What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-18 compared with 2020-02-20 · 507 added, 795 removed, 505 unchanged (72% of the section changed)

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Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm - Opinion on Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm - Opinion on Internal Controls over Financial Reporting

Consolidated Balance Sheets

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

The Board of Directors and Shareholders

Appian Corporation

Tysons, Virginia

McLean, Virginia

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Appian Corporation (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Appian Corporation (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 , in conformity with accounting principles generally accepted in the United States of America.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition for Multiple Performance Obligations

As discussed in Note 3 to the consolidated financial statements, certain of the Company's revenue contracts contain multiple performance obligations that might include Software as a Service (“SaaS”) subscriptions, term license subscriptions, maintenance and support and professional services.

The Company accounts for individual products and services separately if they are capable of being distinct and distinct within the context of the contract.

The Company accounts for individual products and services separately if they are capable of being distinct and are distinct within the context of the contract.

In such cases, the transaction price is allocated to the distinct performance obligations based on their relative standalone selling price or residual approach and revenue is recognized when control of the distinct performance obligation is transferred.

We identified the determination of distinct performance obligations, standalone selling prices and use of the residual approach to estimate standalone selling price for SaaS and term license subscriptions as a critical audit matter.

Auditing these elements of revenue recognition involved especially challenging and subjective auditor judgment due to the nature and extent of audit effort required to address these matters.

We identified the identification of distinct performance obligations and the determination of standalone selling prices as a critical audit matter.

Auditing these elements of revenue recognition was especially challenging due to the significant judgment involved in assessing the completeness of the distinct performance obligations in arrangements containing multiple performance obligations.

In addition, the evaluation of the reasonableness of the range of prices used to establish the standalone selling price for maintenance and support and professional services was complex, which directly affects the amount of SaaS and term license subscriptions revenue recognized using the residual approach.

The primary procedures we performed to address this critical audit matter included:

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• Evaluating the reasonableness of management’s analysis supporting the standalone selling prices by tracing, on a sample basis, revenue transactions to the underlying source documents and recalculating the mathematical accuracy of the analysis.

• Testing the reasonableness of management’s use of the residual method to determine standalone selling price for SaaS and term license subscriptions.

Adoption of Topic ASC 606 Revenue from Contracts with Customers

As discussed in Note 2 to the consolidated financial statements, the Company adopted Accounting Standards Update (‘ASU’) No.

2014-09, Revenue from Contracts with Customers (“ASC 606”) on January 1, 2019 using the modified retrospective method and recorded an adjustment of $60.9 million to accumulated deficit on the date of adoption.

We identified the adoption of ASC 606 as a critical audit matter.

The Company’s processes related to the adoption of ASC 606 included complex management’s judgments related to the following:

(i) evaluating the new accounting standard and establishing new policies and practices, (ii) identifying and evaluating completeness and accuracy of relevant historical data for open contracts at the date of adoption, and (iii) analyzing various revenue contracts and identifying distinct performance obligations, determining standalone selling prices and residual approach to estimate standalone selling price for SaaS and term license subscriptions.

Auditing the Company’s adoption was challenging and complex due to the effort required to analyze the effect of ASC 606 on the Company’s significant number of open revenue contracts.

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of internal controls specific to the adoption of ASU 606 including controls over:

(i) evaluating the impact of the new accounting standard, (ii) evaluating the completeness and accuracy of relevant historical data for open contracts at the date of adoption, and (iii) assessing results and recording the impact of the adoption.

• Evaluating management’s accounting policies and practices, including the reasonableness of management’s judgments and assumptions related to the determination of distinct performance obligations and standalone selling price by testing a sample of revenue contracts.

• Testing the mathematical accuracy of the Company’s calculation of the cumulative effect of adoption.

• Utilizing personnel with specialized knowledge and skill to assist in evaluating the technical merits of management’s accounting policies used as a basis of management’s ASC 606 adoption.

• Testing the reasonableness of management’s use of the residual method to determine standalone selling price for SaaS and term license subscriptions.

/s/ BDO USA, LLP

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

The Board of Directors and Shareholders

Appian Corporation

Tysons, Virginia

McLean, Virginia

Opinion on Internal Control over Financial Reporting

We have audited Appian Corporation’s (the “Company”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

We have audited Appian Corporation’s (the “Company’s”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated February 20, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated February 18, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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(in thousands, except share and per share data)

December 31, 2019 December 31, 2018

As of December 31,

Current assets

Cash and cash equivalents $ 112,462 $ 159,755

Accounts receivable, net of allowance of $ 600 at December 31, 2019 and 2018

Short-term investments and marketable securities 109,826 —

Accounts receivable, net of allowance of $ 1,400 and $ 600 as of December 31, 2020 and December 31, 2019, respectively

97,278 70,408

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Property and equipment, net 35,404 39,554

Operating right-of-use asset 24,205 —

Long-term investments 36,120 —

Goodwill 4,862 —

Intangible assets, net of accumulated amortization of $ 429 as of December 31, 2020

Operating right-of-use assets 30,659 24,205

Deferred commissions, net of current portion 34,198 28,979

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Deferred revenue, current 116,256 82,201

Operating lease liability, current 3,836 —

Finance lease liability, current 1,447 — —

Operating lease liabilities, current 6,923 3,836

Finance lease liabilities, current — 1,447

Other current liabilities 940 1,395

Total current liabilities 155,888 112,280

Operating lease liability, net of current portion 44,416 —

Finance lease liability, net of current portion 2,375 —

Operating lease liabilities, net of current portion 51,194 44,416

Finance lease liabilities, net of current portion — 2,375

Deferred revenue, net of current portion 3,886 7,139

Deferred tax liabilities 70 38

Deferred rent, net of current portion — 15,400

Other non-current liabilities 4,878 —

Total liabilities 215,916 166,248

Commitments and contingent liabilities (see Notes 4 and 13)

Stockholders’ equity

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Additional paid-in capital 470,498 340,929

Accumulated other comprehensive (loss) income ( 285 ) 542

Accumulated other comprehensive loss ( 5,010 ) ( 285 )

Accumulated deficit ( 168,890 ) ( 135,413 )

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Net loss $ ( 33,477 ) $ ( 50,714 ) $ ( 49,451 )

Accretion of dividends on convertible preferred stock — — 357

Net loss attributable to common stockholders $ ( 50,714 ) $ ( 49,451 ) $ ( 31,364 )

Net loss per share attributable to common stockholders:

Net loss per share:

Basic and diluted $ ( 0.48 ) $ ( 0.77 ) $ ( 0.80 )

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Net loss $ ( 33,477 ) $ ( 50,714 ) $ ( 49,451 )

Comprehensive loss, net of income taxes:

Comprehensive income (loss), net of income taxes:

Foreign currency translation adjustment ( 4,703 ) ( 827 ) 103

Unrealized losses on available-for-sale securities ( 22 ) — —

Total other comprehensive loss, net of income taxes $ ( 38,202 ) $ ( 51,541 ) $ ( 49,348 )

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(in thousands, except share data)

Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity (Deficit)

Common Stock Additional

Paid-In Capital

Accumulated Deficit

Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity

Shares Amount

Balance, December 31, 2017

Net loss — — — — ( 31,007 ) ( 31,007 )

Accretion of dividends on convertible preferred stock

60,599,877 $ 6 $ 141,268 $ 439 $ ( 96,189 ) $ 45,524

Conversion of convertible preferred stock to common stock

18,163,158 2 48,205 — — 48,207

Conversion of convertible preferred stock warrant to common stock warrant

— — 1,191 — — 1,191

Issuance of common stock from initial public offering, net of issuance costs

7,187,500 1 77,788 — — 77,789

Exercise of common stock warrant

79,363 — — — — —

Net loss — — — — ( 49,451 ) ( 49,451 )

Issuance of common stock from public offering, net of issuance costs 1,675,000 — 57,829 — — 57,829

Issuance of common stock to directors 11,952 — — — — —

14,087 — — — — —

Vesting of restricted stock units 143,390 — — — — —

4,930 — — — — —

Exercise of stock options 1,486,218 — 3,133 — — 3,133

876,121 — 1,108 — — 1,108

Stock-based compensation expense — — 16,054 — — 16,054

— — 12,976 — — 12,976

Other comprehensive loss — — — ( 891 ) — ( 891 )

Other comprehensive income — — — 103 — 103

Balance, December 31, 2018

63,916,437 6 218,284 542 ( 145,640 ) 73,192

Cumulative-effect adjustment for the adoption of ASC 606 — — — — 60,941 60,941

Net loss — — — — ( 50,714 ) ( 50,714 )

Issuance of common stock from public offering, net of issuance costs 1,825,000 — 101,303 — — 101,303

1,675,000 — 57,829 — — 57,829

Issuance of common stock to directors 10,654 — — — — —

11,952 — — — — —

Vesting of restricted stock units 521,460 — — — — —

143,390 — — — — —

Exercise of stock options 1,194,471 — 4,899 — — 4,899

1,486,218 — 3,133 — — 3,133

Stock-based compensation expense — — 16,443 — — 16,443

— — 16,054 — — 16,054

Other comprehensive income — — — 103 — 103

Other comprehensive loss — — — ( 827 ) — ( 827 )

Balance, December 31, 2019

Cumulative-effect adjustment for the adoption of ASC 606 — — — — 60,941 60,941

67,468,022 6 340,929 ( 285 ) ( 135,413 ) 205,237

Net loss — — — — ( 33,477 ) ( 33,477 )

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

1,825,000 — 101,303 — — 101,303

Issuance of common stock to directors 7,942 — — — — —

10,654 — — — — —

Vesting of restricted stock units 270,609 — — — — —

521,460 — — — — —

Exercise of stock options 1,001,411 — 6,376 — — 6,376

1,194,471 — 4,899 — — 4,899

Stock-based compensation expense — — 15,279 — — 15,279

— — 16,443 — — 16,443

Other comprehensive income — — — ( 827 ) — ( 827 )

Other comprehensive loss — — — ( 4,725 ) — ( 4,725 )

Balance, December 31, 2020

70,679,190 $ 7 $ 470,498 $ ( 5,010 ) $ ( 168,890 ) $ 296,605

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

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Cash flows from operating activities:

$ ( 50,714 ) $ ( 49,451 ) $ ( 31,007 )

Net loss $ ( 33,477 ) $ ( 50,714 ) $ ( 49,451 )

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

Depreciation and amortization 5,851 4,742 2,021

4,742 2,021 886

Loss (gain) on disposal of equipment

Bad debt expense 984 99 211

Loss (gain) on disposal of property and equipment 22 146 ( 4 )

Change in fair value of available-for-sale securities 22 — —

Deferred income taxes ( 184 ) ( 334 ) ( 218 )

( 334 ) ( 218 ) ( 251 )

Stock-based compensation 15,279 16,443 16,054

16,443 16,054 12,976

Fair value adjustment for warrant liability

Loss on extinguishment of debt

Changes in assets and liabilities:

Accounts receivable ( 33,559 ) 7,432 ( 23,332 )

7,432 ( 23,332 ) ( 9,716 )

Prepaid expenses and other assets 3,740 8,972 ( 1,025 )

8,972 ( 1,025 ) ( 4,162 )

Deferred commissions ( 8,575 ) ( 9,319 ) ( 7,615 )

( 9,319 ) ( 7,615 ) ( 3,487 )

Accounts payable and accrued expenses ( 4,238 ) ( 4,039 ) 7,461

( 4,039 ) 7,461 4,128

Accrued compensation and related benefits 11,801 ( 3,072 ) ( 3 )

( 3,072 ) ( 3 ) 2,365

Other current liabilities

1,318 1,823 383

Other liabilities 3,681 1,318 1,823

Deferred revenue 27,626 12,573 23,023

12,573 23,023 18,344

Operating lease liabilities 3,407 6,827 —

Deferred rent, non-current — — ( 266 )

— ( 266 ) ( 374 )

Net cash used in operating activities ( 7,620 ) ( 8,926 ) ( 31,321 )

( 8,926 ) ( 31,321 ) ( 9,128 )

Cash flows from investing activities:

Purchases of property and equipment

( 32,421 ) ( 7,014 ) ( 433 )

Purchases of investments ( 145,968 ) — —

Payments for acquisitions, net of cash acquired ( 6,138 ) — —

Proceeds from sale of equipment — — 4

Purchases of property and equipment ( 1,251 ) ( 32,421 ) ( 7,014 )

Net cash used in investing activities ( 153,357 ) ( 32,421 ) ( 7,010 )

( 32,421 ) ( 7,010 ) ( 433 )

Cash flows from financing activities:

Proceeds from initial public offering, net of underwriting discounts

Proceeds from public offering, net of underwriting discounts

101,653 58,258 —

Payment of costs related to public offerings

( 350 ) ( 429 ) ( 2,424 )

Payment of dividend to Series A preferred stockholders

— — ( 7,565 )

Principal payments on finance leases ( 3,822 ) ( 653 ) —

Proceeds from public offerings, net of underwriting discounts 108,260 101,653 58,258

Payments of costs related to public offerings ( 346 ) ( 350 ) ( 429 )

Proceeds from exercise of common stock options 6,376 4,899 3,133

4,899 3,133 1,108

Principal payments on finance lease obligations ( 653 ) — —

Proceeds from issuance of long-term debt, net of debt issuance costs

Repayment of long-term debt

— — ( 40,000 )

Net cash provided by financing activities 110,468 105,549 60,962

105,549 60,962 50,948

Effect of foreign exchange rate changes on cash and cash equivalents 3,216 623 ( 1,459 )

623 ( 1,459 ) 1,228

Net increase in cash and cash equivalents

64,825 21,172 42,615

Net (decrease) increase in cash and cash equivalents ( 47,293 ) 64,825 21,172

Cash and cash equivalents, beginning of period 159,755 94,930 73,758

94,930 73,758 31,143

Cash and cash equivalents, end of period $ 112,462 $ 159,755 $ 94,930

$ 159,755 $ 94,930 $ 73,758

Supplemental disclosure of cash flow information:

Cash paid for interest $ 165 $ 331 $ 46

$ 331 $ 46 $ 515

Cash paid for income taxes $ 1,182 $ 356 $ 680

$ 356 $ 680 $ 615

Supplemental disclosure of non-cash financing activities:

Supplemental disclosure of non-cash financing information:

Finance lease obligations to acquire new office furniture and fixtures and computer hardware $ — $ 4,475 $ —

Conversion of convertible preferred stock to common stock

$ — $ — $ 48,207

Conversion of convertible preferred stock warrant to common stock warrant

$ — $ — $ 1,191

Accretion of dividends on convertible preferred stock

$ — $ — $ 357

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

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization and Description of Business

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We were incorporated in the state of Delaware in August 1999.

We are headquartered in Tysons, Virginia and operate in Canada, Switzerland, the United Kingdom, France, Germany, the Netherlands, Italy, Australia, Spain, Singapore and Sweden.

We are headquartered in McLean, Virginia and operate in Canada, Switzerland, the United Kingdom, France, Germany, the Netherlands, Italy, Australia, Spain, Singapore, and Sweden.

Significant Accounting Policies

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GAAP”) as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or “ASC”).

We adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606"), the new revenue recognition guidance, on January 1, 2019 using the modified retrospective method.

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

For fiscal years 2018 and prior, revenue was recognized under ASC Topic 605, Revenue Recognition ("ASC 605").

Use of Estimates

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GAAP requires us to make estimates and judgments that affect the amounts reported in these consolidated financial statements and accompanying notes.

Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making these estimates, actual results reported in future periods could differ from those estimates.

Significant estimates embedded in the consolidated financial statements include revenue recognition, income taxes and the related valuation allowance and stock-based compensation.

Although we believe the estimates we use are reasonable, due to the inherent uncertainty involved in making these estimates, actual results reported in future periods could differ from those estimates.

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

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

While we continue to monitor the developments surrounding the pandemic, as of the date of issuance of these financial statements, we are not aware of any specific events or circumstances that would require us to update our estimates, assumptions, and judgments or revise the carrying value of our assets or liabilities.

We cannot estimate the impacts COVID-19 will have on our business going forward as such impacts will be largely dependent upon a number of factors outside of our control including the extent and duration of the outbreak as well as any mitigating actions which may be undertaken by global governments and the general public.

Principles of Consolidation

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All intercompany accounts and transactions have been eliminated in consolidation.

Initial Public Offering

In May 2017, we completed an initial public offering ("IPO"), in which we sold 7,187,500 shares of our newly-authorized Class A common stock at an initial price to the public of $ 12.00 per share.

We received net proceeds of $ 77.8 million, after deducting underwriting discounts and commissions and offering expenses paid and payable by us, from the IPO.

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

Secondary Offering

In November 2017, we completed a secondary offering in which stockholders sold an aggregate of 4,370,000 shares of our Class A common stock at a price of $ 20.25 per share.

We did not receive any proceeds from the sale of the shares of our Class A common stock sold in the secondary offering.

Public Offerings

In August 2018, we completed an underwritten public offering of 2,000,000 shares of our Class A common stock, of which 1,675,000 shares of Class A common stock were sold by us and 325,000 shares of Class A common stock were sold by existing stockholders, at an offering price to the public of $ 35.15 per share.

Our net proceeds from the offering were $ 57.8 million, after deducting underwriting discounts and commissions and offering expenses.

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

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

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Our net proceeds from the offering were $ 57.8 million, after deducting underwriting discounts and commissions and offering expenses.

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

Revenue Recognition

We generate subscriptions revenue primarily through the sale of SaaS subscriptions bundled with maintenance and support and hosting services and term license subscriptions bundled with maintenance and support.

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

Because we were an “emerging growth company” until December 31, 2019, the Jumpstart Our Business Startups Act (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.

We elected to use this extended transition period that allowed us not to adopt Financial Accounting Standards Board, or FASB, Accounting Standards Updated, or ASU, 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606") in our Quarterly Reports on Form 10-Q during 2019.

The 2019 selected quarterly information in Note 14 have been recast in accordance with ASC 606.

We adopted ASC 606 on January 1, 2019 using the modified retrospective method.

Under this method of adoption, we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit.

Comparative periods were not adjusted.

The following table summarizes revenue from contracts with customers for the year ended December 31, 2019 (in thousands):

Year Ended December 31, 2019

SaaS subscriptions $ 95,028

Term license subscriptions 40,428

Maintenance and support 15,843

Professional services 109,053

Total revenue $ 260,352

Performance Obligations and Timing of Revenue Recognition

We primarily sell products and services that fall into the categories discussed below.

Each category contains one or more performance obligations that are either (1) capable of being distinct (i.e.

the customer can benefit from the product or service on its own or together with readily available resources, including those purchased separately from us) and distinct within the context of the contract (i.e.

separately identified from other promises in the contract) or (2) a series of distinct products or services that are substantially the same and have the same pattern of transfer to the customer.

Our term license subscriptions are delivered at a point in time.

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

Subscriptions Revenue

Subscriptions revenue is primarily related to (1) SaaS subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support.

We generally charge subscription fees on a per-user basis and, to a lesser degree, non-user based single application licenses.

We bill customers and collect payment for subscriptions to our platform in advance on an annual, quarterly or monthly basis.

In certain instances, our customers have paid their entire contract up front.

SaaS Subscriptions

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

We perform all required maintenance and support for our cloud

offering and we do not separately charge customers for hosting costs.

Revenue is recognized on a ratable basis over the contract term beginning on the date the service is made available to the customer.

Our cloud-based subscription contracts generally have a term of one to three years in length.

We bill customers and collect payment for subscriptions to our platform in advance and they are non-cancellable.

Term License Subscriptions

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

The majority of recent contracts are one year in length.

Although term license subscriptions are sold with maintenance and support, the software is fully functional at the beginning of the subscription and is considered a distinct performance obligation.

On rare occasions, a cloud-based subscription may include the right for the customer to take possession of the license and as such, the revenue is treated as a license.

Revenue from term license subscriptions is recognized when control of the software license has transferred to the customer, which is the later of delivery or commencement of the contract term.

Maintenance and Support

Maintenance and support subscriptions include both technical support and when-and-if-available software upgrades, which are treated as a single performance obligation as they are considered a series of distinct services that are substantially the same and have the same duration and measure of progress.

Revenue from maintenance and support is recognized ratably over the contract period, which is the period over which the customer has continuous access to maintenance and support.

Professional Services

Our professional services revenue is comprised of fees for consulting services, including application development and deployment assistance and training services related to our platform.

Our professional services are considered distinct performance obligations when sold stand alone or with other products.

Consulting Services

We sell consulting services to assist customers plan and execute deployment of our software.

Customers are not required to use consulting services to fully benefit from the software.

Consulting services are regularly sold on a standalone basis and either (1) a fixed-fee arrangement or (2) a time and materials basis.

Consulting contracts are each considered separate performance obligations because they do not integrate with each other or with other products and services to deliver a combined output to the customer, do not modify or customize (or are not modified or customized by) each other or other products and services, and do not affect the customer's ability to use the other consulting offerings or other products and services.

Revenue under consulting contracts is recognized over time as services are delivered.

For time and materials-based consulting contracts, we have elected the practical expedient of recognizing revenue upon invoicing since the invoiced amount corresponds directly to the value of our service to-date.

Training Services

We sell various training services to our customers.

Training services are sold in the form of prepaid training credits that are redeemed based on a fixed rate per course.

Training revenue is recognized when the associated training services are delivered.

Significant Judgments and Estimates

Determine the Transaction Price

The transaction price includes both fixed and variable consideration.

Variable consideration is included in the transaction price to the extent it is probable that a significant reversal will not occur.

The amount of variable consideration excluded from the transaction price for the year ended December 31, 2019 was insignificant.

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

We allocate the transaction price to each performance obligation in a contract based on its relative SSP.

The SSP is the observable price at which we sell the product or service separately.

In the absence of observable pricing, we estimate SSP using the residual approach.

We establish SSP as follows:

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

We have concluded that the residual approach to estimate SSP of our SaaS subscriptions is an appropriate allocation of the transaction price.

Term license subscriptions - Given the highly variable selling price of our term license subscriptions, we have established SSP of term license subscriptions using a residual approach after first determining the SSP of maintenance and support.

Maintenance and support is sold on a standalone basis, 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.

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.

Consulting services and training services - SSP of consulting services and training services is established based on the observable pricing of standalone sales within each geographic region where the services are sold.

Contract Balances

Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to our contracts with customers.

Contract assets primarily relate to unbilled amounts for contracts with customers for which the amount of revenue recognized exceeds the amount billed to the customer.

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

As of January 1, 2019 and December 31, 2019, contract assets of $ 25.8 million and $ 22.8 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet.

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

For the year ended December 31, 2019, we recognized $ 66.6 million of revenue that was included in deferred revenue as of January 1, 2019.

Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current.

Transaction Price Allocated to the Remaining Performance Obligations

As of December 31, 2019, we had an aggregate transaction price of $ 175.8 million, allocated to unsatisfied performance obligations related to SaaS subscriptions, term license subscriptions and maintenance and support.

We expect to recognize $ 153.7 million as revenue over the next 24 months with the remaining amount recognized thereafter.

Transition Disclosures

For periods prior to January 1, 2019, we recognized revenue in accordance with FASB ASC Topic 605, Revenue Recognition ("ASC 605").

In accordance with the modified retrospective method transition requirements, we will present the financial statement line items impacted and adjusted to compare to presentation under ASC 605 for the annual periods during the first year of adoption of ASC 606.

Consolidated Balance Sheets - Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard

The following table summarizes the impacts from the adoption of the new revenue recognition standard on our consolidated balance sheet as of December 31, 2019 (in thousands):

As of December 31,

As Reported (ASC 606) Impacts from Adoption Without Adoption (ASC 605) As Reported (ASC 605)

Current assets

Cash and cash equivalents $ 159,755 $ — $ 159,755 $ 94,930

Accounts receivable, net of allowance 70,408 — 70,408 79,383

Deferred commissions, current 14,543 ( 6,061 ) 20,604 14,020

Prepaid expenses and other current assets 32,955 16,343 16,612 21,293

Total current assets 277,661 10,282 267,379 209,626

Property and equipment, net 39,554 — 39,554 7,539

Operating right-of-use asset 24,205 — 24,205 —

Deferred commissions, net of current portion 28,979 15,780 13,199 15,088

Deferred tax assets 494 — 494 326

Other assets 592 — 592 601

Total assets 371,485 26,062 345,423 233,180

Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable $ 5,222 $ — $ 5,222 $ 9,249

Accrued expenses 7,488 — 7,488 7,464

Accrued compensation and related benefits 10,691 — 10,691 13,796

Deferred revenue, current 82,201 ( 28,985 ) 111,186 95,523

Operating lease liability, current 3,836 — 3,836 —

Finance lease liability, current 1,447 — 1,447 —

Other current liabilities 1,395 — 1,395 2,369

Total current liabilities 112,280 ( 28,985 ) 141,265 128,401

Operating lease liability, net of current portion 44,416 — 44,416 —

Finance lease liability, net of current portion 2,375 — 2,375 —

Deferred revenue, net of current portion 7,139 ( 4,891 ) 12,030 16,145

Deferred tax liabilities 38 — 38 42

Deferred rent, net of current portion — — — 15,400

Total liabilities 166,248 ( 33,876 ) 200,124 159,988

Stockholders’ equity

Class A common stock 3 — 3 3

Class B common stock 3 — 3 3

Additional paid-in capital 340,929 — 340,929 218,284

Accumulated other comprehensive (loss) income ( 285 ) 320 ( 605 ) 542

Accumulated deficit ( 135,413 ) 59,618 ( 195,031 ) ( 145,640 )

Total stockholders’ equity 205,237 59,938 145,299 73,192

Total liabilities and stockholders’ equity $ 371,485 26,062 $ 345,423 $ 233,180

The following summarizes the significant changes on the consolidated balance sheet as of December 31, 2019 as a result of the adoption of ASC 606 on January 1, 2019 compared to if we had continued to recognize revenue under ASC 605:

• Total deferred commissions increased $ 9.7 million due to the increase in the amortization period of costs to obtain a contract for a new customer or up-sell from the contract term to the five year estimated economic life.

• Prepaid expenses and other current assets increased $ 16.3 million and total deferred revenue decreased $ 33.9 million due to the change in timing of when we recognize revenue under ASC 606.

Consolidated Statements of Operations - Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard

The following table summarizes the impacts from the adoption of the new revenue recognition standard on our consolidated statement of operations for the year ended December 31, 2019 (in thousands):

Year Ended December 31,

As Reported (ASC 606) Impacts from Adoption Without Adoption (ASC 605) As Reported (ASC 605)

Subscriptions $ 151,299 $ ( 8,786 ) $ 160,085 $ 126,012

Professional services 109,053 2,791 106,262 100,731

Total revenue 260,352 ( 5,995 ) 266,347 226,743

Cost of revenue:

Subscriptions 17,098 — 17,098 11,997

Professional services 76,743 — 76,743 72,928

Total cost of revenue 93,841 — 93,841 84,925

Gross profit 166,511 ( 5,995 ) 172,506 141,818

Operating expenses:

Sales and marketing 117,440 ( 4,625 ) 122,065 105,992

Research and development 58,043 — 58,043 44,724

General and administrative 41,496 — 41,496 37,821

Total operating expenses 216,979 ( 4,625 ) 221,604 188,537

Operating loss ( 50,468 ) ( 1,370 ) ( 49,098 ) ( 46,719 )

Other (income) expense:

Other (income) expense, net ( 941 ) ( 47 ) ( 894 ) 2,295

Interest expense 367 — 367 198

Total other (income) expense ( 574 ) ( 47 ) ( 527 ) 2,493

Loss before income taxes ( 49,894 ) ( 1,323 ) ( 48,571 ) ( 49,212 )

Income tax expense 820 — 820 239

Net loss $ ( 50,714 ) $ ( 1,323 ) $ ( 49,391 ) $ ( 49,451 )

Net loss per share attributable to common stockholders:

Basic and diluted $ ( 0.77 ) $ ( 0.02 ) $ ( 0.75 ) $ ( 0.80 )

The following summarizes the significant changes on the consolidated statement of operations for the year ended December 31, 2019 as a result of the adoption of ASC 606 on January 1, 2019 compared to if we had continued to recognize revenue under ASC 605:

• Subscriptions revenue decreased $ 8.8 million for the year ended December 31, 2019 under ASC 606 primarily due to the change in timing of when we recognize term license subscription revenue.

Additionally, a significant amount of our

unrecognized term license subscriptions revenue was recorded as an adjustment to accumulated deficit under ASC 606.

Under ASC 606, our term license subscription revenue is recognized at the time of delivery, as opposed to ratably over the contract term under ASC 605.

• Professional services revenue increased $ 2.8 million for the year ended December 31, 2019 under ASC 606 primarily due to the fact that our professional services are sold together with SaaS or term licenses.

Under ASC 606, the professional services represent distinct performance obligations and therefore are recognized as services are performed.

Under ASC 605, professional services sold together with term licenses were recognized ratably over the contract period of maintenance and support.

• Sales and marketing expense decreased $ 4.6 million for the year ended December 31, 2019 under ASC 606 primarily due to the increase in the period over which we amortize our deferred sales commissions.

Consolidated Statements of Comprehensive Loss - Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard

The following table summarizes the impacts from the adoption of the new revenue recognition standard on our consolidated statement of comprehensive loss for the year ended December 31, 2019 (in thousands):

Year Ended December 31,

As Reported (ASC 606) Impacts from Adoption Without Adoption (ASC 605) As Reported (ASC 605)

Net loss $ ( 50,714 ) $ ( 1,323 ) $ ( 49,391 ) $ ( 49,451 )

Comprehensive loss, net of income taxes:

Foreign currency translation adjustment ( 827 ) 115 ( 942 ) 103

Total other comprehensive loss, net of income taxes $ ( 51,541 ) $ ( 1,208 ) $ ( 50,333 ) $ ( 49,348 )

Consolidated Statements of Cash Flows - Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard

The following table summarizes the impacts from the adoption of the new revenue recognition standard on our consolidated statement of cash flows for the year ended December 31, 2019 (in thousands):

Year Ended December 31,

As Reported (ASC 606) Impacts from Adoption Without Adoption (ASC 605) As Reported (ASC 605)

$ ( 50,714 ) $ ( 1,323 ) $ ( 49,391 ) $ ( 49,451 )

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

Depreciation and amortization

4,742 — 4,742 2,021

Loss (gain) on disposal of equipment 146 — 146 ( 4 )

Bad debt expense

Deferred income taxes

( 334 ) — ( 334 ) ( 218 )

Stock-based compensation

16,443 — 16,443 16,054

Changes in assets and liabilities:

Accounts receivable

7,432 — 7,432 ( 23,332 )

Prepaid expenses and other assets

8,972 4,313 4,659 ( 1,025 )

Deferred commissions

( 9,319 ) ( 4,625 ) ( 4,694 ) ( 7,615 )

Accounts payable and accrued expenses

( 4,039 ) — ( 4,039 ) 7,461

Accrued compensation and related benefits

( 3,072 ) — ( 3,072 ) ( 3 )

Other current liabilities

1,318 — 1,318 1,823

Deferred revenue

12,573 1,717 10,856 23,023

Operating lease liabilities 6,827 — 6,827 —

Deferred rent, non-current

— — — ( 266 )

Net cash used in operating activities

( 8,926 ) 82 ( 9,008 ) ( 31,321 )

Cash flows from investing activities:

Purchases of property and equipment

( 32,421 ) — ( 32,421 ) ( 7,014 )

Proceeds from sale of equipment

Net cash used in investing activities

( 32,421 ) — ( 32,421 ) ( 7,010 )

Cash flows from financing activities:

Proceeds from public offering, net of underwriting discounts

101,653 — 101,653 58,258

Payment of costs related to public offerings

( 350 ) — ( 350 ) ( 429 )

Proceeds from exercise of common stock options

4,899 — 4,899 3,133

Principal payments on finance lease obligations ( 653 ) — ( 653 ) —

Net cash provided by financing activities

105,549 — 105,549 60,962

Effect of foreign exchange rate changes on cash and cash equivalents

623 ( 82 ) 705 ( 1,459 )

Net increase in cash and cash equivalents

64,825 — 64,825 21,172

Cash and cash equivalents, beginning of period

94,930 — 94,930 73,758

Cash and cash equivalents, end of period

$ 159,755 — $ 159,755 $ 94,930

Legacy Revenue Accounting Policy

For periods prior to January 1, 2019, revenue was recognized in accordance with ASC 605.

Under ASC 605, we recognize revenue when all of the following conditions are met:

(1) there is persuasive evidence of an arrangement;

service or product has been provided to the customer;

(3) the amount of fees to be paid by the customer is fixed or determinable;

and (4) the collection of related fees is reasonably assured.

If collection is not reasonably assured, we defer revenue recognition until collectability becomes reasonably assured.

Our arrangements do not contain rights of return.

Subscriptions Revenue

Subscriptions revenue is primarily related to (1) SaaS subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support.

We generally charge subscription fees on a per-user basis, or alternatively, non-user based single application licenses.

We bill customers and collect payment for subscriptions to our platform in advance on a monthly, quarterly or annual basis.

In certain instances, our customers have paid their entire contract up front.

SaaS Subscriptions

Our SaaS subscription revenue is derived from customers accessing our cloud offering pursuant to contracts that are generally one to three years in length.

We perform all required maintenance and support for our cloud offering and we do not separately charge customers for hosting costs.

In these arrangements, our customers do not have the right to take the software on-premises and, as a result, such arrangements are not accounted for within the scope of the software revenue guidance.

Revenue from SaaS subscriptions is recognized ratably over the term of the subscription, beginning with the date our service is made available to our customer.

Term License Subscriptions

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

The majority of recent contracts are one year in length.

Customers with term license subscriptions have the right to use our software and receive maintenance and support.

Since we do not sell maintenance and support separately from the subscription, revenue for the term license subscription and maintenance and support is recognized ratably over the term of the subscription, upon delivery of the platform to the customer when sold on a standalone basis.

Professional Services

Our professional services revenue is comprised of fees for consulting services, including application development and deployment assistance and training related to our platform.

Our professional services are not essential to the functionality of our platform because the platform is ready for the customer’s use immediately upon delivery and is not modified or customized in any manner.

Consulting services are billed under both time-and-material and fixed-fee arrangements.

For standalone time-and-material contracts, we recognize revenue at contractually agreed upon billing rates applied to hours performed.

For standalone fixed-fee contracts, we also recognize revenue as the work is performed using the proportional performance method of accounting.

Training revenue is recognized when the associated training services are delivered.

Training is sold in the form of prepaid training credits that are redeemed based on a fixed rate per course.

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

Costs of work performed on pending contract modifications are expensed as incurred.

Multiple Element Arrangements

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

SaaS Subscriptions

For multiple element arrangements involving SaaS subscriptions that include professional services in addition to the subscription to our platform, we evaluate each element to determine whether it represents a separate unit of accounting.

Because there are third-party vendors who routinely sell and provide the same professional services to our customers, our professional services are deemed to have standalone value apart from the SaaS subscription.

Additionally, we offer both SaaS subscriptions and professional services on a standalone basis.

Professional services revenue is therefore accounted for separately from subscription fees and recognized as the professional services are performed.

We allocate revenue to the elements based on the selling price hierarchy using vendor-specific objective evidence ("VSOE") of selling price, third-party evidence ("TPE") of selling price, or if neither exists, best estimated selling price ("BESP").

In cases where we do not have VSOE or TPE of the elements of our arrangements, we use BESP to allocate revenue.

We determine BESP for a service by considering multiple factors including, but not limited to, evaluating the weighted average of actual sales prices and other factors such as gross margin objectives, pricing practices and growth strategy.

Pricing practices taken into consideration include historic contractually stated prices, volume discounts where applicable and our price lists.

While we believe we can make reliable estimates regarding these matters, these estimates are inherently subjective.

Once the revenue is allocated to these elements, revenue is recognized as such services are provided.

Term License Subscriptions

For multiple element arrangements involving term license subscriptions, maintenance and support and professional services, we do not have VSOE of fair value for the maintenance and support.

Our term license subscriptions are generally not sold on a standalone basis, and therefore, we have not established VSOE of fair value for the subscriptions.

Consequently, for our bundled arrangements that include certain professional services, there are two undelivered elements for which VSOE of fair value has not been established and, therefore, we utilize the combined services approach and defer all revenue until the software has been delivered and the provision of all services has commenced.

We then recognize the entire fee from the arrangement ratably over the remaining period of the arrangement, assuming all other software revenue recognition criteria have been met.

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

Cost of Revenue

Subscriptions

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

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

Professional Services

Cost of professional services revenue includes all direct and indirect costs to deliver our professional services and training, including employee compensation for our global professional services and training personnel, travel costs, third-party contractor costs and allocated facility costs and overhead, as well as the costs of billable expenses, such as travel and lodging.

The unpredictability of the timing of entering into significant professional services agreements sold on a standalone basis may cause significant fluctuations in our quarterly financial results.

Cost of professional services revenue includes all direct and indirect costs to deliver our professional services and training, including employee compensation for our global professional services and training personnel, third-party contractor costs, allocated facility costs and overhead, and the costs of billable expenses such as travel and lodging.

The unpredictability of the timing of entering into significant professional services agreements sold on a standalone basis may cause significant fluctuations in our quarterly financial results and allocated facility costs and overhead.

Concentration of Credit and Customer Risk

Our financial instruments that are exposed to concentration of credit and customer risk consist primarily of cash and cash equivalents and trade accounts receivable.

Deposits held with banks may exceed the amount of insurance, if any, provided on such deposits.

We believe that the financial institutions that hold our cash deposits are financially sound and, accordingly, minimal credit risk exists with respect to these balances.

Our financial instruments exposed to concentration of credit and customer risk consist primarily of cash and cash equivalents, trade accounts receivable, and our short- and long-term investments.

Deposits held with banks may exceed the amount of insurance provided on such deposits.

We believe the financial institutions holding our cash deposits are financially sound and, accordingly, minimal credit risk exists with respect to these balances.

With regard to our customers, credit evaluation and account monitoring procedures are used to minimize the risk of loss.

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

Revenue generated from government agencies represented 17.1 %, 15.7 % and 15.4 % of our revenue for the years ended December 31, 2019, 2018 and 2017, respectively, of which the top three U.S.

federal government agencies generated 7.4 %, 7.8 % and 8.4 % of our revenue for the years ended December 31, 2019, 2018 and 2017, respectively.

Additionally, 32.3 %, 28.7 % and 27.0 % of our revenue during the years ended December 31, 2019, 2018 and 2017, respectively, was generated from foreign customers.

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

Revenue generated from government agencies represented 18.1 %, 17.1 %, and 15.7 % of our revenue for the years ended December 31, 2020, 2019, and 2018, respectively, of which the top three federal government agencies generated 6.6 %, 7.4 %, and 7.8 % of our revenue for the years ended December 31, 2020, 2019, and 2018, respectively.

Additionally, 33.8 %, 32.3 %, and 28.7 % of our revenue during the years ended December 31, 2020, 2019, and 2018, respectively, was generated from customers outside the United States.

Cash and Cash Equivalents

We consider all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase, as well as overnight repurchase investments, to be cash equivalents.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We consider all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase, as well as overnight repurchase agreements, to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at realizable value, net of an allowance for doubtful accounts.

The allowance for doubtful accounts is based on our assessment of the collectability of accounts.

The allowance for doubtful accounts is based on our assessment of the collectability of accounts and incorporates an estimation of expected lifetime credit losses on our receivables.

We regularly review the composition of the accounts receivable aging, historical bad debts, changes in payment patterns, customer creditworthiness, and current economic trends.

If the financial condition of our customers were to deteriorate, resulting in their inability to make required payments, additional provisions for doubtful accounts would be required and would increase bad debt expense.

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

Activity within the allowance for doubtful accounts was as follows (in thousands):

There was a $ 0.8 million increase in the allowance for doubtful accounts from December 31, 2019 to December 31, 2020.

Activity in the allowance for doubtful accounts was as follows (in thousands):

Year Ended December 31,

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We recognized our initial tenant improvement allowance receivable of $ 15.8 million related to our new headquarters once we took initial possession of the space in October 2018.

We recognized additional tenant improvement allowance receivable of $ 2.6 million when we took possession of adjacent office space in February 2019.

We recognized an additional tenant improvement allowance receivable of $ 2.6 million when we took possession of adjacent office space in February 2019.

We had received the entire tenant improvement allowance of $ 17.0 million as of December 31, 2019, and therefore, there was no receivable balance remaining as of such date.

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

We capitalize the incremental costs of obtaining a contract with a customer, including, sales commissions paid to our direct sales force.

We capitalize the incremental costs of obtaining a contract with a customer, including sales commissions paid to our direct sales force that are incremental costs to obtaining customer contracts.

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

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.

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.

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

We determine the estimated economic life based on both qualitative and quantitative factors such as expected renewals, product life cycles, contractual terms, and customer attrition.

We periodically review the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the estimated economic life.

Commissions paid relating to contract renewals are deferred and amortized on a straight-line basis over the related renewal period.

Commissions paid relating to contract renewals are deferred and amortized over the related renewal period.

We also capitalize the incremental fringe benefits associated with commission expenses paid to our direct sales force.

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.

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

The following table summarizes the activity of costs to obtain a contract with a customer for the year ended December 31, 2019 (in thousands):

Costs to obtain a contract for professional services arrangements are expensed as incurred as the contractual period of our professional services arrangements are one year or less.

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

The following table summarizes the activity of costs to obtain a contract with a customer for the years ended December 31, 2020 and December 31, 2019 (in thousands):

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31,

4 unchanged sentences

Balance as of December 31 $ 52,097 $ 43,522

Commission expense was $ 15.7 million, $ 15.6 million and $ 11.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

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.

For the periods prior to January 1, 2019 under ASC 605, deferred commissions are the incremental costs directly associated with subscription agreements with customers and consist of sales commissions paid to our direct sales force.

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.

Commission expense was $ 23.3 million, $ 15.7 million, and $ 15.6 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Property and Equipment

2 unchanged sentences

Significant additions or improvements extending the useful life of an asset are capitalized, while repairs and maintenance costs which do not significantly improve the related assets or extend their useful lives are charged to expense as incurred.

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

Asset Category Useful Life (in years)

2 unchanged sentences

Office furniture and fixtures 10

Leasehold improvements Shorter of useful life of assets or lease term

Leasehold improvements (a)

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

Impairment of Long-Lived Assets

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

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

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

No indicators of impairment were identified for the years ended December 31, 2020, 2019, and 2018.

Fair Value of Financial Instruments

The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value as of December 31, 2019 and December 31, 2018 because of the relatively short duration of these instruments.

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

The hierarchy requires us to use observable inputs when available, and to minimize the use of unobservable inputs when determining fair value.

The three tiers are defined as follows:

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

Inputs, other than quoted prices in active markets, that are observable either directly or indirectly;

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

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

There were no instruments measured at fair value during the years ended December 31, 2019, 2018 and 2017.

Effective January 1, 2019, we adopted FASB ASU 2016-02 Leases (Topic 842), as amended ("ASC 842").

In accordance with ASC 842, at the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease.

Operating leases with a term greater than one year are recognized on the balance sheet as right-of-use ("ROU") assets, lease liabilities and, if applicable, long-term lease liabilities.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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

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

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

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

The implicit rate within most of our leases are generally not determinable and therefore we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments.

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

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

The operating lease ROU also includes any lease prepayments, offset by lease incentives.

Certain of our leases include options to extend or terminate the lease.

An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option.

An option to terminate is considered unless it is reasonably certain we will not exercise the option.

For certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense.

We have lease agreements which require payments for lease and non-lease components (i.e.

common area maintenance) that are accounted for as a single lease component.

Variable lease payment amounts that cannot be determined at the commencement of the lease, such as maintenance costs based on future obligations, are not included in the ROU assets or lease liabilities.

These are expensed as incurred and recorded as variable lease expense.

For periods prior to ASC 842, we recorded rent expense on a straight-line basis over the term of the related lease.

The difference between the straight-line rent expense and the payments made in accordance with the operating lease agreements were recognized as a deferred rent liability on the accompanying consolidated balance sheets.

Investments and Fair Value of Financial Instruments

Refer to Note 16 for a detailed discussion on our policies specific to investments and determining fair value.

Stock-Based Compensation

1 unchanged sentence

We calculate the fair value of stock options containing only a service condition using the Black-Scholes option pricing model.

The fair value of restricted stock units is based on the closing market price of our common stock on the Nasdaq Global Market on the date of grant.

For service-based awards, stock-based compensation expense is recognized on a straight-line basis over the requisite service period.

For performance-based awards, stock-based compensation expense is recognized using the accelerated attribution method, based on the probability of satisfying the performance condition.

For awards that contain market conditions, compensation expense is measured using a Monte Carlo simulation and

recognized using the accelerated attribution method over the derived service period based on the expected market performance as of the grant date.

For restricted stock units, stock-based compensation expense is recognized on a straight-line basis over the requisite service period.

The fair value of restricted stock units ("RSUs") is based on the closing market price of our common stock on the Nasdaq Global Market on the date of grant.

For service-based awards such as RSUs, stock-based compensation expense is recognized on a straight-line basis over the requisite service period.

For performance-based awards, stock-based compensation expense is recognized using the accelerated attribution method based on the probability of satisfying

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the performance condition.

For awards that contain market conditions, compensation expense is measured using a Monte Carlo simulation and recognized using the accelerated attribution method over the derived service period based on the expected market performance as of the grant date.

We account for forfeitures as they occur rather than estimating expected forfeitures.

Refer to Note 4 for a detailed discussion on our policies specific to leasing arrangements.

Basic and Diluted Loss per Common Share

3 unchanged sentences

Basic net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period increased by common shares that could be issued upon conversion or exercise of other outstanding securities to the extent those additional common shares would be dilutive.

Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period increased by common shares that could be issued upon the conversion or exercise of other outstanding securities to the extent those additional common shares would be dilutive.

The dilutive effect of potentially dilutive securities is reflected in diluted net loss per share by application of the treasury stock method.

15 unchanged sentences

Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) for purposes of allocating resources and evaluating financial performance.

Our CODM is our chief executive officer, who reviews financial information presented on a companywide basis for purposes of allocating resources and evaluating financial performance.

Our CODM is our chief executive officer, who reviews financial information presented on a company wide basis for purposes of allocating resources and evaluating financial performance.

As such, our operations constitute a single operating segment and one reportable segment.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Foreign Currency

1 unchanged sentence

dollars using the current rate method.

Results of operations are translated at the average rate of exchange for the

Results of operations are translated at the average rate of exchange for the period.

Assets and liabilities are translated at the closing rates on the balance sheet date.

1 unchanged sentence

Gains and losses on foreign currency transactions are recognized in the accompanying consolidated statements of operations as a component of other expense, net.

Transaction gains and losses from transactions denominated in foreign currencies resulted in net transaction losses of $ 0.2 million and $ 3.0 million for the years ended December 31, 2019 and 2018, respectively and net transaction gains of $ 2.6 million for the year ended December 31, 2017.

Transaction gains and losses from transactions denominated in foreign currencies resulted in net transaction gains of $ 4.3 million for the year ended December 31, 2020 and net transaction losses of $ 0.2 million and $ 3.0 million for the years ended December 31, 2019 and 2018, respectively.

Research and Development

2 unchanged sentences

Since our software is sold and licensed externally, we consider our software as external-use software for purposes of applying the capitalized software development guidance.

Product development costs are expensed as incurred until technological feasibility has been established, which we define as the completion of all planning, designing, coding and testing activities that are necessary to establish products that meet design specifications including functions, features and technical performance requirements.

We have determined that technological feasibility for our software products is reached shortly before they are released for sale.

Product development costs are expensed as incurred until technological feasibility has been established, which we define as the completion of all planning, designing, coding, and testing activities necessary to establish products that meet design specifications including functions, features, and technical performance requirements.

We have determined technological feasibility for our software products is reached shortly before they are released for sale.

Costs incurred after technological feasibility is established are not significant, and accordingly we expense all research and development costs when incurred.

Advertising Expenses

We expense advertising costs as they are incurred.

1 unchanged sentence

Recent Accounting Pronouncements

In August 2016, the FASB issued ASU No.

2016-15, Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which aims to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.

ASU 2016-15 will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable.

ASU 2016-15 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019.

The adoption of ASU 2016-15 did not have an impact on our condensed consolidated financial statements for the year ended December 31, 2019.

In February 2018, the FASB issued ASU No.

2018-02, Income Statement-Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"), which provides entities the option to reclassify to retained earnings tax effects related to items in accumulated other comprehensive income ("OCI") that the FASB refers to as having been stranded in accumulated OCI as a result of tax reform.

ASU 2018-02 is effective for fiscal years beginning after December 15, 2018.

The adoption of ASU 2018-02 did not have an impact on our condensed consolidated financial statements for the year ended December 31, 2019.

In May 2014, the FASB issued ASU No.

2014-09, Revenue from Contracts with Customers (Topic 606) , which provides new guidance for revenue recognition.

The new revenue standard provides that an entity 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 or services.

ASC 606 also requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized.

We adopted ASC 606 on January 1, 2019 using the modified retrospective method.

Under this method of adoption, we applied the new revenue standard only to contracts that were not completed prior January 1, 2019.

Upon adoption, we recorded an adjustment of $ 55.8 million to our accumulated deficit.

The adjustment was offset by a $ 35.4 million reduction to deferred revenue and the addition of a $ 20.4 million contract asset, primarily due to our on-premises term license subscriptions.

ASC 606 materially impacts the timing of revenue recognition related to our term license subscriptions.

Prior to our adoption of ASC 606, we have historically concluded that we did not have VSOE of fair value of the undelivered services related to on-premises term license contracts, and, accordingly, have recognized on-premises term license contracts and related services ratably over the contract term.

Under the new revenue standard, the requirement to have VSOE for undelivered services is eliminated.

Therefore, revenue allocable to the license portion of the contract is recognized upon delivery of the software.

Maintenance and support sold with our term license subscriptions is distinct from the term license subscription and the revenue attributable to the maintenance and support continue to be recognized ratably over the contract term.

Under ASC 606, we allocate the transaction to performance obligations based on SSP, which impacts the timing of revenue recognition depending on when each performance obligation is recognized.

These changes to the timing of revenue recognition also affect our deferred revenue balances.

In addition, ASC 606 requires the capitalization of certain incremental costs of obtaining a contract, which impacts the period in which we record our commission expense.

Prior to the adoption of ASC 606, we deferred the direct and incremental commission costs to obtain a contract with a customer and amortized those costs over the term of the related customer contract consistent with the related revenue.

Under the new revenue standard, the direct and incremental costs to obtain contracts with customers, include sales commissions, are deferred and recognized over a period of benefit that we have determined to be five years.

In addition, we capitalize the incremental fringe benefits associated with commission expenses paid to our direct sales force.

Upon adoption of ASC 606, we reduced our accumulated deficit and increased our asset for deferred commissions by $ 5.1 million.

In February 2016, the FASB issued ASU No.

2016-2, Leases (Topic 842) , which requires companies to recognize on the balance sheet the assets and liabilities for the rights and obligations created by the leased asset.

The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

We adopted this standard effective January 1, 2019 using the modified retrospective approach for all leases entered into before the effective date.

We also elected to implement the new standard at the adoption date with a cumulative-effect adjustment, if any, recognized to the opening balance sheet of accumulated deficit in the period of adoption.

For comparability purposes, we will continue to comply with the previous disclosure requirements in accordance with the existing lease guidance for all periods presented in the year of adoption.

We elected the package of practical expedients as permitted under the transition guidance, which allowed us:

(1) to carry forward the historical lease classification;

(2) not to reassess whether expired or existing contracts are or contain leases;

and (3) not to reassess the treatment of initial direct costs for existing leases.

In addition, we elected an accounting policy to not recognize leases with an initial term of one year or less on the balance sheet.

We did not elect the hindsight practical expedient to determine the lease term for our existing leases and assessing impairment of the ROU assets.

Upon the adoption of this standard on January 1, 2019, we recognized a total lease liability of $ 51.4 million, representing the present value of the minimum rental payments remaining as of the adoption date and ROU assets of $ 33.8 million.

We did not have finance leases (formerly referred to as capital leases prior to the adoption of ASC 842), therefore there was no change in accounting treatment required.

Not Yet Adopted

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326) ("ASU 2016-13"), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost.

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

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

We do not expect the standard to have a material impact on our consolidated financial statements.

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

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which eliminates, modifies, and adds disclosure requirements for fair value measurements.

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

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

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

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

Entities can choose

to adopt the new guidance prospectively or retrospectively.

We do not expect the standard to have a material impact on our consolidated financial statements.

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

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848), which provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates such as the Secured Overnight Financing Rate (SOFR).

This guidance is effective upon issuance and generally can be applied through the end of calendar year 2022.

We are currently evaluating the impact and applicability of this new standard.

Revenue Recognition

We generate subscriptions revenue primarily through the sale of software-as-a-service ("SaaS") subscriptions bundled with maintenance and support and hosting services as well as term license subscriptions bundled with maintenance and support.

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

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

Year Ended December 31,

SaaS subscriptions $ 129,219 $ 95,028

Term license subscriptions 51,415 40,428

Maintenance and support 18,076 15,843

Professional services 105,863 109,053

Total revenue $ 304,573 $ 260,352

Performance Obligations and Timing of Revenue Recognition

We primarily sell products and services that fall into the categories discussed below.

Each category contains one or more performance obligations that are either (1) capable of being distinct (i.e., the customer can benefit from the product or service on its own or together with readily available resources, including those purchased separately from us) and distinct within the context of the contract (i.e., separately identified from other promises in the contract) or (2) a series of distinct products or services that are substantially the same and have the same pattern of transfer to the customer.

Our term license subscriptions are delivered at a point in time while our SaaS subscriptions, maintenance and support, and professional services are delivered over time.

Subscriptions Revenue

Subscriptions revenue is primarily related to (1) SaaS subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support.

We generally charge subscription fees on a per-user basis and, to a lesser degree, non-user based single application licenses.

We bill customers and collect payment for subscriptions to our platform in advance on an annual, quarterly, or monthly basis.

In certain instances, our customers have paid their entire contract up front.

SaaS Subscriptions

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

We perform all required maintenance and support for our cloud offering.

Revenue is recognized on a ratable basis over the contract term beginning on the date the service is made available to the customer.

Our cloud-based subscription contracts generally have a term of one to three years in length.

We bill customers and collect payment for subscriptions to our platform in advance, and they are non-cancellable.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Term License Subscriptions

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

The majority of recent contracts have been one year in length.

Although term license subscriptions are sold with maintenance and support, the software is fully functional at the beginning of the subscription and is considered a distinct performance obligation.

On rare occasions, a cloud-based subscription may include the right for the customer to take possession of the license and as such, the revenue is treated as a license.

Revenue from term license subscriptions is recognized when control of the software license has transferred to the customer, which is the later of delivery or commencement of the contract term.

Maintenance and Support

Revenue from maintenance and support is recognized ratably over the contract period, which is the period over which the customer has continuous access to maintenance and support.

Professional Services

Our professional services revenue is comprised of fees for consulting services, including application development and deployment assistance as well as training services related to our platform.

Our professional services are considered distinct performance obligations when sold standalone or with other products.

Consulting Services

We sell consulting services to assist customers in planning and executing the deployment of our software.

Customers are not required to use consulting services to fully benefit from the software.

Consulting services are regularly sold on a standalone basis and either (1) under a fixed-fee arrangement or (2) on a time and materials basis.

Revenue under consulting contracts is recognized over time as services are delivered.

Training Services

We sell various training services to our customers.

Training services are sold in the form of prepaid training credits that are redeemed based on a fixed rate per course.

Training revenue is recognized when the associated training services are delivered.

Significant Judgments and Estimates

Determining the Transaction Price

The transaction price includes both fixed and variable consideration.

Variable consideration is included in the transaction price to the extent it is probable a significant reversal will not occur.

The amount of variable consideration excluded from the transaction price for the years ended December 31, 2020 and 2019 was insignificant.

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

however, such true-up adjustments are not expected to be material.

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

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We allocate the transaction price to each performance obligation in a contract based on its relative SSP.

The SSP is the observable price at which we sell the product or service separately.

In the absence of observable pricing, we estimate SSP using the residual approach.

We establish SSP as follows:

We have concluded the residual approach to estimating SSP of our SaaS subscriptions is an appropriate allocation of the transaction price.

Maintenance and support is sold on a standalone basis in conjunction with renewals of our legacy perpetual software licenses and within a narrow range of the net license fee.

Because an economic relationship exists between the license and maintenance and support, we have concluded the residual approach to estimating SSP of term license subscriptions is an appropriate allocation of the transaction price.

Contract Balances

Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to our contracts with customers.

Contract assets primarily relate to unbilled amounts for contracts with customers for which the amount of revenue recognized exceeds the amount billed to the customer.

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

As of December 31, 2020 and December 31, 2019, contract assets of $ 20.1 million and $ 22.8 million, respectively, are included in the Prepaid expenses and other current assets and Other assets line items in our consolidated balance sheets.

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

Deferred revenue is then recognized as the revenue recognition criteria are met.

Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current.

For the year ended December 31, 2020, we recognized $ 83.4 million of revenue that was included in the deferred revenue balance as of December 31, 2019.

Transaction Price Allocated to the Remaining Performance Obligations

As of December 31, 2020, we had an aggregate transaction price of $ 206.2 million allocated to unsatisfied performance obligations.

We expect to recognize $ 189.6 million of this balance as revenue over the next 24 months with the remaining amount recognized thereafter.

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease.

Operating leases with a term greater than one year are recognized on the balance sheet as right-of-use ("ROU") assets, lease liabilities, and, if applicable, long-term lease liabilities.

ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease.

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

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

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

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

Operating lease ROU assets also include any lease prepayments, offset by lease incentives.

Certain of our leases include options to extend or terminate the lease.

An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option while an option to terminate is considered unless it is reasonably certain we will not exercise the option.

For certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

We have lease agreements which require payments for lease and non-lease components (i.e., common area maintenance) that are accounted for as a single lease component.

Variable lease payment amounts that cannot be determined at the commencement of the lease, such as maintenance costs based on future obligations, are not included in ROU assets or lease liabilities but are rather expensed as incurred and recorded as variable lease expense.

As of December 31, 2020, we have operating leases for corporate offices.

Our operating leases have remaining lease terms ranging from 3 months to 11 years, some of which include options to extend the leases for up to 10 years.

In April 2018, we entered into a lease agreement with respect to 176,222 square feet of office space in McLean, Virginia for a new corporate headquarters.

The initial term of the lease was 150 months.

We took initial possession of the first phase of the new headquarters in October 2018 and began to recognize rent expense as of that date.

In February 2019, we took possession of an additional 28,805 square feet of adjacent office space.

In January 2020, we entered into an amendment which adjusts the original terms of the headquarters lease.

Under this amendment, we exercised an option to expand occupancy, adding 34,158 square feet of office space.

Occupancy of the added space commenced on October 14, 2020.

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

Effective July 1, 2020, we took possession of the space, began to recognize rent expense, and reported a $ 7.9 million ROU asset and lease liability on our consolidated balance sheets.

In October 2020, we paid the full $ 2.7 million principal balances outstanding under our finance leases pursuant to an option permitting us to pay such balances in full at any time.

As of the date of the paydown, the titles to the assets were transferred to us, the associated ROU liabilities were retired, the carrying values of the purchased assets were adjusted, and the assets were reclassified from finance leases to property and equipment, net on the consolidated balance sheets.

The following table sets forth the components of lease expense for the years ended December 31, 2020 and 2019 (in thousands):

Year Ended December 31,

Operating lease cost $ 6,649 $ 9,733

Finance lease costs:

Amortization of right-of-use assets 1,242 700

Interest on lease liabilities 150 108

Short-term lease cost 565 462

Variable lease cost 281 409

Total $ 8,887 $ 11,412

Supplemental balance sheet information related to leases as of December 31, 2020 and December 31, 2019 was as follows (in thousands, except for lease term and discount rate):

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31,

Operating Leases

Operating right-of-use assets $ 30,659 $ 24,205

Operating lease liabilities, current $ 6,923 $ 3,836

Operating lease liabilities, net of current portion 51,194 44,416

Total operating lease liabilities $ 58,117 $ 48,252

Finance Leases

Property and equipment, at cost $ — $ 4,475

Accumulated depreciation — ( 703 )

Property and equipment, net $ — $ 3,772

Finance lease liabilities, current $ — $ 1,447

Finance lease liabilities, net of current portion — 2,375

Total finance lease liabilities $ — $ 3,822

Weighted Average Remaining Lease Term (in years)

Operating leases 10.6 11.4

Finance leases 0.0 2.5

Weighted Average Discount Rate

Operating leases 9.6 % 9.8 %

Finance leases — % 5.5 %

For the year ended December 31, 2020, amortization of operating ROU assets totaled $ 1.6 million while interest expense on operating ROU liabilities totaled $ 1.9 million.

Supplemental cash flow information related to leases for the years ended December 31, 2020 and 2019 was as follows (in thousands):

Year Ended December 31,

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

Operating cash outflows for operating leases $ 3,407 $ 6,413

Operating cash outflows for finance leases 150 108

Financing cash outflows for finance leases 3,822 653

ROU assets obtained in exchange for lease obligations:

Operating leases — 523

Finance leases — 4,475

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

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating Leases

Thereafter 57,386

Total lease payments 98,987

imputed interest ( 40,870 )

Total $ 58,117

Novayre Solutions SL

In January 2020, we acquired 100 % of the outstanding common stock of Novayre Solutions SL ("Novayre"), a developer of a robotic process automation platform, for approximately $ 6.9 million.

The acquisition was made due to the attractive nature of the product offerings of Novayre and in furtherance of our objective to enhance our automation platform.

The transaction was financed through available cash on hand.

The allocation of the purchase price was based upon estimated fair values of the assets acquired and liabilities assumed.

The final allocation of the purchase price is as follows:

Cash acquired $ 731

Other current assets 213

Property and equipment 22

Property and equipment consisted of the following as of December 31 (in thousands):

Developed technology 1,537

Customer relationships 406

Goodwill 4,348

Other noncurrent assets 10

Total assets acquired 7,267

Current liabilities 14

Noncurrent liabilities 344

Total liabilities assumed 358

Net assets acquired $ 6,909

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

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

Acquired property and equipment is depreciated on a straight-line basis over the assets' respective estimated remaining useful lives.

Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, non-contractual relationships, and expected future synergies.

We do not expect the purchase price allocated to goodwill and intangible assets to be deductible for tax purposes.

Property and Equipment, net

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

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31,

Leasehold improvements $ 36,263 $ 37,130

3 unchanged sentences

Equipment 49 72

46,880 15,007

Property and equipment, gross 44,720 46,880

accumulated depreciation ( 9,316 ) ( 7,326 )

Property and equipment, net $ 35,404 $ 39,554

Depreciation and amortization totaled $ 4.7 million, $ 2.0 million and $ 0.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

During the year ended December 31, 2019, we retired $ 3.2 million of leasehold improvements, $ 0.9 million of computer hardware, $ 0.4 million of office furniture and fixtures, $ 0.4 million of software and $ 0.1 million of equipment associated with the relocation of our corporate headquarters.

During the year ended December 31, 2019, we recorded a loss on disposal of $ 0.1 million.

During the year ended December 31, 2018, we disposed of $ 0.1 million of fully depreciated computer hardware.

At December 31, 2019, office furniture and fixtures included $ 3.7 million acquired under finance lease agreements and computer hardware included $ 0.8 million acquired under finance lease agreements.

There were no assets acquired under finance lease agreements as of December 31, 2018.

Accumulated depreciation related to office furniture and fixtures and computer hardware acquired under finance leases totaled $ 0.7 million at December 31, 2019.

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

Depreciation expense totaled $ 5.4 million, $ 4.7 million, and $ 2.0 million for the years ended December 31, 2020, 2019, and 2018, respectively.

During the year ended December 31, 2020, we retired $ 1.3 million of leasehold improvements, $ 0.2 million of computer hardware, and $ 0.1 million of office furniture and fixtures and equipment, and nominal losses on disposal were recorded.

During the year ended December 31, 2019, we retired $ 3.2 million of leasehold improvements, $ 0.9 million of computer hardware, $ 0.4 million of office furniture and fixtures, $ 0.4 million of software, and $ 0.1 million of equipment and recorded a loss on disposal of $ 0.1 million.

Accrued Expenses

Accrued expenses consisted of the following as of December 31 (in thousands):

Accrued contract labor costs $ 1,921 $ 3,128

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

As of December 31,

Accrued hosting costs $ 1,229 $ 1,865

Accrued reimbursable employee expenses 1,353 459

Accrued legal costs 422 —

Accrued marketing and tradeshow expenses 365 229

Accrued contract labor costs 908 1,921

Accrued marketing and trade show expenses 596 365

Accrued audit and tax expenses 370 315

Accrued legal costs 760 422

Accrued reimbursable employee expenses 231 1,353

Accrued third party license fees 570 288

1 unchanged sentence

Total $ 5,821 $ 7,488

2017 Revolving Line of Credit

Line of Credit

In November 2017, we entered into a $ 20.0 million revolving line of credit with a lender.

The facility matures in November 2022.

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

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

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

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

The agreement contains certain customary affirmative and negative covenants and requires us to maintain

(1) 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.

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

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

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

As of December 31, 2019, we had no t made any borrowings under this new revolving line of credit and we had outstanding letters of credit totaling $ 10.5 million under the 2017 line of credit in connection with securing our leased office space.

As of December 31, 2020, we had no outstanding borrowings under this revolving line of credit, and we had outstanding letters of credit totaling $ 11.2 million in connection with securing our

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

leased office space.

We are monitoring the LIBOR to SOFR transition, which may result in modification or amendment of our existing revolving line of credit.

For the years ended December 31, 2020, 2019, and 2018, our loss before income taxes was comprised of the following (in thousands):

Year Ended December 31,

2020 2019 2018

3 unchanged sentences

For the years ended December 31, 2020, 2019, and 2018, our income tax expense (benefit) was comprised of the following (in thousands):

Year Ended December 31,

2020 2019 2018

8 unchanged sentences

For the years ended December 31, 2020, 2019, and 2018, the provision for income taxes differs from the amount computed by applying the federal statutory income tax rates to our loss before the provision (benefit) for income taxes as follows:

Year Ended December 31,

2020 2019 2018

10 unchanged sentences

Total ( 2.7 ) % ( 1.6 ) % ( 0.4 ) %

The effective tax rate of ( 1.6 )% in 2019 includes a net $ 10.2 million of tax expense attributable to the change in the valuation allowance in the United States and Switzerland, partially offset by favorable excess tax benefits for equity compensation and research credits.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The effective tax rate of ( 2.7 )% in 2020 includes $ 29.6 million of tax expense attributable to the change in the valuation allowance in the United States and Switzerland, partially offset by $ 18.8 million of favorable excess tax benefits for equity compensation and research credits.

Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amount of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

As of December 31, 2020 and 2019, significant components of our deferred tax assets and liabilities were as follows (in thousands):

As of December 31,

Deferred tax assets:

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Accrued vacation 339 409

Deferred rent — 373

Bad debt 383 164

Depreciation — 151

Other 1,234 260

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federal tax purposes, respectively.

federal NOL carryforwards, in the amount of $ 24.4 million, generated prior to 2018 will expire, if unused, in 2037.

Due to the Tax Cuts and Jobs Act of 2017 (the "TCJA"), U.S.

federal NOL carryforwards, in the amount of $ 74.9 million, generated after 2017 have an indefinite carryforward period.

Section 382 of the Internal Revenue Code limits the utilization of the NOL carryforwards when ownership changes occur, as defined by that section.

A number of states have similar state laws that limit utilization of the state NOL carryforwards when ownership changes occur.

We have performed an analysis of our Section 382 ownership changes and have determined that all U.S.

federal NOL carryforwards in the amount of $ 24.4 million, gross, generated prior to 2018 will expire, if unused, in 2037.

Under the Tax Cuts and Jobs Act of 2017 (the "TCJA"), as modified by the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act"), federal NOL carryforwards generated in tax years beginning after December 31, 2017 may be carried forward indefinitely.

As of December 31, 2020, we had $ 159.5 million of gross NOL carryforwards generated after 2017 for U.S.

federal tax purposes, which may be used to offset 80% of our taxable income annually.

Section 382 of the Internal Revenue Code limits the utilization of NOL carryforwards when ownership changes occur, as defined by that section.

A number of states have similar state laws that limit utilization of state NOL carryforwards when ownership changes occur.

We have performed an analysis of our Section 382 ownership changes and have determined all U.S.

federal and state NOL carryforwards are available for use as of December 31, 2020.

As of December 31, 2020 and 2019, we had $ 10.5 million and $ 7.5 million, respectively, of U.S.

federal tax credit carryforwards which will expire, if unused, in 2039.

federal tax credit carryforwards which will expire, if unused, between 2031 and 2040.

As of December 31, 2020 and 2019, we had U.S.

gross state NOL carryforwards of $ 177.2 million and $ 100.9 million, respectively.

We had tax effected state NOL carryforwards of $ 6.5 million and $ 3.7 million as of December 31, 2019 and 2018,

respectively.

We had tax effected state NOL carryforwards of $ 11.2 million and $ 6.5 million as of December 31, 2020 and 2019, respectively.

The rules regarding carryforwards vary from state to state, and the ability to utilize NOLs varies based on

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

timing and amount.

The majority of state NOL carryforwards generated prior to 2018 will expire, if unused, in 2037.

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Those NOL carryforwards will begin to expire, if unused, between 2021 to 2027.

On May 19, 2019, Swiss voters approved the Federal Act on Tax Reform and AHV Financing (TRAF) which resulted in a change to the Swiss income tax rate, amongst other items.

The tax law change is considered enacted in 2019 for U.S.

GAAP purposes.

We remeasured our Swiss deferred tax balances and offsetting valuation allowance using the enacted tax rates, resulting in an immaterial net tax impact.

The net change during the year in the total valuation allowance was $ 5.6 million, primarily driven by the valuation allowance recorded against the United States and Switzerland deferred tax assets.

The net change in the total valuation allowance during the year ended December 31, 2020 was $ 30.3 million, primarily driven by the valuation allowance recorded against the United States and Switzerland deferred tax assets.

As of December 31, 2020, we continued to maintain a full valuation allowance against U.S.

deferred tax assets based on our cumulative operating results as of December 31, 2020, three-year cumulative loss, and assessment of our expected future results of operations.

We have evaluated all evidence, both positive and negative, in assessing the likelihood of realizability and the negative evidence outweighed the positive evidence.

We have evaluated all evidence, both positive and negative, in assessing the likelihood of realizability, and we determined the negative evidence outweighed the positive evidence.

As of December 31, 2020, we have a valuation allowance of $ 9.2 million against foreign deferred tax assets, primarily for deferred tax assets at our subsidiary in Switzerland.

Based on our cumulative operating results as of December 31, 2019, and assessment of our expected future results of operations, we determined that it was not more likely than not that we would be able to realize the deferred tax assets prior to expiration.

Based on our cumulative operating results as of December 31, 2020 and assessment of our expected future results of operations, we determined it was not more likely than not that we would be able to realize the deferred tax assets prior to expiration.

We plan to distribute previously undistributed earnings of our foreign subsidiaries back to the United States in future years.

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income tax liability is not practicable.

As of December 31, 2019 and 2018, we had unrecognized tax benefits of $ 1.6 million and $ 1.0 million, respectively, of which the entire portion would affect our effective tax rate if recognized.

As of December 31, 2020 and 2019, we had unrecognized tax benefits of $ 2.3 million and $ 1.6 million, respectively, of which no ne would affect our effective tax rate if recognized due to the valuation allowance.

The following table summarizes the activity related to our unrecognized tax benefit from January 1, 2018 to December 31, 2020 (in thousands):

Balance as of January 1, 2017 $ 419

Balance as of December 31, 2017

Additions for tax positions in current years 388

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We recognize interest and penalties related to uncertain tax positions in income tax expense.

During the year ended December 31, 2019, we recognized approximately $ 3 thousand in interest.

During the years ended December 31, 2020 and 2019, we recognized nominal amounts in interest.

We did no t recognize any interest during the year ended December 31, 2018.

The cumulative balance of interest and penalties as of December 31, 2019 and 2018 was $ 36 thousand and $ 33 thousand, respectively.

If recognized, approximately $ 1.6 million and $ 1.0 million of unrecognized tax benefits would impact the effective tax rate during the years ended December 31, 2019 and 2018, respectively.

We anticipate that total unrecognized tax benefits will not decrease over the next year.

The cumulative balance of interest and penalties as of December 31, 2020 and 2019 were not meaningful.

We anticipate total unrecognized tax benefits will not decrease over the next year.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We file income tax returns in the U.S.

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The tax years 2017 through 2020 remain open to examination by the major taxing jurisdictions to which we are subject.

There are no open examinations that would have a material impact to our consolidated financial statements.

On January 1, 2019, we adopted ASC 606 and recorded no net impact to retained earnings for the tax effects of the adoption because of the existence of valuation allowances in the United States and Switzerland.

On January 1, 2019, we adopted ASC 842.

The most significant impact of ASC 842 was the recognition of ROU assets and lease liabilities for operating leases, which required corresponding deferred tax assets and liabilities.

The net tax effects of the adoption of ASC 842 was immaterial.

There are no open examinations that would have a meaningful impact to our consolidated financial statements.

The CARES Act also includes various other income and payroll tax measures outside of the carryforward provisions discussed previously.

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

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

Stock-Based Compensation

In May 2017, our board of directors adopted, and our stockholders approved, the 2017 Equity Incentive Plan (the “2017 Plan”), which became effective as of the date of the final prospectus for our IPO.

The 2017 Plan provides for the grant of incentive stock options to employees, and for the grant of nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance-based stock awards and other forms of equity compensation to employees, including officers, and to non-employee directors and consultants.

We initially reserved 6,421,442 shares of Class A common stock for issuance under the 2017 Plan, which included 421,442 shares that remained available for issuance under our 2007 Stock Option Plan (the “2007 Plan”) at the time that the 2017 Plan became effective.

Equity Incentive Plans

In May 2017, our Board of Directors adopted, and our stockholders approved, the 2017 Equity Incentive Plan (the “2017 Plan”), which became effective as of the date of the final prospectus for our initial public offering.

The 2017 Plan provides for the grant of incentive stock options to employees, and for the grant of nonstatutory stock options, restricted stock awards, RSUs, stock appreciation rights, performance-based stock awards, and other forms of equity compensation to employees, including officers, non-employee directors, and consultants.

The number of shares reserved under the 2017 Plan increases for any shares subject to outstanding awards originally granted under the 2007 Plan that expire or are forfeited prior to exercise.

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As of December 31, 2020, there were 7,165,409 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 4,276,377 were available to be issued.

Stock Options

We estimate the fair value of stock options containing only a service condition using the Black-Scholes option pricing model, which requires the use of subjective assumptions, including the expected term of the option, the current price of the underlying stock, the expected stock price volatility, expected dividend yield, and the risk-free interest rate for the expected term of the option.

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The 2019 CEO Grant is eligible to vest based on the achievement of a stock price appreciation target of our Class A common stock.

Specifically, the 2019 CEO Grant will vest when shares of our Class A common stock closes at or above $ 84.63 per share for a period equal to or greater than 90 calendar days or upon the occurrence of a change in control in which the value of our Class A common stock is equal to or greater than $ 84.63 per share within five years of the grant date.

Specifically, the 2019 CEO Grant will vest when shares of our Class A common stock close at or above $ 84.63 per share for a period equal to or greater than 90 consecutive calendar days or upon the occurrence of a change in control in which the value of our Class A common stock is equal to or greater than $ 84.63 per share within five years of the grant date.

The fair value of the 2019 CEO Grant was determined using a Monte Carlo simulation.

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

Refer to Note 17 for further details on the status of this award.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2020, 2019, and 2018:

Year Ended December 31,

2020 2019 2018

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

Stock Options

The following table summarizes the stock option activity for the years ended December 31, 2019, 2018 and 2017:

(in thousands)

Outstanding at January 1, 2017 6,784,448 $ 4.65 6.5 $ 44,259

Granted 1,256,200 11.92

The following table summarizes stock option activity for the years ended December 31, 2020, 2019, and 2018:

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

Outstanding at December 31, 2017

7,010,887 $ 6.36 6.6 $ 176,122

Exercised ( 1,486,218 ) 2.10 41,606

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Outstanding at December 31, 2018

5,021,068 7.30 6.4 97,440

Granted 700,000 33.98

Exercised ( 1,194,471 ) 4.11 44,081

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Outstanding at December 31, 2019

Granted 700,000 33.98

4,458,611 12.30 5.8 115,501

Exercised ( 1,001,411 ) 6.39 81,181

Expired ( 1,380 ) 11.82

Canceled ( 56,580 ) 11.33

Outstanding at December 31, 2020

3,399,240 $ 14.06 4.9 $ 503,174

Exercisable at December 31, 2020

The weighted average grant-date fair value of options granted during the years ended December 31, 2019 and 2017 was $ 13.57 and $ 5.05 per option, respectively.

No stock options were granted during the year ended December 31, 2018.

2,232,140 $ 8.38 5.1 $ 343,098

There were no stock options granted during the years ended December 31, 2020 and 2018.

The weighted average grant date fair value of stock options granted during the year ended December 31, 2019 was $ 13.57 per share.

The total fair value of stock options that vested during the years ended December 31, 2020, 2019, and 2018 was $ 2.8 million, $ 2.0 million, and $ 10.5 million, respectively.

As of December 31, 2019, the total compensation cost related to unvested stock options not yet recognized was $ 8.4 million, which will be recognized over a weighted average period of 1.9 years.

As of December 31, 2020, the total compensation cost related to unvested stock options not yet recognized was $ 4.0 million, which will be recognized over a weighted average period of one year .

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units

The following table summarizes the restricted stock unit activity for the years ended December 31, 2019, 2018 and 2017:

The following table summarizes RSU activity for the years ended December 31, 2020, 2019, and 2018:

Number of Shares Weighted Average Grant Date Fair Value

Non-vested outstanding at January 1, 2017 — $ —

Non-vested and outstanding at December 31, 2017

731,975 $ 22.16

Granted 622,166 29.60

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Canceled ( 35,702 ) 23.97

Non-vested outstanding at December 31, 2017 731,975 22.16

Non-vested and outstanding at December 31, 2018

1,175,049 26.04

Granted 436,912 40.70

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Canceled ( 67,666 ) 26.38

Non-vested outstanding at December 31, 2018 1,175,049 26.04

Non-vested and outstanding at December 31, 2019

1,022,835 31.39

Granted 589,692 60.47

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Canceled ( 176,915 ) 32.01

Non-vested outstanding at December 31, 2019 1,022,835 31.39

As of December 31, 2019, total unrecognized compensation cost related to unvested restricted stock units was approximately $ 28.8 million and the weighted average remaining vesting period was 2.4 years.

In November 2018, our board of directors approved the grant of 255,930 restricted stock units under the 2017 Plan at a fair value of $ 30.06 per share to our three co-founders.

Non-vested and outstanding at December 31, 2020

1,165,003 $ 46.04

As of December 31, 2020, total unrecognized compensation cost related to unvested RSUs was approximately $ 48.0 million, which will be recognized over a weighted average period of 2.3 years.

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

The awards were approved by the Board of Directors.

The value of these awards at the grant date was $ 7.7 million and was amortized over the vesting periods .

The restricted stock units vested during the three months ended March 31, 2019.

The following table summarizes the components of our stock-based compensation expense for the years ended December 31, 2019, 2018 and 2017 (in thousands):

The RSUs vested during the year ended December 31, 2019.

The following table summarizes the components of our stock-based compensation expense by instrument type for the years ended December 31, 2020, 2019, and 2018 (in thousands):

Year Ended December 31,

2020 2019 2018

Stock-based compensation expense related to stock options $ 3,408 $ 7,947 $ 9,607

Stock-based compensation expense related to restricted stock units 12,667 7,714 753

Stock-based compensation expense related to the issuance of common stock to directors 368 393 222

Stock-based compensation expense related to stock option modifications — — 2,394

RSUs $ 10,745 $ 12,667 $ 7,714

Stock options 4,164 3,408 7,947

Common stock awards to Board of Directors 370 368 393

Total stock-based compensation expense $ 15,279 $ 16,443 $ 16,054

Stock-based compensation expense for restricted stock units, stock options and issuances of common stock is included in the following line items in the accompanying consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 (in thousands):

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-based compensation expense for RSUs, stock options, and issuances of common stock to directors is included in the following line items in the accompanying consolidated statements of operations for the years ended December 31, 2020, 2019, and 2018 (in thousands):

Year Ended December 31,

2020 2019 2018

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Professional services 1,477 2,748 1,717

2,748 1,717 1,295

Operating expenses

Sales and marketing 2,821 4,742 3,473

4,742 3,473 3,233

Research and development 2,718 3,480 2,416

3,480 2,416 2,822

General and administrative 7,320 4,826 7,934

4,826 7,934 5,051

Total stock-based compensation expense $ 15,279 $ 16,443 $ 16,054

$ 16,443 $ 16,054 $ 12,976

Stockholders' Equity

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

The holders of Class A common stock are entitled to one vote per share, and the holders of Class B common stock are entitled to ten votes per share, on all matters that are subject to stockholder vote.

The holders of Class A common stock are entitled to one vote per share, and the holders of Class B common stock are entitled to ten votes per share on all matters subject to stockholder vote.

The holders of Class B common stock also have approval rights for certain corporate actions.

Each share of Class B common stock may be converted into one share of Class A common stock at the option of its holder and will be automatically converted into one share of Class A common stock upon transfer thereof, subject to certain exceptions.

Each share of Class B common stock may be converted into one share of Class A common stock at the option of its holder and will be automatically converted upon transfer thereof, subject to certain exceptions.

In addition, upon the date on which the outstanding shares of Class B common stock represent less than 10 % of the aggregate voting power of our capital stock, all outstanding shares of Class B common stock shall convert automatically into Class A common stock.

Basic and Diluted Loss per Common Share

The following table sets forth the computation of basic and diluted net loss per share for the years ended December 31 (in thousands, except per share data):

The following table sets forth the computation of basic and diluted net loss per share for the years ended December 31, 2020, 2019, and 2018 (in thousands, except share and per share data):

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31,

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Net loss $ ( 33,477 ) $ ( 50,714 ) $ ( 49,451 )

Accretion of dividends on convertible preferred stock — — 357

Net loss attributable to common stockholders $ ( 50,714 ) $ ( 49,451 ) $ ( 31,364 )

Weighted average common shares outstanding, basic and diluted 69,050,565 65,479,327 62,140,684

Net loss per share attributable to common stockholders, basic and diluted $ ( 0.77 ) $ ( 0.80 ) $ ( 0.63 )

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

Net loss per share, basic and diluted $ ( 0.48 ) $ ( 0.77 ) $ ( 0.80 )

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

Year Ended December 31,

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Stock options 3,399,240 4,458,611 5,021,068

Restricted stock units 1,022,835 1,175,049 731,975

Leases and Other Commitments

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

Our leases have remaining lease terms of 1 year to 12 years, some of which include options to extend the leases for up to 5 years.

In April 2018, we entered into a lease agreement with respect to 176,222 square feet of office space in Tysons, Virginia for a new corporate headquarters.

The term of the lease was 150 months.

We took initial possession of the first phase of the new headquarters in October 2018 and began to recognize rent expense.

We took possession of 28,805 square feet of adjacent office space in February 2019.

We expect to start making recurring rental payments under the lease in the third quarter of 2020.

The following table sets forth the components of lease expense for the year ended December 31, 2019 (in thousands):

Year Ended December 31,

Operating lease cost $ 9,733

Finance lease costs:

Amortization of right-of-use assets 700

Interest on lease liabilities 108

Short-term lease cost 462

Variable lease cost 409

Total $ 11,412

Supplemental balance sheet information related to leases as of December 31, 2019 was as follows (in thousands, except for lease term and discount rate):

December 31, 2019

Operating Leases

Operating ROU assets $ 24,205

Operating lease liabilities, current $ 3,836

Operating lease liabilities, net of current portion 44,416

Total operating lease liabilities $ 48,252

Finance Leases

Property and equipment, at cost $ 4,475

Accumulated depreciation ( 703 )

Property and equipment, net $ 3,772

Finance lease liabilities, current $ 1,447

Finance lease liabilities, net of current portion 2,375

Total finance lease liabilities $ 3,822

Weighted Average Remaining Lease Term

Operating leases 11.4

Finance leases 2.5

Weighted Average Discount Rate

Operating leases 9.8 %

Finance leases 5.5 %

Supplemental cash flow information related to leases for the year ended December 31, 2019 was as follows (in thousands):

Year Ended December 31,

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

Operating cash outflows for operating leases $ 6,413

Operating cash outflows for finance leases 108

Financing cash outflows for finance leases 653

ROU assets obtained in exchange for lease obligations:

Operating leases 523

Finance leases 4,475

The maturities of lease liabilities under non-cancelable operating and finance leases as of December 31, 2019 was as follows (in thousands):

Operating Leases Finance Leases

2020 $ 3,781 $ 1,620

2021 6,896 1,620

2022 7,007 859

Thereafter 57,884 —

Total lease payments 90,026 4,099

imputed interest ( 41,774 ) ( 277 )

Total $ 48,252 $ 3,822

A summary of our future minimum lease commitments and other commitments by year as of December 31, 2018 was as follows (in thousands):

Office Leases Equipment Leases Lease Related Commitments

2019 $ 6,985 $ 216 $ 29,587

2020 6,371 22 —

2021 8,331 — —

2022 6,939 — —

2023 6,987 — —

Thereafter 65,151 — —

100,764 238 29,587

tenant improvement allowance — — ( 14,441 )

Total $ 100,764 $ 238 $ 15,146

Other Commitments

We also have entered into a non-cancellable agreement for the use of technology that is integral in the development of our software and pay annual royalty fees of $ 0.3 million.

Letters of Credit

At each of December 31, 2019 and 2018, we had outstanding letters of credit totaling $ 10.5 million in connection with securing our leased office space.

All letters of credit are secured by our borrowing arrangement as described in Note 5.

Contingencies

From time to time, we are subject to legal, regulatory and other proceedings and claims that arise in the ordinary course of business.

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

Non-vested restricted stock units 1,165,003 1,022,835 1,175,049

Commitments and Contingencies

Contractual Warranty and Indemnification Obligations

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We have never incurred costs to defend lawsuits or settle claims related to these indemnification provisions.

Letters of Credit

At December 31, 2020 and 2019, we had outstanding letters of credit totaling $ 11.2 million and $ 10.5 million, respectively, in connection with securing our leased office space.

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

From time to time, we are subject to legal, regulatory, and other proceedings and claims that arise in the ordinary course of business.

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

Other Commitments

We also have entered into a non-cancellable agreement for the use of technology that is integral in the development of our software and pay annual royalty fees of $ 0.3 million.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment and Geographic Information

The following table summarizes revenue by geography for the years ended December 31 (in thousands):

The following table summarizes revenue by geography for the years ended December 31, 2020, 2019, and 2018 (in thousands):

Year Ended December 31,

2020 2019 2018

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

Revenue from external customers attributed to the United Kingdom were 12.2 % of our total revenue for the year ended December 31, 2019.

There were no individual foreign countries from which more than 10% of our total revenue was attributable for the years ended December 31, 2018 and 2017.

Revenues from customers attributed to the United Kingdom were 12.5 % and 12.2 % of our total revenue for the years ended December 31, 2020 and 2019, respectively.

There were no individual foreign countries from which more than 10% of our total revenue was attributable for the year ended December 31, 2018.

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

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We have a defined contribution 401(k) retirement and savings plan (the “401(k) Plan”) to provide retirement benefits for all eligible employees.

All employees who have completed forty-five days of service and are at least twenty-one years of age are eligible to participate in the 401(k) Plan.

The 401(k) Plan allows eligible employees to make salary-deferred contributions up to 75 % of their annual compensation, as defined, and subject to certain Internal Revenue Service limitations.

Employer contributions vest at 25 % per year, over four years.

For th e years ending December 31, 2019, 2018 and 2017, we incurred $ 5.5 million, $ 4.7 million and $ 3.3 million, respectively, in contribution expense related to the employer matching contributions.

All employees over the age of 21 on their first day of the month immediately following the month of hiring are eligible to participate in the 401(k) Plan.

The Plan excludes United States expatriate employees, employees who are residents of Puerto Rico, and employees covered by another country’s pension retirement plan who are receiving employer contributions in that plan.

The 401(k) Plan allows eligible employees to make salary-deferred contributions up to 75 % of their pre-tax annual compensation, as defined and subject to certain Internal Revenue Service limitations.

Employer contributions are made semi-monthly and calculated as 100 % of the employee's contribution for each pay period up to a maximum of 4 % of the employee's eligible gross compensation for the pay period.

Employer contributions vest at 25 % per year over four years , beginning with the completion of the first year of service.

For th e years ended December 31, 2020, 2019, and 2018, we incurred $ 6.8 million, $ 5.5 million, and $ 4.7 million, respectively, in contribution expense related to employer matching contributions.

We are obligated to make plan contributions for the employees of certain of our wholly-owned foreign subsidiaries.

For the years ending December 31, 2019, 2018 and 2017, we incurred $ 1.5 million, $ 1.3 million and $ 0.9 million, respectively, in contribution expense related to our foreign subsidiaries.

Selected Quarterly Information (Unaudited)

The following table sets forth unaudited quarterly consolidated statement of operations data for each of the eight quarters in 2019 and 2018.

The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included in this Annual Report on Form 10-K.

In our opinion, the quarterly financial data reflects all adjustments, which consist only of normal recurring adjustments that we consider necessary for a fair presentation of this data.

The quarterly financial data should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

These quarterly results are not necessarily indicative of our operating results to be expected in the future.

Three Months Ended

Dec 31, 2019 Sep 30, 2019 Jun 30, 2019 Mar 31, 2019 Dec 31, 2018 Sep 30, 2018 Jun 30, 2018 Mar 31, 2018

(in thousands)

Consolidated Statements of

Operations Data:

Subscriptions $ 42,108 $ 37,774 $ 36,860 $ 34,557 $ 35,108 $ 30,905 $ 33,047 $ 26,952

Professional services 26,510 28,381 28,415 25,747 25,108 24,043 26,836 24,744

Total revenue 68,618 66,155 65,275 60,304 60,216 54,948 59,883 51,696

Cost of revenue:

Subscriptions 4,993 4,484 4,036 3,585 3,284 3,261 2,824 2,628

Professional services 17,780 19,467 19,015 20,481 18,926 16,831 18,750 18,421

Total cost of revenue 22,773 23,951 23,051 24,066 22,210 20,092 21,574 21,049

Gross profit 45,845 42,204 42,224 36,238 38,006 34,856 38,309 30,647

Operating expenses:

Sales and marketing 31,254 27,603 29,992 28,591 30,177 25,467 27,384 22,964

Research and development 15,625 15,697 12,765 13,956 12,332 11,737 10,785 9,870

General and administrative 12,028 11,191 9,261 9,016 8,799 12,537 8,425 8,060

Total operating expenses 58,907 54,491 52,018 51,563 51,308 49,741 46,594 40,894

Operating loss ( 13,062 ) ( 12,287 ) ( 9,794 ) ( 15,325 ) ( 13,302 ) ( 14,885 ) ( 8,285 ) ( 10,247 )

Other (income) expense:

Other (income) expense, net ( 2,822 ) 2,262 ( 79 ) ( 302 ) 510 110 2,593 ( 918 )

Interest expense 131 96 69 71 64 67 54 13

Total other (income) expense

( 2,691 ) 2,358 ( 10 ) ( 231 ) 574 177 2,647 ( 905 )

Loss before income taxes ( 10,371 ) ( 14,645 ) ( 9,784 ) ( 15,094 ) ( 13,876 ) ( 15,062 ) ( 10,932 ) ( 9,342 )

Income tax expense (benefit)

426 5 267 122 27 ( 34 ) 35 211

$ ( 10,797 ) $ ( 14,650 ) $ ( 10,051 ) $ ( 15,216 ) $ ( 13,903 ) $ ( 15,028 ) $ ( 10,967 ) $ ( 9,553 )

(1) The revenue for the three months ended March 31, 2019, June 30, 2019 and September 30, 2019 have been adjusted from

previously reported revenue as a result of the adoption of ASC 606.

Refer to the tables below for a reconciliation of 2019

quarterly revenue.

(2) In the third quarter of 2018, we recorded $ 4.5 million of cumulative stock-based compensation expense upon the

vesting of an option previously granted to our Chief Executive Officer in 2016.

See Note 7 for further discussion of

stock-based compensation expense.

Quarter Ended March 31, 2019

As Reported (ASC 606) Impacts from Adoption Without Adoption (ASC 605)

(in thousands)

SaaS subscriptions $ 21,278 $ 667 $ 20,611

Term license subscriptions 9,557 ( 3,417 ) 12,974

Maintenance and support 3,722 2,398 1,324

Professional services 25,747 1,077 24,670

Total revenue $ 60,304 $ 725 $ 59,579

Quarter Ended June 30, 2019

As Reported (ASC 606) Impacts from Adoption Without Adoption (ASC 605)

(in thousands)

SaaS subscriptions $ 22,796 $ 782 $ 22,014

Term license subscriptions 10,103 ( 5,908 ) 16,011

Maintenance and support 3,961 2,727 1,234

Professional services 28,415 763 27,652

Total revenue $ 65,275 $ ( 1,636 ) $ 66,911

Quarter Ended September 30, 2019

As Reported (ASC 606) Impacts from Adoption Without Adoption (ASC 605)

(in thousands)

SaaS subscriptions $ 24,573 $ 914 $ 23,659

Term license subscriptions 9,199 ( 7,577 ) 16,776

Maintenance and support 4,002 2,838 1,164

Professional services 28,381 593 27,788

Total revenue $ 66,155 $ ( 3,232 ) $ 69,387

Quarter Ended December 31, 2019

As Reported (ASC 606) Impacts from Adoption Without Adoption (ASC 605)

(in thousands)

SaaS subscriptions $ 26,381 $ 559 $ 25,822

Term license subscriptions 11,569 ( 5,687 ) 17,256

Maintenance and support 4,158 2,918 1,240

Professional services 26,510 358 26,152

Total revenue $ 68,618 $ ( 1,852 ) $ 70,470

For the years ended December 31, 2020, 2019, and 2018, we incurred $ 1.7 million, $ 1.5 million, and $ 1.3 million, respectively, in contribution expense related to our foreign subsidiaries.

Investments and Fair Value Measurements

Fair Value Measurements

The hierarchy requires us to use observable inputs when available and to minimize the use of unobservable inputs when determining fair value.

The three tiers are defined as follows:

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

Inputs, other than quoted prices in active markets, that are observable either directly or indirectly;

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

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Valuation techniques maximize the use of relevant observable inputs and

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

minimize the use of unobservable inputs.

There were no instruments measured at fair value on a recurring basis using significant unobservable inputs during the years ended December 31, 2020 and 2019.

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

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

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

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

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

Our investment portfolio consists largely of debt investments classified as available-for-sale.

Changes in the fair value of available-for-sale securities, excluding other-than-temporary impairments, are recorded in other comprehensive income (loss).

The components of our investments as of December 31, 2020 are as follows (in thousands):

Year Ended December 31, 2020

Fair Value Measurement Balance Sheet Classification

Fair Value Level Cost Basis Unrealized Gains / (Losses) Market Value Cash and Cash Equivalents Short-term Investments Long-term Investments

Money market fund Level 1 $ 27,150 $ — $ 27,150 $ 27,150 $ — $ —

Treasury bonds Level 1 24,445 ( 3 ) 24,442 — 16,273 8,169

Commercial paper Level 2 76,905 — 76,905 16,493 60,412 —

Corporate bonds Level 2 34,738 ( 11 ) 34,727 — 27,542 7,185

Asset-backed securities Level 2 26,373 ( 8 ) 26,365 — 5,599 20,766

Total investments $ 189,611 $ ( 22 ) $ 189,589 $ 43,643 $ 109,826 $ 36,120

There were no Level 3 assets held at any point during the year ended December 31, 2020.

Additionally, there were no transfers between Levels 1 and 2 during the year ended December 31, 2020.

The amortized cost basis and fair value of debt securities at December 31, 2020, by contractual maturity, are as follows (in thousands):

As of December 31, 2020

Cost Basis Fair Value

Due in one year or less $ 153,483 $ 153,469

Due after one year through five years 36,128 36,120

Total investments $ 189,611 $ 189,589

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

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Subsequent Events

In January 2020, we acquired a developer of a robotic process automation platform for $ 7.0 million.

The acquisition will be accounted for under the acquisition method of accounting with the operations of the newly acquired entity included in our operating results from the date of acquisition.

The Company entered into the Lease Second Amendment, effective as of January 1, 2020, which modified the Lease for the Company’s headquarters in Tysons, Virginia.

Under the Lease Second Amendment, the Company exercised an option to expand its lease to the Fourth Floor, adding approximately 34,158 square feet to the premises.

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.

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.

Effective February 3, 2021, the 2019 CEO Grant as discussed in Note 10 has satisfied all of the conditions required to be considered fully vested.

As a result, we expect to accelerate the recognition of approximately $ 3.3 million in stock-based compensation expense in the first quarter of 2021.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data