What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 245 added, 159 removed, 233 unchanged (63% of the section changed)

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This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would,” or the negative or plural of these words or similar expressions or variations, including statements regarding our future financial and operating performance, anticipated expansion of the usage of partners to perform professional services, the increase of our subscriptions revenue as a percentage of total revenue, the fluctuation of gross margin on a quarterly basis, our future capital requirements, and uncertain negative impacts the COVID-19 pandemic, including the emergence of new variant strains of COVID-19, may have on our business, financial condition, results of operations, and changes in overall level of spending and volatility in the global economy.

Such forward-looking statements are subject to a number of risks, uncertainties, assumptions, and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements.

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Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

We provide a low-code platform that accelerates the creation of high-impact business applications and workflows, enabling our customers to automate the most important aspects of their business.

Appian is a unified platform for change.

We accelerate customers’ businesses by discovering, designing, and automating their most important processes.

The Appian Low-Code Platform combines the key capabilities needed to get work done faster, Process Mining + Workflow + Automation, in a unified low-code platform.

Appian is open, enterprise grade, and trusted by industry leaders.

Global organizations use our applications to improve customer experience, achieve operational excellence, and simplify global risk management and compliance.

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With our platform, decision makers can reimagine their products, services, processes, and customer interactions by removing much of the complexity and many of the challenges associated with traditional approaches to software development.

We have generated the majority of our revenue from sales of subscriptions, which include (1) SaaS subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support.

Our subscription fees are based primarily on the number of users who access and utilize the applications built on our platform or, alternatively, non-user based single application licenses.

Our customer contract terms generally vary from one to three years with most providing for payment in advance on an annual, quarterly, or monthly basis.

We have generated the majority of our revenue from sales of subscriptions, which include (1) cloud subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support.

Our subscription contracts are priced based primarily on the number of users who access and utilize the applications built on our platform or, alternatively, non-user based single application licenses.

Our subscription contract terms generally vary from one to three years with most providing for payment in advance on an annual, quarterly, or monthly basis.

Due to the variability of our billing terms and the episodic nature of our customers purchasing additional subscriptions, we do not believe changes in our deferred revenue in a given period are directly correlated with our revenue growth.

Since inception, we have invested in our Customer Success organization to help ensure customers are able to build and deploy applications on our platform.

We have several strategic partnerships, including with KPMG, Accenture, PwC, Infosys, Wipro, and Deloitte, for them to refer customers to us in order to purchase subscriptions and then to provide professional services directly to the customers using our platform.

We invested in our Customer Success organization to help ensure customers are able to build and deploy applications on our platform.

We have several strategic partnerships, including with KPMG, Accenture, PwC, Infosys, Wipro, and Deloitte, for them to refer customers to us in order to purchase subscriptions and then our partners provide professional services directly to the customers using our platform.

We intend to further grow our base of strategic partners to provide broader customer coverage and solution delivery capabilities.

In addition, over time we expect professional services revenue as a percentage of total revenue to decline as we increasingly rely on strategic partners to help our customers deploy our software.

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

We believe our

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

Our customers include financial services, government, life sciences, insurance, manufacturing, energy, healthcare, telecommunications, and transportation organizations.

Generally, our sales team targets its efforts to organizations with over 2,000 employees and $2 billion in annual revenue.

Revenue from government agencies represented 18.1% and 20.9% of our total revenue in the three months ended March 31, 2022 and 2021, respectively.

No single end-customer accounted for more than 10% of our total revenue in the three months ended March 31, 2022 or 2021.

Our platform supports multiple languages to facilitate collaboration and address challenges in multinational organizations.

Revenue from government agencies represented 18.2% of our total revenue in each of the three and six months ended June 30, 2022.

This compares to revenue from government agencies of 19.8% and 20.4% of our total revenue in the three and six months ended June 30, 2021, respectively.

No single end-customer accounted for more than 10% of our total revenue in the three and six months ended June 30, 2022 or 2021.

We offer our platform globally.

In the three months ended March 31, 2022 and 2021, 33.5% and 32.2%, respectively, of our total revenue was generated from customers outside of the United States.

As of March 31, 2022, we operated in 13 countries.

We believe we have a significant opportunity to grow our international footprint, and we are investing in new geographies, including through investment in direct and indirect sales channels, professional services, and customer support and implementation partners.

Recent Developments

Beginning in late 2019 and continuing into 2022, the outbreak of the novel coronavirus disease, or COVID-19, resulted in the declaration of a global pandemic and adversely affected economic activity across virtually all sectors and industries on a local, national, and global scale.

The impact of COVID-19, including the emergence of new variant strains of COVID-19, on the economy and our business continues to be a fluid situation.

Operationally, we remain focused on supporting our customers, employees, and communities during this time.

At the outset of the pandemic, we responded quickly to adopt a virtual corporate strategy consisting of enabling most of our employees to work productively from home while continuing to guard the health and safety of our teams, support our customers, and mitigate risk.

In the third quarter of 2021, we announced an option allowing for our employees to return to offices in select jurisdictions if they elect to do so.

We remain focused on ensuring continuity for our customers, and we continue to conduct business as usual, with necessary or advisable modifications to employee travel, employee work locations, and marketing events.

Through March 31, 2022, we have not seen a meaningful adverse impact to our financial position, results of operations, and cash flows and liquidity as a result of COVID-19.

While the verticals from which we have historically generated the majority of our revenue have been less impacted by COVID-19 to date, there may be impacts to our financial condition and results of operations in 2022 and beyond as a result of reduced demand for our products and services and longer sales cycles.

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

Our Business Model

Our platform supports multiple languages to facilitate collaboration and address challenges in multinational organizations.

In the three and six months ended June 30, 2022, 35.0% and 34.2%, respectively, of our total revenue was generated from customers outside of the United States as compared to 35.3% and 33.7% in the three and six months ended June 30, 2021, respectively.

As of June 30, 2022, we operated in 13 countries.

We believe we have a significant opportunity to continue to grow our international footprint, and we are investing in new geographies, including through investment in direct and indirect sales channels, professional services, and customer support and implementation partners.

Our business model focuses on maximizing the lifetime value of customer relationships, which is a function of the duration of a customer’s deployment of our platform as well as the price and number of subscriptions of our platform that a customer purchases.

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Many of our customers begin by building a single application and then grow to build dozens of applications on our platform.

Generally, the development of new applications on our platform results in the expansion of our user base within an organization and a corresponding increase in revenue to us because we charge subscription fees on a per-user basis or through non-user based single application licenses.

Generally, the development of new applications on our platform

results in the expansion of our user base within an organization and a corresponding increase in revenue to us because we charge subscription fees on a per-user basis or through non-user based single application licenses.

As a result of this “land and expand” strategy, we have generated significant additional revenue from our customer base.

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As the usage of partners expands, we expect the proportion of our total revenue from subscriptions to increase over time relative to professional services.

For the three months ended March 31, 2022 and 2021, 73.3% and 71.8% of our revenue, respectively, was derived from sales of subscriptions while the remaining 26.7% and 28.2%, respectively, was derived from the sale of professional services.

For the six months ended June 30, 2022 and June 30, 2021 71.5% and 70.2% of our revenue, respectively, was derived from sales of subscriptions while the remaining 28.5% and 29.8%, respectively, was derived from the sale of professional services.

• Investments in Growth.

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Cloud Subscription Revenue

Three Months Ended March 31,

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

2022 2021 % Change 2022 2021 % Change

Cloud subscription revenue $ 57,083 $ 42,486 34 % $ 110,462 $ 81,539 35 %

Cloud subscription revenue includes SaaS subscriptions bundled with maintenance and support and hosting services.

We generally sell our SaaS subscriptions on a per-user basis or through non-user based single application licenses.

Cloud subscription revenue includes cloud subscriptions bundled with maintenance and support and hosting services.

We generally sell our cloud subscriptions on a per-user basis or through non-user based single application licenses.

As such, our cloud subscription revenue for any customer is primarily determined by the number of users who access and utilize the applications built on our platform or by the number of application licenses purchased, as well as the price paid.

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Cloud Subscription Revenue Retention Rate

As of March 31,

As of June 30,

Cloud subscription revenue retention rate 116 % 121 %

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Cloud subscription revenue retention rate is then calculated by dividing the aggregate recurring cloud subscription revenue in the current trailing 12-month period by the previous trailing 12-month period.

This calculation includes the impact on our revenue from customer non-renewals, pricing changes, and growth in the number of users on our platform.

This calculation includes the combined impact on our revenue from customer non-renewals, pricing changes, and growth in the number of users on our platform.

Our cloud subscription revenue retention rate can fluctuate from period to period due to large customer contracts in any given period.

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Subscriptions revenue is primarily derived from:

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

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

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

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On-premises term license subscriptions are offered when the customer prefers to self-manage the deployment of our platform within their own infrastructure.

When our platform is delivered as a SaaS subscription, we manage their operational needs in third-party hosted data centers.

When our platform is delivered as a cloud subscription, we manage their operational needs in third-party hosted data centers.

Professional Services

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

Over time, as the need for professional services associated with user deployments decreases and the number of end users increases, we expect professional services revenue as a percentage of total revenue to decrease.

Additionally, professional services revenue may be negatively impacted if there is a decline in our procurement of new customers as a result of the COVID-19 pandemic.

We have several strategic partnerships, including with KPMG, Accenture, PwC, Infosys, Wipro, and Deloitte.

These partners refer software subscription customers to us and generally perform professional services with respect to any new service contracts they originate, increasing our subscriptions revenue without any change to our professional services revenue.

Our agreements with our strategic partners have indefinite terms and may be terminated for convenience by either party.

We intend to further grow our base of strategic partners to provide broader customer coverage and solution delivery capabilities.

As we expand the network of strategic partners, we expect professional services revenue to decline as a percentage of total revenue over time since our strategic partners may perform professional services associated with software subscriptions we sell.

Professional services revenue may also decline in absolute dollars if we increasingly rely on our network to procure new customers.

Over time, we expect professional services revenue as a percentage of total revenue to decrease as the usage of our partner network expands.

Cost of Revenue

Subscriptions

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

teams, and allocated overhead costs.

We expect cost of revenue to continue to increase in absolute dollars for the foreseeable future as our customer base grows.

Professional Services

Cost of professional services revenue includes all direct and indirect costs to deliver our professional services and training, including employee compensation for our global professional services and training personnel, third-party contractor costs, allocated 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 cost of professional services which, in turn, may impact our quarterly financial results and allocated facility costs and overhead.

Gross profit and gross margin, or gross profit as a percentage of total revenue, have been, and will continue to be, affected by various factors, including the mix of SaaS subscriptions and on-premises term license subscriptions, the mix of total subscriptions revenue and professional services revenue, subscription pricing, the costs associated with third-party hosting facilities, and the extent to which we expand our professional services to support future growth.

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

Gross Profit and Gross Margin

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

Our gross margin may fluctuate from period to period based on the above factors.

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Subscriptions gross margin is primarily affected by the growth in our subscriptions revenue as compared to the growth in, and timing of, costs to support such revenue.

We expect to continue to invest in customer support and SaaS operations to support growth in our business, and the timing of those investments is expected to cause subscriptions gross margin to fluctuate on a quarterly basis.

We expect to continue to invest in customer support and cloud operations to support growth in our business, and the timing of those investments is expected to cause subscriptions gross margin to fluctuate on a quarterly basis.

Professional Services Gross Margin

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Professional services gross margin is also impacted by the amount of services performed by subcontractors and partners as opposed to internal resources.

Beginning in 2020, we lowered our usage of subcontractors, and the COVID-19 pandemic resulted in fewer in-person professional services engagements and deployments, both of which reduced certain classes of expenses and improved professional services margins.

At the outset of the COVID-19 pandemic, we lowered our usage of subcontractors and performed in fewer in-person professional services engagements and deployments, both of which reduced certain classes of expenses and improved professional services margins.

In 2021 and continuing into 2022, these margins have declined but remain subject to fluctuation based on the factors discussed above and uncertainties related to the COVID-19 pandemic outside of our control.

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Sales and marketing expense primarily includes personnel costs, including salaries, bonuses, commissions, stock-based compensation, and other personnel costs related to sales teams.

Additional expenses in this category include travel and entertainment, marketing activities and promotional events, subcontracting fees, and allocated facility costs and overhead.

Additional expenses in this category include travel and entertainment, marketing activities and promotional events, subcontracting fees, and allocated overhead costs.

In order to continue to grow our business, geographical footprint, and brand awareness, we expect to continue investing resources in sales and marketing by increasing the number of sales and account management teams.

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General and Administrative Expense

General and administrative expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, and other personnel costs for our administrative, legal, information technology, human resources, finance, and accounting employees, as well as our executives.

Additional expenses included in this category are non-personnel costs such as travel-related expenses, contracting and professional fees for such services as audits, taxation, and legal, insurance and other corporate expenses, allocated facility costs and overhead, bad debt expenses, and depreciation and amortization costs.

Additional expenses included in this category are non-personnel costs such as travel-related expenses, contracting and professional fees for such services as audits, taxation, and legal, insurance and other corporate expenses, including allocated overhead costs, bad debt expenses, and amortization of intangible assets.

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

Other Expense

Other Non-Operating Expense

Other Expense, Net

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

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

Interest Expense

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

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

Results of Operations

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

Three Months Ended March 31,

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

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

2022 2021 2022 2021

Subscriptions $ 76,668 $ 56,946 $ 160,388 $ 120,712

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Subscriptions (1)

8,528 6,860 16,751 12,714

Professional services (1)

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Operating loss (42,747) (24,576) (66,613) (35,066)

Other expense

Other expense, net 787 2,893

Other non-operating expense (income)

Other expense (income), net 6,153 (1,081) 6,940 1,812

Interest expense 60 80 134 161

Total other expense 861 2,974

Total other non-operating expense (income) 6,213 (1,001) 7,074 1,973

Loss before income taxes (48,960) (23,575) (73,687) (37,039)

Income tax (benefit) expense (1,573) 123

Income tax expense (benefit) 394 250 (1,179) 373

Net loss $ (49,354) $ (23,825) $ (72,508) $ (37,412)

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

Three Months Ended March 31,

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

2022 2021 2022 2021

Cost of revenue

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Total stock-based compensation expense $ 9,148 $ 4,598 $ 16,091 $ 12,492

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

Three Months Ended March 31,

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

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

2022 2021 2022 2021

Subscriptions 69.7 % 68.6 % 71.5 % 70.2 %

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Operating loss (38.8) (29.6) (29.7) (20.4)

Other expense

Other expense, net 0.7 3.3

Other non-operating expense (income)

Other expense (income), net 5.6 (1.3) 3.1 1.1

Interest expense 0.1 0.1 0.1 0.1

Total other expense 0.8 3.3

Total other non-operating expense (income) 5.6 (1.2) 3.2 1.1

Loss before income taxes (44.5) (28.4) (32.8) (21.6)

Income tax (benefit) expense (1.4) 0.1

Income tax expense (benefit) 0.4 0.3 (0.5) 0.2

Net loss (44.8) % (28.7) % (32.3) % (21.8) %

Comparison of the Three Months Ended March 31, 2022 and 2021

Three Months Ended March 31,

2022 2021 % Change

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

Three Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

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Total revenue $ 110,063 $ 82,999 $ 27,064 32.6 %

Total revenue increased $25.4 million, or 28.6%, in the three months ended March 31, 2022 compared to the same period in 2021 due to an increase in our subscriptions revenue of $20.0 million and an increase in our professional services revenue of $5.5 million.

Total revenue increased $27.1 million, or 32.6%, in the three months ended June 30, 2022 compared to the same period in 2021 due to an increase in our subscriptions revenue of $19.7 million and an increase in our professional services revenue of $7.3 million.

The increase in subscriptions revenue was driven largely by a $14.6 million increase in cloud subscription revenue and a $4.7 million increase in on-premises subscription revenue.

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The remainder of the increase is attributable to revenue recognized from Lana Labs.

The increase in professional services revenue was due primarily to a $6.8 million increase in sales to new customers, which was partially offset by a $1.3 million

decrease in revenue from existing customers.

Professional services revenue was also impacted by the level of usage of partners to perform professional services in the three months ended March 31, 2022 as compared to the same period in 2021.

The increase in professional services revenue was due primarily to a $7.9 million increase in sales to new customers, which was partially offset by a $0.6 million decrease in revenue from existing customers.

Professional services revenue was also impacted by the level of usage of partners to perform professional services in the three months ended June 30, 2022 as compared to the same period in 2021.

Cost of Revenue

Three Months Ended March 31,

2022 2021 % Change

Three Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

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Total gross margin 69.8 % 68.9 %

Cost of revenue increased $7.4 million, or 31.4%, in the three months ended March 31, 2022 compared to the same period in 2021, primarily due to a $5.1 million increase in professional services and product support personnel costs, a $1.6 million increase in other cost of revenue, a $0.4 million increase in facility and overhead costs, a $0.2 million increase in contractor costs, and a $0.1 million increase in billable expenses.

Personnel costs increased due to an increase in professional services and product support personnel headcount of 20.4% from March 31, 2021 to March 31, 2022, coupled with a $0.3 million increase in stock-based compensation.

The increase in other cost of revenue was due to increased hosting costs as sales of our cloud offering increased in the three months ended March 31, 2022.

The increase in facility and overhead costs was due largely to an increase in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Contractor costs increased in the three months ended March 31, 2022 compared to the same period in 2021 due to an increase in the usage of subcontractors and consultants for professional services engagements.

Billable expenses increased primarily due to an increase in travel and entertainment related expenses in the three months ended March 31, 2022 as a result of more in-person engagements compared to three months ended March 31, 2021.

Subscriptions gross margin slightly decreased to 90.2% for the three months ended March 31, 2022 compared to 90.8% in the same period in 2021 due to increased hosting costs as sales of our cloud offering increased and became a larger proportion of our overall subscriptions revenue.

This increase in hosting costs was partially offset by an increase in subscriptions revenue.

Professional services gross margin decreased to 25.7% for the three months ended March 31, 2022 compared to 29.6% in the same period in 2021 due largely to higher personnel and human resources costs in the comparable periods, partially offset by an increase in professional services revenue.

Furthermore, fewer in-person professional services engagements and deployments during the three months ended March 31, 2021 as compared to the three months ended March 31, 2022 led to temporarily improved margins in the prior year.

Due largely to the increase in professional services cost of revenue, gross margin fell slightly to 72.9% in the three months ended March 31, 2022 as compared to 73.5% in the same period in 2021.

Cost of revenue increased $7.5 million, or 28.9%, in the three months ended June 30, 2022 compared to the same period in 2021, primarily due to a $4.8 million increase in professional services and product support personnel costs, a $0.9 million increase in hosting costs, a $0.7 million increase in contractor costs, a $0.6 million increase in overhead costs, and a $0.5 million increase in travel and entertainment expenses.

Personnel costs increased due to an increase in professional services and product support personnel headcount of 17.0% from June 30, 2021 to June 30, 2022, coupled with a $0.4 million increase in stock-based compensation.

Hosting costs increased as sales of our cloud offering increased in the three months ended June 30, 2022.

Contractor costs increased in the three months ended June 30, 2022 compared to the same period in 2021 due to an increase in the usage of subcontractors and consultants for professional services engagements.

The increase in overhead costs was due largely to an increase in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Subscriptions gross margin slightly increased to 88.9% for the three months ended June 30, 2022 compared to 88.0% in the same period in 2021 due to an increase in subscriptions revenue during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

This increase was partially offset by an increase in hosting costs as sales of our cloud offering increased and became a larger proportion of our overall subscriptions revenue.

Professional services gross margin decreased to 25.8% for the three months ended June 30, 2022 compared to 27.2% in the same period in 2021 due largely to higher personnel and other allocated costs such as human resources, information technology, and office-related spending in the comparable periods, partially offset by an increase in professional services revenue.

Furthermore, fewer in-person professional services engagements and deployments during the three months ended June 30, 2021 as compared to the three months ended June 30, 2022 led to temporarily improved margins in the prior year.

Gross margin rose slightly to 69.8% in the three months ended June 30, 2022 as compared to 68.9% in the same period in 2021, due largely to the increase in professional services revenue and improved subscriptions margins.

Sales and Marketing Expense

Three Months Ended March 31,

2022 2021 % Change

Three Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

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% of revenue 51.0 % 48.8 %

Sales and marketing expense increased $9.9 million, or 27.6%, in the three months ended March 31, 2022 compared to the same period in 2021, primarily due to a $7.0 million increase in sales and marketing personnel costs, a $2.8 million increase in facility and overhead costs, and a $0.7 million increase in marketing costs, which were partially offset by a $0.5 million decrease in professional fees.

Personnel costs increased due to an increase in sales and marketing personnel headcount of 19.7% from March 31, 2021 to March 31, 2022, increased sales commissions driven by our revenue growth, and a $0.7 million

increase in stock-based compensation expense.

Facility and overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Additionally, travel and entertainment expenses increased due to a higher number of in-person engagements and events relative to the prior year and an increase in the number of employees returning to offices in some of our jurisdictions.

Marketing costs increased due to an increase in the number of marketing events held during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, including spending on our annual user conference Appian World, which resumed its in-person format in April 2022.

Sales and marketing expense increased $15.6 million, or 38.6%, in the three months ended June 30, 2022 compared to the same period in 2021, primarily due to an $8.0 million increase in sales and marketing personnel costs, a $4.4 million increase in marketing costs, and a $3.4 million increase in overhead costs, which were partially offset by a $0.2 million decrease in professional fees.

Personnel costs increased due to an increase in sales and marketing personnel headcount of 19.2% from June 30, 2021 to June 30, 2022, a $1.2 million increase in commissions expense due to increased sales, and a $1.1 million increase in stock-based compensation expense.

Marketing costs increased due to an increase in the number of marketing events held during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, including spending on

our annual user conference Appian World, which resumed its in-person format in April 2022.

Additionally, marketing costs increased due to an increase in spending on advertising campaigns.

Overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Additionally, travel and entertainment expenses increased due to a higher number of in-person engagements and events relative to the prior year.

Professional fees decreased due to a decrease in the use of third-party sales and marketing consultants for certain initiatives.

Research and Development Expense

Three Months Ended March 31,

2022 2021 % Change

Three Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

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% of revenue 30.7 % 28.7 %

Research and development expense increased $9.1 million, or 44.2%, in the three months ended March 31, 2022 compared to the same period in 2021, primarily due to a $7.4 million increase in research and development personnel costs, a $1.0 million increase in facility and overhead costs, and a $0.7 million increase in professional fees.

Personnel costs increased due to an increase in research and development personnel headcount of 28.7% from March 31, 2021 to March 31, 2022, coupled with a $1.3 million increase in stock-based compensation expense.

Research and development expense increased $10.0 million, or 41.8%, in the three months ended June 30, 2022 compared to the same period in 2021, primarily due to an $8.5 million increase in research and development personnel costs, a $1.4 million increase in overhead costs, and a $0.1 million increase in professional fees.

Personnel costs increased due to an increase in research and development personnel headcount of 32.2% from June 30, 2021 to June 30, 2022, coupled with a $2.0 million increase in stock-based compensation expense.

Overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Professional fees increased due to an increase in consulting fees stemming from higher usage of external resources to assist in our platform development efforts.

General and Administrative Expense

Three Months Ended March 31,

2022 2021 % Change

Three Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

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% of revenue 26.8 % 20.9 %

General and administrative expense increased $12.3 million, or 64.4%, in the three months ended March 31, 2022 compared to the same period in 2021, primarily due to a $10.7 million increase in professional fees and a $3.1 million increase in facility and overhead costs, partially offset by a $1.5 million decrease in general and administrative personnel costs.

Professional fees increased due to higher legal fees incurred in connection with two separate lawsuits, one involving reciprocal false advertising and related claims with a competitor and one involving an effort to enforce our intellectual property.

Facility and overhead costs increased primarily due to an increase in certain allocated costs tied to our growth such as insurance premiums, information technology spending, human resources costs, and office-related expenses.

Personnel costs decreased due to a $3.2 million decrease in stock-based compensation, which stemmed from the accelerated recognition of expense pursuant to the vesting of the 2019 CEO grant during the three months ended March 31, 2021.

This decrease was partially offset by an increase in general and administrative personnel headcount of 19.7% from March 31, 2021 to March 31, 2022.

Other Expense, Net

Three Months Ended March 31,

2022 2021 % Change

General and administrative expense increased $12.2 million, or 70.0%, in the three months ended June 30, 2022 compared to the same period in 2021, primarily due to a $6.2 million increase in professional fees, a $3.2 million increase in overhead costs, and a $2.7 million increase in general and administrative personnel costs.

Professional fees increased due to higher legal fees incurred in connection with two separate lawsuits, one involving an effort to enforce our intellectual property and one involving reciprocal false advertising and related claims with a competitor.

Refer to Item 1.

Legal Proceedings, within Part II of this Form 10-Q for further information.

Overhead costs increased primarily due to an increase in certain allocated costs tied to our growth such as insurance premiums, information technology spending, human resources costs, and office-related expenses.

Personnel costs increased due to an increase in general and administrative personnel headcount of 27.4% from June 30, 2021 to June 30, 2022 as well as a $1.1 million increase in stock-based compensation.

Other Non-Operating Expense (Income), Net

Three Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

Other expense (income), net $ 6,153 $ (1,081) $ 7,234 ***

% of revenue 5.6 % (1.3) %

*** Indicates a percentage that is not meaningful.

Other expense (income), net was $6.2 million in the three months ended June 30, 2022 compared to other income, net of $1.1 million in the three months ended June 30, 2021.

This change was primarily due to $6.5 million in foreign exchange losses in the three months ended June 30, 2022 as compared to $1.0 million in foreign exchange gains in the three months ended June 30, 2021.

The primary reason for the increase in foreign exchange losses was the strengthening of the U.S.

dollar against the British pound, Euro, and Swiss franc.

Interest Expense

Three Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

Interest expense $ 60 $ 80 $ (20) (25.0) %

% of revenue 0.1 % 0.1 %

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

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

Six Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

Subscriptions $ 160,388 $ 120,712 $ 39,676 32.9 %

Professional services 63,941 51,142 12,799 25.0 %

Total revenue $ 224,329 $ 171,854 $ 52,475 30.5 %

Total revenue increased $52.5 million, or 30.5%, in the six months ended June 30, 2022 compared to the same period in 2021 due to an increase in our subscriptions revenue of $39.7 million and an increase in our professional services revenue of $12.8 million.

The increase in subscriptions revenue was driven largely by a $28.9 million increase in cloud subscription revenue, a $9.6 million increase in on-premises subscription revenue, and a $1.2 million increase in maintenance and support revenues.

With respect to new versus existing customers, there was a $27.3 million increase in subscriptions revenue stemming from expanded deployments and corresponding sales of additional subscriptions to existing customers while $12.2 million of the increase was the result of sales of subscriptions to new customers.

The remainder of the increase is attributable to revenue recognized from Lana Labs.

The increase in professional services revenue was due primarily to a $13.9 million increase in sales to new customers, which was partially offset by a $1.1 million decrease in revenue from existing customers.

Professional services revenue was also impacted by the level of usage of partners to perform professional services in the six months ended June 30, 2022 as compared to the same period in 2021.

Cost of Revenue

Six Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

Cost of revenue

Subscriptions $ 16,751 $ 12,714 $ 4,037 31.8 %

Professional services 47,563 36,650 10,913 29.8 %

Total cost of revenue $ 64,314 $ 49,364 $ 14,950 30.3 %

Subscriptions gross margin 89.6 % 89.5 %

Professional services gross margin 25.6 % 28.3 %

Total gross margin 71.3 % 71.3 %

Cost of revenue increased $15.0 million, or 30.3%, in the six months ended June 30, 2022 compared to the same period in 2021, primarily due to a $9.9 million increase in professional services and product support personnel costs, a $2.5 million increase in hosting costs, a $1.1 million increase in overhead costs, a $0.8 million increase in contractor costs, and a $0.6 million increase in travel and entertainment expenses.

Personnel costs increased due to an increase in professional services and product support personnel headcount of 17.0% from June 30, 2021 to June 30, 2022, coupled with a $0.7 million increase in stock-based compensation.

Hosting costs increased as sales of our cloud offering increased in the six months ended June 30, 2022.

Contractor costs increased in the six months ended June 30, 2022 compared to the same period in 2021 due to an increase in the usage of subcontractors and consultants for professional services engagements.

Subscriptions gross margin was 89.6% for the six months ended June 30, 2022, consistent with a margin of 89.5% in the same period in 2021.

As sales of our cloud offering increased and became a larger proportion of our overall subscriptions revenue, hosting costs increased.

However, this increase in hosting costs was offset by an increase in subscriptions revenue.

Professional services gross margin decreased to 25.6% for the six months ended June 30, 2022 compared to 28.3% in the same period in 2021 due largely to higher personnel and human resources costs in the current year, partially offset by an increase in professional services revenue.

Furthermore, fewer in-person professional services engagements and deployments during the six months ended June 30, 2021 as compared to the six months ended June 30, 2022 led to temporarily improved margins in the prior year.

Based on the above offsetting factors, gross margin remained consistent at 71.3% for both the six months ended June 30, 2022 and June 30, 2021.

Sales and Marketing Expense

Six Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

Sales and marketing $ 102,192 $ 76,504 $ 25,688 33.6 %

% of revenue 45.6 % 44.5 %

Sales and marketing expense increased $25.7 million, or 33.6%, in the six months ended June 30, 2022 compared to the same period in 2021, primarily due to a $15.0 million increase in sales and marketing personnel costs, a $6.3 million increase in overhead costs, and a $5.1 million increase in marketing costs, which were partially offset by a $0.7 million decrease in professional fees.

Personnel costs increased due to an increase in sales and marketing personnel headcount of 19.2% from June 30, 2021 to June 30, 2022, increased sales commissions driven by our revenue growth, and a $1.7 million increase in stock-based compensation expense.

Overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Additionally, travel and entertainment expenses increased due to a higher number of in-person engagements and events relative to the prior year.

Marketing costs increased due to an increase in the number of marketing events held during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, including spending on our annual user conference Appian World, which

resumed its in-person format in April 2022.

Additionally, marketing costs increased due to an increase in spending on advertising campaigns.

Professional fees decreased due to a decrease in the use of third-party sales and marketing consultants for certain initiatives.

Research and Development Expense

Six Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

Research and development $ 63,778 $ 44,552 $ 19,226 43.2 %

% of revenue 28.4 % 25.9 %

Research and development expense increased $19.2 million, or 43.2%, in the six months ended June 30, 2022 compared to the same period in 2021, primarily due to a $15.8 million increase in research and development personnel costs, a $2.5 million increase in overhead costs, and a $0.8 million increase in professional fees.

Personnel costs increased due to an increase in research and development personnel headcount of 32.2% from June 30, 2021 to June 30, 2022, coupled with a $3.3 million increase in stock-based compensation expense.

Overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Professional fees increased due to an increase in consulting fees stemming from higher usage of external resources to assist in our platform development efforts.

General and Administrative Expense

Six Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

General and administrative expense $ 60,658 $ 36,500 $ 24,158 66.2 %

% of revenue 27.0 % 21.2 %

General and administrative expense increased $24.2 million, or 66.2%, in the six months ended June 30, 2022 compared to the same period in 2021, primarily due to a $16.9 million increase in professional fees, a $6.0 million increase in overhead costs, and a $1.2 million increase in general and administrative personnel costs.

Refer to Item 1.

Legal Proceedings, within Part II of this Form 10-Q for further information.

Personnel costs increased due to an increase in general and administrative personnel headcount of 27.4% from June 30, 2021 to June 30, 2022.

This increase was partially offset by a $2.2 million decrease in stock-based compensation, driven by the accelerated recognition of expense pursuant to the vesting of the 2019 CEO grant during the six months ended June 30, 2021.

Other Non-Operating Expense, Net

Six Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

Other expense, net $ 6,940 $ 1,812 $ 5,128 ***

% of revenue 3.1 % 1.1 %

Other expense, net was $0.8 million in the three months ended March 31, 2022 compared to other expense, net of $2.9 million in the three months ended March 31, 2021.

This change was primarily due to $1.9 million in foreign exchange losses in the three months ended March 31, 2022 as compared to $3.0 million in foreign exchange losses in the three months ended March 31, 2021, coupled with a $1.0 million in other income stemming from a payment received from a local government pursuant to the company meeting certain economic development criteria.

*** Indicates a percentage that is not meaningful.

Other expense, net was $6.9 million in the six months ended June 30, 2022 compared to other expense, net of $1.8 million in the six months ended June 30, 2021.

This change was primarily due to $8.4 million in foreign exchange losses in the six

months ended June 30, 2022 as compared to $2.0 million in foreign exchange losses in the six months ended June 30, 2021.

The primary reason for the increase in foreign exchange losses was the strengthening of the U.S.

dollar against the British pound, Euro, and Swiss franc.

Interest Expense

Three Months Ended March 31,

2022 2021 % Change

Six Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

1 unchanged sentence

% of revenue 0.1 % 0.1 %

Interest expense decreased by a nominal amount in the three months ended March 31, 2022 compared to the same period in 2021, primarily due to lower commitment fees on the letter of credit outstanding.

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

Liquidity and Capital Resources

The following table presents selected financial information and statistics as of March 31, 2022 and December 31, 2021 as well as for the three months ended March 31, 2022 and 2021 (in thousands):

March 31, 2022 December 31, 2021

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

June 30, 2022 December 31, 2021

Cash and cash equivalents $ 76,185 $ 100,796

3 unchanged sentences

Working capital* 102,338 121,752

Three Months Ended March 31,

Net cash used in operating activities $ (20,604) $ (2,810)

Net cash provided by investing activities 2,099 5,157

Net cash provided by financing activities 24,404 625

* Exclusive of the current portion of restricted cash

As of March 31, 2022, we had $106.8 million of cash and cash equivalents and $53.4 million of short-term investments and marketable securities.

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

As of June 30, 2022, we had $76.2 million of cash and cash equivalents and $59.7 million of short-term investments and marketable securities.

We believe our existing cash and cash equivalents and short-term investments and marketable securities, together with any positive cash flows from operations and available borrowings under our line of credit, will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months.

1 unchanged sentence

We may also elect to raise additional sources of funding through draws on our existing line of credit, entering into new debt financing arrangements, or conducting additional public offerings.

Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, particularly internationally, the introduction of new and enhanced products and functions as well as platform enhancements and professional services offerings, the level of market acceptance of our applications, spending we may incur on our headquarters, and the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic and its impact on our business.

Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, particularly internationally, the introduction of new and enhanced products and functions as well as platform enhancements and professional services offerings, and the level of market acceptance of our applications.

In the event additional financing is required from outside sources, we may be unable to raise the funds on acceptable terms, if at all.

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Sources of Funds

We have financed our operations in large part with equity and debt financing arrangements, including net proceeds of $77.8 million from our initial public offering in May 2017, net proceeds of $57.8 million from our underwritten public offering in August 2018, net proceeds of $101.3 million from our underwritten public offering in September 2019, and net proceeds of $107.9 million from our underwritten public offering in June 2020.

In addition, we have financed our operations through sales of subscriptions and professional services and borrowings under our credit facilities.

We also have the ability to draw upon a $20.0 million revolving line of credit which we entered into in November 2017.

In December 2021, we executed the first loan modification agreement which extended the revolving line of credit's maturity date from November 2022 to November 2025 and amended certain borrowing terms and financial covenants, and in January 2022, we executed the second loan modification agreement to increase the aggregate amount of funds our foreign subsidiaries are allowed to maintain outside of the United States.

Under the amended agreement, we may elect whether amounts drawn on the revolving line of credit bear interest on the outstanding principal amount at a rate per annum equal to either a) the Prime rate plus an additional interest rate margin or b) the secured overnight financing rate (“SOFR”) 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 0.75% to 1.25% in the case of Prime rate advances and from 1.75% to 2.25% in the case of SOFR advances.

The revolving line of credit contains an unused facility fee up to 0.20% of the average unused portion of the revolving line of credit, which is payable quarterly.

The agreement contains certain customary affirmative and negative covenants and requires us to maintain (i) an adjusted quick ratio of at least 1.35 to 1.00 subject to a net cash threshold as set forth in the agreement 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 March 31, 2022.

As of March 31, 2022, we had no outstanding borrowings under this revolving line of credit, and we had outstanding letters of credit totaling $11.2 million in connection with securing our leased office space.

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

In addition, we have financed our operations through sales of subscriptions and professional services.

We have a $20.0 million revolving line of credit with a lender that matures in November 2025.

In January 2022, we executed the second loan modification agreement to increase the aggregate amount of funds our foreign subsidiaries are allowed to maintain outside of the United States.

We were in compliance with all covenants as of June 30, 2022.

As of June 30, 2022, we had no outstanding borrowings under this revolving line of credit, and we had outstanding letters of credit totaling $11.0 million in connection with securing our leased office space.

Uses of Funds

Our current principal uses of cash are funding operations and other working capital requirements.

Historically, we have also utilized cash to pay for the acquisition of entities we believe to be complementary to our business, and we may pursue similar opportunities in the future.

Over the past several years, revenue has increased significantly from year to year and, as a result, cash flows from customer collections have increased.

However, operating expenses have also increased as we have invested in growing our business.

Our uses of cash in 2022 to date have included capital expenditures related to the expansion of our headquarters.

Cash uses in the prior year through March 31, 2021 also consisted primarily of modest capital expenditures.

Historically, we have also utilized cash to pay for the acquisition of businesses that were complementary to ours, and we may pursue similar opportunities in the future.

Over the past several years, revenue has increased significantly from year to year and, as a result, cash flows from customer collections have also grown.

However, as we continue to invest in growing our business, operating expenses have also increased.

Outside of cash used in operations, other uses of cash in 2022 to date have included capital expenditures related to the expansion of our headquarters.

Non-operating cash uses in the prior year through June 30, 2021 also consisted primarily of modest capital expenditures.

Furthermore, in 2021 we executed a non-cancellable cloud hosting arrangement with Amazon Web Services that contains provisions for minimum purchase commitments.

1 unchanged sentence

The timing of payments under the agreement may vary, and the total amount of payments may exceed the minimum depending on the volume of services utilized.

Spending under this agreement for the three months ended March 31, 2022 totaled $7.8 million.

Spending under this agreement for the six months ended June 30, 2022 totaled $15.9 million.

Historical Cash Flows

Six Months Ended June 30,

2022 2021 $ Change % Change

(dollars in thousands)

Beginning cash, cash equivalents, and restricted cash $ 103,960 $ 112,462 $ (8,502) (7.6) %

Operating activities:

For the three months ended March 31, 2022, net cash used in operating activities of $20.6 million consisted of a net loss of $23.2 million and $5.2 million of cash used from changes in working capital, partially offset by $7.8 million in adjustments for non-cash items.

Adjustments for non-cash items consisted primarily of stock-based compensation of $6.9 million, depreciation and amortization expense of $1.8 million, and changes in the fair value of available-for-sale investment securities of $0.1 million.

These adjustments were partially offset by deferred income tax adjustments of $1.1 million.

The decrease in cash, cash equivalents, and restricted cash resulting from changes in working capital primarily consisted of a $6.8 million decrease in accrued compensation and related benefits as a result of comparatively higher declines in certain year-end employee benefit accruals such as bonuses, payroll taxes, and commissions, a $3.8 million net decrease in deferred revenue as a result of decreased subscription sales, a $3.6 million increase in prepaid expenses and other assets primarily due to higher prepayments under the AWS cloud hosting arrangement as well as the timing of other payments, a $1.4 million increase in deferred commissions due to increased sales activity combined with the timing of order completions, and a $0.5 million decrease in operating lease liabilities.

These decreases to working capital were partially offset by a $8.4 million decrease in accounts receivable stemming from increased cash collections year over year as well as the timing of billings and a $2.3 million increase in accounts payable and accrued expenses primarily due to the timing of payments.

For the three months ended March 31, 2021, net cash used in operating activities of $2.8 million consisted of a net loss of $13.6 million, offset by $2.1 million of cash provided by changes in working capital and $8.7 million in adjustments for non-cash items.

Adjustments for non-cash items consisted of stock-based compensation of $7.9 million, depreciation and amortization expense of $1.3 million, and deferred income tax adjustments of $0.4 million.

The increase in cash, cash equivalents, and restricted cash resulting from changes in working capital primarily consisted of a $12.7 million decrease in accounts receivable stemming from increased cash collections as well as the timing of billings, a $1.2 million increase in accounts payable and accrued expenses primarily due to the timing of payments, a $0.2 million increase in operating lease liabilities, and a $0.2 million increase in other current and non-current liabilities.

These increases to working capital were partially offset by a $7.2 million net decrease in deferred revenue as a result of decreased subscription sales, a $2.6 million increase in deferred commissions due to increased sales activity, a $2.0 million decrease in accrued compensation and related benefits as a result of lower employee benefit accruals for such costs as commissions and bonuses, and a $0.3 million increase in prepaid expenses and other assets primarily due to the timing of payments.

Net loss (72,508) (37,412) (35,096) 93.8

Stock-based compensation and other non-cash adjustments 18,361 14,910 3,451 23.1

Changes in working capital 3,886 13,129 (9,243) (70.4)

Net cash used by operating activities (50,261) (9,373) (40,888) ***

Investing activities:

For the three months ended March 31, 2022, net cash provided by investing activities was $2.1 million, consisting of $21.7 million in proceeds from the sale of investments, partially offset by $16.2 million in purchases of investments and $3.4 million in purchases of property and equipment.

For the three months ended March 31, 2021, net cash provided by investing activities was $5.2 million, which was due to $5.6 million in proceeds from the sale of investments, partially offset by $0.5 million in purchases of property and equipment.

Net cash provided by investing activities 574 26,577 (26,003) (97.8)

Financing activities:

For the three months ended March 31, 2022, net cash provided by financing activities was $24.4 million, consisting entirely of proceeds received from stock option exercises.

For the three months ended March 31, 2021, net cash provided by financing activities was $0.6 million, consisting entirely of proceeds received from stock option exercises.

Net cash provided by financing activities 25,030 2,089 22,941 ***

Effect of exchange rates (205) (476) 271 (56.9)

Net change in cash (24,862) 18,817 (43,679) ***

Ending cash, cash equivalents, and restricted cash $ 79,098 $ 131,279 (52,181) (39.7)

*** Indicates a percentage that is not meaningful.

Operating Activities

Net cash used by operating activities was $50.3 million for the six months ended June 30, 2022 as compared to $9.4 million used by operating activities for the six months ended June 30, 2021.

The increase in net cash used by operating activities was primarily due to a $35.1 million increase in net losses, most notably driven by the increase in operating expenses as discussed above.

In addition, the increase in cash used by operating activities for the six months ended June 30, 2022 was attributed to a decline in cash flows from working capital of $9.2 million.

This change from working capital is comprised primarily of a $7.7 million decrease in accrued compensation and related benefits and a $5.6 million increase in prepaid expenses and other assets was driven by higher prepayments under the AWS cloud hosting arrangement.

Investing Activities

Net cash provided by investing activities was $0.6 million for the six months ended June 30, 2022 as compared to $26.6 million provided by investing activities for the six months ended June 30, 2021.

The decrease in net cash provided by investing activities was primarily due to $31.2 million in purchases of investments for the six months ended June 30, 2022 and a $3.7 million increase in capital expenditures year over year, partially offset by an $8.9 million increase in proceeds from the sale of investments.

Financing Activities

Net cash provided by financing activities was $25.0 million for the six months ended June 30, 2022 as compared to $2.1 million provided by financing activities for the six months ended June 30, 2021.

The increase in net cash provided by financing activities was primarily due to $23.8 million in proceeds received from the exercise of the 2019 CEO stock option during the six months ended June 30, 2022.

Critical Accounting Estimates

The preparation of our condensed consolidated financial statements in conformity with U.S.

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

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

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

There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022.

Furthermore, while the pandemic has been moving toward a controlled stage in the United States, we continue to monitor the developments surrounding the COVID-19 pandemic, including the emergence of new variant strains of COVID-19.

We are not aware of any specific events or circumstances that would require us to update our estimates, assumptions, and judgments.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis