# Appfolio Inc: Form 10-Q for the period ended Sep 30, 2022

- Company: [Appfolio Inc](/companies/appf.md) (CIK 1433195)
- Form: 10-Q
- Filed: 2022-10-28
- Accepted by EDGAR: Oct 27, 2022, 19:59 ET
- Period: 2022-09-30
- Accession: 0001433195-22-000113
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1433195/000143319522000113/appf-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1433195/000143319522000113/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $125.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $347.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $29.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $80.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$7.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$52.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $938.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $889.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$4.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$48.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.12 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$1.39 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.12 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$1.39 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 35,043,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 34,936,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $19.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $5.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $67.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $176.8m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $384.9m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $57.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $113.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | $271.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,763 characters.

*The following discussion and analysis of our financial condition and results of operations should be read together with our Condensed Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report and in our Annual Report. This discussion and analysis contains forward-looking statements that are based on our current expectations and reflect our plans, estimates and anticipated future financial performance. These statements involve numerous risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in the section entitled “Risk Factors” in our Annual Report, as well as our other public filings with the SEC. Please also refer to the section of this Quarterly Report entitled "Forward-Looking Statements" for additional information.*

### Overview

We are 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. Our products assist an interconnected and growing ecosystem of users, including property managers, property owners, real estate investment managers, rental prospects, residents, and service providers with critical transactions across the real estate lifecycle, including screening potential tenants, sending and receiving payments and providing insurance-related risk mitigation services. AppFolio’s intuitive interface, coupled with streamlined and automated workflows, make it easier for our customers to eliminate redundant and manual processes so they can deliver a great experience for their users while improving financial and operational performance.

We rely heavily on our talented team of employees to execute our growth plans and achieve our long-term strategic objectives. We believe our people are at the heart of our success and our customers' success, and we have worked hard not only to attract and retain talented individuals, but also to provide a challenging and rewarding work environment to motivate and develop our valuable human capital. As we navigate the challenges of increased competition for talent, we have evolved our compensation and employee reward practices, which has had, and we expect will continue to have, a material impact on our results.

***Property management units under management.*** We believe that our ability to increase our number of property management units under management is an indicator of our market penetration, growth, and potential future business opportunities. We define property management units under management as the number of active units in our core solutions. We had 7.08 million and 6.04 million property management units under management as of September 30, 2022 and 2021, respectively.

### Key Components of Results of Operations

### Revenue

Our core solutions and certain of our Value Added Services are offered on a subscription basis. Our core solutions subscription fees vary by property type and are designed to scale with the size of our customers’ businesses. We recognize revenue for subscription-based services on a straight-line basis over the contract term beginning on the date that our service is made available. We generally invoice monthly or, to a lesser extent, annually in advance of the subscription period.

We also offer certain Value Added Services, which are not covered by our subscription fees, on a per-use basis. 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 usage-based services on a monthly basis or collect the fee at the time of service. A significant majority of our Value Added Services revenue comes directly and indirectly from the use of our electronic payment services, tenant screening services, and risk mitigation services. Usage-based fees are paid either by customers or by users.

We charge our customers for onboarding assistance to our core solutions and certain other non-recurring services. We generally invoice for these other services in advance of the services being completed and recognize revenue upon completion of the related service. We generate revenue from the legacy customers of previously acquired businesses by providing services outside of our property management core solution platform. Revenue derived from these services is recorded in *Other revenue.* As of September 30, 2022 and 2021, we had 18,109 and 16,844 property management customers, respectively.

### Costs and Operating Expenses

*Cost of Revenue.* 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.* Sales and marketing expense consists of personnel-related costs for our employees focused on sales and marketing (including salaries, sales commissions, performance-based compensation, benefits, and stock-based compensation), costs associated with sales and marketing activities, and allocated shared and other costs. Marketing activities include advertising, online lead generation, lead nurturing, customer and industry events, and the creation of industry-related content and collateral. 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.

*Research and Product Development.* Research and product development expense consists of personnel-related costs for our employees focused on research and product development (including salaries, performance-based compensation, 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 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 existing and adjacent markets. We capitalize our software development costs that meet the criteria for capitalization. Amortization of capitalized software development costs is included in depreciation and amortization expense.

*General and Administrative.* General and administrative expense consists of personnel-related costs for employees in our executive, finance, information technology, human resources, legal, compliance, corporate development and administrative organizations (including salaries, performance-based cash compensation, benefits, and stock-based compensation). In addition, general and administrative expense includes fees for third-party professional services (including audit, legal, compliance, tax, and consulting services), transaction costs related to business combinations and sales, regulatory fees, other corporate expenses, impairment of long-lived assets, and allocated shared and other costs.

*Depreciation and Amortization.* Depreciation and amortization expense includes depreciation of property and equipment, amortization of capitalized software development costs, and amortization of intangible assets. We depreciate or amortize property and equipment, software development costs, and intangible assets over their expected useful lives on a straight-line basis, which approximates the pattern in which the economic benefits of the assets are consumed.

*Other Income (Loss), Net.* Other income (loss), net includes gains and losses associated with the sale of businesses and property and equipment, and income from certain post-closing transition services provided by us to MyCase, Inc. during fiscal year 2021.

*Interest Income.* Interest income includes interest earned on investment securities, amortization and accretion of the premium and discounts paid from the purchase of investment securities, and interest earned on cash deposited in our bank accounts.

*Provision for (Benefit from) Income Taxes.* Provision for (benefit from) income taxes consists of federal and state income taxes in the United States.

### Results of Operations

### Revenue

*(dollars in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change Amount% |  | Nine Months Ended September 30, 2022 | 2021 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Core solutions | $33,940 | $26,920 | $7,020 | 26% | $97,163 | $76,457 | $20,706 | 27% |
| Value Added Services | 88,399 | 65,578 | 22,821 | 35% | 241,349 | 177,535 | 63,814 | 36% |
| Other | 2,740 | 3,311 | (571) | (17)% | 9,313 | 9,778 | (465) | (5)% |
| Total revenue | $125,079 | $95,809 | $29,270 | 31% | $347,825 | $263,770 | $84,055 | 32% |

The increase in revenue for the three and nine months ended September 30, 2022, compared to the same periods in the prior year, was primarily attributable to growth in our base of property management customers driving an increase in the number of property management units under management, and growth in users of our subscription and usage-based services. During the three and nine month period ended September 30, 2022, we experienced growth of 17% in the number of property management units under management resulting from 8% growth in the number of property management customers, compared to the same periods in the prior year.

### Cost of Revenue (Exclusive of Depreciation and Amortization)

*(dollars in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change Amount% |  | Nine Months Ended September 30, 2022 | 2021 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of revenue (exclusive of depreciation and amortization) | $50,707 | $38,730 | $11,977 | 31% | $141,484 | $104,847 | $36,637 | 35% |
| Percentage of revenue | 40.5% | 40.4% |  |  | 40.7% | 39.7% |  |  |
| Stock-based compensation, included above | $789 | $575 | $214 | 37% | $1,873 | $1,509 | $364 | 24% |
| Percentage of revenue | 0.6% | 0.6% |  |  | 0.5% | 0.6% |  |  |

For the three and nine months ended September 30, 2022, expenditures to third-party service providers related to the delivery of our Value Added Services increased $8.5 million and $27.2 million, respectively, compared to the same periods in the prior year. These increases were directly associated with the increased adoption and utilization of our Value Added Services. Personnel-related costs, including performance-based compensation, necessary to support growth and key investments, increased $3.5 million and $9.2 million for the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. Additionally, offsetting cost of revenue (exclusive of depreciation and amortization) during the three and nine months ended September 30, 2022 was $0.4 million and during the nine months ended September 30, 2021 was $2.0 million of incentives earned from third-party service providers related to programs intended to increase adoption and utilization of online payments.

As a percentage of revenue, cost of revenue (exclusive of depreciation and amortization) fluctuates primarily based on the mix of Value Added Services revenue in the period, given the varying percentage of revenue we pay to third-party service providers. We expect cost of revenue (exclusive of depreciation and amortization) for the year ending December 31, 2022, to increase as a percentage of revenue compared to the year ended December 31, 2021, as we expect expenditures to third-party service providers related to the delivery of our Value Added Services to increase at a faster rate than total revenue as a result of a higher growth rate related to our Value Added Services revenue.

### Sales and Marketing

*(dollars in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change Amount% |  | Nine Months Ended September 30, 2022 | 2021 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales and marketing | $25,644 | $19,362 | $6,282 | 32% | $77,558 | $53,255 | $24,303 | 46% |
| Percentage of revenue | 20.5% | 20.2% |  |  | 22.3% | 20.2% |  |  |
| Stock-based compensation, included above | $2,023 | $738 | $1,285 | 174% | $5,496 | $1,587 | $3,909 | 246% |
| Percentage of revenue | 1.6% | 0.8% |  |  | 1.6% | 0.6% |  |  |

Sales and marketing expense for the three and nine months ended September 30, 2022 increased primarily due to increases in personnel-related costs, including performance-based compensation, necessary to support growth in the business of $5.0 million and $17.2 million, respectively, compared to the same periods in the prior year. Allocated shared and other costs increased by $1.9 million and $6.6 million for the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year, with such increase being primarily related to software and other costs incurred in support of our overall growth.

We expect sales and marketing expense for the year ending December 31, 2022 to increase as a percentage of revenue compared to the year ended December 31, 2021, as we continue to invest in headcount to support our growth and increase our advertising, promotion and other marketing activities.

### Research and Product Development

*(dollars in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change Amount% |  | Nine Months Ended September 30, 2022 | 2021 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and product development | $28,959 | $16,500 | $12,459 | 76% | $79,966 | $46,389 | $33,577 | 72% |
| Percentage of revenue | 23.2% | 17.2% |  |  | 23.0% | 17.6% |  |  |
| Stock-based compensation, included above | $4,330 | $1,451 | $2,879 | 198% | $11,160 | $3,522 | $7,638 | 217% |
| Percentage of revenue | 3.5% | 1.5% |  |  | 3.2% | 1.3% |  |  |

Research and product development expense for the three and nine months ended September 30, 2022 increased primarily due to an increase in personnel-related costs including performance-based compensation, net of capitalized software development costs, of $11.6 million and $31.5 million, respectively, compared to the same periods in the prior year.

We expect research and product development expenses for the year ending December 31, 2022 to increase as a percentage of revenue compared to the year ended December 31, 2021, as we continue to invest in our research and product development organization to support our strategy to expand the use cases of our product capabilities to the larger customer segment and to continue to strengthen the security of our product.

### General and Administrative

*(dollars in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change Amount% |  | Nine Months Ended September 30, 2022 | 2021 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | $19,347 | $13,404 | $5,943 | 44% | $76,258 | $40,971 | $35,287 | 86% |
| Percentage of revenue | 15.5% | 14.0% |  |  | 21.9% | 15.5% |  |  |
| Stock-based compensation, included above | $3,688 | $1,299 | $2,389 | 184% | $9,680 | $3,435 | $6,245 | 182% |
| Percentage of revenue | 2.9% | 1.4% |  |  | 2.8% | 1.3% |  |  |

23

General and administrative expense for the three months ended September 30, 2022 increased primarily due to an increase in personnel-related costs, including performance-based compensation, of $3.1 million, compared to the same period in the prior year. Allocated shared and other costs increased $0.9 million for the three months ended September 30, 2022, compared to the same period in the prior year, for professional fees, education and training, insurance, software and other costs to support our growth. Additionally, offsetting general and administrative expense for the three months ended September 30, 2021 was a $1.9 million insurance recovery related to our previously disclosed settlement with the Federal Trade Commission (the "FTC").

General and administrative expense for the nine months ended September 30, 2022 increased primarily due to a lease-related asset impairment charge of $19.8 million. Personnel-related costs, including performance-based compensation, increased $10.1 million for the nine months ended September 30, 2022, compared to the same period in the prior year. Allocated shared and other costs increased $3.5 million for the nine months ended September 30, 2022, compared to the same period in the prior year, for professional fees, education and training, insurance, software and other costs to support our growth. Additionally, offsetting general and administrative expense for the nine months ended September 30, 2021 was a $1.9 million insurance recovery related to our previously disclosed settlement with the Federal Trade Commission (the "FTC").

Excluding the impairment charge, we expect general and administrative expenses for the year ending December 31, 2022 to increase as a percentage of revenue compared to the year ended December 31, 2021, as we continue to invest in headcount. Further, we expect to incur additional personnel-related costs in future periods related to certain incentive-based compensation programs.

### Depreciation and Amortization

*(dollars in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change Amount% |  | Nine Months Ended September 30, 2022 | 2021 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $8,241 | $7,826 | $415 | 5% | $24,977 | $22,844 | $2,133 | 9% |
| Percentage of revenue | 6.6% | 8.2% |  |  | 7.2% | 8.7% |  |  |

Depreciation and amortization expense for the three and nine months ended September 30, 2022 increased, compared to the same periods in the prior year, primarily due to increased amortization expense associated with accumulated capitalized software development balances.

### Other Income (Loss), Net

*(dollars in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change Amount% |  | Nine Months Ended September 30, 2022 | 2021 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Other income (loss), net | $4,221 | $(353) | $4,574 | (1,296)% | $4,256 | $705 | $3,551 | 504% |
| Percentage of revenue | 3.4% | (0.4)% |  |  | 1.2% | 0.3% |  |  |

Other income (loss), net for the three and nine months ended September 30, 2022 increased, compared to the same periods in the prior year, primarily due to the gain of $4.2 million associated with the WegoWise Transaction.

### Provision for (Benefit from) Income Taxes

*(dollars in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change Amount% |  | Nine Months Ended September 30, 2022 | 2021 | Change Amount% |  |
| --- | ---: | ---: | ---: | --- | ---: | ---: | ---: | --- |
| Provision for (benefit from) income taxes | $938 | $(160) | $1,098 | \* | $889 | $(6,017) | $6,906 | \* |
| Percentage of revenue | 0.7% | (0.2)% |  |  | 0.3% | (2.3)% |  |  |

\*Percentage not meaningful

Our effective tax rate as compared to the U.S. federal statutory rate of 21% differs primarily due to the significance of the benefits associated with stock-based compensation expense, and research and development tax credits.

### Liquidity and Capital Resources

Our principal sources of liquidity continue to be cash, cash equivalents, and investment securities, as well as cash flows generated from our operations. We have financed our operations primarily through cash generated from operations. We believe that our existing cash and cash equivalents, investment securities, and cash generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.

Our future capital requirements will depend on many factors, including continued market acceptance of our software solutions, changes in the number of our customers, adoption and utilization of our Value Added Services by new and existing customers, the timing and extent of the introduction of new core functionality, products and Value Added Services, the timing and extent of our expansion into new or adjacent markets, and the timing and extent of our investments across our organization. In addition, we have in the past entered into, and may in the future enter into, arrangements to acquire or invest in new technologies or markets adjacent to those we serve today. Furthermore, our Board of Directors has authorized the repurchase of up to $100.0 million of shares of our Class A common stock from time to time. To date, we have repurchased $4.2 million of our Class A common stock under the share repurchase program.

### Cash Flows

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

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $19,284 | $26,459 |
| Net cash used in investing activities | (5,083) | (73,766) |
| Net cash used in financing activities | (5,002) | (8,512) |
| Net increase (decrease) in cash, cash equivalents and restricted cash | $9,199 | $(55,819) |

### Operating Activities

Our primary source of operating cash inflows is cash collected from our customers in connection with their use of our core solutions and Value Added Services. Our primary uses of cash from operating activities are for personnel-related expenditures and third-party costs incurred to support the delivery of our software solutions.

Net cash provided by operating activities was $19.3 million for the nine months ended September 30, 2022 compared to net cash provided by operating activities of $26.5 million for the nine months ended September 30, 2021. The net decrease in cash provided by operating activities was primarily due to an increase in employee related costs and the settlement of accounts payable offset by an increase in cash collections from customers due to higher revenue growth and a decrease in income taxes paid related to the sale of MyCase, Inc. during the nine months ended September 30, 2021.

### Investing Activities

Cash used in investing activities is generally composed of purchases of investment securities, maturities and sales of investment securities, purchases of property and equipment, and additions to capitalized software development.

Net cash used in investing activities for the nine months ended September 30, 2022 was $5.1 million compared to $73.8 million for the nine months ended September 30, 2021. The net decrease in cash used in investing activities was primarily due to decreases in purchases of available-for-sale investment securities and capitalization of software development costs, offset by a decrease in proceeds from sales of available-for-sale investment securities and net proceeds from the WegoWise Transaction.

### Financing Activities

Cash used in financing activities is generally composed of net share settlements for employee tax withholdings associated with the vesting of equity awards offset by proceeds from the exercise of stock options.

Net cash used in financing activities for the nine months ended September 30, 2022 was $5.0 million compared to $8.5 million for the nine months ended September 30, 2021. The decrease in cash used in financing activities was primarily due to a decrease in taxes paid related to net share settlement of equity awards.

### Critical Accounting Policies and Estimates

### Impairment of long-lived assets

In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), we evaluate our long-lived assets, such as property and equipment and right-of-use assets, for impairment whenever events and circumstances indicate that the assets might be impaired due to the carrying amount of an asset group not being recoverable. When the projected undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts, the assets are adjusted to their estimated fair value and an impairment loss is recorded as a component of operating expenses.

During the second quarter of 2022, we decided to exit and make available for sublease certain other leased office spaces. As a result, we reassessed our asset groupings and evaluated the recoverability of our right-of-use and other lease related assets, and determined that the carrying value of the respective asset groups was not fully recoverable. As a result, we utilized discounted cash flow models to estimate the fair value of the asset groups and calculated the corresponding impairment loss. We recorded an impairment of $19.4 million consisting of $15.7 million related to ROU assets and $3.7 million related to property and equipment associated with our leased office spaces as described further in Note 7, *Leases.* We used the following significant assumptions to determine the impairment charge: time period it will take to obtain a sublessee, the applicable discount rate and the anticipated sublease income.

## Market risk

As filed, 1,580 characters.

### Interest Rate Risk

#### Investment Securities

As of September 30, 2022, we had $117.2 million of investment securities consisting of United States government agency securities, corporate bonds, and treasury securities. The primary objective of investing in securities is to support our liquidity and capital needs. We did not purchase these investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

Our investment securities are exposed to market risk due to interest rate fluctuations. While fluctuations in interest rates do not impact our interest income from our investment securities as all of these securities have fixed interest rates, changes in interest rates may impact the fair value of the investment securities. Since our investment securities are held as available for sale, all changes in fair value impact our other comprehensive (loss) income unless an investment security is considered impaired in which case changes in fair value are reported in other expense. As of September 30, 2022, a hypothetical 100 basis point decrease in interest rates would have resulted in an increase in the fair value of our investment securities of approximately $0.9 million and a hypothetical 100 basis point increase in interest rates would have resulted in a decrease in the fair value of our investment securities of approximately $0.9 million. This estimate is based on a sensitivity model which measures an instant change in interest rates by 100 basis points at September 30, 2022.

## Controls and procedures

As filed, 2,342 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the supervision and participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and other procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Based on our management's evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,373 characters.

An investment in our Class A common stock involves risks. Before making an investment decision, you should carefully consider all of the information in this Quarterly Report, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Condensed Consolidated Financial Statements and related notes. In addition, you should carefully consider the risks and uncertainties described in the section entitled “Risk Factors” in our Annual Report, which was filed with the SEC on February 28, 2022, as well as in our other public filings with the SEC. If any of the identified risks are realized, our business, financial condition, operating results and prospects could be materially and adversely affected. In that case, the trading price of our Class A common stock may decline, and you could lose all or part of your investment. In addition, other risks of which we are currently unaware, or which we do not currently view as material, could have a material adverse effect on our business, financial condition, operating results and prospects. As of the date of this report, there have been no material changes to the risk factors previously disclosed in the Annual Report. We may, however, disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

Filed Oct 28, 2022.
Source: SEC EDGAR, the filing index for accession 0001433195-22-000113. Last ingested by Listed: Nov 6, 2026, 18:05 ET. No prices; not investment advice.