What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-05-07 · 179 added, 129 removed, 507 unchanged (38% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Current assets

Cash and cash equivalents $ 256,146 $ 159,755

Accounts receivable, net of allowance of $ 800 and $ 600 as of March 31, 2020 and December 31, 2019, respectively

Accounts receivable, net of allowance of $ 800 and $ 600 as of June 30, 2020 and December 31, 2019, respectively

71,853 70,408

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Goodwill 4,443 —

Intangible assets, net of accumulated amortization of $ 96 as of March 31, 2020

Intangible assets, net of accumulated amortization of $ 196 as of June 30, 2020

Operating right-of-use assets 23,156 24,205

17 unchanged sentences

Deferred tax liabilities 437 38

Other non-current liabilities 2,092 —

Total liabilities 172,558 166,248

1 unchanged sentence

Class A common stock—par value $ 0.0001 ;

500,000,000 shares authorized and 34,731,245 shares issued and outstanding as of March 31, 2020;

500,000,000 shares authorized and 37,558,379 shares issued and outstanding as of June 30, 2020;

500,000,000 shares authorized and 34,525,386 shares issued and outstanding as of December 31, 2019

Class B common stock—par value $ 0.0001 ;

100,000,000 shares authorized and 32,913,836 shares issued and outstanding as of March 31, 2020;

100,000,000 shares authorized and 32,281,936 shares issued and outstanding as of June 30, 2020;

100,000,000 shares authorized and 32,942,636 shares issued and outstanding as of December 31, 2019

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Subscriptions $ 41,418 $ 36,860 $ 91,854 $ 71,417

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Operating loss ( 12,095 ) ( 9,794 ) ( 20,701 ) ( 25,119 )

Other expense (income)

Other expense (income), net 3,114 ( 302 )

Other (income) expense

Other (income) expense, net ( 682 ) ( 79 ) 2,432 ( 381 )

Interest expense 128 69 271 140

Total other expense (income) 3,257 ( 231 )

Total other (income) expense ( 554 ) ( 10 ) 2,703 ( 241 )

Loss before income taxes ( 11,541 ) ( 9,784 ) ( 23,404 ) ( 24,878 )

Income tax (benefit) expense ( 194 ) 122

Income tax expense 274 267 80 389

Net loss $ ( 11,815 ) $ ( 10,051 ) $ ( 23,484 ) $ ( 25,267 )

7 unchanged sentences

(unaudited, in thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net loss $ ( 11,815 ) $ ( 10,051 ) $ ( 23,484 ) $ ( 25,267 )

Comprehensive income (loss), net of income taxes:

Comprehensive loss, net of income taxes:

Foreign currency translation adjustment ( 214 ) ( 490 ) ( 197 ) ( 194 )

15 unchanged sentences

Balance, March 31, 2020 67,645,081 6 345,075 ( 268 ) ( 147,082 ) 197,731

Net loss — — — — ( 11,815 ) ( 11,815 )

Issuance of common stock from public offering, net of issuance costs 1,931,206 1 107,914 — — 107,915

Issuance of common stock to directors 2,296 — — — — —

Vesting of restricted stock units 13,567 — — — — —

Exercise of stock options 248,165 — 1,571 — — 1,571

Stock-based compensation expense — — 3,614 — — 3,614

Other comprehensive loss — — — ( 214 ) — ( 214 )

Balance, June 30, 2020 69,840,315 $ 7 $ 458,174 $ ( 482 ) $ ( 158,897 ) $ 298,802

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

Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity

Common Stock Additional Paid-In Capital Accumulated Deficit

Shares Amount

Balance, January 1, 2019 63,916,437 $ 6 $ 218,284 $ 542 $ ( 145,640 ) $ 73,192

Cumulative effect of adoption of ASC 606

— — — — 60,941 60,941

Net loss — — — — ( 15,216 ) ( 15,216 )

5 unchanged sentences

Balance, March 31, 2019 64,681,022 6 226,582 838 ( 99,915 ) 127,511

Net loss — — — — ( 10,051 ) ( 10,051 )

Issuance of common stock to directors 2,684 — — — — —

Vesting of restricted stock units 6,010 — — — — —

Exercise of stock options 147,852 — 914 — — 914

Stock-based compensation expense — — 2,689 — — 2,689

Other comprehensive loss — — — ( 490 ) — ( 490 )

Balance, June 30, 2019 64,837,568 $ 6 $ 230,185 $ 348 $ ( 109,966 ) $ 120,573

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

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(unaudited, in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

Net loss $ ( 23,484 ) $ ( 25,267 )

Adjustments to reconcile net loss to net cash used in operating activities:

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

Depreciation and amortization 2,980 1,933

9 unchanged sentences

Accrued compensation and related benefits 2,575 ( 3,181 )

Other current liabilities ( 154 ) ( 138 )

Other liabilities 1,271 ( 269 )

Deferred revenue 2,310 640

1 unchanged sentence

Deferred rent, non-current — 4,584

Net cash used in operating activities ( 3,859 ) ( 4,123 )

Net cash (used in) provided by operating activities ( 6,957 ) 12,007

Cash flows from investing activities:

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Principal payments on finance leases ( 716 ) —

Proceeds from public offering, net of underwriting discounts 108,260 —

Payments of costs related to public offerings ( 18 ) —

Proceeds from exercise of common stock options 2,242 1,987

1 unchanged sentence

Effect of foreign exchange rate changes on cash and cash equivalents 404 ( 134 )

Net decrease in cash and cash equivalents ( 10,592 ) ( 19,577 )

Net increase (decrease) in cash and cash equivalents 96,391 ( 13,829 )

Cash and cash equivalents, beginning of period 159,755 94,930

3 unchanged sentences

Cash paid for income taxes $ 139 $ 116

Supplemental disclosure of non-cash financing information:

Capital lease obligations to acquire new office furniture and fixtures $ — $ 3,673

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

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Under this method of adoption, we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit and applied the new standard only to contracts that were not completed prior January 1, 2019.

Because we were an emerging growth company until December 31, 2019, the Jumpstart Our Business Startups Act allowed us to delay adoption of ASC 606 until such time it was made applicable to private companies.

We elected to use this extended transition period, and accordingly, did not report revenues under ASC 606 in our Quarterly Reports on Form 10-Q during 2019.

Because we were an emerging growth company until December 31, 2019, the Jumpstart Our Business Startups Act allowed us to delay adoption of certain accounting standards such as ASC 606 and ASC 842 until such time they were made applicable to private companies.

We elected to use this extended transition period, and accordingly, did not report revenues under ASC 606 or leases under ASC 842 in our Quarterly Reports on Form 10-Q during 2019.

Refer to our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 20, 2020, for a complete reconciliation of our revenues under the old and new guidance.

Prior period revenue amounts in this Form 10-Q have been recast as if we had reported under ASC 606 for the applicable periods.

Prior period amounts in this Form 10-Q have been recast as if we had reported under ASC 606 for the applicable periods.

Use of Estimates

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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 revenue recognition, income taxes and the related valuation allowance, the valuation of goodwill and intangible assets, and stock-based compensation.

The outbreak of the novel coronavirus disease ("COVID-19") has resulted in the declaration of a global pandemic and introduced a level of disruption and uncertainty into the financial markets and global economy.

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However, the ultimate impact of COVID-19 on our business is not estimable at this time and will be largely dependent upon a number of factors outside of our control including the extent and duration of the outbreak as well as any mitigating actions which may be undertaken by global governments and the general public.

Principles of Consolidation

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

Public Offering

In June 2020, we completed an underwritten public offering of 2,500,000 shares of our Class A common stock, of which 1,931,206 shares of Class A common stock were sold by us and 568,794 shares of Class A common stock were sold by existing stockholders.

The underwriter purchased the shares from us and the selling stockholders at a price of $ 56.50 per share.

Our net proceeds from the offering were $ 107.9 million, after deducting underwriting discounts and commissions and offering expenses.

We did not receive any of the proceeds from the sale of shares by the selling stockholders.

Revenue Recognition

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We believe no additional credit risk beyond amounts provided for collection loss are inherent in accounts receivable.

When accounted for under ASC 606, revenue generated from government agencies represented 14.9 % and 17.8 % of our revenue for the three months ended March 31, 2020 and March 31, 2019, respectively, of which the top three federal government agencies generated 6.0 % and 8.5 % of our revenue for the three months ended March 31, 2020 and March 31, 2019, respectively.

Additionally, 33.5 % and 31.9 % of our revenue during the three months ended March 31, 2020 and March 31, 2019, respectively, was generated from foreign customers.

When accounted for under ASC 606, revenue generated from government agencies represented 19.0 % and 16.8 % of our revenue for the three and six months ended June 30, 2020, respectively, of which the top three federal government agencies generated 7.6 % and 6.7 % of our revenue for the three and six months ended June 30, 2020, respectively.

Additionally, 36.8 % and 35.0 % of our revenue during the three and six months ended June 30, 2020, respectively, was generated from foreign customers.

Revenue generated from government agencies represented 16.8 % and 17.3 % of our revenue for three and six months ended June 30, 2019, respectively, of which the top three federal government agencies generated 6.4 % and 7.3 % of our revenue for the three and six months ended June 30, 2019, respectively.

Additionally, 32.9 % and 32.4 % of our revenue during the three and six months ended June 30, 2019, respectively, was generated from foreign customers.

Cash and Cash Equivalents

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 investments, to be cash equivalents.

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To date, our allowance and related bad debt write-offs have been nominal.

There was a $ 0.2 million increase in the allowance for doubtful accounts from December 31, 2019 to March 31, 2020.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

There was a $ 0.2 million increase in the allowance for doubtful accounts from December 31, 2019 to June 30, 2020.

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

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These costs are recorded as deferred commissions in the condensed consolidated balance sheets.

Costs to obtain a contract for a new customer or upsell are amortized on a straight-line basis over an estimated economic life of five years as sales commissions on initial sales are not commensurate with sales commissions on contract renewals.

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 on a straight-line basis over the related renewal period.

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 force.

1 unchanged sentence

Amortization associated with commission expense is recorded to sales and marketing costs in our condensed consolidated statements of operations.

Commission expense was $ 5.3 million and $ 3.1 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

Commission expense was $ 5.8 million and $ 11.1 million for the three and six months ended June 30, 2020, respectively.

Commission expense was $ 3.6 million and $ 6.6 million for the three and six months ended June 30, 2019, respectively.

Property and Equipment

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Impairment of Long-Lived Assets

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Long-lived assets and certain intangible assets are reviewed for impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable through undiscounted cash flows from the use of the assets.

If such assets are considered to be impaired, the assets are written down to their estimated fair value.

No indicators of impairment were identified for the three months ended March 31, 2020 and March 31, 2019.

No indicators of impairment were identified for the three and six months ended June 30, 2020 and June 30, 2019.

Fair Value of Financial Instruments

The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value as of March 31, 2020 and December 31, 2019 because of the relatively short duration of these instruments.

The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value as of June 30, 2020 and December 31, 2019 because of the relatively short duration of these instruments.

Our line of credit is recorded at carrying value, which approximates fair value.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement.

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

There were no instruments measured at fair value on a recurring basis using significant unobservable inputs as of March 31, 2020 and December 31, 2019.

There were no instruments measured at fair value on a recurring basis using significant unobservable inputs as of June 30, 2020 and December 31, 2019.

Stock-Based Compensation

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This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Early application is permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

Adopting the standard did not have a material impact on our condensed consolidated financial statements.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In August 2018, the FASB issued ASU No.

2 unchanged sentences

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Early application is permitted.

Adopting the standard did not have a material impact on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract , which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

This guidance is

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Entities can choose to adopt the new guidance prospectively or retrospectively.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Adopting the standard did not have a material impact on our condensed consolidated financial statements.

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We generate professional services revenue from fees for our consulting services, including application development and deployment assistance as well as training related to our platform.

The following table summarizes revenue from contracts with customers for the three months ended March 31, 2020 and March 31, 2019 (in thousands):

Three Months Ended March 31,

The following table summarizes revenue from contracts with customers for the three and six months ended June 30, 2020 and June 30, 2019 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

SaaS subscriptions $ 29,580 $ 22,796 $ 57,970 $ 44,074

13 unchanged sentences

SaaS Subscriptions

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We generate cloud-based subscription revenue primarily from the sales of subscriptions to access our cloud offering, together with related support services to our customers.

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Term License Subscriptions

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our term license subscription revenue is derived from customers with on-premise installations of our platform pursuant to contracts that were historically one to three years in length.

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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 months ended March 31, 2020 was insignificant.

Our estimates of variable consideration are also subject to subsequent true-up adjustments and may result in changes to transaction prices;

The amount of variable consideration excluded from the transaction price for the six months ended June 30, 2020 was insignificant.

Our estimates of variable consideration are also

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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We establish SSP as follows:

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SaaS subscriptions - Given the highly variable selling price of our SaaS subscriptions, we establish the SSP of our SaaS subscriptions using a residual approach after first determining the SSP of consulting and training services.

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Contract assets are transferred to accounts receivable when the right to invoice becomes unconditional.

As of March 31, 2020 and December 31, 2019, contract assets of $ 23.4 million and $ 22.8 million, respectively, are included in the prepaid expenses and other current assets and other assets line items in our condensed consolidated balance sheets.

As of June 30, 2020 and December 31, 2019, contract assets of $ 20.8 million and $ 22.8 million, respectively, are included in the prepaid expenses and other current assets and other assets line items in our condensed consolidated balance sheets.

Contract liabilities consists of deferred revenue and include payments received in advance of the satisfaction of performance obligations.

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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 three months ended March 31, 2020, we recognized $ 35.6 million of revenue that was included in the deferred revenue balance as of January 1, 2020.

For the six months ended June 30, 2020, we recognized $ 57.9 million of revenue that was included in the deferred revenue balance as of December 31, 2019.

Transaction Price Allocated to the Remaining Performance Obligations

As of March 31, 2020, we had an aggregate transaction price of $ 172.5 million allocated to unsatisfied performance obligations.

As of June 30, 2020, we had an aggregate transaction price of $ 175.9 million allocated to unsatisfied performance obligations.

We expect to recognize $ 160.7 million of this balance as revenue over the next 24 months with the remaining amount recognized thereafter.

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We have elected not to recognize on the balance sheet leases with a term of one year or less.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For contracts with lease and non-lease components, we have elected not to allocate the contract consideration and to account for the lease and non-lease components as a single lease component.

Finance leases are included in property and equipment, net, finance lease liability, current, and finance lease liability, net of current portion line items in our condensed consolidated balance sheets.

Finance leases are included in property and equipment, net, finance lease liabilities, current, and finance lease liabilities, net of current portion line items in our condensed consolidated balance sheets.

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term.

The implicit rate within most of our leases are generally not determinable;

The implicit rates within most of our leases are generally not determinable;

therefore, we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments.

The determination of our incremental borrowing rate requires judgment and is estimated for each lease based on the rate we would

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

have to pay for a collateralized loan with the same term and payments as the lease.

The determination of our incremental borrowing rate requires judgment and is estimated for each lease based on the rate we would have to pay for a collateralized loan with the same term and payments as the lease.

We consider various factors, including our level of collateralization, estimated credit rating, and the currency in which the lease is denominated.

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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.

Variable lease payments are not included in the ROU assets or lease liabilities but rather are expensed as incurred and recorded as variable lease expense.

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.

We have operating and finance leases for corporate offices, office furniture and fixtures, and computer hardware.

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Pursuant to the guidance of ASC 842, the amendment is considered a modification to the original lease and is accounted for as a separate contract because it represents a new right-of-use asset and the lease costs charged on the new space are at prevailing market rates.

As of March 31, 2020, we have not taken possession of the space nor met the criteria for the lease to be considered commenced.

As of June 30, 2020, we have not taken possession of the space nor met the criteria for the lease to be considered commenced.

Accordingly, we have not reported a right-of-use asset or liability on our condensed consolidated balance sheets nor have recorded expense on our condensed consolidated statements of operations in relation to the additional space.

The following table sets forth the components of lease expense for the three months ended March 31, 2020 (in thousands):

Three Months Ended March 31, 2020

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

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020

Operating lease cost $ 1,408 $ 3,276

5 unchanged sentences

Total $ 2,055 $ 4,715

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

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

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

June 30, 2020

Operating Leases

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Finance leases 5.5 %

For the three months ended March 31, 2020, amortization of operating right-of-use assets totaled $ 0.7 million and interest expense on operating right-of-use liabilities totaled $ 0.4 million.

Supplemental cash flow information related to leases for the three months ended March 31, 2020 was as follows (in thousands):

Three Months Ended March 31, 2020

For the three and six months ended June 30, 2020, amortization of operating right-of-use assets totaled $ 0.2 million and $ 0.9 million, respectively.

For the three and six months ended June 30, 2020, interest expense on operating right-of-use liabilities totaled $ 1.0 million and $ 1.4 million, respectively.

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

Six Months Ended June 30, 2020

Cash paid for amounts included in the measurement of lease liabilities:

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Financing cash outflows for finance leases 716

A summary of our future minimum lease commitments under non-cancellable leases as of March 31, 2020 is as follows (in thousands):

A summary of our future minimum lease commitments under non-cancellable leases as of June 30, 2020 is as follows (in thousands):

APPIAN CORPORATION AND SUBSIDIARIES

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Operating Leases Finance Leases

2020 (excluding the three months ended March 31, 2020)

$ 2,491 $ 1,215

2020 (excluding the six months ended June 30, 2020) $ 2,319 $ 810

2021 7,434 1,620

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Net assets acquired $ 6,909

There were no changes to our reportable segments as a result of the acquisition, and revenue and expenses from the date of the acquisition through March 31, 2020 were immaterial.

There were no changes to our reportable segments as a result of the acquisition, and revenue and expenses from the date of the acquisition through June 30, 2020 were immaterial.

Additionally, acquisition costs incurred in relation to the transaction were immaterial.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Property and equipment, net consisted of the following as of March 31, 2020 and December 31, 2019 (in thousands):

March 31, 2020 December 31, 2019

Property and equipment, net consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

Leasehold improvements $ 36,116 $ 37,130

6 unchanged sentences

Property and equipment, net $ 37,437 $ 39,554

Depreciation expense totaled $ 1.4 million and $ 0.8 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

During the three months ended March 31, 2020, we retired $ 1.3 million of leasehold improvements, $ 0.1 million of computer hardware, $ 0.1 million of office furniture and fixtures and equipment.

Nominal losses on disposal were recorded for the three months ended March 31, 2020.

There were no retirements of property or equipment and no gains or losses recorded on disposal during the three months ended March 31, 2019.

At March 31, 2020, property and equipment included $ 4.5 million of assets acquired under finance lease arrangements.

Accumulated depreciation related to these finance lease arrangements totaled $ 1.1 million at March 31, 2020.

Depreciation expense totaled $ 1.4 million and $ 2.8 million for the three and six months ended June 30, 2020, respectively.

There were nominal disposals recorded during the three months ended June 30, 2020.

During the six months ended June 30, 2020, we retired $ 1.3 million of leasehold improvements, $ 0.1 million of computer hardware, and $ 0.1 million o f office furniture and fixtur es and equipment.

Nominal losses on disposal were recorded for the three and six months ended June 30, 2020.

Depreciation expense totaled $ 1.1 million and $ 1.9 million for the three and six months ended June 30, 2019, respectively.

During the three and six months ended June 30, 2019, we retired $ 3.2 million of leasehold improvements and $ 0.8 million of office furniture and fixtures.

During the three and six months ended June 30, 2019, we recorded a loss on disposal of $ 0.1 million.

At June 30, 2020, property and equipment included $ 4.5 million of assets acquired under finance lease arrangements.

Accumulated depreciation related to these finance lease arrangements totaled $ 1.4 million at June 30, 2020.

Amortization of assets acquired under finance leases is included in depreciation and amortization expense.

Accrued Expenses

Accrued expenses consisted of the following as of March 31, 2020 and December 31, 2019 (in thousands):

March 31, 2020 December 31, 2019

Accrued contract labor costs $ 1,984 $ 1,921

Accrued expenses consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

Accrued hosting costs $ 2,277 $ 1,865

Accrued reimbursable employee expenses 969 1,353

Accrued legal costs 288 422

Accrued contract labor costs 1,621 1,921

Accrued marketing and tradeshow expenses 647 365

Accrued audit and tax expenses 472 315

Accrued legal costs 309 422

Accrued reimbursable employee expenses 226 1,353

Accrued third party license fees 189 288

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We may elect whether amounts drawn on the revolving line of credit bear interest at a floating rate per annum equal to either LIBOR or the prime rate plus an additional interest rate margin that is determined by the availability of the borrowings under the revolving line of credit.

The additional interest rate margin will range from 2.00 % to 2.50 % in the case of LIBOR advances and from 1.00 % to 1.50 % in the case of prime rate advances.

The revolving line of credit contains an unused facility fee in an amount between 0.15 % and 0.25 % of the average unused portion of the revolving line of credit, which is payable quarterly.

The agreement contains certain customary affirmative and negative covenants and requires us to maintain (i) an adjusted quick ratio of at least 1.35 to 1.00 and (ii) minimum adjusted EBITDA, in the amounts and for the periods set forth in

The additional interest rate margin will range from 2.00 % to 2.50 % in the case of LIBOR

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the agreement.

advances and from 1.00 % to 1.50 % in the case of prime rate advances.

The revolving line of credit contains an unused facility fee in an amount between 0.15 % and 0.25 % of the average unused portion of the revolving line of credit, which is payable quarterly.

Any amounts borrowed under the credit facility are collateralized by substantially all of our assets.

We were in compliance with all covenants as of March 31, 2020.

As of March 31, 2020, we had no outstanding borrowings under this new revolving line of credit, and we had outstanding letters of credit totaling $ 11.1 million under the 2017 line of credit in connection with securing our leased office space.

We were in compliance with all covenants as of June 30, 2020.

As of June 30, 2020, we had no outstanding borrowings under this revolving line of credit, and we had outstanding letters of credit totaling $ 11.1 million in connection with securing our leased office space.

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.

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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 months ended March 31, 2020 and March 31, 2019, the actual effective tax rates were 1.6 % and ( 0.8 )%, respectively.

For the three and six months ended June 30, 2020, the actual effective tax rates were ( 2.4 )% and ( 0.3 )%, respectively.

For the three and six months ended June 30, 2019, the actual effective tax rates were ( 2.7 )% and ( 1.6 )%, respectively.

We assess uncertain tax positions in accordance with ASC 740-10, Accounting for Uncertainties in Income Taxes .

As of March 31, 2020, our net unrecognized tax benefits totaled $ 1.6 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 audit is not material to our condensed consolidated financial statements.

As of June 30, 2020, our net unrecognized tax benefits totaled $ 1.6 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 United States federal jurisdiction and in many states and foreign jurisdictions.

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The CARES Act includes various income and payroll tax measures.

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

Pursuant to these measures, we have elected the option to defer the deposit and payment of our share of social security taxes that would otherwise be due between March 27, 2020 and December 31, 2020.

Under the CARES Act, half of these deferred payments are due by the end of fiscal year 2021 while the other half are due by the end of fiscal year 2022.

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

Stock-Based Compensation

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As a result of the adoption of the 2017 Plan, no further grants may be made under the 2007 Plan.

As of March 31, 2020, there were 7,129,569 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 4,595,825 were available to be issued.

As of June 30, 2020, there were 7,142,549 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 4,545,733 were available to be issued.

Stock Options

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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Under the simplified method, the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term.

Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

expected term of the stock options.

Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected term of the stock options.

We assume no dividend yield because dividends are not expected to be paid in the near future, which is consistent with our history of not paying dividends.

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The fair value of the award at the grant date was $ 9.5 million and will be amortized over the derived service period of 2.6 years.

The following table summarizes the stock option activity for the three months ended March 31, 2020:

The following table summarizes the assumptions used to estimate the fair value of stock options granted during the three and six months ended June 30, 2020 and June 30, 2019:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Risk-free interest rate * 2.1 % * 2.1 %

Expected term (in years) * 2.6 * 2.6

Expected volatility * 55.0 % * 55.0 %

Expected dividend yield * — % * — %

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

The following table summarizes the stock option activity for the six months ended June 30, 2020:

Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands)

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4,458,611 $ 12.30 5.8 $ 115,501

Granted — — — —

Exercised ( 376,967 ) 5.98 — 16,706

Expired ( 1,020 ) 12.00 — —

Canceled ( 34,080 ) 11.19 — —

Outstanding at March 31, 2020

Outstanding at June 30, 2020

4,046,544 $ 12.90 5.33 $ 155,170

Exercisable at March 31, 2020

Exercisable at June 30, 2020

2,733,704 $ 8.00 5.45 $ 118,244

There were no stock options granted during the three months ended March 31, 2020 and March 31, 2019.

The total fair value of stock options that vested during each of the three months ended March 31, 2020 and March 31, 2019 was $ 0.3 million.

As of March 31, 2020, the total compensation cost related to unvested stock options not yet recognized was $ 7.2 million, which will be recognized over a weighted average period of 1.7 years.

There were no stock options granted during the six months ended June 30, 2020.

The weighted average grant date fair value of stock options granted during the six months ended June 30, 2019 was $ 13.57 per share.

The total fair value of stock options that vested during the six months ended June 30, 2020 and June 30, 2019 was $ 1.0 million and $ 1.5 million, respectively.

As of June 30, 2020, the total compensation cost related to unvested stock options not yet recognized was $ 6.1 million, which will be recognized over a weighted average period of 1.5 years.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units

The following table summarizes RSU activity for the three months ended March 31, 2020:

The following table summarizes RSU activity for the six months ended June 30, 2020:

Number of Shares Weighted Average Grant Date Fair Value

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Canceled ( 77,593 ) 32.24

Non-vested and outstanding at March 31, 2020

Non-vested and outstanding at June 30, 2020

1,116,977 35.62

As of March 31, 2020, total unrecognized compensation cost related to unvested RSUs was approximately $ 31.0 million, which will be recognized over a weighted average period of 2.4 years.

As of June 30, 2020, total unrecognized compensation cost related to unvested RSUs was approximately $ 33.6 million, which will be recognized over a weighted average period of 2.3 years.

In November 2018, our co-founders were granted 255,930 RSUs under the 2017 Plan at a fair value of $ 30.06 per share.

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The RSUs vested during the three months ended March 31, 2019.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the components of our stock-based compensation expense by instrument type for the three months ended March 31, 2020 and March 31, 2019 (in thousands):

Three Months Ended March 31,

The following table summarizes the components of our stock-based compensation expense by instrument type for the three and six months ended June 30, 2020 and June 30, 2019 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

RSUs $ 2,475 $ 1,902 $ 4,774 $ 8,671

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Total stock-based compensation expense $ 3,614 $ 2,689 $ 7,090 $ 9,914

Stock-based compensation expense for RSUs, stock options, and issuances of common stock is included in the following line items in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2020 and March 31, 2019 (in thousands):

Three Months Ended March 31,

Stock-based compensation expense for RSUs, stock options, and issuances of common stock is included in the following line items in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2020 and June 30, 2019 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Cost of revenue

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Total stock-based compensation expense $ 3,614 $ 2,689 $ 7,090 $ 9,914

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stockholders' Equity

As of March 31, 2020, we had authorized 500,000,000 shares of Class A common stock and 100,000,000 shares of Class B common stock, each with a par value of $ 0.0001 per share, of which 34,731,245 shares of Class A common stock and 32,913,836 shares of Class B common stock were issued and outstanding.

As of June 30, 2020, we had authorized 500,000,000 shares of Class A common stock and 100,000,000 shares of Class B common stock, each with a par value of $ 0.0001 per share, of which 37,558,379 shares of Class A common stock and 32,281,936 shares of Class B common stock were issued and outstanding.

The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights.

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The following potentially dilutive securities outstanding, prior to the use of the treasury stock method or the if-converted method, have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been anti-dilutive:

Three Months Ended March 31,

Three and Six Months Ended June 30,

Stock options 4,046,544 5,046,632

Non-vested restricted stock units 1,116,127 996,049

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

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Letters of Credit

At March 31, 2020 and December 31, 2019, we had outstanding letters of credit totaling $ 11.1 million and $ 10.5 million, respectively, in connection with securing our leased office space.

At June 30, 2020 and December 31, 2019, we had outstanding letters of credit totaling $ 11.1 million and $ 10.5 million, respectively, in connection with securing our leased office space.

All letters of credit are secured by our borrowing arrangement as described in Note 8.

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There are no issues or resolution of any matters expected to have a material adverse impact on our condensed consolidated financial statements.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment and Geographic Information

The following table summarizes revenue by geography for the three months ended March 31, 2020 and March 31, 2019 (in thousands):

Three Months Ended March 31,

The following table summarizes revenue by geography for the three and six months ended June 30, 2020 and June 30, 2019 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Domestic $ 42,191 $ 43,785 $ 94,646 $ 84,862

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With respect to geographic information, revenue is attributed to respective geographies based on the contracting address of the customer.

Revenues from external customers attributed to the United Kingdom were 12.5 % and 10.9 % of our total revenue for the three months ended March 31, 2020 and March 31, 2019, respectively.

There were no other individual foreign countries from which more than 10% of our total revenue was attributable for each the three months ended March 31, 2020 and March 31, 2019.

Substantially all of our long-lived assets were held in the United States as of March 31, 2020 and December 31, 2019.

Subsequent Events

In preparing our condensed consolidated financial statements, we evaluated subsequent events through May 7, 2020, which is the date the condensed consolidated financial statements were available to be issued.

No subsequent events requiring disclosure were noted.

Revenues from external customers attributed to the United Kingdom were 12.4 % of our total revenue for each of the three and six months ended June 30, 2020.

Revenues from external customers attributed to the United Kingdom were 12.8 % and 11.9 % of our total revenue for the three and six months ended June 30, 2019, respectively.

There were no other individual foreign countries from which more than 10% of our total revenue was attributable for each of the three and six months ended June 30, 2020 and June 30, 2019.

Substantially all of our long-lived assets were held in the United States as of June 30, 2020 and December 31, 2019.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements