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Item 1A. Risk Factors

2023-02-16 compared with 2022-02-17 · 100 added, 106 removed, 550 unchanged (27% of the section changed)

Risk Factors.

Our operations and financial results are subject to various risks and uncertainties including those described below.

You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes.

Our operations and financial results are subject to various risks and uncertainties including those described below and other information contained in this Annual Report on Form 10-K.

The risks and uncertainties described below are not the only ones we face.

Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.

Additional risks and uncertainties we are unaware of, or we currently believe are not material, may also become important factors that adversely affect our business.

If any of the following risks or others not specified below materialize, our business, financial condition, and results of operations could be materially and adversely affected, and the trading price of our Class A common stock could decline.

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Our recent growth may not be indicative of our future growth and, if we continue to grow, we may not be able to manage our growth effectively.

We continue to experience rapid growth in our headcount and operations.

We have experienced rapid growth in our headcount and operations.

We have also significantly increased the size of our customer base over the last several years.

We anticipate we will continue to significantly expand our operations and headcount in the near term.

While we have expanded our operations and headcount in prior periods, it is not indicative of our future growth and we may modify our pace of hiring to align with our growth plans.

Our growth has placed, and any future growth will place, a significant strain on our management, administrative, operational, and financial infrastructure.

Our success will depend in part on our ability to manage this growth effectively.

To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial, and management controls and our reporting systems and procedures.

Our success will depend in part on our ability to manage this growth effectively and we will need to continue to improve our operational, financial, and management controls and our reporting systems and procedures.

Failure to effectively manage our growth could result in difficulty or delays in deploying our platform to customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features, or other operational difficulties.

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We could also face inefficiencies or operational failures as a result of our efforts to scale our infrastructure.

there are inherent risks associated with upgrading, improving, and expanding our information technology systems.

We cannot be sure the expansion and improvements to our infrastructure and systems will be fully or effectively implemented on a timely basis, if at all.

Moreover, there are inherent risks associated with upgrading, improving, and expanding our information technology systems.

be sure the expansion and improvements to our infrastructure and systems will be fully or effectively implemented on a timely basis, if at all.

These efforts may reduce revenue and our margins and adversely impact our financial results.

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and (3) providers of one or more automation technologies, including BPM, case management, process mining, and RPA.

Such providers include Pegasystems, Celonis, UiPath, IBM, ServiceNow, Microsoft, SAP, Bizagi, Oracle, and Nintex.

Such providers include Pegasystems, Celonis, UiPath, Microsoft, SAP, and Oracle.

Some of our actual and potential competitors have advantages over us such as longer operating histories, more established relationships with current or potential customers and commercial partners, significantly greater financial, technical, marketing, or other resources, stronger brand recognition, larger intellectual property portfolios, and broader global distribution and presence.

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Our platform, which can be deployed in the cloud or on-premises, allows for the storage and transmission of our customers’ proprietary or confidential information, which may include trade secrets, personally identifiable information, personal health information, and payment card information.

Any actual or perceived unauthorized access to, or security incidents affecting, our platform or the information stored on or transmitted by our platform, including through unauthorized and/or malicious activity by one of our employees, could result in the loss of information, litigation, regulatory investigations, penalties, indemnity obligations and other costs, expenses, and liability, which could exceed our existing insurance coverage and could result in a substantial financial loss.

Any actual or perceived unauthorized access to, or security incidents affecting, our platform or the information stored on or transmitted by our platform, including through unauthorized and/or malicious activity by one of our employees, could result in the loss of information, litigation, regulatory investigations, penalties, indemnity obligations and other costs, expenses, and liabilities, which could exceed our existing insurance coverage and could result in a substantial financial loss.

While we have security measures in place designed to protect customer information and prevent data loss and other security breaches, there can be no assurance these measures will be effective in protecting against malicious unauthorized access to our platform or our customers’ information.

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We may be subjected to indemnity demands, regulatory proceedings, audits, penalties, or litigation based on our customers’ misuse of our platform with respect to such sensitive information and defending against such litigation and otherwise addressing such matters may be expensive, cause distraction, and may result in us incurring liability, all of which may affect our operating results.

While we maintain general liability insurance coverage and coverage for errors or omissions, we cannot provide assurance that such coverage will be adequate or otherwise protect us from liabilities or damages with respect to claims alleging compromises of personal data or that such coverage will continue to be available on acceptable terms or at all.

While we maintain general liability insurance coverage and coverage for errors or omissions, we cannot provide assurance such coverage will be adequate or otherwise protect us from liabilities or damages with respect to claims alleging compromises of personal data or that such coverage will continue to be available on acceptable terms or at all.

We derive a material portion of our revenue from a limited number of customers, and the loss of one or more of these customers could adversely impact our business, results of operations, and financial condition.

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In the United States, applicable federal contracting regulations change frequently, and the President may issue executive orders requiring federal contractors to adhere to new compliance requirements after a contract is signed.

If we undertake to meet special standards or requirements and do not meet them, we could be subject to significant liability from our customers or regulators.

If we commit to meet special standards or requirements and do not meet them, we could be subject to significant liability from our customers or regulators.

Even if we do meet these special standards or requirements, the additional costs associated with providing our platform to government and highly regulated customers could harm our operating results.

Moreover, changes in the underlying statutory and regulatory conditions that affect these types of customers could harm our ability to efficiently provide them access to our platform and to grow or maintain our customer base.

Moreover, changes in the underlying statutory and regulatory conditions that affect these types of customers could compromise our ability to efficiently provide them access to our platform and to grow or maintain our customer base.

In addition, engaging in sales activities to foreign governments introduces additional compliance risks specific to the U.S.

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We will need to generate and sustain increased revenue levels in future periods in order to achieve or sustain profitability in the future.

We also expect our costs to increase in future

periods, which could negatively affect our future operating results if our revenue does not increase commensurately.

For example, we intend to continue to expend significant funds to expand our sales and marketing operations, develop and enhance our platform, meet the increased compliance requirements associated with our operation as a public company, and expand into new markets.

We also expect our costs to increase in future periods, which could negatively affect our future operating results if our revenue does not increase commensurately.

example, we intend to continue to expend significant funds to expand our sales and marketing operations, develop and enhance our platform, meet the increased compliance requirements associated with our operation as a public company, and expand into new markets.

Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenue enough to offset our higher operating expenses.

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If we are unable to achieve and sustain profitability, our stock price may significantly decrease.

Our future quarterly results of operations may fluctuate significantly due to a wide range of factors, which makes our future results difficult to predict.

Our future results of operations may fluctuate significantly due to a wide range of factors, which makes our future results difficult to predict.

Our revenue and results of operations have historically varied from period to period, and we expect they will continue to do so as a result of a number of factors, many of which are outside of our control, including:

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• Large customers failing to renew their subscriptions;

• The size, timing, and terms of our subscription agreements with existing and new customers, including revenue recognition issues raised by multiple element arrangements;

• The size, timing, and terms of our subscription agreements with existing and new customers, including revenue recognition issues;

• Variations in the revenue mix of our professional services and growth rates of our cloud subscription and professional services offerings, including the timing of subscriptions and sales offerings that include an on-premises software element for which the revenue allocated to that deliverable is recognized upfront;

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• General economic and political conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers operate.

Any one of these or other factors discussed elsewhere in this Annual Report on Form 10-K or the cumulative effect of some of these factors may result in fluctuations in our revenue and operating results, meaning quarter-to-quarter comparisons of our revenue, results of operations, and cash flows may not necessarily be indicative of our future performance, may cause us to miss our guidance or analyst expectations, and may cause our stock price to decline.

our revenue, results of operations, and cash flows may not necessarily be indicative of our future performance, may cause us to miss our guidance or analyst expectations, and may cause our stock price to decline.

In addition, we have historically experienced seasonality in terms of when we enter into agreements with customers.

We typically enter into a significantly higher percentage of agreements with new customers, as well as renewal agreements with existing customers, in the fourth quarter and, to a lesser extent, the second quarter.

We typically enter into a significantly higher percentage of agreements with new customers, as well as renewal agreements with existing customers, in the fourth quarter.

The increase in customer agreements for the fourth quarter is attributable to large enterprise account buying patterns typical in the software industry.

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In developing this guidance, our management must make certain assumptions and judgments about our future performance.

Some of those key assumptions relate to the impact of the COVID-19 pandemic and the associated economic uncertainty on our business and the timing and scope of economic recovery globally, which are inherently difficult to predict.

Furthermore, analysts and investors may develop and publish their own projections of our business, which may form a consensus about our future performance.

Our business results may vary significantly from such guidance or that consensus due to a number of factors, many of which are outside of our control, including due to the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic, which could adversely affect our operations and operating results.

Our business results may vary significantly from such guidance or that consensus due to a number of factors, many of which are outside of our control, including due to the global economic uncertainty and financial market conditions which could adversely affect our operations and operating results.

Furthermore, if our publicly announced guidance of future operating results fails to meet our previously announced guidance or the expectations of securities analysts, investors, or other interested parties, the price of our common stock would decline.

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if we are unable to retain or motivate key personnel or hire, retain, and motivate qualified personnel, our business would be harmed.

We believe our success has depended, and continues to depend, on the efforts and talents of our senior management team, particularly Matthew Calkins, our founder and Chief Executive Officer, and our highly skilled team members, including our sales personnel, professional services personnel, cloud engineering and support personnel, and software engineers.

We believe our success has depended, and continues to depend, on the efforts and talents of our senior management team, particularly Matt Calkins, our founder and Chief Executive Officer, and our highly skilled team members, including our sales personnel, professional services personnel, cloud engineering and support personnel, and software engineers.

We do not maintain key man insurance on any of our executive officers or key employees.

From time to time, there may be changes in our senior management team resulting from the termination or departure of our executive officers and key employees.

From time to time, there have been and may continue to be changes in our senior management team resulting from the termination or departure of our executive officers and key employees.

Our senior management and key employees are employed on an at-will basis, which means they could terminate their employment with us at any time.

On December 1, 2021, Mark Lynch, our Chief Financial Officer, notified us he plans to retire after he has successfully transitioned his responsibilities to his successor.

We are in the process of identifying Mr.

Lynch’s successor.

Many of our executive officers and key employees receive equity compensation as a significant portion of their overall compensation package.

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Competition for well-qualified employees in all aspects of our business, including sales personnel, professional services personnel, cloud engineering and support personnel, and software engineers, is intense.

There is currently additional volatility in the job market known as the “great resignation,” with a record number of employees choosing alternative career paths or companies, or leaving the job market altogether.

Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate existing employees.

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The success of our business depends on our customers’ satisfaction with our platform, the support we provide for our platform, and the professional services we provide to help our customers deploy our platform.

Professional services may be performed by our own staff, by a third party, or by a combination of the two.

Professional services may be performed by our own staff, a third party, or a combination of the two.

Our strategy is to work with third parties to increase the breadth, capability, and depth of capacity for delivery of these services to our customers, and third parties provide a significant portion of our deployment services.

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Customers and potential customers may refuse to do business with us because of the perceived or actual failure of our cloud offering as hosted by AWS, and our operating results could be harmed.

Our agreement with AWS allows AWS to terminate the agreement by providing two years' prior written notice and may allow AWS to terminate in case of a breach of contract if such breach is uncured for 30 days or to terminate upon thirty days' advance written notice if AWS’s further provision of services to us becomes impractical for legal or regulatory reasons.

Our agreement with AWS allows AWS to terminate the agreement by providing two years' prior written notice and may allow AWS to terminate in case of a breach of contract if such breach is uncured for 30 days or to terminate upon 30 days' advance written notice if AWS’s further provision of services to us becomes impractical for legal or regulatory reasons.

Although we expect we could receive similar services from other third parties if any of our arrangements with AWS are terminated, we could experience interruptions on our platform and in our ability to make our platform available to customers, as well as delays and additional expenses in arranging alternative cloud infrastructure services.

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If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results may suffer.

Even if we are successful, we cannot assure you these relationships will result in increased customer usage of our platform or increased revenue.

Even if we are successful, we cannot be sure these relationships will result in increased customer usage of our platform or increased revenue.

Because our long-term growth strategy involves further expansion of our sales to customers outside the United States, our business will be susceptible to risks associated with international operations.

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In 2022, 2021, and 2020, revenue generated from customers outside the United States was 33.5%, 34.0%, and 33.8%, respectively, of our total revenue.

We currently operate in Canada, Switzerland, the United Kingdom, France, Germany, the Netherlands, Italy, Australia, Spain, Singapore, Sweden, and Japan.

We currently operate in Canada, Switzerland, the United Kingdom, France, Germany, the Netherlands, Italy, Australia, Spain, Singapore, Sweden, Japan, Mexico, and India.

In the future, we may expand to other international locations.

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If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Class A common stock.

Our loan and security agreement with Silicon Valley Bank for our current revolving line of credit includes restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions, and any debt financing we secure in the future could include similar restrictive covenants.

We may not be able to obtain additional financing on terms favorable to us, if at all.

If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.

Pursuant to the terms of our outstanding indebtedness, we may be limited in our ability to incur future debt.

In November 2022, we entered into a Senior Secured Credit Facilities Credit Agreement (as amended from time to time, the “Credit Facility”) with the several banks and other financial institutions or entities from time to time parties to the Credit Facility, as lenders, and Silicon Valley Bank, as administrative agent and collateral agent for the lenders, which provides for a five-year term loan facility in an aggregate principal amount of $120.0 million and up to $60.0 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).

Our obligations under the Credit Facility are secured by substantially all of our assets.

Pursuant to the terms of the Credit Facility, we are limited in our ability to incur additional indebtedness other than on the terms and conditions thereof.

In addition, a failure to comply with the covenants under the Credit Facility could result in an event of default by us and an acceleration of amounts due.

If an event of default occurs that is not waived by the lenders, and the lenders accelerate any amounts due, we may not be able to make accelerated payments, and the lender could seek to enforce their security interests in the collateral securing such indebtedness, which could have a material adverse effect on our business and results of operations.

We may not achieve market acceptance of our pre-built solutions, which may adversely impact our financial results.

We have begun the process of developing and releasing pre-built solutions on our software platform in order to maximize the value of our platform to our customers and to reduce the sales cycles associated with software sales to new and existing customers.

We have been developing and releasing pre-built solutions on our software platform in order to maximize the value of our platform to our customers and to reduce the sales cycles associated with software sales to new and existing customers.

Each solution requires an investment in development, marketing, sales, support, finance, and legal resources to bring the solution to market.

Although we make efforts to identify the solutions that will receive favorable market acceptance, there can be no guarantee any solution will become the source of material revenue, and the investment in the solution may not produce a positive return.

If unsuccessful, such solutions may adversely impact our financial results to the extent our expenses increase without any increase in sales or to the extent that attempted sales of such solutions reduce sales of our existing platform.

If unsuccessful, such solutions may adversely impact our financial results to the extent our expenses increase without any increase in sales or to the extent attempted sales of such solutions reduce sales of our existing platform.

If currency exchange rates fluctuate substantially in the future, our financial results, which are reported in U.S.

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A strengthening of the U.S.

dollar could reduce the dollar value of revenue generated by our customers outside of the United States, adversely affecting our business operations and financial results.

dollar could reduce the dollar value of revenue generated by our customers outside of the United States, adversely affecting our business operations

and financial results.

We incur expenses for employee compensation and other operating expenses at our non-U.S.

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We employ third-party licensed software for use in or with our software, and the inability to maintain these licenses or errors in the software we license could result in increased costs or reduced service levels, which would adversely affect our business.

Our software incorporates certain third-party software obtained under licenses from other companies, including database software from Kx.

Our software incorporates certain third-party software obtained under licenses from other companies, including database software from Kx Systems.

We anticipate we will continue to rely on such third-party software and development tools from third parties in the future.

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In the event of a major hurricane, earthquake, or catastrophic event such as fire, power loss, telecommunications failure, cyberattack, outbreak of regional or global pandemic diseases, war, or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our software development, lengthy interruptions in our services, breaches of data security, and loss of critical data, all of which could have an adverse effect on our future operating results.

For example, the ongoing coronavirus outbreak at the beginning of 2020 has resulted in increased travel restrictions and extended shutdown of certain businesses in the region.

At this point, the extent to which the coronavirus may impact our operating results is uncertain.

Adverse economic conditions may negatively impact our business.

Our business depends on the overall demand for enterprise software and on the economic health of our current and prospective customers.

The economies of countries in Europe have been experiencing weakness associated with high sovereign debt levels, weakness in the banking sector, and uncertainties surrounding the future of the Euro zone and the United Kingdom's relationship with the European Union.

We have operations in the United Kingdom and in Europe and current and potential new customers in Europe.

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Future acquisitions could disrupt our business and adversely affect our business operations and financial results.

We may choose to expand by acquiring businesses or technologies.

For instance, in August 2021, we acquired Lana Labs GmbH, or Lana Labs, a developer of process mining software, which we are continuing to integrate along with their personnel.

In the past we have chosen and may continue to choose, to expand by acquiring businesses or technologies.

Our ability as an organization to successfully acquire and integrate technologies or businesses is unproven.

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Personal privacy has become a significant issue in the United States and in many other countries where we offer our software for sale.

The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain

for the foreseeable future.

Many federal, state, and foreign government bodies and agencies have adopted or are considering adopting laws and regulations regarding the collection, use, storage, and disclosure of personal information and breach notification procedures.

The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.

Many federal, state, and foreign government bodies and agencies have adopted or are considering

adopting laws and regulations regarding the collection, use, storage, and disclosure of personal information and breach notification procedures.

Interpretation of these laws, rules, and regulations and their application to our software and professional services in the United States and foreign jurisdictions is ongoing and cannot be fully determined at this time.

In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission, the Electronic Communications Privacy Act, Computer Fraud and Abuse Act, the Health Insurance Portability and Accountability Act of 1996, the Gramm Leach Bliley Act, the California Consumer Privacy Act, or the CCPA, and other state laws relating to privacy and data security.

In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission, the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the Health Insurance Portability and Accountability Act of 1996, the Gramm Leach Bliley Act, the California Consumer Privacy Act, or the CCPA, and other state laws relating to privacy and data security.

The CCPA, which became effective on January 1, 2020, drastically changes the ability for individuals to control the use of their personal data.

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This could increase our costs of doing business.

Further, the California Privacy Rights Act, or CPRA, once it becomes effective, will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information.

The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA.

Further, the California Privacy Rights Act, or CPRA, which became effective on January 1, 2023, has significantly modified the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information.

The CPRA also created a new state agency, the California Privacy Protection Agency, or CPPA, that is vested with authority to implement and enforce the CCPA and the CPRA.

New legislation proposed or enacted in various other states will continue to shape the data privacy environment nationally.

For example, Virginia passed the Consumer Data Protection Act, and Colorado passed the Colorado Privacy Act, both of which differ from the CPRA and become effective in 2023.

For example, Virginia passed the Consumer Data Protection Act, which became effective on January 1, 2023 and Colorado passed the Colorado Privacy Act, which becomes effective July 1, 2023, both of which differ from the CPRA.

Some of these state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to confidential, sensitive, and personal information than federal, international, or other state laws, and such laws may differ from each other, which may complicate compliance efforts.

Internationally, the European Union adopted a comprehensive general data protection regulation, or the GDPR, which contains numerous requirements and changes related to rights of data subjects in their personal data, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies.

In addition, absent appropriate safeguards or other circumstances, the EU GDPR generally restricts the transfer of personal data to countries outside of the European Economic Area, or EEA, such as the United States, which the European Commission does not consider to provide an adequate level of data privacy and security.

The European Commission released a set of “Standard Contractual Clauses” in June 2021 that are designed to be a valid mechanism by which entities can transfer personal data out of the EEA to jurisdictions that the European Commission has not found to provide an adequate level of protection.

Internationally, the European Union has adopted a comprehensive and evolving general data protection regulation, or the GDPR, which contains numerous requirements related to rights of data subjects in their personal data, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies in general.

In addition, absent appropriate safeguards or other circumstances, the EU GDPR generally restricts the transfer of personal data to non-adequate countries outside of the European Economic Area, or EEA, such as the United States, which the European Commission does not consider to provide an adequate level of data privacy and security.

The European Commission released a revised set of “Standard Contractual Clauses” in June 2021 that are designed to be a valid mechanism by which entities can transfer personal data out of the EEA to jurisdictions that the European Commission has not found to provide an adequate level of protection.

Currently, these new Standard Contractual Clauses are a valid mechanism to transfer personal data outside of the EEA.

The new Standard Contractual Clauses, however, require parties that rely upon that legal mechanism to comply with additional obligations, such as conducting transfer impact assessments to determine whether additional security measures are necessary to protect the at-issue personal data.

The revised Standard Contractual Clauses, however, require parties relying upon that legal mechanism to comply with additional obligations, such as conducting transfer impact assessments to determine whether additional security measures are necessary to protect the at-issue personal data.

Moreover, due to potential legal challenges, there exists some uncertainty regarding whether the new Standard Contractual Clauses will remain a valid mechanism for transfers of personal data out of the EEA.

Similarly, following Brexit, we are subject to the U.K.

General Data Protection Regulation, or U.K.

GDPR, a version of the GDPR as implemented into U.K.

law that combines the GDPR and the U.K.

Data Protection Act of 2018.

U.K.-based data exporters are required to use the International Data Transfer Agreement, or IDTA, and the International Data Transfer Addendum to the European Commission’s Standard Contractual Clauses, or the U.K.

Addendum, as mechanisms to comply with the U.K.

GDPR when making restricted international transfers of personal data.

Virtually every jurisdiction in which we operate has established its own data security and privacy legal framework with which we or our customers must comply.

Since we are agnostic as to the data uploaded into our cloud offering by our cloud offering customers or processed by our platform in on-premises deployments, we may be hosting or otherwise processing substantial amounts of individually identifiable health information and other types of personally identifiable information.

The effects of any of this legislation could be potentially far-reaching and may require us to modify our data management practices and to incur substantial expense in an effort to comply.

The effects of any of this legislation, and future changes to interpretations of this legislation, could be potentially far-reaching and may require us to modify our data management practices and to incur substantial expense in an effort to comply.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that may apply to us.

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If so, in addition to the possibility of fines, lawsuits, and other claims, we could be required to fundamentally change our business activities and practices or modify our software, which could have an adverse effect on our business.

Any inability to adequately address privacy or cybersecurity concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations, and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business.

Any inability to adequately

address privacy or cybersecurity concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations, and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business.

Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our platform.

concerns, whether valid or not valid, may inhibit market adoption of our platform, particularly in certain industries and foreign countries.

If our platform fails to function in a manner that allows our customers to operate in compliance with regulations and/or industry standards, our revenue and operating results could be harmed.

Privacy concerns, whether valid or not valid, may inhibit market adoption of our platform, particularly in certain industries and foreign countries.

If our platform fails to function in a manner allowing our customers to operate in compliance with regulations and/or industry standards, our revenue and operating results could be harmed.

Certain of our customers use our platform to create applications that ensure secure communications given the nature of the content being distributed and associated applicable regulatory requirements.

Governmental and other customers may also require our platform to comply with certain privacy, security, and other certifications and standards.

As attitudes towards privacy and data security evolve governmental and other customers may also require our platform to comply with certain privacy, security, and other certifications and standards that are specialized or industry-specific.

Our cloud platform holds various security certifications from government agencies and industry organizations, including the Federal Risk and Authorization Management Program, or FedRAMP, compliance and HITRUST certification.

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We can be held liable for the corrupt or other illegal activities of these third-party representatives, our employees, contractors, and other agents, even if we do not explicitly authorize such activities.

In addition, although we have implemented policies and procedures to ensure compliance with anti-corruption laws, there can be no assurance all of our employees, representatives, contractors, or agents will comply with these laws at all times.

Noncompliance with these laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences.

If any subpoenas or investigations are launched, or governmental or

other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be materially harmed.

In addition, although we have

implemented policies and procedures to ensure compliance with anti-corruption laws, there can be no assurance all of our employees, representatives, contractors, or agents will comply with these laws at all times.

Non-compliance with these laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences.

If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be materially harmed.

In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.

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We are subject to governmental export and import controls and economic and trade sanctions that could impair our ability to conduct business in international markets and subject us to liability if we are not in compliance with applicable laws and regulations.

The United States and other countries maintain and administer export and import laws and regulations, including various economic and trade sanctions including those administered by the Office of Foreign Assets Control, or OFAC, which apply to our business.

The United States and other countries maintain and administer export and import laws and regulations, including various economic and trade sanctions such as those administered by the Office of Foreign Assets Control, or OFAC, which apply to our business.

We are required to comply with these laws and regulations.

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To safeguard these rights, we rely on a combination of patent, trademark, copyright, and trade secret laws and contractual protections in the United States and other jurisdictions, all of which provide only limited protection and may not now or in the future provide us with a competitive advantage.

As of December 31, 2021, we had six issued patents, two allowed patents, and four pending patent applications related to our platform and its technology.

As of December 31, 2022, we had 11 issued patents and six pending patent applications related to our platform and its technology.

We have registered the “Appian” name and logo in the United States and certain other countries.

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In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights.

Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property.

Litigation brought to protect and enforce our intellectual property rights has been and could be costly, time-consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property.

Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights.

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The litigation may involve patent holding companies or other adverse patent owners that have no relevant product revenue and against which our patents may therefore provide little or no deterrence.

In the past, we have been subject to allegations of patent infringement that were unsuccessful, and we may in the future be subject to claims we have misappropriated, misused, or infringed other parties’ intellectual property rights, and, to the extent we gain greater market visibility or face increasing competition, we face a higher risk of being the subject of intellectual property infringement claims, which is not uncommon with respect to enterprise software companies.

In the past, we have been subject to allegations of patent infringement that were unsuccessful, and we may in the future be subject to claims we have

misappropriated, misused, or infringed other parties’ intellectual property rights, and, to the extent we gain greater market visibility or face increasing competition, we face a higher risk of being the subject of intellectual property infringement claims, which is not uncommon with respect to enterprise software companies.

We also generally grant our customers ownership of any custom applications we develop for them, subject to our continued ownership of our pre-existing intellectual property rights and, in the past, a customer for whom we have developed custom applications has incorrectly alleged applications we have independently developed infringed the customer’s intellectual property rights.

In addition, we have in the past, and may in the future, be subject to claims that our employees, contractors, or we ourselves have inadvertently or otherwise used or disclosed

trade secrets or other proprietary information of our competitors or other parties.

In addition, we have in the past, and may in the future, be subject to claims that our employees, contractors, or we ourselves have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of our competitors or other parties.

To the extent intellectual property claims are made against our customers based on their usage of our technology, we have certain obligations to indemnify and defend such customers from those claims.

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We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, as provided in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K.

The results of these estimates form the basis for making judgments about the carrying values of

assets, liabilities, and equity as well as the amount of revenue and expenses.

The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity as well as the amount of revenue and expenses.

Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, income taxes and the related valuation allowance, stock-based compensation, impairment of goodwill and long-lived assets, and business combinations.

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A successful assertion that we are required to pay additional taxes in connection with sales of our platform, or the imposition of new laws or regulations requiring the payment of additional taxes, would create increased costs and administrative burdens for us.

If we are subject to additional taxes and determine to offset such increased costs by collecting and remitting sales taxes from our customers, or otherwise passing those costs through to our customers, companies may be discouraged from using our platform.

If we are subject to additional taxes and determined to offset such increased costs by collecting and remitting sales taxes from our customers, or otherwise passing those costs through to our customers, companies may be discouraged from using our platform.

Any increased tax burden may decrease our ability or willingness to compete in relatively burdensome tax jurisdictions, result in substantial tax liabilities related to past sales, or otherwise harm our business and operating results.

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As of December 31, 2022, we also had gross foreign NOLs of $163.4 million, primarily at our Swiss subsidiary, Appian Software International.

These NOLs will begin to expire in 2022 to 2029, if unused.

We had gross foreign NOL expirations of $8.1 million in 2022, and a piece of our foreign NOLs will

continue to expire each year if unutilized.

If we are limited in our ability to use our NOLs in future years in which we have taxable income, we will pay more taxes than if we were able to fully utilize our NOLs.

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Forecasting our estimated annual effective tax rate for financial accounting purposes is complex and subject to uncertainty, and there may be material differences between our forecasted and actual tax rates.

us in various tax jurisdictions with a broad range of income tax rates, as well as changes in the valuation of deferred tax assets and liabilities, the impact of various accounting rules and changes to these rules and tax laws, the results of examinations by various tax authorities, and the impact of any acquisition, business combination, or other reorganization or financing transaction.

Forecasts of our income tax position and effective tax rate for financial accounting purposes are complex and subject to uncertainty because our income tax position for each year combines the effects of a mix of profits earned and losses incurred by us in various tax jurisdictions with a broad range of income tax rates, as well as changes in the valuation of deferred tax assets and liabilities, the impact of various accounting rules and changes to these rules and tax laws, the results of examinations by various tax authorities, and the impact of any acquisition, business combination, or other reorganization or financing transaction.

To forecast our global tax rate, we estimate our pre-tax profits and losses by jurisdiction and forecast our tax expense by jurisdiction.

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Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations.

If we are unable to conclude our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could decline, and we could be subject to sanctions or investigations by the Nasdaq Stock Market, the SEC, or other regulatory authorities.

If we are unable to conclude our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could decline, and we could be subject to sanctions or investigations by the Nasdaq Stock Market, the SEC, or other regulatory authorities.

Failure to remedy any material weakness in our internal control over financial reporting or to implement or maintain other effective control systems required of public companies could also restrict our future access to the capital markets.

Risks Related to Our Class A Common Stock

The dual class structure of our common stock and the existing ownership of capital stock by Matthew Calkins, our founder and Chief Executive Officer, has the effect of concentrating voting control with Mr.

Calkins for the foreseeable future, which will limit your ability to influence corporate matters.

The dual class structure of our common stock and the existing ownership of capital stock by Matt Calkins, our founder and Chief Executive Officer, has the effect of concentrating voting control with Mr.

Calkins for the foreseeable future, which will limit the ability of others to influence corporate matters.

Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share.

Given the greater number of votes per share attributed to our Class B common stock, our Class B stockholders collectively beneficially owned shares representing approximately 88% of the voting power of our outstanding capital stock as of December 31, 2022.

Calkins, our founder and Chief Executive Officer, together with his affiliates, collectively beneficially owned shares representing approximately 77% of the voting power of our outstanding capital stock as of December 31, 2021.

Calkins, our founder and Chief Executive Officer, together with his affiliates, collectively beneficially owned

shares representing approximately 81% of the voting power of our outstanding capital stock as of December 31, 2022.

Consequently, Mr.

Calkins, together with his affiliates, is able to control a majority of the voting power even if their stock holdings represent as few as approximately 24% of the outstanding number of shares of our common stock.

This concentrated control will limit your ability to influence corporate matters for the foreseeable future.

This concentrated control will limit the ability of others to influence corporate matters for the foreseeable future.

For example, Mr.

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In addition, Mr.

Calkins has the ability to control the management and major

strategic investments of our company as a result of his position as our Chief Executive Officer and his ability to control the election or replacement of our directors.

Calkins has the ability to control the management and major strategic investments of our company as a result of his position as our Chief Executive Officer and his ability to control the election or replacement of our directors.

As a board member and officer, Mr.

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Calkins and other holders of Class B common stock will generally result in those shares converting on a 1:1 basis to Class A common stock, which will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long-term.

We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our Class A common stock.

We do not intend to pay dividends on our common stock for the foreseeable future so any returns will depend on appreciation in the price of our Class A common stock.

We have never declared or paid any cash dividends on our common stock, and we do not intend to pay any cash dividends in the foreseeable future.

Although we paid a cash dividend in connection with the conversion of our Series A preferred stock to Class B common stock immediately prior to the closing of the IPO, which was agreed to at the time of the original issuance of the Series A preferred stock, we anticipate we will retain all of our future earnings for use in the development of our business and for general corporate purposes.

Additionally, our ability to pay dividends on our common stock is limited by restrictions under the terms of our loan and security agreement with Silicon Valley Bank.

Additionally, our ability to pay dividends on our common stock is limited by restrictions under the terms of our credit agreement with Silicon Valley Bank.

Any determination to pay dividends in the future will be at the discretion of our Board of Directors.

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Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us and limit the market price of our Class A common stock.

Pursuant to our amended and restated certificate of incorporation, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws, or (4) any action asserting a claim governed by the internal affairs doctrine.

provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws, or (4) any action asserting a claim governed by the internal affairs doctrine.

Our amended and restated certificate of incorporation also provides the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.

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General risk factors

The effects of national and global epidemics, including the ongoing COVID-19 pandemic, could have an adverse impact on our business, operations, and the markets and communities in which we operate.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic.

Our business and operations could be adversely affected by national and global epidemics, including the ongoing COVID-19 pandemic, including the emergence of new variant strains, impacting the markets and communities in which we operate.

In response to the COVID-19 pandemic, many state, local, and foreign governments have put in place, and others in the future may put in place, quarantines, executive orders, shelter-in-place orders, and similar government orders and restrictions in order to control the spread of the disease.

Such orders or restrictions, or the perception that such orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, and travel restrictions, among other effects that could negatively impact productivity and disrupt our operations.

For example, we have implemented a flexible work-from-home policy for employees, and we may take further actions that alter our operations as may be required by federal, state, or local authorities or which we determine are in the best interests of our employees and stockholders.

In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.

The COVID-19 pandemic also could reduce the demand for our customers’ products and services, which could negatively impact our customers’ willingness to renew or enter into contracts with us or our ability to collect accounts receivable on a timely basis, which, if significant, could materially and adversely affect our business, results of operations, and financial condition.

The global pandemic of COVID-19 continues to rapidly evolve, and we will continue to monitor the COVID-19 situation closely.

The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change.

We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy as a whole, which makes our future results difficult to predict.

In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties described herein.

Unfavorable conditions in the global economy or the vertical markets we serve could limit our ability to grow our business and negatively affect our operating results.

General worldwide economic conditions have experienced significant instability due to the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic.

General worldwide economic conditions have experienced significant instability due to the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic and the ongoing Russia-Ukraine war.

In addition, inflation rates have recently risen to historically high levels.

The existence of inflation in the U.S.

and global economy has, and may continue to result in, higher interest rates and capital costs, increased costs of labor, fluctuating exchange rates, and other similar effects.

These conditions make it extremely difficult for customers and us to accurately forecast and plan future business activities and could cause customers to reduce or delay their software spending.

For example, we believe there could be some short-term impact from the COVID-19 pandemic on spending by our customers.

At this time, the potential impact on customer spend from the COVID-19 pandemic is difficult to predict and, therefore, it is not possible to fully determine the impact on our future results.

At this time, the potential impact on customer spend from an economic slowdown is difficult to predict and, therefore, it is not possible to fully determine the impact on our future results.

Historically, economic downturns have resulted in overall reductions in software spending.

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We have historically generated a majority of our revenue from customers in the financial services, government, and life sciences verticals.

While these verticals have not been affected as severely by weak economic conditions caused by COVID-19 as the retail, hospitality, and entertainment industries, we cannot provide assurance these verticals will not suffer more severe losses in the future.

While these verticals have not been affected as severely by weak economic conditions as the retail, hospitality, and entertainment industries, we cannot provide assurance these verticals will not suffer more severe losses in the future.

Furthermore, we cannot predict the timing, strength, or duration of any economic slowdown or recovery.

In addition, even if the overall economy is robust, we cannot provide assurance the market for services such as ours will experience growth or that we will experience growth.

Our stock price may be volatile, and you may lose some or all of your investment.

The market price of our Class A common stock may be highly volatile and may fluctuate substantially as a result of a variety of factors.

Our stock price has been volatile and may be volatile in the future.

The market price of our Class A common stock has been volatile and may continue to fluctuate substantially as a result of a variety of factors.

Since shares of our Class A common stock were sold in our initial public offering, or IPO, in May 2017 at a price of $12.00 per share, our stock price has ranged from an intraday low of $14.60 to an intraday high of $260.00 through February 13, 2023.

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• The trading volume of our Class A common stock;

• Trading activity by one or both large stockholders who together owned approximately 29% of our publicly traded Class A common stock as of December 31, 2021;

• Trading activity by any of our four large stockholders who collectively owned approximately 42% of our publicly traded Class A common stock as of December 31, 2022;

• Changes in the anticipated future size and growth rate of our market;

• General economic, regulatory, and market conditions.

The stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies.

The stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, particularly during this time of uncertainty with increasing interest rates, inflation, and the prospects of a recession.

These fluctuations have often been unrelated or disproportionate to the operating performance of those companies.

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Unresolved Staff Comments.

Not applicable.

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

What changed 10-K

Item 1A. Risk Factors