What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-08-04 · 174 added, 138 removed, 526 unchanged (37% of the section changed)

3 unchanged sentences

(in thousands, except par value and share data)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Current assets

34 unchanged sentences

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 41,043,099 shares issued and outstanding as of September 30, 2022;

500,000,000 shares authorized and 39,964,298 shares issued and outstanding as of December 31, 2021

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 September 30, 2022;

100,000,000 shares authorized and 31,497,796 shares issued and outstanding as of December 31, 2021

8 unchanged sentences

(unaudited, in thousands, except per share data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

13 unchanged sentences

Operating loss ( 37,776 ) ( 22,897 ) ( 104,390 ) ( 57,963 )

Other non-operating expense (income)

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

Other non-operating expense

Other expense, net 5,876 2,329 12,815 4,141

Interest expense 89 72 222 233

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

Total other non-operating expense 5,965 2,401 13,037 4,374

Loss before income taxes ( 43,741 ) ( 25,298 ) ( 117,427 ) ( 62,337 )

9 unchanged sentences

(unaudited, in thousands)

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

2 unchanged sentences

Foreign currency translation adjustments 308 28 3,032 2,569

Unrealized (losses) gains on available-for-sale securities ( 83 ) 23 ( 194 ) 31

Unrealized gains (losses) on available-for-sale securities 59 — ( 135 ) 31

Total other comprehensive loss, net of income taxes $ ( 43,629 ) $ ( 25,356 ) $ ( 113,606 ) $ ( 60,196 )

21 unchanged sentences

Balance, June 30, 2022 72,444,514 7 538,249 ( 3,157 ) ( 330,039 ) 205,060

Net loss — — — — ( 43,996 ) ( 43,996 )

Issuance of common stock to directors 4,613 — — — — —

Vesting of restricted stock units 67,164 — — — — —

Exercise of stock options 24,604 — 175 — — 175

Stock-based compensation expense — — 11,336 — — 11,336

Other comprehensive income — — — 367 — 367

Balance, September 30, 2022 72,540,895 $ 7 $ 549,760 $ ( 2,790 ) $ ( 374,035 ) $ 172,942

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, 2020 70,679,190 $ 7 $ 470,498 $ ( 5,010 ) $ ( 168,890 ) $ 296,605

13 unchanged sentences

Balance, June 30, 2021 71,080,595 7 485,079 ( 2,438 ) ( 206,302 ) 276,346

Net loss — — — — ( 25,384 ) ( 25,384 )

Issuance of common stock to directors 1,130 — — — — —

Vesting of restricted stock units 38,148 — — — — —

Exercise of stock options 46,960 — 286 — — 286

Stock-based compensation expense — — 5,200 — — 5,200

Other comprehensive loss — — — 28 — 28

Balance, September 30, 2021 71,166,833 $ 7 $ 490,565 $ ( 2,410 ) $ ( 231,686 ) $ 256,476

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

2 unchanged sentences

(unaudited, in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

4 unchanged sentences

Bad debt expense 561 61

Loss on disposal of property and equipment — 78

Change in fair value of available-for-sale securities — ( 31 )

13 unchanged sentences

Proceeds from investments 57,417 84,592

Payments for acquisitions, net of cash acquired — ( 30,729 )

Purchases of property and equipment ( 5,861 ) ( 2,473 )

21 unchanged sentences

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.

and internationally, including Australia, Canada, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

Accounting Policies

19 unchanged sentences

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.

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

Concentration of Credit and Customer Risk

3 unchanged sentences

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.

Revenue generated from government agencies represented 21.2 % and 19.2 % of our revenue for the three and nine months ended September 30, 2022, respectively, of which the top three U.S.

federal government agencies generated 5.5 % and 4.8 % of our revenue for the three and nine months ended September 30, 2022, respectively.

Additionally, 31.3 % and 33.2 % of our revenue during the three and nine months ended September 30, 2022, respectively, was generated from foreign customers.

Revenue generated from government agencies represented 19.2 % and 20.0 % of our revenue for the three and nine months ended September 30, 2021, respectively, of which the top three U.S.

federal government agencies generated 7.5 % and 6.3 % of our revenue for the three and nine months ended September 30, 2021, respectively.

Additionally, 32.0 % and 33.1 % of our revenue during the three and nine months ended September 30, 2021, respectively, was generated from foreign customers.

Cash, Cash Equivalents, and Restricted Cash

1 unchanged sentence

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.

We paid 25 % of the balance on September 28, 2022, and the remaining 75 % of the balance is 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):

June 30, 2022 December 31, 2021 June 30, 2021 December 31, 2020

September 30, 2022 December 31, 2021 September 30, 2021 December 31, 2020

Cash and cash equivalents $ 51,802 $ 100,796 $ 127,122 $ 112,462

9 unchanged sentences

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.

The allowance for doubtful accounts totaled $ 1.9 million and $ 1.4 million as of September 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.

We capitalize costs of obtaining a contract with a customer, which consists of sales commissions paid to our sales team, that are incremental costs to obtaining customer contracts.

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

6 unchanged sentences

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.

Commission expense was $ 9.5 million and $ 26.5 million for the three and nine months ended September 30, 2022, respectively.

Commission expense was $ 8.2 million and $ 22.5 million for the three and nine months ended September 30, 2021, respectively.

Property and Equipment

12 unchanged sentences

Stock-Based Compensation

Refer to Note 11 for a detailed discussion on our policies related to stock-based compensation.

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

5 unchanged sentences

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,

The following table summarizes revenue recorded during the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

10 unchanged sentences

Subscriptions Revenue

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

3 unchanged sentences

Cloud Subscriptions

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

4 unchanged sentences

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.

Our term license subscription revenue is derived from customers with on-premises installations of our platform.

The majority of our contracts are one year in length.

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

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

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 term 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.

9 unchanged sentences

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.

Consulting services contracts 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.

4 unchanged sentences

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

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Significant Judgments and Estimates

2 unchanged sentences

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;

The amount of variable consideration excluded from the transaction price for the three and nine months ended September 30, 2022 and 2021 was insignificant.

Our estimates of variable

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

15 unchanged sentences

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.

As of September 30, 2022 and December 31, 2021, contract assets of $ 15.3 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.

1 unchanged sentence

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.

For the nine months ended September 30, 2022, we recognized $ 134.4 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.

As of September 30, 2022, we had an aggregate transaction price of $ 319.9 million allocated to unsatisfied performance obligations.

We expect to recognize $ 209.6 million of this balance as revenue over the next 12 months with the remaining amount recognized thereafter.

As of September 30, 2022, our lease portfolio consists entirely of operating leases, most of which are for corporate offices.

Our operating leases have remaining lease terms with various expiration dates through 2031, and some leases include options to extend the term for up to an additional 10 years.

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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

1 unchanged sentence

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,

The following table sets forth the components of lease expense for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

4 unchanged sentences

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):

June 30, 2022 December 31, 2021

Supplemental balance sheet information related to operating leases as of September 30, 2022 and December 31, 2021 was as follows (in thousands, except for lease term and discount rate):

September 30, 2022 December 31, 2021

Right-of-use assets for operating leases $ 31,841 $ 27,897

4 unchanged sentences

Weighted average discount rate 9.5 % 9.5 %

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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,

Supplemental cash flow and expense information related to operating leases for the three and nine months ended September 30, 2022 and 2021 was as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

2 unchanged sentences

Interest expense on operating lease liabilities 1,332 521 3,957 1,448

A summary of our future minimum lease commitments under non-cancellable leases as of June 30, 2022 is as follows (in thousands):

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of our future minimum lease commitments under non-cancellable leases as of September 30, 2022 is as follows (in thousands):

Operating Leases

2022 (excluding the six months ended June 30, 2022)

2022 (excluding the nine months ended September 30, 2022)

Thereafter 44,762

6 unchanged sentences

The transaction was financed through available cash on hand.

The allocation of the purchase price is preliminary pending the finalization of deferred income taxes.

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

As of the acquisition date, the purchase price was assigned to the acquired assets and assumed liabilities as follows (in thousands):

11 unchanged sentences

Net assets acquired $ 31,017

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

During the third quarter of 2022, we finalized the fair value of the assets acquired and liabilities assumed in the acquisition, and the amounts presented above are now final.

Measurement period adjustments, recorded during the first quarter of 2022, 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,

APPIAN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

and an immaterial adjustment to working capital.

No additional measurement period adjustments were recognized for the nine months ended September 30, 2022.

Goodwill and Intangible Assets

Goodwill was comprised of the following as of June 30, 2022 and December 31, 2021 (in thousands):

Goodwill was comprised of the following as of September 30, 2022 and December 31, 2021 (in thousands):

Carrying Amount

5 unchanged sentences

Foreign currency translation adjustments ( 3,750 )

Balance as of June 30, 2022

Intangible assets, net consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022 December 31, 2021

Balance as of September 30, 2022

Intangible assets, net consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022 December 31, 2021

Developed technology $ 6,290 $ 7,271

4 unchanged sentences

Intangible assets, net $ 5,139 $ 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.

The projected annual amortization expense related to amortizable intangible assets as of June 30, 2022 is as follows (in thousands):

Intangible amortization expense was $ 0.4 million and $ 1.1 million for the three and nine months ended September 30, 2022, respectively.

Intangible amortization expense was $ 0.3 million and $ 0.5 million for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, the weighted average remaining amortization periods for developed technology, non-RPA customer relationships, and RPA customer relationships were approximately 3.7 years , 8.7 years , and 7.3 years , respectively.

The projected annual amortization expense related to amortizable intangible assets as of September 30, 2022 is as follows (in thousands):

Projected Amortization

2022 (excluding the six months ended June 30, 2022)

2022 (excluding the nine months ended September 30, 2022)

Thereafter 269

1 unchanged sentence

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

Property and equipment, net consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022 December 31, 2021

Leasehold improvements $ 43,308 $ 41,005

6 unchanged sentences

Property and equipment, net $ 38,692 $ 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.

Depreciation expense totaled $ 1.4 million and $ 4.2 million for the three and nine months ended September 30, 2022, respectively.

Depreciation expense totaled $ 1.2 million and $ 3.6 million for the three and nine months ended September 30, 2021, respectively.

We had no disposals or retirements and recorded no gains or losses on disposal during each of the three and nine months ended September 30, 2022.

We recorded $ 0.1 million in losses on disposal for the three and nine months ended September 30, 2021.

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

Accrued expenses consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022 December 31, 2021

Hosting costs $ 2,917 $ 1,995

12 unchanged sentences

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.

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

As of September 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.

Senior Secured Credit Facilities Credit Agreement

On November 3, 2022, we entered into a new Senior Secured Credit Facilities Credit Agreement (the “Credit Agreement”) which provides for a five-year term loan facility in an aggregate principal amount of $ 100.0 million and, in addition, up to $ 50.0 million for a revolving credit facility, including a letter of credit sub-facility in the aggregate availability amount of $ 15.0 million and a swingline sub-facility in the aggregate availability amount of $ 10.0 million (as a sublimit of the revolving loan facility).

The new Credit Agreement matures on November 3, 2027.

We will use the proceeds from the $ 100.0 million term loan to fund the continued growth of our business and support our working capital requirements.

Under the agreement, we may elect whether amounts drawn bear interest on the outstanding principal amount at a rate per annum equal to either a) the higher of the Prime rate or the Federal Funds Effective (“Base Rate”) rate plus 0.5 %, or b) the forward-looking term rate based on the secured overnight financing rate (“Term SOFR”).

An additional interest rate margin is added to the elected interest rates.

During the first three years of the Credit Agreement, the additional interest rate margin ranges from 1.5 % to 2.5 % in the case of Base Rate advances and from 2.5 % to 3.5 % in the case of Term SOFR advances, depending on our debt to recurring revenue leverage ratio.

During the final two years of the Credit Agreement, the interest rate margin ranges from 0.5 % to 2.5 % in the case of Base Rate advances and from 1.5 % to 3.5 % in the case of Term SOFR advances, depending on our debt to consolidated adjusted EBITDA (as defined in the Credit Agreement) leverage ratio.

Additionally, the Credit Agreement contains customary representations, warranties and covenants, including covenants by us limiting additional indebtedness, guaranties, liens, fundamental changes, mergers and consolidations, dispositions of assets, investments, paying dividends on capital stock or redeeming, repurchasing or retiring capital stock, or prepaying certain junior indebtedness and preferred stock , certain corporate changes, and transactions with affiliates.

The Credit Agreement also provides for events of default customary for term loans of this type, including but not limited to non-payment, breaches or defaults in the performance of covenants, insolvency, bankruptcy, and the occurrence of a material adverse effect on us.

The new Credit Agreement replaces our existing Line of Credit that was in place as of September 30, 2022.

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.

1 unchanged sentence

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.

For the three and nine months ended September 30, 2022, the actual effective tax rates were ( 0.6 )% and 0.8 %, respectively.

For the three and nine months ended September 30, 2021, the actual effective tax rates were ( 0.3 )% and ( 0.7 )%, respectively.

The-year-to date tax benefit for the nine months ended September 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 September 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.

10 unchanged sentences

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.

As of September 30, 2022, there were 7,195,049 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 2,851,988 were available to be issued.

Stock-Based Compensation Expense

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.

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

Stock Options

1 unchanged sentence

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.

Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to derive an estimate, 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.

Expected volatility is based on the historical volatility of our publicly traded stock over the estimated expected term of the stock options.

We assume zero dividend yield because we have historically not paid dividends and do not anticipate paying dividends in the near future.

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.

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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.

The only stock option awarded during the three and six months ended June 30, 2022 and 2021 was the 2022 CEO Grant.

No stock options were issued during the three months ended September 30, 2022 and 2021.

The only stock option awarded during the nine months ended September 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,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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** 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:

The following table summarizes stock option activity for the nine months ended September 30, 2022:

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

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Forfeited ( 10,280 ) 12.28

Outstanding at June 30, 2022

Outstanding at September 30, 2022

2,733,884 $ 20.07 5.3 $ 63,622

Exercisable at June 30, 2022

Exercisable at September 30, 2022

2,033,684 $ 9.55 3.8 $ 63,618

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.

The total fair value of stock options that vested during the nine months ended September 30, 2022 and 2021 was $ 0.9 million and $ 10.7 million, respectively.

As of September 30, 2022, the total compensation cost related to unvested stock options not yet recognized, which relates exclusively to the 2022 CEO Grant, was $ 17.2 million and will be recognized over a weighted average period of 3.4 years.

Restricted Stock Units

The following table summarizes RSU activity for the six months ended June 30, 2022:

The following table summarizes RSU activity for the nine months ended September 30, 2022:

Number of Shares Weighted Average Grant Date Fair Value

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Forfeited ( 157,732 ) 73.54

Non-vested and outstanding at June 30, 2022

Non-vested and outstanding at September 30, 2022

1,419,174 $ 63.52

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

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,

As of September 30, 2022, total unrecognized compensation cost related to unvested RSUs was approximately $ 68.2 million, which will be recognized over a weighted average period of 1.7 years.

The following table summarizes the components of our stock-based compensation expense by instrument type for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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Total stock-based compensation expense $ 11,336 $ 5,200 $ 27,427 $ 17,692

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,

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 nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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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.

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

Diluted loss per share 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 is calculated using the treasury stock method.

As we reported net losses for all periods presented, all outstanding shares would be considered antidilutive 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,

Three and Nine Months Ended September 30,

Stock options 2,733,884 3,039,860

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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

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.

Specifically, purchase commitments under the agreement total $ 131.0 million 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.

Spending under this agreement for the three and nine months ended September 30, 2022 totaled $ 9.0 million and $ 24.8 million , respectively.

Exclusive of the AWS contract, we have other non-cancellable agreements for subscription software products that contain provisions stipulating minimum purchase commitments.

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On May 10, 2022, we announced the jury awarded us $ 2.036 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.

Pegasystems filed several post-trial motions seeking 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.

All of these motions were denied, and final judgment was entered by the Court on September 15, 2022.

The final judgment reaffirmed the $ 2.036 billion in damages and also ordered Pegasystems to pay Appian $ 23.6 million in attorney's fees associated with the case as well as statutory post-judgment interest on the judgment at an annual rate of 6 %, or approximately $ 122.0 million per year.

Defendant Youyong Zou has satisfied the judgment of $ 5,000 (plus interest) against him in lieu of appealing that judgment.

On September 15, 2022, Pegasystems filed a notice of appeal.

Pegasystems is not required to pay us the judgment, attorney’s fees, or post-judgment interest until all appeals are exhausted.

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.

Consistent with other judgments, there is no guarantee we will be able to collect all or any portion of the judgment.

Consequently, we will not record the award in our condensed consolidated financial statements until all contingencies are resolved and 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.

Other than as disclosed elsewhere in this Quarterly Report, we are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows.

Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Segment and Geographic Information

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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,

The following table summarizes revenue by geography for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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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.

There were no individual foreign countries from which more than 10% of our total revenue was attributable for the three and nine months ended September 30, 2022 or 2021.

Substantially all of our long-lived assets were held in the United States as of September 30, 2022 and December 31, 2021.

Investments and Fair Value Measurements

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

Unobservable inputs for which there is little or no market data, which require us to develop our own estimates and assumptions, which reflect those that a market participant would use.

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

There were no instruments measured at fair value on a recurring basis using significant unobservable inputs as of September 30, 2022 and December 31, 2021.

The valuation techniques that may be used to measure fair value are as follows:

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• Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (i.e., replacement cost).

The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value as of June 30, 2022 and December 31, 2021 because of the relatively short duration of these instruments.

The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value as of September 30, 2022 and December 31, 2021 because of the relatively short duration of these instruments.

Our investment portfolio consists largely of debt investments classified as available-for-sale.

Changes in the fair value of available-for-sale securities, excluding other-than-temporary impairments, are recorded in other comprehensive income (loss).

The components of our investments as of June 30, 2022 are as follows (in thousands):

As of June 30, 2022

The components of our investments as of September 30, 2022 are as follows (in thousands):

As of September 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

Fair Value Level Cost Basis Unrealized Gains (Losses) Market Value Cash and Cash Equivalents Short-term Investments and Marketable Securities

Money market fund Level 1 $ 149 $ — $ 149 $ 149 $ —

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Corporate bonds Level 2 9,923 ( 87 ) 9,836 — 9,836

Asset-backed securities Level 2 5,493 ( 3 ) 5,490 — 5,490 —

Total investments $ 41,191 $ ( 157 ) $ 41,034 $ 149 $ 40,885

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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.

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

There were no Level 3 assets held at any point during the three and nine months ended September 30, 2022 and 2021.

Additionally, there were no transfers between Levels 1 and 2 during the three and nine months ended September 30, 2022 and 2021.

The amortized cost basis and fair value of debt securities as of September 30, 2022, by contractual maturity, are as follows (in thousands):

As of September 30, 2022

Cost Basis Fair Value

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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 1. Financial Statements