APPFOLIO INC (APPF) Business

ITEM 1.    BUSINESS

Unless otherwise stated in this Annual Report, references to "AppFolio," "we," "us," and "our" refer to AppFolio, Inc. and its consolidated subsidiaries.

Overview

Founded in 2006, AppFolio is a technology leader powering the future of real estate. We provide a cloud-based platform, the AppFolio Platform, on which our customers operate their businesses. Our primary customers are property management companies who manage a variety of property types, including single family, multifamily, affordable, commercial, student, and community associations. We help our customers navigate an increasingly interconnected and growing network of stakeholders in their business ecosystems, including property managers, property investors, potential residents, residents, and vendors. We also provide key functionality related to critical transactions across the real estate lifecycle, including screening potential residents, sending and receiving payments, and providing insurance-related risk mitigation services. Our services enable our customers to connect communities, increase operational efficiency, deliver exceptional customer experiences, and improve financial and operational performance. We believe our customer-centric culture leads to long-term customer retention and, ultimately, our long-term success.

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Our Platform

Our mission is to build the platform where real estate comes to do business. The AppFolio Platform is designed to deliver value to industry stakeholders throughout the property management ecosystem. These stakeholders include property managers, property owners and investors, residents, and vendors. Our performance-driven platform is (i) a system of record to centralize and store all critical operating information, (ii) a system of action to automate complex workflows while delivering improved outcomes, and (iii) a system of growth to drive value and revenue for the entire ecosystem.

The AppFolio Platform is built upon a unified architecture designed to serve as a single secure system of record for our customers' operational and financial data. This platform foundation provides real-time business intelligence and accounting functionality while maintaining data integrity. Building upon this foundation, AppFolio Realm integrates artificial intelligence, or AI, directly into the platform’s workflows. Through features such as Realm, the platform is capable of automating repetitive, high-volume tasks and promoting operational efficiency. To further enhance the platform's versatility, the AppFolio Stack™ marketplace utilizes application programming interfaces, or APIs, to facilitate our customers' ability to integrate specialized, third-party technology and services. This extensible ecosystem allows customers and partners to customize their workflows and incorporate specialized external solutions into the unified AppFolio environment.

We categorize our products and services into two categories, Subscription Services and Value Added Services. Utilization and adoption of our Subscription Services and Value Added Services is typically higher for residential properties than community association or commercial properties because of the unique and complex needs of the residential rental lifecycle.

Subscription Plans and Services

The AppFolio Platform is primarily offered via three Subscription Plans: Core, Plus, and Max.

•AppFolio Property Manager Core. AppFolio Property Manager Core is generally suited for small property management companies, serving as the basic, comprehensive, all-in-one system of record centered on accounting functionality, and includes access to a limited set of Stack™ integrations.

•AppFolio Property Manager Plus. AppFolio Property Manager Plus is designed for more complex, growing property management businesses, expanding on the Core plan functionality by adding capabilities for affordable housing and student housing, advanced accounting, advanced data analysis, and read-only API access, along with access to all Stack™ integrations.

•AppFolio Property Manager Max. AppFolio Property Manager Max includes the functionality of Plus and adds functionality designed for our largest operators, offering tools such as end-to-end leasing support with built-in leasing customer relationship management, or CRM, and leasing signals, and provides full database access through a read/write API.

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The Subscription Services AppFolio offers are provided through the Core, Plus, and Max Subscription Plans or can be added as ancillary functionality. Key services offered include:

•Accounting and Reporting. AppFolio provides property management accounting software that acts as a single system of record, capturing every transaction in one centralized database. The software utilizes AI-powered features, such as Smart Budgeting, Bank Feed, Bill Approval Flows, and Smart Bill Entry to reduce manual data entry and increase reporting accuracy. Performance Insights dashboards enables data-driven strategic decision-making and efficient financial management.

•Marketing and Leasing. The marketing and leasing tools are designed to help customers maximize occupancy, maintain a leasing pipeline, and manage the fully integrated lead-to-lease process. Our Realm Leasing Performer leverages AI to automate prospect engagement, including lead qualification, data capture, and tour scheduling. These capabilities are integrated with our Leasing CRM, which provides centralized end-to-end leasing management and conversion tracking. For portfolio optimization, our Leasing Signals supports customers' pricing decisions using their own unique pricing strategies and provides explainable pricing suggestions based on public data.

•Maintenance. The platform provides property maintenance tools through automation and online maintenance workflows. Our Realm Maintenance Performer utilizes AI to automate service request intake and triage. The tool facilitates real-time, multi-lingual communication with residents and automatically generates prioritized work orders. This automation is designed to reduce response times and streamline the resolution of maintenance issues. Our Unit Turn Board allows customers to track and manage the tasks required to prepare a unit for new occupancy, with the goal of minimizing vacancy periods and optimizing rental income.

•Communication and Service. AppFolio provides modern communication tools to streamline customer service, maintain operations, and create seamless experiences for residents, property owners, and investors. Our Realm Messages integrates text and email communications into a centralized inbox. This feature allows customers to manage resident correspondence within the platform's core workflow, which is designed to improve record-keeping and response efficiency.

Value Added Services

AppFolio also offers Value Added Services that supplement our Subscription Services and are designed to enhance, automate, and streamline business-critical processes and workflows. Our Value Added Services generally fall into the categories of electronic payment services, tenant screening, risk mitigation, maintenance, and business optimization. We strive to provide a seamless experience for our customers that increases their efficiency without sacrificing ease of use.

We empower our customers and their industry stakeholders with a wide variety of Value Added Services, most significantly with:

•Electronic Payment Services. Our electronic payment services allow property managers to streamline their receivables and payables through a variety of online payment options. Property managers can collect funds through our secure online portal and mobile application, and/or via electronic cash payments from various stakeholders, including applicants, residents, vendors, and property owners. The types of funds that may be collected include tenant charges, such as rental application fees, security deposits, and rent payments; contributions from property owners; and periodic dues from those living in community associations. Our customers can also electronically send funds to various stakeholders, including property investors and vendors.

•Tenant Screening. Our tenant screening services, delivered through our FolioScreen™ Trusted Renter product suite, include credit checks, criminal history, landlord-tenant history, income verification, employment verification, and identity verification for use in connection with the rental application process.

•Risk Mitigation. Through our FolioGuard™ offerings, we offer risk mitigation products for property managers and residents. FolioGuard Smart Ensure is a software tool that allows property managers to enforce insurance coverage requirements within their leases by tracking coverage of their units and adding uncovered units to a qualifying liability to landlord insurance policy via a licensed insurance broker. FolioGuard Renters Insurance, provided by our wholly-owned subsidiary AppFolio Insurance Services, Inc., protects the personal belongings of renters, as well as the property itself, from certain unexpected damages.

•Resident Services. AppFolio provides services intended to enhance the resident experience, leveraging modern communication software and mobile portals. The resident journey is enhanced with features, such as a personalized onboarding experience that integrates with third-party partners to facilitate the offering of resident services.

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See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information regarding the seasonality of our Value Added Services revenue.

Our Business and Growth Strategy

Our growth strategy is centered on delivering value to all industry stakeholders in the property management ecosystem, including, but not limited to, property managers, residents, vendors, and investors. We believe adding value to each of these industry stakeholders improves retention and expansion opportunities for existing customers and creates a differentiated product experience to attract new customers. Our strategy is anchored on the following three strategic pillars that are designed to facilitate the expansion and retention of our customer base.

Differentiate to Win

We strive to continually create differentiated product experiences that solve customer needs and create new revenue streams for AppFolio and our customers. Advanced technologies, such as Realm and its AI capabilities, including our Performers product, are designed to unlock increased productivity and efficiency gains for customers through generative messaging capabilities, customizable workflow automation, and an interactive AI-powered assistant. Our data platform and APIs extend our capabilities and enable third-party integrations through our StackTM marketplace. Continued innovation in onboarding tools, processes, and workflows are designed to remove barriers for customers to switch to AppFolio, while accelerating use and adoption of our services. Through new, innovative product features, our goal is to provide differentiated product experiences that extend value throughout the property technology ecosystem, for property managers, investors, vendors, and residents.

We continue to focus on attracting larger property management customers with complex and diversified property portfolios who derive value from managing their entire portfolio on a single platform. Ongoing innovations for investor and resident stakeholders are intended to redefine how property managers connect with these critical stakeholders and create additional value for all groups through the use of our performance-driven platform.

Deliver Performance Efficiently

As our customer base grows, we strive to provide a scalable client service experience that is accessible and easy to use. This includes utilizing AI capabilities, technology systems, and third party partners. The efforts of our customer-facing teams are focused on driving use and adoption of our services and helping customers achieve success on our platform. We expect to continue to gain leverage in our service experience through self-service and automation, as well as through our third-party solution partners that enable us to quickly expand our service offerings. Additionally, we empower our customers and their networks of stakeholders through the continued development and adoption of our Subscription Services and Value Added Services. We believe our customer-centric culture drives a focus on customer satisfaction that leads to long-term retention and, ultimately, to our long-term success.

We strive to operate with high efficiency and are continually evaluating opportunities to gain leverage across all aspects of our business. We plan to continue our efforts to efficiently and effectively scale our capabilities, processes, and systems to adapt and grow with our business, and align the value of our offerings to the size, scale, and complexity of our customers, while upholding a rigorous standard of privacy, protection, compliance, and ethics.

Great People and Culture

We believe fostering a connected and inclusive workplace is fundamental to AppFolio’s success. We empower AppFolio employees to deliver exceptional value for our customers and stockholders through continuous innovation, excellence, and meaningful work. We routinely evaluate and, when appropriate, invest in our people processes, programs, and systems to fuel high performance.

Our Customers

We define customers as those contracted for a Property Manager Subscription Services Plan. As of December 31, 2025, we had 22,096 property management customers.

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Customer Service

We believe our success is tied to long-term customer relationships, not a one-time sale. Our team is structured to deliver continuous service. This includes live and on-demand training, a library of resources, and personalized account management. We regularly measure our Net Promoter Score and Customer Satisfaction Score, and solicit customer feedback in a variety of ways in an effort to continue to improve and better serve our customers. We utilize a tiered engagement model to align the value we deliver with the value we capture from our customers, including add-on offerings such as tailored training and certification programs, and professional services delivered by our network of solution partners.

We have dedicated onboarding teams that work to ensure that customers are prepared to run their businesses on our platform, as well as self-service tools that reduce customers' time and rate of effort to achieve success with our products and services. As a result of our assistance with customer data migration matters, we are able to provide valuable insights into data integrity and work with our customers to help resolve issues in their underlying business processes. We also assist our customers with the configuration of our products for particular property types. We dedicate resources to guide our customers through the adoption and utilization of our Subscription Services and Value Added Services.

Sales and Marketing

We leverage a modern and scalable marketing approach along with marketing automation technology to attract and engage prospects and build brand recognition as an industry leader. We use a variety of inbound and outbound marketing techniques to promote our products and services, and we participate in industry thought leadership and education. We also host our own annual industry conference, FUTURE, where leaders, innovators, and experts come together to explore, teach, and discuss technology, tools, and trends. We encourage our existing and prospective customers to attend FUTURE to learn more about us and how our platform and services can help their businesses.

Our business development team acts in partnership with our marketing and sales teams to reach potential customers, generate sales opportunities, and accelerate the time from evaluation to close. Our sales representatives assist prospective customers as they evaluate our products. Our interactive sales methodology allows our sales team to quickly build relationships, assess prospective customers' business challenges, and demonstrate the benefits of our platform.

Technology and Operations

Our products are powered by a highly scalable computing platform and are designed with a focus on data security and availability. We take great care to keep our application framework and the rest of our software stack current to mitigate known vulnerabilities. Our computing platform and cloud infrastructure are primarily powered by third-party service providers. To help ensure that data is not lost and that customer requests can be satisfied, production assets are securely replicated and regularly backed up to an additional geographic region.

We monitor our production infrastructure to ensure high performance and availability, and our architecture provides us significant flexibility in achieving these goals.

We work to ensure that our customers and their communities are confident in our data practices. Sensitive data in our systems is encrypted during transmission and before being written to disk. We regularly evaluate our product and infrastructure security, including through third-party penetration testing. In addition, our products allow our customers to define roles that provide different levels of access to users, allowing them to view and modify specific items depending on their role. Supervisors can distribute work to staff in a secure and controlled environment, while leadership retains visibility across the entire system. Some sensitive customer actions require secondary verification via two-factor authentication, and any customer can enable two-factor authentication for logging into their account.

Research and Product Development

We rely heavily on input from our customers and prospective customers to develop products that meet their needs and anticipate developments in their businesses. We perform research and market validation efforts to guide our product roadmap. Our platform is frequently updated to provide new innovations and respond to market trends and customer needs. In addition, we believe that it is easier for our customers to adjust to frequent platform updates that incrementally change and improve their user experience than to adapt to infrequent, but more drastic, updates.

Competition

The overall market for business management solutions in the real estate industry is global, highly competitive, and continually evolving to respond to changes in technology, including AI, operational requirements, and laws and regulations. We believe our competitors primarily fall into the following categories:

•Vertical real estate business management service providers that serve companies of all sizes in our markets; and

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•Horizontal business management service providers that offer broad solutions across multiple industries.

We also experience competition from numerous technology providers that focus almost exclusively on one or more point solutions in the real estate industry or in other industries.

We believe we are well positioned to compete against both vertical and horizontal competitors because of our innovative platform that can scale and extend through AppFolio Stack™ and our Value Added Services, which can meet the needs of all property management stakeholders across our growing addressable market. However, some of our competitors may have greater financial, technical and other resources, greater name recognition and larger sales and marketing budgets; therefore, we may not always compare favorably with respect to some or all of the foregoing factors. Further, the barrier to entry for competition in one or more areas we serve may be low, which could lead to competition from new entrants who solve similar problems in different ways.

Intellectual Property

We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality procedures and contractual restrictions to establish and protect our proprietary rights in our services. We may pursue additional patent protection to the extent we believe it would be beneficial and cost-effective.

We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties. We also limit access to certain confidential information or trade secret information, including our source code, to those who have a need for such access. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours.

Government Regulation

Our business activities are subject to various federal, state and local laws and regulations. In addition, certain of our services (such as our tenant screening and risk mitigation services) are highly regulated or intended to be used in connection with other highly regulated activities. Some of the federal laws and regulations to which our products and services are subject include, without limitation:

•the Fair Housing Act;

•the Fair Credit Reporting Act (the "FCRA");

•the Americans with Disabilities Act;

•the Electronic Signatures in Global and National Commerce Act; and

•the Federal Trade Commission Act.

State law equivalents of the foregoing, plus various state regulations related to insurance licensing and solicitation and privacy also apply to certain of our services. In addition, our services are subject to changing federal and state laws and regulations, the application or interpretation of which is not clear in some jurisdictions. Moreover, federal and state legislatures and regulatory agencies have indicated they are focused on protecting tenants. This focus may result in the introduction of new laws and regulations that are directly applicable to our business. We have implemented various programs, processes and controls focused on compliance with applicable laws and regulations throughout our business; however, there is no guarantee that we will not be subject to fines, penalties or other regulatory actions in one or more jurisdictions, or be required to adjust our business practices to accommodate future regulatory requirements.

See Item 1A, "Risk Factors" for additional details regarding risks related to government regulations.

Human Capital

We believe our people and culture are at the heart of our success. We drive our success by investing in our people, and cultivating an exceptional work destination where they want to be and stay. Our company culture, driven by the following six core values, fuels our purpose and results:

•Great people make a great company.

•Listening to customers is in our DNA.

•Innovation powers success.

•Simpler is better.

•Do the right thing; it’s good for business.

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•Build trust every day.

As of December 31, 2025, we had 1,702 employees. We routinely engage temporary employees and consultants. We consider our relationships with our employees and consultants to be strong. To maintain this strong relationship and attract new talent, our human capital management efforts focus on the following initiatives:

An Inclusive Workplace. Our commitment to an inclusive workplace starts at the leadership level and cascades to our talented employees. We believe that reflecting the diversity of our customers and communities is essential to driving innovation, performance, and long-term success. We foster a culture of belonging through employee-led resource groups, open communication, and regular listening forums, where every voice is valued and contributes to shaping our workplace. At the same time, we are committed to empowering all employees to do their best work, grow their careers, and deliver results. By prioritizing performance, transparency, and engagement, we create a culture where diverse perspectives fuel better innovation and stronger outcomes.

Employee Development. We invest significant resources to develop the talent needed to remain at the forefront of innovation, making us an employer of choice. Our learning and development offerings are aligned with the needs of our business and tailored for individual growth. We conduct in-person trainings and make available on-demand programming that covers a wide range of topics from professional development to real estate industry acumen. Our quarterly engagement survey provides a platform for employees to provide anonymous feedback directly to their managers and our executives.

Societal Impact. We create a culture of impact by being a force for good for our customers, our communities, and each other. We empower employee volunteerism through our employee-led Give Back Committee and company-wide benefit of eight hours of paid volunteer time off annually. Our corporate philanthropy program, “AppFolio Gives Back”, supports housing availability, an ongoing challenge in the real estate industry, through a combination of employee fundraising, team volunteering, and a corporate matching gift program.

Environmental Stewardship. We believe in a culture of environmental stewardship and strive to create environmentally friendly workplaces. We maintain sustainability requirements that all contractors who work in our buildings or on our grounds are required to follow. Examples of these requirements include recycling of all demolished or removed materials whenever possible, installation of energy efficient HVAC units, low power LED lighting and fixtures, and native, drought resistant landscaping.

Compensation and Benefits. We maintain a culture of high performance that recognizes and rewards those who deliver meaningful results, as well as how those results were achieved. Our compensation and benefits programs support the well-being of our employees and their families enabling them to live their best lives both at work and at home. Our competitive compensation packages may include base salary, commission or annual performance-based bonuses, and stock-based compensation. We also offer a flexible paid time off policy, paid parental leave, paid sabbaticals, paid leave to care for family members, and access to fertility networks and discounts on fertility care. We review our programs periodically to ensure they remain competitive to retain, motivate, and reward current employees and attract new employees.

Health, Safety, and Wellness. We are committed to providing a safe workplace for our employees and assisting them in maintaining a healthy work-life balance. We regularly solicit feedback to assess the well-being and needs of our employees and offer resources focused on mental health and physical wellness. Our office locations are intentional spaces where we fuel connection, innovation, collaboration, and celebrate successes together. We have embraced a work model where many of our employees work out of one of our offices several days a week and others work remotely.

Available Information

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the public on the SEC’s website at www.sec.gov.

Our website address is www.appfolio.com. We make available, free of charge, on or through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The contents of our website are not incorporated by reference in, or otherwise made a part of, this Annual Report.