 5.63 $ 0.08 $ ( 1.95 )

Diluted net income (loss) per share:

Net income (loss) attributable to common stockholders $ 204,056 $ 2,702 $ ( 68,119 )

Weighted average common shares outstanding;

basic 36,252 35,629 35,010

Weighted average dilutive options outstanding 58 333 —

Weighted average dilutive RSUs outstanding 472 455 —

Weighted average common shares outstanding;

diluted 36,782 36,417 35,010

Net income (loss) per common share;

diluted $ 5.55 $ 0.07 $ ( 1.95 )

Potentially dilutive securities that are not included in the calculation of diluted net income (loss) per share because doing so would be antidilutive are as follows (in thousands):

Year Ended December 31,

2024 2023 2022

Unvested Restricted Stock Awards — 6 6

Options — 120 516

Restricted Stock Units 2 20 1,162

Total potentially dilutive securities 2 146 1,684

Recent Accounting Pronouncements Adopted

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

” The amendments “improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.” In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements.

ASU 2023-07 is effective for calendar year-end public business entities in the 2024 annual period and in 2025 for interim periods.

We adopted ASU 2023-07 for the 2024 annual period on a retrospective basis.

This adopted ASU results in us including the additional required disclosures.

Refer to Segment Information in this note for more information.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, FASB issued ASU 2023-09, Improvements to Income Tax Disclosures , which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes are paid.

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Improvements to Income Tax Disclosures , which requires that an entity, on an annual basis, disclose additional income tax information, including more detailed breakdowns of the effective tax rate to the statutory rate and income taxes paid.

The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures.

The guidance will be applied on a prospective basis with the option to apply the standard retrospectively and is effective for calendar year-end public business entities in the 2025 annual period and in 2026 for interim periods with early adoption permitted.

We plan to adopt the standard in our fiscal year 2025 annual financial statements, and we expect the adoption of the standard will impact certain of our income tax disclosures.

We adopted the standard in our fiscal year 2025 annual financial statements prospectively.

For additional information, refer to Note 14 Income Taxes , in our Consolidated Financial Statements.

Recent Accounting Pronouncements Not Yet Adopted

In November 2024, FASB issued ASU 2024-03, Disaggregation of Income Statement Expense.

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We are currently evaluating the impact of this ASU on our Consolidated Financial Statements.

Sales of Subsidiary Business

Sale of WegoWise

In August 2022, we completed the sale of AppFolio Utility Management, Inc., dba WegoWise ("WegoWise"), a former wholly owned subsidiary of the Company that provided cloud-based utility analytics reporting software solutions to our customers.

We sold WegoWise for $ 5.2 million (the “WegoWise Transaction”) and recognized a pre-tax gain on the sale of $ 4.2 million.

Net assets divested are primarily comprised of intangible assets of $ 2.5 million and deferred revenue of $ 1.7 million.

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

In July 2025, the FASB issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets, which amends ASC 326-202 to provide a practical expedient (for all entities) and an accounting policy election (for all entities, other than public business entities, that elect the practical expedient) related to the estimation of expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606.

The guidance will be applied on a prospective basis and is effective for calendar year-end public business entities in the 2026 annual period and its interim periods, with early adoption permitted.

We plan to adopt the standard from January 1, 2026, and we expect the adoption of the standard will not have any material impact on our financial statements.

In September 2025, the FASB issued ASU 2025-06, Targeted Improvements to the Accounting for Internal-Use Software, to modernize the accounting guidance for the costs to develop software for internal use.

The new guidance amends the existing standard that refers to various stages of a software development project to align better with current software development methods, such as agile programming.

The new guidance will be effective for calendar year-end public business entities in the 2028 annual period.

The guidance can be applied on a fully prospective basis, a modified basis for in-process projects, or a full retrospective basis.

We are currently evaluating the impact of this ASU on our Consolidated Financial Statements.

Revenue and Deferred Costs

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

Year Ended December 31,

2025 2024 2023

Subscription Services $ 211,457 $ 180,605 $ 156,692

Value Added Services 721,549 605,011 454,098

Other 17,816 8,586 9,655

Total revenue $ 950,822 $ 794,202 $ 620,445

Our revenue is generated primarily from United States customers.

Deferred Costs

Deferred costs were $ 22.8 million and $ 16.8 million as of December 31, 2025 and 2024, respectively, of which $ 11.2 million and $ 9.9 million, respectively, are included in Prepaid expenses and other current assets and $ 11.6 million and $ 6.9 million, respectively, are included in Other long-term assets in the accompanying Consolidated Balance Sheets.

Amortization expense for deferred costs was $ 11.1 million, $ 10.0 million, and $ 9.5 million for the years ended December 31, 2025, 2024, and 2023, respectively.

For the years ended December 31, 2025 and 2024, no impairments were identified in relation to the costs capitalized for the periods presented.

Remaining Performance Obligations

Transaction price allocated to remaining performance obligations (“RPO”) represents contracted revenue that has not been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenue in future periods.

RPO does not include revenue related to performance obligations that are part of a contract whose original expected duration is one year or less or related to usage-based Value Added Services that are billed in arrears.

As of December 31, 2025, the total non-cancelable RPO under our contracts with customers was $ 93.9 million, and we expect to recognize revenue on approximately 38.4 % of these RPO over the following 12 months, with the balance to be recognized thereafter.

This RPO balance grew significantly during 2025 as we began selling more multi-year revenue contracts.

Investment Securities and Fair Value Measurements

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

Corporate bonds $ 3 $ — $ 1,013 $ 16,497

government and agency securities 4 ( 1 ) 9,984 240,035

$ 4 $ ( 1 ) $ 9,984 $ 240,035

The tables above do not include our non-marketable equity securities of $ 2.0 million, which are recorded in Other long term assets in the Consolidated Balance Sheet as of December 31, 2024.

The tables above do not include our strategic investments of non-marketable equity investments in privately-held companies, which are recorded in long-term investments in our Consolidated Balance Sheets.

These strategic investments consist of the following as of December 31, 2025 and December 31, 2024 (in thousands):

2025 December 31,

Second Nature

Total long-term investments

$ 77,033 $ 2,033

In April 2025, we purchased a minority, non-controlling equity interest in Second Nature Holdings, L.P.

(“Second Nature”) for $ 75.0 million, paid with cash on hand.

We determined that we do not have significant influence over Second Nature, and our investment in Second Nature has been classified as an investment in equity securities without readily determinable fair value.

There were no realized or unrealized gains or losses from remeasurement of investments in equity securities under the measurement alternative for the years ended December 31, 2025 and 2024.

Fair Value Measurements

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Available-for-Sale Investment Securities

Fair value for our Level 1 investment securities is based on market prices for identical assets.

Our Level 2 securities were priced by a pricing vendor.

Our Level 2 investment securities were priced by a pricing vendor.

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.

Strategic Investments Measured and Recorded at Fair Value on a Non-Recurring Basis

Strategic investments primarily include equity investments in privately-held companies, which do not have a readily determinable fair value.

Strategic investments are classified as Level 3 in the fair value hierarchy, as their nonrecurring fair value measurements may include observable and unobservable inputs.

As of December 31, 2025 and December 31, 2024, the balance of strategic investments was $ 77.0 million and $ 2.0 million, respectively.

Property and Equipment, net

All of our property and equipment is located in the United States.

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

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Depreciation expense for property and equipment totaled $ 4.3 million, $ 5.2 million, and $ 7.3 million for the years ended December 31, 2025, 2024 and 2023, respectively.

During the year ended December 31, 2022, we recorded an impairment of $ 4.4 million related to property and equipment associated with our leased office spaces.

For additional information, see Note 11, Leases .

Capitalized Software Development Costs, net

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LiveEasy is a concierge platform providing moving and home services throughout the resident onboarding process.

As of December 31, 2024, $ 0.8 million of the purchase consideration remains outstanding and is expected to be settled in 2025.

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.

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Customer relationships represent the fair value of the underlying contracts and related relationships with LiveEasy's customers and service providers.

Developed technology represents the fair value of the technologies that pertain to a customer-

facing concierge platform that provides moving and home services.

Developed technology represents the fair value of the technologies that pertain to a customer-facing concierge platform that provides moving and home services.

We used a replacement cost method to determine the fair value of both intangible assets.

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Goodwill is primarily attributed to the assembled workforce of LiveEasy and anticipated operational synergies.

We incurred a total of $ 0.7 million in transaction costs related to the acquisition and expensed all transaction costs incurred during the period in which such service was received in General and Administrative in the Consolidated Statement of Operations.

The results of the acquired operations were included in our consolidated financial statements from the date of acquisition, October 22, 2024.

For the period from October 22, 2024 through December 31, 2024, LiveEasy contributed an immaterial amount of revenue and loss before taxes.

Pro forma revenue and earnings amounts on a combined basis have not been presented as the historical financial results are immaterial.

The pro forma amortization expense adjustment from acquired intangible assets would be $ 8.1 million, and $ 9.8 million for the years ended December 31, 2024 and 2023, respectively.

Goodwill and Intangible Assets, Net

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Life in Years

Customer relationships 39,000 ( 1,300 ) 37,700 5.0

Developed technology 9,800 ( 327 ) 9,473 5.0

Database 4,710 ( 2,826 ) 1,884 10.0

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Goodwill at December 31, 2023

Goodwill at December 31, 2023 56,060

Acquisition of LiveEasy 40,350

Goodwill at December 31, 2024

Accrued Employee Expenses

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

Accrued vacation $ 1,100 $ 12,399

Accrued bonuses 17,092 14,795

Accrued severance and related personnel cost — 1,098

Accrued payroll and other 11,965 7,275

Total accrued employee expenses $ 30,157 $ 35,567

During the year ended December 31, 2023, we expensed and paid $ 14.9 million of severance related to separation costs associated with our former Chief Executive Officer's Transition and Separation Agreement, dated March 1, 2023.

In the third quarter of 2023, we accrued $ 10.3 million of severance and related personnel costs associated with our workforce reduction.

Refer to Note 17, Workforce Reduction for additional information.

Other Current Liabilities

Other Current Liabilities consisted of the following (in thousands):

Unearned premium liabilities $ 5,455 $ 2,605

Insurance reserves 3,908 4,174

Operating lease liabilities-current 4,273 3,626

Others 2,451 930

Total other current liabilities $ 16,087 $ 11,335

Unearned premium liabilities are the refundable portion of commissions received in connection with the sale of renters insurance policies to residents through AppFolio Insurance Services, Inc., our wholly owned subsidiary.

In the event a resident cancels their renters insurance policy prior to the end of such policy, we may be required to refund a pro rata portion of the commission paid on such policy.

For additional information for insurance reserves and operating lease liabilities, refer to Note 12, Commitments and Contingencies and Note 11, Leases , respectively .

Goodwill at December 31, 2025

Operating leases for our corporate offices have remaining lease terms ranging from 1.6 years to 7.1 years, some of which include options to extend the leases for up to ten years .

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Weighted-average discount rate 5.2 % 5.1 %

During the year ended December 31, 2022, we decided to exit and make available for sublease certain of our leased office spaces.

As a result, we reassessed our asset groupings and evaluated the recoverability of our ROU and other lease related assets, and determined that the carrying value of the respective asset groups was not fully recoverable.

We utilized discounted cash flow models to estimate the fair value of the asset groups taking into consideration the time period it will take to obtain a sublessee, the applicable discount rates and the anticipated sublease income and calculated the corresponding impairment loss.

We used prices and other relevant information generated primarily by recent market transactions involving similar or comparable assets, as well as our historical experience in real estate transactions.

When available, we use valuation inputs from independent valuation experts, such as real estate appraisers and brokers, to corroborate our estimates of fair value.

We recorded a net impairment of $ 22.0 million consisting of $ 17.6 million related to ROU assets and $ 4.4 million related to property and equipment associated with our leased office spaces.

These amounts were recorded within General and administrative in our Consolidated Statements of Operations.

In January 2023, we entered into an amendment to the lease agreement for our San Diego facility (the "San Diego Lease").

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Total $ 38,160

Other Balance Sheet Components

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following (in thousands):

Income tax receivable (1)

$ 27,133 $ 1,089

Prepaid expenses 15,707 12,430

Deferred commissions (2)

Deposits for insurance services (3)

Other 3,447 2,722

Total Prepaid expenses and other current assets $ 65,218 $ 32,807

(1) For additional information on income tax, refer to Note 14, Income Taxes.

(2) For additional information on deferred commissions, refer to Deferred Costs in Note 2, Summary of Significant Accounting Policies.

(3) For additional information on deposits held with a third party related to requirements to maintain collateral for insurance services, refer to "Liability to Landlord Insurance" in Note 11, Commitments and Contingencies.

Accrued Employee Expenses

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

Accrued bonuses (1)

$ 43,298 $ 17,092

Accrued payroll and other 16,476 13,065

Total accrued employee expenses $ 59,774 $ 30,157

(1) Accrued bonuses increased significantly as of December 31, 2025, due to the shift from a semi-annual to an annual payment cycle.

Whereas a portion of the prior year’s bonus was paid mid-year, the 2025 fiscal year accrual represents the total annual incentive to be paid in the first quarter of 2026.

Other Current Liabilities

Other Current Liabilities consisted of the following (in thousands):

Unearned premium liabilities (1)

$ 6,662 $ 5,455

Insurance reserves (2)

Operating lease liabilities-current 4,873 4,273

Others 3,956 2,451

Total other current liabilities $ 22,121 $ 16,087

(1) Unearned premium liabilities are the refundable portion of commissions received in connection with the sale of renters insurance policies to residents through AppFolio Insurance Services, Inc., our wholly-owned subsidiary.

In the event a resident cancels their renters insurance policy prior to the end of such policy, we may be required to refund a pro rata portion of the commission paid on such policy.

(2) For additional information on insurance reserves, refer to "Legal Liability to Landlord Insurance" in Note 11, Commitments and Contingencies.

Commitments and Contingencies

As of December 31, 2025, our non-cancelable purchase commitments for business operations totaled $ 31.3 million, which are due primarily over the next three years .

Operating lease obligations associated with lease facilities totaled $ 38.2 million as of December 31, 2025 and have varying maturities with $ 44.8 million due over the next five years .

Liability to Landlord Insurance

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Included in Prepaid expenses and other current assets as of December 31, 2025 and 2024 are $ 7.8 million and $ 6.7 million, respectively, of deposits held with a third party related to requirements to maintain collateral for this risk mitigation service.

Credit Facility

On September 30, 2025, we entered into the Credit Facility which provides for a $ 150.0 million senior secured revolving credit facility, including sublimits of $ 25.0 million for letters of credit and $ 25.0 million for swingline loans, and is scheduled to mature on September 30, 2030.

We may, subject to customary conditions and consent of the applicable lenders, increase the revolving commitment or incur term loans thereunder (capped at amounts specified in the Credit Facility) or extend the maturity date of the Credit Facility.

Borrowings under the Credit Facility bear interest at variable rates based, at our option, on Term Secured Overnight Financing Rate Data ("SOFR"), Daily Simple SOFR, or a Base Rate, plus an applicable margin (ranging from 125.0 to 200.00 basis points in the case of Term SOFR and Daily Simple SOFR and 25.0 to 100.00 basis points in the case of the Base Rate) determined by our Consolidated Net Leverage Ratio, all as defined in the Credit Facility.

We also pay a quarterly commitment fee (ranging from 15.0 to 30.0 basis points depending on our Consolidated Net Leverage Ratio) on unused amounts, as well as customary letter of credit and agency fees.

The obligations under the Credit Facility are guaranteed by certain of our subsidiaries and secured by a first-priority security interest in substantially all of our and our guarantors' personal property, subject to customary exclusions and exceptions.

The Credit Facility includes customary representations, warranties, affirmative and negative covenants, including a financial covenant requiring maintenance of a Consolidated Net Leverage Ratio, and events of default.

The negative covenants include, among other things, restrictions on our and our subsidiaries' ability to incur indebtedness and liens, make investments, pay dividends or distributions or repurchase equity interests, merge, consolidate or otherwise dispose of assets, enter into transactions with affiliates, and prepay, redeem, purchase or otherwise retire junior indebtedness, all subject to certain exceptions.

As of December 31, 2025, there were no outstanding borrowings under the Credit Facility, and we were in compliance with the covenants under the Credit Facility.

Legal Proceedings

On February 10, 2023, a lawsuit was filed in the First Judicial District Court of New Mexico, Murphy, et al.

AppFolio, Inc., et al.

D-101-CV-2022-02100), naming us as a defendant and alleging certain violations of the New Mexico Unfair Practices Act and negligent misrepresentation in connection with our tenant screening service (the “Murphy Litigation”).

In late November 2023, the parties agreed to settle the Murphy Litigation.

We did not admit any wrongdoing in connection with the settlement of the Murphy Litigation.

The settlement agreement required us to pay $ 7.0 million, which was covered in full under our existing insurance policies.

As of December 31, 2023, we recorded a liability of $ 7.0 million within Accrued Expenses and a corresponding receivable amount within Prepaid expenses and other current assets.

In April, 2024, the parties filed a stipulation of settlement with the court dismissing all claims against AppFolio with prejudice.

As the settlement was paid in March 2024, there is no remaining liability or receivable as of December 31, 2024

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

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

Although the ultimate outcome of such investigative inquiries, legal proceedings and other disputes cannot be predicted with certainty, we do not believe that any such investigative inquires, legal proceedings and other disputes, if determined adversely to us, would, individually or taken together, have a material adverse effect on our business, operating results, financial condition or cash flows.

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Share Repurchase Program

On February 20, 2019, our Board of Directors authorized a $ 100.0 million share repurchase program (the "Share Repurchase Program") relating to our outstanding shares of Class A common stock.

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

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

We have not made any repurchases under the Share Repurchase Program during the years ended December 31, 2024, 2023 and 2022.

On February 20, 2019, our Board of Directors authorized a $ 100.0 million share repurchase program (the "2019 Stock Repurchase Program") relating to our outstanding shares of Class A common stock.

Under the 2019 Stock Repurchase Program, we were authorized to repurchase shares of our Class A common stock from time to time in open market purchases or privately negotiated transactions.

The 2019 Stock Repurchase Program did not obligate us to repurchase any minimum dollar amount or number of shares, did not have an expiration date, and it could have been modified, suspended or terminated at any time and for any reason.

During the first quarter of 2025, we repurchased 445,311 shares of our Class A common stock through open market repurchases under the 2019 Stock Repurchase Program at an average purchase price of $ 215.05 per share, inclusive of broker commissions, for an aggregate repurchase price of $ 95.8 million which was recorded as a reduction to stockholders' equity.

As a result of the repurchases, we substantially exhausted the remaining shares available for purchase under the 2019 Stock Repurchase Program, and it has terminated.

On April 23, 2025, our Board authorized a $ 300.0 million share repurchase program (the "2025 Stock Repurchase Program") relating to our outstanding shares of Class A common stock.

Under the 2025 Stock Repurchase Program, we are authorized to repurchase shares of our Class A common stock from time to time in open market purchases or privately negotiated transactions.

The 2025 Stock Repurchase Program does not obligate us to repurchase any minimum dollar amount or number of shares, has no expiration date, and can be modified, suspended or terminated at any time and for any reason.

The timing and actual number of shares repurchased will depend on a variety of factors, including price, corporate and legal requirements, market conditions and other factors.

During the second quarter of 2025, we repurchased 243,987 shares of our Class A common stock through open market repurchases under the 2025 Stock Repurchase Program at an average purchase price of $ 204.77 per share, inclusive of broker commissions, for an aggregate repurchase price of $ 50.0 million which was recorded as a reduction to stockholders' equity.

We did not repurchase any shares of our Class A common stock during the third or fourth quarter of 2025.

As of December 31, 2025, the amount remaining available for repurchases under the 2025 Stock Repurchase Program was $ 250.0 million.

Stock-Based Compensation

We currently have two stock incentive plans:

the 2015 Stock Incentive Plan (the "2015 Plan") and, the 2025 Omnibus Incentive Plan (the "2025 Plan").

At our annual meeting of stockholders held on June 14, 2024 (the “2024 Annual Meeting”), our stockholders approved the 2025 Plan.

the 2015 Stock Incentive Plan (the "2015 Plan") and, the 2025 Omnibus Incentive Plan (the "2025 Plan"), which was approved by our stockholders at our 2024 annual meeting of stockholders.

We did not grant any awards under the 2025 Plan in 2024.

On January 1, 2025, the 2025 Plan superseded and replaced the 2015 Plan and no further awards will be granted under the 2015 Plan, but the 2015 Plan will continue to govern outstanding awards granted under the 2015 Plan.

Under the 2015 Plan, 2,000,000 shares of our Class A common stock were initially reserved and available for grant and issuance.

On January 1 of each subsequent calendar year during the term of the 2015 Plan, the number of shares available for grant and issuance under the 2015 Plan increased by the lesser of (i) the number of shares of our Class A common stock subject to awards granted under the 2015 Plan during the preceding calendar year and (ii) such lesser number of shares of our Class A common stock determined by our Board of Directors.

The number of shares of our Class A common stock is also subject to adjustment in the event of a recapitalization, stock split, reclassification, stock dividend or other change in our capitalization.

The 2015 Plan authorized the award of stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), performance awards (including performance stock units ("PSUs")) and stock bonuses to our employees, directors, consultants and independent contractors, subject to certain exceptions.

Under the 2025 Plan, 1,500,000 shares of our Class A common stock were initially reserved and available for grant and issuance subject to adjustment in accordance with the terms of the 2025 Plan.

In addition, the number of shares of Class A common stock authorized for issuance under the 2025 Plan will be subject to an annual increase on January 31 of each calendar year during the term of the 2025 Plan, equal to the lesser of (a) the total number of shares of Class A common stock underlying awards granted under the 2025 Plan in the immediately preceding calendar year, less the sum of (i) the number of shares of Class A common stock subject to an award granted under the 2025 Plan that expired, or was canceled, forfeited or terminated, and (ii) the number of shares of Class A common stock withheld by the Company to satisfy any tax withholding obligation, in the case of each of (i) and (ii), during the immediately preceding calendar year, and (b) such smaller number of shares of Class A common stock as is determined by the Board of Directors.

We granted RSUs and PSUs during 2025 pursuant to the 2025 Plan.

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The purchase price for shares purchased under the 2025 ESPP with respect to any offering period is an amount equal to 85 % of the fair market value of a share of our Class A common stock on the applicable purchase date (i.e., the last trading day of the applicable offering period).

Offering periods are six months long

and begin on February 16 and August 16 of each year.

The first offering period under the ESPP will begin on Monday, February 17, 2025.

Offering periods are six months long and begin on February 16 and August 16 of each year.

The first offering period under the ESPP began on Monday, February 17, 2025.

1,250,000 shares of Class A common stock are authorized for issuance under the ESPP, subject to adjustment in accordance with the terms of the ESPP.

In addition, commencing on January 31, 2026 and on each January 31st thereafter during the term of the ESPP, the number of shares of Class A Common Stock authorized for issuance under the ESPP will be increased by the lesser of (i) the number of shares of Class A Common Stock issued or transferred pursuant to rights granted under the ESPP during the preceding calendar year, (ii) such lesser number of shares of Class A Common Stock as determined by our compensation committee, or (iii) 1,250,000 shares of Class A Common Stock.

In addition, commencing on January 31, 2026 and on each January 31st thereafter during the term of the ESPP, the number of shares of Class A common stock authorized for issuance under the ESPP will be increased by the lesser of (a) the number of shares of Class A common stock issued or transferred pursuant to rights granted under the ESPP during the preceding calendar year, (b) such lesser number of shares of Class A common stock as determined by our compensation committee, or (c) 1,250,000 shares of Class A common stock.

For the year ended December 31, 2025, our stock-based compensation expense for the ESPP was not material.

Stock Options

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Options exercisable 40 $ 129.74 7.2

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

During the year ended December 31, 2023, we granted our Chief Executive Officer options to purchase 120,000 shares of our Class A common stock.

These stock options vest based on service conditions with one-third vesting at the end of each of the years ending December 31, 2025, 2026 and 2027 (assuming continued employment through the applicable vesting date).

No stock options were granted during the years ended December 31, 2024 or 2022.

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

The following table summarizes information relating to our stock options granted during the year ended December 31, 2023:

Weighted average grant-date fair value per share $ 67.23

Weighted average Black-Scholes model assumptions:

Risk-free interest rate 4.06 %

Expected term (in years) 6.92

Expected volatility 44 %

Expected dividend yield —

Our stock-based compensation expense for stock options was not material for the periods presented.

The total intrinsic value of options exercised in 2025, 2024 and 2023 was $ 1.9 million, $ 52.2 million and $ 36.4 million, respectively.

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The unvested PSUs as of December 31, 2025, are subject to vesting based on the achievement of pre-established performance metrics for the year ending December 31, 2025 and will vest over a three year period, assuming continued employment through each applicable vesting date.

The actual number of shares to be issued at the end of the performance period will range from 0 % to 170 % of the target number of shares depending on achievement relative to the performance metric over the applicable period.

The actual number of shares to be granted at the end of the performance period will range from 0 % to 171 % of the target number of shares depending on achievement relative to the performance metric over the applicable period.

We recognized stock-based compensation expense for the RSUs and PSUs of $ 69.4 million, $ 59.2 million and $ 51.0 million for the years ended December 31, 2025, 2024 and 2023, respectively.

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The total fair value of RSUs and PSUs vested during the years ended December 31, 2025, 2024 and 2023 was approximately $ 107.1 million, $ 111.8 million and $ 82.2 million, respectively.

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

As described in Note 2, Summary of Significant Accounting Policies, we have elected to prospectively adopt the guidance in ASU 2023-09, Improvements to Income Taxes Disclosures.

The following table is a reconciliation of the U.S.

federal statutory rate of 21% to our effective tax rate for the year ended December 31, 2025 in accordance with the guidance in ASU 2023-09:

Year Ended December 31,

(dollars in thousands)

federal statutory income tax rate $ 33,833 21 %

State and local income taxes, net of federal benefit (1)

( 1,083 ) ( 1 )

Tax credits ( 11,424 ) ( 7 )

Nontaxable or nondeductible items

Excess tax benefits from stock-based compensation ( 10,340 ) ( 6 )

Non-deductible officers' compensation 4,559 3

Other nondeductible items 896 1

Changes in unrecognized tax benefits 3,748 2

Provision for (benefit from) income taxes $ 20,189 13 %

(1) The state(s) that contribute to the majority (greater than 50%) of the tax effect in this category is California

The following table is a reconciliation of the U.S.

federal statutory rate of 21% to our effective tax rate for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09:

Year Ended December 31,

federal statutory income tax rate 21 % 21 %

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Other permanent differences — ( 4 )

(Benefit from) provision for income taxes ( 36 ) % 66 % ( 2 ) %

Provision for (benefit from) income taxes ( 36 ) % 66 %

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

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Total deferred tax assets 92,125 112,664

Valuation allowance — ( 62,380 )

Deferred tax assets, net of valuation allowance $ 112,664 $ 15,785

Deferred tax liabilities:

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Total net deferred tax liabilities $ 58,823 $ 76,910

As of December 31, 2024, the decrease in our valuation allowance of $ 62.4 million is comprised of decrease in our federal and state valuation allowance of $ 31.1 million and $ 31.3 million respectively.

In evaluating the need for a valuation allowance at each reporting period, we consider 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, timing of the future reversal of existing temporary differences, and the duration of statutory carryforward periods.

In assessing all available evidence, we determined that there was sufficient positive evidence to overcome the negative evidence, including our past and current financial results, growth demonstrated in our top-line performance, as well as projected profitability.

In assessing all available evidence, we determined that there

was sufficient positive evidence to overcome the negative evidence, including our past and current financial results, growth demonstrated in our top-line performance, as well as projected profitability.

Accordingly, we determined it is more likely than not that the deferred tax assets will be realized and we released our valuation allowance at December 31, 2024.

As of December 31, 2025, we had federal and state net operating loss carryforwards $ 146.8 million and $ 112.5 million, respectively.

The federal net operating loss carryovers do not expire and state net operating losses will begin to expire in 2025.

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

As of December 31, 2025, we also had federal and state research and development credit carryforwards of $ 11.8 million and $ 36.9 million, respectively.

The federal credit carryforwards will begin to expire in 2044, while the state credit carryforwards

apply indefinitely.

The federal credit carryforwards will begin to expire in 2044, while the state credit carryforwards apply indefinitely.

Utilization of our net operating loss and credit carryforwards may be subject to annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions.

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

Year Ended December 31,

2024 2023 2022

Valuation allowance, at beginning of year $ 62,380 $ 43,776 $ 17,217

Increase in valuation allowance

— 18,604 26,559

Decrease in valuation allowance ( 62,380 ) — —

Valuation allowance, at end of year $ — $ 62,380 $ 43,776

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

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As of December 31, 2025, we recorded gross uncertain tax benefits of $ 18.8 million a majority of which would impact our effective tax rate, if recognized.

We accrued interest and penalties related to our uncertain income tax positions in our income tax expense and accrued no interest and penalties for the year ended December 31, 2024 and 2023.

We do not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

We accrued interest and penalties related to our uncertain income tax positions in our income tax expense, and the amount of interest and penalties accrued for the year ended December 31, 2025 and 2024 are immaterial.

We file income tax returns in the U.S.

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As of December 31, 2025, we have not been notified for audit by the Internal Revenue Service or any significant state jurisdiction.

Revenue and Other Information

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

The following table presents income taxes paid (net of refunds received) for the year ended December 31, 2025 (in thousands):

Year Ended December 31,

Federal taxes $ 22,390

State taxes 6,450

International taxes —

Cash paid for income taxes (net of refunds) $ 28,840

Net Income Per 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.

The dilutive effect of outstanding options and equity incentive awards is reflected in diluted net income per share by application of the treasury stock method.

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

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 sets forth the computation of basic and diluted net income per common share (in thousands):

Year Ended December 31,

2025 2024 2023

Core solutions $ 180,605 $ 156,692 $ 132,541

Value Added Services 605,011 454,098 327,636

Other 8,586 9,655 11,706

Total revenue $ 794,202 $ 620,445 $ 471,883

Our revenue is generated primarily from United States customers.

All of our property and equipment is located in the United States.

Basic net income per share:

$ 140,923 $ 204,068 $ 2,702

undistributed earnings to participating securities — 12 —

Net income attributable to common stockholders

$ 140,923 $ 204,056 $ 2,702

Weighted average common shares outstanding 36,013 36,254 35,636

Weighted average unvested restricted shares subject to repurchase — 2 7

Weighted average common shares outstanding;

basic 36,013 36,252 35,629

Net income per common share;

$ 3.91 $ 5.63 $ 0.08

Diluted net income per share:

Net income attributable to common stockholders

$ 140,923 $ 204,056 $ 2,702

Weighted average common shares outstanding;

basic 36,013 36,252 35,629

Weighted average dilutive options outstanding 40 58 333

Weighted average dilutive RSUs outstanding 274 472 455

Weighted average common shares outstanding;

diluted 36,327 36,782 36,417

Net income per common share;

$ 3.88 $ 5.55 $ 0.07

Potentially dilutive securities that are not included in the calculation of diluted net income per share because doing so would be antidilutive are as follows (in thousands):

Year Ended December 31,

2025 2024 2023

Unvested Restricted Stock Awards — — 6

Options — — 120

Restricted Stock Units 14 2 20

Total potentially dilutive securities 14 2 146

Workforce Reduction

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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