12 unchanged sentences
Our customer contract terms generally vary from one to three years with most providing for payment in advance on an annual, quarterly, or monthly basis.
−Removed: Due to the variability of our billing terms and the episodic nature of our customers purchasing additional subscriptions, we do not believe that changes in our deferred revenue in a given period are directly correlated with our revenue growth.
−Removed: Since inception, we have invested in our professional services organization to help ensure that customers are able to build and deploy applications on our platform.
−Removed: We have several strategic partnerships, including with KPMG, PwC and Deloitte, for them to refer customers to us in order to purchase subscriptions and then to provide professional services directly to the customers using our platform.
+Added: Due to the variability of our billing terms and the episodic nature of our customers purchasing additional subscriptions, we do not believe changes in our deferred revenue in a given period are directly correlated with our revenue growth.
+Added: Since inception, we have invested in our Customer Success organization to help ensure customers are able to build and deploy applications on our platform.
+Added: We have several strategic partnerships, including with KPMG, PwC, Accenture, and Deloitte, for them to refer customers to us in order to purchase subscriptions and then to provide professional services directly to the customers using our platform.
We intend to further grow our base of strategic partners to provide broader customer coverage and solution delivery capabilities.
1 unchanged sentence
We believe our investment in professional services, including strategic partners building their practices around Appian, will drive increased adoption of our platform.
−Removed: As of December 31, 2019, we had 533 customers in a wide variety of industries, of which 427 customers were commercial and 106 customers were government or non-commercial entities.
−Removed: Our customers include financial services, life sciences, government, telecommunications, media, energy, manufacturing and transportation organizations.
+Added: As of December 31, 2020, we had 693 customers in a variety of industries, of which 548 customers were commercial and 145 customers were government or non-commercial entities.
+Added: Our customers include financial services, government, life sciences, telecommunications, media, energy, manufacturing, and transportation organizations.
Generally, our sales force targets its efforts to organizations with over 2,000 employees and $2 billion in annual revenue.
−Removed: As of December 31, 2019, 24% of our commercial customers were Global 2000 organizations and included 48 Fortune 500 companies.
+Added: As of December 31, 2020, 25% of our commercial customers were Global 2000 organizations, and 60 of our customers were Fortune 500 companies.
Revenue from government agencies represented 18.1%, 17.1%, and 15.7% of our total revenue in 2020, 2019, and 2018, respectively.
−Removed: No single end-customer accounted for more than 10% of our total revenue in 2019, 2018 or 2017.
−Removed: Our platform supports multiple languages to facilitate collaboration and address challenges in multi-national organizations.
+Added: No single end-customer accounted for more than 10% of our total revenue in 2020, 2019, and 2018.
+Added: Our platform supports multiple languages to facilitate collaboration and address challenges in multinational organizations.
We offer our platform globally.
1 unchanged sentence
As of December 31, 2020, we operated in 12 countries.
−Removed: We believe that we have a significant opportunity to grow our international footprint.
+Added: We believe we have a significant opportunity to grow our international footprint.
We are investing in new geographies, including through investment in direct and indirect sales channels, professional services, and customer support and implementation partners.
We have experienced strong revenue growth, with revenue of $304.6 million, $260.4 million, and $226.7 million in 2020, 2019, and 2018, respectively.
−Removed: Our subscriptions revenue was $151.3 million, $126.0 million and $91.5 million in 2019, 2018 and 2017, respectively and includes sales of our SaaS subscriptions, on-premises term license subscriptions and
−Removed: maintenance support.
+Added: Our subscriptions revenue was $198.7 million, $151.3 million, and $126.0 million in 2020, 2019,
+Added: and 2018, respectively, and includes sales of our SaaS subscriptions, on-premises term license subscriptions, and maintenance support.
Our cloud subscription revenue was $129.2 million, $95.0 million, and $67.4 million in 2020, 2019, and 2018, respectively.
3 unchanged sentences
We also used cash in operations of $7.6 million, $8.9 million, and $31.3 million in 2020, 2019, and 2018, respectively.
−Removed: Adoption of Revenue from Contracts with Customers (Topic 606)
−Removed: In May 2014, the FASB issued ASC 606, which replaced the revenue recognition requirements in ASC 605.
−Removed: The new revenue standard outlines a single, comprehensive model for accounting for revenue from contracts with customers and requires more detailed disclosure to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from such contracts.
−Removed: The new revenue standard provides a five-step analysis of transactions to determine when and how revenue is recognized.
−Removed: The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.
−Removed: We adopted ASC 606 effective January 1, 2019 using the modified retrospective method.
−Removed: 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.
−Removed: See Note 2 to our consolidated financial statements appearing in Item 8 for additional discussion of the impact of the adoption of this new accounting guidance and changes in accounting policies relating to revenue recognition and accounting for costs to obtain and fulfill a customer contract.
−Removed: For the year ended December 31, 2019, we recognized revenue based on ASC 606;
−Removed: however, revenue for the prior years was recognized based on ASC 605.
−Removed: Therefore, the periods are not directly comparable, however we have included a reconciliation of the impacts of ASC 606 on our consolidated financial statements for the year ended December 31, 2019.
+Added: Beginning in late 2019 and continuing into 2021, the outbreak of the novel coronavirus disease, or COVID-19, has resulted in the declaration of a global pandemic and adversely affected economic activity across virtually all sectors and industries on a local, national, and global scale.
+Added: The impact of COVID-19 on the economy and our business continues to be a fluid situation.
+Added: Operationally, we remain focused on supporting our customers, employees, and communities during this time.
+Added: We have responded quickly to adopt a virtual corporate strategy consisting of enabling most of our employees to work productively from home while continuing to guard the health and safety of our teams, support our customers, and mitigate risk.
+Added: We are focused on ensuring continuity for our customers.
+Added: To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel, employee work locations, and marketing events.
+Added: Through December 31, 2020, we have not seen a meaningful adverse impact to our financial position, results of operations, and cash flows and liquidity as a result of COVID-19.
+Added: While the verticals from which we have historically generated the majority of our revenue have been less impacted by COVID-19 to date, there may be impacts to our financial condition and results of operations in 2021 as a result of reduced demand for our products and services and longer sales cycles.
+Added: 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.
Our Business Model
−Removed: Our business model focuses on maximizing the lifetime value of customer relationships, which is a function of the duration of a customer’s deployment of Appian as well as the price and number of subscriptions of Appian that a customer purchases.
+Added: Our business model focuses on maximizing the lifetime value of customer relationships, which is a function of the duration of a customer’s deployment of Appian as well as the price and number of subscriptions of Appian a customer purchases.
We incur significant customer acquisition costs, including expenses associated with hiring new sales representatives, who generally take more than one year to become productive given the length of our sales cycle, and marketing costs, all of which, with the exception of sales commissions, are expensed as incurred.
−Removed: At the same time, we believe that the costs we incur to retain customers and drive additional purchases of software are lower than our customer acquisition costs on a relative basis.
+Added: At the same time, we believe the costs we incur to retain customers and drive additional purchases of software are lower than our customer acquisition costs on a relative basis.
Over time, we expect a large portion of our customers to renew their subscriptions and purchase additional subscriptions as they continue to build more applications and add more users to our platform.
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We measure the effectiveness of our business model by comparing the lifetime value of our customer relationships to our customer acquisition costs.
−Removed: For the years revenue was recognized under ASC 605, we calculate lifetime customer value as (1) average gross margin multiplied by average subscription and maintenance and support revenue from customers for a given month divided by (2) the average percentage of monthly recurring revenue that did not renew in each month for the previous 12 months.
−Removed: We then divide this calculated lifetime customer value by our customer acquisition cost, which is the total sales and marketing expense incurred during the corresponding month.
−Removed: In order to be consistent with our new key metrics, we revised the
−Removed: calculation of the lifetime value of our customer relationships for the year ended December 31, 2019.
−Removed: For the year ended December 31, 2019, we replaced subscription revenue with cloud subscription revenue in the calculation of lifetime customer value.
+Added: For fiscal years 2018 and prior, revenue was recognized under Accounting Standards Codification Topic 605, Revenue Recognition, or ASC 605.
+Added: Under ASC 605, we calculated lifetime customer value as (1) average gross margin multiplied by average subscription and maintenance and support revenue from customers for a given month divided by (2) the average percentage of monthly recurring revenue that did not renew in each month for the previous 12 months.
+Added: We then divided this calculated lifetime customer value by our customer acquisition cost, which is the total sales and marketing expense incurred during the corresponding month.
+Added: In response to our adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) , or ASC 606, in the year ended December 31, 2019, we revised the calculation of the lifetime value of our customer relationships by replacing subscription revenue with cloud subscription revenue in the calculation.
Because we primarily recognize revenue from our on-premises term license subscriptions upfront under ASC 606, we believe cloud subscription revenue better reflects the performance of our business.
5 unchanged sentences
Our ability to grow our customer base and drive market adoption of our platform is affected by the pace at which organizations digitally transform.
−Removed: We expect that our revenue growth will be primarily driven by the pace of adoption and penetration of our platform.
+Added: We expect our revenue growth will be primarily driven by the pace of adoption and penetration of our platform.
We offer a leading custom software automation platform and intend to continue to invest to expand our customer base.
5 unchanged sentences
We have aggressively invested, and intend to continue to invest, in our sales force in order to drive sales to new customers.
−Removed: In particular, we have recently made, and plan to continue to make, investments to enhance the expertise of our sales and marketing organization within our key industry verticals of financial services, life sciences and government.
+Added: We continue to make investments to enhance the expertise of our sales and marketing organization within our key industry verticals of financial services, government, and life sciences.
In addition, we have established relationships with strategic partners who work with organizations undergoing digital transformations.
−Removed: We had a total customer count of 533, 436 and 356 as of December 31, 2019, 2018 and 2017, respectively, which includes customers with active software subscription agreements or with maintenance and support contracts, and our number of customers with active software subscription agreements was 487, 378 and 291 as of December 31, 2019, 2018 and 2017, respectively.
−Removed: As of December 31, 2019, 24% of our commercial customers were Global 2000 organizations and included 48 Fortune 500 companies.
−Removed: Our ability to continue to grow our customer base is dependent, in part, upon our ability to compete within the increasingly competitive markets in which we participate.
+Added: We had a total customer count of 693, 533, and 436 as of December 31, 2020, 2019, and 2018, respectively.
+Added: Our number of customers with active software subscription agreements was 654, 487, and 378 as of December 31, 2020, 2019, and 2018, respectively.
+Added: As of December 31, 2020, 25% of our commercial customers were Global 2000 organizations, and 60 of our customers were Fortune 500 companies.
+Added: Our ability to continue to grow our customer base is dependent, in part, upon our ability to differentiate ourselves within the increasingly competitive markets in which we participate.
• Further Penetration of Existing Customers.
1 unchanged sentence
Many of our customers begin by building a single application and then grow to build dozens of applications on our platform.
−Removed: Generally, the development of new applications on our platform results in the expansion of our user base within an organization and a corresponding increase in revenue to us because we charge subscription fees on a per-user basis for the significant majority of our customer contracts.
+Added: Generally, the development of new applications on our platform results in the expansion of our user base within an organization and a corresponding increase in revenue to us because we charge subscription fees on a per-user basis and, to a lesser degree, non-user based single application licenses.
As a result of this “land and expand” strategy, we have generated significant additional revenue from our customer base.
Our ability to increase sales to existing customers will depend on a number of factors, including the size of our sales force and professional services teams, customers’ level of satisfaction with our platform and professional services, pricing, economic conditions, and our customers’ overall spending levels.
−Removed: We have also re-focused some of our professional services personnel to become customer success managers.
+Added: We have also re-focused some of our
+Added: professional services personnel to become customer success managers.
Their role is to ensure the customer realizes value from our platform and support the "land and expand" strategy versus delivering billable hours.
11 unchanged sentences
We have made, and plan to continue to make, investments for long-term growth, including investment in our platform and infrastructure to continuously maximize the power and simplicity of the platform to meet the evolving needs of our customers and to take advantage of our market opportunity.
−Removed: We intend to continue to invest in sales and marketing, as we further expand our sales teams, increase our marketing activities and grow our international operations.
−Removed: We monitor the following metrics to help us measure and evaluate the effectiveness of our operations (dollars in thousands):
−Removed: Year Ended December 31,
−Removed: 2019 2018 2017
+Added: In addition, we continue to pursue strategic acquisitions that enhance our product offerings.
+Added: We also intend to continue to invest in sales and marketing as we further expand our sales teams, increase our marketing activities, and grow our international operations.
+Added: We monitor the following metrics to help us measure and evaluate the effectiveness of our operations.
+Added: All dollar amounts are presented in thousands.
Cloud Subscription Revenue
−Removed: As of December 31,
+Added: Year Ended December 31,
2020 2019 2018
−Removed: Cloud Subscription Revenue Retention Rate 115 % 131 % 132 %
Cloud Subscription Revenue $ 129,219 $ 95,028 $ 67,447
−Removed: Because we primarily recognize revenue from our on-premises term license subscriptions upfront under ASC 606, we believe our previous key business metric, subscription revenue, no longer best reflects the performance of our business and overemphasizes the volatility in our results.
−Removed: Therefore, we are no longer presenting subscription revenue and will instead report a new key metric, cloud subscription revenue.
−Removed: Cloud subscription revenue is a portion of our revenue and includes SaaS subscriptions bundled with maintenance and support and hosting services and is increasingly becoming a larger percentage of our subscriptions revenue.
+Added: Pursuant to adoption of ASC 606 in 2019, we primarily recognize revenue from our on-premises term license subscriptions upfront.
+Added: As a result, we believe our previous key business metric, subscription revenue, no longer best reflects the performance of our business and overemphasizes the volatility in our results.
+Added: Therefore, we are no longer presenting subscription revenue and have transitioned to a new key metric, cloud subscription revenue.
+Added: Cloud subscription revenue includes SaaS subscriptions bundled with maintenance and support and hosting services.
In 2020, 2019, and 2018, 65.0%, 62.8%, and 53.5%, respectively, of subscriptions revenue was cloud subscription revenue.
As we generally sell our SaaS subscriptions on a per-user basis, our cloud subscription revenue for any customer is primarily determined by the number of users who access and utilize the applications built on our platform as well as the price paid.
−Removed: We believe that increasing cloud subscription revenue is an indicator of the demand for our platform, the pace at which the market for our solutions is growing, the productivity of our sales force and strategic relationships in growing our customer base, and our ability to further penetrate our existing customer base.
−Removed: The year-over-year growth rate in our cloud subscription revenue for the year ended December 31, 2018 was elevated as we focused on converting customers with on-premises term license subscriptions to cloud subscriptions.
+Added: We believe increasing cloud subscription revenue is an indicator of the demand for our platform, the pace at which the market for our solutions is growing, the productivity of our sales force and strategic relationships in growing our customer base, and our ability to further penetrate our existing customer base.
The adoption of ASC 606 did not have a material impact on our cloud subscription revenue.
Cloud Subscription Revenue Retention Rate
−Removed: Because we primarily recognize revenue from our on-premises term license subscriptions upfront under ASC 606, we believe our previous key business metric, subscription revenue, no longer best reflects the performance of our business and overemphasizes the volatility in our results.
−Removed: Therefore, we are no longer presenting subscription revenue and will instead report a new key metric, cloud subscription revenue.
+Added: As of December 31,
+Added: 2020 2019 2018
+Added: Cloud Subscription Revenue Retention Rate 119 % 115 % 131 %
A key factor to our success is the renewal and expansion of subscription agreements with our existing customers.
1 unchanged sentence
To calculate our cloud subscription revenue retention rate for a particular trailing 12-month period, we first establish the recurring cloud subscription revenue for the previous trailing 12-month period.
−Removed: This effectively represents recurring dollars that we should expect in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period without any expansion or contraction.
+Added: This effectively represents recurring dollars we should expect in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period without any expansion or contraction.
We subsequently measure the recurring cloud subscription revenue in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period.
2 unchanged sentences
Our cloud subscription revenue retention rate can fluctuate from period to period due to large customer contracts in any given period.
−Removed: The cloud subscription revenue retention rates as of December 31, 2018 and 2017 were elevated as we focused on converting customers with on-premises term license subscriptions to cloud subscriptions.
+Added: The cloud subscription revenue retention rate as of December 31, 2018 was elevated as we focused on converting customers with on-premises term license subscriptions to cloud subscriptions.
The adoption of ASC 606 did not have a material impact on our cloud subscription revenue retention rate.
1 unchanged sentence
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain non-GAAP financial measures, including non-GAAP operating loss, non-GAAP net loss, non-GAAP net loss per share, non-GAAP weighted average shares outstanding, and adjusted EBITDA, which we collectively refer to as non-GAAP financial measures.
−Removed: These non-GAAP financial measures exclude all or a combination of the following (as reflected in the following reconciliation tables):
−Removed: stock-based compensation expense, change in fair value of warrant liability, loss on extinguishment of debt and gain or loss on disposal of asset.
+Added: As reflected in the following reconciliation tables, these non-GAAP financial measures exclude either or both stock-based compensation expense and gain or loss on disposal of asset.
We define non-GAAP operating loss as operating loss before stock-based compensation expense.
−Removed: We define non-GAAP net loss as net loss before stock-based compensation expense, change in fair value of warrant liability, loss on extinguishment of debt and gain or loss on disposal of asset.
−Removed: We define adjusted EBITDA as net loss before (1) other (income) expense, net, (2) interest expense, (3) income tax expense, (4) depreciation expense and (5) stock-based compensation expense.
−Removed: The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
−Removed: We use these non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons.
−Removed: We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision making.
−Removed: While our non-GAAP financial measures are an important tool for financial and operational decision making and for evaluating our own operating results over different periods of time, you should review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not rely on any single financial measure to evaluate our business.
+Added: We define non-GAAP net loss as net loss before stock-based compensation expense and gain or loss on disposal of assets.
+Added: In periods we report non-GAAP net income, we calculate non-GAAP weighted average shares outstanding as GAAP weighted average shares outstanding adjusted for the effect of potentially dilutive securities that would otherwise be antidilutive under GAAP.
+Added: We define adjusted EBITDA as net loss before (1) other (income) expense, net, (2) interest expense, (3) income tax expense, (4) depreciation and amortization expense, and (5) stock-based compensation expense.
We exclude stock-based compensation expense because of varying available valuation methodologies, subjective assumptions, and the variety of equity instruments that can impact our non-cash expense.
−Removed: We believe that providing non-GAAP financial measures that exclude stock-based compensation expense allow for more meaningful comparisons between our operating results from period to period.
−Removed: We exclude the impact of change in the fair value of warrant liability, loss on extinguishment of debt and gain or loss on disposal of asset as these transactions are unrelated to current operations nor predictive of future results, which we believe allows for a more meaningful comparison between the operating results from period to period.
−Removed: Accordingly, we believe that excluding these expenses and income provides investors and management with greater visibility into the underlying performance of our business operations, facilitates comparison of our results with other periods and may also provide comparison with the results of other companies in our industry.
−Removed: Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items.
+Added: We believe providing non-GAAP financial measures excluding stock-based compensation expense allow for more meaningful comparisons between our operating results from period to period.
+Added: We exclude gains or losses on disposals of assets as these transactions are unrelated to current operations nor predictive of future results, which we believe allows for a more meaningful comparison between our operating results from period to period.
+Added: Accordingly, we believe excluding these expenses and income provides investors and management with greater visibility into the underlying performance of our business operations, facilitates comparison of our results with other periods, and may also provide comparison with the results of other companies in our industry.
+Added: The presentation of non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to the financial information prepared and presented in accordance with GAAP.
+Added: We use non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons.
+Added: We believe our non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to metrics used by our management in its financial and operational decision making.
+Added: A reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures is included below for review.
+Added: Reliance should not be placed on any single financial measure to evaluate our business.
+Added: Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry as other companies in our industry may calculate non-GAAP financial results differently, particularly
+Added: with respect to non-recurring, unusual items.
Non-GAAP financial measures do not have uniform definitions, and our definitions will likely differ from the definitions used by other companies, including peer companies.
−Removed: In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact upon our reported financial results.
−Removed: Further, stock-based compensation expense will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees.
−Removed: Also, for the year ended December 31, 2019, we recognized revenue based on ASC 606;
−Removed: however, revenue for the prior years was recognized based on ASC 605.
−Removed: Therefore, our non-GAAP financial measures as of December 31, 2019 are not directly comparable to our non-GAAP financial measures as of December 31, 2018 or December 31, 2017
−Removed: The following table reconciles GAAP operating loss to non-GAAP operating loss for the years ended December 31, 2019, 2018 and 2017 (in thousands):
+Added: In addition, non-GAAP financial measures exclude expenses that may have a material impact upon our reported financial results.
+Added: Further, stock-based compensation expense will continue to be a significant recurring expense in our business and an important part of the compensation provided to our employees for the foreseeable future.
+Added: Note for the years ended December 31, 2020 and 2019, revenue was recognized under ASC 606 while for the year ended December 31, 2018, revenue was recognized under ASC 605.
+Added: Consequently, our non-GAAP financial measures across those years are not directly comparable to one another.
+Added: For a reconciliation of the impact of the adoption of ASC 606 on our non-GAAP financial measures for the year ended December 31, 2019, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 20, 2020.
+Added: The table below reconciles GAAP operating loss to non-GAAP operating loss for the years ended December 31, 2020, 2019, and 2018 (in thousands):
Year Ended December 31,
3 unchanged sentences
Non-GAAP operating loss $ (22,623) $ (34,025) $ (30,665)
−Removed: The adoption of ASC 606 resulted in a reduction of our non-GAAP operating loss by $1.4 million for the year ended December 31, 2019.
The following table reconciles GAAP net loss to non-GAAP net loss for the years ended December 31, 2020, 2019, and 2018 (in thousands):
4 unchanged sentences
Loss (gain) on disposal of asset 22 146 (4)
−Removed: Change in fair value of warrant liability — — 341
−Removed: Loss on extinguishment of debt — — 384
Non-GAAP net loss $ (18,176) $ (34,125) $ (33,401)
−Removed: The adoption of ASC 606 resulted in a reduction of our non-GAAP net loss by $1.3 million for the year ended December 31, 2019.
The following table sets forth non-GAAP net loss per share for the years ended December 31, 2020, 2019, and 2018 (in thousands except share and per share data):
2 unchanged sentences
Non-GAAP net loss $ (18,176) $ (34,125) $ (33,401)
−Removed: Non-GAAP weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted 65,479,327 62,140,684 57,043,906
+Added: Non-GAAP weighted average shares used to compute net loss per share, basic and diluted 69,050,565 65,479,327 62,140,684
Non-GAAP net loss per share, basic and diluted $ (0.26) $ (0.52) $ (0.54)
+Added: GAAP basic and diluted weighted average shares outstanding were equal to non-GAAP basic and diluted weighted average shares outstanding for each of the years ended December 31, 2020, 2019, and 2018.
The following table reconciles GAAP net loss per share to non-GAAP net loss per share for the years ended December 31, 2020, 2019, and 2018:
1 unchanged sentence
2020 2019 2018
−Removed: GAAP net loss per share attributable to common stockholders, basic and diluted $ (0.77) $ (0.80) $ (0.63)
+Added: GAAP net loss per share, basic and diluted $ (0.48) $ (0.77) $ (0.80)
Non-GAAP adjustments to net loss per share 0.22 0.25 0.26
Non-GAAP net loss per share, basic and diluted $ (0.26) $ (0.52) $ (0.54)
−Removed: The adoption of ASC 606 resulted in a reduction of our non-GAAP net loss per share, basic and diluted by $0.02 for the year ended December 31, 2019.
−Removed: The following table reconciles GAAP weighted average shares outstanding, basic and diluted, to non-GAAP weighted average shares outstanding, basic and diluted, for the years ended December 31, 2019, 2018 and 2017:
−Removed: Year Ended December 31,
−Removed: 2019 2018 2017
−Removed: GAAP weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted 65,479,327 62,140,684 49,529,833
−Removed: Additional weighted average shares giving effect to conversion of preferred stock at the beginning of the period — — 7,514,073
−Removed: Non-GAAP weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted 65,479,327 62,140,684 57,043,906
The following table reconciles GAAP net loss to adjusted EBITDA for the years ended December 31, 2020, 2019, and 2018 (in thousands):
5 unchanged sentences
Income tax expense 883 820 239
−Removed: Depreciation expense 4,742 2,020 886
+Added: Depreciation and amortization expense 5,851 4,742 2,020
Stock-based compensation expense 15,279 16,443 16,054
Adjusted EBITDA $ (16,772) $ (29,283) $ (28,645)
−Removed: The adoption of ASC 606 resulted in a reduction of our adjusted EBITDA by $1.4 million for the year ended December 31, 2019.
Key Components of Results of Operations
9 unchanged sentences
Our maintenance and support agreements provide customers with the right to unspecified software upgrades, maintenance releases and patches released during the term of the maintenance and support agreement on a when-and-if-available basis, and rights to technical support.
−Removed: When our platform is deployed within a customer’s own data center or private cloud, it is installed on the customer’s infrastructure and offered as a term license.
−Removed: When our platform is delivered as a SaaS subscription, we handle its operational needs in third-party hosted data centers.
+Added: On-premises term license subscriptions are offered when the customer prefers to self-manage the deployment of our platform within their own infrastructure.
+Added: When our platform is delivered as a SaaS subscription, we manage their operational needs in third-party hosted data centers.
Professional Services
−Removed: Our professional services revenue is comprised of fees for consulting services, including application development and deployment assistance and training related to our platform.
−Removed: Over time, as the need for professional services associated with user deployments decreases and the number of end users increases, we expect professional services revenue as percentage of total revenue to decrease.
−Removed: We have several strategic partnerships, including with KPMG, PwC and Deloitte.
+Added: Our professional services revenue is comprised of fees for consulting services, including application development, deployment assistance, and training related to our platform.
+Added: Over time, as the need for professional services associated with user deployments decreases and the number of end users increases, we expect professional services revenue as a percentage of total revenue to decrease.
+Added: Additionally, if there is a decline in our procurement of new customers as a result of the COVID-19 pandemic, we may also see a similar decline in professional services revenue.
+Added: We have several strategic partnerships, including with KPMG, PwC, Accenture, and Deloitte.
Our agreements with our strategic partners have indefinite terms and may be terminated for convenience by either party.
1 unchanged sentence
These partners refer software subscription customers to us and generally perform professional services with respect to any new service contracts they originate, increasing our subscriptions revenue without any change to our professional services revenue.
−Removed: As we expand the network of strategic partners, we expect professional services revenue to decline as a percentage of total revenue over time since our strategic partners may perform professional services associated with software subscriptions that we sell.
+Added: As we expand the network of strategic partners, we expect professional services revenue to decline as a percentage of total revenue over time since our strategic partners may perform professional services associated with software subscriptions we sell.
Cost of Revenue
3 unchanged sentences
Professional Services
−Removed: 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, as well as the costs of billable expenses, such as travel and lodging.
−Removed: The unpredictability of the timing of entering into significant professional services agreements sold on a standalone basis may cause significant fluctuations in our quarterly financial results.
−Removed: Gross profit and gross margin, or gross profit as a percentage of total revenue, has been, and will continue to be, affected by various factors, including the mix of subscriptions revenue and professional services revenue.
−Removed: Subscription pricing, the costs associated with third-party hosting facilities, and the extent to which we expand our professional services to support future growth will impact our gross margins.
+Added: Cost of professional services revenue includes all direct and indirect costs to deliver our professional services and training, including employee compensation for our global professional services and training personnel, third-party contractor costs, allocated facility costs and overhead, and the costs of billable expenses such as travel and lodging.
+Added: The unpredictability of the timing of entering into significant professional services agreements sold on a standalone basis may cause significant fluctuations in our quarterly financial results and allocated facility costs and overhead.
+Added: Gross profit and gross margin, or gross profit as a percentage of total revenue, have been, and will continue to be, affected by various factors, including the mix of SaaS subscriptions and on-premises term license subscriptions, the mix of total subscriptions revenue and professional services revenue, subscription pricing, the costs associated with third-party hosting facilities, and the extent to which we expand our professional services to support future growth.
Our gross margin may fluctuate from period to period based on the above factors.
1 unchanged sentence
Subscriptions gross margin is primarily affected by the growth in our subscriptions revenue as compared to the growth in, and timing of, costs to support such revenue.
−Removed: We expect to continue to invest in the customer support and SaaS operations to support the growth in the business and the timing of those investments is expected to cause gross margins to fluctuate in the short term but improve over time.
+Added: We expect to continue to invest in customer support and SaaS operations to support growth in our business, and the timing of those investments is expected to cause gross margins to fluctuate in the short term but improve over time.
Professional Services Gross Margin
−Removed: Professional services gross margin is affected by the growth in our professional services revenue as compared to the growth in, and timing of, the cost of our professional services organization as we continue to invest in the growth of our business.
−Removed: Professional services gross margin is impacted by the amount of services performed by subcontractors as opposed to internal resources.
−Removed: Our professional services gross margin is also impacted by the amount of services performed by partners as opposed to internal resources.
+Added: Professional services gross margin is affected by the growth in our professional services revenue as compared to the growth in, and timing of, the cost of our Customer Success organization as we continue to invest in the growth of our business.
+Added: Professional services gross margin is also impacted by the amount of services performed by subcontractors and partners as opposed to internal resources.
+Added: More recently, we have reduced our usage of subcontractors, and the COVID-19 pandemic has resulted in fewer in-person professional services engagements and deployments, both of which have reduced certain classes of expenses and improved professional services margins.
+Added: However, our improved margins may not be indicative of future trends
+Added: and are subject to fluctuation based on factors discussed above and uncertainties related to the COVID-19 pandemic outside of our control.
Operating Expenses
1 unchanged sentence
Salaries, bonuses, and other personnel-related costs are the most significant components of each of these expense categories.
+Added: In general, our operating expenses are expected to continue to increase as we invest resources in growing our various teams.
We grew from 1,275 employees at December 31, 2019 to 1,460 employees at December 31, 2020, and we expect to continue to hire new employees in order to support our anticipated revenue growth.
1 unchanged sentence
Sales and marketing expense primarily includes personnel costs, including salaries, bonuses, commissions, stock-based compensation, and other personnel costs related to sales teams.
−Removed: Additional expenses in this category include travel and entertainment, marketing and promotional events, marketing activities, subcontracting fees and allocated facility costs and overhead.
+Added: Additional expenses in this category include travel and entertainment, marketing activities and promotional events, subcontracting fees, and allocated facility costs and overhead.
The number of employees in sales and marketing functions grew from 403 at December 31, 2019 to 445 at December 31, 2020.
3 unchanged sentences
Research and development expense consists primarily of personnel costs for our employees who develop and enhance our platform, including salaries, bonuses, stock-based compensation, and other personnel costs.
−Removed: Also included are non-personnel costs such as subcontracting, consulting and professional fees to third party development resources, allocated facility costs, overhead and depreciation and amortization costs.
+Added: Also included are non-personnel costs such as subcontracting, consulting, and professional fees to third party development resources, allocated facility costs, and overhead.
Our research and development efforts are focused on enhancing the speed and power of our software platform.
The number of employees in research and development functions grew from 332 at December 31, 2019 to 381 at December 31, 2020.
−Removed: We expect research and development expenses to continue to increase as they are critical to maintain and improve our quality of applications and our competitive position.
+Added: We expect research and development expense to continue to increase as they are critical to maintain and improve the quality of applications and our competitive position.
General and Administrative Expense
General and administrative expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, and other personnel costs for our administrative, legal, information technology, human resources, finance and accounting employees, and executives.
−Removed: Additional expenses included in this category are non-personnel costs, such as travel-related expenses, contracting and professional fees, audit fees, tax services and legal fees, as well as insurance and other corporate expenses, along with allocated facility costs and overhead.
+Added: Additional expenses included in this category are non-personnel costs such as travel-related expenses, contracting and professional fees, audit fees, tax services and legal fees, insurance and other corporate expenses, allocated facility costs and overhead, bad debt expenses, and depreciation and amortization costs.
The number of employees in general and administrative functions grew from 156 at December 31, 2019 to 206 at December 31, 2020.
−Removed: We expect our general and administrative expense to increase in absolute dollars as we continue to support our growth and as a result of our becoming a public company.
+Added: We expect our general and administrative expense to increase in absolute dollars as we continue to support our growth.
Other (Income) Expense
Other (Income) Expense, Net
−Removed: Other (income) expense, net consists primarily of unrealized and realized gains and losses related to changes in foreign currency exchange rates, interest income on our cash and cash equivalents, gain or loss on the disposal of property and equipment, loss on our extinguishment of debt and fair value adjustments for our preferred stock warrant liability.
+Added: Other (income) expense, net consists primarily of unrealized and realized gains and losses related to changes in foreign currency exchange rates, interest income on our cash and cash equivalents, gains or losses on the disposal of property and equipment, and other sources of income or expense not related to our core business.
Interest Expense
1 unchanged sentence
Results of Operations
−Removed: The following table sets forth our consolidated statement of operations data:
+Added: The following table sets forth our consolidated statement of operations data (in thousands):
Year Ended December 31,
2020 2019 2018
−Removed: (in thousands)
Consolidated Statement of Operations Data:
20 unchanged sentences
Net loss $ (33,477) $ (50,714) $ (49,451)
−Removed: (1) Includes stock-based compensation expense below.
+Added: (1) Stock-based compensation as a component of these line items is as follows:
Year Ended December 31,
40 unchanged sentences
Total revenue $ 304,573 $ 260,352 17.0%
−Removed: Total revenue increased $33.6 million, or 14.8%, in 2019 compared to 2018, due to an increase in our subscriptions revenue of $25.3 million and an increase in our professional services revenue of $8.3 million.
−Removed: The increase in subscriptions revenue was attributable to $17.4 million of revenue from expanded deployments and corresponding sales of additional subscriptions to existing customers and $7.9 million in sales of subscriptions to new customers.
−Removed: The increase in professional services revenue was due to $17.7 million in sales to new customers, offset by a $9.4 million decrease in revenue from existing customers.
−Removed: The adoption of ASC 606 resulted in a reduction of our subscriptions revenue by $8.8 million, offset by an increase of our professional services revenue by $2.8 million in 2019 compared to if we had calculated our revenue for 2019 in accordance with ASC 605.
−Removed: Refer to Note 2 of our consolidated financial statements for further details regarding the impact of the adoption of ASC 606.
+Added: Total revenue increased $44.2 million, or 17.0%, in 2020 compared to 2019 due to an increase in our subscriptions revenue of $47.4 million, which was partially offset by a decrease in our professional services revenue of $3.2 million.
+Added: Of the increase in subscriptions revenue, $34.2 million was attributable to cloud subscription revenue, $11.0 million was attributable to on-premises software revenue, and $2.2 million was attributable to maintenance and support revenue.
+Added: With respect to new versus existing customers, $36.5 million of the increase in subscriptions revenue stemmed from expanded deployments and corresponding sales of additional subscriptions to existing customers while the remaining increase of $10.9 million was the result of sales of subscriptions to new customers, $2.8 million of which related to a three-year on-premises contract which closed in the first quarter of 2020.
+Added: The decrease in professional services revenue was due primarily to a $16.9 million decrease
+Added: in revenue from existing customers which was substantially offset by $13.7 million in sales to new customers.
+Added: Further contributing to the decrease in professional services revenue was our increased usage of partners to perform professional services in 2020 as compared to 2019, which has resulted in increases to our subscriptions revenue without any change to our professional services revenue.
Cost of Revenue
8 unchanged sentences
Total gross margin 70.9 % 64.0 %
−Removed: Cost of revenue increased $8.9 million, or 10.5%, in 2019 compared to 2018, primarily due to a $6.4 million increase in professional services and product support personnel costs, a $3.1 million increase in other cost of revenue and a $2.1 million increase in facility and overhead costs, offset by a $2.4 million decrease in contractor costs and a $0.3 million decrease in billable expenses.
−Removed: Personnel costs increased due to an increase in professional services and product support staff personnel headcount of 20.8% from December 31, 2018 to December 31, 2019 and a $1.2 million increase in stock-based compensation expense in 2019 due to the vesting of restricted stock units granted to our co-founders.
−Removed: These restricted stock units vested in the three months ended March 31, 2019.
+Added: Cost of revenue decreased $5.1 million, or 5.4%, in 2020 compared to 2019, primarily due to a $10.4 million decrease in contractor costs, a $4.1 million decrease in billable expenses, and a $0.4 million decrease in facility and overhead costs.
+Added: These decreases were partially offset by a $6.8 million increase in professional services and product support personnel costs and a $3.0 million increase in other cost of revenue.
+Added: Contractor costs decreased in 2020 compared to 2019 because of a decrease in the usage of subcontractors for professional service engagements.
+Added: Billable expenses decreased primarily due to lower travel and entertainment related expenses as a result of our shift to largely remote work in 2020 while the decrease in facility and overhead costs was largely due to a reduction in rent expense.
+Added: Personnel costs increased due to an increase in professional services and product support staff personnel headcount of 11.5% from December 31, 2019 to December 31, 2020.
The increase in other cost of revenue was due to increased hosting costs as sales of our cloud offering increased in 2020.
−Removed: Facility and overhead costs increased to support our personnel growth.
−Removed: Subcontractor costs decreased in 2019 compared to 2018 because of a decrease in the usage of subcontractors for professional service engagements and a decrease in the average hourly rate for subcontractors.
−Removed: Billable expenses decreased in 2019 compared to 2018 because of a decrease in the utilization rate of professional services resources.
−Removed: Total cost of revenue was not impacted by the adoption of ASC 606.
−Removed: Subscriptions gross margin decreased to 88.7% in 2019 compared to 90.5% in 2018 due to increased hosting costs as sales of our cloud offering increased and became a larger proportion of our overall software and support revenue.
−Removed: Subscriptions gross margin was also negatively impacted by the $8.8 million decrease in subscriptions revenue as a result of the adoption of ASC 606 compared to if we had calculated subscriptions revenue for 2019 in accordance with ASC 605, as well as the sale of a $4.4 million perpetual software license in 2018.
−Removed: There is minimal cost of revenue for our perpetual software revenue and, therefore, our subscriptions gross margin was higher during 2018.
−Removed: Professional services gross margin increased to 29.6% in 2019 compared to 27.6% in 2018 due to the $2.8 million increase in professional services revenue as a result of the adoption of ASC 606 compared to if we had calculated professional services revenue for 2019 in accordance with ASC 605.
−Removed: To a lesser extent, professional services gross margin increased due to a decrease in the usage of subcontractors for professional services engagements.
−Removed: Due to the increase in our professional services margin, gross margin increased to 64.0% in 2019 compared to 62.5% in 2018.
+Added: Subscriptions gross margin was 89.5% in 2020 compared to 88.7% in 2019 due to an increase in subscriptions revenue in 2020, partially offset by increased hosting costs as sales of our cloud offering increased and became a larger proportion of our overall subscriptions revenue.
+Added: Professional services gross margin was 35.8% in 2020 compared to 29.6% in 2019 due to a decrease in the usage of subcontractors for professional services engagements, a decrease in travel and entertainment related expenses, a decrease in rent expenses, and a $1.3 million decrease in stock-based compensation expense.
+Added: Due to the higher percentage of subscriptions revenue for the comparable periods as well as the aforementioned declines in professional services expenses, gross margin was 70.9% in 2020 as compared to 64.0% in 2019.
Sales and Marketing Expense
3 unchanged sentences
% of revenue 42.8 % 45.1 %
−Removed: Sales and marketing expense increased $11.4 million, or 10.8%, in 2019 compared to 2018, primarily due to a $5.8 million increase in sales and marketing personnel costs, a $2.8 million increase in facility and overhead costs, a $1.7 million increase in marketing costs and a $1.1 million increase in professional fees.
−Removed: Personnel costs increased due to an increase in sales and marketing personnel headcount by 9.8% from December 31, 2018 to December 31, 2019 and a $1.3 million increase in stock-based compensation expense in 2019 due to the vesting of restricted stock units granted to our co-founders.
−Removed: These restricted stock units vested in the three months ended March 31, 2019.
−Removed: Facility and overhead costs increased to support our personnel growth.
−Removed: Marketing costs increased due to increased costs for our annual user conference, Appian World, as well as a rise in marketing event sponsorship and attendance.
−Removed: Professional fees increased due to an increase in consulting fees to support our ongoing marketing events and activities.
−Removed: The adoption of ASC 606 resulted in a reduction of our sales and marketing expense by $4.6 million in 2019 compared to if we had capitalized and amortized our costs to obtain a contract in accordance with ASC 605.
+Added: Sales and marketing expense increased $12.9 million, or 11.0%, in 2020 compared to 2019, primarily due to a $17.6 million increase in sales and marketing personnel costs and a $2.3 million increase in professional fees, which were partially offset by a $6.7 million decrease in facility and overhead costs and a $0.4 million decrease in marketing costs.
+Added: Personnel costs increased due to an increase in sales and marketing personnel headcount of 10.4% from December 31, 2019 to December 31, 2020 and increased sales commissions driven by our subscriptions revenue growth, partially offset by a $1.9 million decrease in stock-based compensation expense.
+Added: Professional fees increased due to an increase in consulting fees and contract labor to support our growth.
+Added: Facility and overhead costs decreased due to lower travel and entertainment related expenses as a result of our shift to largely remote work in 2020.
+Added: Marketing costs decreased due to reduced costs incurred as a result of moving our
+Added: annual user conference, Appian World, to virtual-only as well as a reduction in the number of in-person marketing events held in 2020, partially offset by an increase in advertising expenses.
Research and Development Expense
3 unchanged sentences
% of revenue 23.1 % 22.3 %
−Removed: Research and development expense increased $13.3 million, or 29.8%, in 2019 compared to 2018, primarily due to a $10.2 million increase in research and development personnel costs, a $2.9 million increase in facility and overhead costs and a $0.2 million increase in professional fees.
−Removed: Personnel costs increased due to an increase in research and development personnel headcount by 34.4% from December 31, 2018 to December 31, 2019 and a $1.1 million increase in stock-based compensation expense in 2019 due to the vesting of restricted stock units granted to our co-founders.
−Removed: These restricted stock units vested in the three months ended March 31, 2019.
−Removed: Facility and overhead costs increased to support our personnel growth.
−Removed: Professional fees increased due to an increase in consulting fees to support the development and enhancement of our platform.
+Added: Research and development expense increased $12.2 million, or 21.0%, in 2020 compared to 2019, primarily due to a $13.1 million increase in research and development personnel costs, partially offset by a $0.5 million decrease in facility and overhead costs and a $0.3 million decrease in professional fees.
+Added: Personnel costs increased due to an increase in research and development personnel headcount of 14.8% from December 31, 2019 to December 31, 2020, partially offset by a $0.8 million decrease in stock-based compensation expense.
+Added: Facilities and overhead costs decreased due to non-recurring charges incurred in 2019 to support our personnel growth coupled with lower travel and entertainment related expenses as a result of our shift to largely remote work in 2020.
+Added: Professional fees decreased due to a decrease in consulting fees.
General and Administrative Expense
3 unchanged sentences
% of revenue 17.5 % 15.9 %
−Removed: General and administrative expense increased $3.7 million, or 9.7%, in 2019 compared to 2018, primarily due to a $1.7 million increase in professional fees, a $1.4 million increase in facility and overhead costs and a $0.6 million increase in general and administrative personnel costs.
−Removed: Facility and overhead costs increased to support our personnel growth.
−Removed: Professional fees increased due to the use of consulting services to support our back-office initiatives as well as increased legal costs.
−Removed: Personnel costs increased due to an increase in general and administrative personnel headcount by 23.8% from December 31, 2018 to December 31, 2019, offset by a $3.1 million decrease in stock-based compensation expense in 2019 due to the vesting of an option to purchase 1,828,080 shares of our Class A common stock in August 2018, resulting in $4.5 million of stock-based compensation expense.
−Removed: Other (Income) Expense, Net
−Removed: Year Ended December 31,
−Removed: (dollars in thousands)
−Removed: Other (income) expense, net (941) 2,295
−Removed: % of revenue (0.4) % 1.0 %
−Removed: Other (income) expense, net decreased by $3.2 million in 2019 compared to 2018, due to $0.2 million in foreign exchange loss in 2019 compared to $3.0 million in foreign exchange loss in 2018.
−Removed: The decrease in foreign exchange loss was primarily due to currency fluctuations of the British Pound Sterling, Euro, Australian dollar and Swiss Franc versus the U.S.
−Removed: dollar during 2019 compared to 2018.
−Removed: There was also a $0.6 million increase in interest income in 2019 compared to 2018, which was offset by a $0.1 million loss on the disposal of property and equipment in 2019 and a $0.1 million increase in other expenses in 2019 as compared to 2018.
−Removed: Interest Expense
−Removed: Year Ended December 31, % Change
−Removed: (dollars in thousands)
−Removed: Interest expense 367 198 85.4 %
−Removed: % of revenue 0.1 % 0.1 %
−Removed: Interest expense increased by $0.2 million in 2019 compared to 2018, primarily due to interest expense on the finance leases entered into during 2019 and an increase in commitment fees on the letter of credit to fund the security deposit required by the lease for our new headquarters.
−Removed: Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
−Removed: Year Ended December 31, % Change
−Removed: (dollars in thousands)
−Removed: Subscriptions $ 126,012 $ 91,514 37.7 %
−Removed: Professional services 100,731 85,223 18.2
−Removed: Total revenue $ 226,743 $ 176,737 28.3
−Removed: Total revenue increased $50.0 million, or 28.3%, in 2018 compared to 2017, due to an increase in our subscriptions revenue of $34.5 million and an increase in our professional services revenue of $15.5 million.
−Removed: The increase in subscriptions revenue was attributable to $28.2 million of revenue from expanded deployments and corresponding sales of additional subscriptions to existing customers, including a $4.4 million perpetual software license sold to a U.S.
−Removed: federal agency and $6.3 million in sales of subscriptions to new customers.
−Removed: The increase in professional services revenue was due to $3.2 million of additional revenue from existing customers and $12.3 million in sales to new customers.
−Removed: Cost of Revenue
−Removed: Year Ended December 31, % Change
−Removed: (dollars in thousands)
−Removed: Cost of revenue:
−Removed: Subscriptions $ 11,997 $ 9,379 27.9 %
−Removed: Professional services 72,928 55,218 32.1
−Removed: Total cost of revenue $ 84,925 $ 64,597 31.5
−Removed: Subscriptions gross margin 90.5 % 89.8 %
−Removed: Professional services gross margin 27.6 35.2
−Removed: Total gross margin 62.5 63.5
−Removed: Cost of revenue increased $20.3 million, or 31.5%, in 2018 compared to 2017, primarily due to a $9.8 million increase in contractor costs, a $6.5 million increase in professional services and product support personnel costs, a $1.7 million increase in billable expenses, a $1.2 million increase in facility and overhead costs and a $1.1 million increase in other cost of revenue.
−Removed: Contractor costs increased in 2018 compared to 2017 because of an increase in the usage of subcontractors for professional service engagements.
−Removed: Personnel costs increased due to an increase in professional services and product support staff personnel headcount of 21.4% from December 31, 2017 to December 31, 2018 and a $0.4 million increase in stock-based compensation expense in 2018.
−Removed: Billable expenses increased because we had more professional services engagements in 2018 as compared to 2017.
−Removed: The increase in other cost of revenue was due to increased hosting costs as sales of our cloud offering increased in 2018.
−Removed: Facility and overhead costs increased to support our personnel growth.
−Removed: Subscriptions gross margin increased to 90.5% in 2018 compared to 89.8% in 2017 primarily due to the sale of a $4.4 million perpetual software license sold to a U.S.
−Removed: federal agency and a $0.1 million decrease in stock-based compensation expense.
−Removed: Our subscriptions gross margin increased as there was minimal cost of revenue for our perpetual software revenue.
−Removed: Professional services gross margin decreased to 27.6% in 2018 compared to 35.2% in 2017 due to an increase in the usage of subcontractors for professional services engagements and the re-focusing of some professional services personnel to customer success managers.
−Removed: To a lesser degree, the gross margin of our professional services revenue in 2018 was also negatively impacted by a decrease in the utilization rate of professional services resources as compared to 2017 due to an increase in hiring.
−Removed: Due to the decrease in our professional services margin, gross margin decreased to 62.5% in 2018 compared to 63.5% in 2017.
−Removed: Sales and Marketing Expense
−Removed: Year Ended December 31, % Change
−Removed: (dollars in thousands)
−Removed: Sales and marketing $ 105,992 $ 81,966 29.3 %
−Removed: % of revenue 46.7 % 46.4 %
−Removed: Sales and marketing expense increased $24.0 million, or 29.3%, in 2018 compared to 2017, primarily due to a $16.6 million increase in sales and marketing personnel costs, a $4.7 million increase in facility and overhead costs, a $2.2 million increase in marketing costs and a $0.5 million increase in professional fees.
−Removed: Personnel costs increased due to an increase in sales and marketing personnel headcount by 19.5% from December 31, 2017 to December 31, 2018 and increased sales commissions driven primarily by our revenue growth in 2018.
−Removed: Facility and overhead costs increased to support our personnel growth.
−Removed: Marketing costs increased due to a rise in marketing event sponsorship and attendance, as well as an increase in advertising costs.
−Removed: Professional fees increased due to an increase in consulting fees to support our ongoing marketing events and activities.
−Removed: Research and Development Expense
−Removed: Year Ended December 31, % Change
−Removed: (dollars in thousands)
−Removed: Research and development $ 44,724 $ 34,835 28.4 %
−Removed: % of revenue 19.7 % 19.7 %
−Removed: Research and development expense increased $9.9 million, or 28.4%, in 2018 compared to 2017, primarily due to a $7.7 million increase in research and development personnel costs and a $2.0 million increase in facility and overhead costs and a $0.2 million increase in professional fees.
−Removed: Personnel costs increased due to an increase in research and development personnel headcount by 28.6% from December 31, 2017 to December 31, 2018, offset by a $0.4 million decrease in stock-based compensation expense during 2018.
−Removed: Facility and overhead costs increased to support our personnel growth.
−Removed: Professional fees increased due to an increase in consulting fees to support the development and enhancement of our platform.
−Removed: General and Administrative Expense
+Added: General and administrative expense increased $11.7 million, or 28.1%, in 2020 compared to 2019, primarily due to a $7.2 million increase in general and administrative personnel costs, a $3.0 million increase in professional fees, and a $1.5 million increase in facility and overhead costs.
+Added: Personnel costs increased due to an increase in general and administrative personnel headcount of 32.1% from December 31, 2019 to December 31, 2020 coupled with a $2.5 million increase in stock-based compensation expense in 2020, which was primarily attributable to a stock option to purchase 700,000 shares of our Class A common stock granted to our Chief Executive Officer in May 2019.
+Added: Professional fees increased due to increased legal fees.
+Added: Facility and overhead costs increased due to costs incurred to support our personnel growth, an increase in bad debt expense, and an increase in amortization expense stemming from our intangible assets which were acquired in 2020.
+Added: Other Income, Net
Year Ended December 31, % Change
(dollars in thousands)
−Removed: General and administrative expense $ 37,821 $ 27,150 39.3 %
−Removed: % of revenue 16.7 % 15.4 %
−Removed: General and administrative expense increased $10.7 million, or 39.3%, in 2018 compared to 2017, primarily due to a $6.5 million increase in general and administrative personnel costs, a $2.8 million increase in facility and overhead costs and a $1.4 million increase in professional fees.
−Removed: Personnel costs increased due to a $2.9 million increase in stock-based compensation expense in 2018 and an increase in general and administrative personnel headcount by 28.6% from December 31, 2017 to December 31, 2018 in order to support the additional requirements of being a public company.
−Removed: Stock-based compensation expense increased during 2018 due to the vesting of an option previously granted to our chief executive officer to purchase 1,828,080 shares of our Class A common stock in August 2018, resulting in a $2.9 million increase in stock-based compensation expense in 2018 as compared to 2017.
−Removed: Facility and overhead costs increased to support our personnel growth.
−Removed: Professional fees increased due to the use of consulting services to assist with the implementation of new software to support our back-office functions, legal costs incurred during the negotiation of the lease agreement for our new headquarters and additional costs incurred as a result of becoming a public company, offset by a decrease in legal costs after the completion of the secondary offering in November 2017.
−Removed: Other Expense (Income), Net
−Removed: Year Ended December 31,
−Removed: (dollars in thousands)
−Removed: Other expense (income) , net 2,295 (2,038)
+Added: Other income, net $ (5,786) $ (941) ***
% of revenue (1.9) % (0.4) %
−Removed: Other expense (income), net reflected a $4.3 million increase in expense in 2018 compared to 2017, primarily due to $3.0 million in foreign exchange loss in 2018 compared to $2.6 million in foreign exchange gain in 2017, offset by a $0.4 million loss on the extinguishment of debt and a $0.3 million fair value adjustment of the preferred stock warrant liability in 2017.
−Removed: There was also a $0.6 million increase in interest income in 2018 compared to 2017.
−Removed: The increase in foreign exchange loss was primarily due to currency fluctuations of the British Pound Sterling, Euro, Australian dollar and Swiss Franc versus the U.S.
−Removed: dollar during 2018 compared to 2017.
+Added: *** - Indicates a percentage that is not meaningful
+Added: Other income, net increased by $4.8 million in 2020 compared to 2019, primarily due to $4.3 million in foreign exchange gains in 2020 compared to $0.2 million in foreign exchange losses in 2019.
+Added: The increase in foreign exchange gains was primarily due to currency fluctuations of the Euro, Swedish krona, British pound sterling, and Swiss franc versus the U.S.
+Added: dollar in 2020 compared to the same period in 2019.
+Added: Additionally, we recognized $1.0 million of other income in 2020 due to a payment received from a state government as a result of our achievement of certain job creation and capital investment goals.
Interest Expense
3 unchanged sentences
% of revenue 0.2 % 0.1 %
−Removed: Interest expense decreased by $0.3 million in 2018 compared to 2017, primarily due to the repayment of our $20.0 million senior term loan in April 2017.
+Added: Interest expense increased by $0.1 million, or 30.2%, in 2020 compared to the same period in 2019, primarily due to commitment fees on the letter of credit outstanding.
+Added: Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
+Added: For a discussion and analysis of changes in financial condition and results of operations for the year ended December 31, 2019 as compared to the year ended December 31, 2018, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 20, 2020.
We have historically experienced seasonality in terms of when we enter into agreements with customers.
3 unchanged sentences
However, we recognize the majority of our subscriptions revenue ratably over the terms of our subscriptions agreements, which are generally one to three years in length.
−Removed: As a result, a substantial portion of the subscriptions revenue that we report in each period will be derived from the recognition of deferred revenue relating to agreements entered into during previous periods.
+Added: As a result, a substantial portion of the subscriptions revenue we report in each period will be derived from the recognition of deferred revenue relating to agreements entered into during previous periods.
Consequently, a decline in new sales or renewals in any one period may not be immediately reflected in our revenue results for that period.
This decline, however, will negatively affect our revenue in future periods.
−Removed: Accordingly, the effect of significant downturns in sales
−Removed: and market acceptance of our platform and potential changes in our rate of renewals may not be fully reflected in our results of
−Removed: operations until future periods.
−Removed: While we will continue to recognize the majority of our subscriptions revenue ratably over the terms of our subscription agreements, as a result of the adoption of ASC 606, we may experience greater variability and reduced comparability of our quarterly revenue and results with respect to the timing and nature of our term license subscription agreements due to the upfront revenue recognition.
−Removed: Backlog represents non-cancellable future amounts to be recognized under SaaS and term license subscription agreements.
−Removed: Our backlog is equivalent to our remaining performance obligations.
−Removed: As of December 31, 2019 and 2018, we had backlog of approximately $176 million and $230 million, respectively.
+Added: Accordingly, the effect of significant downturns in sales and market acceptance of our platform and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods.
+Added: While we will continue to recognize the majority of our subscriptions revenue ratably over the terms of our subscription agreements, we may experience greater variability and reduced comparability of our quarterly revenue and results with respect to the timing and nature of our term license subscription agreements due to the upfront revenue recognition.
+Added: Backlog represents non-cancellable future amounts to be recognized under SaaS and term license subscription agreements and is representative of our remaining performance obligations.
+Added: As of December 31, 2020 and 2019, we had backlog of $206.2 million and $176.0 million, respectively.
Approximately 32% of our backlog as of December 31, 2020 is not expected to be recognized in 2021.
−Removed: The decrease in backlog is due to the primarily upfront revenue recognition of our on-premises term license subscriptions under ASC 606 and the reduced contract lengths of our on-premises term license subscriptions.
−Removed: We expect that the amount of backlog relative to the total value of our contracts will change from quarter to quarter and year to year for several reasons, including the specific timing and duration of SaaS and term license subscription
−Removed: agreements with large customers, the specific timing of customer renewals, changes in customer financial circumstances and foreign currency fluctuations.
+Added: The increase in backlog is due to an increase in the number of multiple-year SaaS agreements entered into during 2020.
+Added: We expect the amount of backlog relative to the total value of our contracts will change from quarter to quarter and year to year for several reasons, including the specific timing and duration of SaaS and term license subscription agreements with large customers, the specific timing of customer renewals, changes in customer financial circumstances, and foreign currency fluctuations.
We often sign multiple-year SaaS subscription agreements.
Backlog may vary based on changes in the average non-cancellable term of SaaS and term license subscription agreements.
−Removed: The change in backlog that results from changes in the average non-cancellable term of SaaS and term license subscription agreements may not be an indicator of the likelihood of renewal or expected future revenue.
−Removed: Accordingly, we believe that fluctuations in backlog may not be a reliable indicator of future revenue, and we do not utilize backlog as a key management metric internally.
+Added: The change in backlog resulting from changes in the average non-cancellable term of SaaS and term license subscription agreements may not be an indicator of the likelihood of renewal or expected future revenue.
+Added: Accordingly, we believe fluctuations in backlog may not be a reliable indicator of future revenue, and we do not utilize backlog as a key management metric internally.
Liquidity and Capital Resources
−Removed: As of December 31, 2019, we had $159.8 million of cash and cash equivalents.
−Removed: On May 31, 2017, we completed our IPO, in which we sold 7,187,500 shares of our Class A common stock at an offering price of $12.00 per share, including 937,500 shares pursuant to the underwriters’ option to purchase additional shares of our Class A common stock, resulting in net proceeds of $77.8 million.
−Removed: In August 2018, we closed our sale of 1,675,000 shares of our Class A common stock in an underwritten public offering at an offering price to the public of $35.15 per share, resulting in net proceeds of $57.8 million.
−Removed: In September 2019, we closed our sale of 1,825,000 shares of our Class A common stock in an underwritten public offering at an offering price to the public of $55.70 per share, resulting in net proceeds of $101.3 million.
−Removed: We believe that our existing cash and cash equivalents, together with any positive cash flows from operations and available borrowings under our line of credit, will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months.
−Removed: Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, particularly internationally, and the introduction of new and enhanced products and functions, platform enhancements and professional services offerings, the level of market acceptance of our applications and spending on our new headquarters.
−Removed: In the event that additional financing is required from outside sources, we may be unable to raise the funds on acceptable terms, if at all.
−Removed: To the extent existing cash and cash equivalents and investments and cash from operations are not sufficient to fund future activities, we may need to raise additional funds.
+Added: The following table presents selected financial information and statistics as of and for the years ended December 31, 2020, 2019, and 2018 (in thousands):
+Added: As of December 31,
+Added: 2020 2019 2018
+Added: Cash and cash equivalents $ 112,462 $ 159,755 $ 94,930
+Added: Short-term investments and marketable securities 109,826 — —
+Added: Long-term investments 36,120 — —
+Added: Property and equipment, net 35,404 39,554 7,539
+Added: Working capital 209,532 165,381 81,225
+Added: Year Ended December 31,
+Added: 2020 2019 2018
+Added: Net cash used in operating activities $ (7,620) $ (8,926) $ (31,321)
+Added: Net cash used in investing activities (153,357) (32,421) (7,010)
+Added: Net cash provided by financing activities 110,468 105,549 60,962
+Added: As of December 31, 2020, we ha d $112.5 million of cash and cash equivalents and $109.8 million of short-term investments and marketable securities.
+Added: We believe our existing cash and cash equivalents and short-term investments and marketable securities, together with any positive cash flows from operations and available borrowings under our revolving line of credit, will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months.
+Added: Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, particularly internationally, the introduction of new and enhanced products and functions as well as platform enhancements and professional services offerings, the level of market acceptance of our applications, spending we may incur on our new headquarters, and the global economic uncertainty caused by the COVID-19 pandemic and its impact on financial market conditions and our business.
+Added: In the event additional financing is required from outside sources, we may be unable to raise the funds on acceptable terms, if at all.
+Added: To the extent existing cash and cash equivalents, short-term investments, and cash from operations are not sufficient to fund future activities, we may need to raise additional funds.
We may seek to raise additional funds through equity, equity-linked, or debt financings.
2 unchanged sentences
We recently have and in the future may enter into investments in, or acquisitions of, complementary businesses, products, or technologies, which could also require us to seek additional equity financing, incur indebtedness, or use cash resources.
+Added: We have no present binding agreements or commitments to enter into any such acquisitions.
If we are unable to raise additional capital when desired, our business, operating results, and financial condition could be adversely affected.
−Removed: The following table shows a summary of our cash flows for the years ended December 31, 2019, 2018 and 2017:
−Removed: Year Ended December 31,
−Removed: 2019 2018 2017
−Removed: (in thousands)
−Removed: Cash used in operating activities $ (8,926) $ (31,321) $ (9,128)
−Removed: Cash used in investing activities (32,421) (7,010) (433)
−Removed: Cash provided by financing activities 105,549 60,962 50,948
Sources of Funds
−Removed: We have financed our operations in large part with equity and debt financing arrangements, including net proceeds of $77.8 million from our initial public offering in May 2017, net proceeds of $57.8 million from our underwritten public offering in August 2018 and net proceeds of $101.3 million from our underwritten public offering in September 2019, as well as through sales of subscriptions and professional services and borrowings under our credit facilities.
−Removed: We also financed $3.7 million of office furniture and fixtures and $0.8 million of computer hardware, both associated with the build out of our new headquarters.
−Removed: 2017 Financing Facility
−Removed: In April 2017, we entered into a financing facility consisting of a $5.0 million senior revolving credit facility, a $20.0 million senior term loan and a $10.0 million subordinated term loan.
−Removed: In connection with the execution of this financing facility, our prior line of credit was terminated, and we borrowed the full $20.0 million available under the senior term loan and repaid the outstanding balance under our prior term loan.
−Removed: Additionally, in connection with the execution of this financing facility, the lender waived the prepayment fee associated with our prior line of credit.
−Removed: In June 2017, we used proceeds from our IPO to pay all remaining outstanding principal and interest under the senior term loan and subsequently terminated the senior term loan and subordinated term loan.
−Removed: This financing facility was terminated in November 2017 in connection with our entry into a new $20.0 million revolving line of credit.
−Removed: 2017 Revolving Line of Credit
−Removed: In November 2017, we entered into a $20.0 million revolving line of credit with a lender.
+Added: We have financed our operations in large part with equity and debt financing arrangements, specifically proceeds raised from our initial public offering in 2017 and subsequent underwritten public offerings as summarized in the table below (in thousands except share and per share information):
+Added: Shares Sold by Us Price per Share Proceeds to Us *
+Added: May 2017 initial public offering
+Added: 7,187,500 $ 12.00 $ 77,789
+Added: August 2018 public offering
+Added: 1,675,000 35.15 57,829
+Added: September 2019 public offering
+Added: 1,825,000 55.70 101,303
+Added: June 2020 public offering
+Added: 1,931,206 56.50 107,914
+Added: Total 12,618,706 $ 344,835
+Added: * Net of underwriting discounts and commissions and offering expenses
+Added: In addition, we have financed our operations through sales of subscriptions and professional services.
+Added: We also have the ability to draw upon a $20.0 million revolving line of credit which we entered into in November 2017.
The facility matures in November 2022.
−Removed: We may elect whether amounts drawn on the revolving line of credit bear interest at a floating rate per annum equal to either the LIBOR or the prime rate plus an additional interest rate margin that is determined by the availability of borrowings under the revolving line of credit.
+Added: We may elect whether amounts drawn on the revolving line of credit bear interest at a floating rate per annum equal to either the LIBOR or the Prime rate plus an additional interest rate margin determined by the availability of borrowings under the revolving line of credit.
The additional interest rate margin will range from 2.00% to 2.50% in the case of LIBOR advances and from 1.00% to 1.50% in the case of Prime rate advances.
The revolving line of credit contains an unused facility fee in an amount between 0.15% and 0.25% of the average unused portion of the revolving line of credit, which is payable quarterly.
−Removed: 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 1.0 and (ii) minimum adjusted EBITDA in the amounts and for the periods set forth in the agreement.
+Added: The agreement contains certain customary affirmative and negative covenants and requires us to maintain (i) an adjusted quick ratio of at least 1.35 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 December 31, 2020.
−Removed: As of December 31, 2019, we had not made any borrowings under this revolving line of credit and we had outstanding letters of credit totaling $10.5 million under the 2017 revolving line of credit in connection with securing our leased office space.
−Removed: Our principal uses of cash are funding operations and other working capital requirements.
+Added: As of December 31, 2020, we had not made any 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.
+Added: Uses of Funds
+Added: Our current principal uses of cash are funding operations and other working capital requirements.
+Added: More recently, we have utilized cash to pay for the acquisition of Novayre, which we believe is complementary to our business.
Over the past several years, revenue has increased significantly from year to year and, as a result, cash flows from customer collections have increased.
However, operating expenses have also increased as we have invested in growing our business.
−Removed: During 2018 and 2019, our uses of cash included the build out of our new headquarters, which we completed during the three months ended September 30, 2019.
−Removed: We spent approximately $21 million above the $18.4 million tenant improvement allowance provided by the landlord for the build out.
−Removed: This spend included $4.5 million of office furniture and fixtures and computer hardware that has been financed.
−Removed: For the year ended December 31, 2019, substantially all of the $32.4 million of cash used in investing activities was related to the build out.
+Added: Our uses of cash in 2020 included purchases of investments, the acquisition of Novayre, and modest capital expenditures while cash uses in 2019 and 2018 included the build out of our new headquarters, which included spending approximately $21.0 million above the $18.4 million tenant improvement allowance provided by the landlord for the build out, $4.5 million of which related to the financing of office furniture and fixtures and computer hardware.
+Added: With respect to future uses of funds, we expect to incur annual royalty fees of $0.3 million for the foreseeable future related to a non-cancellable agreement for the use of technology that is integral in the development of our software.
+Added: Additionally, we expect to incur capital expenditures in relation to the expanded occupancy of our headquarters which commenced in July 2020, although such expenditures do not represent capital commitments.
+Added: Furthermore, we are contractually obligated to make cash payments on our various operating leases through October 2031.
+Added: As of December 31, 2020, the amount of funds we expect to utilize over this time period for our lease commitments is approximately $99.0 million.
+Added: Refer to Note 13 for discussion on our commitments and contingencies and to Note 4 for further information related to our current lease portfolio.
Historical Cash Flows
1 unchanged sentence
For the year ended December 31, 2020, net cash used in operating activities of $7.6 million consisted of a net loss of $33.5 million, offset by $22.0 million in adjustments for non-cash items and $3.9 million of cash provided by changes in working capital.
+Added: Adjustments for non-cash items consisted primarily of stock-based compensation of $15.3 million, depreciation and amortization expense of $5.9 million, and bad debt expense of $1.0 million, offset by a provision for deferred income taxes of $0.2 million.
+Added: The increase in cash and cash equivalents resulting from changes in working capital primarily consisted of a $27.6 million increase in deferred revenue as a result of increased subscription sales, an $11.8 million increase in accrued compensation and related benefits as a result of higher employee benefit accruals such as vacation and bonuses, a $3.7 million increase in other liabilities due to the deferral of social security tax payments pursuant to the provisions of the CARES Act and
+Added: a contract liability arising from a three year deal that included a termination for convenience clause, a $3.7 million decrease in prepaid expenses and other assets attributable to timing, and a $3.4 million increase in operating lease liabilities as a result of recognizing a new right-of-use liability related to the expanded occupancy of our headquarters building.
+Added: The increase to working capital was partially offset by a $33.6 million increase in accounts receivable stemming from increased sales as well as the timing of billings and collections, an $8.6 million increase in deferred commissions due to increased sales activity, and a $4.2 million decrease in accounts payable and accrued expenses due to the timing of payments.
+Added: For the year ended December 31, 2019, net cash used in operating activities of $8.9 million consisted of a net loss of $50.7 million, offset by $21.1 million in adjustments for non-cash items and $20.7 million of cash provided by changes in working capital.
Adjustments for non-cash items consisted of stock-based compensation of $16.4 million, depreciation and amortization expense of $4.7 million, a loss on disposal of equipment of $0.1 million, and bad debt expense of $0.1 million, offset by a provision for deferred income taxes of $0.3 million.
10 unchanged sentences
There was also a $4.0 million decrease in accounts payable and accrued expenses, primarily due to the timing of payments and a $3.1 million decrease in accrued compensation and related benefits, primarily due to a decrease in accrued vacation expense because of our new paid-time off policy, which took effect on January 1, 2019.
−Removed: For the year ended December 31, 2018, net cash used in operating activities of $31.3 million consisted of a net loss of $49.5 million, offset by $18.1 million in adjustments for non-cash items and $0.1 million of cash provided by changes in working capital.
−Removed: Adjustments for non-cash items consisted of stock-based compensation of $16.1 million, depreciation and amortization expense of $2.0 million and bad debt expense of $0.2 million, offset by a provision for deferred income taxes of
−Removed: $0.2 million.
−Removed: The increase in cash and cash equivalents resulting from changes in working capital primarily consisted of a $23.0 million increase in deferred revenue, as a result of increased subscription sales.
−Removed: There was also a $7.5 million increase in accounts payable and accrued expenses, primarily due to the timing of payments and a $1.8 million increase in other current liabilities due to the commencement of the lease for our new headquarters.
−Removed: The increases were partially offset by a $23.3 million increase in accounts receivable due to increased sales in 2018 as well as the timing of billings and collections.
−Removed: There was also a $7.6 million increase in deferred commissions due to increased sales, a $1.0 million increase in prepaid expenses and other assets and a $0.3 million decrease in deferred rent, non-current.
−Removed: For the year ended December 31, 2017, net cash used in operating activities of $9.1 million consisted of a net loss of $31.0 million, offset by $14.4 million in adjustments for non-cash items and $7.5 million of cash provided by changes in working capital.
−Removed: Adjustments for non-cash items consisted of stock-based compensation of $13.0 million, depreciation and amortization expense of $0.9 million, loss on extinguishment of debt of $0.4 million and fair value adjustment for the warrant liability of $0.3 million, offset by a provision for deferred income taxes of $0.2 million.
−Removed: The increase in cash and cash equivalents resulting from changes in working capital primarily consisted of an increase in deferred revenue of $18.3 million, as a result of increased subscription sales, a $4.1 million increase in accounts payable and accrued expenses and a $2.4 million increase in accrued compensation and related benefits, primarily due to the timing of year-end bonus payments.
−Removed: This increase was partially offset by a $9.7 million increase in accounts receivable, primarily due to the timing of billings, a $4.2 million increase in prepaid expenses and other assets and a $3.5 million increase in deferred commissions due to increased sales.
Investing Activities
−Removed: For the year ended December 31, 2019, net cash used in investing activities was $32.4 million, related to the build-out of our new headquarters and the purchase of property and equipment.
−Removed: For the year ended December 31, 2018, net cash used in investing activities was $7.0 million, related to the build-out of our new headquarters and the purchase of property and equipment.
−Removed: For the year ended December 31, 2017, net cash used in investing activities was $0.4 million, related to the purchase of property and equipment.
+Added: For the year ended December 31, 2020, net cash used in investing activities was $153.4 million, which was primarily the result of $146.0 million in purchases of investments and $6.1 million in payments, net of cash acquired, related to the acquisition of Novayre.
+Added: In addition, there were approximately $1.3 million in purchases of property and equipment.
+Added: For the year ended December 31, 2019, net cash used in investing activities was $32.4 million which was related to the build-out of our new headquarters and the purchase of property and equipment.
Financing Activities
For the year ended December 31, 2020, net cash provided by financing activities was $110.5 million, consisting of $108.3 million in proceeds from our underwritten public offering, net of underwriting discounts and commissions, and $6.4 million in proceeds received from stock option exercises.
−Removed: These increases were offset by the principal payments on finance lease obligations of $0.7 million and payment of public offering costs of $0.3 million.
+Added: These increases were offset by principal payments on finance lease obligations of $3.8 million and payment of public offering costs of $0.3 million.
For the year ended December 31, 2019, net cash provided by financing activities was $105.5 million, consisting of $101.7 million in proceeds from our underwritten public offering, net of underwriting discounts and commissions, and $4.9 million in proceeds received from stock option exercises.
−Removed: These increases were offset by the payment of public offering costs of $0.4 million.
−Removed: For the year ended December 31, 2017, net cash provided by financing activities was $50.9 million, consisting of $80.2 million in proceeds from our IPO, net of underwriting discounts, $19.6 million in proceeds from the issuance of long-term debt, net of issuance costs and $1.1 million in proceeds received from stock option exercises.
−Removed: These increases were offset by the repayment of $40.0 million of long-term debt, a $7.6 million dividend payment to the Series A preferred stockholders and the payment of deferred IPO costs of $2.4 million.
−Removed: Contractual Obligations and Commitments
−Removed: The following table summarizes our commitments to settle contractual obligations as of December 31, 2019:
−Removed: Payments Due By Period
−Removed: Total Less than 1 Year 1 to 3 Years 3 to 5 Years More than 5 Years
−Removed: (in thousands)
−Removed: Operating lease obligations $ 90,026 $ 3,781 $ 13,903 $ 14,458 $ 57,884
−Removed: Finance lease obligations 4,099 1,620 2,479 — —
−Removed: Purchase obligations (1)
−Removed: 1,650 330 660 660 —
−Removed: Total contractual obligations $ 95,775 $ 5,731 $ 17,042 $ 15,118 $ 57,884
−Removed: (1) We have annual royalty fees of $0.3 million for a non-cancellable agreement for the use of technology that is integral in
−Removed: the development of our software.
−Removed: No amounts were included in the "More than 5 Years" column as this agreement is perpetual and will be required as long as we continue to use the technology.
−Removed: The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts.
−Removed: The table does not include obligations under agreements that we can cancel without a significant penalty.
−Removed: As of December 31, 2019, we had not made any borrowings under our $20.0 million revolving line of credit.
−Removed: The Company entered into a Second Amendment to Deed of Lease, or the Lease Second Amendment, with Tamares 7950 Owner LLC, or the Landlord, effective as of January 1, 2020.
−Removed: The Lease Second Amendment modified the Deed of Lease dated as of April 17, 2018, as amended on December 23, 2019, between the Company and Landlord, or the Lease, for the Company’s headquarters in Tysons, Virginia.
−Removed: Under the Lease Second Amendment, the Company exercised an option to expand its lease to the fourth floor of the North Tower, or the Fourth Floor, adding approximately 34,158 square feet to the premises.
−Removed: The Company will commence occupancy of the Fourth Floor on the sooner of the completion of certain improvements to the Fourth Floor and October 14, 2020.
−Removed: The monthly base rent for the Fourth Floor will be $87,388 for the first 27 months of the lease term, subject to periodic increases thereafter.
+Added: These increases were offset by principal payments on finance lease obligations of $0.7 million and payment of public offering costs of $0.4 million.
+Added: For a discussion and analysis of net cash used in or provided by operating, investing, and financing activities for the year ended December 31, 2018, refer to our 2019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on February 20, 2020.
Off-Balance Sheet Arrangements
2 unchanged sentences
In addition, we do not engage in trading activities involving non-exchange traded contracts.
−Removed: We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
−Removed: Critical Accounting Policies and Estimates
−Removed: We believe that the following accounting policies involve a high degree of judgment and complexity.
−Removed: Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations.
−Removed: See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a description of our other significant accounting policies.
+Added: As a result, we believe we are not materially exposed to any financing, liquidity, market, or credit risks that could arise if we had engaged in these relationships.
+Added: Critical Accounting Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S.
requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes.
−Removed: Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.
−Removed: Significant estimates embedded in the consolidated financial statements for the period presented include revenue recognition, stock-based compensation and income taxes.
+Added: Although we believe the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.
+Added: We believe the following accounting estimates involve a high degree of judgment and complexity.
+Added: Accordingly, these are the estimates we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations.
+Added: See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a description of our other significant accounting policies and estimates.
Revenue Recognition
1 unchanged sentence
We generate professional services revenue from fees for our consulting services, including application development and deployment assistance and training related to our platform.
−Removed: We adopted ASC 606 on January 1, 2019 using the modified retrospective method.
−Removed: 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.
−Removed: Comparative periods were not adjusted.
−Removed: Because we were an “emerging growth company” until December 31, 2019, the JOBS Act allowed us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.
−Removed: We elected to use this extended transition period that allowed us not to adopt ASC 606 in our Quarterly Reports on Form 10-Q during 2019.
−Removed: The 2019 selected quarterly information in Note 14 of our consolidated financial statements have been recast in accordance with ASC 606.
−Removed: Performance Obligations and Timing of Revenue Recognition
−Removed: We primarily sell products and services that fall into the categories discussed below.
−Removed: Each category contains one or more performance obligations that are either (1) capable of being distinct (i.e.
−Removed: 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
−Removed: within the context of the contract (i.e.
−Removed: 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.
−Removed: Our term license subscriptions are delivered at a point in time.
−Removed: Our SaaS subscriptions, maintenance and support and professional services are delivered over time.
−Removed: Subscriptions Revenue
−Removed: 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.
−Removed: We generally charge subscription fees on a per-user basis and, to a lesser degree, non-user based single application licenses.
−Removed: We bill customers and collect payment for subscriptions to our platform in advance on an annual, quarterly or monthly basis.
−Removed: In certain instances, our customers have paid their entire contract up front.
−Removed: SaaS Subscriptions
−Removed: 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.
−Removed: We perform all required maintenance and support for our cloud offering and we do not separately charge customers for hosting costs.
−Removed: Revenue is recognized on a ratable basis over the contract term beginning on the date the service is made available to the customer.
−Removed: Our cloud-based subscription contracts generally have a term of one to three years in length.
−Removed: We bill customers and collect payment for subscriptions to our platform in advance and they are non-cancellable.
−Removed: Term License Subscriptions
−Removed: Our term license subscription revenue is derived from customers with on-premises installations of our platform pursuant to contracts that were historically one to three years in length.
−Removed: The majority of recent contracts are one year in length.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Maintenance and Support
−Removed: 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.
−Removed: 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.
−Removed: Professional Services
−Removed: Our professional services revenue is comprised of fees for consulting services, including application development and deployment assistance and training services related to our platform.
−Removed: Our professional services are considered distinct performance obligations when sold stand alone or with other products.
−Removed: Consulting Services
−Removed: We sell consulting services to assist customers plan and execute deployment of our software.
−Removed: Customers are not required to use consulting services to fully benefit from the software.
−Removed: Consulting services are regularly sold on a standalone basis and either (1) a fixed-fee arrangement or (2) a time and materials basis.
−Removed: 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.
−Removed: Revenue under consulting contracts is recognized over time as services are delivered.
−Removed: 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.
−Removed: Training Services
−Removed: We sell various training services to our customers.
−Removed: Training services are sold in the form of prepaid training credits that are redeemed based on a fixed rate per course.
−Removed: Training revenue is recognized when the associated training services are delivered.
−Removed: Significant Judgments and Estimates
−Removed: Determine the Transaction Price
−Removed: The transaction price includes both fixed and variable consideration.
−Removed: Variable consideration is included in the transaction price to the extent it is probable that a significant reversal will not occur.
+Added: Significant judgments and estimates inherent in our revenue recognition are as follows:
+Added: Determining the Transaction Price
+Added: The transaction price, or the amount of consideration we expect to be entitled to receive in exchange for transferring services to our customers, includes both fixed and variable components.
+Added: The variable components of our contracts, which have been nominal to date, include performance penalties, extended payment terms or implied price concessions, and warranty refunds.
+Added: If necessary, we estimate these components using the expected value method, which estimates variable consideration as the sum of probability-weighted amounts in a range of possible consideration amounts.
+Added: We believe this method is the most appropriate to utilize because our variable components could vary by contract, leading to multiple potential outcomes.
+Added: Our variable consideration estimates are subject to subsequent true-up adjustments which may result in changes to transaction prices, but such true-up adjustments are not expected to be material.
+Added: Variable consideration is also included in the transaction price only to the extent it is probable a significant reversal will not occur.
+Added: Factors considered when determining to incorporate variable consideration in the transaction price include, but are not limited to, whether the variable consideration is highly susceptible to factors outside of the company's influence, the length of time the uncertainty surrounding reversal is expected to last, our experience levels with similar types of contracts, our historical practices for similar contracts in similar circumstances, and the number and range of possible consideration amounts.
The amount of variable consideration excluded from the transaction price for the year ended December 31, 2020 was insignificant.
−Removed: Our estimates of variable consideration are also subject to subsequent true-up adjustments and may result in changes to its transaction prices but such true-up adjustments are not expected to be material.
Allocating the Transaction Price Based on Standalone Selling Prices
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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.
−Removed: We have concluded that the residual approach to estimate SSP of our SaaS subscriptions is an appropriate allocation of the transaction price.
−Removed: 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.
−Removed: Maintenance and support is sold on a standalone basis, with renewals of our legacy perpetual software licenses, within a narrow range of the net license fee and because an economic relationship exists between the license and maintenance and support, we have concluded that the residual approach to estimate SSP of term license subscriptions is an appropriate allocation of the transaction price.
−Removed: 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.
−Removed: 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.
−Removed: Legacy Revenue Accounting Policy
−Removed: For periods prior to January 1, 2019, revenue was recognized in accordance with ASC 605.
−Removed: Under ASC 605, we recognize revenue when all of the following conditions are met:
−Removed: (1) there is persuasive evidence of an arrangement;
−Removed: (2) the service or product has been provided to the customer;
−Removed: (3) the amount of fees to be paid by the customer is fixed or determinable;
−Removed: and (4) the collection of related fees is reasonably assured.
−Removed: If collection is not reasonably assured, we defer revenue recognition until collectability becomes reasonably assured.
−Removed: Our arrangements do not contain rights of return.
−Removed: Subscriptions Revenue
−Removed: 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.
−Removed: We generally charge subscription fees on a per-user basis, or alternatively, non-user based single application licenses.
−Removed: We bill customers and collect payment for subscriptions to our platform in advance on a monthly, quarterly or annual basis.
−Removed: In certain instances, our customers have paid their entire contract up front.
−Removed: SaaS Subscriptions
−Removed: Our SaaS subscription revenue is derived from customers accessing our cloud offering pursuant to contracts that are generally one to three years in length.
−Removed: We perform all required maintenance and support for our cloud offering and we do not separately charge customers for hosting costs.
−Removed: In these arrangements, our customers do not have the right to take the software on-premises and, as a result, such arrangements are not accounted for within the scope of the software revenue guidance.
−Removed: Revenue from SaaS subscriptions is recognized ratably over the term of the subscription, beginning with the date our service is made available to our customer.
−Removed: Term License Subscriptions
−Removed: Our term license subscription revenue is derived from customers with on-premises installations of our platform pursuant to contracts that were historically one to three years in length.
−Removed: The majority of recent contracts are one year in length.
−Removed: Customers with term license subscriptions have the right to use our software and receive maintenance and support.
−Removed: Since we do not sell maintenance and support separately from the subscription, revenue for the term license subscription and maintenance and support is recognized ratably over the term of the subscription, upon delivery of the platform to the customer when sold on a standalone basis.
−Removed: Professional Services
−Removed: Our professional services revenue is comprised of fees for consulting services, including application development and deployment assistance and training related to our platform.
−Removed: Our professional services are not essential to the functionality of our platform because the platform is ready for the customer’s use immediately upon delivery and is not modified or customized in any manner.
−Removed: Consulting services are billed under both time-and-material and fixed-fee arrangements.
−Removed: For standalone time-and-material contracts, we recognize revenue at contractually agreed upon billing rates applied to hours performed.
−Removed: For standalone fixed-fee contracts, we also recognize revenue as the work is performed using the proportional performance method of accounting.
−Removed: Training revenue is recognized when the associated training services are delivered.
−Removed: Training is sold in the form of prepaid training credits that are redeemed based on a fixed rate per course.
−Removed: We defer recognition of revenue from work performed on pending contract modifications until the period in which the modifications are accepted and funding is approved by the customer.
−Removed: Costs of work performed on pending contract modifications are expensed as incurred.
−Removed: Multiple Element Arrangements
−Removed: Our multiple element arrangements are from SaaS subscriptions and term license subscriptions that are generally sold in combination with maintenance and support service and frequently with professional services.
−Removed: SaaS Subscriptions
−Removed: For multiple element arrangements involving SaaS subscriptions that include professional services in addition to the subscription to our platform, we evaluate each element to determine whether it represents a separate unit of accounting.
−Removed: Because there are third-party vendors who routinely sell and provide the same professional services to our customers, our professional services are deemed to have standalone value apart from the SaaS subscription.
−Removed: Additionally, we offer both SaaS subscriptions and professional services on a standalone basis.
−Removed: Professional services revenue is therefore accounted for separately from subscription fees and recognized as the professional services are performed.
−Removed: We allocate revenue to the elements based on the selling price hierarchy using vendor-specific objective evidence, or VSOE, of selling price, third-party evidence, or TPE, of selling price, or if neither exists, best estimated selling price, or BESP.
−Removed: In cases where we do not have VSOE or TPE of the elements of our arrangements, we use BESP to allocate revenue.
−Removed: We determine BESP for a service by considering multiple factors including, but not limited to, evaluating the weighted average of actual sales prices and other factors such as gross margin objectives, pricing practices and growth strategy.
−Removed: Pricing practices taken into consideration include historic contractually stated prices, volume discounts where applicable and our price lists.
−Removed: While we believe we can make reliable estimates regarding these matters, these estimates are inherently subjective.
−Removed: Once the revenue is allocated to these elements, revenue is recognized as such services are provided.
−Removed: Term License Subscriptions
−Removed: For multiple element arrangements involving term license subscriptions, maintenance and support and professional services, we do not have VSOE of fair value for the maintenance and support.
−Removed: Our term license subscriptions are generally not sold on a standalone basis, and therefore, we have not established VSOE of fair value for the subscriptions.
−Removed: Consequently, for
−Removed: our bundled arrangements that include certain professional services, there are two undelivered elements for which VSOE of fair value has not been established and, therefore, we utilize the combined services approach and defer all revenue until the software has been delivered and the provision of all services has commenced.
−Removed: We then recognize the entire fee from the arrangement ratably over the remaining period of the arrangement, assuming all other software revenue recognition criteria have been met.
−Removed: Assets Recognized from the Costs to Obtain a Contract with a Customer
−Removed: 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.
−Removed: These costs are recorded as deferred commissions in the consolidated balance sheets.
−Removed: Costs to obtain a contract for a new customer or up-sell 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.
−Removed: We determined the estimated economic life based on both qualitative and quantitative factors, such as expected renewals, product life cycles, contractual terms and customer attrition.
−Removed: 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.
−Removed: Commissions paid relating to contract renewals are deferred and amortized on a straight-line basis over the related renewal period.
−Removed: We also capitalize the incremental fringe benefits associated with commission expenses paid to our direct sales force.
−Removed: Costs to obtain a contract for professional services arrangements are expensed as incurred in accordance with the practical expedient as the contractual period of our professional services arrangements are one year or less.
−Removed: Amortization expense associated with commission expense is recorded to sales and marketing costs in our consolidated statements of operations.
−Removed: For the periods prior to January 1, 2019, under ASC 605, deferred commissions are the incremental costs that are directly associated with subscription agreements with customers and consist of sales commissions paid to our direct sales force.
−Removed: Commissions are considered direct and incremental and as such are deferred and amortized over the terms of the related customer contracts consistent with the related revenue.
+Added: Term license subscriptions - Given the highly variable selling price of our term license subscriptions, we have established the SSP of term license subscriptions using a residual approach after first determining the SSP of
+Added: maintenance and support.
+Added: Maintenance and support is sold on a standalone basis with renewals of our legacy perpetual software licenses and within a narrow range of the net license fee, resulting in a defined economic relationship existing between the license and maintenance and support.
+Added: Maintenance and support - We establish the SSP of maintenance and support as a percentage of the stated net subscription fee based on observable pricing of maintenance and support renewals from our legacy perpetual software licenses.
+Added: Consulting services and training services - The 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.
Stock-Based Compensation
−Removed: We measure and recognize compensation expense for all stock options and restricted stock units, or RSUs, based on the estimated fair value of the award on the grant date.
−Removed: The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective award, on a straight-line basis when the only condition to vesting is continued service.
−Removed: For performance-based awards, stock-based compensation expense is recognized using the accelerated attribution method, based on the probability of satisfying the performance condition.
−Removed: 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.
−Removed: We account for forfeitures as they occur, rather than estimating expected forfeitures.
−Removed: We estimate the fair value of stock options 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.
−Removed: The expected term represents the period of time the stock options are expected to be outstanding.
−Removed: 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 its stock options.
+Added: We measure and recognize compensation expense for all instrument types, including stock options, awards with market conditions, and restricted stock units, or RSUs, based on the estimated fair value of the award on the grant date.
+Added: The methods for determining fair value vary by instrument type.
+Added: For the vast majority of our stock options, we estimate fair value using the Black-Scholes Option Pricing Model.
+Added: For the option to purchase 700,000 shares of our Class A common stock granted to our Chief Executive Officer in May 2019, we estimated fair value using a Monte Carlo simulation because the award contains a market condition.
+Added: Both valuation methods require the use of subjective assumptions, including but not limited to, the following:
+Added: The expected term of the option - The expected term represents the period of time the stock options are expected to be outstanding.
+Added: 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.
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.
−Removed: Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected term of the stock options.
−Removed: We assume no dividend yield because dividends on our common stock are not expected to be paid in the near future, which is consistent with our history of not paying dividends on our common stock.
−Removed: The fair value of RSUs is based on the closing market price of our common stock on the Nasdaq Global Market on the date of grant.
+Added: Current trading price - The current price of our stock is based on the closing market price of our Class A common stock as quoted on the Nasdaq Global Market on the date of grant.
+Added: The expected stock price volatility - Expected volatility is based on historical volatilities of our publicly traded stock as well as the publicly traded stock of comparable companies within our industry over the estimated expected term of the stock options.
+Added: Expected volatility is sensitive to market- and company-specific conditions which may cause our stock price or the stock prices of our peers to fluctuate.
+Added: Furthermore, expected volatility can be impacted by the companies we select as peers for inclusion in the analysis.
+Added: Expected dividend yield - We assume no dividend yield because dividends on our common stock are not expected to be paid in the near future, which is consistent with our history of not paying dividends on our common stock.
+Added: The risk-free interest rate - We utilize the yields of U.S.
+Added: government securities, typically U.S.
+Added: Treasury bonds, that have maturities commensurate with the expected term of the options.
+Added: The fair value of RSUs is based on the closing market price of our Class A common stock as quoted on the Nasdaq Global Market on the date of grant.
We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis.
As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.
−Removed: Prior to our IPO in May 2017, we were a private company with no active public market for our common stock.
−Removed: Therefore, in response to Section 409A of the Internal Revenue Code of 1986, as amended, related regulations issued by the Internal Revenue Service and accounting standards related to stock-based compensation, we periodically determined for
−Removed: financial reporting purposes the estimated per share fair value of our common stock at various dates using contemporaneous valuations performed in accordance with guidance outlined in the American Institute of Certified Public Accountants Practice Aid, “Valuation of Privately-Held Company Equity Securities Issued as Compensation.”
−Removed: Following our IPO, we established a policy of using the closing sale price per share of our Class A common stock as quoted on the Nasdaq Global Market on the date of grant for purposes of determining the exercise price per share of our options to purchase common stock.
−Removed: We use the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed.
−Removed: We recognize the effect on deferred tax assets and liabilities of a change in tax rates as income and expense in the period that includes the enactment date.
−Removed: A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized.
+Added: We establish a valuation allowance against our deferred tax
+Added: assets to the extent it is more likely than not that some or all of the deferred tax assets will not be realized.
+Added: This requires us to make judgments and estimates regarding future reversals of existing taxable temporary differences, future taxable income, and the impact of tax planning strategies.
Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world.
−Removed: We recognize the tax benefit of an uncertain tax position only if it is more likely than not the position is sustainable upon examination by the taxing authority.
+Added: We recognize the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority.
We measure the tax benefit recognized as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority.
−Removed: We recognize penalties and interest related to unrecognized tax benefits as income tax expense.
+Added: This determination involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws.
We calculate the current and deferred income tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years and record adjustments based on filed income tax returns when identified.
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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.