APPIAN CORP 10-Q

Item 1. FINANCIAL STATEMENTS APPIAN CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except par value and share data) As of June 30, 2022 December 31, 2021 (unaudited) Assets Current assets Cash and cash equivalents $ 76,185 $ 100,796 Short-term investments and marketable securities 59,748 55,179 Accounts receivable, net of allowance of $ 1,401 and $ 1,400 , respectively 120,424 130,049 Deferred commissions, current 26,792 24,668 Prepaid expenses and other current assets 31,515 26,781 Restricted cash, current 728 791 Total current assets 315,392 338,264 Property and equipment, net of accumulated depreciation of $ 16,845 and $ 14,106 , respectively 38,539 36,913 Long-term investments 2,022 12,044 Goodwill 25,597 27,795 Intangible assets, net of accumulated amortization of $ 1,899 and $ 1,260 , respectively 5,840 7,144 Right-of-use assets for operating leases 27,113 27,897 Deferred commissions, net of current portion 48,671 49,017 Deferred tax assets 2,035 1,025 Restricted cash, net of current portion 2,185 2,373 Other assets 2,235 2,047 Total assets $ 469,629 $ 504,519 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 6,783 $ 5,766 Accrued expenses 16,378 15,483 Accrued compensation and related benefits 29,330 35,126 Deferred revenue, current 151,266 150,169 Operating lease liabilities, current 7,988 8,110 Other current liabilities 581 1,067 Total current liabilities 212,326 215,721 Operating lease liabilities, net of current portion 47,210 48,784 Deferred revenue, net of current portion 1,786 2,430 Deferred tax liabilities 85 209 Other non-current liabilities 3,162 3,458 Total liabilities 264,569 270,602 Stockholders’ equity Class A common stock—par value $ 0.0001 ; 500,000,000 shares authorized and 40,946,718 shares issued and outstanding as of June 30, 2022; 500,000,000 shares authorized and 39,964,298 shares issued and outstanding as of December 31, 2021 4 4 Class B common stock—par value $ 0.0001 ; 100,000,000 shares authorized and 31,497,796 shares issued and outstanding as of June 30, 2022; 100,000,000 shares authorized and 31,497,796 shares issued and outstanding as of December 31, 2021 3 3 Additional paid-in capital 538,249 497,128 Accumulated other comprehensive loss ( 3,157 ) ( 5,687 ) Accumulated deficit ( 330,039 ) ( 257,531 ) Total stockholders’ equity 205,060 233,917 Total liabilities and stockholders’ equity $ 469,629 $ 504,519 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 APPIAN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue Subscriptions $ 76,668 $ 56,946 $ 160,388 $ 120,712 Professional services 33,395 26,053 63,941 51,142 Total revenue 110,063 82,999 224,329 171,854 Cost of revenue Subscriptions 8,528 6,860 16,751 12,714 Professional services 24,765 18,975 47,563 36,650 Total cost of revenue 33,293 25,835 64,314 49,364 Gross profit 76,770 57,164 160,015 122,490 Operating expenses Sales and marketing 56,166 40,520 102,192 76,504 Research and development 33,842 23,862 63,778 44,552 General and administrative 29,509 17,358 60,658 36,500 Total operating expenses 119,517 81,740 226,628 157,556 Operating loss ( 42,747 ) ( 24,576 ) ( 66,613 ) ( 35,066 ) 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 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 expense (benefit) 394 250 ( 1,179 ) 373 Net loss $ ( 49,354 ) $ ( 23,825 ) $ ( 72,508 ) $ ( 37,412 ) Net loss per share: Basic and diluted $ ( 0.68 ) $ ( 0.34 ) $ ( 1.00 ) $ ( 0.53 ) Weighted average common shares outstanding: Basic and diluted 72,390 70,953 72,272 70,842 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 APPIAN CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited, in thousands) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net loss $ ( 49,354 ) $ ( 23,825 ) $ ( 72,508 ) $ ( 37,412 ) Comprehensive income (loss), net of income taxes Foreign currency translation adjustments 1,967 ( 1,474 ) 2,724 2,541 Unrealized (losses) gains on available-for-sale securities ( 83 ) 23 ( 194 ) 31 Total other comprehensive loss, net of income taxes $ ( 47,470 ) $ ( 25,276 ) $ ( 69,978 ) $ ( 34,840 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 APPIAN CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited, in thousands, except share data) Accumulated Other Comprehensive (Loss) Income Total Stockholders' Equity Common Stock Additional Paid-In Capital Accumulated Deficit Shares Amount Balance, December 31, 2021 71,462,094 $ 7 $ 497,128 $ ( 5,687 ) $ ( 257,531 ) $ 233,917 Net loss — — — — ( 23,154 ) ( 23,154 ) Issuance of common stock to directors 2,395 — — — — — Vesting of restricted stock units 47,038 — — — — — Exercise of stock options 815,833 — 24,404 — — 24,404 Stock-based compensation expense — — 6,943 — — 6,943 Other comprehensive income — — — 646 — 646 Balance, March 31, 2022 72,327,360 $ 7 $ 528,475 $ ( 5,041 ) $ ( 280,685 ) $ 242,756 Net loss — — — — ( 49,354 ) ( 49,354 ) Issuance of common stock to directors 2,565 — — — — — Vesting of restricted stock units 52,634 — — — — — Exercise of stock options 61,955 — 626 — — 626 Stock-based compensation expense — — 9,148 — — 9,148 Other comprehensive income — — — 1,884 — 1,884 Balance, June 30, 2022 72,444,514 $ 7 $ 538,249 $ ( 3,157 ) $ ( 330,039 ) $ 205,060 Balance, December 31, 2020 70,679,190 $ 7 $ 470,498 $ ( 5,010 ) $ ( 168,890 ) $ 296,605 Net loss — — — — ( 13,587 ) ( 13,587 ) Issuance of common stock to directors 960 — — — — — Vesting of restricted stock units 56,326 — — — — — Exercise of stock options 88,269 — 625 — — 625 Stock-based compensation expense — — 7,894 — — 7,894 Other comprehensive income — — — 4,023 — 4,023 Balance, March 31, 2021 70,824,745 $ 7 $ 479,017 $ ( 987 ) $ ( 182,477 ) $ 295,560 Net loss — — — — ( 23,825 ) ( 23,825 ) Issuance of common stock to directors 1,175 — — — — — Vesting of restricted stock units 43,024 — — — — — Exercise of stock options 211,651 — 1,464 — — 1,464 Stock-based compensation expense — — 4,598 — — 4,598 Other comprehensive loss — — — ( 1,451 ) — ( 1,451 ) Balance, June 30, 2021 71,080,595 $ 7 $ 485,079 $ ( 2,438 ) $ ( 206,302 ) $ 276,346 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 APPIAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Six Months Ended June 30, 2022 2021 Cash flows from operating activities Net loss $ ( 72,508 ) $ ( 37,412 ) Adjustments to reconcile net loss to net cash used by operating activities Stock-based compensation 16,091 12,492 Depreciation and amortization 3,573 2,561 Bad debt expense ( 1 ) 32 Change in fair value of available-for-sale securities — ( 31 ) Deferred income taxes ( 1,302 ) ( 144 ) Changes in assets and liabilities Accounts receivable 12,132 16,720 Prepaid expenses and other assets ( 5,334 ) 243 Deferred commissions ( 1,777 ) ( 7,340 ) Accounts payable and accrued expenses 2,098 3,000 Accrued compensation and related benefits ( 4,923 ) 2,808 Other current and non-current liabilities ( 395 ) ( 563 ) Deferred revenue 2,990 ( 1,791 ) Operating lease liabilities ( 905 ) 52 Net cash used by operating activities ( 50,261 ) ( 9,373 ) Cash flows from investing activities Purchases of investments ( 31,214 ) — Proceeds from investments 36,473 27,604 Purchases of property and equipment ( 4,685 ) ( 1,027 ) Net cash provided by investing activities 574 26,577 Cash flows from financing activities Proceeds from exercise of common stock options 25,030 2,089 Net cash provided by financing activities 25,030 2,089 Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash ( 205 ) ( 476 ) Net (decrease) increase in cash, cash equivalents, and restricted cash ( 24,862 ) 18,817 Cash, cash equivalents, and restricted cash at beginning of period 103,960 112,462 Cash, cash equivalents, and restricted cash at end of period $ 79,098 $ 131,279 Supplemental disclosure of cash flow information Cash paid for interest $ 145 $ 173 Cash paid for income taxes $ 524 $ 806 Supplemental disclosure of non-cash investing and financing activities Accrued capital expenditures $ 96 $ — The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Organization and Description of Business Appian Corporation (together with its subsidiaries, “Appian,” the “Company,” “we,” or “our”) 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. We are headquartered in McLean, Virginia and operate both in the U.S. and internationally, including Australia, Canada, France, Germany, Italy, Japan, the Netherlands, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. 2. Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for interim financial reporting. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ equity, and cash flows. The results of operations for the current period are not necessarily indicative of the results for the full year or the results for any future periods. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on February 17, 2022. Use of Estimates The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Although we believe the estimates we use are reasonable, due to the inherent uncertainty involved in making these estimates, actual results reported in future periods could differ from those estimates. Significant estimates embedded in the condensed consolidated financial statements include, but are not limited to, revenue recognition, income taxes and the related valuation allowance, leases, costs to obtain a contract with a customer, the valuation of financial instruments, and stock-based compensation. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of Appian and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition Refer to Note 3 for a detailed discussion on specific revenue recognition principles related to our major revenue streams. 8 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Cost of Revenue Subscriptions Cost of subscriptions revenue consists primarily of fees paid to our third-party managed hosting providers and other third-party service providers, personnel costs such as payroll and benefits for our technology operations and customer support teams, and allocated facility costs and overhead. Professional Services Cost of professional services revenue includes all direct and indirect costs to deliver our professional services and training, including employee compensation for our global professional services and training personnel, 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 exposed to concentration of credit and customer risk consist primarily of cash, cash equivalents, restricted cash, accounts receivable, and our short- and long-term investments. Deposits held with banks may exceed the amount of insurance provided on such deposits; however, we believe the financial institutions holding our cash deposits are financially sound and, accordingly, minimal credit risk exists with respect to these balances. With regard to our customers, credit evaluation and account monitoring procedures are used to minimize the risk of loss. We believe no additional credit risk beyond amounts provided for collection loss are inherent in accounts receivable. Revenue generated from government agencies represented 18.2 % of our revenue for each of the three and six months ended June 30, 2022, of which the top three U.S. federal government agencies generated 5.2 % and 4.8 % of our revenue for the three and six months ended June 30, 2022, respectively. Additionally, 35.0 % and 34.2 % of our revenue during the three and six months ended June 30, 2022, respectively, was generated from foreign customers. Revenue generated from government agencies represented 19.8 % and 20.4 % of our revenue for the three and six months ended June 30, 2021, respectively, of which the top three U.S. federal government agencies generated 6.5 % of our revenue for each of the three and six months ended June 30, 2021. Additionally, 35.3 % and 33.7 % of our revenue during the three and six months ended June 30, 2021, respectively, was generated from foreign customers. Cash, Cash Equivalents, and Restricted Cash 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. Restricted cash consists of cash designated to settle an escrow liability stemming from a holdback agreement enacted pursuant to our acquisition of Lana Labs GmbH (“Lana Labs”). 25 % of the balance becomes due on October 31, 2022 while the remaining 75 % of the balance becomes due on August 11, 2023. The following table presents a reconciliation of cash, cash equivalents, and restricted cash as presented in the consolidated statements of cash flows (in thousands): As of June 30, 2022 December 31, 2021 June 30, 2021 December 31, 2020 Cash and cash equivalents $ 76,185 $ 100,796 $ 131,279 $ 112,462 Restricted cash, current 728 791 — — Restricted cash, net of current portion 2,185 2,373 — — Total cash, cash equivalents, and restricted cash $ 79,098 $ 103,960 $ 131,279 $ 112,462 9 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are stated at realizable value, net of an allowance for doubtful accounts. The allowance for doubtful accounts is based on our assessment of the collectability of accounts and incorporates an estimation of expected lifetime credit losses on our receivables. We regularly review the composition of the accounts receivable aging, historical bad debts, changes in payment patterns, customer creditworthiness, and current economic trends. If the financial condition of our customers were to deteriorate, resulting in their inability to make required payments, additional provisions for doubtful accounts would be required and would increase bad debt expense. The allowance for doubtful accounts totaled $ 1.4 million as of June 30, 2022 and December 31, 2021. Assets Recognized from the Costs to Obtain a Contract with a Customer We capitalize costs of obtaining a contract with a customer, which consists of sales commissions paid to our direct sales team, 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 upsell are amortized over an estimated economic life of five years as sales commissions on initial sales are not commensurate with sales commissions on contract renewals. We determine the estimated economic life based on both qualitative and quantitative factors such as expected renewals, product life cycles, contractual terms, and customer attrition. We periodically review the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the estimated economic life. Commissions paid relating to contract renewals are deferred and amortized over the related renewal period. We also capitalize the incremental fringe benefits associated with commission expenses paid to our direct sales team. 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 deferred commission is recorded to sales and marketing expense in our consolidated statements of operations. Commission expense was $ 8.7 million and $ 16.9 million for the three and six months ended June 30, 2022, respectively. Commission expense was $ 7.5 million and $ 14.3 million for the three and six months ended June 30, 2021, respectively. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Significant additions or improvements extending the useful life of an asset are capitalized, while repairs and maintenance costs which do not significantly improve the related assets or extend their useful lives are charged to expense as incurred. The following table outlines the useful lives of our major asset categories: Asset Category Useful Life (in years) Computer software 3 Computer hardware 3 Equipment 5 Office furniture and fixtures 10 Leasehold improvements (a) (a) Leasehold improvements have an estimated useful life of the shorter of the useful life of the assets or the lease term. Investments and Fair Value of Financial Instruments Refer to Note 15 for a detailed discussion on our policies specific to investments and determining fair value. Stock-Based Compensation 10 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) We account for stock-based compensation expense related to stock-based awards based on the estimated fair value of the award on the grant date. We calculate the fair value of stock options containing only a service condition using the Black-Scholes option pricing model. The fair value of restricted stock units (“RSUs”) is based on the closing market price of our common stock on the Nasdaq Global Market on the date of grant. For service-based awards such as RSUs, stock-based compensation expense is recognized on a straight-line basis over the requisite service period. For 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. Recent Accounting Pronouncements Adopted We did not adopt any new accounting guidance in 2022 that had a material impact on our condensed consolidated financial statements or disclosures. Not Yet Adopted There is no pending accounting guidance that we expect to have a material impact on our condensed consolidated financial statements or disclosures. 3. Revenue Revenue Recognition We generate subscriptions revenue primarily through the sale of cloud 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 recorded during the three and six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Cloud subscriptions $ 57,083 $ 42,486 $ 110,462 $ 81,539 Term license subscriptions 14,063 9,323 38,770 29,176 Maintenance and support 5,522 5,137 11,156 9,997 Total subscriptions 76,668 56,946 160,388 120,712 Professional services 33,395 26,053 63,941 51,142 Total revenue $ 110,063 $ 82,999 $ 224,329 $ 171,854 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 cloud subscriptions, maintenance and support, and professional services are delivered over time. Subscriptions Revenue 11 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Subscriptions revenue is primarily related to (1) Cloud 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 through 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. Cloud Subscriptions We generate cloud-based subscriptions revenue primarily from the sales of subscriptions to access our cloud offering, together with related support services to our customers. We perform all required maintenance and support for our cloud offering. Revenue is recognized on a ratable basis over the contract term beginning on the date the service is made available to the customer. Our cloud-based subscription contracts generally have a term of one to three years in length. We bill customers and collect payment for subscriptions to our platform in advance, and they are non-cancellable. Term License Subscriptions Our term license subscription revenue is derived from customers with on-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 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 Revenue Our professional services revenue is comprised of fees for consulting services, including application development and deployment assistance as well as training services related to our platform. Our professional services are considered distinct performance obligations when sold standalone or with other products. Consulting Services We sell consulting services to assist customers in planning and executing the deployment of our software. Customers are not required to use consulting services to fully benefit from the software. Consulting services are regularly sold on a standalone basis and either (1) under a fixed-fee arrangement or (2) on a time and materials basis. Consulting services contract are 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. 12 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Significant Judgments and Estimates Determining the Transaction Price The transaction price is the total amount of consideration we expect to receive in exchange for the service offerings in a contract and may include both fixed and variable components. Variable consideration is included in the transaction price to the extent it is probable a significant reversal will not occur. The amount of variable consideration excluded from the transaction price for the three and six months ended June 30, 2022 and 2021 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”) We allocate the transaction price to each performance obligation in a contract based on its relative SSP. The SSP is the observable price at which we sell the product or service separately. In the absence of observable pricing, we estimate SSP using the residual approach. We establish SSP as follows: 1. Cloud subscriptions - Given the highly variable selling price of our cloud subscriptions, we establish the SSP of our cloud subscriptions using a residual approach after first determining the SSP of consulting and training services. We have concluded the residual approach to estimating SSP of our cloud subscriptions is an appropriate allocation of the transaction price. 2. Term license subscriptions - Given the highly variable selling price of our term license subscriptions, we have established SSP of term license subscriptions using a residual approach after first determining the SSP of maintenance and support. Maintenance and support is sold on a standalone basis in conjunction with renewals of our legacy perpetual software licenses and within a narrow range of the net license fee. Because an economic relationship exists between the license and maintenance and support, we have concluded the residual approach to estimating SSP of term license subscriptions is an appropriate allocation of the transaction price. 3. Maintenance and support - We establish the SSP of maintenance and support as a percentage of the stated net subscription fee based on observable pricing of maintenance and support renewals from our legacy perpetual software licenses. 4. Consulting and training services - The SSP of consulting 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 June 30, 2022 and December 31, 2021, contract assets of $ 15.2 million and $ 14.0 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 six months ended June 30, 2022, we recognized $ 107.3 million of revenue that was included in the deferred revenue balance as of December 31, 2021. Transaction Price Allocated to the Remaining Performance Obligations As of June 30, 2022, we had an aggregate transaction price of $ 298.0 million allocated to unsatisfied performance obligations. We expect to recognize $ 192.8 million of this balance as revenue over the next 12 months with the remaining amount recognized thereafter. 13 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. Leases As of June 30, 2022, our lease portfolio consists entirely of operating leases, most of which are for corporate offices. Our operating leases have remaining lease terms of roughly 1 year to 10 years, some of which include options to extend the leases for up to an additional 10 years. Lease Costs Expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense. We have lease agreements which require payments for lease and non-lease components (i.e., common area maintenance) that are accounted for as a single lease component. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as maintenance costs based on future obligations, are not included in ROU assets or lease liabilities but rather are expensed as incurred and recorded as variable lease expense. The following table sets forth the components of lease expense for the three and six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Operating lease cost $ 1,626 $ 1,695 $ 3,260 $ 3,325 Short-term lease cost 76 13 164 54 Variable lease cost 953 772 1,926 797 Total $ 2,655 $ 2,480 $ 5,350 $ 4,176 Supplemental Lease Information Supplemental balance sheet information related to operating leases as of June 30, 2022 and December 31, 2021 was as follows (in thousands, except for lease term and discount rate): As of June 30, 2022 December 31, 2021 Right-of-use assets for operating leases $ 27,113 $ 27,897 Operating lease liabilities, current $ 7,988 $ 8,110 Operating lease liabilities, net of current portion 47,210 48,784 Total operating lease liabilities $ 55,198 $ 56,894 Weighted average remaining lease term (in years) 9.1 9.5 Weighted average discount rate 9.5 % 9.5 % 14 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Supplemental cash flow and expense information related to operating leases for the six months ended June 30, 2022 and 2021 was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Operating cash outflows for operating leases $ 2,074 $ 1,754 $ 4,159 $ 3,503 Amortization of operating lease ROU assets 325 353 631 677 Interest expense on operating lease liabilities 1,305 468 2,626 870 A summary of our future minimum lease commitments under non-cancellable leases as of June 30, 2022 is as follows (in thousands): Operating Leases 2022 (excluding the six months ended June 30, 2022) $ 4,243 2023 8,273 2024 8,584 2025 9,283 2026 9,357 Thereafter 48,775 Total lease payments 88,515 Less: imputed interest ( 33,317 ) Total $ 55,198 5. Business Combinations In August 2021, we acquired 100 % of the outstanding common stock of Lana Labs, a developer of process mining software, for approximately $ 30.7 million, net of cash acquired and debt. The acquisition was made due to the attractive nature of the product offerings of Lana Labs and in furtherance of our objective to enhance our automation platform. The transaction was financed through available cash on hand. The allocation of the purchase price is preliminary pending the finalization of deferred income taxes. As of the acquisition date, the purchase price was assigned to the acquired assets and assumed liabilities as follows (in thousands): Cash acquired $ 256 Other current assets 106 Property and equipment 59 Developed technology 5,974 Customer relationships 750 Goodwill 24,521 Other non-current assets 27 Total assets acquired 31,693 Current liabilities 638 Non-current liabilities 38 Total liabilities assumed 676 Net assets acquired $ 31,017 15 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) There were no changes to our reportable segments as a result of the acquisition, and acquisition costs incurred in relation to the transaction were immaterial. We do not expect the purchase price allocated to goodwill and intangible assets to be deductible for tax purposes. Since the acquisition date, measurement period adjustments have included a $ 0.8 million adjustment to developed technology and goodwill related to an update to the discount rate utilized in our valuation of intangibles, a $ 0.3 million increase in deferred revenue stemming from our early adoption of new accounting guidance surrounding deferred revenue recognized pursuant to a business combination, a $ 0.1 million deferred tax adjustment, and an immaterial adjustment to working capital. No additional measurement period adjustments were recognized for the six months ended June 30, 2022. 6. Goodwill and Intangible Assets Goodwill was comprised of the following as of June 30, 2022 and December 31, 2021 (in thousands): Carrying Amount Balance as of December 31, 2020 $ 4,862 Goodwill acquired 24,521 Foreign currency translation adjustments ( 1,588 ) Balance as of December 31, 2021 27,795 Goodwill acquired — Foreign currency translation adjustments ( 2,198 ) Balance as of June 30, 2022 $ 25,597 Intangible assets, net consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands): As of June 30, 2022 December 31, 2021 Developed technology $ 6,696 $ 7,271 Customer relationships - Non-Robotic Process Automation (“RPA”) 803 872 Customer relationships - RPA 240 261 Intangible assets, gross 7,739 8,404 Less: accumulated amortization ( 1,899 ) ( 1,260 ) Intangible assets, net $ 5,840 $ 7,144 Intangible amortization expense was $ 0.4 million and $ 0.8 million for the three and six months ended June 30, 2022, respectively. Intangible amortization expense was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2021, respectively. As of June 30, 2022, the weighted average remaining amortization periods for developed technology, non-RPA customer relationships, and RPA customer relationships were approximately 3.9 years, 8.8 years, and 7.5 years, respectively. 16 The projected annual amortization expense related to amortizable intangible assets as of June 30, 2022 is as follows (in thousands): Projected Amortization 2022 (excluding the six months ended June 30, 2022) $ 739 2023 1,429 2024 1,429 2025 1,137 2026 731 Thereafter 375 Total projected amortization expense $ 5,840 7. Property and Equipment, net Property and equipment, net consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands): June 30, 2022 December 31, 2021 Leasehold improvements $ 42,892 $ 41,005 Office furniture and fixtures 3,224 2,536 Computer hardware 7,675 6,001 Computer software 1,353 1,353 Equipment 240 124 Property and equipment, gross 55,384 51,019 Less: accumulated depreciation ( 16,845 ) ( 14,106 ) Property and equipment, net $ 38,539 $ 36,913 Depreciation expense totaled $ 1.4 million and $ 2.8 million for the three and six months ended June 30, 2022, respectively. Depreciation expense totaled $ 1.2 million and $ 2.4 million for the three and six months ended June 30, 2021, respectively. We had no disposals or retirements and recorded no gains or losses on disposal during each of the three and six months ended June 30, 2022 and 2021. 17 8. Accrued Expenses Accrued expenses consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands): June 30, 2022 December 31, 2021 Hosting costs $ 3,078 $ 1,995 Legal costs 1,264 5,511 Marketing and tradeshow expenses 2,143 1,167 Third party license fees 1,164 1,066 Contract labor costs 2,043 891 Reimbursable employee expenses 4,104 870 Taxes payable 307 550 Audit and tax expenses 404 439 Capital expenditures 96 379 Other accrued expenses 1,775 2,615 Total $ 16,378 $ 15,483 9. Debt Line of Credit 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. 10. Income Taxes The provision for income taxes is based upon the estimated annual effective tax rates for the year applied to the current period income before tax plus the tax effect of any significant or unusual items, discrete events, or changes in tax law. Our operating subsidiaries are exposed to statutory effective tax rates ranging from zero to approximately 35 %. Fluctuations in the distribution of pre-tax income among our operating subsidiaries can lead to fluctuations of the effective tax rate in the condensed consolidated financial statements. For the three and six months ended June 30, 2022, the actual effective tax rates were ( 0.8 )% and 1.6 %, respectively. For the three and six months ended June 30, 2021, the actual effective tax rates were ( 1.1 )% and ( 1.0 )%, respectively. The-year-to date tax benefit for the six months ended June 30, 2022 was primarily driven by a discrete benefit of $ 1.1 million related to the release of a valuation allowance for Lana Labs as a result of post-integration tax planning and the merger of German subsidiaries. As of June 30, 2022, our net unrecognized tax benefits totaled $ 3.1 million, which if recognized would result in no net effect on the effective tax rate due to a valuation allowance. The amount of reasonably possible unrecognized tax benefits that could decrease over the next 12 months due to the expiration of certain statutes of limitations or settlements of tax audits is not material to our condensed consolidated financial statements. We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. Due to our net operating loss carryforward, the tax years 2016 through 2021 remain open to examination by the major taxing jurisdictions to which we are subject. There are no open examinations that would have a meaningful impact to our condensed consolidated financial statements. 11. Stock-Based Compensation Equity Incentive Plans 18 In May 2017, our Board of Directors adopted, and our stockholders approved, the 2017 Equity Incentive Plan (the “2017 Plan”), which became effective as of the date of the final prospectus for our initial public offering. The 2017 Plan provides for the grant of incentive stock options to employees and for the grant of nonstatutory stock options, restricted stock awards, RSUs, stock appreciation rights, performance-based stock awards, and other forms of equity compensation to employees, including officers, non-employee directors, and consultants. We initially reserved 6,421,442 shares of Class A common stock for issuance under the 2017 Plan, which included 421,442 shares that remained available for issuance under our 2007 Stock Option Plan (the “2007 Plan”) at the time the 2017 Plan became effective. The number of shares reserved under the 2017 Plan increases for any shares subject to outstanding awards originally granted under the 2007 Plan that expire or are forfeited prior to exercise. As a result of the adoption of the 2017 Plan, no further grants may be made under the 2007 Plan. As of June 30, 2022, there were 7,195,029 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 2,964,435 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. The expected term represents the period of time the stock options are expected to be outstanding. Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options, we use the simplified method to estimate the expected term for our stock options. Under the simplified method, the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected term of the stock options. We assume no dividend yield because dividends are not expected to be paid in the near future, which is consistent with our history of not paying dividends. In June 2022, our Board of Directors granted a stock option to purchase 700,000 shares of our Class A common stock to our Chief Executive Officer (the “2022 CEO Grant”) under the 2017 Plan with an exercise price of $ 50.63 per share. The 2022 CEO Grant is eligible to vest based on the achievement of various stock price appreciation targets of our Class A common stock. Specifically, the 2022 CEO Grant vests in four installments of 25 % each if the average closing price per share for a 365 day calendar period equals each of $ 175 , $ 200 , $ 225 , and $ 250 , respectively (the “Vesting Price Threshold”), prior to June 7, 2030. The option also vests if the Company engages in a Corporate Transaction, as defined in the Plan, in which the Company’s Class A common stock is valued at or above the Vesting Price Threshold. The fair value of the 2022 CEO Grant was determined using a Monte Carlo simulation. The fair value of the award at the grant date was $ 18.8 million and is being amortized over derived service periods ranging from 3.4 to 4.1 years. 19 The only stock option awarded during the three and six months ended June 30, 2022 and 2021 was the 2022 CEO Grant. The following table summarizes the assumptions used to estimate the fair value of the 2022 CEO stock option grant: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Risk-free interest rate 3.01 % * 3.01 % * Expected term (in years) ** 4.1 * ** * Expected volatility 70 % * 70 % * Expected dividend yield — % * — % * * Not applicable because no stock options were granted during the period. ** Each Vesting Price Threshold for the 2022 CEO grant has a unique expected term ranging from 3.4 to 4.1 years. The following table summarizes stock option activity for the six months ended June 30, 2022: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2021 2,953,356 $ 15.16 4.0 $ 147,812 Granted 700,000 50.63 Exercised ( 877,788 ) 28.52 30,644 Expired ( 6,780 ) 3.63 Forfeited ( 10,180 ) 12.18 Outstanding at June 30, 2022 2,758,608 $ 19.95 5.5 $ 77,903 Exercisable at June 30, 2022 2,057,108 $ 9.51 4.1 $ 77,863 The total fair value of stock options that vested during the six months ended June 30, 2022 and 2021 was $ 0.8 million and $ 10.5 million, respectively. As of June 30, 2022, the total compensation cost related to unvested stock options not yet recognized, which relates exclusively to the 2022 CEO Grant, was $ 18.6 million and will be recognized over a weighted average period of 3.7 years. Restricted Stock Units The following table summarizes RSU activity for the six months ended June 30, 2022: Number of Shares Weighted Average Grant Date Fair Value Non-vested and outstanding at December 31, 2021 1,209,529 $ 70.99 Granted 394,218 53.66 Vested ( 99,672 ) 68.03 Forfeited ( 125,791 ) 76.23 Non-vested and outstanding at June 30, 2022 1,378,284 65.78 As of June 30, 2022, total unrecognized compensation cost related to unvested RSUs was approximately $ 72.6 million, which will be recognized over a weighted average period of 1.8 years. Stock-Based Compensation Expense 20 The following table summarizes the components of our stock-based compensation expense by instrument type for the three and six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 RSUs $ 8,747 $ 4,403 $ 15,533 $ 8,408 Stock options 244 40 245 3,773 Common stock awards to the Board of Directors 157 155 313 311 Total stock-based compensation expense $ 9,148 $ 4,598 $ 16,091 $ 12,492 Stock-based compensation expense for RSUs, stock options, and issuances of common stock to the Board of Directors is included in the following line items in the accompanying consolidated statements of operations for the three and six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Cost of revenue Subscriptions $ 249 $ 295 $ 428 $ 592 Professional services 1,330 865 2,387 1,506 Operating expenses Sales and marketing 2,266 1,197 4,054 2,305 Research and development 3,063 1,069 5,377 2,084 General and administrative 2,240 1,172 3,845 6,005 Total stock-based compensation expense $ 9,148 $ 4,598 $ 16,091 $ 12,492 12. Basic and Diluted Loss per Share Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the reporting period. Diluted loss per is computed similar to basic, except the weighted average number of common shares outstanding are increased to include additional outstanding shares from the assumed exercise of stock options and vesting of RSUs, if dilutive. The dilutive effect, if any, of convertible shares calculated using the treasury stock method. As we reported net losses for all periods presented, there are no outstanding dilutive securities as the outstanding shares would be anti-dilutive if they were to be assumed as vested or exercised. The following outstanding securities, prior to the use of the treasury stock method, have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been antidilutive to earnings per share: Three and Six Months Ended June 30, 2022 2021 Stock options 2,758,608 3,089,260 Non-vested restricted stock units 1,378,284 1,126,696 13. Commitments and Contingencies Minimum Purchase Commitments In July 2021, we executed a non-cancellable cloud hosting arrangement with Amazon Web Services (“AWS”) that contains provisions for minimum purchase commitments. Specifically, purchase commitments under the agreement total $ 131.0 million 21 over five years, including $ 22.0 million in the first year, $ 25.0 million in the second year, and $ 28.0 million in each of the third, fourth, and fifth years. 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 and six months ended June 30, 2022 totaled $ 8.1 million and $ 15.9 million, respectively. Exclusive of the AWS contract, we have other non-cancellable agreements for subscription software products that contain provisions stipulating minimum purchase commitments. However, the annual purchase commitments under these contracts are, individually and in the aggregate, immaterial to our condensed consolidated financial statements. Pegasystems Litigation On May 29, 2020, we filed a civil complaint against Pegasystems, Inc. (“Pegasystems”) and Youyong Zou, a Virginia resident, in the Circuit Court for Fairfax County, Virginia. Appian Corp v. Pegasystems Inc. & Youyong Zou, No. 2020-07216 (Fairfax Cty. Ct.) . On May 10, 2022, we announced the jury awarded us $ 2.03 billion in damages for misappropriation of our trade secrets and $ 1 in damages for violating the Virginia Computer Crimes Act. Pegasystems has filed post-trial motions in which it seeks relief in the form of reducing the damages award or setting aside the jury’s verdict and either granting a new trial or entering judgment in Pegasystems’ favor. One of these motions was denied on July 28, 2022. We believe Pegasystems’ motions are without merit. We simultaneously filed a motion for attorneys’ fees and costs, as well as post-judgment interest on any award of attorneys’ fees and costs, based on the jury's finding that our trade secrets were willfully and maliciously misappropriated. All legal expenses related to the litigation have been expensed as incurred, within “General and administrative” expense within our consolidated statement of operations. The jury’s verdict and the court’s entry of judgment is subject to appeal by Pegasystems. Pegasystems is not required to pay us the amount awarded by the jury until all appeals are exhausted and the judgment is final. We cannot predict the outcome of any appeals or the time it will take to resolve them. Like any judgment, there is no guarantee we will be able to collect all or any portion of the judgment. We will not record the award in our condensed consolidated financial statements until we collect on the judgment. Other Legal Matters From time to time, we are subject to legal, regulatory, and other proceedings and claims that arise in the ordinary course of business. There are no issues or resolutions of any matters expected to have a material adverse impact on our condensed consolidated financial statements. 22 14. Segment and Geographic Information We operate one operating and reportable segment, representing our consolidated business that helps organizations build applications and workflows rapidly with our low-code platform to maximize their resources and improve business results. Our reportable segment determination is based on our management and internal reporting structure, the nature of the subscriptions and services we offer, and the financial information that is evaluated regularly by our chief operation decision maker. The following table summarizes revenue by geography for the three and six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Domestic $ 71,567 $ 53,704 $ 147,606 $ 113,986 International 38,496 29,295 76,723 57,868 Total $ 110,063 $ 82,999 $ 224,329 $ 171,854 With respect to geographic information, revenue is attributed to respective geographies based on the contracting address of the customer. There were no individual foreign countries from which more than 10% of our total revenue was attributable for the three and six months ended June 30, 2022 or 2021. Substantially all of our long-lived assets were held in the United States as of June 30, 2022 and December 31, 2021. 15. Investments and Fair Value Measurements Fair Value Measurements U.S. GAAP establishes a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires us to use observable inputs when available and to minimize the use of unobservable inputs when determining fair value. The three tiers are defined as follows: • Level 1. Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities; • Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and • Level 3. Unobservable inputs for which there is little or no market data, which require us to develop our own estimates and assumptions, which reflect those that a market participant would use. 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 minimize the use of unobservable inputs. There were no instruments measured at fair value on a recurring basis using significant unobservable inputs as of June 30, 2022 and December 31, 2021. 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). 23 The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value as of June 30, 2022 and December 31, 2021 because of the relatively short duration of these instruments. Investments 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 June 30, 2022 are as follows (in thousands): As of June 30, 2022 Fair Value Measurement Balance Sheet Classification Fair Value Level Cost Basis Unrealized Gains (Losses) Market Value Cash and Cash Equivalents Short-term Investments and Marketable Securities Long-term Investments Money market fund Level 1 $ 9,438 $ — $ 9,438 $ 9,438 $ — $ — U.S. Treasuries Level 1 17,985 ( 82 ) 17,903 — 17,903 — Commercial paper Level 2 23,110 — 23,110 — 23,110 — Corporate bonds Level 2 15,397 ( 130 ) 15,267 — 13,245 2,022 Asset-backed securities Level 2 5,493 ( 3 ) 5,490 — 5,490 — Total investments $ 71,423 $ ( 215 ) $ 71,208 $ 9,438 $ 59,748 $ 2,022 At December 31, 2021, our investments consisted of the following (in thousands): As of December 31, 2021 Fair Value Measurement Balance Sheet Classification Fair Value Level Cost Basis Unrealized Gains (Losses) Market Value Cash and Cash Equivalents Short-term Investments and Marketable Securities Long-term Investments Money market fund Level 1 $ 38,301 $ — $ 38,301 $ 38,301 $ — $ — U.S. Treasury bonds Level 1 8,171 — 8,171 — 8,171 — Commercial paper Level 2 23,312 — 23,312 — 23,312 — Corporate bonds Level 2 20,107 ( 14 ) 20,093 — 8,049 12,044 Asset-backed securities Level 2 15,655 ( 8 ) 15,647 — 15,647 — Total investments $ 105,546 $ ( 22 ) $ 105,524 $ 38,301 $ 55,179 $ 12,044 There were no Level 3 assets held at any point during the three and six months ended June 30, 2022 and 2021. Additionally, there were no transfers between Levels 1 and 2 during the three and six months ended June 30, 2022 and 2021. 24 The amortized cost basis and fair value of debt securities as of June 30, 2022, by contractual maturity, are as follows (in thousands): As of June 30, 2022 Cost Basis Fair Value Due in one year or less $ 69,398 $ 69,186 Due after one year through five years 2,025 2,022 Total investments $ 71,423 $ 71,208 Actual maturities may differ from the contractual maturities in the table above because borrowers have the right to call or prepay certain obligations. 25