APPIAN CORP 10-Q

Item 1. FINANCIAL STATEMENTS APPIAN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) As of September 30, 2020 December 31, 2019 (unaudited) Assets Current assets Cash and cash equivalents $ 251,088 $ 159,755 Accounts receivable, net of allowance of $ 1,200 and $ 600 as of September 30, 2020 and December 31, 2019, respectively 89,219 70,408 Deferred commissions, current 16,292 14,543 Prepaid expenses and other current assets 25,909 32,955 Total current assets 382,508 277,661 Property and equipment, net 36,415 39,554 Goodwill 4,637 — Intangible assets, net of accumulated amortization of $ 307 as of September 30, 2020 1,765 — Operating right-of-use assets 30,855 24,205 Deferred commissions, net of current portion 31,580 28,979 Deferred tax assets 654 494 Other assets 4,042 592 Total assets $ 492,456 $ 371,485 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 4,630 $ 5,222 Accrued expenses 6,287 7,488 Accrued compensation and related benefits 16,615 10,691 Deferred revenue, current 96,902 82,201 Operating lease liabilities, current 6,592 3,836 Finance lease liabilities, current 1,549 1,447 Other current liabilities 319 1,395 Total current liabilities 132,894 112,280 Operating lease liabilities, net of current portion 51,727 44,416 Finance lease liabilities, net of current portion 1,192 2,375 Deferred revenue, net of current portion 4,371 7,139 Deferred tax liabilities 461 38 Other non-current liabilities 4,069 — Total liabilities 194,714 166,248 Stockholders’ equity Class A common stock—par value $ 0.0001 ; 500,000,000 shares authorized and 37,805,423 shares issued and outstanding as of September 30, 2020; 500,000,000 shares authorized and 34,525,386 shares issued and outstanding as of December 31, 2019 4 3 Class B common stock—par value $ 0.0001 ; 100,000,000 shares authorized and 32,214,766 shares issued and outstanding as of September 30, 2020; 100,000,000 shares authorized and 32,942,636 shares issued and outstanding as of December 31, 2019 3 3 Additional paid-in capital 462,686 340,929 Accumulated other comprehensive loss ( 2,442 ) ( 285 ) Accumulated deficit ( 162,509 ) ( 135,413 ) Total stockholders’ equity 297,742 205,237 Total liabilities and stockholders’ equity $ 492,456 $ 371,485 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 APPIAN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue Subscriptions $ 50,760 $ 37,774 $ 142,614 $ 109,191 Professional services 26,544 28,381 80,329 82,543 Total revenue 77,304 66,155 222,943 191,734 Cost of revenue Subscriptions 5,101 4,484 15,185 12,105 Professional services 16,450 19,467 51,641 58,963 Total cost of revenue 21,551 23,951 66,826 71,068 Gross profit 55,753 42,204 156,117 120,666 Operating expenses Sales and marketing 31,633 27,603 94,891 86,186 Research and development 18,150 15,697 51,366 42,418 General and administrative 13,485 11,191 38,076 29,468 Total operating expenses 63,268 54,491 184,333 158,072 Operating loss ( 7,515 ) ( 12,287 ) ( 28,216 ) ( 37,406 ) Other (income) expense Other (income) expense, net ( 4,277 ) 2,262 ( 1,845 ) 1,881 Interest expense 119 96 390 236 Total other (income) expense ( 4,158 ) 2,358 ( 1,455 ) 2,117 Loss before income taxes ( 3,357 ) ( 14,645 ) ( 26,761 ) ( 39,523 ) Income tax expense 255 5 335 394 Net loss $ ( 3,612 ) $ ( 14,650 ) $ ( 27,096 ) $ ( 39,917 ) Net loss per share: Basic and diluted $ ( 0.05 ) $ ( 0.22 ) $ ( 0.39 ) $ ( 0.62 ) Weighted average common shares outstanding: Basic and diluted 69,923,553 65,508,113 68,611,994 64,860,342 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 APPIAN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited, in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net loss $ ( 3,612 ) $ ( 14,650 ) $ ( 27,096 ) $ ( 39,917 ) Comprehensive income (loss), net of income taxes: Foreign currency translation adjustment ( 1,960 ) 680 ( 2,157 ) 486 Total other comprehensive loss, net of income taxes $ ( 5,572 ) $ ( 13,970 ) $ ( 29,253 ) $ ( 39,431 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 APPIAN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited, in thousands, except share data) Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Common Stock Additional Paid-In Capital Accumulated Deficit Shares Amount Balance, January 1, 2020 67,468,022 $ 6 $ 340,929 $ ( 285 ) $ ( 135,413 ) $ 205,237 Net loss — — — — ( 11,669 ) ( 11,669 ) Issuance of common stock to directors 1,946 — — — — — Vesting of restricted stock units 46,031 — — — — — Exercise of stock options 129,082 — 670 — — 670 Stock-based compensation expense — — 3,476 — — 3,476 Other comprehensive income — — — 17 — 17 Balance, March 31, 2020 67,645,081 6 345,075 ( 268 ) ( 147,082 ) 197,731 Net loss — — — — ( 11,815 ) ( 11,815 ) Issuance of common stock from public offering, net of issuance costs 1,931,206 1 107,914 — — 107,915 Issuance of common stock to directors 2,296 — — — — — Vesting of restricted stock units 13,567 — — — — — Exercise of stock options 248,165 — 1,571 — — 1,571 Stock-based compensation expense — — 3,614 — — 3,614 Other comprehensive loss — — — ( 214 ) — ( 214 ) Balance, June 30, 2020 69,840,315 7 458,174 ( 482 ) ( 158,897 ) 298,802 Net loss — — — — ( 3,612 ) ( 3,612 ) Issuance of common stock to directors 2,417 — — — — — Vesting of restricted stock units 33,641 — — — — — Exercise of stock options 143,816 — 934 — — 934 Stock-based compensation expense — — 3,578 — — 3,578 Other comprehensive loss — — — ( 1,960 ) — ( 1,960 ) Balance, September 30, 2020 70,020,189 $ 7 $ 462,686 $ ( 2,442 ) $ ( 162,509 ) $ 297,742 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 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 ) Issuance of common stock to directors 3,461 — — — — — Vesting of restricted stock units 278,680 — — — — — Exercise of stock options 482,444 — 1,073 — — 1,073 Stock-based compensation expense — — 7,225 — — 7,225 Other comprehensive income — — — 296 — 296 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 Net loss — — — — ( 14,650 ) ( 14,650 ) Issuance of common stock from public offering, net of issuance costs 1,825,000 — 101,303 — — 101,303 Issuance of common stock to directors 2,563 — — — — — Vesting of restricted stock units 94,772 — — — — — Exercise of stock options 387,095 — 2,065 — — 2,065 Stock-based compensation expense — — 3,141 — — 3,141 Other comprehensive income — — — 680 — 680 Balance, September 30, 2019 67,146,998 $ 6 $ 336,694 $ 1,028 $ ( 124,616 ) $ 213,112 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 APPIAN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Net loss $ ( 27,096 ) $ ( 39,917 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 4,485 3,273 Bad debt expense 778 98 Loss on disposal of property and equipment 22 146 Deferred income taxes ( 162 ) ( 191 ) Stock-based compensation 10,668 13,055 Changes in assets and liabilities: Accounts receivable ( 22,594 ) 1,854 Prepaid expenses and other assets 4,491 23,280 Deferred commissions ( 4,349 ) ( 6,192 ) Accounts payable and accrued expenses ( 2,456 ) ( 3,909 ) Accrued compensation and related benefits 5,844 ( 2,159 ) Other liabilities 2,963 ( 251 ) Deferred revenue 10,531 2,315 Operating lease liabilities 3,422 — Deferred rent, non-current — 5,718 Net cash used in operating activities ( 13,453 ) ( 2,880 ) Cash flows from investing activities: Payments for acquisitions, net of cash acquired ( 6,138 ) — Purchases of property and equipment ( 1,036 ) ( 31,430 ) Net cash used in investing activities ( 7,174 ) ( 31,430 ) Cash flows from financing activities: Principal payments on finance leases ( 1,080 ) ( 299 ) Proceeds from public offerings, net of underwriting discounts 108,260 101,653 Payments of costs related to public offerings ( 18 ) ( 12 ) Proceeds from exercise of common stock options 3,175 4,052 Net cash provided by financing activities 110,337 105,394 Effect of foreign exchange rate changes on cash and cash equivalents 1,623 ( 460 ) Net increase in cash and cash equivalents 91,333 70,624 Cash and cash equivalents, beginning of period 159,755 94,930 Cash and cash equivalents, end of period $ 251,088 $ 165,554 Supplemental disclosure of cash flow information: Cash paid for interest $ 116 $ 250 Cash paid for income taxes $ 630 $ 236 Supplemental disclosure of non-cash financing information: Capital lease obligations to acquire new office furniture and fixtures and computer hardware $ — $ 4,491 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 APPIAN CORPORATION AND SUBSIDIARIES 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”) provides a low-code automation platform that accelerates the creation of high-impact business applications, enabling our customers to automate the most important aspects of their business. Global organizations use our applications to improve customer experience, achieve operational excellence, and simplify global risk management and compliance. We were incorporated in the state of Delaware in August 1999. We are headquartered in McLean, Virginia and operate in Canada, Switzerland, the United Kingdom, France, Germany, the Netherlands, Italy, Australia, Spain, Singapore, and Sweden. 2. Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ equity, 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, 2019, filed with the Securities and Exchange Commission (the “SEC”) on February 20, 2020. We adopted ASC 606, the new revenue recognition guidance, on January 1, 2019 using the modified retrospective method. 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 to 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 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 amounts in this Form 10-Q have been recast as if we had reported under ASC 606 for the applicable periods. 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 revenue recognition, income taxes and the related valuation allowance, the valuation of goodwill and intangible assets, leases, costs to obtain a contract with a customer, and stock-based compensation. The ongoing 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. While we continue to monitor the developments surrounding the pandemic, as of the date of issuance of these financial statements, we are not aware of any specific events or circumstances that would require us to update our estimates, assumptions, and judgments or revise the carrying value of our assets or liabilities. We cannot estimate the impacts COVID-19 will have on our business going forward as such impacts will be largely dependent upon a number of factors outside of our control including the extent and duration of the outbreak as well as any mitigating actions which may be undertaken by global governments and the general public. 9 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 Refer to Note 3 for a detailed discussion on specific revenue recognition principles related to our major revenue streams. 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, 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, travel costs, third-party contractor costs, and allocated facility costs and overhead. Concentration of Credit and Customer Risk Our financial instruments exposed to concentration of credit and customer risk consist primarily of cash and cash equivalents and trade accounts receivable. Deposits held with banks may exceed the amount of insurance provided on such deposits. 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. R evenue generated from government agencies represented 19.9 % and 17.9 % of our revenue for the three and nine months ended September 30, 2020, respectively, of which the top three federal government agencies generated 8.7 % and 7.4 % of our revenue for the three and nine months ended September 30, 2020, respectively. Additionally, 32.2 % and 34.0 % of our revenue during the three and nine months ended September 30, 2020, respectively, was generated from foreign customers. When accounted for under ASC 606, revenue generated from government agencies represented 19.5 % and 18.0 % of our revenue for three and nine months ended September 30, 2019, respectively, of which the top three federal government agencies generated 8.6 % and 7.2 % of our revenue for the three and nine months ended September 30, 2019, respectively. Additionally, 31.0 % and 31.9 % of our revenue during the three and nine months ended September 30, 2019, respectively, was generated from foreign customers. Cash and Cash Equivalents 10 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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. 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. There was a $ 0.6 million increase in the allowance for doubtful accounts from December 31, 2019 to September 30, 2020. Assets Recognized from the Costs to Obtain a Contract with a Customer We capitalize the incremental costs of obtaining a contract with a customer, including sales commissions paid to our direct sales force that are incremental costs to obtaining customer contracts. These costs are recorded as deferred commissions in the condensed consolidated balance sheets. Costs to obtain a contract for a new customer or upsell are amortized over an estimated economic life of five years as sales commissions on initial sales are not commensurate with sales commissions on contract renewals. We determine the estimated economic life based on both qualitative and quantitative factors such as expected renewals, product life cycles, contractual terms, and customer attrition. We periodically review the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the estimated economic life. Commissions 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. 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 commission expense is recorded to sales and marketing costs in our condensed consolidated statements of operations. Commission expense was $ 5.6 million and $ 16.7 million for the three and nine months ended September 30, 2020, respectively. Commission expense was $ 3.6 million and $ 10.2 million for the three and nine months ended September 30, 2019, respectively. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Significant additions or improvements extending the useful life of an asset are capitalized, while repairs and maintenance costs which do not significantly improve the related assets or extend their useful lives are charged to expense as incurred. The following table outlines useful lives of our major asset categories: Asset Category Useful Life (in years) Computer software 3 Computer hardware 3 Equipment 5 Office furniture and fixtures 10 Leasehold improvements (a) (a) - Leasehold improvements have an estimated useful life of the shorter of the useful life of the assets or the lease term. Impairment of Long-Lived Assets 11 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Long-lived assets and certain intangible assets are reviewed for impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable through undiscounted cash flows from the use of the assets. If such assets are considered to be impaired, the assets are written down to their estimated fair value. No indicators of impairment were identified for the three and nine months ended September 30, 2020 and 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 September 30, 2020 and December 31, 2019 because of the relatively short duration of these instruments. We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires us to use observable inputs when available and to minimize the use of unobservable inputs when determining fair value. The three tiers are defined as follows: • Level 1. Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities; • Level 2. Inputs other than quoted prices in active markets that are observable either directly or indirectly; and • Level 3. Unobservable inputs for which there is little or no market data, which require us to develop our own assumptions. Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs There were no instruments measured at fair value on a recurring basis using significant unobservable inputs as of September 30, 2020 and December 31, 2019. Stock-Based Compensation We account for stock-based compensation expense related to stock-based awards based on the estimated fair value of the award on the grant date. We calculate the fair value of stock options containing only a service condition using the Black-Scholes 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 performance-based awards, stock-based compensation expense is recognized using the accelerated attribution method based on the probability of satisfying the performance condition. For awards that contain market conditions, compensation expense is measured using a Monte Carlo simulation 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. Leases Refer to Note 4 for a detailed discussion on our policies specific to leasing arrangements. Recent Accounting Pronouncements Adopted In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) ("ASU 2016-13"), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. 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. 12 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which eliminates, modifies, and adds disclosure requirements for fair value measurements. 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. 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 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. 3. Revenue Revenue Recognition We generate subscriptions revenue primarily through the sale of software as a service ("SaaS") subscriptions bundled with maintenance and support and hosting services as well as term license subscriptions bundled with maintenance and support. We generate professional services revenue from fees for our consulting services, including application development and deployment assistance as well as training related to our platform. The following table summarizes revenue from contracts with customers for the three and nine months ended September 30, 2020 and 2019 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 SaaS subscriptions $ 34,312 $ 24,573 $ 92,282 $ 68,647 Term license subscriptions 11,830 9,199 37,002 28,859 Maintenance and support 4,618 4,002 13,330 11,685 Professional services 26,544 28,381 80,329 82,543 Total revenue $ 77,304 $ 66,155 $ 222,943 $ 191,734 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 SaaS subscriptions, maintenance and support, and professional services are delivered over time. Subscriptions Revenue Subscriptions revenue is primarily related to (1) SaaS subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support. We generally charge subscription fees on a per-user basis and, to a lesser degree, non-user based single application licenses. We bill customers and collect payment for subscriptions to our platform in advance on an annual, quarterly, or monthly basis. In certain instances, our customers have paid their entire contract up front. SaaS Subscriptions 13 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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. 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-premise installations of our platform pursuant to contracts that were historically one to three years in length. The majority of recent contracts have been one year in length. Although term license subscriptions are sold with maintenance and support, the 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 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 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 contracts are each considered separate performance obligations because they do not integrate with each other or with other products and services to deliver a combined output to the 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. Significant Judgments and Estimates Determining the Transaction Price The transaction price includes both fixed and variable consideration. Variable consideration is included in the transaction price to the extent it is probable a significant reversal will not occur. The amount of variable consideration excluded from the transaction price for the nine months ended September 30, 2020 was insignificant. Our estimates of variable consideration are also subject to subsequent true-up adjustments and may result in changes to transaction prices; however, such true-up adjustments are not expected to be material. 14 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Allocating the Transaction Price Based on Standalone Selling Prices ("SSP") We allocate the transaction price to each performance obligation in a contract based on its relative SSP. The SSP is the observable price at which we sell the product or service separately. In the absence of observable pricing, we estimate SSP using the residual approach. We establish SSP as follows: 1. SaaS subscriptions - Given the highly variable selling price of our SaaS subscriptions, we establish the SSP of our SaaS subscriptions using a residual approach after first determining the SSP of consulting and training services. We have concluded the residual approach to estimating SSP of our SaaS subscriptions is an appropriate allocation of the 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 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 services and training services - SSP of consulting services 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 September 30, 2020 and December 31, 2019, contract assets of $ 18.4 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. Contract liabilities consists 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 nine months ended September 30, 2020, we recognized $ 75.3 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 September 30, 2020, we had an aggregate transaction price of $ 185.8 million allocated to unsatisfied performance obligations. We expect to recognize $ 171.1 million of this balance as revenue over the next 24 months with the remaining amount recognized thereafter. 4. Leases At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease. Operating leases with a term greater than one year are recognized on the balance sheet as right-of-use ("ROU") assets, lease liabilities, and, if applicable, long-term lease liabilities. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We have elected not to recognize on the balance sheet leases with a term of one year or less. For contracts with lease and non-lease components, we have elected not to allocate the contract consideration and to account for the lease and non-lease components as a single lease component. Finance leases are included in the Property and equipment, 15 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 rates within most of our leases are generally not determinable; therefore, we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of our incremental borrowing rate requires judgment and is estimated for each lease based on the rate we would have to pay for a collateralized loan with the same term and payments as the lease. We consider various factors, including our level of collateralization, estimated credit rating, and the currency in which the lease is denominated. Operating lease ROU assets also include any lease prepayments, offset by lease incentives. Certain of our leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option while an option to terminate is considered unless it is reasonably certain we will not exercise the option. For certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities. Expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense. We have lease agreements which require payments for lease and non-lease components (i.e., common area maintenance) that are accounted for as a single lease component. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as maintenance costs based on future obligations, are not included in ROU assets or lease liabilities but rather are expensed as incurred and recorded as variable lease expense. We have operating and finance leases for corporate offices, office furniture and fixtures, and computer hardware. Our leases have remaining lease terms of 1 to 12 years, some of which include options to extend the leases for up to 5 years. In April 2018, we entered into a lease agreement with respect to 176,222 square feet of office space in McLean, Virginia for a new corporate headquarters. The initial term of the lease was 150 months. We took initial possession of the first phase of the new headquarters in October 2018 and began to recognize rent expense as of that date. In February 2019, we took possession of a further 28,805 square feet of adjacent office space. In January 2020, we entered into an amendment which adjusts the original terms of the headquarters lease. Under this amendment, we exercised an option to expand occupancy, adding 34,158 square feet of space. Occupancy of the added space is to commence upon the earlier of the completion of certain improvements or October 14, 2020. 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. Effective July 1, 2020, we have taken possession of the space, begun to recognize rent expense, and reported a $ 7.9 million ROU asset and lease liability on our condensed consolidated balance sheets. The following table sets forth the components of lease expense for the three and nine months ended September 30, 2020 (in thousands): Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Operating lease cost $ 1,695 $ 4,971 Finance lease costs: Amortization of right-of-use assets 373 1,118 Interest on lease liabilities 41 138 Short-term lease cost 85 465 Variable lease cost 1 218 Total $ 2,195 $ 6,910 16 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Supplemental balance sheet information related to leases as of September 30, 2020 was as follows (in thousands, except for lease term and discount rate): As of September 30, 2020 Operating Leases Operating right-of-use assets $ 30,855 Operating lease liabilities, current $ 6,592 Operating lease liabilities, net of current portion 51,727 Total operating lease liabilities $ 58,319 Finance Leases Property and equipment, at cost $ 4,471 Accumulated depreciation ( 1,818 ) Property and equipment, net $ 2,653 Finance lease liabilities, current $ 1,549 Finance lease liabilities, net of current portion 1,192 Total finance lease liabilities $ 2,741 Weighted Average Remaining Lease Term (in years) Operating leases 10.8 Finance leases 1.8 Weighted Average Discount Rate Operating leases 9.6 % Finance leases 5.5 % For the three and nine months ended September 30, 2020, amortization of operating right-of-use assets totaled $ 0.4 million and $ 1.3 million, respectively. For the three and nine months ended September 30, 2020, interest expense on operating right-of-use liabilities totaled $ 0.7 million and $ 2.2 million, respectively. Supplemental cash flow information related to leases for the nine months ended September 30, 2020 was as follows (in thousands): Nine Months Ended September 30, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows for operating leases $ 1,716 Operating cash outflows for finance leases 138 Financing cash outflows for finance leases 1,080 A summary of our future minimum lease commitments under non-cancellable leases as of September 30, 2020 is as follows (in thousands): 17 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Operating Leases Finance Leases 2020 (excluding the nine months ended September 30, 2020) $ 1,687 $ 405 2021 7,455 1,620 2022 8,078 859 2023 8,157 — 2024 8,544 — 2025 9,240 — Thereafter 57,382 — Total lease payments 100,543 2,884 Less: imputed interest ( 42,224 ) ( 143 ) Total $ 58,319 $ 2,741 5. Acquisitions Novayre Solutions SL In January 2020, we acquired 100 % of the outstanding common stock of Novayre Solutions SL, a developer of a robotic process automation platform, for approximately $ 6.9 million. The acquisition was made due to the attractive nature of the product offerings of Novayre 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 the finalization of the fair value of the acquired net assets, liabilities assumed, deferred income taxes, and assumed income and non-income based tax liabilities. As of the acquisition date, the purchase price was assigned to the acquired assets and assumed liabilities as follows (in thousands): Cash acquired $ 731 Other current assets 213 Property and equipment 22 Developed technology 1,537 Customer relationships 406 Goodwill 4,348 Other noncurrent assets 10 Total assets acquired 7,267 Current liabilities 14 Noncurrent liabilities 344 Total liabilities assumed 358 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 September 30, 2020 were immaterial. Additionally, acquisition costs incurred in relation to the transaction were immaterial. Acquired property and equipment is depreciated on a straight-line basis over the assets' respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, non-contractual relationships, and expected future synergies. We do not expect the purchase price allocated to goodwill and intangible assets to be deductible for tax purposes. 6. Property and Equipment, net 18 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Property and equipment, net consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands): September 30, 2020 December 31, 2019 Leasehold improvements $ 36,220 $ 37,130 Office furniture and fixtures 4,865 4,963 Computer hardware 3,903 3,365 Computer software 1,352 1,350 Equipment 48 72 Property and equipment, gross 46,388 46,880 Less: accumulated depreciation ( 9,973 ) ( 7,326 ) Property and equipment, net $ 36,415 $ 39,554 Depreciation expense totaled $ 1.4 million and $ 4.2 million for the three and nine months ended September 30, 2020, respectively. There were no disposals recorded during the three months ended September 30, 2020. During the nine months ended September 30, 2020, we retired $ 1.3 million of leasehold improvements, $ 0.1 million of computer hardware, and $ 0.1 million of office furniture and fixtures and equipment. Nominal losses on disposal were recorded for the three and nine months ended September 30, 2020. Depreciation expense totaled $ 1.3 million and $ 3.3 million for the three and nine months ended September 30, 2019, respectively. During the three months ended September 30, 2019, we retired $ 0.4 million of computer hardware and $ 0.1 million of equipment. During the nine months ended September 30, 2019, we retired $ 3.2 million of leasehold improvements, $ 0.8 million of computer hardware, $ 0.4 million of office furniture and fixtures, and $ 0.1 million of equipment. During the three and nine months ended September 30, 2019, we recorded a loss on disposal of $ 0.1 million. At September 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 $ 1.8 million at September 30, 2020. Amortization of assets acquired under finance leases is included in depreciation and amortization expense. 7. Accrued Expenses Accrued expenses consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands): September 30, 2020 December 31, 2019 Accrued hosting costs $ 1,332 $ 1,865 Accrued contract labor costs 1,221 1,921 Accrued marketing and tradeshow expenses 687 365 Accrued audit and tax expenses 281 315 Accrued legal costs 377 422 Accrued reimbursable employee expenses 183 1,353 Accrued third party license fees 234 288 Other accrued expenses 1,972 959 Total $ 6,287 $ 7,488 8. Debt Line of Credit In November 2017, we entered into a $ 20.0 million revolving line of credit with a lender. The facility matures in November 2022. We may elect whether amounts drawn on the revolving line of credit bear interest at a floating rate per annum equal to either LIBOR or the prime rate plus an additional interest rate margin that is determined by the availability of the borrowings 19 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) under the revolving line of credit. The additional interest rate margin will range from 2.00 % to 2.50 % in the case of LIBOR advances and from 1.00 % to 1.50 % in the case of prime rate advances. The revolving line of credit contains an unused facility fee in an amount between 0.15 % and 0.25 % of the average unused portion of the revolving line of credit, which is payable quarterly. The agreement contains certain customary affirmative and negative covenants and requires us to maintain (i) an adjusted quick ratio of at least 1.35 to 1.00 and (ii) minimum adjusted EBITDA, in the amounts and for the periods set forth in the agreement. Any amounts borrowed under the credit facility are collateralized by substantially all of our assets. We were in compliance with all covenants as of September 30, 2020. As of September 30, 2020, we had no outstanding borrowings under this revolving line of credit, and we had outstanding letters of credit totaling $ 11.2 million in connection with securing our leased office space. 9. 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 32 %. 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 nine months ended September 30, 2020, the actual effective tax rates were ( 7.6 )% and ( 1.3 )%, respectively. For the three and nine months ended September 30, 2019, the actual effective tax rates were ( 0.0 )% and ( 1.0 )%, respectively. We assess uncertain tax positions in accordance with ASC 740-10, Accounting for Uncertainties in Income Taxes . As of September 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. The tax years 2016 through 2019 remain open to examination by the major taxing jurisdictions to which we are subject. We are not currently under examination by the Internal Revenue Service for any open tax years. In response to the COVID-19 pandemic, the United States passed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act in March 2020. The CARES Act includes various income and payroll tax measures. Pursuant to these measures, we have elected the option to defer the deposit and payment of our share of social security taxes that would otherwise be due between March 27, 2020 and December 31, 2020. Under the CARES Act, half of these deferred payments are due by the end of fiscal year 2021 while the other half are due by the end of fiscal year 2022. 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. 10. 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 September 30, 2020, there were 7,162,409 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 4,536,688 were available to be issued. 20 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 estimate the expected term of the stock options, we use the simplified method to estimate the expected term for our stock options. Under the simplified method, the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected term of the stock options. We assume no dividend yield because dividends are not expected to be paid in the near future, which is consistent with our history of not paying dividends. In May 2019, our Board of Directors granted a stock option to purchase 700,000 shares of our Class A common stock to our Chief Executive Officer (the "2019 CEO Grant") under the 2017 Plan with an exercise price of $ 33.98 per share. The 2019 CEO Grant is eligible to vest based on the achievement of a stock price appreciation target of our Class A common stock. Specifically, the 2019 CEO Grant will vest when shares of our Class A common stock close at or above $ 84.63 per share for a period equal to or greater than 90 consecutive calendar days or upon the occurrence of a change in control in which the value of our Class A common stock is equal to or greater than $ 84.63 per share within five years of the grant date. The fair value of the 2019 CEO Grant was determined using a Monte Carlo simulation. The fair value of the award at the grant date was $ 9.5 million and will be amortized over the derived service period of 2.6 years. There were no stock options granted during the three months ended September 30, 2020 and 2019. The following table summarizes the assumptions used to estimate the fair value of stock options granted during the nine months ended September 30, 2020 and 2019: Nine Months Ended September 30, 2020 2019 Risk-free interest rate * 2.1 % Expected term (in years) * 2.6 Expected volatility * 55.0 % Expected dividend yield * — % * Not applicable because no stock options were granted during the period The following table summarizes stock option activity for the nine months ended September 30, 2020: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) Outstanding at January 1, 2020 4,458,611 $ 12.30 5.8 $ 115,501 Granted — — — — Exercised ( 521,063 ) 6.21 — 23,814 Expired ( 1,380 ) 11.82 — — Canceled ( 53,580 ) 11.36 — — Outstanding at September 30, 2020 3,882,588 $ 13.14 5.1 $ 200,397 Exercisable at September 30, 2020 2,659,928 $ 8.07 5.2 $ 150,767 There were no stock options granted during the nine months ended September 30, 2020. The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2019 was $ 13.57 per share. The total fair value 21 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) of stock options that vested during the nine months ended September 30, 2020 and 2019 was $ 1.4 million and $ 1.7 million, respectively. As of September 30, 2020, the total compensation cost related to unvested stock options not yet recognized was $ 5.0 million, which will be recognized over a weighted average period of 1.2 years. Restricted Stock Units The following table summarizes RSU activity for the nine months ended September 30, 2020: Number of Shares Weighted Average Grant Date Fair Value Non-vested and outstanding at January 1, 2020 1,022,835 $ 31.39 Granted 306,160 52.61 Vested ( 93,239 ) 32.77 Canceled ( 125,318 ) 32.00 Non-vested and outstanding at September 30, 2020 1,110,438 37.06 As of September 30, 2020, total unrecognized compensation cost related to unvested RSUs was approximately $ 33.4 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. The awards were approved by the Board of Directors. The value of these awards at the grant date was $ 7.7 million and was amortized over the vesting periods . The RSUs vested during the three months ended March 31, 2019. The following table summarizes the components of our stock-based compensation expense by instrument type for the three and nine months ended September 30, 2020 and 2019 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 RSUs $ 2,494 $ 1,873 $ 7,268 $ 10,544 Stock options 992 1,176 3,123 2,235 Common stock awards to Board of Directors 92 92 277 276 Total stock-based compensation expense $ 3,578 $ 3,141 $ 10,668 $ 13,055 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 nine months ended September 30, 2020 and 2019 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Cost of revenue Subscriptions $ 236 $ 147 $ 678 $ 462 Professional services 406 243 935 2,461 Operating expenses Sales and marketing 427 776 1,837 3,971 Research and development 669 433 1,841 2,983 General and administrative 1,840 1,542 5,377 3,178 Total stock-based compensation expense $ 3,578 $ 3,141 $ 10,668 $ 13,055 22 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 11. Stockholders' Equity As of September 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 37,805,423 shares of Class A common stock and 32,214,766 shares of Class B common stock were issued and outstanding. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. The holders of Class A common stock are entitled to one vote per share, and the holders of Class B common stock are entitled to ten votes per share on all matters subject to stockholder vote. The holders of Class B common stock also have approval rights for certain corporate actions. Each share of Class B common stock may be converted into one share of Class A common stock at the option of its holder and will be automatically converted upon transfer thereof, subject to certain exceptions. In addition, upon the date on which the outstanding shares of Class B common stock represent less than 10 % of the aggregate voting power of our capital stock, all outstanding shares of Class B common stock shall convert automatically into Class A common stock. 12. Basic and Diluted Loss per Common Share 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 and Nine Months Ended September 30, 2020 2019 Stock options 3,882,588 4,645,057 Non-vested restricted stock units 1,110,438 966,876 13. Commitments and Contingencies Contractual Warranty and Indemnification Obligations We provide limited product warranties. Historically, any payments made under these provisions have been immaterial. We also agree to standard indemnification provisions in the ordinary course of business. Pursuant to these provisions, we agree to indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our customers, in connection with certain intellectual property infringement claims by any third party arising from the use of our products or services in accordance with the agreement. The term of our contractual indemnity provisions often survives termination or expiration of the applicable agreement. We carry insurance that covers certain third-party claims relating to our services and limits our exposure. We have never incurred costs to defend lawsuits or settle claims related to these indemnification provisions. Letters of Credit At September 30, 2020 and December 31, 2019, we had outstanding letters of credit totaling $ 11.2 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. Legal From time to time, we are subject to legal, regulatory, and other proceedings and claims that arise in the ordinary course of business. There are no issues or resolutions of any matters expected to have a material adverse impact on our condensed consolidated financial statements. 23 APPIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 14. Segment and Geographic Information The following table summarizes revenue by geography for the three and nine months ended September 30, 2020 and 2019 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Domestic $ 52,424 $ 45,666 $ 147,070 $ 130,528 International 24,880 20,489 75,873 61,206 Total $ 77,304 $ 66,155 $ 222,943 $ 191,734 With respect to geographic information, revenue is attributed to respective geographies based on the contracting address of the customer. Revenues from customers attributed to the United Kingdom were 13.6 % and 12.8 % of our total revenue for the three and nine months ended September 30, 2020, respectively. Revenues from customers attributed to the United Kingdom were 12.6 % and 12.1 % of our total revenue for the three and nine months ended September 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 nine months ended September 30, 2020 and 2019. Substantially all of our long-lived assets were held in the United States as of September 30, 2020 and December 31, 2019. 15. Subsequent Events Principal Paydown of Finance Leases In October 2020, we paid $ 2.7 million to the lessor of our finance leases pursuant to an option included in our agreement permitting us to pay, in full at any time, the principal balances outstanding on our leases. As of the date of the paydown, the titles to the assets were transferred to us, the associated right-of-use liabilities were retired, and the carrying values of the purchased assets were adjusted accordingly. RSU Grant On November 3, 2020, the Compensation Committee of the Board of Directors approved a grant of 190,900 RSUs to certain employees of the Company. The awards, valued at $ 12.9 million, will vest annually over a period of 4 years. 24