PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS


~~ITEM 1.~~	~~FINANCIAL STATEMENTS~~

APPIAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

As of
September 30,
2017 As of
December 31,
2016
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 72,289
$ 31,143
Accounts receivable, net of allowance of $400 41,399
46,814
Deferred commissions, current 7,719
7,146
Prepaid expenses and other current assets 6,318
3,281
Total current assets 127,725
88,384
Property and equipment, net 2,737
3,101
Deferred commissions, net of current portion 11,343
10,860
Deferred tax assets 107
12
Other assets 414
381
Total assets $ 142,326
$ 102,738
Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable $ 2,712
$ 5,057
Accrued expenses 5,977
2,860
Accrued compensation and related benefits 9,742
9,554
Deferred revenue, current 57,181
52,000
Current portion of long-term debt —
6,111
Other current liabilities 574
437
Total current liabilities 76,186
76,019
Long-term debt, net of current portion —
13,889
Deferred tax liabilities 35
32
Deferred revenue, net of current portion 14,577
18,108
Preferred stock warrant liability —
850
Other long-term liabilities 1,624
1,917
Total liabilities 92,422
110,815
Convertible preferred stock
Series A convertible preferred stock—par value $0.0001; no shares authorized, issued or outstanding as of September 30, 2017; 12,127,468 shares authorized and 12,043,108 shares issued and outstanding as of December 31, 2016 —
17,915
Series B convertible preferred stock—par value $0.0001; no shares authorized, issued or outstanding as of September 30, 2017; 6,120,050 shares authorized, issued and outstanding as of December 31, 2016 —
37,500
Stockholders’ equity (deficit)
Common stock—par value $0.0001; no shares authorized, issued or outstanding as of September 30, 2017; 61,462,320 shares authorized and 34,274,718 shares issued and outstanding as of December 31, 2016 —
3
Class A common stock—par value $0.0001; 500,000,000 shares authorized and 7,203,271 shares issued and outstanding as of September 30, 2017; no shares authorized, issued or outstanding as of December 31, 2016 1
—
Class B common stock—par value $0.0001; 100,000,000 shares authorized and 53,073,459 shares issued and outstanding as of September 30, 2017; no shares authorized, issued or outstanding as of December 31, 2016 5
—
Additional paid-in capital 138,767
—
Accumulated other comprehensive income 451
1,330
Accumulated deficit (89,320 ) (64,825 )
Total stockholders’ equity (deficit) 49,904
(63,492 )
Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 142,326
$ 102,738

~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~

~~APPIAN CORPORATION AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(in thousands, except share and per share data)~~

~~(unaudited)~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenue:
Subscriptions, software and support $ 22,660
$ 17,668
$ 66,116
$ 50,607
Professional services 21,988
13,077
60,059
48,569
Total revenue 44,648
30,745
126,175
99,176
Cost of revenue:

Subscriptions, software and support 2,341
1,890
6,891
5,508
Professional services 14,272
9,315
39,049
34,016
Total cost of revenue 16,613
11,205
45,940
39,524
Gross profit 28,035
19,540
80,235
59,652
Operating expenses:

Sales and marketing 19,725
14,480
59,503
39,477
Research and development 8,596
6,702
25,867
16,925
General and administrative 6,237
4,531
19,721
12,779
Total operating expenses 34,558
25,713
105,091
69,181
Operating loss (6,523 ) (6,173 ) (24,856 ) (9,529 )
Other (income) expense:

Other (income) expense, net (425 ) (67 ) (1,658 ) 129
Interest (income) expense (2 ) 243
451
726
Total other (income) expense (427 ) 176
(1,207 ) 855
Net loss before income taxes (6,096 ) (6,349 ) (23,649 ) (10,384 )
Income tax expense (benefit) 188
(1,610 ) 489
(2,106 )
Net loss (6,284 ) (4,739 ) (24,138 ) (8,278 )
Accretion of dividends on convertible preferred stock —
214
357
642
Net loss attributable to common stockholders $ (6,284 ) $ (4,953 ) $ (24,495 ) $ (8,920 )
Net loss per share attributable to common stockholders:

Basic and diluted $ (0.10 ) $ (0.14 ) $ (0.53 ) $ (0.26 )
Weighted average common shares outstanding:

Basic and diluted 60,204,596
34,274,718
45,855,044
34,274,718


	As of
	June 30, 2021		December 31, 2020
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	131,279	$	112,462
Short-term investments and marketable securities	111,324		109,826
Accounts receivable, net of allowance of $1,400 as of each of June 30, 2021 and December 31, 2020	82,301		97,278
Deferred commissions, current	20,162		17,899
Prepaid expenses and other current assets	28,074		27,955
Total current assets	373,140		365,420
Property and equipment, net	34,064		35,404
Long-term investments	7,048		36,120
Goodwill	4,707		4,862
Intangible assets, net of accumulated amortization of $623 and $429 as of June 30, 2021 and December 31, 2020, respectively	1,480		1,744
Operating right-of-use assets	30,528		30,659
Deferred commissions, net of current portion	39,275		34,198
Deferred tax assets	607		489
Other assets	3,066		3,625
Total assets	$	493,915	$	512,521
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	5,020	$	2,967
Accrued expenses	7,276		5,821
Accrued compensation and related benefits	25,699		22,981
Deferred revenue, current	113,805		116,256
Operating lease liabilities, current	7,854		6,923
Other current liabilities	6		940
Total current liabilities	159,660		155,888
Operating lease liabilities, net of current portion	50,185		51,194
Deferred revenue, net of current portion	2,905		3,886
Deferred tax liabilities	35		70
Other non-current liabilities	4,784		4,878
Total liabilities	217,569		215,916
Stockholders’ equity
Class A common stock—par value $0.0001; 500,000,000 shares authorized and 39,581,079 shares issued and outstanding as of June 30, 2021; 500,000,000 shares authorized and 38,971,324 shares issued and outstanding as of December 31, 2020	4		4
Class B common stock—par value $0.0001; 100,000,000 shares authorized and 31,499,516 shares issued and outstanding as of June 30, 2021; 100,000,000 shares authorized and 31,707,866 shares issued and outstanding as of December 31, 2020	3		3
Additional paid-in capital	485,079		470,498
Accumulated other comprehensive loss	(2,438)		(5,010)
Accumulated deficit	(206,302)		(168,890)
Total stockholders’ equity	276,346		296,605
Total liabilities and stockholders’ equity	$	493,915	$	512,521

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

APPIAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE LOSS~~OPERATIONS

(~~in thousands)~~

~~(unaudited)~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net loss $ (6,284 ) $ (4,739 ) $ (24,138 ) $ (8,278 )
Comprehensive loss, net of income taxes:
Foreign currency translation adjustment 517
(177 ) (879 ) (537 )
Total other comprehensive loss, net of income taxes $ (5,767 ) $ (4,916 ) $ (25,017 ) $ (8,815 )

~~The accompanying notes are an integral part of these~~ unaudited, ~~condensed consolidated financial statements.~~

~~APPIAN CORPORATION AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)~~

(in thousands, except share and per share data)

~~(unaudited)~~

Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity (Deficit)
Common Stock
Additional
Paid-In Capital
Accumulated Deficit
Shares Amount
Balance, January 1, 2017 34,274,718
$ 3
$ —
$ 1,330
$ (64,825 ) $ (63,492 )
Net loss —
—
—
—
(24,138 ) (24,138 )
Accretion of dividends on convertible preferred stock —
—
—
—
(357 ) (357 )
Conversion of convertible preferred stock to common stock 18,163,158
2
48,205
—
—
48,207
Conversion of convertible preferred stock warrant to common stock warrant —
—
1,191
—
—
1,191
Issuance of common stock from initial public offering, net of issuance costs 7,187,500
1
77,788
—
—
77,789
Exercise of common stock warrant 79,363
—
—
—
—
—
Issuance of common stock to directors 10,841
—
—
—
—
—
Vesting of restricted stock units 4,930
—
—
—
—
—
Exercise of stock options 556,220
—
664
—
—
664
Stock-based compensation expense —
—
10,919
—
—
10,919
Other comprehensive loss —
—
—
(879 ) —
(879 )
Balance, September 30, 2017 60,276,730
$ 6
$ 138,767
$ 451
$ (89,320 ) $ 49,904

~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~

~~APPIAN CORPORATION AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

~~(unaudited)~~

Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (24,138 ) $ (8,278 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 673
567
Bad debt expense —
4
Deferred income taxes (91 ) (883 )
Stock-based compensation 10,919
—
Fair value adjustment for warrant liability 341
200
Loss on extinguishment of debt 384
—
Changes in assets and liabilities:
Accounts receivable 4,329
6,208
Prepaid expenses and other assets (3,184 ) (2,360 )
Deferred commissions (1,056 ) (1,389 )
Accounts payable and accrued expenses 1,202
(2,931 )
Accrued compensation and related benefits (339 ) 1,617
Other current liabilities (75 ) (1,377 )
Deferred revenue 1,043
374
Other long-term liabilities (143 ) 433
Net cash used in operating activities (10,135 ) (7,815 )
Cash flows from investing activities:
Purchases of property and equipment (295 ) (935 )
Net cash used in investing activities (295 ) (935 )
Cash flows from financing activities:
Proceeds from initial public offering, net of underwriting discounts 80,213
—
Payment of deferred initial public offering costs (2,424 ) —
Payment of dividend to Series A preferred stockholders (7,565 ) —
Proceeds from exercise of common stock options 664
—
Proceeds from issuance of long-term debt, net of debt issuance costs 19,616
20,000
Repayment of long-term debt (40,000 ) (10,000 )
Net cash provided by financing activities 50,504
10,000
Effect of foreign exchange rate changes on cash and cash equivalents 1,072
(907 )
Net increase in cash and cash equivalents 41,146
343
Cash and cash equivalents, beginning of period 31,143
31,393
Cash and cash equivalents, end of period $ 72,289
$ 31,736
Supplemental disclosure of cash flow information:
Cash paid for interest $ —
$ 643
Cash paid for income taxes $ 484
$ 580
Supplemental disclosure of non-cash financing activities:
Conversion of convertible preferred stock to common stock $ 48,207
$ —
Conversion of convertible preferred stock warrant to common stock warrant $ 1,191
$ —
Accretion of dividends on convertible preferred stock $ 357
$ 642


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue
Subscriptions	$	56,946	$	41,418	$	120,712	$	91,854
Professional services	26,053		25,357		51,142		53,785
Total revenue	82,999		66,775		171,854		145,639
Cost of revenue
Subscriptions	6,860		4,701		12,714		10,084
Professional services	18,975		16,455		36,650		35,191
Total cost of revenue	25,835		21,156		49,364		45,275
Gross profit	57,164		45,619		122,490		100,364
Operating expenses
Sales and marketing	40,520		29,086		76,504		63,258
Research and development	23,862		17,178		44,552		33,216
General and administrative	17,358		11,450		36,500		24,591
Total operating expenses	81,740		57,714		157,556		121,065
Operating loss	(24,576)		(12,095)		(35,066)		(20,701)
Other (income) expense
Other (income) expense, net	(1,081)		(682)		1,812		2,432
Interest expense	80		128		161		271
Total other (income) expense	(1,001)		(554)		1,973		2,703
Loss before income taxes	(23,575)		(11,541)		(37,039)		(23,404)
Income tax expense	250		274		373		80
Net loss	$	(23,825)	$	(11,815)	$	(37,412)	$	(23,484)
Net loss per share:
Basic and diluted	$	(0.34)	$	(0.17)	$	(0.53)	$	(0.35)
Weighted average common shares outstanding:
Basic and diluted	70,952,917		68,369,823		70,842,263		67,949,270

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

APPIAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited, in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net loss	$	(23,825)	$	(11,815)	$	(37,412)	$	(23,484)
Comprehensive (loss) income, net of income taxes
Foreign currency translation adjustment	(1,474)		(214)		2,541		(197)
Unrealized gains on available-for-sale securities	23		0		31		0
Total other comprehensive loss, net of income taxes	$	(25,276)	$	(12,029)	$	(34,840)	$	(23,681)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

APPIAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(unaudited, in thousands, except share data)


						Accumulated Other Comprehensive (Loss) Income				Total Stockholders' Equity
	Common Stock			Additional Paid-In Capital				Accumulated Deficit
	Shares	Amount
Balance, January 1, 2021	70,679,190	$	7	$	470,498	$	(5,010)	$	(168,890)	$	296,605
Net loss	—	—		—		—		(13,587)		(13,587)
Issuance of common stock to directors	960	—		—		—		—		—
Vesting of restricted stock units	56,326	—		—		—		—		—
Exercise of stock options	88,269	—		625		—		—		625
Stock-based compensation expense	—	—		7,894		—		—		7,894
Other comprehensive income	—	—		—		4,023		—		4,023
Balance, March 31, 2021	70,824,745	7		479,017		(987)		(182,477)		295,560
Net loss	—	—		—		—		(23,825)		(23,825)
Issuance of common stock to directors	1,175	—		—		—		—		—
Vesting of restricted stock units	43,024	—		—		—		—		—
Exercise of stock options	211,651	—		1,464		—		—		1,464
Stock-based compensation expense	—	—		4,598		—		—		4,598
Other comprehensive loss	—	—		—		(1,451)		—		(1,451)
Balance, June 30, 2021	71,080,595	$	7	$	485,079	$	(2,438)	$	(206,302)	$	276,346

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

APPIAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(unaudited, in thousands, except share data)


						Accumulated Other Comprehensive (Loss) Income				Total Stockholders' Equity
	Common Stock			Additional Paid-In Capital				Accumulated Deficit
	Shares	Amount
Balance, January 1, 2020	67,468,022	$	6	$	340,929	$	(285)	$	(135,413)	$	205,237
Net loss	—	—		—		—		(11,669)		(11,669)
Issuance of common stock to directors	1,946	—		—		—		—		—
Vesting of restricted stock units	46,031	—		—		—		—		—
Exercise of stock options	129,082	—		670		—		—		670
Stock-based compensation expense	—	—		3,476		—		—		3,476
Other comprehensive income	—	—		—		17		—		17
Balance, March 31, 2020	67,645,081	6		345,075		(268)		(147,082)		197,731
Net loss	—	—		—		—		(11,815)		(11,815)
Issuance of common stock from public offering, net of issuance costs	1,931,206	1		107,914		—		—		107,915
Issuance of common stock to directors	2,296	—		—		—		—		—
Vesting of restricted stock units	13,567	—		—		—		—		—
Exercise of stock options	248,165	—		1,571		—		—		1,571
Stock-based compensation expense	—	—		3,614		—		—		3,614
Other comprehensive loss	—	—		—		(214)		—		(214)
Balance, June 30, 2020	69,840,315	$	7	$	458,174	$	(482)	$	(158,897)	$	298,802

APPIAN CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(37,412)	$	(23,484)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,561		2,980
Bad debt expense	32		200
Loss on disposal of property and equipment	0		22
Change in fair value of available-for-sale securities	(31)		0
Deferred income taxes	(144)		(168)
Stock-based compensation	12,492		7,090
Changes in assets and liabilities:
Accounts receivable	16,720		(2,084)
Prepaid expenses and other assets	243		1,922
Deferred commissions	(7,340)		(295)
Accounts payable and accrued expenses	3,000		(1,674)
Accrued compensation and related benefits	2,808		2,575
Other current and non-current liabilities	(563)		1,271
Deferred revenue	(1,791)		2,310
Operating lease liabilities	52		2,378
Net cash used in operating activities	(9,373)		(6,957)
Cash flows from investing activities:

Proceeds from sale of investments	27,604		0
Payments for acquisitions, net of cash acquired	0		(6,138)
Purchases of property and equipment	(1,027)		(686)
Net cash provided by (used in) investing activities	26,577		(6,824)
Cash flows from financing activities:
Principal payments on finance leases	0		(716)
Proceeds from public offering, net of underwriting discounts	0		108,260
Payments of costs related to public offerings	0		(18)
Proceeds from exercise of common stock options	2,089		2,242
Net cash provided by financing activities	2,089		109,768
Effect of foreign exchange rate changes on cash and cash equivalents	(476)		404
Net increase in cash and cash equivalents	18,817		96,391
Cash and cash equivalents, beginning of period	112,462		159,755
Cash and cash equivalents, end of period	$	131,279	$	256,146
Supplemental disclosure of cash flow information:
Cash paid for interest	$	173	$	88
Cash paid for income taxes	$	806	$	139

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization and Description of Business


1.	~~Organization and Description of Business~~

Appian Corporation (together with its subsidiaries, “Appian,” the “Company,” ~~“we”~~“we,” or “our”) ~~provides~~helps organizations build applications and workflows rapidly, with a ~~leading~~ low-code ~~software development platform that enables organizations to rapidly develop powerful~~automation platform. Combining people, technologies, and ~~unique applications. The applications created on our platform~~data in a single workflow, Appian can help companies ~~drive digital transformation~~maximize their resources and ~~competitive differentiation.~~improve business results. Many of the world’s largest organizations use Appian applications to improve customer experience, achieve operational excellence, and simplify global risk management and compliance. We were incorporated in the state of Delaware in August 1999. We are headquartered in ~~Reston,~~McLean, Virginia and ~~have offices~~operate in Canada, Switzerland, the United Kingdom, France, Germany, the Netherlands, Italy, Australia, Spain, Singapore, and ~~Australia.~~Sweden.


2.	~~Significant Accounting Policies~~

2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States ~~of America~~ (“U.S. GAAP”) as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ~~(the “Codification” or “ASC”~~(“ASC”) for interim financial information. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ equity, ~~(deficit)~~ and cash flows. The results of operations for the current period are not necessarily indicative of the results for the full year or the results for any future periods. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in our ~~final prospectus~~Annual Report on Form 10-K for ~~our initial public offering (“IPO”) dated as of May 24, 2017 and~~the year ended December 31, 2020, filed with the Securities and Exchange Commission (the “SEC”) ~~pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.~~on February 18, 2021.

Use of Estimates

The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Although we believe ~~that~~ the estimates we use are reasonable, due to the inherent uncertainty involved in making these estimates, actual results reported in future periods could differ from those estimates.

Significant estimates embedded in the condensed consolidated financial statements include revenue recognition, income taxes and the related valuation allowance, the valuation of goodwill and intangible assets, leases, costs to obtain a contract with a customer, the valuation of financial instruments, and stock-based ~~compensation~~compensation.

The ongoing outbreak of the novel coronavirus disease ("COVID-19") has resulted in the declaration of a global pandemic and ~~fair~~introduced a level of disruption and uncertainty into the financial markets and global economy. While we continue to monitor the developments surrounding the pandemic, as of the date of issuance of these financial statements, we are not aware of any specific events or circumstances that would require us to update our estimates, assumptions, and judgments or revise the carrying value ~~measurements for~~of our ~~common stock~~assets or liabilities. We cannot estimate the impacts COVID-19 will have on our business going forward as such impacts will be largely dependent upon a number of factors outside of our control including the extent and ~~preferred stock warrant.~~duration of the outbreak as well as any mitigating actions which may be undertaken by global governments and the general public.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Appian and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

~~Initial~~

Public Offering

In ~~May 2017,~~June 2020, we completed an ~~IPO in which we sold 7,187,500~~underwritten public offering of 2,500,000 shares of our ~~newly-authorized~~ Class A common stock, ~~at an initial price to the public~~ of $12.00 per share. We received net proceeds of $77.8 million, after deducting underwriting discounts and commissions and offering expenses paid and payable by us, from sales of our shares in the IPO. Immediately prior to the completion of the IPO, (1) all shares of common stock then outstanding were converted into Class B common stock on a one-for-one basis, (2) a warrant to purchase shares of convertible preferred stock was converted into a warrant to purchasewhich 1,931,206 shares of Class BA common stock were sold by us and ~~(3) all shares of convertible preferred stock then outstanding were converted into shares of our common stock on a one-for-one basis, and then reclassified as~~568,794 shares of Class BA common ~~stock. See Note 7 for further discussion~~stock were sold by existing stockholders. The underwriter purchased the shares from us and the selling stockholders at a price of ~~the convertible preferred stock and Note 8 for further discussion of the warrant.~~$56.50 per share. Our net

Deferred offering costs of $2.4 million, consisting of legal, accounting and other fees and costs related to our IPO, were recorded to additional paid-in capital as a reduction of the proceeds upon the closing of our IPO.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(CONTINUED)~~

(UNAUDITED)

~~Revenue Recognition~~

proceeds from the offering were $107.9 million, after deducting underwriting discounts and commissions and offering expenses. We ~~generate revenue primarily through sales of subscriptions to our platform, as well as professional services. We recognize revenue when all~~did not receive any of the following conditions are met: (1) there is persuasive evidence of an arrangement; (2) the service or product has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of related fees is reasonably assured. If collection is not reasonably assured, we defer revenue recognition until collectability becomes reasonably assured. Our arrangements do not contain general rights of return. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.

~~Subscriptions, Software and Support Revenue~~

Subscriptions, software and support revenue is primarily related to (1) software as a service (“SaaS”) subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support. To a lesser extent, we also generate revenueproceeds from the sale of ~~perpetual software licenses and associated maintenance and support.~~shares by the selling stockholders.

~~Historically, we licensed our software primarily under perpetual licenses, but over time we transitioned from perpetual licenses~~

Revenue Recognition

Refer to ~~subscriptions. As~~Note 3 for a ~~result,~~detailed discussion on specific revenue ~~from our perpetual software licenses was less than 1.0% of our total revenue for the three and nine months ended September 30, 2017 and September 30, 2016.~~

We generally charge subscription fees on a per-user basis. We bill customers and collect payment for subscriptions to our platform in advance on a monthly, quarterly or annual basis. In certain instances, we have had customers pay their entire contract up front.

~~SaaS Subscriptions~~

Our SaaS subscription revenue is derived from customers accessing our cloud offering pursuant to contracts that are generally one to five years in length. We perform all required maintenance and support for our cloud offering and we do not separately charge customers for hosting costs. In these arrangements, our customers do not have the right to take the software on-premises and, as a result, such arrangements are not accounted for within the scope of the software revenue guidance. Revenue from SaaS subscriptions is recognized ratably over the term of the subscription, beginning with the date our service is made available to our customer.

~~Term License Subscriptions~~

Our term license subscription revenue is derived from customers with on-premises installations of our platform pursuant to contracts that are generally one to five years in length. Customers with term license subscriptions have the right to use our software and receive maintenance and support. Since we do not sell maintenance and support separately from the subscription, revenue for the term license subscription and maintenance and support is recognized ratably over the term of the subscription, upon delivery of the platform to the customer when sold on a standalone basis.

~~Perpetual Licenses~~

Our perpetual license revenue is derived from customers with perpetual licenses to our platform and associated maintenance and support contracts. We recognize revenue from perpetual licenses on the date of delivery to our customer. We sell maintenance and support to perpetual license customers separately from the perpetual licenses pursuant to agreements that generally renew annually. Maintenance and support revenue is deferred and recognized ratably over the term of the support period.

~~Professional Services~~

~~Our professional services revenue is comprised of fees for consulting services, including application development and deployment assistance and training~~recognition principles related to our platform. Our professional services are not essential to the functionality of our platform because the platform is ready for the customer’s use immediately upon delivery and is not modified or customized in any manner.major revenue streams.

~~APPIAN CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(UNAUDITED)~~

Consulting services are billed under both time-and-material and fixed-fee arrangements. For standalone time-and-material contracts, we recognize revenue at contractually agreed upon billing rates applied to hours performed, plus the cost of any materials delivered. For standalone fixed-fee contracts, we also recognize revenue as the work is performed using the proportional performance method of accounting. Training revenue is recognized when the associated training services are delivered. Training is also sold in the form of a subscription arrangement where a customer agrees to pay an annual fixed fee for a fixed number of users to have access to all of our training offerings during the year. Revenue from training subscription agreements is recognized ratably over the subscription period.

We defer recognition of revenue from work performed on pending contract modifications until the period in which the modifications are accepted and funding is approved by the customer. Costs of work performed on pending contract modifications are expensed as incurred.

~~Multiple Element Arrangements~~

Our multiple element arrangements are from SaaS subscriptions, term license subscriptions, and perpetual licenses that are generally sold in combination with maintenance and support service and frequently with professional services.

~~SaaS Subscriptions~~

For multiple element arrangements involving SaaS subscriptions that include professional services in addition to the subscription to our platform, we evaluate each element to determine whether it represents a separate unit of accounting. Because there are third-party vendors who routinely sell and provide the same professional services to our customers, our professional services are deemed to have standalone value apart from the SaaS subscription. Additionally, we offer both SaaS subscriptions and professional services on a standalone basis. Professional services revenue is therefore accounted for separately from subscription fees and recognized as the professional services are performed. We allocate revenue to the elements based on the selling price hierarchy using vendor-specific objective evidence (“VSOE”) of selling price, third-party evidence (“TPE”) of selling price, or if neither exists, best estimated selling price (“BESP”). In cases where we do not have VSOE or TPE of the elements of our arrangements, we use BESP to allocate revenue. We determine BESP for a service by considering multiple factors including, but not limited to, evaluating the weighted average of actual sales prices and other factors such as gross margin objectives, pricing practices and growth strategy. Pricing practices taken into consideration include historic contractually stated prices, volume discounts where applicable and our price lists. While we believe we can make reliable estimates regarding these matters, these estimates are inherently subjective. Once the revenue is allocated to these elements, revenue is recognized as such services are provided.

~~Term License Subscriptions~~

For multiple element arrangements involving term license subscriptions, maintenance and support and professional services, we do not have VSOE of fair value for the maintenance and support. Our term license subscriptions are generally not sold on a standalone basis, and therefore, we have not established VSOE of fair value for the subscriptions. Consequently, for our bundled arrangements that include certain professional services, there are two undelivered elements for which VSOE of fair value has not been established and, therefore, we utilize the combined services approach and defer all revenue until the software has been delivered and the provision of all services has commenced. We then recognize the entire fee from the arrangement ratably over the remaining period of the arrangement, assuming all other software revenue recognition criteria have been met.

~~Perpetual Licenses~~

For multiple element arrangements involving our perpetual software licenses, we allocate revenue to the software license arrangement by determining if VSOE of fair value exists for the undelivered elements, which are usually maintenance and support and professional services. In situations where VSOE of fair value exists for the undelivered elements, we apply the residual method whereby the fees allocated to license revenue are recognized upon delivery, the fees allocated to maintenance and support revenue are recognized over the service period and the fees allocated to professional services and training are recognized as performed. In instances where we lack VSOE of fair value for the undelivered elements, revenue is either deferred until the final element is delivered or recognized ratably over the service period when the only undelivered elements are either professional services or maintenance and support. We have VSOE for maintenance and support elements and professional services elements performed on a time and materials basis. VSOE of fair value is based upon the price charged

~~APPIAN CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(UNAUDITED)~~

when the same element is sold separately. In determining VSOE of fair value, we require that a substantial majority of the selling prices fall within a reasonably narrow pricing range. We reassess VSOE annually or more frequently if required.

~~Deferred Revenue~~

Deferred revenue primarily consists of amounts billed or billable in advance of revenue recognition from our subscriptions, software, and support and professional services described above. Deferred revenue is recognized as the revenue recognition criteria are met.

Cost of Revenue

~~Cost of~~

Subscriptions ~~Software and Support Revenue~~

Cost of subscriptions ~~software and support~~ revenue consists primarily of fees paid to our third-party managed hosting providers and other third-party service providers, personnel costs ~~including~~such as payroll and benefits for our technology operations and customer support teams, and allocated facility costs and overhead.

~~Cost of~~

Professional Services ~~Revenue~~

Cost of professional services revenue includes all direct and indirect costs to deliver our professional services and training, including employee compensation for our global professional services and training personnel, ~~travel costs,~~ third-party contractor costs, allocated facility costs and overhead, and the costs of billable expenses such as travel and lodging. The unpredictability of the timing of entering into significant professional services agreements sold on a standalone basis may cause significant fluctuations in our quarterly financial results and allocated facility costs and overhead.

Concentration of Credit and Customer Risk

Our financial instruments ~~that are~~ exposed to concentration of credit and customer risk consist primarily of cash and cash equivalents, ~~and~~ trade accounts ~~receivable. Cash deposits~~receivable, and our short- and long-term investments. Deposits held with banks may ~~be in excess~~exceed the amount of ~~insured limits.~~insurance provided on such deposits. We believe ~~that~~ the financial institutions ~~that hold~~holding our cash deposits are financially sound and, accordingly, minimal credit risk exists with respect to these balances.

With regard to our customers, credit evaluation and account monitoring procedures are used to minimize the risk of loss. We believe ~~that~~ no additional credit risk beyond amounts provided for collection loss are inherent in accounts receivable. Revenue generated from government agencies represented ~~14.2%~~19.8% and ~~15.4%~~20.4% of our revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, respectively, of which the top ~~three~~3 U.S. federal government agencies generated ~~7.7% and 9.1%~~6.5% of our revenue for each of the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively.~~2021. Additionally, ~~28.6%~~35.3% and ~~25.6%~~33.7% of our revenue during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, respectively, was generated from foreign customers. Revenue generated from government agencies represented ~~19.4%~~19.0% and ~~28.5%~~16.8% of our revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, respectively, of which the top ~~three~~3 U.S. federal government agencies generated ~~13.1%~~7.6% and ~~19.5%~~6.7% of our revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, respectively. Additionally, ~~23.1%~~36.8% and ~~18.6%~~35.0% of our revenue during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, respectively, was generated from foreign customers.

~~Federal government agencies accounted for 9.1%~~

Cash and ~~17.2%~~Cash Equivalents

We consider all highly liquid investments with an original or remaining maturity of ~~accounts receivable~~three months or less at ~~September 30, 2017 and December 31, 2016, respectively.~~the date of purchase, as well as overnight repurchase agreements, to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at realizable value, net of an allowance for doubtful accounts. The allowance for doubtful accounts is based on our assessment of the collectability of ~~accounts.~~accounts and incorporates an estimation of expected lifetime credit losses on our receivables. We regularly review the composition of the accounts receivable aging, historical bad debts, changes in payment patterns, customer creditworthiness, and current economic trends. If the financial condition of our customers were to deteriorate, resulting in their inability to make required payments, additional provisions for doubtful accounts would be required and would increase bad debt expense. ~~To date, our allowance and related bad debt write-offs have been nominal.~~ There was ~~no change~~0 increase in the allowance for doubtful accounts from December 31, ~~2016~~2020 to ~~September~~June 30, ~~2017.~~2021.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(CONTINUED)~~

(UNAUDITED)

~~Deferred Commissions~~Assets Recognized from the Costs to Obtain a Contract with a Customer

~~Deferred commissions are~~

We capitalize the incremental costs ~~that are directly associated~~of obtaining a contract with ~~subscription agreements with customers and consist of~~a customer, including sales commissions paid to our direct sales ~~force.~~force, that are incremental costs to obtaining customer contracts. These costs are recorded as deferred commissions in the condensed consolidated balance sheets. Costs to obtain a contract for a new customer or upsell are amortized over an estimated economic life of five years as sales commissions on initial sales are not commensurate with sales commissions on contract renewals. We determine the estimated economic life based on both qualitative and quantitative factors such as expected renewals, product life cycles, contractual terms, and customer attrition. We periodically review the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the estimated economic life. Commissions ~~are considered direct and incremental and as such~~paid relating to contract renewals are deferred and amortized over the ~~terms~~related renewal period. We also capitalize the incremental fringe benefits associated with commission expenses paid to our direct sales force. Costs to obtain a contract for professional services arrangements are expensed as incurred as the contractual period of ~~the related customer contracts consistent~~our professional services arrangements are one year or less.

Amortization associated with ~~the related revenue. Amortization of deferred commissions~~commission expense is ~~included in~~recorded to sales and marketing ~~expense~~costs in ~~the accompanying~~our condensed consolidated statements of operations. Commission expense was ~~$3.2~~$7.5 million and ~~$8.5~~$14.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, respectively. Commission expense was ~~$1.8~~$5.8 million and ~~$5.4~~$11.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, respectively.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Significant additions or improvements extending the useful life of an asset are capitalized, while repairs and maintenance costs which do not significantly improve the related assets or extend their useful lives are charged to expense as incurred.

The following table outlines the useful lives of our major asset categories:


Asset Category						Useful Life (in years)
Computer software						3
Computer hardware						3
Equipment						5
Office furniture and fixtures						10
Leasehold improvements						(a)

(a) Leasehold improvements have an estimated useful life of the shorter of the useful life of the assets or the lease term.

Impairment of Long-Lived Assets

Long-lived assets and certain intangible assets are reviewed for impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable through undiscounted cash flows from the use of the assets. If such assets are considered to be impaired, the assets are written down to their estimated fair value. No indicators of impairment were identified for the three and six months ended June 30, 2021 and 2020.

Investments and Fair Value of Financial Instruments

~~The carrying amounts of~~

Refer to Note 14 for a detailed discussion on our ~~cash~~policies specific to investments and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value as of September 30, 2017 and December 31, 2016 because of the relatively short duration of these instruments. The carrying value of our long-term debt as of December 31, 2016 approximated fair value given interest rates for similar debt instruments available to the Company.

We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires us to use observable inputs when available, and to minimize the use of unobservable inputs when determining fair value. ~~The three tiers are defined as follows:~~

~~Level 1.~~ ~~Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities;~~

~~Level 2.~~ ~~Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and~~

~~Level 3.~~ ~~Unobservable inputs for which there is little or no market data, which require us to develop our own assumptions.~~

~~Assets and Liabilities Measured at Fair Value on a Recurring Basis~~

We evaluate our financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. After the reclassification of the convertible preferred stock warrant in May 2017, we did not have any assets or liabilities subject to fair value measurements as of September 30, 2017. See Note 8 for further discussion of the warrant reclassification. The following table summarizes the conclusions reached as of December 31, 2016 (in thousands):

December 31, 2016 Level 1 Level 2 Level 3
Liabilities:
Series A convertible preferred stock warrant(1) $ 850
$ —
$ —
$ 850
$ 850
$ —
$ —
$ 850

~~_______________________________________________~~

~~(1)~~

In order to determine the fair value of the convertible preferred stock warrant, we used the Black-Scholes option pricing model (“OPM”). Significant inputs for the OPM included an estimate of the fair value of the Series A convertible preferred stock, the remaining contractual life of the warrant, an estimate of the timing of a liquidity event, a risk-free rate of interest and an estimate of our stock volatility using the volatilities of guideline peer companies.

~~Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs~~

~~There were no changes in our Level 3 instruments measured at fair value on a recurring basis during the three months ended September 30, 2017 and 2016.~~

~~APPIAN CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(UNAUDITED)~~

~~The following table presents the changes in our Level 3 instruments measured at fair value on a recurring basis during the nine months ended September 30, 2017 and 2016 (in thousands):~~

Nine Months Ended September 30,
2017 2016
Balance as of January 1 $ 850
$ 650
Change in fair value of warrant liability 341
200
Reclassification of warrant liability to equity (1,191 ) —
Balance as of September 30 $ —
$ 850

Stock-Based Compensation

We account for stock-based compensation expense related to stock-based awards based on the estimated fair value of the award on the grant date. We calculate the fair value of stock options containing only a service condition using the Black-Scholes ~~OPM.~~option pricing model. The fair value of restricted stock units ("RSUs") is based on the closing market price of our

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

common stock on the Nasdaq Global Market on the date of grant. For service-based awards such as RSUs, stock-based compensation expense is recognized on a straight-line basis over the requisite service period. For performance-based awards, stock-based compensation expense is recognized using the accelerated attribution method based on the probability of satisfying the performance condition. For awards that contain market conditions, compensation expense is measured using a Monte Carlo simulation ~~model~~ and recognized using the accelerated attribution method over the derived service period based on the expected market performance as of the grant date. ~~For restricted stock units, stock-based compensation expense is recognized on a straight-line basis over the requisite service period.~~

As discussed in “—Recent Accounting Pronouncements,” we have elected to early adopt Accounting Standards Update (“ASU”) No. 2016-9, which, among other things, permits an entity to make an entity-wide policy election to either (1) estimate the number of awards that are expected to vest or (2) account for forfeitures when they occur. We ~~have elected to~~ account for forfeitures as they occur rather than ~~estimate~~estimating expected forfeitures.

~~Emerging Growth Company Status~~

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). The JOBS Act provides that an emerging growth company can take advantage of an extended transition periodLeases

Refer to Note 4 for ~~complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply~~a detailed discussion on our policies specific to private companies. We have elected to avail ourselves of this extended transition period and, as a result, we will not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.leasing arrangements.

Recent Accounting Pronouncements

Adopted

In ~~August 2014,~~December 2019, the FASB issued ~~ASU No. 2014-15,~~ ~~Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern~~ ~~(“ASU 2014-15”~~Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which amends ~~ASC Subtopic 205-40~~and aims to ~~provide~~simplify accounting disclosure requirements regarding a number of topics including, but not limited to, intraperiod tax allocations, accounting for deferred taxes when there are changes in the consolidation of certain investments, tax basis step ups in an acquisition, and the application of effective rate changes during interim periods. This guidance ~~about management’s responsibility to evaluate whether there~~ is ~~substantial doubt about an entity’s ability to continue as a going concern~~effective for fiscal years, and ~~to provide related disclosures. Specifically, the amendments (1) provide a definition~~interim periods within those fiscal years, beginning after December 15, 2020. The adoption of the term “substantial doubt,” (2) require an evaluation of every reporting period, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated and (6) require an assessment for a period of one year after the date that financial statements are issued. ASU 2014-15 was effective for our year ended December 31, 2016, and its adoptionnew guidance did not have a material impact on our consolidated financial ~~condition, results of operations or cash flows.~~statements.

Not Yet Adopted

In ~~April 2015,~~March 2020, the FASB issued ASU ~~No. 2015-3,~~ ~~Simplifying~~2020-04, Reference Rate Reform - Facilitation of the ~~Presentation~~Effects of ~~Debt Issuance Costs~~ ~~(“ASU 2015-3”)~~Reference Rate Reform on Financial Reporting (Topic 848), which ~~simplifies~~provides temporary optional expedients and exceptions to the ~~presentation~~GAAP guidance on contract modifications to ease the financial reporting burdens of ~~debt~~the expected market transition from LIBOR and other interbank offered rates to alternative reference rates such as the Secured Overnight Financing Rate ("SOFR"). This guidance is effective upon issuance ~~costs by requiring that such costs~~and generally can be ~~presented in~~applied through the ~~condensed consolidated balance sheets~~end of calendar year 2022. We are currently evaluating the impact and applicability of this new standard.

3. Revenue

Revenue Recognition

We generate subscriptions revenue primarily through the sale of software as a ~~direct deduction~~service ("SaaS") subscriptions bundled with maintenance and support and hosting services as well as term license subscriptions bundled with maintenance and support. We generate professional services revenue from fees for our consulting services, including application development and deployment assistance as well as training related to our platform.

The following table summarizes revenue from contracts with customers for the ~~carrying value~~three and six months ended June 30, 2021 and 2020 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
SaaS subscriptions	$	42,486	$	29,580	$	81,539	$	57,970
Term license subscriptions	9,323		7,379		29,176		25,172
Maintenance and support	5,137		4,459		9,997		8,712
Professional services	26,053		25,357		51,142		53,785
Total revenue	$	82,999	$	66,775	$	171,854	$	145,639

Performance Obligations and Timing of the associated debt instrument, consistent with debt discounts. Subsequent to the issuance of ASU 2015-3, the SEC staff announced that the presentation of debt issuance costs associated with line-of-credit arrangements may be presented as an asset. This announcement was codifiedRevenue Recognition

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(CONTINUED)~~

(UNAUDITED)

We primarily sell products and services that fall into the categories discussed below. Each category contains one or more performance obligations that are either (1) capable of being distinct (i.e., the customer can benefit from the product or service on its own or together with readily available resources, including those purchased separately from us) and distinct within the context of the contract (i.e., separately identified from other promises in the contract) or (2) a series of distinct products or services that are substantially the same and have the same pattern of transfer to the customer. Our term license subscriptions are delivered at a point in time while our SaaS subscriptions, maintenance and support, and professional services are delivered over time.

Subscriptions Revenue

Subscriptions revenue is primarily related to (1) SaaS subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support. We generally charge subscription fees on a per-user basis or through non-user based single application licenses. We bill customers and collect payment for subscriptions to our platform in advance on an annual, quarterly, or monthly basis. In certain instances, our customers have paid their entire contract up front.

SaaS Subscriptions

We generate cloud-based subscriptions revenue primarily from the ~~FASB in ASU No. 2015-15,~~ ~~Presentation~~sales of subscriptions to access our cloud offering, together with related support services to our customers. We perform all required maintenance and ~~Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements~~ ~~(“ASU 2015-15”). ASU 2015-3 and ASU 2015-15 were both effective~~support for our ~~year ended December 31, 2016, and their adoption did not~~cloud offering. Revenue is recognized on a ratable basis over the contract term beginning on the date the service is made available to the customer. Our cloud-based subscription contracts generally have a ~~material impact on~~term of one to three years in length. We bill customers and collect payment for subscriptions to our ~~financial condition, results~~platform in advance, and they are non-cancellable.

Term License Subscriptions

Our term license subscriptions revenue is derived from customers with on-premises installations of ~~operations or cash flows.~~

~~In April 2015,~~our platform pursuant to contracts that were historically one to three years in length. The majority of recent contracts have been one year in length. Although term license subscriptions are sold with maintenance and support, the ~~FASB issued ASU No. 2015-5,~~ ~~Customer’s Accounting~~software is fully functional at the beginning of the subscription and is considered a distinct performance obligation. On rare occasions, a cloud-based subscription may include the right for ~~Fees Paid in~~the customer to take possession of the license and as such, the revenue is treated as a ~~Cloud Computing Arrangement~~ ~~(“ASU 2015-5”), which provides clarification on whether a cloud computing arrangement includes a software~~ license. ~~If a~~Revenue from term license subscriptions is recognized when control of the software license ~~is included,~~has transferred to the customer, ~~should account for~~which is the ~~license consistent with its accounting for other~~later of delivery or commencement of the contract term.

Maintenance and Support

Maintenance and support subscriptions include both technical support and when-and-if-available software ~~licenses. If a software license is not included, the arrangement should be accounted for~~upgrades, which are treated as a ~~service contract. ASU 2015-5 was effective for our year ended December 31, 2016,~~single performance obligation as they are considered a series of distinct services that are substantially the same and ~~its adoption did not~~ have ~~a material impact on our financial condition, results~~the same duration and measure of ~~operations or cash flows.~~

~~In November 2015,~~progress. Revenue from maintenance and support is recognized ratably over the ~~FASB issued ASU No. 2015-17,~~ ~~Balance Sheet Classification of Deferred Taxes (Topic 740)~~ (“ASU 2015-17”), which requires that all deferred tax assets and liabilities, including any related valuation allowance, be classified as noncurrent on the balance sheet. We elected to early adopt ASU 2015-17 beginning with our year ended December 31, 2015. The adoption of ASU 2015-17 did not have a material impact on our financial condition, results of operations or cash flows.

~~In March 2016, the FASB issued ASU No. 2016-9,~~ ~~Improvements to Employee Share-Based Payment Accounting (Topic 718)~~ ~~(“ASU 2016-9”),~~contract period, which is ~~intended~~the period over which the customer has continuous access to ~~simplify several aspects~~maintenance and support.

Professional Services Revenue

Our professional services revenue is comprised of ~~the accounting~~fees for ~~share-based payment transactions,~~consulting services, including ~~the accounting for income taxes, forfeitures,~~application development and ~~statutory tax withholding requirements,~~deployment assistance as well as ~~classification in the statement of cash flows.~~ training services related to our platform. Our professional services are considered distinct performance obligations when sold standalone or with other products.

Consulting Services

We elected to early adopt ASU 2016-9 beginning with our year ended December 31, 2016, and have applied the guidance retrospectively. The adoption of ASU 2016-9 did not have a material impact on our financial condition, results of operations or cash flows.

~~Not Yet Adopted~~

~~In May 2014, the FASB issued ASU No. 2014-9,~~ ~~Revenue from Contracts with Customers (Topic 606)(“ASU 2014-9”), which provides new guidance for revenue recognition. ASU 2014-9 provides that an entity should recognize revenue to depict the transfer of promised goods or~~sell consulting services to assist customers in ~~an amount that reflects~~planning and executing the ~~consideration~~deployment of our software. Customers are not required to ~~which~~use consulting services to fully benefit from the ~~entity expects to be entitled in exchange for those goods~~software. Consulting services are regularly sold on a standalone basis and either (1) under a fixed-fee arrangement or ~~services. ASU 2014-9 also requires improved disclosures to help users of financial statements better understand the nature, amount, timing,~~(2) on a time and uncertainty of revenue that is recognized. Entities have the option of using either a full retrospective or modified retrospective approach for the adoption of the standard. In March 2016, the FASB issued ASU No. 2016-8, ~~Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)~~ ~~(“ASU 2016-8”), which clarifies implementation guidance on principal versus agent considerations in ASU 2014-9. In April 2016, the FASB issued ASU No. 2016-10,~~ ~~Identifying Performance Obligations and Licensing~~ ~~(“ASU 2016-10”), which clarifies the identification of~~materials basis. Consulting contracts are each considered separate performance obligations because they do not integrate with each other or with other products and services to deliver a combined output to the ~~licensing implementation guidance in ASU 2014-9. In addition, in May 2016,~~customer, do not modify or customize (or are not modified or customized by) each other or other products and services, and do not affect the ~~FASB issued ASU No. 2016-12,~~ ~~Narrow-Scope Improvements and Practical Expedients~~ (“ASU 2016-12”), which clarifies the guidance on assessing collectibility, presentation of sales taxes, noncash consideration and completed contracts and contract modifications at transition. For public entities, the new standard is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2017. For all other entities, the new standard is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods beginning after December 15, 2019. We intend to avail ourselves of the JOBS Act extended transition period that permits us to defer adoption until January 1, 2019. We are currently evaluating the impact the adoption of these standards will have on our consolidated financial statements.

We currently plan to adopt the new standard using the full retrospective approach; however, the decision regarding the adoption method has not been finalized. Our final determination will depend on a number of factors such as the significance of the impact of the new standard on our financial results, system readiness, including that of software procured from third-party providers, and ourcustomer's ability to ~~accumulate~~use the other consulting offerings or other products and ~~analyze the information necessary to assess the impact on prior period financial statements, as necessary.~~

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(CONTINUED)~~

(UNAUDITED)

services. Revenue under consulting contracts is recognized over time as services are delivered. For time and materials-based consulting contracts, we have elected the practical expedient of recognizing revenue upon invoicing since the invoiced amount corresponds directly to the value of our service to date.

Training Services

We sell various training services to our customers. Training services are sold in the ~~initial stages~~form of prepaid training credits that are redeemed based on a fixed rate per course. Training revenue is recognized when the associated training services are delivered.

Significant Judgments and Estimates

Determining the Transaction Price

The transaction price includes both fixed and variable consideration. Variable consideration is included in the transaction price to the extent it is probable a significant reversal will not occur. The amount of variable consideration excluded from the transaction price for the three and six months ended June 30, 2021 and 2020 was insignificant. Our estimates of variable consideration are also subject to subsequent true-up adjustments and may result in changes to transaction prices; however, such true-up adjustments are not expected to be material.

Allocating the Transaction Price Based on Standalone Selling Prices ("SSP")

We allocate the transaction price to each performance obligation in a contract based on its relative SSP. The SSP is the observable price at which we sell the product or service separately. In the absence of observable pricing, we estimate SSP using the residual approach. We establish SSP as follows:

1.SaaS subscriptions - Given the highly variable selling price of our ~~evaluation~~SaaS subscriptions, we establish the SSP of our SaaS subscriptions using a residual approach after first determining the SSP of consulting and training services. We have concluded the residual approach to estimating SSP of our SaaS subscriptions is an appropriate allocation of the ~~impact~~transaction price.

2.Term license subscriptions - Given the highly variable selling price of ~~the new standard on~~ our accounting policies, processes, and system requirements. We have assigned internal resources in addition to the engagement of third-party service providers to assist in the evaluation. Furthermore, we have made and will continue to make investments in systems to enable timely and accurate reporting under the new standard. While we continue to assess all potential impacts under the new standard there is the potential for significant impacts to the timing of recognition of revenue, particularly term license subscriptions, we have established SSP of term license subscriptions using a residual approach after first determining the SSP of maintenance and ~~professional~~support. Maintenance and support is sold on a standalone basis in conjunction with renewals of our legacy perpetual software licenses and within a narrow range of the net license fee. Because an economic relationship exists between the license and maintenance and support, we have concluded the residual approach to estimating SSP of term license subscriptions is an appropriate allocation of the transaction price.

3.Maintenance and support - We establish the SSP of maintenance and support as a percentage of the stated net subscription fee based on observable pricing of maintenance and support renewals from our legacy perpetual software licenses.

4.Consulting and training services ~~revenue. We also expect an impact~~- The SSP of consulting and training services is established based on the observable pricing of standalone sales within each geographic region where the services are sold.

Contract Balances

Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to our ~~accounting~~contracts with customers. Contract assets primarily relate to unbilled amounts for ~~contract acquisition costs, both~~contracts with ~~respect~~customers for which the amount of revenue recognized exceeds the amount billed to the ~~amounts~~customer. Contract assets are transferred to accounts receivable when the right to invoice becomes unconditional. As of June 30, 2021 and December 31, 2020, contract assets of $16.2 million and $20.1 million, respectively, are included in the Prepaid expenses and other current assets and Other assets line items in our condensed consolidated balance sheets.

Contract liabilities consist of deferred revenue and include payments received in advance of the satisfaction of performance obligations. Deferred revenue is then recognized as the revenue recognition criteria are met. Deferred revenue that will be ~~capitalized~~recognized during the succeeding 12-month period is recorded as ~~well as~~current, and the ~~period of amortization.~~

Under current industry-specific software revenue recognition guidance, we have historically concluded that we did not have VSOE of fair value of the undelivered services related to term license subscriptions, and accordingly, have recognized term license subscriptions and related services ratably over the subscription term. Professional services included in an arrangement with subscription revenue has also been recognized ratably over the subscription term. The new standard, which does not retain the concept of VSOE, requires an evaluation of whether term license subscriptions and related services, including professional services, are distinct performance obligations and therefore should be separately recognized at a point in time or over time. Depending on the outcome of our evaluation, the timing of whenremaining deferred revenue is ~~recognized could change significantly for term license subscriptions and professional services under the new standard.~~

~~In February 2016, the FASB issued ASU No. 2016-2,~~ ~~Leases (Topic 842)~~ (“ASU 2016-2”), which requires that lessees recognize assets and liabilities for leases with lease terms greater than 12 months in the statement of financial position. ASU 2016-2 also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. We are currently evaluating the impact the adoption of ASU 2016-2 will have on our consolidated financial statements.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~ (“ASU 2016-15”), which aims to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectivelyrecorded as of the earliest date practicable. ASU 2016-15 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. We are currently in the process of evaluating the impact of adoption of this standard on our consolidated financial statements.


3.	~~Accrued Expenses~~

~~Accrued expenses consist of the following:~~

September 30, 2017 December 31, 2016
Accrued contract labor costs $ 3,122
$ 743
Accrued audit and tax expenses 364
358
Accrued reimbursable employee expenses 285
134
Accrued marketing and tradeshow expenses 251
111
Other accrued expenses 1,955
1,514
Total $ 5,977
$ 2,860


4.	~~Debt~~

~~2015 Line of Credit~~

At December 31, 2015, we had a $10.0 million revolving line of credit with a lender, expiring in June 2016, which was subsequently amended in June 2016 to extend the maturity date through June 2017. This line of credit was terminated in April 2017.

~~2015 Term Loan~~

In March 2015, we entered into a collateralized $10.0 million term loan facility with a lender, maturing in March 2019, and borrowed the full amount under the term loan facility in June 2015. In January 2016, we paid off the outstanding balance of

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(CONTINUED)~~

(UNAUDITED)

non-current. For the six months ended June 30, 2021, we recognized $81.1 million of revenue that was included in the deferred revenue balance as of December 31, 2020.

Transaction Price Allocated to the Remaining Performance Obligations

As of June 30, 2021, we had an aggregate transaction price of $223.8 million allocated to unsatisfied performance obligations. We expect to recognize $201.3 million of this balance as revenue over the next 24 months with the remaining amount recognized thereafter.

4. Leases

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease. Operating leases with a term greater than one year are recognized on the balance sheet as right-of-use ("ROU") assets, lease liabilities, and, if applicable, long-term lease liabilities. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We have elected not to recognize on our condensed consolidated balance sheets leases with a term of one year or less. For contracts with lease and non-lease components, we have elected not to allocate the contract consideration but rather to account for the lease and non-lease components as a single lease component.

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rates within most of our leases are generally not determinable; therefore, we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of our incremental borrowing rate requires judgment and is estimated for each lease based on the rate we would have to pay for a collateralized loan with the same term and ~~simultaneously~~payments as the lease. We consider various factors, including our level of collateralization, estimated credit rating, and the currency in which the lease is denominated. Operating lease ROU assets also include any lease prepayments, offset by lease incentives. Certain of our leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option while an option to terminate is considered unless it is reasonably certain we will not exercise the option. For certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense. We have lease agreements which require payments for lease and non-lease components (i.e., common area maintenance) that are accounted for as a single lease component. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as maintenance costs based on future obligations, are not included in ROU assets or lease liabilities but rather are expensed as incurred and recorded as variable lease expense.

As of June 30, 2021, we have operating leases for corporate offices. Our operating leases have remaining lease terms of 1 year to 11 years, some of which include options to extend the leases for up to 10 years.

In April 2018, we entered into a ~~collateralized $20.0~~lease agreement with respect to 176,222 square feet of office space in McLean, Virginia for a new corporate headquarters. The initial term of the lease was 150 months. We took initial possession of the first phase of the new headquarters in October 2018 and began to recognize rent expense as of that date. In February 2019, we took possession of an additional 28,805 square feet of adjacent office space.

In January 2020, we entered into an amendment which adjusted the original terms of the headquarters lease. Under this amendment, we exercised an option to expand occupancy, adding 34,158 square feet of office space. Occupancy of the added space commenced on October 14, 2020. Pursuant to the guidance of ASC 842, Leases, the amendment is considered a modification to the original lease and is accounted for as a separate contract because it represents a new ROU asset and the lease costs on the new space are charged at prevailing market rates. Effective July 1, 2020, we took possession of the space, began to recognize rent expense, and recorded a $7.9 million ~~term loan facility, maturing in January 2020. We borrowed~~ROU asset and lease liability on our condensed consolidated balance sheets.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In October 2020, we paid the full ~~amount~~$2.7 million principal balances outstanding under ~~the term loan facility in January 2016, which we repaid~~our finance leases pursuant to an option permitting us to pay such balances in full ~~in April 2017.~~at any time. As of the date of the paydown, the titles to the assets were transferred to us, the associated lease liabilities were retired, the carrying values of the purchased assets were adjusted, and the assets were reclassified from finance leases to property and equipment, net on the condensed consolidated balance sheets.

~~2017 Financing Facility~~

The following table sets forth the components of lease expense for the three and six months ended June 30, 2021 and 2020 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Operating lease cost	$	1,695	$	1,408	$	3,325	$	3,276
Finance lease costs:
Amortization of right-of-use assets	0		372		0		745
Interest on lease liabilities	0		46		0		97
Short-term lease cost	13		195		54		380
Variable lease cost	772		34		797		217
Total	$	2,480	$	2,055	$	4,176	$	4,715

Supplemental balance sheet information related to operating leases as of June 30, 2021 and December 31, 2020 was as follows (in thousands, except for lease term and discount rate):


	As of
	June 30, 2021			December 31, 2020
Operating right-of-use assets	$	30,528		$	30,659

Operating lease liabilities, current	$	7,854		$	6,923
Operating lease liabilities, net of current portion	50,185			51,194
Total operating lease liabilities	$	58,039		$	58,117

Weighted average remaining lease term (in years)	10.0			10.6

Weighted average discount rate	9.5		%	9.6		%

For the three and six months ended June 30, 2021, amortization of operating ROU assets totaled $0.4 million and $0.7 million, respectively. For the three and six months ended June 30, 2020, amortization of operating ROU assets totaled $0.2 million and $0.9 million, respectively.

For the three and six months ended June 30, 2021, interest expense on operating lease liabilities totaled $0.5 million and $0.9 million, respectively. For the three and six months ended June 30, 2020, interest expense on operating lease liabilities totaled $1.0 million and $1.4 million, respectively.

Supplemental cash flow information related to leases for the six months ended June 30, 2021 and 2020 was as follows (in thousands):

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Six Months Ended June 30,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	3,503	$	1,044
Operating cash outflows for finance leases	0		97
Financing cash outflows for finance leases	0		716

A summary of our future minimum lease commitments under non-cancellable leases as of June 30, 2021 is as follows (in thousands):


	Operating Leases
2021 (excluding the six months ended June 30, 2021)	$	4,070
2022	8,252
2023	8,249
2024	8,648
2025	9,343
2026	9,369
Thereafter	48,775
Total lease payments	96,706
Less: imputed interest	(38,667)
Total	$	58,039

5. Property and Equipment, net

Property and equipment, net consisted of the following as of June 30, 2021 and December 31, 2020 (in thousands):


	June 30, 2021		December 31, 2020
Leasehold improvements	$	36,394	$	36,263
Office furniture and fixtures	2,522		2,521
Computer hardware	5,399		4,535
Computer software	1,354		1,352
Equipment	58		49
Property and equipment, gross	45,727		44,720
Less: accumulated depreciation	(11,663)		(9,316)
Property and equipment, net	$	34,064	$	35,404

Depreciation expense totaled $1.2 million and $2.4 million for the three and six months ended June 30, 2021, respectively. There were 0 disposals or retirements recorded during the three and six months ended June 30, 2021.

Depreciation expense totaled $1.4 million and $2.8 million for the three and six months ended June 30, 2020. There were nominal disposals recorded during the three months ended June 30, 2020. During the six months ended June 30, 2020, we retired $1.3 million of leasehold improvements, $0.1 million of computer hardware, and $0.1 million of office furniture and fixtures and equipment. Nominal losses on disposal were recorded for the three and six months ended June 30, 2020.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6. Accrued Expenses

Accrued expenses consisted of the following as of June 30, 2021 and December 31, 2020 (in thousands):


	June 30, 2021		December 31, 2020
Accrued hosting costs	$	2,093	$	1,229
Accrued legal costs	1,112		760
Accrued contract labor costs	884		908
Accrued taxes payable	579		527
Accrued audit and tax expenses	345		370
Accrued marketing and tradeshow expenses	420		596
Accrued third party license fees	247		570
Accrued reimbursable employee expenses	291		231
Other accrued expenses	1,305		630
Total	$	7,276	$	5,821

7. Debt

Line of Credit

In ~~April~~November 2017, we entered into a new financing facility consisting of a $5.0 million senior revolving credit facility, a $20.0 million senior term loan, and a $10.0 million subordinated term loan. In connection with the execution of this financing facility, the prior line of credit was terminated, and we borrowed the full $20.0 million available under the senior term loan and repaid the outstanding balance under our prior term loan. Additionally, in connection with the execution of our new financing facility, the lender waived the prepayment fee associated with our prior line of credit. In June 2017, we used proceeds from our IPO to pay all remaining outstanding principal and interest under the senior term loan and subsequently terminated the senior term loan and subordinated term loan. In connection with the repayment of the senior term loan, we recognized a loss on extinguishment of debt of $0.4 million related to unamortized debt issuance costs, which is included within other (income) expense, net in the accompanying condensed consolidated statements of operations. As of September 30, 2017, we had no outstanding borrowings. This financing facility was terminated in November 2017 in connection with our entry into a new $20.0 million revolving line of ~~credit. See Note 11 for additional information regarding our new~~credit with a lender. The facility matures in November 2022. We may elect whether amounts drawn on the revolving line of credit bear interest at a floating rate per annum equal to either LIBOR or the Prime rate plus an additional interest rate margin that is determined by the availability of the borrowings under the revolving line of credit. The additional interest rate margin will range from 2.00% to 2.50% in the case of LIBOR advances and from 1.00% to 1.50% in the case of Prime rate advances. The revolving line of credit contains an unused facility fee in an amount between 0.15% and 0.25% of the average unused portion of the revolving line of credit, which is payable quarterly. The agreement contains certain customary affirmative and negative covenants and requires us to maintain (i) an adjusted quick ratio of at least 1.35 to 1.00 and (ii) minimum adjusted EBITDA, in the amounts and for the periods set forth in the agreement. Any amounts borrowed under the credit facility are collateralized by substantially all of our assets. We were in compliance with all covenants as of June 30, 2021. As of June 30, 2021, we had 0 outstanding borrowings under this revolving line of credit, and we had outstanding letters of credit totaling $11.2 million in connection with securing our leased office space. We also continue to monitor the LIBOR to SOFR transition, which may result in modification or amendment of our existing revolving line of credit.


5.	~~Income Taxes~~

8. Income Taxes

The provision for income taxes is based upon the estimated annual effective tax rates for the year applied to the current period income ~~(loss)~~ before tax plus the tax effect of any significant or unusual items, discrete events, or changes in tax law. Our operating subsidiaries are exposed to statutory effective tax rates ranging from ~~zero~~0 to approximately ~~40%~~32%. Fluctuations in the distribution of pre-tax income ~~(loss)~~ among our operating subsidiaries can lead to fluctuations of the effective tax rate in the condensed consolidated financial statements. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, the actual effective tax rates were ~~(3.1)~~(1.1)% and ~~(2.1)~~(1.0)%, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, the actual effective tax rates were ~~25.4%~~(2.4)% and ~~20.3%~~(0.3)%, respectively.

We assess uncertain tax positions in accordance with ASC 740-10, Accounting for Uncertainties in ~~Tax~~Income Taxes. As of ~~September~~June 30, ~~2017,~~2021, our net unrecognized tax benefits totaled ~~$0.5~~$2.3 million, of which ~~the entire portion~~if recognized would ~~impact our~~result in no net effect on the effective tax rate ~~if recognized. We anticipate that the~~due to a valuation allowance. The amount of reasonably possible unrecognized tax benefits that could decrease over the next 12 months due to the expiration of certain statutes of limitations ~~and settlement~~or settlements of tax audits is not material to our condensed consolidated financial statements.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

We file income tax returns in the United States federal jurisdiction and in many ~~state~~states and foreign jurisdictions. The tax years ~~2013~~2017 through ~~2016~~2020 remain open to examination by the major taxing jurisdictions to which we are subject. ~~No material examinations~~We are not currently ~~open.~~under examination by the Internal Revenue Service for any open tax years.

In response to the COVID-19 pandemic, the United States passed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act in March 2020. The CARES Act includes various income and payroll tax measures. Pursuant to these measures, we have elected the option to defer the deposit and payment of our share of social security taxes that would otherwise be due between March 27, 2020 and December 31, 2020. Under the CARES Act, half of these deferred payments are due by the end of fiscal year 2021 while the other half are due by the end of fiscal year 2022.


6.	~~Stock-Based Compensation~~

At this time, beyond the above deferral, the CARES Act is not expected to materially impact our financial statements, but we continue to evaluate potential impacts.

9. Stock-Based Compensation

Equity Incentive Plans

In May 2017, our ~~board~~Board of ~~directors~~Directors adopted, and our stockholders approved, the 2017 Equity Incentive Plan (the “2017 Plan”), which became effective as of the date of the final prospectus for our ~~IPO.~~initial public offering. The 2017 Plan provides for the grant of incentive stock options to employees and for the grant of nonstatutory stock options, restricted stock awards, ~~restricted stock unit awards,~~RSUs, stock appreciation rights, performance-based stock awards, and other forms of equity compensation to employees, including officers, ~~and to~~ non-employee directors, and consultants. We initially reserved 6,421,442 shares of Class A common stock for issuance under the 2017 Plan, which included 421,442 shares that remained available for issuance under our 2007 Stock Option Plan (the “2007 Plan”) at the time ~~that~~ the 2017 Plan became effective. The number of shares reserved under the 2017 Plan increases for any shares subject to outstanding awards originally granted under the 2007 Plan that expire or are forfeited prior to exercise. As a result of the adoption of the 2017 Plan, no0 further grants may be made under the 2007 Plan. As of ~~September~~June 30, ~~2017,~~2021, there were ~~6,481,622~~7,175,469 shares of Class A common stock reserved for issuance under the 2017 Plan, of which ~~6,425,767~~4,223,260 were available to be issued.

~~The 2007 Plan provided for the grant of stock options to employees, directors, and officers.~~

Stock Options under the 2007 Plan are exercisable into shares of Class B common stock and generally expire ten years from the date of grant. Under the 2007 Plan, the exercise price of each award was established by the board of directors, but could not be less than the fair market value of a share of our common stock on the grant date. Options generally vest upon the satisfaction of both a service condition and a performance condition. The service condition is satisfied at various rates as determined by us, typically on an annual basis over

~~APPIAN CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(UNAUDITED)~~

five years. The performance condition required the occurrence of a qualifying event, defined as a change of control transaction or upon the completion of an IPO. The performance condition was satisfied upon the effectiveness of our IPO in May 2017, on which date we recognized $6.2 million of cumulative stock-based compensation expense using the accelerated attribution method from the service start date.

We estimate the fair value of stock options containing only a service condition using the Black-Scholes ~~OPM,~~option pricing model, which requires the use of subjective assumptions, including the expected term of the option, the current price of the underlying stock, the expected stock price volatility, expected dividend yield, and the risk-free interest rate for the expected term of the option. The expected term represents the period of time the stock options are expected to be outstanding. Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options, we use the simplified method to estimate the expected term for our stock options. Under the simplified method, the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected term of the stock options. We assume no dividend yield because dividends are not expected to be paid in the near future, which is consistent with our history of not paying dividends.

In May 2019, our Board of Directors granted a stock option to purchase 700,000 shares of our Class A common stock to our Chief Executive Officer (the "2019 CEO Grant") under the 2017 Plan with an exercise price of $33.98 per share. The 2019 CEO Grant is eligible to vest based on the achievement of a stock price appreciation target of our Class A common stock. Specifically, the 2019 CEO Grant vests when shares of our Class A common stock close at or above $84.63 per share for a period equal to or greater than 90 consecutive calendar days or upon the occurrence of a change in control in which the value of our Class A common stock is equal to or greater than $84.63 per share within five years of the grant date. The fair value of the 2019 CEO Grant was determined using a Monte Carlo simulation. The fair value of the award at the grant date was $9.5 million and is amortized over the derived service period of 2.6 years. Effective February 2021, the 2019 CEO Grant has satisfied all of the conditions required to be considered fully vested. As a result, we accelerated the recognition of approximately $3.3 million in stock-based compensation expense in the six months ended June 30, 2021.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table summarizes stock option activity for the ~~assumptions used to estimate the fair value of~~six months ended June 30, 2021:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2021	3,399,240	$	14.06	4.9	$	503,174
Granted	0	0		—	—
Exercised	(299,920)	6.94		—	33,230
Expired	0	0		—	—
Forfeited	(10,060)	11.62		—	—
Outstanding at June 30, 2021	3,089,260	$	14.76	4.4	$	379,935

Exercisable at June 30, 2021	2,850,280	$	15.04	4.3	$	349,747

There were 0 stock options granted during the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Risk-free interest rate 1.9% - 2.1% 1.3% 1.9% - 2.2% 1.3% - 1.5%
Expected term (in years) 6.5 6.5 6.5 6.5
Expected volatility 38.6% 41.6% 38.6% - 40.6% 41.2% - 42.0%
Expected dividend yield —% —% —% —%

~~Stock Options~~

~~The following table summarizes the stock option activity for the nine months ended September 30, 2017:~~

Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic
Value
(in thousands)
Outstanding at January 1, 2017 6,784,448
$ 4.65
6.5 $ 44,259
Granted 1,252,200
11.89

Exercised (556,220 ) 1.19
8,386
Canceled (96,500 ) 6.30

Outstanding at September 30, 2017 7,383,928
6.16
6.7 164,688
Exercisable at September 30, 2017 2,992,648
1.85
3.8 79,636

~~The weighted average grant-date fair value of options granted during the nine months ended September 30, 2017 and 2016 was $5.04 and $4.38 per share, respectively.~~2020. The total fair value of stock options that vested during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and 2020 was ~~$5.3 million. No stock options vested during the nine months ended September 30, 2016 because a qualifying event had not yet occurred.~~$10.5 million and $1.0 million, respectively. As of ~~September~~June 30, ~~2017,~~2021, the total compensation cost related to unvested stock options not yet recognized was ~~$12.6~~$0.2 million, which will be recognized over a weighted average period of ~~3.0~~0.8 years.

On April 25, 2017, our board of directors modified certain outstanding stock options nearing their expiration date to remove the performance condition. Stock options to purchase an aggregate of 216,160 shares of common stock were modified, and we recognized stock-based compensation expense of $2.4 million related to this modification.

~~APPIAN CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(UNAUDITED)~~

Restricted Stock Units

The following table summarizes ~~the restricted stock unit~~RSU activity for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2021:

Number of Shares Weighted Average Grant Date Fair Value
Non-vested outstanding at December 31, 2016 —
$ —
Granted 47,855
20.38
Vested (4,930 ) 20.24
Canceled —
—
Non-vested outstanding at September 30, 2017 42,925
20.40


	Number of Shares	Weighted Average Grant Date Fair Value
Non-vested and outstanding at January 1, 2021	1,165,003	$	46.04
Granted	110,008	139.17
Vested	(99,350)	46.44
Forfeited	(48,965)	63.20
Non-vested and outstanding at June 30, 2021	1,126,696	54.35

As of ~~September~~June 30, ~~2017,~~2021, total unrecognized compensation cost related to unvested ~~restricted stock units~~RSUs was ~~approximately $0.8~~approximately $51.8 million, ~~and the~~which will be recognized over a weighted average ~~remaining vesting~~ period ~~was 2.7~~of 2.2 years.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table summarizes the components of our stock-based compensation expense by instrument type for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and 2020 (in thousands):

Three Months Ended Nine Months Ended
September 30, 2017 September 30, 2017
Stock-based compensation expense related to stock option modifications $ —
$ 2,394
Cumulative stock-based compensation expense related to stock options recorded upon effectiveness of our IPO —
6,236
Post-IPO stock-based compensation expense related to stock options 1,440
2,025
Stock-based compensation expense related to the issuance of common stock to directors —
130
Stock-based compensation expense related to restricted stock units 134
134
Total stock-based compensation expense $ 1,574
$ 10,919


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
RSUs	$	4,403	$	2,475	$	8,408	$	4,774
Stock options	40		1,047		3,773		2,131
Common stock awards to Board of Directors	155		92		311		185
Total stock-based compensation expense	$	4,598	$	3,614	$	12,492	$	7,090

Stock-based compensation expense for ~~restricted stock units,~~RSUs, stock options, and issuances of common stock to the Board of Directors is included in the following line items in the accompanying condensed consolidated statements of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and 2020 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Cost of revenue
Subscriptions	$	295	$	229	$	592	$	442
Professional services	865		317		1,506		529
Operating expenses
Sales and marketing	1,197		657		2,305		1,410
Research and development	1,069		619		2,084		1,172
General and administrative	1,172		1,792		6,005		3,537
Total stock-based compensation expense	$	4,598	$	3,614	$	12,492	$	7,090

10. Stockholders' Equity

Three Months Ended Nine Months Ended
September 30, 2017 September 30, 2017
Cost of revenue
Subscriptions, software and support $ 80
$ 484
Professional services 142
1,126
Operating expenses
Sales and marketing 359
2,782
Research and development 256
2,458
General and administrative 737
4,069
Total stock-based compensation expense $ 1,574
$ 10,919

~~For the three and nine months ended September~~As of June 30, ~~2016, no stock-based compensation expense was recognized for our stock option awards because a qualifying event~~2021, we had ~~not yet occurred.~~

~~APPIAN CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(UNAUDITED)~~


7.	~~Convertible Preferred Stock and Stockholders’ Equity (Deficit)~~

~~Convertible Preferred Stock~~

Immediately prior to the completion of the IPO, all shares of convertible preferred stock then outstanding were automatically converted into 18,163,158 shares of common stock on a one-for-one basis, and then reclassified as shares of Class B common stock.

~~Summary of Activity~~

~~The following tables present a summary of activity for our convertible preferred stock issued and outstanding for the nine months ended September 30, 2017 (dollar amounts in thousands):~~

Series A Convertible
Preferred Stock

Series B Convertible
Preferred Stock
Amount Shares Amount Shares
Balance as of January 1, 2017 $ 17,915
12,043,108
$ 37,500
6,120,050
Accretion of dividends on convertible preferred stock 357
—
—
—
Payment of accrued dividend to Series A convertible preferred stockholders (7,565 ) —
—
—
Conversion of convertible preferred stock to common stock (10,707 ) (12,043,108 ) (37,500 ) (6,120,050 )
Balance as of September 30, 2017 $ —
—
$ —
—

~~Common Stock~~

~~Immediately prior to the completion of the IPO, all shares of common stock then outstanding were converted into Class B common stock on a one-for-one basis. We offered and sold newly~~ authorized 500,000,000 shares of Class A common stock ~~in the IPO.~~

and 100,000,000 shares of Class B common stock, each with a par value of $0.0001 per share, of which 39,581,079 shares of Class A common stock and 31,499,516 shares of Class B common stock were issued and outstanding. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. The holders of Class A common stock are entitled to ~~one~~1 vote per share, and the holders of Class B common stock are entitled to ~~ten~~10 votes per share on all matters ~~that are~~ subject to stockholder vote. The holders of Class B common stock also have approval rights for certain corporate actions. Each share of Class B common stock may be converted into ~~one~~1 share of Class A common stock at the option of its holder and will be automatically converted ~~into one share of Class A common stock~~ upon transfer thereof, subject to certain exceptions. In addition, upon the date on which the outstanding shares of Class B common stock represent less than 10% of the aggregate voting power of our capital stock, all outstanding shares of Class B common stock shall convert automatically into Class A common stock.


8.	~~Warrants~~

~~We previously issued a warrant to purchase 84,360 shares of Series A convertible preferred stock in conjunction with a credit facility with a lender at an exercise price of $0.88905~~11. Basic and Diluted Loss per ~~share. Immediately~~Common Share

The following outstanding securities, prior to the ~~completion~~use of the ~~IPO, this warrant was converted into a warrant to purchase 84,360~~treasury stock method or the if-converted method, have been excluded from the computation of diluted weighted-average shares of Class B common stock. The fair value at the time of the conversion was $1.2 million and was recorded as additional paid-in capital and a reduction of the preferred stock warrant liability. In May 2017, the warrant holder exercised the warrant and we issued 79,363 shares of Class B common stock through a cashless exercise of the warrant, in accordance with its terms.


9.	~~Basic and Diluted Loss per Common Share~~

We use the two-class method to compute net loss per common share because we have issued securities, other than common stock, that contractually entitle the holders to participate in dividends and earnings. These participating securities include our convertible preferred stock which have non-forfeitable rights to participate in any dividends declared on our common stock. The two-class method requires earningsoutstanding for the ~~period to be allocated between common stock~~respective periods below because they would have been antidilutive:


	Three and Six Months Ended June 30,
	2021	2020
Stock options	3,089,260	4,046,544
Non-vested restricted stock units	1,126,696	1,116,127

12. Commitments and ~~participating securities based upon their respective rights to receive distributed and undistributed earnings.~~Contingencies

Under the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(CONTINUED)~~

(UNAUDITED)

~~during the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of current period earnings that the participating securities would~~Contractual Warranty and Indemnification Obligations

We provide limited product warranties. Historically, any payments made under these provisions have been ~~entitled~~immaterial. We also agree to ~~receive pursuant~~standard indemnification provisions in the ordinary course of business. Pursuant to ~~their dividend rights had all~~these provisions, we agree to indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our customers, in connection with certain intellectual property infringement claims by any third party arising from the use of our products or services in accordance with the agreement. The term of our contractual indemnity provisions often survives termination or expiration of the ~~period’s earnings been distributed. No such adjustment~~applicable agreement. We carry insurance that covers certain third-party claims relating to ~~earnings is made during periods with a net loss, as the holders~~our services and limits our exposure. We have never incurred costs to defend lawsuits or settle claims related to these indemnification provisions.

Minimum Purchase Commitments

Exclusive of the ~~participating securities~~Amazon Web Services ("AWS") contract discussed in Note 15, we have other non-cancellable agreements for subscription software products that contain provisions stipulating minimum purchase commitments. However, the annual purchase commitments under these contracts are, individually and in the aggregate, immaterial to our condensed consolidated financial statements.

Letters of Credit

At each of June 30, 2021 and December 31, 2020, we had outstanding letters of credit totaling $11.2 million in connection with securing our leased office space. All letters of credit are secured by our borrowing arrangement as described in Note 7.

Legal

From time to time, we are subject to legal, regulatory, and other proceedings and claims that arise in the ordinary course of business. There are no ~~obligation~~issues or resolutions of any matters expected to ~~fund losses.~~have a material adverse impact on our condensed consolidated financial statements.

~~Diluted net income (loss) per common share is computed under the two-class method by using the weighted average number~~

13. Segment and Geographic Information

We consider operating segments to be components of shares of common stock outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options and warrants. In addition, we analyze the potential dilutive effect of the outstanding participating securities under the “if-converted” method when calculating diluted earnings per share,our business in which itseparate financial information is assumed that the outstanding participating securities convert into common stock at the beginning of the period or date of issuance, if later. We report the more dilutive of the approaches (two-class or “if-converted”) asavailable and evaluated regularly by our ~~diluted net income per share during the period.~~Chief Operating Decision Maker ("CODM"). Our CODM, who is our Chief Executive Officer, reviews financial information on a consolidated basis when deciding how to allocate resources and assessing performance. Accordingly, we have determined we have a single reporting segment and operating unit structure.

The following securities have been excluded from the calculation of weighted average common shares outstanding because the effect is anti-dilutive or performance or market conditions had not been met at the end of the period:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Convertible preferred stock:
Series A convertible preferred stock —
12,043,108
—
12,043,108
Series B convertible preferred stock —
6,120,050
—
6,120,050
Warrant to purchase Series A convertible preferred stock —
84,360
—
84,360
Stock options 7,383,928
6,699,048
7,383,928
6,699,048
Restricted stock units 42,925
—
42,925
—


~~10.~~	~~Segment and Geographic Information~~

The following table summarizes revenue by geography for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016			2021		2020		2021		2020
Domestic	$	31,878	$	23,650	$	93,860	$	80,715	Domestic	$	53,704	$	42,191	$	113,986	$	94,646
International	12,770		7,095		32,315		18,461		International	29,295		24,584		57,868		50,993
Total	$	44,648	$	30,745	$	126,175	$	99,176	Total	$	82,999	$	66,775	$	171,854	$	145,639

With respect to geographic information, revenue is attributed to respective geographies based on the contracting address of the customer. There were no individual foreign countries from which more than 10% of our total revenue was attributable for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021. Revenue from customers attributed to the United Kingdom was 12.4% of our total revenue for each of the three and ~~2016.~~six months ended June 30, 2020. There were no other individual foreign countries from which more than 10% of our total revenue was attributable for the three and six months ended June 30, 2020. Substantially all of our long-lived assets were held in the United States as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~2020.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(CONTINUED)~~

(UNAUDITED)

14. Investments and Fair Value Measurements


~~11.~~	~~Subsequent Events~~

~~In preparing our condensed consolidated financial statements, we evaluated~~

Fair Value Measurements

We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent ~~events through November 2, 2017, which is the date that the condensed consolidated financial statements were available~~ to ~~be issued.~~

~~In November 2017, we entered into a $20.0 million revolving line of credit with a lender.~~their initial measurement. The facility matures in November 2022. We may elect whether amounts drawn on the revolving line of credit bear interest at a floating rate per annum equal to either the LIBOR or the prime rate plus an additional interest rate margin that is determined by the availability of borrowings under the revolving line of credit. The additional interest rate margin will range from 2.00% to 2.50% in the case of LIBOR advances and from 1.00% to 1.50% in the case of prime rate advances. The revolving line of credit contains an unused facility fee in an amount between 0.15% and 0.25% of the average unused portion of the revolving line of credit, which is payable quarterly. The agreement contains certain customary affirmative and negative covenants andhierarchy requires us to ~~maintain (i)~~use observable inputs when available and to minimize the use of unobservable inputs when determining fair value. The three tiers are defined as follows:

•Level 1. Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities;

•Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•Level 3. Unobservable inputs for which there is little or no market data, which require us to develop our own assumptions.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs. There were no instruments measured at fair value on a recurring basis using significant unobservable inputs as of June 30, 2021 and December 31, 2020.

The valuation techniques that may be used to measure fair value are as follows:

•Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

•Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts;

•Cost approach - Based on the amount that currently would be required to replace the service capacity of an ~~adjusted quick ratio of at least 1.35 to 1.0 and (ii) minimum adjusted EBITDA, in the~~asset (i.e., replacement cost).

The carrying amounts ~~and for the periods set forth in the agreement. Any amounts borrowed under the credit facility are collateralized by substantially all~~ of our ~~assets.~~cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value as of June 30, 2021 and December 31, 2020 because of the relatively short duration of these instruments.

~~On October 25, 2017, our board~~

Investments

Our investment portfolio consists largely of ~~directors approved~~debt investments classified as available-for-sale. Changes in the ~~grant of 689,200 restricted stock units under the 2017 Plan at a~~ fair value of ~~$22.27 per share to members~~available-for-sale securities, excluding other-than-temporary impairments, are recorded in other comprehensive income (loss). The components of ~~management~~our investments as of June 30, 2021 are as follows (in thousands):


	As of June 30, 2021
	Fair Value Measurement							Balance Sheet Classification
	Fair Value Level	Cost Basis		Unrealized Gains (Losses)		Market Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Money market fund	Level 1	$	72,275	$	0	$	72,275	$	72,275	$	0	$	0
U.S. Treasury bonds	Level 1	24,446		4		24,450		0		24,450		0
Commercial paper	Level 2	38,432		0		38,432		0		38,432		0
Corporate bonds	Level 2	29,113		(1)		29,112		0		27,562		1,550
Asset-backed securities	Level 2	26,373		5		26,378		0		20,880		5,498
Total investments		$	190,639	$	8	$	190,647	$	72,275	$	111,324	$	7,048

At December 31, 2020, our investments consisted of the following (in thousands):

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	As of December 31, 2020
	Fair Value Measurement							Balance Sheet Classification
	Fair Value Level	Cost Basis		Unrealized Gains (Losses)		Market Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Money market fund	Level 1	$	27,150	$	0	$	27,150	$	27,150	$	0	$	0
U.S. Treasury bonds	Level 1	24,445		(3)		24,442		0		16,273		8,169
Commercial paper	Level 2	76,905		0		76,905		16,493		60,412		0
Corporate bonds	Level 2	34,738		(11)		34,727		0		27,542		7,185
Asset-backed securities	Level 2	26,373		(8)		26,365		0		5,599		20,766
Total investments		$	189,611	$	(22)	$	189,589	$	43,643	$	109,826	$	36,120

There were no Level 3 assets held at any point during the three and ~~other employees.~~ six months ended June 30, 2021. Additionally, there were no transfers between Levels 1 and 2 during the three and six months ended June 30, 2021.

The amortized cost basis and fair value of ~~these awards at~~debt securities as of June 30, 2021, by contractual maturity, are as follows (in thousands):


	As of June 30, 2021
	Cost Basis		Fair Value
Due in one year or less	$	183,596	$	183,599
Due after one year through five years	7,043		7,048
Total investments	$	190,639	$	190,647

Actual maturities may differ from the ~~grant date was $15.3 million and will be amortized over~~contractual maturities in the ~~vesting periods.~~ table above because borrowers have the right to call or prepay certain obligations.

15. Subsequent Events

Amazon Web Services Agreement

In ~~addition, our board of directors also approved stock option grants~~July 2021, we executed a non-cancellable cloud hosting arrangement with AWS that contains provisions for minimum purchase commitments. Specifically, purchase commitments under the ~~2017 Plan to purchase an aggregate of 4,000 shares of common stock at an exercise price of $22.27 per share. The restricted stock units and options vest~~agreement total $131.0 million over five years, ~~through October 25, 2022.~~including $22.0 million in the first year, $25.0 million in the second year, and $28.0 million in each of the third, fourth, and fifth years. The timing of payments under the agreement may vary, and the total amount of payments may exceed the minimum depending on the volume of services utilized.

Acquisition of Lana Labs


~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~

On August 4, 2021, we completed the acquisition of Lana Labs GMBH, a developer of process mining software, for approximately $31.0 million, net of cash acquired and debt. We financed the transaction with available cash on hand. It is not practicable to disclose the preliminary purchase price allocation for this transaction given the short period of time between the respective acquisition date and the issuance of this Form 10-Q.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and management’s discussion and analysis of financial condition and results of operations for the ~~fiscal~~ year ended December 31, ~~2016~~2020 included in ~~the final prospectus for~~ our ~~initial public offering, or IPO, dated as of May 24, 2017 and~~Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, ~~pursuant to Rule 424(b)(4) (File No. 333-217510).~~on February 18, 2021.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” ~~“would”~~“would,” or the negative or plural of these words or similar expressions or ~~variations.~~variations, including statements regarding our future financial and operating performance, anticipated expansion of the usage of partners to perform professional services, the increase of our subscriptions revenue as a percentage of total revenue, the fluctuation of gross margin in the short term and improvement of gross margin over time, our future capital requirements, and uncertain negative impacts that COVID-19 may have on our business, financial condition, results of operations, and changes in overall level of spending and volatility in the global economy. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions, and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein and those discussed in the section titled “Risk ~~Factors”,~~Factors,” set forth in Part ~~II,~~I, Item 1A of ~~this Quarterly~~our Annual Report on Form ~~10-Q~~10-K filed with the SEC on February 18, 2021 and in our other filings with the SEC. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

We ~~provide~~help organizations build applications and workflows rapidly, with a ~~leading~~ low-code ~~software development platform as~~automation platform. Combining people, technologies, and data in a ~~service that enables organizations to rapidly develop powerful and unique applications. The applications created on our platform~~single workflow, Appian can help companies ~~drive digital transformation~~maximize their resources and ~~competitive differentiation.~~improve business results. Many of the world’s largest organizations use Appian applications to improve customer experience, achieve operational excellence, and simplify global risk management and compliance.

With our platform, organizations can rapidly and easily design, build, and implement powerful, enterprise-grade custom applications through our intuitive, visual interface with little or no coding required. Our customers have used applications built on our ~~low-code~~ platform to launch new business lines, automate vital employee workflows, manage complex trading platforms, accelerate drug development, and build global procurement systems. With our platform, decision makers can reimagine their products, services, processes, and customer interactions by removing much of the complexity and many of the challenges associated with traditional approaches to software development.

~~In 2016 and 2017, we~~We have generated the majority of our revenue from sales of subscriptions, ~~software and support,~~ which include (1) SaaS subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support. ~~To a lesser extent, we also generate revenue from the sale of perpetual software license agreements and associated maintenance and support agreements.~~

Our subscription fees are based primarily on the number of users who access and utilize the applications built on our ~~platform.~~platform or, alternatively, non-user based single application licenses. Our customer contract terms generally vary from one to ~~five years, with an average length of~~ three years with most providing for payment in advance on an annual, quarterly, or monthly basis. Due to the variability of our billing terms and the episodic nature of our customers purchasing additional subscriptions, we do not believe ~~that~~ changes in our deferred revenue in a given period are directly correlated with our revenue growth.

Since inception, we have invested in our ~~professional services~~Customer Success organization to help ensure ~~that~~ customers are able to build and deploy applications on our platform. We have several strategic partnerships, including with ~~Deloitte,~~ KPMG, PwC, Accenture, and ~~PricewaterhouseCoopers~~Deloitte, for them to refer customers to us in order to purchase subscriptions and then to provide professional services directly to the customers using our platform. We intend to further grow our base of strategic partners to provide broader customer coverage and solution delivery capabilities. In addition, over time we expect professional services revenue as a percentage of total revenue to decline as we increasingly rely on strategic partners to help our customers deploy our software. We believe our

investment in professional services, including strategic partners building their practices around Appian, will drive increased adoption of our platform.

Our customers include financial services, ~~healthcare,~~ government, life sciences, telecommunications, media, energy, manufacturing, and transportation organizations. Generally, our sales force targets its efforts to organizations with over ~~1,000~~2,000 employees and $1$2 billion in annual revenue. Revenue from government agencies represented ~~14.2%~~19.8% and ~~15.4%~~20.4% of our total revenue in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, respectively, as compared to 19.0% and 16.8% of our total revenue in the three and six months ended June 30, 2020, respectively. No single end-customer accounted for more than 10% of our total revenue in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017. Revenue from government agencies represented 19.4% and 28.5% of our total revenue in the three and nine months ended September~~2021 or June 30, 2016, respectively. No single end-customer accounted for more than 10% of our total revenue in the three months ended September 30, 2016, although we had one customer that accounted for 10.5% of our total revenue in the nine months ended September 30, 2016.2020.

Our platform ~~is designed to be natively multi-lingual~~supports multiple languages to facilitate collaboration and address challenges in ~~multi-national~~multinational organizations. We offer our platform globally. In the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, 28.6%~~2021, 35.3% and ~~25.6%~~33.7%, respectively, of our total revenue was generated from customers outside of the United ~~States. In~~States as compared to 36.8% and 35.0% in the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, 23.1% and 18.6%, respectively, of our total revenue was generated from customers outside of the United States.~~2020, respectively. As of ~~September~~June 30, ~~2017,~~2021, we operated in 1112 countries. We believe ~~that~~ we have a significant opportunity to grow our international footprint. We are investing in new geographies, including through investment in direct and indirect sales channels, professional services, and customer support and implementation partners.

Recent Developments

~~In May 2017,~~

COVID-19

Beginning in late 2019 and continuing into 2021, the outbreak of the novel coronavirus disease, or COVID-19, has resulted in the declaration of a global pandemic and adversely affected economic activity across virtually all sectors and industries on a local, national, and global scale. The impact of COVID-19 on the economy and our business continues to be a fluid situation.

Operationally, we ~~closed~~remain focused on supporting our ~~IPO~~customers, employees, and communities during this time. We responded quickly to adopt a virtual corporate strategy consisting of ~~7,187,500 shares~~enabling most of our ~~Class A common stock~~employees to work productively from home while continuing to guard the health and safety of our teams, support our customers, and mitigate risk. We remain focused on ensuring continuity for our customers. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel, employee work locations, and marketing events.

Through June 30, 2021, we have not seen a meaningful adverse impact to our financial position, results of operations, and cash flows and liquidity as a result of COVID-19. While the verticals from which we have historically generated the majority of our revenue have been less impacted by COVID-19 to date, there may be impacts to our financial condition and results of operations in 2021 and beyond as a result of reduced demand for our products and services and longer sales cycles. The ultimate impact of COVID-19 on our business is not estimable at ~~an offering price~~this time and will be largely dependent upon a number of ~~$12.00 per share,~~factors outside of our control including ~~937,500 shares pursuant to~~ the ~~underwriters’ option to purchase additional Class A shares, resulting in net proceeds to us~~extent and duration of ~~$77.8 million, after deducting underwriting discounts~~the outbreak as well as any mitigating actions which may be undertaken by global governments and ~~commissions of $6.0 million and offering expenses of $2.4 million.~~the general public.

Our Business Model

Our business model focuses on maximizing the lifetime value of customer relationships, which is a function of the duration of a customer’s deployment of ~~Appian~~our platform as well as the price and number of subscriptions of ~~Appian~~our platform that a customer purchases. The costs we incur with respect to any customer may exceed revenue from that customer in earlier periods because we generally recognize costs associated with customer acquisition faster than we generate and recognize the associated revenue. We incur significant customer acquisition costs, including expenses associated with hiring new sales representatives, who ~~generally~~can take ~~more than~~up to one year to become productive given the length of our sales cycle, and marketing costs, all of which, with the exception of sales commissions, are expensed as incurred.

Key Factors Affecting Our Performance

The following are several key factors that affect our performance:

•Market Adoption of Our Platform. Our ability to grow our customer base and drive market adoption of our platform is affected by the pace at which organizations digitally transform. We expect ~~that~~ our revenue growth will be primarily driven by the pace of adoption and penetration of our platform. We offer a leading custom software ~~development~~automation platform and intend to continue to invest to expand our customer base. The degree to which prospective customers recognize the need for low-code software that enables organizations to digitally transform, and subsequently allocate budget dollars to purchase our software, will drive our ability to acquire new customers and increase sales to existing customers, which, in turn, will affect our future financial performance.

•Growth of Our Customer Base. We believe we have a substantial opportunity to grow our customer base. We define a customer as an entity with an active subscription or maintenance and support contract related to a perpetual software license as of the specified measurement date. Furthermore, we define a new customer as an entity that has entered into its first active subscription or maintenance and support contract within one calendar year of the specified measurement date while existing customers are defined as entities that have maintained an active subscription or maintenance and support contract for at least one calendar year from the specified measurement date. To the extent we contract with one or more entities under common control, we count those entities as separate customers. We have aggressively invested, and intend to continue to invest in, our sales force in order to drive sales to new customers. ~~In particular, we have recently made, and plan to~~We continue to make investments to enhance the expertise of our sales and marketing organization within our key industry verticals of financial services, ~~healthcare~~government, and ~~government.~~life sciences. In addition, we have established relationships with strategic partners who work with organizations undergoing digital transformations. Our ability to continue to grow our customer base is dependent, in part, upon our ability to ~~compete~~differentiate ourselves within the increasingly competitive markets in which we participate.


Delaware			54-1956084
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

~~Delaware~~		~~54-1956084~~
~~(State or other jurisdiction of~~7950 Jones Branch Drive ~~incorporation or organization)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~

~~11955 Democracy Drive, Suite 1700~~ ~~Reston,~~McLean, VA		~~20190~~22102
(Address of principal executive offices)			(Zip Code)


Title of each class	Trading symbol	Name of each exchange on which registered
Class A Common Stock	APPN	The Nasdaq Stock Market LLC


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	13
	Condensed Consolidated Balance Sheets as of ~~September~~Jun e 30 ~~2017~~, 2021 (unaudited) and December 31, ~~2016~~2020	13
	Condensed Consolidated Statements of Operations for the three and ~~nine~~ six months ended ~~September~~June 30 ~~2017~~, 2021 and ~~September~~June 30 ~~2016~~, 2020 (unaudited)	24
	Condensed Consolidated Statements of Comprehensive Loss for the three and ~~nine~~ six months ended ~~September~~June 30 ~~2017~~, 2021 and ~~September 30, 2016~~June 3 0 , 2020 (unaudited)	35
	Condensed Consolidated Statement s of Changes in Stockholders’ Equity ~~(Deficit)~~ for the ~~nine~~ three and six months ended ~~September~~June 3 0 , 2021 and J une 30 ~~2017~~, 2020 (unaudited)	46
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September 30, 2017~~J une 3 0 , 2021 and ~~September 30, 2016~~J une 3 0 , 2020 (unaudited)	58
	Notes to Condensed Consolidated Financial Statements (unaudited)	69

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1925
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3342
Item 4.	Controls and Procedures	3342

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	3544
Item 1A.	Risk Factors	3544
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6144
Item 3.	Defaults Upon Senior Securities	6244
Item 4.	Mine Safety Disclosures	6244
Item 5.	Other Information	6244
Item 6.	Exhibits	6345
~~Signature~~Signatur es		6347



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Consolidated Statements of Operations Data:
Revenue:
Subscriptions, software and support	50.8	%	57.5	%	52.4	%	51.0	%
Professional services	49.2		42.5		47.6		49.0
Total revenue	100.0		100.0		100.0		100.0
Cost of revenue:
Subscriptions, software and support	5.2		6.1		5.5		5.6
Professional services	32.0		30.3		30.9		34.3
Total cost of revenue	37.2		36.4		36.4		39.9
Gross margin	62.8		63.6		63.6		60.1
Operating expenses:
Sales and marketing	44.2		47.1		47.2		39.8
Research and development	19.3		21.8		20.5		17.1
General and administrative	14.0		14.7		15.6		12.9
Total operating expenses	77.5		83.6		83.3		69.8
Operating loss	(14.7	)	(20.0	)	(19.7	)	(9.7	)
Other (income) expense:
Other (income) expense, net	(1.0	)	(0.2	)	(1.3	)	0.1
Interest (income) expense	—		0.8		0.4		0.7
Total other (income) expense	(1.0	)	0.6		(0.9	)	0.8
Net loss before income taxes	(13.7	)	(20.6	)	(18.8	)	(10.5	)
Income tax expense (benefit)	0.4		(5.2	)	0.4		(2.1	)
Net loss	(14.1	)%	(15.4	)%	(19.2	)%	(8.4	)%



	Three Months Ended September 30,						% Change
	2017			2016
	(dollars in thousands)
Cost of revenue:
Subscriptions, software and support	$	2,341		$	1,890		23.9	%
Professional services	14,272			9,315			53.2
Total cost of revenue	$	16,613		$	11,205		48.3
Subscriptions, software and support gross margin	89.7		%	89.3		%
Professional services gross margin	35.1			28.8
Total gross margin	62.8			63.6



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	As of September 30, 2017			As of December 31, 2016
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	72,289		$	31,143
Accounts receivable, net of allowance of $400	41,399			46,814
Deferred commissions, current	7,719			7,146
Prepaid expenses and other current assets	6,318			3,281
Total current assets	127,725			88,384
Property and equipment, net	2,737			3,101
Deferred commissions, net of current portion	11,343			10,860
Deferred tax assets	107			12
Other assets	414			381
Total assets	$	142,326		$	102,738
Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable	$	2,712		$	5,057
Accrued expenses	5,977			2,860
Accrued compensation and related benefits	9,742			9,554
Deferred revenue, current	57,181			52,000
Current portion of long-term debt	—			6,111
Other current liabilities	574			437
Total current liabilities	76,186			76,019
Long-term debt, net of current portion	—			13,889
Deferred tax liabilities	35			32
Deferred revenue, net of current portion	14,577			18,108
Preferred stock warrant liability	—			850
Other long-term liabilities	1,624			1,917
Total liabilities	92,422			110,815
Convertible preferred stock
Series A convertible preferred stock—par value $0.0001; no shares authorized, issued or outstanding as of September 30, 2017; 12,127,468 shares authorized and 12,043,108 shares issued and outstanding as of December 31, 2016	—			17,915
Series B convertible preferred stock—par value $0.0001; no shares authorized, issued or outstanding as of September 30, 2017; 6,120,050 shares authorized, issued and outstanding as of December 31, 2016	—			37,500
Stockholders’ equity (deficit)
Common stock—par value $0.0001; no shares authorized, issued or outstanding as of September 30, 2017; 61,462,320 shares authorized and 34,274,718 shares issued and outstanding as of December 31, 2016	—			3
Class A common stock—par value $0.0001; 500,000,000 shares authorized and 7,203,271 shares issued and outstanding as of September 30, 2017; no shares authorized, issued or outstanding as of December 31, 2016	1			—
Class B common stock—par value $0.0001; 100,000,000 shares authorized and 53,073,459 shares issued and outstanding as of September 30, 2017; no shares authorized, issued or outstanding as of December 31, 2016	5			—
Additional paid-in capital	138,767			—
Accumulated other comprehensive income	451			1,330
Accumulated deficit	(89,320		)	(64,825		)
Total stockholders’ equity (deficit)	49,904			(63,492		)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)	$	142,326		$	102,738



						Accumulated Other Comprehensive Income (Loss)						Total Stockholders' Equity (Deficit)
	Common Stock			Additional Paid-In Capital					Accumulated Deficit
	Shares	Amount		Additional Paid-In Capital					Accumulated Deficit
Balance, January 1, 2017	34,274,718	$	3	$	—	$	1,330		$	(64,825	)	$	(63,492	)
Net loss	—	—		—		—			(24,138		)	(24,138		)
Accretion of dividends on convertible preferred stock	—	—		—		—			(357		)	(357		)
Conversion of convertible preferred stock to common stock	18,163,158	2		48,205		—			—			48,207
Conversion of convertible preferred stock warrant to common stock warrant	—	—		1,191		—			—			1,191
Issuance of common stock from initial public offering, net of issuance costs	7,187,500	1		77,788		—			—			77,789
Exercise of common stock warrant	79,363	—		—		—			—			—
Issuance of common stock to directors	10,841	—		—		—			—			—
Vesting of restricted stock units	4,930	—		—		—			—			—
Exercise of stock options	556,220	—		664		—			—			664
Stock-based compensation expense	—	—		10,919		—			—			10,919
Other comprehensive loss	—	—		—		(879		)	—			(879		)
Balance, September 30, 2017	60,276,730	$	6	$	138,767	$	451		$	(89,320	)	$	49,904



	December 31, 2016		Level 1		Level 2		Level 3
Liabilities:
Series A convertible preferred stock warrant(1)	$	850	$	—	$	—	$	850
	$	850	$	—	$	—	$	850



	September 30, 2017		December 31, 2016
Accrued contract labor costs	$	3,122	$	743
Accrued audit and tax expenses	364		358
Accrued reimbursable employee expenses	285		134
Accrued marketing and tradeshow expenses	251		111
Other accrued expenses	1,955		1,514
Total	$	5,977	$	2,860



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2017	6,784,448		$	4.65	6.5	$	44,259
Granted	1,252,200		11.89
Exercised	(556,220	)	1.19			8,386
Canceled	(96,500	)	6.30
Outstanding at September 30, 2017	7,383,928		6.16		6.7	164,688
Exercisable at September 30, 2017	2,992,648		1.85		3.8	79,636



	Number of Shares		Weighted Average Grant Date Fair Value
Non-vested outstanding at December 31, 2016	—		$	—
Granted	47,855		20.38
Vested	(4,930	)	20.24
Canceled	—		—
Non-vested outstanding at September 30, 2017	42,925		20.40



	Three Months Ended		Nine Months Ended
	September 30, 2017		September 30, 2017
Stock-based compensation expense related to stock option modifications	$	—	$	2,394
Cumulative stock-based compensation expense related to stock options recorded upon effectiveness of our IPO	—		6,236
Post-IPO stock-based compensation expense related to stock options	1,440		2,025
Stock-based compensation expense related to the issuance of common stock to directors	—		130
Stock-based compensation expense related to restricted stock units	134		134
Total stock-based compensation expense	$	1,574	$	10,919



	Series A Convertible Preferred Stock					Series B Convertible Preferred Stock
	Amount			Shares		Amount			Shares
Balance as of January 1, 2017	$	17,915		12,043,108		$	37,500		6,120,050
Accretion of dividends on convertible preferred stock	357			—		—			—
Payment of accrued dividend to Series A convertible preferred stockholders	(7,565		)	—		—			—
Conversion of convertible preferred stock to common stock	(10,707		)	(12,043,108	)	(37,500		)	(6,120,050	)
Balance as of September 30, 2017	$	—		—		$	—		—


	As of June 30,
	2021		2020
Cloud subscription revenue retention rate	121	%	113	%


~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.~~

			Description						Reference
~~(a)~~10.1			~~Recent Sales of Unregistered Equity Securities~~

			Appian Corporation Employee Stock Purchase Plan†
~~(b)~~	~~Use of Proceeds~~


~~(2)~~	Previously filed as Exhibit 3.4 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-217510), filed with the Securities and Exchange Commission on May 10, 2017, and incorporated herein by reference.


~~(3)~~	Previously filed as Exhibit 4.1 to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-217510), filed with the Securities and Exchange Commission on May 12, 2017, and incorporated herein by reference.



#	~~Filed herewith.~~
*	This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.