APPIAN CORP 10-Q

Item 1. FINANCIAL STATEMENTS APPIAN CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except par value and share data) As of September 30, 2022 December 31, 2021 (unaudited) Assets Current assets Cash and cash equivalents $ 51,802 $ 100,796 Short-term investments and marketable securities 40,885 55,179 Accounts receivable, net of allowance of $ 1,901 and $ 1,400 , respectively 143,385 130,049 Deferred commissions, current 27,874 24,668 Prepaid expenses and other current assets 31,976 26,781 Restricted cash, current 2,053 791 Total current assets 297,975 338,264 Property and equipment, net of accumulated depreciation of $ 18,189 and $ 14,106 , respectively 38,692 36,913 Long-term investments — 12,044 Goodwill 24,045 27,795 Intangible assets, net of accumulated amortization of $ 2,131 and $ 1,260 , respectively 5,139 7,144 Right-of-use assets for operating leases 31,841 27,897 Deferred commissions, net of current portion 51,526 49,017 Deferred tax assets 2,518 1,025 Restricted cash, net of current portion — 2,373 Other assets 2,824 2,047 Total assets $ 454,560 $ 504,519 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 5,082 $ 5,766 Accrued expenses 12,710 15,483 Accrued compensation and related benefits 35,408 35,126 Deferred revenue, current 161,154 150,169 Operating lease liabilities, current 7,434 8,110 Other current liabilities 2,603 1,067 Total current liabilities 224,391 215,721 Operating lease liabilities, net of current portion 52,710 48,784 Deferred revenue, net of current portion 3,408 2,430 Deferred tax liabilities 153 209 Other non-current liabilities 956 3,458 Total liabilities 281,618 270,602 Stockholders’ equity Class A common stock—par value $ 0.0001 ; 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 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 September 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 549,760 497,128 Accumulated other comprehensive loss ( 2,790 ) ( 5,687 ) Accumulated deficit ( 374,035 ) ( 257,531 ) Total stockholders’ equity 172,942 233,917 Total liabilities and stockholders’ equity $ 454,560 $ 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenue Subscriptions $ 86,520 $ 67,240 $ 246,908 $ 187,952 Professional services 31,356 25,177 95,297 76,319 Total revenue 117,876 92,417 342,205 264,271 Cost of revenue Subscriptions 9,313 7,092 26,065 19,806 Professional services 24,447 19,415 72,011 56,065 Total cost of revenue 33,760 26,507 98,076 75,871 Gross profit 84,116 65,910 244,129 188,400 Operating expenses Sales and marketing 54,912 42,071 157,104 118,575 Research and development 37,623 26,510 101,401 71,062 General and administrative 29,357 20,226 90,014 56,726 Total operating expenses 121,892 88,807 348,519 246,363 Operating loss ( 37,776 ) ( 22,897 ) ( 104,390 ) ( 57,963 ) 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 5,965 2,401 13,037 4,374 Loss before income taxes ( 43,741 ) ( 25,298 ) ( 117,427 ) ( 62,337 ) Income tax expense (benefit) 255 86 ( 924 ) 459 Net loss $ ( 43,996 ) $ ( 25,384 ) $ ( 116,503 ) $ ( 62,796 ) Net loss per share: Basic and diluted $ ( 0.61 ) $ ( 0.36 ) $ ( 1.61 ) $ ( 0.89 ) Weighted average common shares outstanding: Basic and diluted 72,503 71,119 72,372 70,936 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net loss $ ( 43,996 ) $ ( 25,384 ) $ ( 116,503 ) $ ( 62,796 ) Comprehensive income (loss), net of income taxes Foreign currency translation adjustments 308 28 3,032 2,569 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 ) 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 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 6 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 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 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. 7 APPIAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities Net loss $ ( 116,503 ) $ ( 62,796 ) Adjustments to reconcile net loss to net cash used by operating activities Stock-based compensation 27,427 17,692 Depreciation and amortization 5,332 4,071 Bad debt expense 561 61 Loss on disposal of property and equipment — 78 Change in fair value of available-for-sale securities — ( 31 ) Deferred income taxes ( 1,549 ) ( 522 ) Changes in assets and liabilities Accounts receivable ( 9,114 ) ( 10,005 ) Prepaid expenses and other assets ( 6,723 ) 2,734 Deferred commissions ( 5,715 ) ( 11,570 ) Accounts payable and accrued expenses ( 3,654 ) 10,797 Accrued compensation and related benefits 1,634 5,782 Other current and non-current liabilities ( 383 ) 2,858 Deferred revenue 15,414 6,829 Operating lease liabilities ( 685 ) ( 476 ) Net cash used by operating activities ( 93,958 ) ( 34,498 ) Cash flows from investing activities Purchases of investments ( 31,214 ) — 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 ) Net cash provided by investing activities 20,342 51,390 Cash flows from financing activities Proceeds from exercise of common stock options 25,205 2,375 Net cash provided by financing activities 25,205 2,375 Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash ( 1,694 ) ( 1,367 ) Net (decrease) increase in cash, cash equivalents, and restricted cash ( 50,105 ) 17,900 Cash, cash equivalents, and restricted cash at beginning of period 103,960 112,462 Cash, cash equivalents, and restricted cash at end of period $ 53,855 $ 130,362 Supplemental disclosure of cash flow information Cash paid for interest $ 243 $ 240 Cash paid for income taxes $ 749 $ 1,196 Supplemental disclosure of non-cash investing and financing activities Accrued capital expenditures $ 317 $ — The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 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, India, Italy, Japan, Mexico, 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. 9 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, amortization of developed technology, 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 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 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. 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 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”). 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): As of September 30, 2022 December 31, 2021 September 30, 2021 December 31, 2020 Cash and cash equivalents $ 51,802 $ 100,796 $ 127,122 $ 112,462 Restricted cash, current 2,053 791 — — Restricted cash, net of current portion — 2,373 3,240 — Total cash, cash equivalents, and restricted cash $ 53,855 $ 103,960 $ 130,362 $ 112,462 10 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 $ 1.9 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 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 $ 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 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 Refer to Note 11 for a detailed discussion on our policies related to stock-based compensation. 11 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Cloud subscriptions $ 60,621 $ 46,699 $ 171,083 $ 128,238 Term license subscriptions 19,773 15,114 58,543 44,290 Maintenance and support 6,126 5,427 17,282 15,424 Total subscriptions 86,520 67,240 246,908 187,952 Professional services 31,356 25,177 95,297 76,319 Total revenue $ 117,876 $ 92,417 $ 342,205 $ 264,271 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 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 12 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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. 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 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. 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 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. For time and materials-based consulting contracts, we have elected the practical expedient of recognizing revenue upon invoicing since the invoiced amount corresponds directly to the value of our service to date. Training Services We sell various training services to our customers. Training services are sold in the form of prepaid training credits that are redeemed based on a fixed rate per course. Training revenue is recognized when the associated training services are delivered. Significant Judgments and Estimates 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 nine months ended September 30, 2022 and 2021 was insignificant. Our estimates of variable 13 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 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. 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 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 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. 4. Leases 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. Lease Costs 14 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating lease cost $ 1,708 $ 1,659 $ 4,968 $ 4,984 Short-term lease cost 170 23 334 77 Variable lease cost 952 947 2,878 1,744 Total $ 2,830 $ 2,629 $ 8,180 $ 6,805 Supplemental Lease Information 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): As of September 30, 2022 December 31, 2021 Right-of-use assets for operating leases $ 31,841 $ 27,897 Operating lease liabilities, current $ 7,434 $ 8,110 Operating lease liabilities, net of current portion 52,710 48,784 Total operating lease liabilities $ 60,144 $ 56,894 Weighted average remaining lease term (in years) 9.0 9.5 Weighted average discount rate 9.5 % 9.5 % 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 Operating cash outflows for operating leases $ 2,099 $ 1,792 $ 6,258 $ 5,295 Amortization of operating lease ROU assets 364 685 995 1,380 Interest expense on operating lease liabilities 1,332 521 3,957 1,448 15 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 nine months ended September 30, 2022) $ 2,040 2023 8,367 2024 9,464 2025 10,202 2026 10,603 2027 10,892 Thereafter 44,762 Total lease payments 96,330 Less: imputed interest ( 36,186 ) Total $ 60,144 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 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): 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 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. 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, 16 APPIAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) and an immaterial adjustment to working capital. No additional measurement period adjustments were recognized for the nine months ended September 30, 2022. 6. Goodwill and Intangible Assets Goodwill was comprised of the following as of September 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 ( 3,750 ) Balance as of September 30, 2022 $ 24,045 Intangible assets, net consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands): As of September 30, 2022 December 31, 2021 Developed technology $ 6,290 $ 7,271 Customer relationships - Non-Robotic Process Automation (“RPA”) 754 872 Customer relationships - RPA 226 261 Intangible assets, gross 7,270 8,404 Less: accumulated amortization ( 2,131 ) ( 1,260 ) Intangible assets, net $ 5,139 $ 7,144 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 nine months ended September 30, 2022) $ 347 2023 1,342 2024 1,342 2025 1,068 2026 687 2027 84 Thereafter 269 Total projected amortization expense $ 5,139 17 7. Property and Equipment, net 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 Office furniture and fixtures 3,224 2,536 Computer hardware 8,761 6,001 Computer software 1,353 1,353 Equipment 235 124 Property and equipment, gross 56,881 51,019 Less: accumulated depreciation ( 18,189 ) ( 14,106 ) Property and equipment, net $ 38,692 $ 36,913 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. 8. Accrued Expenses 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 Legal costs 966 5,511 Marketing and tradeshow expenses 744 1,167 Third party license fees 1,821 1,066 Contract labor costs 1,453 891 Reimbursable employee expenses 1,246 870 Taxes payable 542 550 Audit and tax expenses 539 439 Capital expenditures — 379 Other accrued expenses 2,482 2,615 Total $ 12,710 $ 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 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. 18 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. 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 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. 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. 19 11. Stock-Based Compensation Equity Incentive Plans In May 2017, our Board of Directors adopted, and our stockholders approved, the 2017 Equity Incentive Plan (the “2017 Plan”), which became effective as of the date of the final prospectus for our initial public offering. The 2017 Plan provides for the grant of incentive stock options to employees and for the grant of nonstatutory stock options, restricted stock awards, RSUs, stock appreciation rights, performance-based stock awards, and other forms of equity compensation to employees, including officers, non-employee directors, and consultants. 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 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. 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. 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 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 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. 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. 20 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Risk-free interest rate * * 3.01 % * Expected term (in years) * * ** * Expected volatility * * 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 nine months ended September 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 ( 902,392 ) 27.93 31,790 Expired ( 6,800 ) 3.65 Forfeited ( 10,280 ) 12.28 Outstanding at September 30, 2022 2,733,884 $ 20.07 5.3 $ 63,622 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 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 nine months ended September 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 534,213 52.93 Vested ( 166,836 ) 74.30 Forfeited ( 157,732 ) 73.54 Non-vested and outstanding at September 30, 2022 1,419,174 $ 63.52 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. 21 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 RSUs $ 9,845 $ 4,997 $ 25,378 $ 13,405 Stock options 1,272 47 1,517 3,820 Common stock awards to the Board of Directors 219 156 532 467 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 nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Cost of revenue Subscriptions $ 284 $ 381 $ 712 $ 973 Professional services 1,401 777 3,788 2,283 Operating expenses Sales and marketing 2,667 1,448 6,721 3,753 Research and development 3,454 1,263 8,831 3,347 General and administrative 3,530 1,331 7,375 7,336 Total stock-based compensation expense $ 11,336 $ 5,200 $ 27,427 $ 17,692 12. Basic and Diluted Loss per Share 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 Nine Months Ended September 30, 2022 2021 Stock options 2,733,884 3,039,860 Non-vested restricted stock units 1,419,174 1,235,880 22 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 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 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. 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 $ 2.036 billion in damages for misappropriation of our trade secrets and $ 1 in damages for violating the Virginia Computer Crimes Act. 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. 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. 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. 23 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 nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Domestic $ 81,004 $ 62,815 $ 228,610 $ 176,801 International 36,872 29,602 113,595 87,470 Total $ 117,876 $ 92,417 $ 342,205 $ 264,271 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 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. 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 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 September 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; and • Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (i.e., replacement cost). 24 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. 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 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 Money market fund Level 1 $ 149 $ — $ 149 $ 149 $ — U.S. Treasuries Level 1 17,985 ( 70 ) 17,915 — 17,915 Commercial paper Level 2 13,134 — 13,134 — 13,134 Corporate bonds Level 2 9,923 ( 87 ) 9,836 — 9,836 Total investments $ 41,191 $ ( 157 ) $ 41,034 $ 149 $ 40,885 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 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. 25 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 Due in one year or less $ 41,191 $ 41,034 Due after one year through five years — — Total investments $ 41,191 $ 41,034 Actual maturities may differ from the contractual maturities in the table above because borrowers have the right to call or prepay certain obligations. 26