UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~June~~September 30, 2022


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

For the transition period from to

Commission File Number: 001-38098

APPIAN CORPORATION

(Exact Name of Registrant as Specified in its Charter)


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

7950 Jones Branch Drive McLean, VA						22102
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (703) 442-8844

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Small reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 1,~~October 31, 2022, there were ~~40,952,035~~41,049,803 shares of the registrant’s Class A common stock and 31,497,796 shares of the registrant’s Class B common stock, each with a par value of $0.0001 per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of ~~June~~September 30, 2022 and December 31, 2021	3
	Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021	4
	Consolidated Statements of Comprehensive Loss for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021	5
	Consolidated Statements of Changes in Stockholders’ Equity for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021	6
	Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021	78
	Notes to Condensed Consolidated Financial Statements	89

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2627
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4244
Item 4.	Controls and Procedures	4244

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	4446
Item 1A.	Risk Factors	4446
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4446
Item 3.	Defaults Upon Senior Securities	4547
Item 4.	Mine Safety Disclosures	4547
Item 5.	Other Information	4547
Item 6.	Exhibits	4649
Signatures		4750

PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

APPIAN CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)


		As of					As of
		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(unaudited)					(unaudited)
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	76,185	$	100,796	Cash and cash equivalents	$	51,802	$	100,796
Short-term investments and marketable securities	Short-term investments and marketable securities	59,748		55,179		Short-term investments and marketable securities	40,885		55,179
Accounts receivable, net of allowance of $1,401 and $1,400, respectively		120,424		130,049
Accounts receivable, net of allowance of $1,901 and $1,400, respectively						Accounts receivable, net of allowance of $1,901 and $1,400, respectively	143,385		130,049
Deferred commissions, current	Deferred commissions, current	26,792		24,668		Deferred commissions, current	27,874		24,668
Prepaid expenses and other current assets	Prepaid expenses and other current assets	31,515		26,781		Prepaid expenses and other current assets	31,976		26,781
Restricted cash, current	Restricted cash, current	728		791		Restricted cash, current	2,053		791
Total current assets	Total current assets	315,392		338,264		Total current assets	297,975		338,264
Property and equipment, net of accumulated depreciation of $16,845 and $14,106, respectively		38,539		36,913
Property and equipment, net of accumulated depreciation of $18,189 and $14,106, respectively						Property and equipment, net of accumulated depreciation of $18,189 and $14,106, respectively	38,692		36,913
Long-term investments	Long-term investments	2,022		12,044		Long-term investments	—		12,044
Goodwill	Goodwill	25,597		27,795		Goodwill	24,045		27,795
Intangible assets, net of accumulated amortization of $1,899 and $1,260, respectively		5,840		7,144
Intangible assets, net of accumulated amortization of $2,131 and $1,260, respectively						Intangible assets, net of accumulated amortization of $2,131 and $1,260, respectively	5,139		7,144
Right-of-use assets for operating leases	Right-of-use assets for operating leases	27,113		27,897		Right-of-use assets for operating leases	31,841		27,897
Deferred commissions, net of current portion	Deferred commissions, net of current portion	48,671		49,017		Deferred commissions, net of current portion	51,526		49,017
Deferred tax assets	Deferred tax assets	2,035		1,025		Deferred tax assets	2,518		1,025
Restricted cash, net of current portion	Restricted cash, net of current portion	2,185		2,373		Restricted cash, net of current portion	—		2,373
Other assets	Other assets	2,235		2,047		Other assets	2,824		2,047
Total assets	Total assets	$	469,629	$	504,519	Total assets	$	454,560	$	504,519
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	6,783	$	5,766	Accounts payable	$	5,082	$	5,766
Accrued expenses	Accrued expenses	16,378		15,483		Accrued expenses	12,710		15,483
Accrued compensation and related benefits	Accrued compensation and related benefits	29,330		35,126		Accrued compensation and related benefits	35,408		35,126
Deferred revenue, current	Deferred revenue, current	151,266		150,169		Deferred revenue, current	161,154		150,169
Operating lease liabilities, current	Operating lease liabilities, current	7,988		8,110		Operating lease liabilities, current	7,434		8,110
Other current liabilities	Other current liabilities	581		1,067		Other current liabilities	2,603		1,067
Total current liabilities	Total current liabilities	212,326		215,721		Total current liabilities	224,391		215,721
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	47,210		48,784		Operating lease liabilities, net of current portion	52,710		48,784
Deferred revenue, net of current portion	Deferred revenue, net of current portion	1,786		2,430		Deferred revenue, net of current portion	3,408		2,430
Deferred tax liabilities	Deferred tax liabilities	85		209		Deferred tax liabilities	153		209
Other non-current liabilities	Other non-current liabilities	3,162		3,458		Other non-current liabilities	956		3,458
Total liabilities	Total liabilities	264,569		270,602		Total liabilities	281,618		270,602
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Class A common stock—par value $0.0001; 500,000,000 shares authorized and 40,946,718 shares issued and outstanding as of June 30, 2022; 500,000,000 shares authorized and 39,964,298 shares issued and outstanding as of December 31, 2021		4		4
Class B common stock—par value $0.0001; 100,000,000 shares authorized and 31,497,796 shares issued and outstanding as of June 30, 2022; 100,000,000 shares authorized and 31,497,796 shares issued and outstanding as of December 31, 2021		3		3
Class A common stock—par value $0.0001; 500,000,000 shares authorized and 41,043,099 shares issued and outstanding as of September 30, 2022; 500,000,000 shares authorized and 39,964,298 shares issued and outstanding as of December 31, 2021						Class A common stock—par value $0.0001; 500,000,000 shares authorized and 41,043,099 shares issued and outstanding as of September 30, 2022; 500,000,000 shares authorized and 39,964,298 shares issued and outstanding as of December 31, 2021	4		4
Class B common stock—par value $0.0001; 100,000,000 shares authorized and 31,497,796 shares issued and outstanding as of September 30, 2022; 100,000,000 shares authorized and 31,497,796 shares issued and outstanding as of December 31, 2021						Class B common stock—par value $0.0001; 100,000,000 shares authorized and 31,497,796 shares issued and outstanding as of September 30, 2022; 100,000,000 shares authorized and 31,497,796 shares issued and outstanding as of December 31, 2021	3		3
Additional paid-in capital	Additional paid-in capital	538,249		497,128		Additional paid-in capital	549,760		497,128
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(3,157)		(5,687)		Accumulated other comprehensive loss	(2,790)		(5,687)
Accumulated deficit	Accumulated deficit	(330,039)		(257,531)		Accumulated deficit	(374,035)		(257,531)
Total stockholders’ equity	Total stockholders’ equity	205,060		233,917		Total stockholders’ equity	172,942		233,917
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	469,629	$	504,519	Total liabilities and stockholders’ equity	$	454,560	$	504,519

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

APPIAN CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Revenue	Revenue									Revenue
Subscriptions	Subscriptions	$	76,668	$	56,946	$	160,388	$	120,712	Subscriptions	$	86,520	$	67,240	$	246,908	$	187,952
Professional services	Professional services	33,395		26,053		63,941		51,142		Professional services	31,356		25,177		95,297		76,319
Total revenue	Total revenue	110,063		82,999		224,329		171,854		Total revenue	117,876		92,417		342,205		264,271
Cost of revenue	Cost of revenue									Cost of revenue
Subscriptions	Subscriptions	8,528		6,860		16,751		12,714		Subscriptions	9,313		7,092		26,065		19,806
Professional services	Professional services	24,765		18,975		47,563		36,650		Professional services	24,447		19,415		72,011		56,065
Total cost of revenue	Total cost of revenue	33,293		25,835		64,314		49,364		Total cost of revenue	33,760		26,507		98,076		75,871
Gross profit	Gross profit	76,770		57,164		160,015		122,490		Gross profit	84,116		65,910		244,129		188,400
Operating expenses	Operating expenses									Operating expenses
Sales and marketing	Sales and marketing	56,166		40,520		102,192		76,504		Sales and marketing	54,912		42,071		157,104		118,575
Research and development	Research and development	33,842		23,862		63,778		44,552		Research and development	37,623		26,510		101,401		71,062
General and administrative	General and administrative	29,509		17,358		60,658		36,500		General and administrative	29,357		20,226		90,014		56,726
Total operating expenses	Total operating expenses	119,517		81,740		226,628		157,556		Total operating expenses	121,892		88,807		348,519		246,363
Operating loss	Operating loss	(42,747)		(24,576)		(66,613)		(35,066)		Operating loss	(37,776)		(22,897)		(104,390)		(57,963)
Other non-operating expense (income)
Other expense (income), net		6,153		(1,081)		6,940		1,812
Other non-operating expense										Other non-operating expense
Other expense, net										Other expense, net	5,876		2,329		12,815		4,141
Interest expense	Interest expense	60		80		134		161		Interest expense	89		72		222		233
Total other non-operating expense (income)		6,213		(1,001)		7,074		1,973
Total other non-operating expense										Total other non-operating expense	5,965		2,401		13,037		4,374
Loss before income taxes	Loss before income taxes	(48,960)		(23,575)		(73,687)		(37,039)		Loss before income taxes	(43,741)		(25,298)		(117,427)		(62,337)
Income tax expense (benefit)	Income tax expense (benefit)	394		250		(1,179)		373		Income tax expense (benefit)	255		86		(924)		459
Net loss	Net loss	$	(49,354)	$	(23,825)	$	(72,508)	$	(37,412)	Net loss	$	(43,996)	$	(25,384)	$	(116,503)	$	(62,796)
Net loss per share:	Net loss per share:									Net loss per share:
Basic and diluted	Basic and diluted	$	(0.68)	$	(0.34)	$	(1.00)	$	(0.53)	Basic and diluted	$	(0.61)	$	(0.36)	$	(1.61)	$	(0.89)
Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic and diluted	Basic and diluted	72,390		70,953		72,272		70,842		Basic and diluted	72,503		71,119		72,372		70,936

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

APPIAN CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited, in thousands)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Net loss	Net loss	$	(49,354)	$	(23,825)	$	(72,508)	$	(37,412)	Net loss	$	(43,996)	$	(25,384)	$	(116,503)	$	(62,796)
Comprehensive income (loss), net of income taxes	Comprehensive income (loss), net of income taxes									Comprehensive income (loss), net of income taxes
Foreign currency translation adjustments	Foreign currency translation adjustments	1,967		(1,474)		2,724		2,541		Foreign currency translation adjustments	308		28		3,032		2,569
Unrealized (losses) gains on available-for-sale securities		(83)		23		(194)		31
Unrealized gains (losses) on available-for-sale securities										Unrealized gains (losses) on available-for-sale securities	59		—		(135)		31
Total other comprehensive loss, net of income taxes	Total other comprehensive loss, net of income taxes	$	(47,470)	$	(25,276)	$	(69,978)	$	(34,840)	Total other comprehensive loss, net of income taxes	$	(43,629)	$	(25,356)	$	(113,606)	$	(60,196)

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

APPIAN CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(unaudited, in thousands, except share data)


								Accumulated Other Comprehensive (Loss) Income									Total Stockholders' Equity																			Accumulated Other Comprehensive (Loss) Income									Total Stockholders' Equity
		Common Stock			Additional Paid-In Capital					Accumulated Deficit						Common Stock											Additional Paid-In Capital						Accumulated Deficit
		Shares	Amount				Accumulated Other Comprehensive (Loss) Income									Shares							Amount							Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2021	Balance, December 31, 2021	71,462,094	$	7						$	497,128			$	(5,687)					$	(257,531)				$	233,917						Balance, December 31, 2021		71,462,094				$	7				$	497,128				$	(5,687)	$	(257,531)	$	233,917
Net loss	Net loss	—	—		—					—		(23,154)							(23,154)			Net loss		—					—						—				—			(23,154)					(23,154)
Issuance of common stock to directors	Issuance of common stock to directors	2,395	—		—			—				—					—			Issuance of common stock to directors		2,395					—				—					—				—					—
Vesting of restricted stock units	Vesting of restricted stock units	47,038	—		—			—				—					—			Vesting of restricted stock units		47,038					—				—					—				—					—
Exercise of stock options	Exercise of stock options	815,833	—		24,404			—				—					24,404			Exercise of stock options		815,833					—				24,404					—				—					24,404
Stock-based compensation expense	Stock-based compensation expense	—	—		6,943			—				—					6,943			Stock-based compensation expense		—					—				6,943					—				—					6,943
Other comprehensive income	Other comprehensive income	—	—		—			646				—					646			Other comprehensive income		—					—				—					646				—					646
Balance, March 31, 2022	Balance, March 31, 2022	72,327,360	$	7	$	528,475		$	(5,041)			$	(280,685)				$	242,756		Balance, March 31, 2022		72,327,360					7				528,475					(5,041)				(280,685)					242,756
Net loss	Net loss	—	—		—			—				(49,354)					(49,354)			Net loss		—					—				—					—				(49,354)					(49,354)
Issuance of common stock to directors	Issuance of common stock to directors	2,565	—		—			—				—					—			Issuance of common stock to directors		2,565					—				—					—				—					—
Vesting of restricted stock units	Vesting of restricted stock units	52,634	—		—			—				—					—			Vesting of restricted stock units		52,634					—				—					—				—					—
Exercise of stock options	Exercise of stock options	61,955	—		626			—				—					626			Exercise of stock options		61,955					—				626					—				—					626
Stock-based compensation expense	Stock-based compensation expense	—	—		9,148			—				—					9,148			Stock-based compensation expense		—					—				9,148					—				—					9,148
Other comprehensive income	Other comprehensive income	—	—		—			1,884				—					1,884			Other comprehensive income		—					—				—					1,884				—					1,884
Balance, June 30, 2022	Balance, June 30, 2022	72,444,514	$	7	$	538,249		$	(3,157)			$	(330,039)				$	205,060		Balance, June 30, 2022		72,444,514					7				538,249					(3,157)				(330,039)					205,060

Net loss																				Net loss		—					—				—					—				(43,996)					(43,996)
Issuance of common stock to directors																				Issuance of common stock to directors		4,613					—				—					—				—					—
Vesting of restricted stock units																				Vesting of restricted stock units		67,164					—				—					—				—					—
Exercise of stock options																				Exercise of stock options		24,604					—				175					—				—					175
Stock-based compensation expense																				Stock-based compensation expense		—					—				11,336					—				—					11,336
Other comprehensive income																				Other comprehensive income		—					—				—					367				—					367
Balance, September 30, 2022																				Balance, September 30, 2022		72,540,895					$	7			$	549,760				$	(2,790)			$	(374,035)				$	172,942

Balance, December 31, 2020 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

APPIAN CORPORATION

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, December 31, 2020	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
Net loss	—	—		—		—		(25,384)		(25,384)
Issuance of common stock to directors	1,130	—		—		—		—		—
Vesting of restricted stock units	38,148	—		—		—		—		—
Exercise of stock options	46,960	—		286		—		—		286
Stock-based compensation expense	—	—		5,200		—		—		5,200
Other comprehensive loss	—	—		—		28		—		28
Balance, September 30, 2021	71,166,833	$	7	$	490,565	$	(2,410)	$	(231,686)	$	256,476

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

APPIAN CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net loss	Net loss	$	(72,508)	$	(37,412)	Net loss	$	(116,503)	$	(62,796)
Adjustments to reconcile net loss to net cash used by operating activities	Adjustments to reconcile net loss to net cash used by operating activities					Adjustments to reconcile net loss to net cash used by operating activities
Stock-based compensation	Stock-based compensation	16,091		12,492		Stock-based compensation	27,427		17,692
Depreciation and amortization	Depreciation and amortization	3,573		2,561		Depreciation and amortization	5,332		4,071
Bad debt expense	Bad debt expense	(1)		32		Bad debt expense	561		61

Loss on disposal of property and equipment						Loss on disposal of property and equipment	—		78
Change in fair value of available-for-sale securities	Change in fair value of available-for-sale securities	—		(31)		Change in fair value of available-for-sale securities	—		(31)
Deferred income taxes	Deferred income taxes	(1,302)		(144)		Deferred income taxes	(1,549)		(522)
Changes in assets and liabilities	Changes in assets and liabilities					Changes in assets and liabilities
Accounts receivable	Accounts receivable	12,132		16,720		Accounts receivable	(9,114)		(10,005)
Prepaid expenses and other assets	Prepaid expenses and other assets	(5,334)		243		Prepaid expenses and other assets	(6,723)		2,734
Deferred commissions	Deferred commissions	(1,777)		(7,340)		Deferred commissions	(5,715)		(11,570)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	2,098		3,000		Accounts payable and accrued expenses	(3,654)		10,797
Accrued compensation and related benefits	Accrued compensation and related benefits	(4,923)		2,808		Accrued compensation and related benefits	1,634		5,782
Other current and non-current liabilities	Other current and non-current liabilities	(395)		(563)		Other current and non-current liabilities	(383)		2,858
Deferred revenue	Deferred revenue	2,990		(1,791)		Deferred revenue	15,414		6,829
Operating lease liabilities	Operating lease liabilities	(905)		52		Operating lease liabilities	(685)		(476)
Net cash used by operating activities	Net cash used by operating activities	(50,261)		(9,373)		Net cash used by operating activities	(93,958)		(34,498)
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Purchases of investments	Purchases of investments	(31,214)		—		Purchases of investments	(31,214)		—
Proceeds from investments	Proceeds from investments	36,473		27,604		Proceeds from investments	57,417		84,592

Payments for acquisitions, net of cash acquired						Payments for acquisitions, net of cash acquired	—		(30,729)
Purchases of property and equipment	Purchases of property and equipment	(4,685)		(1,027)		Purchases of property and equipment	(5,861)		(2,473)
Net cash provided by investing activities	Net cash provided by investing activities	574		26,577		Net cash provided by investing activities	20,342		51,390
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds from exercise of common stock options	Proceeds from exercise of common stock options	25,030		2,089		Proceeds from exercise of common stock options	25,205		2,375
Net cash provided by financing activities	Net cash provided by financing activities	25,030		2,089		Net cash provided by financing activities	25,205		2,375
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	(205)		(476)		Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	(1,694)		(1,367)
Net (decrease) increase in cash, cash equivalents, and restricted cash	Net (decrease) increase in cash, cash equivalents, and restricted cash	(24,862)		18,817		Net (decrease) increase in cash, cash equivalents, and restricted cash	(50,105)		17,900
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	103,960		112,462		Cash, cash equivalents, and restricted cash at beginning of period	103,960		112,462
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	79,098	$	131,279	Cash, cash equivalents, and restricted cash at end of period	$	53,855	$	130,362

Supplemental disclosure of cash flow information	Supplemental disclosure of cash flow information					Supplemental disclosure of cash flow information
Cash paid for interest	Cash paid for interest	$	145	$	173	Cash paid for interest	$	243	$	240
Cash paid for income taxes	Cash paid for income taxes	$	524	$	806	Cash paid for income taxes	$	749	$	1,196
Supplemental disclosure of non-cash investing and financing activities	Supplemental disclosure of non-cash investing and financing activities					Supplemental disclosure of non-cash investing and financing activities
Accrued capital expenditures	Accrued capital expenditures	$	96	$	—	Accrued capital expenditures	$	317	$	—

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

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization and Description of Business

Appian Corporation (together with its subsidiaries, “Appian,” the “Company,” “we,” or “our”) is a unified platform for change. We accelerate customers’ businesses by discovering, designing, and automating their most important processes. The Appian Low-Code Platform combines the key capabilities needed to get work done faster, Process Mining + Workflow + Automation, in a unified low-code platform. Appian is open, enterprise grade, and trusted by industry leaders.

We are headquartered in McLean, Virginia and operate both in the U.S. and internationally, including Australia, Canada, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

2. 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 (“U.S. GAAP”) as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for interim financial reporting. 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, 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 Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on February 17, 2022.

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 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, but are not limited to, revenue recognition, income taxes and the related valuation allowance, leases, costs to obtain a contract with a customer, the valuation of financial instruments, and stock-based compensation.

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.

Revenue Recognition

Refer to Note 3 for a detailed discussion on specific revenue recognition principles related to our major revenue streams.

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Cost of Revenue

Subscriptions

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

Professional Services

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, 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~~providing services related to significant professional services agreements sold on a standalone basis may cause significant fluctuations in our quarterly financial ~~results and allocated facility costs and overhead.~~results.

Concentration of Credit and Customer Risk

Our financial instruments exposed to concentration of credit and customer risk consist primarily of cash, cash equivalents, restricted cash, accounts receivable, and our short- and long-term investments. Deposits held with banks may exceed the amount of insurance provided on such deposits; however, we believe the financial institutions 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 no additional credit risk beyond amounts provided for collection loss are inherent in accounts receivable.~~ Revenue generated from government agencies represented ~~18.2% of our revenue for each of the three~~21.2% and ~~six months ended June 30, 2022, of which the top 3 U.S. federal government agencies generated 5.2% and 4.8%~~19.2% of our revenue for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, of which the top three U.S. federal government agencies generated 5.5% and 4.8% of our revenue for the three and nine months ended September 30, 2022, respectively. Additionally, ~~35.0%~~31.3% and ~~34.2%~~33.2% of our revenue during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, was generated from foreign customers. Revenue generated from government agencies represented ~~19.8%~~19.2% and ~~20.4%~~20.0% of our revenue for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively, of which the top 3three U.S. federal government agencies generated ~~6.5%~~7.5% and 6.3% of our revenue for ~~each of~~ the three and ~~six~~nine months ended ~~June~~September 30, ~~2021.~~2021, respectively. Additionally, ~~35.3%~~32.0% and ~~33.7%~~33.1% of our revenue during the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively, was generated from foreign customers.

Cash, Cash Equivalents, and Restricted Cash

We consider all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase, as well as overnight repurchase agreements, to be cash equivalents. Restricted cash consists of cash designated to settle an escrow liability stemming from a holdback agreement enacted pursuant to our acquisition of Lana Labs GmbH (“Lana Labs”). We paid 25% of the balance ~~becomes due~~ on ~~October 31,~~September 28, 2022, ~~while~~and the remaining 75% of the balance ~~becomes~~is due on August 11, 2023.

The following table presents a reconciliation of cash, cash equivalents, and restricted cash as presented in the consolidated statements of cash flows (in thousands):


		As of									As of
		June 30, 2022		December 31, 2021		June 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021		September 30, 2021		December 31, 2020
Cash and cash equivalents	Cash and cash equivalents	$	76,185	$	100,796	$	131,279	$	112,462	Cash and cash equivalents	$	51,802	$	100,796	$	127,122	$	112,462
Restricted cash, current	Restricted cash, current	728		791		—		—		Restricted cash, current	2,053		791		—		—
Restricted cash, net of current portion	Restricted cash, net of current portion	2,185		2,373		—		—		Restricted cash, net of current portion	—		2,373		3,240		—
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	$	79,098	$	103,960	$	131,279	$	112,462	Total cash, cash equivalents, and restricted cash	$	53,855	$	103,960	$	130,362	$	112,462

910

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 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. The allowance for doubtful accounts totaled $1.9 million and $1.4 million as of ~~June~~September 30, 2022 and December 31, 2021.

Assets Recognized from the Costs to Obtain a Contract with a Customer

We capitalize costs of obtaining a contract with a customer, which consists of sales commissions paid to our ~~direct~~ sales team, that are incremental costs to obtaining customer contracts. These costs are recorded as deferred commissions in the 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 paid relating to contract renewals are deferred and amortized over the related renewal period. We also capitalize the incremental fringe benefits associated with commission expenses paid to our direct sales team. Costs to obtain a contract for professional services arrangements are expensed as incurred as the contractual period of our professional services arrangements are one year or less.

Amortization associated with deferred commission is recorded to sales and marketing expense in our consolidated statements of operations. Commission expense was ~~$8.7~~$9.5 million and ~~$16.9~~$26.5 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. Commission expense was ~~$7.5~~$8.2 million and ~~$14.3~~$22.5 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. 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.

Investments and Fair Value of Financial Instruments

Refer to Note 15 for a detailed discussion on our policies specific to investments and determining fair value.

Stock-Based Compensation

Refer to Note 11 for a detailed discussion on our policies related to stock-based compensation.

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 option pricing model. The fair value of restricted stock units (“RSUs”) is based on the closing market price of our 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 awards that contain market conditions, compensation expense is measured using a Monte Carlo simulation and recognized using the accelerated attribution method over the derived service period based on the expected market performance as of the grant date. We account for forfeitures as they occur rather than estimating expected forfeitures.

Recent Accounting Pronouncements

Adopted

We did not adopt any new accounting guidance in 2022 that had a material impact on our condensed consolidated financial statements or disclosures.

Not Yet Adopted

There is no pending accounting guidance that we expect to have a material impact on our condensed consolidated financial statements or disclosures.

3. Revenue

Revenue Recognition

We generate subscriptions revenue primarily through the sale of cloud 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 recorded during the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Cloud subscriptions	Cloud subscriptions	$	57,083	$	42,486	$	110,462	$	81,539	Cloud subscriptions	$	60,621	$	46,699	$	171,083	$	128,238
Term license subscriptions	Term license subscriptions	14,063		9,323		38,770		29,176		Term license subscriptions	19,773		15,114		58,543		44,290
Maintenance and support	Maintenance and support	5,522		5,137		11,156		9,997		Maintenance and support	6,126		5,427		17,282		15,424
Total subscriptions	Total subscriptions	76,668		56,946		160,388		120,712		Total subscriptions	86,520		67,240		246,908		187,952
Professional services	Professional services	33,395		26,053		63,941		51,142		Professional services	31,356		25,177		95,297		76,319
Total revenue	Total revenue	$	110,063	$	82,999	$	224,329	$	171,854	Total revenue	$	117,876	$	92,417	$	342,205	$	264,271

Performance Obligations and Timing of Revenue Recognition

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 cloud subscriptions, maintenance and support, and professional services are delivered over time.

Subscriptions Revenue

~~APPIAN CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Subscriptions revenue is primarily related to (1) ~~Cloud~~cloud 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.

Cloud Subscriptions

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

We generate cloud-based subscriptions revenue primarily from the sales of subscriptions to access our cloud offering, together with related support services to our customers. We perform all required maintenance and support for our 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 term of one to three years in length. We bill customers and collect payment for subscriptions to our platform in advance, and they are non-cancellable.

Term License Subscriptions

Our term license subscription revenue is derived from customers with on-premises installations of our ~~platform pursuant to contracts that were historically~~ ~~one~~ ~~to three years in length.~~platform. The majority of ~~recent~~our contracts ~~have been~~are one year in length. Although term license subscriptions are sold with maintenance and support, the 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 the customer to take possession of the license and as such, the revenue is treated as a term license. Revenue from term license subscriptions is recognized when control of the software license has transferred to the customer, which is the 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 upgrades, which are treated as a single performance obligation as they are considered a series of distinct services that are substantially the same and have the same duration and measure of progress. Revenue from maintenance and support is recognized ratably over the contract period, which is the period over which the customer has continuous access to maintenance and support.

Professional Services Revenue

Our professional services revenue is comprised of fees for consulting services, including application development and deployment assistance as well as training services related to our platform. Our professional services are considered distinct performance obligations when sold standalone or with other products.

Consulting Services

We sell consulting services to assist customers in planning and executing the deployment of our software. Customers are not required to use consulting services to fully benefit from the software. Consulting services are regularly sold on a standalone basis and either (1) under a fixed-fee arrangement or (2) on a time and materials basis. Consulting services ~~contract~~contracts are 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 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 customer's ability to use the other consulting offerings or other products and 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 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.

~~APPIAN CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Significant Judgments and Estimates

Determining the Transaction Price

The transaction price is the total amount of consideration we expect to receive in exchange for the service offerings in a contract and may include both fixed and variable components. 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~~nine months ended ~~June~~September 30, 2022 and 2021 was insignificant. Our estimates of variable

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.Cloud subscriptions - Given the highly variable selling price of our cloud subscriptions, we establish the SSP of our cloud 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 cloud subscriptions is an appropriate allocation of the transaction price.

2.Term license subscriptions - Given the highly variable selling price of our term license subscriptions, we have established SSP of term license subscriptions using a residual approach after first determining the SSP of maintenance and 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 - 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 contracts with customers. Contract assets primarily relate to unbilled amounts for contracts with customers for which the amount of revenue recognized exceeds the amount billed to the customer. Contract assets are transferred to accounts receivable when the right to invoice becomes unconditional. As of ~~June~~September 30, 2022 and December 31, 2021, contract assets of ~~$15.2~~$15.3 million and $14.0 million, respectively, are included in the Prepaid expenses and other current assets and Other assets line items in our 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 recognized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current. For the ~~six~~nine months ended ~~June~~September 30, 2022, we recognized ~~$107.3~~$134.4 million of revenue that was included in the deferred revenue balance as of December 31, 2021.

Transaction Price Allocated to the Remaining Performance Obligations

As of ~~June~~September 30, 2022, we had an aggregate transaction price of ~~$298.0~~$319.9 million allocated to unsatisfied performance obligations. We expect to recognize ~~$192.8~~$209.6 million of this balance as revenue over the next 12 months with the remaining amount recognized thereafter.

~~APPIAN CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

4. Leases

As of ~~June~~September 30, 2022, our lease portfolio consists entirely of operating leases, most of which are for corporate offices. Our operating leases have remaining lease terms ~~of roughly 1 year to 10 years,~~with various expiration dates through 2031, and some ~~of which~~leases include options to extend the ~~leases~~term for up to an additional 10 years.

Lease Costs

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Expense for operating leases is recognized on a straight-line basis over the lease term as an operating 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.

The following table sets forth the components of lease expense for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Operating lease cost	Operating lease cost	$	1,626	$	1,695	$	3,260	$	3,325	Operating lease cost	$	1,708	$	1,659	$	4,968	$	4,984
Short-term lease cost	Short-term lease cost	76		13		164		54		Short-term lease cost	170		23		334		77
Variable lease cost	Variable lease cost	953		772		1,926		797		Variable lease cost	952		947		2,878		1,744
Total	Total	$	2,655	$	2,480	$	5,350	$	4,176	Total	$	2,830	$	2,629	$	8,180	$	6,805

Supplemental Lease Information

Supplemental balance sheet information related to operating leases as of ~~June~~September 30, 2022 and December 31, 2021 was as follows (in thousands, except for lease term and discount rate):

As of
June 30, 2022 December 31, 2021
Right-of-use assets for operating leases $ 27,113 $ 27,897
Operating lease liabilities, current $ 7,988 $ 8,110
Operating lease liabilities, net of current portion 47,210 48,784
Total operating lease liabilities $ 55,198 $ 56,894
Weighted average remaining lease term (in years) 9.1 9.5
Weighted average discount rate 9.5 % 9.5 %

~~APPIAN CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~


	As of
	September 30, 2022			December 31, 2021
Right-of-use assets for operating leases	$	31,841		$	27,897

Operating lease liabilities, current	$	7,434		$	8,110
Operating lease liabilities, net of current portion	52,710			48,784
Total operating lease liabilities	$	60,144		$	56,894

Weighted average remaining lease term (in years)	9.0			9.5

Weighted average discount rate	9.5		%	9.5		%

Supplemental cash flow and expense information related to operating leases for the ~~six~~three and nine months ended ~~June~~September 30, 2022 and 2021 was as follows (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Operating cash outflows for operating leases	Operating cash outflows for operating leases	$	2,074	$	1,754	$	4,159	$	3,503	Operating cash outflows for operating leases	$	2,099	$	1,792	$	6,258	$	5,295

Amortization of operating lease ROU assets	Amortization of operating lease ROU assets	325		353		631		677		Amortization of operating lease ROU assets	364		685		995		1,380
Interest expense on operating lease liabilities	Interest expense on operating lease liabilities	1,305		468		2,626		870		Interest expense on operating lease liabilities	1,332		521		3,957		1,448

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

A summary of our future minimum lease commitments under non-cancellable leases as of ~~June~~September 30, 2022 is as follows (in thousands):


		Operating Leases			Operating Leases
2022 (excluding the six months ended June 30, 2022)		$	4,243
2022 (excluding the nine months ended September 30, 2022)				2022 (excluding the nine months ended September 30, 2022)	$	2,040
2023	2023	8,273		2023	8,367
2024	2024	8,584		2024	9,464
2025	2025	9,283		2025	10,202
2026	2026	9,357		2026	10,603
2027				2027	10,892
Thereafter	Thereafter	48,775		Thereafter	44,762
Total lease payments	Total lease payments	88,515		Total lease payments	96,330
Less: imputed interest	Less: imputed interest	(33,317)		Less: imputed interest	(36,186)
Total	Total	$	55,198	Total	$	60,144

5. Business Combinations

In August 2021, we acquired 100% of the outstanding common stock of Lana Labs, a developer of process mining software, for approximately $30.7 million, net of cash acquired and debt. The acquisition was made due to the attractive nature of the product offerings of Lana Labs and in furtherance of our objective to enhance our automation platform. The transaction was financed through available cash on hand.

The allocation of the purchase price ~~is preliminary pending~~was based upon the ~~finalization~~fair value of ~~deferred income taxes.~~the assets acquired and liabilities assumed. As of the acquisition date, the purchase price was assigned to the acquired assets and assumed liabilities as follows (in thousands):


Cash acquired	$	256
Other current assets	106
Property and equipment	59
Developed technology	5,974
Customer relationships	750
Goodwill	24,521
Other non-current assets	27
Total assets acquired	31,693
Current liabilities	638
Non-current liabilities	38
Total liabilities assumed	676
Net assets acquired	$	31,017

~~APPIAN CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

There were no changes to our reportable segments as a result of the acquisition, and acquisition costs incurred in relation to the transaction were immaterial. We do not expect the purchase price allocated to goodwill and intangible assets to be deductible for tax purposes.

~~Since~~During the third quarter of 2022, we finalized the fair value of the assets acquired and liabilities assumed in the acquisition, ~~date, measurement~~and the amounts presented above are now final. Measurement period adjustments, ~~have~~recorded during the first quarter of 2022, included a $0.8 million adjustment to developed technology and goodwill related to an update to the discount rate utilized in our valuation of intangibles, a $0.3 million increase in deferred revenue stemming from our early adoption of new accounting guidance surrounding deferred revenue recognized pursuant to a business combination, a $0.1 million deferred tax adjustment,

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

and an immaterial adjustment to working capital. No additional measurement period adjustments were recognized for the ~~six~~nine months ended ~~June~~September 30, 2022.

6. Goodwill and Intangible Assets

Goodwill was comprised of the following as of ~~June~~September 30, 2022 and December 31, 2021 (in thousands):


	Carrying Amount
Balance as of December 31, 2020	$	4,862
Goodwill acquired	24,521
Foreign currency translation adjustments	(1,588)
Balance as of December 31, 2021	27,795
Goodwill acquired	—
Foreign currency translation adjustments	~~(2,198)~~(3,750)
Balance as of ~~June~~September 30, 2022	$	~~25,597~~24,045

Intangible assets, net consisted of the following as of ~~June~~September 30, 2022 and December 31, 2021 (in thousands):


		As of					As of
		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Developed technology	Developed technology	$	6,696	$	7,271	Developed technology	$	6,290	$	7,271
Customer relationships - Non-Robotic Process Automation (“RPA”)	Customer relationships - Non-Robotic Process Automation (“RPA”)	803		872		Customer relationships - Non-Robotic Process Automation (“RPA”)	754		872
Customer relationships - RPA	Customer relationships - RPA	240		261		Customer relationships - RPA	226		261
Intangible assets, gross	Intangible assets, gross	7,739		8,404		Intangible assets, gross	7,270		8,404
Less: accumulated amortization	Less: accumulated amortization	(1,899)		(1,260)		Less: accumulated amortization	(2,131)		(1,260)
Intangible assets, net	Intangible assets, net	$	5,840	$	7,144	Intangible assets, net	$	5,139	$	7,144

Intangible amortization expense was ~~$0.4~~$0.4 million and ~~$0.8~~$1.1 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. Intangible amortization expense was ~~$0.1~~$0.3 million and ~~$0.2~~$0.5 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. As of ~~June~~September 30, 2022, the weighted average remaining amortization periods for developed technology, non-RPA customer relationships, and RPA customer relationships were approximately ~~3.9~~3.7 years ~~8.8~~, 8.7 years, and ~~7.5~~7.3 years, respectively.

The projected annual amortization expense related to amortizable intangible assets as of ~~June~~September 30, 2022 is as follows (in thousands):


		Projected Amortization			Projected Amortization
2022 (excluding the six months ended June 30, 2022)		$	739
2022 (excluding the nine months ended September 30, 2022)				2022 (excluding the nine months ended September 30, 2022)	$	347
2023	2023	1,429		2023	1,342
2024	2024	1,429		2024	1,342
2025	2025	1,137		2025	1,068
2026	2026	731		2026	687
2027				2027	84
Thereafter	Thereafter	375		Thereafter	269
Total projected amortization expense	Total projected amortization expense	$	5,840	Total projected amortization expense	$	5,139

7. Property and Equipment, net

Property and equipment, net consisted of the following as of ~~June~~September 30, 2022 and December 31, 2021 (in thousands):


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Leasehold improvements	Leasehold improvements	$	42,892	$	41,005	Leasehold improvements	$	43,308	$	41,005
Office furniture and fixtures	Office furniture and fixtures	3,224		2,536		Office furniture and fixtures	3,224		2,536
Computer hardware	Computer hardware	7,675		6,001		Computer hardware	8,761		6,001
Computer software	Computer software	1,353		1,353		Computer software	1,353		1,353
Equipment	Equipment	240		124		Equipment	235		124
Property and equipment, gross	Property and equipment, gross	55,384		51,019		Property and equipment, gross	56,881		51,019
Less: accumulated depreciation	Less: accumulated depreciation	(16,845)		(14,106)		Less: accumulated depreciation	(18,189)		(14,106)
Property and equipment, net	Property and equipment, net	$	38,539	$	36,913	Property and equipment, net	$	38,692	$	36,913

Depreciation expense totaled ~~$1.4~~$1.4 million and ~~$2.8~~$4.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. Depreciation expense totaled $1.2 million and ~~$2.4~~$3.6 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. We had no disposals or retirements and recorded no gains or losses on disposal during each of the three and ~~six~~nine months ended ~~June~~September 30, ~~2022~~2022. We recorded $0.1 million in losses on disposal for the three and nine months ended September 30, 2021.

8. Accrued Expenses

Accrued expenses consisted of the following as of ~~June~~September 30, 2022 and December 31, 2021 (in thousands):


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Hosting costs	Hosting costs	$	3,078	$	1,995	Hosting costs	$	2,917	$	1,995
Legal costs	Legal costs	1,264		5,511		Legal costs	966		5,511
Marketing and tradeshow expenses	Marketing and tradeshow expenses	2,143		1,167		Marketing and tradeshow expenses	744		1,167
Third party license fees	Third party license fees	1,164		1,066		Third party license fees	1,821		1,066
Contract labor costs	Contract labor costs	2,043		891		Contract labor costs	1,453		891
Reimbursable employee expenses	Reimbursable employee expenses	4,104		870		Reimbursable employee expenses	1,246		870
Taxes payable	Taxes payable	307		550		Taxes payable	542		550
Audit and tax expenses	Audit and tax expenses	404		439		Audit and tax expenses	539		439
Capital expenditures	Capital expenditures	96		379		Capital expenditures	—		379
Other accrued expenses	Other accrued expenses	1,775		2,615		Other accrued expenses	2,482		2,615
Total	Total	$	16,378	$	15,483	Total	$	12,710	$	15,483

9. Debt

Line of Credit

We have a $20.0 million revolving line of credit with a lender that matures in November 2025. In January 2022, we executed the second loan modification agreement to increase the aggregate amount of funds our foreign subsidiaries are allowed to maintain outside of the United States. We were in compliance with all covenants as of ~~June~~September 30, 2022. As of ~~June~~September 30, 2022, we had no outstanding borrowings under this revolving line of credit, and we had outstanding letters of credit totaling $11.0 million in connection with securing our leased office space.

Senior Secured Credit Facilities Credit Agreement

On November 3, 2022, we entered into a new Senior Secured Credit Facilities Credit Agreement (the “Credit Agreement”) which provides for a five-year term loan facility in an aggregate principal amount of $100.0 million and, in addition, up to $50.0 million for a revolving credit facility, including a letter of credit sub-facility in the aggregate availability amount of $15.0 million and a swingline sub-facility in the aggregate availability amount of $10.0 million (as a sublimit of the revolving loan facility). The new Credit Agreement matures on November 3, 2027. We will use the proceeds from the $100.0 million term loan to fund the continued growth of our business and support our working capital requirements.

Under the agreement, we may elect whether amounts drawn bear interest on the outstanding principal amount at a rate per annum equal to either a) the higher of the Prime rate or the Federal Funds Effective (“Base Rate”) rate plus 0.5%, or b) the forward-looking term rate based on the secured overnight financing rate (“Term SOFR”). An additional interest rate margin is added to the elected interest rates. During the first three years of the Credit Agreement, the additional interest rate margin ranges from 1.5% to 2.5% in the case of Base Rate advances and from 2.5% to 3.5% in the case of Term SOFR advances, depending on our debt to recurring revenue leverage ratio. During the final two years of the Credit Agreement, the interest rate margin ranges from 0.5% to 2.5% in the case of Base Rate advances and from 1.5% to 3.5% in the case of Term SOFR advances, depending on our debt to consolidated adjusted EBITDA (as defined in the Credit Agreement) leverage ratio.

Additionally, the Credit Agreement contains customary representations, warranties and covenants, including covenants by us limiting additional indebtedness, guaranties, liens, fundamental changes, mergers and consolidations, dispositions of assets, investments, paying dividends on capital stock or redeeming, repurchasing or retiring capital stock, or prepaying certain junior indebtedness and preferred stock, certain corporate changes, and transactions with affiliates. The Credit Agreement also provides for events of default customary for term loans of this type, including but not limited to non-payment, breaches or defaults in the performance of covenants, insolvency, bankruptcy, and the occurrence of a material adverse effect on us.

The new Credit Agreement replaces our existing Line of Credit that was in place as of September 30, 2022.

10. 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 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 to approximately 35%. Fluctuations in the distribution of pre-tax income among our operating subsidiaries can lead to fluctuations of the effective tax rate in the condensed consolidated financial statements. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, the actual effective tax rates were ~~(0.8)~~(0.6)% and ~~1.6%~~0.8%, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2021, the actual effective tax rates were ~~(1.1)~~(0.3)% and ~~(1.0)~~(0.7)%, respectively. The-year-to date tax benefit for the ~~six~~nine months ended ~~June~~September 30, 2022 was primarily driven by a discrete benefit of $1.1 million related to the release of a valuation allowance for Lana Labs as a result of post-integration tax planning and the merger of German subsidiaries.

As of ~~June~~September 30, 2022, our net unrecognized tax benefits totaled $3.1 million, which if recognized would result in no net effect on the effective tax rate 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 or settlements of tax audits is not material to our condensed consolidated financial statements.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. Due to our net operating loss carryforward, the tax years 2016 through 2021 remain open to examination by the major taxing jurisdictions to which we are subject. There are no open examinations that would have a meaningful impact to our condensed consolidated financial statements.

11. Stock-Based Compensation

Equity Incentive Plans

In May 2017, our Board of 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 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, RSUs, stock appreciation rights, performance-based stock awards, and other forms of equity compensation to employees, including officers, 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 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, no further grants may be made under the 2007 Plan. As of ~~June~~September 30, 2022, there were ~~7,195,029~~7,195,049 shares of Class A common stock reserved for issuance under the 2017 Plan, of which ~~2,964,435~~2,851,988 were available to be issued.

Stock-Based Compensation Expense

Stock Options

We estimate the fair value of stock options containing only a service condition using the Black-Scholes 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~~derive an 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 the historical ~~volatilities for~~volatility of our publicly traded stock ~~of comparable companies~~ over the estimated expected term of the stock options. We assume nozero dividend yield because we have historically not paid dividends ~~are~~and do not ~~expected to be paid~~anticipate paying dividends in the near ~~future, which is consistent with our history of not paying dividends.~~future.

In June 2022, 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 “2022 CEO Grant”) under the 2017 Plan with an exercise price of $50.63 per share. The 2022 CEO Grant is eligible to vest based on the achievement of various stock price appreciation targets of our Class A common stock. Specifically, the 2022 CEO Grant vests in four installments of 25% each if the average closing price per share for a 365 day calendar period equals each of $175, $200, $225, and $250, respectively (the “Vesting Price Threshold”), prior to June 7, 2030. The option also vests if the Company engages in a Corporate Transaction, as defined in the Plan, in which the Company’s Class A common stock is valued at or above the Vesting Price Threshold. The fair value of the 2022 CEO Grant was determined using a Monte Carlo simulation. The fair value of the award at the grant date was $18.8 million and is being amortized over derived service periods ranging from 3.4 to 4.1 years.

1920

No stock options were issued during the three months ended September 30, 2022 and 2021. The only stock option awarded during the ~~three and six~~nine months ended ~~June~~September 30, 2022 and 2021 was the 2022 CEO Grant. The following table summarizes the assumptions used to estimate the fair value of the 2022 CEO stock option grant:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

2022

2021

2022

2021

Risk-free interest rate

3.01%

Risk-free interest rate

3.01%

Expected term (in years) **

4.1

Expected term (in years)

Expected volatility

70%

Expected volatility

70%

Expected dividend yield

—%

Expected dividend yield

—%

* Not applicable because no stock options were granted during the period.

** Each Vesting Price Threshold for the 2022 CEO grant has a unique expected term ranging from 3.4 to 4.1 years.

The following table summarizes stock option activity for the ~~six~~nine months ended ~~June~~September 30, 2022:


		Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)			Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021	Outstanding at December 31, 2021	2,953,356	$	15.16	4.0	$	147,812	Outstanding at December 31, 2021	2,953,356	$	15.16	4.0	$	147,812
Granted	Granted	700,000	50.63					Granted	700,000	50.63
Exercised	Exercised	(877,788)	28.52			30,644		Exercised	(902,392)	27.93			31,790
Expired	Expired	(6,780)	3.63					Expired	(6,800)	3.65
Forfeited	Forfeited	(10,180)	12.18					Forfeited	(10,280)	12.28
Outstanding at June 30, 2022		2,758,608	$	19.95	5.5	$	77,903
Outstanding at September 30, 2022								Outstanding at September 30, 2022	2,733,884	$	20.07	5.3	$	63,622

Exercisable at June 30, 2022		2,057,108	$	9.51	4.1	$	77,863
Exercisable at September 30, 2022								Exercisable at September 30, 2022	2,033,684	$	9.55	3.8	$	63,618

The total fair value of stock options that vested during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was ~~$0.8~~$0.9 million and ~~$10.5~~$10.7 million, respectively. As of ~~June~~September 30, 2022, the total compensation cost related to unvested stock options not yet recognized, which relates exclusively to the 2022 CEO Grant, was ~~$18.6~~$17.2 million and will be recognized over a weighted average period of ~~3.7~~3.4 years.

Restricted Stock Units

The following table summarizes RSU activity for the ~~six~~nine months ended ~~June~~September 30, 2022:


		Number of Shares	Weighted Average Grant Date Fair Value			Number of Shares	Weighted Average Grant Date Fair Value
Non-vested and outstanding at December 31, 2021	Non-vested and outstanding at December 31, 2021	1,209,529	$	70.99	Non-vested and outstanding at December 31, 2021	1,209,529	$	70.99
Granted	Granted	394,218	53.66		Granted	534,213	52.93
Vested	Vested	(99,672)	68.03		Vested	(166,836)	74.30
Forfeited	Forfeited	(125,791)	76.23		Forfeited	(157,732)	73.54
Non-vested and outstanding at June 30, 2022		1,378,284	65.78
Non-vested and outstanding at September 30, 2022					Non-vested and outstanding at September 30, 2022	1,419,174	$	63.52

As of ~~June~~September 30, 2022, total unrecognized compensation cost related to unvested RSUs was approximately ~~$72.6~~$68.2 million, which will be recognized over a weighted average period of ~~1.8~~1.7 years.

~~Stock-Based Compensation Expense~~

2021

The following table summarizes the components of our stock-based compensation expense by instrument type for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
RSUs	RSUs	$	8,747	$	4,403	$	15,533	$	8,408	RSUs	$	9,845	$	4,997	$	25,378	$	13,405
Stock options	Stock options	244		40		245		3,773		Stock options	1,272		47		1,517		3,820
Common stock awards to the Board of Directors	Common stock awards to the Board of Directors	157		155		313		311		Common stock awards to the Board of Directors	219		156		532		467
Total stock-based compensation expense	Total stock-based compensation expense	$	9,148	$	4,598	$	16,091	$	12,492	Total stock-based compensation expense	$	11,336	$	5,200	$	27,427	$	17,692

Stock-based compensation expense for RSUs, stock options, and issuances of common stock to the Board of Directors is included in the following line items in the accompanying consolidated statements of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Cost of revenue	Cost of revenue									Cost of revenue
Subscriptions	Subscriptions	$	249	$	295	$	428	$	592	Subscriptions	$	284	$	381	$	712	$	973
Professional services	Professional services	1,330		865		2,387		1,506		Professional services	1,401		777		3,788		2,283
Operating expenses	Operating expenses									Operating expenses
Sales and marketing	Sales and marketing	2,266		1,197		4,054		2,305		Sales and marketing	2,667		1,448		6,721		3,753
Research and development	Research and development	3,063		1,069		5,377		2,084		Research and development	3,454		1,263		8,831		3,347
General and administrative	General and administrative	2,240		1,172		3,845		6,005		General and administrative	3,530		1,331		7,375		7,336
Total stock-based compensation expense	Total stock-based compensation expense	$	9,148	$	4,598	$	16,091	$	12,492	Total stock-based compensation expense	$	11,336	$	5,200	$	27,427	$	17,692

12. Basic and Diluted Loss per Share

Basic net loss per share is computed by dividing ~~the~~ net loss by the weighted average number of common shares outstanding during the reporting period. Diluted loss per share is computed similar to basic, except the weighted average number of common shares outstanding are increased to include additional outstanding shares from the assumed exercise of stock options and vesting of RSUs, if dilutive. The dilutive effect, if any, of convertible shares is calculated using the treasury stock method. As we reported net losses for all periods presented, ~~there are no outstanding dilutive securities as the~~all outstanding shares would be ~~anti-dilutive~~considered antidilutive if they were to be assumed as vested or exercised.

The following outstanding securities, prior to the use of the treasury stock method, have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been antidilutive to earnings per share:


		Three and Six Months Ended June 30,			Three and Nine Months Ended September 30,
		2022	2021		2022	2021
Stock options	Stock options	2,758,608	3,089,260	Stock options	2,733,884	3,039,860
Non-vested restricted stock units	Non-vested restricted stock units	1,378,284	1,126,696	Non-vested restricted stock units	1,419,174	1,235,880

13. Commitments and Contingencies

Minimum Purchase Commitments

In July 2021, we executed a non-cancellable cloud hosting arrangement with Amazon Web Services (“AWS”) that contains provisions for minimum purchase commitments. Specifically, purchase commitments under the agreement total $131.0 million

over five years, 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. Spending under this agreement for the three and ~~six~~nine months ended ~~June~~September 30, 2022 totaled ~~$8.1~~$9.0 million and ~~$15.9~~$24.8 million, respectively.

Exclusive of the AWS contract, 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.

Pegasystems Litigation

On May 29, 2020, we filed a civil complaint against Pegasystems, Inc. (“Pegasystems”) and Youyong Zou, a Virginia resident, in the Circuit Court for Fairfax County, Virginia. Appian Corp v. Pegasystems Inc. & Youyong Zou, No. 2020-07216 (Fairfax Cty. Ct.). On May 10, 2022, we announced the jury awarded us ~~$2.03~~$2.036 billion in damages for misappropriation of our trade secrets and $1 in damages for violating the Virginia Computer Crimes Act. Pegasystems ~~has~~ filed several post-trial motions ~~in which it seeks~~seeking relief in the form of reducing the damages award or setting aside the jury’s verdict and either granting a new trial or entering judgment in Pegasystems’ favor. ~~One~~All of these motions were denied, and final judgment was ~~denied~~entered by the Court on ~~July 28,~~September 15, 2022. ~~We believe Pegasystems’ motions are without merit. We simultaneously filed a motion for attorneys’~~The final judgment reaffirmed the $2.036 billion in damages and also ordered Pegasystems to pay Appian $23.6 million in attorney's fees ~~and costs,~~associated with the case as well as statutory post-judgment interest on ~~any award~~the judgment at an annual rate of attorneys’ fees and costs, based on the jury's finding that our trade secrets were willfully and maliciously misappropriated. All legal expenses related to the litigation have been expensed as incurred, within “General and administrative” expense within our consolidated statement of operations.6%, or approximately $122.0 million per year.

~~The jury’s verdict and~~Defendant Youyong Zou has satisfied the ~~court’s entry~~judgment of ~~judgment is subject to appeal by Pegasystems.~~$5,000 (plus interest) against him in lieu of appealing that judgment. On September 15, 2022, Pegasystems filed a notice of appeal. Pegasystems is not required to pay us the ~~amount awarded by the jury~~judgment, attorney’s fees, or post-judgment interest until all appeals are ~~exhausted and the judgment is final.~~exhausted. We cannot predict the outcome of any appeals or the time it will take to resolve them. ~~Like any judgment,~~Consistent with other judgments, there is no guarantee we will be able to collect all or any portion of the judgment. WeConsequently, we will not record the award in our condensed consolidated financial statements until all contingencies are resolved and we collect on the judgment.

Other Legal Matters

From time to time, we are subject to legal, regulatory, and other proceedings and claims that arise in the ordinary course of business. ~~There~~Other than as disclosed elsewhere in this Quarterly Report, we are ~~no issues~~not presently a party to any legal proceedings that, if determined adversely to us, would individually or ~~resolutions of any matters expected to~~taken together have a material adverse effect on our business, operating results, financial condition, or cash flows. Regardless of the outcome, litigation can have an adverse impact on ~~our condensed consolidated financial statements.~~us because of defense and settlement costs, diversion of management resources, and other factors.

2223

14. Segment and Geographic Information

We operate 1one operating and reportable segment, representing our consolidated business that helps organizations build applications and workflows rapidly with our low-code platform to maximize their resources and improve business results. Our reportable segment determination is based on our management and internal reporting structure, the nature of the subscriptions and services we offer, and the financial information that is evaluated regularly by our chief operation decision maker.

The following table summarizes revenue by geography for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Domestic	Domestic	$	71,567	$	53,704	$	147,606	$	113,986	Domestic	$	81,004	$	62,815	$	228,610	$	176,801
International	International	38,496		29,295		76,723		57,868		International	36,872		29,602		113,595		87,470
Total	Total	$	110,063	$	82,999	$	224,329	$	171,854	Total	$	117,876	$	92,417	$	342,205	$	264,271

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 ~~six~~nine months ended ~~June~~September 30, 2022 or 2021. Substantially all of our long-lived assets were held in the United States as of ~~June~~September 30, 2022 and December 31, 2021.

15. Investments and Fair Value Measurements

Fair Value Measurements

U.S. GAAP establishes 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 and which require us to develop our own estimates and assumptions ~~which reflect~~reflecting those that a market participant would use.

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~~September 30, 2022 and December 31, 2021.

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; and

•Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (i.e., replacement cost).

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The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value as of ~~June~~September 30, 2022 and December 31, 2021 because of the relatively short duration of these instruments.

Investments

Our investment portfolio consists largely of debt investments classified as available-for-sale. Changes in the fair value of available-for-sale securities, excluding other-than-temporary impairments, are recorded in other comprehensive income (loss). The components of our investments as of ~~June~~September 30, 2022 are as follows (in thousands):


		As of June 30, 2022														As of September 30, 2022
		Fair Value Measurement							Balance Sheet Classification							Fair Value Measurement							Balance Sheet Classification
		Fair Value Level	Cost Basis		Unrealized Gains (Losses)		Market Value		Cash and Cash Equivalents		Short-term Investments and Marketable Securities		Long-term Investments			Fair Value Level	Cost Basis		Unrealized Gains (Losses)		Market Value		Cash and Cash Equivalents		Short-term Investments and Marketable Securities
Money market fund	Money market fund	Level 1	$	9,438	$	—	$	9,438	$	9,438	$	—	$	—	Money market fund	Level 1	$	149	$	—	$	149	$	149	$	—
U.S. Treasuries	U.S. Treasuries	Level 1	17,985		(82)		17,903		—		17,903		—		U.S. Treasuries	Level 1	17,985		(70)		17,915		—		17,915
Commercial paper	Commercial paper	Level 2	23,110		—		23,110		—		23,110		—		Commercial paper	Level 2	13,134		—		13,134		—		13,134
Corporate bonds	Corporate bonds	Level 2	15,397		(130)		15,267		—		13,245		2,022		Corporate bonds	Level 2	9,923		(87)		9,836		—		9,836
Asset-backed securities		Level 2	5,493		(3)		5,490		—		5,490		—

Total investments	Total investments		$	71,423	$	(215)	$	71,208	$	9,438	$	59,748	$	2,022	Total investments		$	41,191	$	(157)	$	41,034	$	149	$	40,885

At December 31, 2021, our investments consisted of the following (in thousands):


	As of December 31, 2021
	Fair Value Measurement							Balance Sheet Classification
	Fair Value Level	Cost Basis		Unrealized Gains (Losses)		Market Value		Cash and Cash Equivalents		Short-term Investments and Marketable Securities		Long-term Investments
Money market fund	Level 1	$	38,301	$	—	$	38,301	$	38,301	$	—	$	—
U.S. Treasury bonds	Level 1	8,171		—		8,171		—		8,171		—
Commercial paper	Level 2	23,312		—		23,312		—		23,312		—
Corporate bonds	Level 2	20,107		(14)		20,093		—		8,049		12,044
Asset-backed securities	Level 2	15,655		(8)		15,647		—		15,647		—
Total investments		$	105,546	$	(22)	$	105,524	$	38,301	$	55,179	$	12,044

There were no Level 3 assets held at any point during the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. Additionally, there were no transfers between Levels 1 and 2 during the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

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The amortized cost basis and fair value of debt securities as of ~~June~~September 30, 2022, by contractual maturity, are as follows (in thousands):


		As of June 30, 2022					As of September 30, 2022
		Cost Basis		Fair Value			Cost Basis		Fair Value
Due in one year or less	Due in one year or less	$	69,398	$	69,186	Due in one year or less	$	41,191	$	41,034
Due after one year through five years	Due after one year through five years	2,025		2,022		Due after one year through five years	—		—
Total investments	Total investments	$	71,423	$	71,208	Total investments	$	41,191	$	41,034

Actual maturities may differ from the contractual maturities in the table above because borrowers have the right to call or prepay certain obligations.

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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 year ended December 31, 2021 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on February 17, 2022.

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,” or the negative or plural of these words or similar expressions or 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 on a quarterly basis, and our future capital requirements. 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,” set forth in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on February 17, 2022 and in our other filings with the SEC. ~~You~~Forward-looking statements should not ~~rely upon forward-looking statements~~be relied on 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

Appian is a unified platform for change. We accelerate customers’ businesses by discovering, designing, and automating their most important processes. The Appian Low-Code Platform combines the key capabilities needed to get work done faster, Process Mining + Workflow + Automation, in a unified low-code platform. Appian is open, enterprise grade, and trusted by industry leaders. Global organizations use our applications to improve customer experience, achieve operational excellence, and simplify global risk management and compliance.

With our platform, organizations can rapidly and easily discover, design, and automate powerful, enterprise-grade workflows and custom applications through our intuitive, visual interface with little or no coding required. Our customers have used workflows and applications built on our 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.

We have generated the majority of our revenue from sales of subscriptions, which include (1) cloud subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support. Our subscription contracts are priced based primarily on the number of users who access and utilize the applications built on our platform or, alternatively, non-user based single application licenses. Our subscription contract terms generally vary from one to 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 changes in our deferred revenue in a given period are directly correlated with our revenue growth.

We invested in our Customer Success organization to help ensure customers are able to build and deploy applications on our platform. We have several strategic partnerships, including with KPMG, Accenture, PwC, Infosys, Wipro, and Deloitte, for them to refer customers to us in order to purchase subscriptions and then our partners 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

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

Our customers include financial services, government, life sciences, insurance, manufacturing, energy, healthcare, telecommunications, and transportation organizations. Generally, our sales team targets its efforts to organizations with over 2,000 employees and $2 billion in annual revenue. Revenue from government agencies represented ~~18.2%~~21.2% and 19.2% of our total revenue ~~in each of~~for the three and ~~six~~nine months ended ~~June~~September 30, ~~2022.~~2022, respectively. This compares to revenue from government agencies of ~~19.8%~~19.2% and ~~20.4%~~20.0% of our total revenue in the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. No single end-customer accounted for more than 10% of our total revenue in the three and ~~six~~nine months ended ~~June~~September 30, 2022 or 2021.

We offer our platform globally. Our platform supports multiple languages to facilitate collaboration and address challenges in multinational organizations. In the three and ~~six~~nine months ended ~~June~~September 30, 2022, ~~35.0%~~31.3% and ~~34.2%~~33.2%, respectively, of our total revenue was generated from customers outside of the United States as compared to ~~35.3%~~32.0% and ~~33.7%~~33.1% in the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. As of ~~June~~September 30, 2022, we operated in 1315 countries. We believe we have a significant opportunity to continue to grow our international footprint, and we are investing in new geographies, including through investment in direct and indirect sales channels, professional services, and customer support and implementation partners.

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 our platform as well as the price and number of subscriptions of our platform that a customer purchases. We incur significant customer acquisition costs, including expenses associated with hiring new sales representatives, who can take anywhere from six months to a 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 our revenue growth will be primarily driven by the pace of adoption and penetration of our platform. We offer a leading custom software 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 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. Legacy customers from entities acquired in business combinations are not counted as new customers until they enter into a new active subscription or maintenance and support contract with us subsequent to the completion of the business combination. Additionally, 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 team in order to drive sales to new customers. We continue to make investments to enhance the expertise of our sales and marketing organization within our key industry verticals of financial services, government, and 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 differentiate ourselves within the increasingly competitive markets in which we participate.

•Further Penetration of Existing Customers. Our sales team seeks to generate additional revenue from existing customers by adding new users to our platform. Many of our customers begin by building a single application and then grow to build dozens of applications on our platform. Generally, the development of new applications on our platform

results in the expansion of our user base within an organization and a corresponding increase in ~~revenue to us because we charge subscription fees on a per-user basis or through non-user based single application licenses.~~revenue. As a result of this “land and expand” strategy, we have generated significant additional revenue from our customer base. Our ability to increase sales to existing customers will depend on a number of factors, including the size of our sales and professional services teams, customers’ level of satisfaction with our platform and professional services, pricing, economic conditions, and our customers’ overall spending levels. We have also re-focused some of our professional services personnel to become customer success managers. Their role is to ensure the customer realizes value from our platform and support strategic partners and the “land and expand” strategy versus delivering billable hours.

•Mix of Subscriptions and Professional Services Revenue. We believe our professional services have driven customer success and facilitated the adoption of our platform by customers. During the initial period of deployment by a customer, we generally provide a greater amount of support in building applications and training than later in the deployment, with a typical engagement extending from two to six months. At the same time, many of our customers have historically purchased subscriptions only for a limited set of their total potential end users. As a result of these factors, the proportion of total revenue for a customer associated with professional services is relatively high during the initial deployment period. Over time, as the need for professional services associated with user deployments decreases and the number of end users increases, we expect subscriptions revenue as a percentage of total revenue to increase. In addition, we continue to grow our base of strategic partners to provide broader customer coverage and solution delivery capabilities. These partners perform professional services with respect to any new service contracts they originate. As the usage of partners expands, we expect the proportion of our total revenue from subscriptions to increase over time relative to professional services. For the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June 30,~~ 2021, ~~71.5%~~72.2% and ~~70.2%~~71.1% of our revenue, respectively, was derived from sales of subscriptions while the remaining ~~28.5%~~27.8% and ~~29.8%~~28.9%, respectively, was derived from the sale of professional services.

•Investments in Growth. We have made, and plan to continue to make, investments for long-term growth, including investment in our platform and infrastructure to continuously maximize their power and speed, to meet the evolving needs of our customers, and to take advantage of our market opportunity. In addition, we continue to pursue strategic acquisitions that enhance our product offerings. We also intend to continue to invest in sales and marketing as we further expand our sales teams, increase our marketing activities, and grow our international operations.

Key Metrics

We monitor the following metrics to help us measure and evaluate the effectiveness of our operations. All dollar amounts are presented in thousands.

Cloud Subscription Revenue

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 % Change 2022 2021 % Change
Cloud subscription revenue $ 57,083 $ 42,486 34 % $ 110,462 $ 81,539 35 %


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022		2021		% Change		2022		2021		% Change
Cloud subscription revenue	$	60,621	$	46,699	30	%	$	171,083	$	128,238	33	%

Cloud subscription revenue includes cloud subscriptions bundled with maintenance and support and hosting services. ~~We generally sell our cloud subscriptions on a per-user basis or through non-user based single application licenses. As such, our~~Our cloud subscription revenue for any customer is primarily determined by the number of users who access and utilize the applications built on our platform or by the number of application licenses purchased, as well as the price paid. We believe increasing cloud subscription revenue is an indicator of the demand for our platform, the pace at which the market for our solutions is growing, the productivity of our sales team and strategic relationships in growing our customer base, and our ability to further penetrate our existing customer base.

Cloud Subscription Revenue Retention Rate

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As of June 30,
2022 2021
Cloud subscription revenue retention rate 116 % 121 %


	As of September 30,
	2022		2021
Cloud subscription revenue retention rate	115	%	117	%

A key factor to our success is the renewal and expansion of subscription agreements with our existing customers. We calculate this metric over a set of customers who have been with us for at least one full year. To calculate our cloud subscription revenue retention rate for a particular trailing 12-month period, we first establish the recurring cloud subscription revenue for the previous trailing 12-month period. This effectively represents recurring dollars we should expect in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period without any expansion or contraction. We subsequently measure the recurring cloud subscription revenue in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period. Cloud subscription revenue retention rate is then calculated by dividing the aggregate recurring cloud subscription revenue in the current trailing 12-month period by the previous trailing 12-month period. This calculation includes the combined impact on our revenue from customer non-renewals, pricing changes, and growth in the number of users on our platform. Our cloud subscription revenue retention rate can fluctuate from period to period due to large customer contracts in any given period.

Key Components of Results of Operations

~~Revenue~~

We generate revenue primarily through sales of subscriptions to our platform as well as professional services. We generally sell our software on a per-user basis or through non-user based single application licenses. We generally bill customers and collect payment for subscriptions to our platform in advance on an annual, quarterly, or monthly basis. In certain instances, we have had customers pay their entire contract value up front.

Revenue

Our revenue is comprised of the following:

Subscriptions

Subscriptions revenue is primarily derived from:

•Cloud subscriptions bundled with maintenance and support and hosting services; and

•On-premises term license subscriptions bundled with maintenance and support.

Our maintenance and support agreements provide customers with the right to unspecified software upgrades, maintenance releases and patches released during the term of the maintenance and support agreement on a when-and-if-available basis, and rights to technical support. On-premises term license subscriptions are offered when the customer prefers to self-manage the deployment of our platform within their own infrastructure. When our platform is delivered as a cloud subscription, we manage ~~their~~ operational needs in third-party hosted data centers.

Professional Services

Our professional services revenue is comprised of fees for consulting services, including application development, deployment assistance, and training related to our platform. Over time, we expect professional services revenue as a percentage of total revenue to decrease as the usage of our partner network expands.

Cost of Revenue

Subscriptions

Cost of subscriptions revenue consists primarily of fees paid to our third-party managed hosting providers and other third-party service providers, personnel costs, including payroll and benefits for our technology operations and customer support

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teams, amortization of developed technology, and allocated overhead costs. We expect cost of revenue to continue to increase in absolute dollars for the foreseeable future as our customer base grows.

Professional Services

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, third-party contractor costs, allocated overhead costs, and the costs of billable expenses such as travel and lodging. The unpredictability of the timing of ~~entering into~~providing services related to significant professional services agreements sold on a standalone basis may cause significant fluctuations in our cost of professional services which, in turn, may impact our quarterly financial ~~results and allocated overhead costs.~~results.

Gross Profit and Gross Margin

Gross profit and gross margin (defined as gross profit as a percentage of total revenue), have been, and will continue to be, affected by various factors, including the mix of cloud subscriptions and on-premises term license subscriptions, the mix of total subscriptions revenue and professional services revenue, subscription pricing, the costs associated with third-party hosting providers, and the extent to which we expand our professional services to support future growth. Our gross margin may fluctuate from period to period based on the above factors.

Subscriptions Gross Margin

Subscriptions gross margin is primarily affected by the growth in our subscriptions revenue as compared to the growth in, and timing of, costs to support such revenue. We expect to continue to invest in customer support and cloud operations to support growth in our business, and the timing of those investments is expected to cause subscriptions gross margin to fluctuate on a quarterly basis.

Professional Services Gross Margin

Professional services gross margin is affected by the growth in our professional services revenue as compared to the growth in, and timing of, the cost of our Customer Success organization as we continue to invest in the growth of our business. Professional services gross margin is also impacted by the amount of services performed by subcontractors and partners as opposed to internal resources. ~~At the outset of the COVID-19 pandemic,~~In 2021, we ~~lowered our~~had a lower usage of subcontractors and performed in fewer in-person professional services engagements and deployments, both of which reduced certain classes of expenses and improved professional services margins. In ~~2021 and continuing into~~ 2022, these margins have declined but remain subject to fluctuation based on the factors discussed ~~above and uncertainties related to the COVID-19 pandemic outside of our control.~~above.

Operating Expenses

Operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel-related costs such as salaries, bonuses, commissions, payroll tax payments, and stock-based compensation expense are the most significant components of each of these expense categories. Other components of each category include professional fees for third-party services such as contract labor, legal, software development resources, and consulting as well as allocated facility and overhead, which can include, among other types of costs, travel and entertainment expenditures, human resources costs such as placement fees, referral bonuses, training costs, and employee relations spending, office-related expenditures, and information technology costs for such items as infrastructure, software, and cloud computing services.

In general, our operating expenses are expected to continue to increase in absolute dollars as we invest resources in growing our various teams.

Sales and Marketing Expense

Sales and marketing expense primarily includes personnel costs, including salaries, bonuses, commissions, stock-based compensation, and other personnel costs related to sales teams. Additional expenses in this category include travel and entertainment, marketing activities and promotional events, subcontracting fees, and allocated overhead costs.

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In order to continue to grow our business, geographical footprint, and brand awareness, we expect to continue investing resources in sales and marketing by increasing the number of sales and account management teams. Additionally, ~~as the COVID-19 pandemic improves and certain restrictions are loosened,~~ we ~~would~~ expect certain classes of expense such as travel and entertainment and in-person marketing events to increase relative to recent years. As a result, we expect sales and marketing expense to increase in absolute dollars as we continue to invest to acquire new customers and further expand usage of our platform within our existing customer base.

Research and Development Expense

Research and development expense consists primarily of personnel costs for our employees who develop and enhance our platform, including salaries, bonuses, stock-based compensation, and other personnel costs. Also included are non-personnel costs such as subcontracting, consulting and professional fees to third party development resources, allocated facility costs, and overhead.

Our research and development efforts are focused on enhancing the speed and power of our software platform. We expect research and development expense to continue to increase in absolute dollars as such costs are critical to maintain and improve the quality of applications and our competitive position.

General and Administrative Expense

General and administrative expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, and other personnel costs for our administrative, legal, information technology, human resources, finance, and accounting, as well as our senior executives. Additional expenses included in this category are non-personnel costs such as travel-related expenses, contracting and professional fees for such services as audits, taxation, and legal, insurance and other corporate expenses, including allocated overhead costs, and bad debt ~~expenses, and amortization of intangible assets.~~expenses.

Absent certain non-recurring legal expenses incurred in 2022 and prior years, we expect our general and administrative expense to increase in absolute dollars as we continue to support our growth.

Other Non-Operating Expense

Other Expense, Net

Other expense, net consists primarily of unrealized and realized gains and losses related to changes in foreign currency exchange rates, interest income on our cash and cash equivalents and investments, and other sources of income or expense not related to our core business operations.

Interest Expense

Interest expense consists primarily of unused credit facility fees and commitment fees on our letters of credit.

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Results of Operations

The following table sets forth our consolidated statements of operations data (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Revenue	Revenue									Revenue
Subscriptions	Subscriptions	$	76,668	$	56,946	$	160,388	$	120,712	Subscriptions	$	86,520	$	67,240	$	246,908	$	187,952
Professional services	Professional services	33,395		26,053		63,941		51,142		Professional services	31,356		25,177		95,297		76,319
Total revenue	Total revenue	110,063		82,999		224,329		171,854		Total revenue	117,876		92,417		342,205		264,271
Cost of revenue	Cost of revenue									Cost of revenue
Subscriptions(1)	Subscriptions(1)	8,528		6,860		16,751		12,714		Subscriptions(1)	9,313		7,092		26,065		19,806
Professional services(1)	Professional services(1)	24,765		18,975		47,563		36,650		Professional services(1)	24,447		19,415		72,011		56,065
Total cost of revenue	Total cost of revenue	33,293		25,835		64,314		49,364		Total cost of revenue	33,760		26,507		98,076		75,871
Gross profit	Gross profit	76,770		57,164		160,015		122,490		Gross profit	84,116		65,910		244,129		188,400
Operating expenses	Operating expenses									Operating expenses
Sales and marketing(1)	Sales and marketing(1)	56,166		40,520		102,192		76,504		Sales and marketing(1)	54,912		42,071		157,104		118,575
Research and development(1)	Research and development(1)	33,842		23,862		63,778		44,552		Research and development(1)	37,623		26,510		101,401		71,062
General and administrative(1)	General and administrative(1)	29,509		17,358		60,658		36,500		General and administrative(1)	29,357		20,226		90,014		56,726
Total operating expenses	Total operating expenses	119,517		81,740		226,628		157,556		Total operating expenses	121,892		88,807		348,519		246,363
Operating loss	Operating loss	(42,747)		(24,576)		(66,613)		(35,066)		Operating loss	(37,776)		(22,897)		(104,390)		(57,963)
Other non-operating expense (income)
Other expense (income), net		6,153		(1,081)		6,940		1,812
Other non-operating expense										Other non-operating expense
Other expense, net										Other expense, net	5,876		2,329		12,815		4,141
Interest expense	Interest expense	60		80		134		161		Interest expense	89		72		222		233
Total other non-operating expense (income)		6,213		(1,001)		7,074		1,973
Total other non-operating expense										Total other non-operating expense	5,965		2,401		13,037		4,374
Loss before income taxes	Loss before income taxes	(48,960)		(23,575)		(73,687)		(37,039)		Loss before income taxes	(43,741)		(25,298)		(117,427)		(62,337)
Income tax expense (benefit)	Income tax expense (benefit)	394		250		(1,179)		373		Income tax expense (benefit)	255		86		(924)		459
Net loss	Net loss	$	(49,354)	$	(23,825)	$	(72,508)	$	(37,412)	Net loss	$	(43,996)	$	(25,384)	$	(116,503)	$	(62,796)

(1) Stock-based compensation as a component of these line items is as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Cost of revenue	Cost of revenue									Cost of revenue
Subscriptions	Subscriptions	$	249	$	295	$	428	$	592	Subscriptions	$	284	$	381	$	712	$	973
Professional services	Professional services	1,330		865		2,387		1,506		Professional services	1,401		777		3,788		2,283
Operating expenses	Operating expenses									Operating expenses
Sales and marketing	Sales and marketing	2,266		1,197		4,054		2,305		Sales and marketing	2,667		1,448		6,721		3,753
Research and development	Research and development	3,063		1,069		5,377		2,084		Research and development	3,454		1,263		8,831		3,347
General and administrative	General and administrative	2,240		1,172		3,845		6,005		General and administrative	3,530		1,331		7,375		7,336
Total stock-based compensation expense	Total stock-based compensation expense	$	9,148	$	4,598	$	16,091	$	12,492	Total stock-based compensation expense	$	11,336	$	5,200	$	27,427	$	17,692

3233

The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Revenue	Revenue									Revenue
Subscriptions	Subscriptions	69.7	%	68.6	%	71.5	%	70.2	%	Subscriptions	73.4	%	72.8	%	72.2	%	71.1	%
Professional services	Professional services	30.3		31.4		28.5		29.8		Professional services	26.6		27.2		27.8		28.9
Total revenue	Total revenue	100.0		100.0		100.0		100.0		Total revenue	100.0		100.0		100.0		100.0
Cost of revenue	Cost of revenue									Cost of revenue
Subscriptions	Subscriptions	7.7		8.3		7.5		7.4		Subscriptions	7.9		7.7		7.6		7.5
Professional services	Professional services	22.5		22.9		21.2		21.3		Professional services	20.7		21.0		21.0		21.2
Total cost of revenue	Total cost of revenue	30.2		31.1		28.7		28.7		Total cost of revenue	28.6		28.7		28.7		28.7
Gross profit	Gross profit	69.8		68.9		71.3		71.3		Gross profit	71.4		71.3		71.3		71.3
Operating expenses	Operating expenses									Operating expenses
Sales and marketing	Sales and marketing	51.0		48.8		45.6		44.5		Sales and marketing	46.6		45.5		45.9		44.9
Research and development	Research and development	30.7		28.7		28.4		25.9		Research and development	31.9		28.7		29.6		26.9
General and administrative	General and administrative	26.8		20.9		27.0		21.2		General and administrative	24.9		21.9		26.3		21.5
Total operating expenses	Total operating expenses	108.6		98.5		101.0		91.7		Total operating expenses	103.4		96.1		101.8		93.2
Operating loss	Operating loss	(38.8)		(29.6)		(29.7)		(20.4)		Operating loss	(32.0)		(24.8)		(30.5)		(21.9)
Other non-operating expense (income)
Other expense (income), net		5.6		(1.3)		3.1		1.1
Other non-operating expense										Other non-operating expense
Other expense, net										Other expense, net	5.0		2.5		3.7		1.6
Interest expense	Interest expense	0.1		0.1		0.1		0.1		Interest expense	0.1		0.1		0.1		0.1
Total other non-operating expense (income)		5.6		(1.2)		3.2		1.1
Total other non-operating expense										Total other non-operating expense	5.1		2.6		3.8		1.7
Loss before income taxes	Loss before income taxes	(44.5)		(28.4)		(32.8)		(21.6)		Loss before income taxes	(37.1)		(27.4)		(34.3)		(23.6)
Income tax expense (benefit)	Income tax expense (benefit)	0.4		0.3		(0.5)		0.2		Income tax expense (benefit)	0.2		0.1		(0.3)		0.2
Net loss	Net loss	(44.8)	%	(28.7)	%	(32.3)	%	(21.8)	%	Net loss	(37.3)	%	(27.5)	%	(34.0)	%	(23.8)	%

Comparison of the Three Months Ended ~~June~~September 30, 2022 and 2021

Revenue


		Three Months Ended June 30,									Three Months Ended September 30,
		2022		2021		$ Change		% Change			2022		2021		$ Change		% Change
		(dollars in thousands)									(dollars in thousands)
Revenue	Revenue									Revenue
Subscriptions	Subscriptions	$	76,668	$	56,946	$	19,722	34.6	%	Subscriptions	$	86,520	$	67,240	$	19,280	28.7	%
Professional services	Professional services	33,395		26,053		7,342		28.2	%	Professional services	31,356		25,177		6,179		24.5
Total revenue	Total revenue	$	110,063	$	82,999	$	27,064	32.6	%	Total revenue	$	117,876	$	92,417	$	25,459	27.5	%

Total revenue increased ~~$27.1~~$25.5 million, or ~~32.6%~~27.5%, in the three months ended ~~June~~September 30, 2022 compared to the same period in 2021 due to an increase in our subscriptions revenue of ~~$19.7~~$19.3 million and an increase in our professional services revenue of ~~$7.3 million.~~$6.2 million. The increase in subscriptions revenue was driven ~~largely~~ by a ~~$14.6~~$13.9 millionincrease in cloud subscription revenue, ~~and~~ a ~~$4.7~~$4.7 millionincrease in on-premises subscription revenue, and a $0.7 million increase in maintenance and support revenue. With respect to new versus existing customers, there was a ~~$13.4~~$14.1 millionincrease in subscriptions revenue stemming from expanded deployments and corresponding sales of additional subscriptions to existing customers while ~~$6.3~~$5.1 million of the increase was the result of sales of subscriptions to new customers. The ~~remainder of the increase is attributable to revenue recognized from Lana Labs. The~~ increase in professional services revenue was due

primarily to a ~~$7.9~~$5.2 million increase in sales to new customers, ~~which was partially offset by~~coupled with a ~~$0.6~~$0.9 million ~~decrease~~increase in revenue from existing customers. ~~Professional services revenue was also impacted by the level of usage of partners to perform professional services in the three months ended June 30, 2022 as compared to the same period in 2021.~~

Cost of Revenue


		Three Months Ended June 30,											Three Months Ended September 30,
		2022			2021			$ Change		% Change			2022			2021			$ Change		% Change
		(dollars in thousands)											(dollars in thousands)
Cost of revenue	Cost of revenue											Cost of revenue
Subscriptions	Subscriptions	$	8,528		$	6,860		$	1,668	24.3	%	Subscriptions	$	9,313		$	7,092		$	2,221	31.3	%
Professional services	Professional services	24,765			18,975			5,790		30.5	%	Professional services	24,447			19,415			5,032		25.9
Total cost of revenue	Total cost of revenue	$	33,293		$	25,835		$	7,458	28.9	%	Total cost of revenue	$	33,760		$	26,507		$	7,253	27.4	%
Subscriptions gross margin	Subscriptions gross margin	88.9		%	88.0		%					Subscriptions gross margin	89.2		%	89.5		%
Professional services gross margin	Professional services gross margin	25.8		%	27.2		%					Professional services gross margin	22.0		%	22.9		%
Total gross margin	Total gross margin	69.8		%	68.9		%					Total gross margin	71.4		%	71.3		%

Cost of revenue increased ~~$7.5~~$7.3 million, or ~~28.9%~~27.4%, in the three months ended ~~June~~September 30, 2022 compared to the same period in 2021, primarily due to a ~~$4.8~~$3.7 million increase in professional services and product support personnel costs, a ~~$0.9~~$1.5 million increase in hosting costs, a ~~$0.7~~$1.3 million increase in contractor costs, ~~a $0.6 million increase in overhead costs,~~ and a ~~$0.5~~$0.6 million increase in travel and entertainment expenses. Personnel costs increased due to an increase in professional services and product support personnel headcount of ~~17.0%~~15.9% from ~~June~~September 30, 2021 to ~~June~~September 30, 2022 in addition to increased wages and fringe benefits, coupled with a ~~$0.4~~$0.5 million increase in stock-based ~~compensation.~~compensation expense. Hosting costs increased as sales of our cloud offering increased in the three months ended ~~June~~September 30, 2022. Contractor costs increased in the three months ended ~~June~~September 30, 2022 compared to the same period in 2021 due to an increase in the usage of subcontractors and consultants for professional services engagements. The increase in overhead costs was due largely to an increase in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Subscriptions gross margin slightly ~~increased~~decreased to ~~88.9%~~89.2% for the three months ended ~~June~~September 30, 2022 compared to ~~88.0%~~89.5% in the same period in 2021 due to increased hosting costs as sales of our cloud offering increased. However, this increase in hosting costs was partially offset by an increase in subscriptions revenue during the three months ended ~~June~~September 30, 2022 as compared to the three months ended ~~June~~September 30, 2021. ~~This increase was partially offset by an increase in hosting costs as sales of our cloud offering increased and became a larger proportion of our overall subscriptions revenue.~~ Professional services gross margin decreased to ~~25.8%~~22.0% for the three months ended ~~June~~September 30, 2022 compared to ~~27.2%~~22.9% in the same period in 2021 due largely to higher personnel and other allocated costs such as human resources, information technology, and office-related spending in the comparable periods, partially offset by an increase in professional services revenue. Furthermore, fewer in-person professional services engagements and deployments during the three months ended ~~June~~September 30, 2021 as compared to the three months ended ~~June~~September 30, 2022 led to temporarily improved margins in the prior year. Gross margin ~~rose~~increased slightly to ~~69.8% in~~71.4% for the three months ended ~~June~~September 30, 2022 as compared to ~~68.9% in~~71.3% for the ~~same period in 2021, due largely to the increase in professional services revenue and improved subscriptions margins.~~three months ended September 30, 2021.

Sales and Marketing Expense


		Three Months Ended June 30,											Three Months Ended September 30,
		2022			2021			$ Change		% Change			2022			2021			$ Change		% Change
		(dollars in thousands)											(dollars in thousands)
Sales and marketing	Sales and marketing	$	56,166		$	40,520		$	15,646	38.6	%	Sales and marketing	$	54,912		$	42,071		$	12,841	30.5	%
% of revenue	% of revenue	51.0		%	48.8		%					% of revenue	46.6		%	45.5		%

Sales and marketing expense increased ~~$15.6~~$12.8 million, or ~~38.6%~~30.5%, in the three months ended ~~June~~September 30, 2022 compared to the same period in 2021, primarily due to ~~an $8.0~~a $8.4 million increase in sales and marketing personnel costs, a ~~$4.4~~$5.0 million increase in ~~marketing~~overhead costs, and a ~~$3.4~~$0.4 million increase in ~~overhead~~marketing costs, which were partially offset by a ~~$0.2~~$0.9 million decrease in professional fees. Personnel costs increased due to an increase in sales and marketing personnel headcount of ~~19.2%~~24.5% from ~~June~~September 30, 2021 to ~~June~~September 30, 2022 in addition to increased wages and fringe benefits, a ~~$1.2~~$1.3 million increase in

commissions expense due to increased sales, and a ~~$1.1~~$1.2 million increase in stock-based compensation expense. Marketing costs increased due to an increase in the number of marketing events held during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, including spending on

~~our annual user conference Appian World, which resumed its in-person format in April 2022. Additionally, marketing costs increased due to an increase in spending on advertising campaigns.~~ Overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure. Additionally, travel and entertainment ~~expenses~~expense increased due to a higher number of in-person engagements and events ~~relative~~as compared to the prior year. Marketing costs increased due to an increase in advertising expense stemming from an increase in the number of advertising campaigns launched in the three months ended September 30, 2022 relative to the three months ended September 30, 2021. Professional fees decreased due to a decrease in the use of third-party sales and marketing consultants for certain initiatives.

Research and Development Expense


		Three Months Ended June 30,											Three Months Ended September 30,
		2022			2021			$ Change		% Change			2022			2021			$ Change		% Change
		(dollars in thousands)											(dollars in thousands)
Research and development	Research and development	$	33,842		$	23,862		$	9,980	41.8	%	Research and development	$	37,623		$	26,510		$	11,113	41.9	%
% of revenue	% of revenue	30.7		%	28.7		%					% of revenue	31.9		%	28.7		%

Research and development expense increased ~~$10.0~~$11.1 million, or ~~41.8%~~41.9%, in the three months ended ~~June~~September 30, 2022 compared to the same period in 2021, primarily due to ~~an $8.5~~a $9.3 million increase in research and development personnel costs, a $1.4 million increase in overhead costs, and a ~~$0.1~~$0.4 million increase in professional fees. Personnel costs increased due to an increase in research and development personnel headcount of ~~32.2%~~25.6% from ~~June~~September 30, 2021 to ~~June~~September 30, 2022 in addition to increased wages and fringe benefits, coupled with a ~~$2.0~~$2.2 million increase in stock-based compensation expense. Overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure. Professional fees increased due to an increase in consulting fees stemming from higher usage of external resources to assist in our platform development efforts.

General and Administrative Expense


		Three Months Ended June 30,											Three Months Ended September 30,
		2022			2021			$ Change		% Change			2022			2021			$ Change		% Change
		(dollars in thousands)											(dollars in thousands)
General and administrative expense	General and administrative expense	$	29,509		$	17,358		$	12,151	70.0	%	General and administrative expense	$	29,357		$	20,226		$	9,131	45.1	%
% of revenue	% of revenue	26.8		%	20.9		%					% of revenue	24.9		%	21.9		%

General and administrative expense increased ~~$12.2~~$9.1 million, or ~~70.0%~~45.1%, in the three months ended ~~June~~September 30, 2022 compared to the same period in 2021, primarily due to a ~~$6.2~~$6.6 million increase in general and administrative personnel costs and a $2.8 million increase in overhead costs, both of which were partially offset by a $0.3 million decrease in professional fees. Personnel costs increased due to an increase in general and administrative personnel headcount of 38.2% from September 30, 2021 to September 30, 2022 in addition to increased wages and fringe benefits, as well as a $2.2 million increase in stock-based compensation expense. Overhead costs increased primarily due to an increase in certain allocated costs tied to our growth such as insurance premiums, information technology spending, human resources costs, and office-related expenses. Professional fees decreased due to a $2.1 million decline in legal fees incurred relative to the three months ended September 30, 2021, which was substantially offset by a $1.7 million increase in consulting fees.

Other Non-Operating Expense, Net


	Three Months Ended September 30,
	2022			2021			$ Change		% Change
	(dollars in thousands)
Other expense, net	$	5,876		$	2,329		$	3,547	***
% of revenue	5.0		%	2.5		%

*** Indicates a percentage that is not meaningful.

Other expense, net was $5.9 million in the three months ended September 30, 2022 compared to other expense, net of $2.3 million in the three months ended September 30, 2021. This change was primarily due to $6.1 million in foreign exchange losses in the three months ended September 30, 2022 as compared to $2.3 million in foreign exchange losses in the three months ended September 30, 2021. The primary reason for the increase in foreign exchange losses was the strengthening of the U.S. dollar against the British pound, Euro, and Swiss franc.

Interest Expense


	Three Months Ended September 30,
	2022			2021			$ Change		% Change
	(dollars in thousands)
Interest expense	$	89		$	72		$	17	23.6	%
% of revenue	0.1		%	0.1		%

Interest expense increased by a nominal amount in the three months ended September 30, 2022 compared to the same period in 2021, primarily due to slightly higher commitment fees on the letters of credit outstanding.

Comparison of the Nine Months Ended September 30, 2022 and 2021

Revenue


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
	(dollars in thousands)
Revenue
Subscriptions	$	246,908	$	187,952	$	58,956	31.4	%
Professional services	95,297		76,319		$	18,978	24.9	%
Total revenue	$	342,205	$	264,271	$	77,934	29.5	%

Total revenue increased $77.9 million, or 29.5%, in the nine months ended September 30, 2022 compared to the same period in 2021 due to an increase in our subscriptions revenue of $59.0 million and an increase in our professional services revenue of $19.0 million. The increase in subscriptions revenue was driven largely by a $42.8 million increase in cloud subscription revenue, a $14.3 million increase in on-premises subscription revenue, and a $1.9 million increase in maintenance and support revenue. With respect to new versus existing customers, there was a $46.4 million increase in subscriptions revenue stemming from expanded deployments and corresponding sales of additional subscriptions to existing customers while $12.3 million of the increase was the result of sales of subscriptions to new customers. The increase in professional services revenue was due primarily to a $14.8 million increase in sales to new customers, in addition to a $4.2 million increase in revenue from existing customers.

Cost of Revenue


	Nine Months Ended September 30,
	2022			2021			$ Change		% Change
	(dollars in thousands)
Cost of revenue
Subscriptions	$	26,065		$	19,806		$	6,259	31.6	%
Professional services	72,011			56,065			$	15,946	28.4	%
Total cost of revenue	$	98,076		$	75,871		$	22,205	29.3	%
Subscriptions gross margin	89.4		%	89.5		%
Professional services gross margin	24.4		%	26.5		%
Total gross margin	71.3		%	71.3		%

Cost of revenue increased $22.2 million, or 29.3%, in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to a $13.6 million increase in professional ~~fees,~~services and product support personnel costs, a ~~$3.2~~$4.0 million increase in hosting costs, a $2.2 million increase in contractor costs, a $1.2 million increase in travel and entertainment expenses, and a $1.2 million increase in overhead costs. Personnel costs increased due to an increase in professional services and product support personnel headcount of 15.9% from September 30, 2021 to September 30, 2022 in addition to increased wages and fringe benefits, coupled with a $1.2 million increase in stock-based compensation. Hosting costs increased as sales of our cloud offering increased in the nine months ended September 30, 2022. Contractor costs increased in the nine months ended September 30, 2022 compared to the same period in 2021 due to an increase in the usage of subcontractors and consultants for professional services engagements. Travel and entertainment expenses increased due to a larger number of in-person engagements, events, and other business-related traveling. The increase in overhead costs was due largely to an increase in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Subscriptions gross margin was 89.4% for nine months ended September 30, 2022 as compared to 89.5% for the nine months ended September 30, 2021. Revenue from our cloud offering increased and became a larger proportion of our overall subscriptions revenue. However, the increase in revenue was offset by increased hosting costs. Professional services gross margin decreased to 24.4% for the nine months ended September 30, 2022 compared to 26.5% in the same period in 2021 due largely to higher personnel and human resources costs in the current year, partially offset by an increase in professional services revenue. Furthermore, fewer in-person professional services engagements and deployments during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2022 led to temporarily improved margins in the prior year. Based on the above offsetting factors, gross margin remained consistent at 71.3% for the nine months ended September 30, 2022 and 2021.

Sales and Marketing Expense


	Nine Months Ended September 30,
	2022			2021			$ Change		% Change
	(dollars in thousands)
Sales and marketing	$	157,104		$	118,575		$	38,529	32.5	%
% of revenue	45.9		%	44.9		%

Sales and marketing expense increased $38.5 million, or 32.5%, in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to a $23.4 million increase in sales and marketing personnel costs, an $11.3 million increase in overhead costs, and a ~~$2.7~~$5.5 million increase in marketing costs, which were partially offset by a $1.6 million decrease in professional fees. Personnel costs increased due to an increase in sales and marketing personnel headcount of 24.5% from September 30, 2021 to September 30, 2022, in addition to increased wages and fringe benefits, increased sales commissions driven by our revenue growth, and a $3.0 million increase in stock-based compensation expense. Overhead costs

increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure. Additionally, travel and entertainment expenses increased due to a higher number of in-person engagements and events relative to the prior year. Marketing costs increased due to an increase in the number of marketing events held during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, including spending on our annual user conference Appian World, which resumed its in-person format in April 2022. Additionally, marketing costs increased due to an increase in spending on advertising campaigns. Professional fees decreased due to a decrease in the use of third-party sales and marketing consultants for certain initiatives.

Research and Development Expense


	Nine Months Ended September 30,
	2022			2021			$ Change		% Change
	(dollars in thousands)
Research and development	$	101,401		$	71,062		$	30,339	42.7	%
% of revenue	29.6		%	26.9		%

Research and development expense increased $30.3 million, or 42.7%, in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to a $25.1 million increase in research and development personnel costs, a $3.9 million increase in overhead costs, and a $1.3 million increase in professional fees. Personnel costs increased due to an increase in research and development personnel headcount of 25.6% from September 30, 2021 to September 30, 2022 in addition to increased wages and fringe benefits, coupled with a $5.5 million increase in stock-based compensation expense. Overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure. Professional fees increased due to an increase in consulting fees stemming from higher usage of external resources to assist in our platform development efforts.

General and Administrative Expense


	Nine Months Ended September 30,
	2022			2021			$ Change		% Change
	(dollars in thousands)
General and administrative expense	$	90,014		$	56,726		$	33,288	58.7	%
% of revenue	26.3		%	21.5		%

General and administrative expense increased $33.3 million, or 58.7%, in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to a $16.6 million increase in professional fees, an $8.8 million increase in overhead costs, and a $7.8 million increase in general and administrative personnel costs. Professional fees increased due to higher legal fees incurred in connection with two separate lawsuits, one involving an effort to enforce our intellectual property rights and one involving reciprocal false advertising and related claims with a competitor. Refer to Item 1. Legal Proceedings, within Part II of this Form 10-Q for further information. Overhead costs increased primarily due to an increase in certain allocated costs tied to our growth such as insurance premiums, information technology spending, human resources costs, and office-related expenses. Personnel costs increased due to an increase in general and administrative personnel headcount of ~~27.4%~~38.2% from ~~June~~September 30, 2021 to ~~June~~September 30, 2022 ~~as well as a $1.1 million increase~~ in ~~stock-based compensation.~~

~~Other Non-Operating Expense (Income), Net~~

Three Months Ended June 30,
2022 2021 $ Change % Change
(dollars in thousands)
Other expense (income), net $ 6,153 $ (1,081) $ 7,234 ***
% of revenue 5.6 % (1.3) %

*** Indicates a percentage that is not meaningful.

~~Other expense (income), net was $6.2 million in the three months ended June 30, 2022 compared~~addition to other income, net of $1.1 million in the three months ended June 30, 2021. This change was primarily due to $6.5 million in foreign exchange losses in the three months ended June 30, 2022 as compared to $1.0 million in foreign exchange gains in the three months ended June 30, 2021. The primary reason for the increase in foreign exchange losses was the strengthening of the U.S. dollar against the British pound, Euro,increased wages and ~~Swiss franc.~~

~~Interest Expense~~

Three Months Ended June 30,
2022 2021 $ Change % Change
(dollars in thousands)
Interest expense $ 60 $ 80 $ (20) (25.0) %
% of revenue 0.1 % 0.1 %

~~Interest expense decreased by a nominal amount in the three months ended June 30, 2022 compared to the same period in 2021, primarily due to lower commitment fees on the letters of credit outstanding.~~

~~Comparison of the Six Months Ended June 30, 2022 and 2021~~

~~Revenue~~

Six Months Ended June 30,
2022 2021 $ Change % Change
(dollars in thousands)
Revenue
Subscriptions $ 160,388 $ 120,712 $ 39,676 32.9 %
Professional services 63,941 51,142 12,799 25.0 %
Total revenue $ 224,329 $ 171,854 $ 52,475 30.5 %

Total revenue increased $52.5 million, or 30.5%, in the six months ended June 30, 2022 compared to the same period in 2021 due to an increase in our subscriptions revenue of $39.7 million and an increase in our professional services revenue of $12.8 million. The increase in subscriptions revenue was driven largely by a $28.9 million increase in cloud subscription revenue, a $9.6 million increase in on-premises subscription revenue, and a $1.2 million increase in maintenance and support revenues. With respect to new versus existing customers, there was a $27.3 million increase in subscriptions revenue stemming from expanded deployments and corresponding sales of additional subscriptions to existing customers while $12.2 million of the increase was the result of sales of subscriptions to new customers. The remainder of the increase is attributable to revenue recognized from Lana Labs. The increase in professional services revenue was due primarily to a $13.9 million increase in sales to new customers, which was partially offset by a $1.1 million decrease in revenue from existing customers. Professional services revenue was also impacted by the level of usage of partners to perform professional services in the six months ended June 30, 2022 as compared to the same period in 2021.fringe benefits.

3639

~~Cost of Revenue~~

Six Months Ended June 30,
2022 2021 $ Change % Change
(dollars in thousands)
Cost of revenue
Subscriptions $ 16,751 $ 12,714 $ 4,037 31.8 %
Professional services 47,563 36,650 10,913 29.8 %
Total cost of revenue $ 64,314 $ 49,364 $ 14,950 30.3 %
Subscriptions gross margin 89.6 % 89.5 %
Professional services gross margin 25.6 % 28.3 %
Total gross margin 71.3 % 71.3 %

Cost of revenue increased $15.0 million, or 30.3%, in the six months ended June 30, 2022 compared to the same period in 2021, primarily due to a $9.9 million increase in professional services and product support personnel costs, a $2.5 million increase in hosting costs, a $1.1 million increase in overhead costs, a $0.8 million increase in contractor costs, and a $0.6 million increase in travel and entertainment expenses. Personnel costs increased due to an increase in professional services and product support personnel headcount of 17.0% from June 30, 2021 to June 30, 2022, coupled with a $0.7 million increase in stock-based compensation. Hosting costs increased as sales of our cloud offering increased in the six months ended June 30, 2022. The increase in overhead costs was due largely to an increase in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure. Contractor costs increased in the six months ended June 30, 2022 compared to the same period in 2021 due to an increase in the usage of subcontractors and consultants for professional services engagements.

Subscriptions gross margin was 89.6% for the six months ended June 30, 2022, consistent with a margin of 89.5% in the same period in 2021. As sales of our cloud offering increased and became a larger proportion of our overall subscriptions revenue, hosting costs increased. However, this increase in hosting costs was offset by an increase in subscriptions revenue. Professional services gross margin decreased to 25.6% for the six months ended June 30, 2022 compared to 28.3% in the same period in 2021 due largely to higher personnel and human resources costs in the current year, partially offset by an increase in professional services revenue. Furthermore, fewer in-person professional services engagements and deployments during the six months ended June 30, 2021 as compared to the six months ended June 30, 2022 led to temporarily improved margins in the prior year. Based on the above offsetting factors, gross margin remained consistent at 71.3% for both the six months ended June 30, 2022 and June 30, 2021.

~~Sales and Marketing Expense~~

Six Months Ended June 30,
2022 2021 $ Change % Change
(dollars in thousands)
Sales and marketing $ 102,192 $ 76,504 $ 25,688 33.6 %
% of revenue 45.6 % 44.5 %

Sales and marketing expense increased $25.7 million, or 33.6%, in the six months ended June 30, 2022 compared to the same period in 2021, primarily due to a $15.0 million increase in sales and marketing personnel costs, a $6.3 million increase in overhead costs, and a $5.1 million increase in marketing costs, which were partially offset by a $0.7 million decrease in professional fees. Personnel costs increased due to an increase in sales and marketing personnel headcount of 19.2% from June 30, 2021 to June 30, 2022, increased sales commissions driven by our revenue growth, and a $1.7 million increase in stock-based compensation expense. Overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure. Additionally, travel and entertainment expenses increased due to a higher number of in-person engagements and events relative to the prior year. Marketing costs increased due to an increase in the number of marketing events held during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, including spending on our annual user conference Appian World, which

resumed its in-person format in April 2022. Additionally, marketing costs increased due to an increase in spending on advertising campaigns. Professional fees decreased due to a decrease in the use of third-party sales and marketing consultants for certain initiatives.

~~Research and Development Expense~~

Six Months Ended June 30,
2022 2021 $ Change % Change
(dollars in thousands)
Research and development $ 63,778 $ 44,552 $ 19,226 43.2 %
% of revenue 28.4 % 25.9 %

Research and development expense increased $19.2 million, or 43.2%, in the six months ended June 30, 2022 compared to the same period in 2021, primarily due to a $15.8 million increase in research and development personnel costs, a $2.5 million increase in overhead costs, and a $0.8 million increase in professional fees. Personnel costs increased due to an increase in research and development personnel headcount of 32.2% from June 30, 2021 to June 30, 2022, coupled with a $3.3 million increase in stock-based compensation expense. Overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure. Professional fees increased due to an increase in consulting fees stemming from higher usage of external resources to assist in our platform development efforts.

~~General and Administrative Expense~~

Six Months Ended June 30,
2022 2021 $ Change % Change
(dollars in thousands)
General and administrative expense $ 60,658 $ 36,500 $ 24,158 66.2 %
% of revenue 27.0 % 21.2 %

General and administrative expense increased $24.2 million, or 66.2%, in the six months ended June 30, 2022 compared to the same period in 2021, primarily due to a $16.9 million increase in professional fees, a $6.0 million increase in overhead costs, and a $1.2 million increase in general and administrative personnel costs. Professional fees increased due to higher legal fees incurred in connection with two separate lawsuits, one involving an effort to enforce our intellectual property and one involving reciprocal false advertising and related claims with a competitor. Refer to Item 1. Legal Proceedings, within Part II of this Form 10-Q for further information. Overhead costs increased primarily due to an increase in certain allocated costs tied to our growth such as insurance premiums, information technology spending, human resources costs, and office-related expenses. Personnel costs increased due to an increase in general and administrative personnel headcount of 27.4% from June 30, 2021 to June 30, 2022. This increase was partially offset by a $2.2 million decrease in stock-based compensation, driven by the accelerated recognition of expense pursuant to the vesting of the 2019 CEO grant during the six months ended June 30, 2021.

Other Non-Operating Expense, Net


		Six Months Ended June 30,										Nine Months Ended September 30,
		2022			2021			$ Change		% Change		2022			2021			$ Change		% Change
		(dollars in thousands)										(dollars in thousands)
Other expense, net	Other expense, net	$	6,940		$	1,812		$	5,128	***	Other expense, net	$	12,815		$	4,141		$	8,674	***
% of revenue	% of revenue	3.1		%	1.1		%				% of revenue	3.7		%	1.6		%

*** Indicates a percentage that is not meaningful.

Other expense, net was ~~$6.9~~$12.8 million in the ~~six~~nine months ended ~~June~~September 30, 2022 compared to other expense, net of ~~$1.8~~$4.1 million in the ~~six~~nine months ended ~~June~~September 30, 2021. This change was primarily due to ~~$8.4~~$14.5 million in foreign exchange losses in the ~~six~~

nine months ended ~~June~~September 30, 2022 as compared to ~~$2.0~~$4.3 million in foreign exchange losses in the ~~six~~nine months ended ~~June~~September 30, 2021. The primary reason for the increase in foreign exchange losses was the strengthening of the U.S. dollar against the British pound, Euro, and Swiss franc.

Interest Expense


		Six Months Ended June 30,											Nine Months Ended September 30,
		2022			2021			$ Change		% Change			2022			2021			$ Change		% Change
		(dollars in thousands)											(dollars in thousands)
Interest expense	Interest expense	$	134		$	161		$	(27)	(16.8)	%	Interest expense	$	222		$	233		$	(11)	(4.7)	%
% of revenue	% of revenue	0.1		%	0.1		%					% of revenue	0.1		%	0.1		%

Interest expense decreased by a nominal amount in the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021, primarily due to lower commitment fees on the letters of credit outstanding.

Liquidity and Capital Resources

The following table presents selected financial information and statistics pertaining to liquidity and capital resources as of ~~June~~September 30, 2022 and December 31, 2021:


		As of					As of
		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	76,185	$	100,796	Cash and cash equivalents	$	51,802	$	100,796
Short-term investments and marketable securities	Short-term investments and marketable securities	59,748		55,179		Short-term investments and marketable securities	40,885		55,179
Property and equipment, net	Property and equipment, net	38,539		36,913		Property and equipment, net	38,692		36,913
Long-term investments	Long-term investments	2,022		12,044		Long-term investments	—		12,044
Working capital*	Working capital*	102,338		121,752		Working capital*	71,531		121,752

* Defined as current assets net of current liabilities, excluding the current portion of restricted cash

As of ~~June~~September 30, 2022, we had ~~$76.2~~$51.8 million of cash and cash equivalents and ~~$59.7~~$40.9 million of short-term investments and marketable securities. We believe our existing cash and cash equivalents and short-term investments and marketable securities, together with any positive cash flows from operations and available borrowings under our line of credit, will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. We expect future sources of funds to consist primarily of cash generated from sales of subscriptions and the related professional services. We may also elect to raise additional sources of funding through draws on our existing line of credit, entering into new debt financing arrangements, or conducting additional public offerings. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, particularly internationally, the introduction of new and enhanced products and functions as well as platform enhancements and professional services offerings, and the level of market acceptance of our applications.

In the event additional financing is required from outside sources, we may be unable to raise the funds on acceptable terms, if at all. To the extent existing cash and cash equivalents, short-term investments and cash from operations are not sufficient to fund future activities, we may need to raise additional funds. We may seek to raise additional funds through equity, equity-linked, or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness may have rights that are senior to holders of our equity securities and could contain covenants that restrict operations. Any additional equity financing may be dilutive to our existing stockholders.

We recently have, and in the future may enter into, investments in or acquisitions of complementary businesses, products, or technologies, which could also require us to seek additional equity financing, incur indebtedness, or use cash resources. We

have no present binding agreements or commitments to enter into any such acquisitions. If we are unable to raise additional capital when desired, our business, operating results, and financial condition could be adversely affected.

Sources of Funds

Since becoming a public company in 2017, we have financed our operations in large part with equity financing arrangements, including net proceeds of $77.8 million from our initial public offering in May 2017, net proceeds of $57.8 million from our underwritten public offering in August 2018, net proceeds of $101.3 million from our underwritten public offering in September 2019, and net proceeds of $107.9 million from our underwritten public offering in June 2020. In addition, we have financed our operations through sales of subscriptions and professional services.

~~We have~~As of September 30, 2022, we had a $20.0 million revolving line of credit with a lender, and as of that ~~matures in November 2025. In January 2022,~~date, we ~~executed the second loan modification agreement to increase the aggregate amount of funds our foreign subsidiaries are allowed to maintain outside of the United States. We~~had no outstanding borrowings and were in compliance with all ~~covenants~~covenants.

To further help strengthen our financial position and support our growth initiatives, on November 3, 2022, we entered into a new Senior Secured Credit Facilities Credit Agreement (the “Credit Agreement”) which provides for a five-year term loan facility in an aggregate principal amount of $100.0 million and, in addition, up to $50.0 million for a revolving credit facility, including a letter of credit sub-facility in the aggregate availability amount of $15.0 million and a swingline sub-facility in the aggregate availability amount of $10.0 million (as a sublimit of the revolving loan facility). The new Credit Agreement matures on November 3, 2027. We will use the proceeds from the $100.0 million term loan to fund the continued growth of our business and support our working capital requirements. The new Credit Agreement replaces our existing Line of Credit that was in place as of ~~June~~September 30, 2022. As

We expect future sources of ~~June 30, 2022, we had no outstanding borrowings under this~~funds to consist primarily of cash generated from sales of subscriptions and the related professional services. We may also elect to raise additional sources of funding through draws on our new revolving ~~line~~credit facility, entering into new debt financing arrangements, or conducting additional public offerings. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of ~~credit,~~spending to support research and ~~we had outstanding letters~~development efforts, the expansion of ~~credit totaling $11.0 million in connection with securing~~sales and marketing activities, particularly internationally, the introduction of new and enhanced products and functions as well as platform enhancements and professional services offerings, and the level of market acceptance of our ~~leased office space.~~applications.

Uses of Funds

Our current principal uses of cash are funding operations and other working capital requirements. Historically, we have also utilized cash to pay for the acquisition of businesses that were complementary to ours, and we may pursue similar opportunities in the future. Over the past several years, revenue has increased significantly from year to year and, as a result, cash flows from customer collections have also grown. However, as we continue to invest in growing our business, operating expenses have also increased. Outside of cash used in operations, other uses of cash in 2022 to date have included capital expenditures related to the expansion of our ~~headquarters.~~headquarters and purchases of short-term investments. Non-operating cash uses in the prior year through ~~June~~September 30, 2021 ~~also~~ consisted primarily of the acquisition of Lana Labs and modest capital expenditures.

Furthermore, in 2021 we executed a non-cancellable cloud hosting arrangement with Amazon Web Services that contains provisions for minimum purchase commitments. Purchase commitments under the agreement total $131.0 million over five years, 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. Spending under this agreement for the ~~six~~nine months ended ~~June~~September 30, 2022 totaled ~~$15.9~~$24.8 million.

Historical Cash Flows


		Six Months Ended June 30,									Nine Months Ended September 30,
		2022		2021		$ Change		% Change			2022		2021		$ Change		% Change
		(dollars in thousands)									(dollars in thousands)
Beginning cash, cash equivalents, and restricted cash	Beginning cash, cash equivalents, and restricted cash	$	103,960	$	112,462	$	(8,502)	(7.6)	%	Beginning cash, cash equivalents, and restricted cash	$	103,960	$	112,462	$	(8,502)	(7.6)	%
Operating activities:	Operating activities:									Operating activities:
Net loss	Net loss	(72,508)		(37,412)		(35,096)		93.8		Net loss	(116,503)		(62,796)		(53,707)		85.5
Stock-based compensation and other non-cash adjustments	Stock-based compensation and other non-cash adjustments	18,361		14,910		3,451		23.1		Stock-based compensation and other non-cash adjustments	31,771		21,349		10,422		48.8
Changes in working capital	Changes in working capital	3,886		13,129		(9,243)		(70.4)		Changes in working capital	(9,226)		6,949		(16,175)		***
Net cash used by operating activities	Net cash used by operating activities	(50,261)		(9,373)		(40,888)		***		Net cash used by operating activities	(93,958)		(34,498)		(59,460)		***

Investing activities:	Investing activities:									Investing activities:
Net cash provided by investing activities	Net cash provided by investing activities	574		26,577		(26,003)		(97.8)		Net cash provided by investing activities	20,342		51,390		(31,048)		(60.4)

Financing activities:	Financing activities:									Financing activities:
Net cash provided by financing activities	Net cash provided by financing activities	25,030		2,089		22,941		***		Net cash provided by financing activities	25,205		2,375		22,830		***
Effect of exchange rates	Effect of exchange rates	(205)		(476)		271		(56.9)		Effect of exchange rates	(1,694)		(1,367)		(327)		23.9
Net change in cash	Net change in cash	(24,862)		18,817		(43,679)		***		Net change in cash	(50,105)		17,900		(68,005)		***
Ending cash, cash equivalents, and restricted cash	Ending cash, cash equivalents, and restricted cash	$	79,098	$	131,279	(52,181)		(39.7)		Ending cash, cash equivalents, and restricted cash	$	53,855	$	130,362	$	(76,507)	(58.7)	%

*** Indicates a percentage that is not meaningful.

Operating Activities

Net cash used by operating activities was ~~$50.3~~$94.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to ~~$9.4~~$34.5 million used by operating activities for the ~~six~~nine months ended ~~June~~September 30, 2021. The increase in net ~~cash~~cash used by operating activities was primarily due to a ~~$35.1~~$53.7 million increase in net losses, most notably driven by the increase in operating expenses as discussed above. In addition, the increase in cash used by operating activities for the ~~six~~nine months ended ~~June~~September 30, 2022 was attributed to a decline in cash flows from working capital of ~~$9.2 million.~~$16.2 million. This change ~~from~~in working capital is comprised primarily of a ~~$7.7~~$14.5 million decrease in accounts payable and accrued ~~compensation and related benefits and~~expenses due to timing, a ~~$5.6~~$9.5 millionincrease in prepaid expenses and other assets ~~was~~ driven by higher prepayments under the AWS cloud hosting ~~arrangement.~~arrangement, and a $3.2 million decrease in other current and non-current liabilities due in part to the decrease in the escrow liability related to the Lana Labs acquisition.

Investing Activities

Net cash provided by investing activities was ~~$0.6~~$20.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to ~~$26.6~~$51.4 million provided by investing activities for the ~~six~~nine months ended ~~June~~September 30, 2021. ~~The decrease in net~~Net cash provided by investing activities was primarily ~~due to $31.2~~impacted by $31.2 million increase in purchases of investments ~~for~~during the ~~six~~nine months ended ~~June~~September 30, 2022, ~~and~~ a ~~$3.7~~$3.4 million increase in capital expenditures, ~~year over year, partially offset by an $8.9~~and a $27.2 million ~~increase~~ decrease in proceeds from the sale of investments. Partially offsetting these increases was a $30.7 million decrease in payments for business acquisitions due to the August 2021 acquisition of Lana Labs.

Financing Activities

Net cash provided by financing activities was ~~$25.0~~$25.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to ~~$2.1~~$2.4 million provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2021. The increase in net cash provided by financing activities was primarily due to ~~$23.8~~$23.8 million in proceeds received from the exercise of the 2019 CEO stock option during the ~~six~~nine months ended ~~June~~September 30, 2022.

Critical Accounting Estimates

There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022. We are not aware of any specific events or circumstances that would require us to update our estimates, assumptions, and judgments.

Recent Accounting Pronouncements

See Note 2 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

4143

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates. ~~The uncertainty that exists with respect to the economic impact of the global COVID-19 pandemic has also introduced significant volatility in the financial markets.~~

Interest Rate Risk

We had total cash, cash equivalents, and restricted cash of ~~$79.1~~$53.9 million as of ~~June~~September 30, 2022, which consisted of ~~$9.4 million invested in~~ a money market fund, cash in readily available checking accounts, and overnight repurchase investments. These ~~securities,~~instruments, which are not dependent on interest rate fluctuations that may cause principal amounts to fluctuate, are held for reinvestment and working capital purchases.

In addition, as of ~~June~~September 30, 2022, we held ~~$61.8~~$40.9 million of fixed income securities such as U.S. Treasuries, commercial paper, corporate bonds, and asset-backed securities. These securities are subject to market risk due to fluctuations in interest rates, which may affect our interest income and the fair value of our investments. We classify investments as available-for-sale, including those with stated maturities beyond twelve months. As such, no gains or losses due to changes in interest rates are recognized in our consolidated statements of operations unless such securities are sold prior to maturity or due to expected credit losses. A hypothetical 100 basis point change in interest rates would not have had a material effect on the fair market value of our investment portfolio as of ~~June~~September 30, 2022. To date, fluctuations in interest income have also not been significant. Our investments are made for the purpose of preserving capital, fulfilling liquidity needs, and maximizing total return. We do not enter into investments for trading or speculative purposes.

As of ~~June~~September 30, 2022, we had no outstanding borrowings.

Inflation Risk

We are exposed to market risks related to inflation in personnel costs, third-party service providers, subcontracting costs, professional fees, and general overhead expenses. During 2022, inflation has increased to rates beyond recent history, and as a result we have experienced rising costs. If these inflation pressures continue or increase in severity, we may not be able to fully offset such higher costs through price increases and productivity initiatives. While we do not believe inflation has had a material impact on our results of operations to date, continued high rate of inflation in the future may have an adverse effect on our ability to maintain operating costs and adversely affect our gross profit margin.

Foreign Currency Exchange Risk

Our reporting currency is the U.S. dollar. Due to our international operations, we have foreign currency risks related to revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the Australian dollar, Swiss franc, British pound, and Euro. Our international sales contracts are primarily denominated in the local currency of the customer making the purchase. In addition, a portion of operating expenses are incurred outside the United States and are denominated in foreign currencies. Increases in the relative value of the U.S. dollar to other currencies will negatively affect revenue and net operating results as expressed in U.S. dollars. Based on a sensitivity analysis, a 10% change in the foreign currency exchange rates for the ~~six~~nine months ended ~~June~~September 30, 2022 would have impacted our total revenue by approximately 3% and operating loss by approximately 3%2%. This calculation assumes all currencies change in the same direction and proportion relative to the U.S. dollar.

We have experienced and will continue to experience fluctuations in net loss as a result of transaction gains or losses related to remeasuring certain current asset and current liability balances denominated in currencies other than the functional currency of the entities in which they are recorded. We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure information required to be disclosed by a company in the reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by a company in the reports it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~June~~September 30, 2022. Based on the evaluation of our disclosure controls and procedures as of ~~June~~September 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, believes our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance the objectives of the control system are met. Further, the design of a control system must reflect the fact there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

4345

PART II—OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Other than as discussed below, during the period covered by this report, there were no material developments in the legal proceedings disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 and our Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2022.

Pegasystems Litigation

On May 29, 2020, we filed a civil complaint against Pegasystems, Inc. (“Pegasystems”) and Youyong Zou, a Virginia resident, in the Circuit Court for Fairfax County, Virginia.Appian ~~Corp.~~Corp v. Pegasystems Inc. & Youyong Zou,, No. 2020-07216 (Fairfax Cty. Ct.)~~, and on~~. On May 9,10, 2022, we announced the jury ~~in the case~~ awarded us $2.036 billion in damages for misappropriation of our trade secrets and $1 in damages for violating the Virginia Computer Crimes Act. Pegasystems filed several post-trial motions ~~in which it seeks~~seeking relief in the form of reducing the damages award or setting aside the jury’s verdict and either granting a new trial or entering judgment in Pegasystems’ favor. ~~One~~All of these motions were denied, and final judgment was ~~denied~~entered by the Court on ~~July 28,~~September 15, 2022. ~~We believe Pegasystems’ motions are without merit. We simultaneously filed a motion for attorneys’~~The final judgment reaffirmed the $2.036 billion in damages and also ordered Pegasystems to pay Appian $23.6 million in attorney's fees ~~and costs,~~associated with the case as well as statutory post-judgment interest on the judgment at an annual rate of 6%, or approximately $122.0 million per year. Defendant Youyong Zou has satisfied the judgment of $5,000 (plus interest) against him in lieu of appealing that judgment. On September 15, 2022, Pegasystems filed a notice of appeal. Pegasystems is not required to pay us the judgment, attorney’s fees, or post-judgment interest until all appeals are exhausted. We cannot predict the outcome of any ~~award~~appeals or the time it will take to resolve them. Like any judgment, there is no guarantee we will be able to collect all or any portion of ~~attorneys’ fees and costs, based on~~ the ~~jury's finding that our trade secrets were willfully and maliciously misappropriated.~~judgment.

On July 3, 2019, Pegasystems filed a claim against us and BPM.com, Inc., a market analyst company, in U.S. District Court for the District of Massachusetts alleging, among other things, that we had engaged in false advertising by re-publishing a study by BPM.com comparing us favorably to Pegasystems and by failing to disclose we commissioned the study. Pegasystems Inc. v. Appian Corp. & Business Process Management Inc., No. 1:19-cv-11461 (D. Mass). We filed counterclaims against Pegasystems for false advertising, alleging numerous marketing and advertising materials used by Pegasystems ~~including that a report purportedly authored by Jim Sinur, a former industry analyst,~~ were false and/or ~~misleading and, in the case of the Sinur report, Pegasystems failed to disclose that it had commissioned the report.~~misleading. We also made a claim for defamation against Pegasystems based on public statements by Pegasystems’ executives. ~~On July 15, 2022, the~~The Court ~~heard oral argument on the parties’~~issued a summary judgment ruling on September 30, 2022, granting in part and denying in part each party’s motions, ~~but has not yet entered an order~~and narrowing the damages and claims in the case. The Court also set a trial on ~~either~~each party’s ~~motion.~~claims for January 2023. We continue to believe Pegasystems’ claims are without merit.

Other Matters

From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Other than as disclosed elsewhere in this Quarterly Report, we are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Item 1A. RISK FACTORS

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022. There have been no material changes to the risk factors described in that report.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

a.Recent Sales of Unregistered Equity Securities

Not applicable.

b.Use of Proceeds

Not applicable.

c.Issuer Purchases of Equity Securities

Period
Total number of shares purchased(1)
Average price paid per share Total number of shares purchased as part of publicly announced plan
Maximum number of shares that may yet be purchased under the plan (2)
April 1 to April 30, 2022 3,225 $ 62.38 3,225 968,769
May 1 to May 31, 2022 4,490 $ 48.24 4,490 964,279
June 1 to June 30, 2022 4,264 $ 48.41 4,264 960,015
Total 11,979 $ 52.11 11,979 960,015


Period	Total number of shares purchased(1)	Average price paid per share		Total number of shares purchased as part of publicly announced plan	Maximum number of shares that may yet be purchased under the plan (2)
July 1 to July 31, 2022	3,885	$	51.00	3,885	956,130
August 1 to August 31, 2022	4,036	$	54.00	4,036	952,094
September 1 to September 30, 2022	4,939	$	42.98	4,939	947,155
Total	12,860	$	48.86	12,860	947,155

(1) Shares purchased represent shares purchased on the open market pursuant to the Appian Corporation Employee Stock Purchase Plan (“ESPP”), which was approved by the Company’s stockholders on June 11, 2021. Shares purchased under the ESPP are deposited into the participants’ accounts.

(2) Because the number of shares that may be purchased under the ESPP depends on each employee’s voluntary election to participate and contribution elections and on the fair market value of our Class A Common Stock at various future dates, the actual number of shares that may be purchased under the plan cannot be determined in advance. We have filed a registration statement on S-8 that covers 1,000,000 shares.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

The information set forth below is included herein for ~~the~~ purposes of providing disclosure under ~~“Item 8.01 Other Events”~~various items of Form 8-K.

Item 1.01 Entry into a Material Definitive Agreement

Senior Secured Credit Facilities Credit Agreement

On ~~August~~November 3, 2022, we entered into a Senior Secured Credit Facilities Credit Agreement (the “Credit Agreement”) with the several banks and other financial institutions or entities from time to time parties to the Credit Agreement, as lenders (collectively, referred to as the “Lender”), and Silicon Valley Bank, as administrative agent and collateral agent for the Lender (in such capacity, the “Agent”) that replaces our existing Third Amended and Restated Loan and Security Agreement dated as of November 1, 2017, as amended by that certain First Loan Modification Agreement dated as of December 30, 2021, and as further amended by that certain Second Loan Modification Agreement dated as of January 28, 2022 (and as further amended, restated, supplemented, or otherwise modified from time to time prior to the day hereof, the “Original Loan Agreement”).

The Credit Agreement provides for a five-year term loan facility in an aggregate principal amount of $100.0 million and up to $50.0 million for a revolving credit facility, including a letter of credit sub-facility in the aggregate availability amount of $15.0 million and a swingline sub-facility in the aggregate availability amount of $10.0 million (as a sublimit of the revolving loan facility). We will use the facility for funding general corporate purposes and working capital.

Under the Credit Agreement, we may elect whether amounts drawn bear interest on the outstanding principal amount at a rate per annum equal to either (a) the higher of the Prime rate or the Federal Funds Effective (“Base Rate”) rate plus 0.5%, or (b) the forward-looking term rate based on the secured overnight financing rate (“Term SOFR”), plus a margin. During the first three years of the Credit Agreement, the additional interest rate margin ranges from 1.5% to 2.5% in the case of Base Rate

advances and from 2.5% to 3.5% in the case of Term SOFR advances, depending on our debt to recurring revenue leverage ratio. During the final two years of the Credit Agreement, the interest rate margin ranges from 0.5% to 2.5% in the case of Base Rate advances and from 1.5% to 3.5% in the case of Term SOFR advances, depending on our debt to Consolidated Adjusted EBITDA (as defined in the Credit Agreement) leverage ratio. Our obligations are secured on a senior lien basis by a security interest, in all of our right, title, and interest in, to and under substantially all of our assets, including our intellectual property, subject to limited exceptions, including permitted liens.

The Credit Agreement contains customary representations, warranties and covenants, including covenants by us limiting additional indebtedness, guaranties, liens, fundamental changes, mergers and consolidations, dispositions of assets, investments, paying dividends on capital stock or redeeming, repurchasing or retiring capital stock, or prepaying certain junior indebtedness and preferred stock, certain corporate changes, and transactions with affiliates. The Credit Agreement also provides for events of default customary for term loans of this type, including but not limited to non-payment, breaches or defaults in the performance of covenants, insolvency, bankruptcy, and the occurrence of a material adverse effect on us.

The foregoing description of the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the Credit Agreement to be filed as an exhibit to our report on Form 10-K for the year ending December 31, 2022, at which time it will be incorporated herein by reference.

Item 1.02 Termination of a Material Definitive Agreement

As described in Item 1.01 of this report, the Original Loan Agreement was replaced by the Credit Agreement and terminated as of November 3, 2022.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

On November 1, 2022, weMichael Devine notified us he would be resigning from the Board of Directors (the “Board”) and as Chair of the Audit Committee, effective as of December 31, 2022. Mr. Devine informed us that his decision to resign as a director was not due to any disagreements with the Board or our executives.

On November 1, 2022, the Board appointed ~~Christopher M. Jones~~Shirley Edwards to the Board, effective as ~~Chief Revenue Officer.~~of January 1, 2023, to serve until our annual meeting of stockholders to be held in 2023. Ms. Edwards was also appointed to serve on and as the Chair of the Audit Committee, effective as of January 1, 2023.

From 2002 to 2022, Ms. Edwards was a partner at EY (formerly Ernst & Young LLP), most recently serving as Global Client Service Partner from 2017 to 2022. Ms. Edwards has also served as a board member for Girls Scouts of the Nation’s Capital and Leadership Greater Washington and on the Pamplin College of Business Advisory Council for Virginia Tech and National Capital Region Advisory Board for the American Red Cross. Ms. Edwards holds a B.S. in Accounting from Virginia Tech and is a licensed CPA.

The Board has determined Ms. Edwards is independent in accordance with our corporate governance guidelines and applicable requirements of The Nasdaq Stock Market and the Securities and Exchange Commission. Ms. Edwards is not a party to any transaction involving us required to be disclosed under Item 404(a) of Regulation S-K. There are no arrangements or understandings between Ms. Edwards and any other person pursuant to which she was selected as a director.

In accordance with our non-employee director compensation policy, Ms. Edwards will receive an annual board service retainer of $250,000. The annual retainers are paid one-half in the form of cash and one-half in the form of fully-vested shares of Class A common stock of Appian.

On November 1, 2022, the compensation committee of the Board approved to award a one-time bonus of $1,000,000 to Chris Winters, our General Counsel. This bonus was awarded to Mr. ~~Jones will report directly~~Winters with respect to ~~Matthew Calkins,~~his outstanding leadership of the ~~Company’s Chief Executive Officer.~~Legal Department.

4548

Item 6. EXHIBITS

Exhibit No.

Description

Reference

10.1

~~Consultant~~Employment Agreement, dated as of ~~May 23,~~October 14, 2022, by and between Appian Corporation and ~~William McCarthy.~~Christopher Jones.+

~~Attached.~~A

~~10.2~~

~~Employment Agreement, dated as of April 2, 2022, by and between Appian Corporation and Mark Matheos.~~+

Previously filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-38098), filed with the Securities and Exchange Commission on May 5, 2022, and incorporated herein by reference.ttached.

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Attached.

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Attached.

32.1*

Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Attached.

101.INS

XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

Attached.

101.SCH

XBRL Taxonomy Extension Schema Document

Attached.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

Attached.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

Attached.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

Attached.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Attached.

104

Cover page formatted as Inline XBRL and contained in Exhibit 101

Attached.

+ Indicates management contract or compensatory plan.

* The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent the company specifically incorporates it by reference.

4649

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

APPIAN CORPORATION

~~August 4,~~November 3, 2022

By:

/s/ Matthew Calkins

/s/ Mark Matheos

Name: Matthew Calkins

Name: Mark Matheos

Title: Chief Executive Officer and Chairman of the Board (Principal Executive Officer)

Title: Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

4750


	As of June 30,
	2022		2021
Cloud subscription revenue retention rate	116	%	121	%