What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-16 compared with 2022-02-17 · 275 added, 343 removed, 768 unchanged (45% of the section changed)

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Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm - Opinion on Consolidated Financial Statements ( BDO USA, LLP ;

Report of Independent Registered Public Accounting Firm ( BDO USA, LLP ;

McLean, Virginia ;

PCAOB ID # 243 )

Report of Independent Registered Public Accounting Firm - Opinion on Internal Controls over Financial Reporting

Consolidated Balance Sheets

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Shareholders and Board of Directors

Appian Corporation

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(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition for Multiple Performance Obligations

As discussed in Note 3 to the consolidated financial statements, certain of the Company's revenue contracts contain multiple performance obligations that might include Software as a Service (“SaaS”) subscriptions, term license subscriptions, maintenance and support and professional services.

As discussed in Note 3 to the consolidated financial statements, certain of the Company's revenue contracts contain multiple performance obligations that might include cloud subscriptions, term license subscriptions, maintenance and support and professional services.

The Company accounts for individual products and services separately if they are capable of being distinct and are distinct within the context of the contract.

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Auditing these elements of revenue recognition was especially challenging due to the significant judgment involved in assessing the completeness of the distinct performance obligations in arrangements containing multiple performance obligations.

In addition, the evaluation of the reasonableness of the range of prices used to establish the standalone selling price for maintenance and support and professional services was complex, which directly affects the amount of SaaS and term license subscriptions revenue recognized using the residual approach.

In addition, the evaluation of the reasonableness of the range of prices used to establish the standalone selling price for maintenance and support and professional services was complex, which directly affects the amount of cloud and term license subscriptions revenue recognized using the residual approach.

The primary procedures we performed to address this critical audit matter included:

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Shareholders and Board of Directors

Appian Corporation

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Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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We believe that our audit provides a reasonable basis for our opinion.

As indicated in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Lana Labs GmbH (“Lana Labs”), which was acquired on August 11, 2021, and which is included in the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated statement of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for the year then ended.

Lana Labs constituted 6% of total assets as of December 31, 2021, and 0.1% of revenues for the year then ended.

Management did not assess the effectiveness of internal control over financial reporting of Lana Labs because of the timing of the acquisition which was completed on August 11, 2021.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Lana Labs.

Definition and Limitations of Internal Control over Financial Reporting

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A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made

only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Short-term investments and marketable securities 47,863 55,179

Accounts receivable, net of allowance of $ 1,400 as of each of December 31, 2021 and December 31, 2020

Accounts receivable, net of allowance of $ 2,125 and $ 1,400 , respectively

165,964 130,049

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Total current assets 422,497 338,264

Property and equipment, net 36,913 35,404

Property and equipment, net of accumulated depreciation of $ 18,864 and $ 14,106 , respectively

41,855 36,913

Long-term investments — 12,044

Goodwill 26,349 27,795

Intangible assets, net of accumulated amortization of $ 1,260 and $ 429 as of December 31, 2021 and December 31, 2020, respectively

Intangible assets, net of accumulated amortization of $ 2,715 and $ 1,260 , respectively

Operating right-of-use assets 37,248 27,897

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Deferred revenue, current 194,768 150,169

Debt, current 2,740 —

Operating lease liabilities, current 8,681 8,110

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Total current liabilities 270,252 215,721

Operating lease liabilities, net of current portion 48,784 51,194

Deferred revenue, net of current portion 2,430 3,886

Long-term debt 115,379 —

Operating lease liabilities 57,225 48,784

Deferred revenue 5,556 2,430

Deferred tax liabilities 102 209

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Operating loss ( 145,010 ) ( 83,907 ) ( 37,902 )

Other expense (income)

Other non-operating expense (income)

Other expense (income), net 3,545 3,584 ( 5,786 )

Interest expense 1,673 372 478

Total other expense (income) 3,956 ( 5,308 ) ( 574 )

Total other non-operating expense (income) 5,218 3,956 ( 5,308 )

Loss before income taxes ( 150,228 ) ( 87,863 ) ( 32,594 )

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Comprehensive loss, net of income taxes

Foreign currency translation adjustment ( 677 ) ( 4,703 ) ( 827 )

Foreign currency translation adjustments ( 1,559 ) ( 677 ) ( 4,703 )

Unrealized losses on available-for-sale securities — — ( 22 )

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(in thousands, except share data)

Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity

Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity

Shares Amount

Balance December 31, 2019 67,468,022 $ 6 $ 340,929 $ ( 285 ) $ ( 135,413 ) $ 205,237

Cumulative-effect adjustment for the adoption of ASC 606 — — — — 60,941 60,941

Net loss — — — — ( 33,477 ) ( 33,477 )

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Net loss — — — — ( 88,641 ) ( 88,641 )

Issuance of common stock from public offering, net of issuance costs 1,931,206 1 107,914 — — 107,915

Issuance of common stock to directors 4,950 — — — — —

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Net loss $ ( 150,920 ) $ ( 88,641 ) $ ( 33,477 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 5,743 5,851 4,742

Adjustments to reconcile net loss to net cash used by operating activities:

Stock-based compensation 38,830 23,844 15,279

Depreciation and amortization of intangible assets 7,297 5,743 5,851

Bad debt expense 1,298 410 984

Amortization of debt issuance costs 43 — —

Loss on disposal of property and equipment 3 79 22

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Deferred income taxes ( 1,089 ) ( 498 ) ( 184 )

Stock-based compensation 23,844 15,279 16,443

Changes in assets and liabilities:

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Accrued compensation and related benefits 6,582 12,598 11,801

Other liabilities ( 444 ) 3,681 1,318

Other current and non-current liabilities ( 264 ) ( 444 ) 3,681

Deferred revenue 47,534 33,378 27,626

Operating lease assets and liabilities ( 329 ) 1,544 3,407

Net cash used in operating activities ( 53,918 ) ( 7,620 ) ( 8,926 )

Net cash used by operating activities ( 106,551 ) ( 53,918 ) ( 7,620 )

Cash flows from investing activities:

Purchases of investments ( 41,870 ) ( 145,968 ) —

Payments for acquisitions, net of cash acquired ( 30,729 ) ( 6,138 ) —

Proceeds from investments 84,642 120,593 —

Purchases of investments ( 65,283 ) ( 41,870 ) ( 145,968 )

Purchases of property and equipment ( 9,095 ) ( 6,058 ) ( 1,251 )

Net cash provided by (used in) investing activities 41,936 ( 153,357 ) ( 32,421 )

Payments for acquisitions, net of cash acquired — ( 30,729 ) ( 6,138 )

Net cash provided by (used by) investing activities 10,264 41,936 ( 153,357 )

Cash flows from financing activities:

Principal payments on finance leases — ( 3,822 ) ( 653 )

Proceeds from borrowings 120,000 — —

Payments for debt issuance costs ( 1,940 ) — —

Debt repayments ( 625 ) — —

Proceeds from exercise of common stock options 25,432 2,786 6,376

Proceeds from public offerings, net of underwriting discounts — — 108,260

Payments of costs related to public offerings — — ( 346 )

Proceeds from exercise of common stock options 2,786 6,376 4,899

Principal payments on finance leases — — ( 3,822 )

Net cash provided by financing activities 142,867 2,786 110,468

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash ( 159 ) 694 3,216

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 8,502 ) ( 47,293 ) 64,825

Net increase (decrease) in cash, cash equivalents, and restricted cash 46,421 ( 8,502 ) ( 47,293 )

Cash, cash equivalents, and restricted cash at beginning of period 103,960 112,462 159,755

Cash, cash equivalents, and restricted cash at end of period $ 150,381 $ 103,960 $ 112,462

Supplemental disclosure of cash flow information:

Supplemental cash flow information:

Cash paid for interest $ 1,671 $ 323 $ 165

Cash paid for income taxes $ 1,239 $ 1,505 $ 1,182

Supplemental disclosure of non-cash investing and financing information:

Supplemental non-cash investing and financing information:

Accrued capital expenditures $ 1,774 $ 379 $ —

Finance lease obligations to acquire new office furniture and fixtures and computer hardware $ — $ — $ 4,475

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

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Organization and Description of Business

Appian Corporation (together with its subsidiaries, “Appian,” the “Company,” “we,” or “our”) provides a low-code platform that accelerates the creation of high-impact business applications and workflows, enabling our customers to automate the most important aspects of their business.

The Appian Low-Code Platform unifies the key capabilities needed to get work done faster:

Process Mining + Workflow + Automation.

Since 1999, industry leaders have trusted Appian and our open, enterprise-grade platform.

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

We were incorporated in the state of Delaware in August 1999.

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

Significant Accounting Policies

Appian Corporation (together with its subsidiaries, “Appian,” the “Company,” “we,” or “our”) is a software company that automates business processes.

The Appian Platform includes everything you need to design, automate, and optimize even the most complex processes, from start to finish.

The world's most innovative organizations trust Appian to improve their workflows, unify data, and optimize operations—resulting in better growth and superior customer experiences.

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.

Accounting Policies

Basis of Presentation

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GAAP”) as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

We adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC

606”), the new revenue recognition guidance, on January 1, 2019 using the modified retrospective method.

Under this method

of adoption, we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening

balance of accumulated deficit and applied the new standard only to contracts that were not completed prior to January 1, 2019.

For fiscal years 2018 and prior, revenue was recognized under ASC Topic 605, Revenue Recognition (“ASC 605”).

Use of Estimates

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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 consolidated financial statements include revenue recognition, income taxes and the related valuation allowance, the valuation of goodwill and intangible assets, leases, costs to obtain a contract with a customer, the valuation of financial instruments, and stock-based compensation.

The ongoing outbreak of the novel coronavirus disease (“COVID-19”) has resulted in the declaration of a global pandemic and introduced a level of disruption and uncertainty into the financial markets and global economy.

While we continue to monitor the developments surrounding the pandemic, as of the date of issuance of these financial statements, we are not aware of any specific events or circumstances that would require us to update our estimates, assumptions, and judgments or revise the carrying value of our assets or liabilities.

We cannot estimate the impacts COVID-19 may have on our business going forward as such impacts will be largely dependent upon a number of factors outside of our control including the extent and duration of the outbreak as well as any mitigating actions which may be undertaken by global governments and the general public.

Significant estimates embedded in the consolidated financial statements include, but are not limited to, revenue recognition, income taxes and the related valuation allowance, costs to obtain a contract with a customer, and stock-based compensation.

Principles of Consolidation

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All intercompany accounts and transactions have been eliminated in consolidation.

Public Offerings

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In June 2020, we completed an underwritten public offering of 2,500,000 shares of our Class A common stock, of which 1,931,206 shares of Class A common stock were sold by us and 568,794 shares of Class A common stock were sold by existing stockholders.

The underwriter purchased the shares from us and the selling stockholders at a price of $ 56.50 per share.

Our net proceeds from the offering were $ 107.9 million, after deducting underwriting discounts and commissions and offering expenses.

We did not receive any of the proceeds from the sale of shares by the selling stockholders.

In September 2019, we completed an underwritten public offering of 2,329,000 shares of our Class A common stock, of which 1,825,000 shares of Class A common stock were sold by us and 504,000 shares of Class A common stock were sold by existing stockholders.

The underwriter purchased the shares from us and the selling stockholders at a price of $ 55.70 per share.

Our net proceeds from the offering were $ 101.3 million, after deducting underwriting discounts and commissions and offering expenses.

We did not receive any of the proceeds from the sale of shares by the selling stockholders.

Segment Reporting

Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) for purposes of allocating resources and evaluating financial performance.

We have determined our CODM is our Chief Executive Officer.

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 evaluated regularly by our CODM.

Revenue Recognition

Refer to Note 3 for a detailed discussion on specific revenue recognition principles related to our major revenue streams.

Cost of Revenue

Subscriptions

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

Professional Services

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

The unpredictability of the timing of entering into significant professional services agreements sold on a standalone basis may cause significant fluctuations in our quarterly financial results and allocated facility costs and overhead.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit and Customer Risk

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With regard to our customers, credit evaluation and account monitoring procedures are used to minimize the risk of loss.

We believe no additional credit risk beyond amounts provided for collection loss are inherent in accounts receivable.

Revenue generated from government agencies represented 19.2 %, 19.6 %, and 18.1 % of our revenue for the years ended December 31, 2022, 2021, and 2020, respectively, of which the top three U.S.

federal government agencies generated 4.5 %, 5.6 %, and 6.6 % of our revenue for the years ended December 31, 2022, 2021, and 2020, respectively.

Additionally, 34.0 %, 33.8 %, and 32.3 % of our revenue during the years ended December 31, 2021, 2020, and 2019, respectively, was generated from foreign customers.

Additionally, 33.5 %, 34.0 %, and 33.8 % of our revenue during the years ended December 31, 2022, 2021, and 2020, respectively, was generated from international 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.

The restriction on 25 % of the balance will lapse on the later of either two months following the establishment of Lana Labs' annual financial statements for the year ended December 31, 2021 or October 31, 2022.

The restrictions on the remaining 75 % of the balance will lapse on August 11, 2023.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We consider all highly liquid investments with original maturities 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 our acquisition of Lana Labs GmbH (“Lana Labs”).

The remaining balance as of December 31, 2022 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):

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2022 2021 2020

Balance as of January 1 $ 1,400 $ 600 $ 600

Beginning balance $ 1,400 $ 1,400 $ 600

Additions 1,298 410 984

Less write-offs, net of recoveries ( 410 ) ( 184 ) ( 99 )

Balance as of December 31 $ 1,400 $ 1,400 $ 600

Non-Trade Receivable

We record non-trade receivables to reflect amounts due for activities other than sales of subscriptions to our platform and professional services.

Our non-trade receivables relate largely to receivables resulting from the tenant improvement allowance granted to us for the build out of the fourth floor of our headquarters.

The balance of the tenant improvement allowance receivable was $ 2.0 million as of December 31, 2021 and was classified within Prepaid expenses and other current assets in the accompanying consolidated balance sheets.

We have received $ 0.9 million of the tenant improvement allowance as of December 31, 2021.

Write-offs, net of recoveries ( 573 ) ( 410 ) ( 184 )

Ending balance $ 2,125 $ 1,400 $ 1,400

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assets Recognized from the Costs to Obtain a Contract with a Customer

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

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

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 determine the estimated economic life based on both qualitative and quantitative factors such as customer attrition, expected renewals, product life cycles, and contractual terms.

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.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization associated with deferred commission is recorded to sales and marketing costs in our consolidated statements of operations.

Amortization associated with deferred commissions is recorded to sales and marketing expense in our consolidated statements of operations.

The following table summarizes the activity of costs to obtain a contract with a customer for the years ended December 31, 2022, and 2021 (in thousands):

Year Ended December 31,

2021 2020 2019

Balance as of January 1 $ 52,097 $ 43,522 $ 29,108

Adoption of ASC 606 — — 5,094

Beginning balance $ 73,685 $ 52,097

Additional contract costs deferred 49,816 51,283

Amortization of deferred contract costs ( 37,517 ) ( 29,695 )

Balance as of December 31 $ 73,685 $ 52,097 $ 43,522

Ending balance $ 85,984 $ 73,685

Commission expense was $ 39.4 million, $ 32.4 million, and $ 23.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization.

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.

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Determining the fair value of assets acquired and liabilities assumed requires us to use significant judgments and estimates, including the selection of valuation methodologies, estimates of future revenue, costs, and cash flows, and discount rates.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the measurement period, which can be up to one year from the acquisition date, these estimates may be refined, as necessary, and we may record adjustments to the fair value of tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill.

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Acquisition related expenses and post-acquisition integration costs are recognized separately from the business combination and are expensed as incurred.

Acquired property and equipment is depreciated on a straight-line basis over the assets' respective estimated remaining useful lives.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment of Long-Lived Assets

Long-lived assets and certain intangible assets are reviewed for impairment at least annually or more frequently whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable through undiscounted cash flows from the use of the assets.

Long-lived tangible assets and intangible assets with definite useful lives are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable through undiscounted cash flows from the use of the assets.

If such assets are considered to be impaired, the assets are written down to their estimated fair value.

With respect to goodwill, we have the option to qualitatively assess whether it is more likely than not the fair value of a reporting unit is less than its carrying value.

Goodwill is accounted for at the segment level and allocated to, and tested for impairment at, a level referred to as the reporting unit.

We have determined our one segment consists of a single reporting unit.

We test for impairment annually on the first day of our fourth quarter or between annual tests if events or changes in circumstances indicate the fair value of our reporting unit may be below its carrying amount.

We have the option to qualitatively assess whether it is more likely than not the fair value our reporting unit is less than its carrying value.

If we elect to perform a qualitative assessment and conclude it is more likely than not the fair value of the reporting unit is equal to or greater than its carrying value, no further assessment of that reporting unit’s goodwill is necessary;

otherwise, goodwill must be tested for impairment.

Absent a specifically identified triggering event, we historically perform our annual assessment on the first day of the fourth quarter.

Because we operate under one reporting unit, the fair value of our reporting unit is based on our enterprise value.

No indicators of impairment were identified for the years ended December 31, 2021, 2020, and 2019.

In 2022, we elected to not perform the optional qualitative assessment of goodwill and instead performed the quantitative impairment test.

When performing the quantitative test, we determine the fair value of the reporting unit and compare it to the carrying amount, including goodwill.

If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, the reporting unit’s goodwill is impaired, and we must recognize an impairment loss for the difference between the carrying amount and the fair value of the reporting unit.

We estimate the fair value of our reporting unit using a market-based valuation methodology, which is primarily based on our consolidated market capitalization plus a reasonable control premium.

In the fourth quarter of 2022, we completed our annual goodwill impairment test for our reporting unit, and the results of the test indicated the estimated fair value of our reporting unit significantly exceeded the carrying value.

Investments and Fair Value of Financial Instruments

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For service-based awards such as RSUs, stock-based compensation expense is recognized on a straight-line basis over the requisite service period.

For performance-based awards, stock-based compensation expense is recognized using the accelerated attribution method based on the probability of satisfying the performance condition.

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.

For awards that contain market conditions, compensation expense is measured using a Monte Carlo simulation and is 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.

Refer to Note 4 for a detailed discussion on our policies specific to leasing arrangements.

Refer to Note 11 for additional information related to stock-based compensation.

We combine and account for lease and non-lease components as a single lease component for leases of our facilities.

The discount rates related to the our lease liabilities are based on estimates of our incremental borrowing rate on a secured basis, as the discount rates implicit in our lease agreements cannot be readily determined.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basic and Diluted Loss per Common Share

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The dilutive effect of potentially dilutive securities is reflected in diluted net loss per share by application of the treasury stock method.

Due to net losses for the years ended December 31, 2021, 2020, and 2019, basic and diluted net loss per share were the same as the effect of potentially dilutive securities would have been antidilutive.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We use the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed.

We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled.

We recognize the effect on deferred tax assets and liabilities of a change in tax rates as income and expense in the period that includes the enactment date.

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To the extent the assessment of such tax position changes, we record the change in estimate in the period in which we make that determination.

Segment Reporting

Our CODM is our Chief Executive Officer, who reviews financial information on a consolidated basis when deciding how to allocate resources and assess performance.

Accordingly, we have determined we have one reportable segment and operating unit structure.

Foreign Currency

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Assets and liabilities are translated at the closing rates on the balance sheet date.

Gains and losses on translation of these accounts are accumulated and reported as a separate component of stockholders’ equity and other comprehensive income.

Gains and losses on translation of these accounts are accumulated and reported as a separate component of stockholders’ equity and other comprehensive loss.

Gains and losses on foreign currency transactions are recognized in the accompanying consolidated statements of operations as a component of Other expense (income), net.

Transaction gains and losses from transactions denominated in foreign currencies resulted in net transaction losses of $ 3.7 million for the year ended December 31, 2021, net transaction gains of $ 4.3 million, and net transaction losses of $ 0.2 million for the years ended December 31, 2020 and 2019, respectively.

Gains and losses from transactions denominated in foreign currencies resulted in net transaction losses of $ 6.1 million, net transaction losses of $ 3.7 million, and net transaction gains of $ 4.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Research and Development

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Since our software is sold and licensed externally, we consider our software as external-use software for purposes of applying the capitalized software development guidance.

Product development costs are expensed as incurred until technological feasibility has been established, which we define as the completion of all planning, designing, coding, and testing activities necessary to establish products that meet design specifications including functions, features, and technical performance requirements.

We have determined technological feasibility for our software products is reached shortly before they are released for sale.

Costs incurred after technological feasibility is established are not significant, and accordingly we expense all research and development costs when incurred.

Product development costs are expensed as incurred until

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

technological feasibility has been established, which is defined as the completion of all planning, designing, coding, and testing activities necessary to establish products that meet design specifications including functions, features, and technical performance requirements.

We have determined technological feasibility for our software products is reached shortly before they are released for sale.

Costs incurred after technological feasibility is established are not significant, and accordingly we expense all research and development costs when incurred.

Advertising Expenses

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Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which amends and aims to simplify accounting disclosure requirements regarding a number of topics including, but not limited to, intraperiod tax allocations, accounting for deferred taxes when there are changes in the consolidation of certain investments, tax basis step ups in an acquisition, and the application of effective rate changes during interim periods.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The adoption of the new guidance did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848), which provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates such as the Secured Overnight Financing Rate (SOFR).

This guidance is effective upon issuance and generally can be applied through the end of calendar year 2022.

The adoption of the new guidance did not have a material impact on our consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which aims to improve the accounting for acquired revenue contracts with customers in a business combination.

The ASU requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.

The guidance is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years.

Early adoption is permitted including in interim periods.

Refer to Note 5 for further details on the impact of adopting this new guidance.

We did not adopt any new accounting guidance in 2022 that had a material impact on our consolidated financial statements or disclosures.

Additionally, there is no pending accounting guidance that we expect to have a material impact on our consolidated financial statements.

Revenue Recognition

We generate subscriptions revenue primarily through the sale of software-as-a-service (“SaaS”) subscriptions bundled with maintenance and support and hosting services as well as term license subscriptions bundled with maintenance and support.

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 from contracts with customers for the years ended December 31, 2021, 2020, and 2019 (in thousands):

The following table summarizes revenue recorded during the years ended December 31, 2022, 2021, and 2020 (in thousands):

Year Ended December 31,

2022 2021 2020

SaaS subscriptions $ 179,415 $ 129,219 $ 95,028

Cloud subscriptions $ 236,922 $ 179,415 $ 129,219

Term license subscriptions 79,753 63,203 51,415

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Performance Obligations and Timing of Revenue Recognition

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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 SaaS subscriptions, maintenance and support, and professional services are delivered over time.

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) SaaS subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support.

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.

We bill customers and collect payment for subscriptions to

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our platform in advance on an annual, quarterly, or monthly basis.

In certain instances, our customers have paid their entire contract up front.

SaaS Subscriptions

We generate cloud-based subscription revenue primarily from the sales of subscriptions to access our cloud offering, together with related support services to our customers.

Cloud Subscriptions

We generate cloud-based subscriptions revenue primarily from the sales of subscriptions to access our cloud offering, together with related support services to our customers.

We perform all required maintenance and support for our cloud offering.

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Term License Subscriptions

Our term license subscription revenue is derived from customers with on-premises installations of our platform pursuant to contracts that were historically one to three years in length.

The majority of recent contracts have been one year in length.

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

The majority of our contracts are one year in length.

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

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

If a cloud agreement includes the right for the customer to take possession of the license, 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.

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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

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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 contracts are each 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

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Consulting service 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.

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Determining the Transaction Price

The transaction price includes both fixed and variable consideration.

Variable consideration is included in the transaction price to the extent it is probable a significant reversal will not occur.

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

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extent it is probable a significant reversal will not occur.

The amount of variable consideration excluded from the transaction price for the years ended December 31, 2022, 2021, and 2020 was insignificant.

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We establish SSP as follows:

SaaS subscriptions - Given the highly variable selling price of our SaaS subscriptions, we establish the SSP of our SaaS 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 SaaS subscriptions is an appropriate allocation of the transaction price.

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.

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.

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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

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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 year ended December 31, 2022, we recognized $ 147.0 million of revenue that was included in the deferred revenue balance as of December 31, 2021.

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We expect to recognize $ 243.2 million of this balance as revenue over the next 12 months with the remaining amount recognized thereafter.

As of December 31, 2021, we have operating leases for corporate offices.

Our operating leases have remaining lease terms of roughly two years to 10 years, some of which include options to extend the leases for up to an additional 10 years.

As of December 31, 2022, our lease portfolio consists entirely of operating leases, all 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.

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Right-of-Use (“ROU”) Assets and Lease Liabilities

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease.

Operating leases with a term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities, and, if applicable, long-term lease liabilities.

Operating leases with a term greater than one year are recognized on the consolidated balance sheet as ROU assets, lease liabilities, and, if applicable, long-term lease liabilities.

ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease.

We have elected not to recognize on our consolidated balance sheets leases with a term of one year or less.

For contracts with lease and non-lease components, we have elected not to allocate the contract consideration but rather to account for the lease and non-lease components as a single lease component.

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term.

The implicit rates within most of our leases are generally not determinable;

therefore, we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments.

The determination of our incremental borrowing rate requires judgment and is estimated for each lease based on the rate we would have to pay for a collateralized loan with the same term and payments as the lease.

therefore, we estimate our incremental borrowing rate to determine the present value of lease payments.

We consider various factors, including our level of collateralization, estimated credit rating, and the currency in which the lease is denominated.

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Certain of our leases include options to extend or terminate the lease.

An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option while an option to terminate is considered unless it is reasonably certain we will not exercise the option.

For certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Headquarters Lease

In April 2018, we entered into a lease agreement with respect to 176,222 square feet of office space in McLean, Virginia for a new corporate headquarters.

The initial term of the lease was 150 months.

We took initial possession of the first phase of the new headquarters in October 2018 and began to recognize rent expense as of that date.

In February 2019, we took possession of an additional 28,805 square feet of adjacent office space.

In January 2020, we entered into an amendment which adjusted the original terms of the headquarters lease.

Under this amendment, we exercised an option to expand occupancy, adding 34,158 square feet of office space.

Occupancy of the added space commenced on October 14, 2020.

The amendment is considered a modification to the original lease and is accounted for as a separate contract because it represents a new ROU asset and the lease costs on the new space are charged at prevailing market rates.

Effective July 1, 2020, we took possession of the space, began to recognize rent expense, and recorded a $ 7.9 million ROU asset and lease liability on our consolidated balance sheets.

In November 2021, we entered into a third amendment to our headquarters lease, in which we exercised an option to expand occupancy into two adjacent office spaces of 32,883 and 25,925 square feet, with occupancy to commence on September 1, 2022 and May 1, 2023, respectively.

Concurrent with the amendment, we also entered into a sublease agreement in which we agreed to sublease 32,883 square feet of space effective September 1, 2022.

The sublease terminates on August 31, 2025 but may be extended one additional year at the sublessee’s option.

The amendment is considered a modification to the

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original lease and each space is accounted for as a separate contract because it represents a new ROU asset and the lease costs charged on the new spaces are at prevailing market rates.

As of December 31, 2021, we have not taken possession of either space nor met the criteria for the leases and sublease to be considered commenced.

Accordingly, we have not reported an ROU asset or liability on our consolidated balance sheets nor have recorded expense or sublease income on our consolidated statements of operations in relation to the additional spaces.

Paydown of Finance Leases

In October 2020, we paid the full $ 2.7 million principal balances outstanding under our finance leases pursuant to an option permitting us to pay such balances in full at any time.

As of the date of the paydown, the titles to the assets were transferred to us, the associated lease liabilities were retired, the carrying values of the purchased assets were adjusted, and the assets were reclassified from finance leases to property and equipment, net on the consolidated balance sheets.

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

An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option..

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.

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Year Ended December 31,

Operating lease costs $ 6,619 $ 6,649

2022 2021 2020

Operating lease cost $ 6,950 $ 6,619 $ 6,649

Finance lease costs:

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Interest on lease liabilities — — 150

Short-term lease costs 149 565

Variable lease costs 2,713 281

Short-term lease cost 583 149 565

Variable lease cost 3,817 2,713 281

Total $ 11,350 $ 9,481 $ 8,887

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Supplemental Lease Information

Supplemental balance sheet information related to operating leases as of December 31, 2021 and December 31, 2020 was as follows (in thousands, except for lease term and discount rate):

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

As of December 31,

Operating right-of-use assets $ 27,897 $ 30,659

Right-of-use assets for operating leases $ 37,248 $ 27,897

Operating lease liabilities, current $ 8,681 $ 8,110

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Weighted average discount rate 9.4 % 9.5 %

For the years ended December 31, 2021 and 2020, amortization of operating ROU assets totaled $ 1.4 million and $ 1.6 million, respectively.

For the years ended December 31, 2021 and 2020, interest expense on operating ROU liabilities totaled $ 5.3 million and $ 1.9 million, respectively.

Supplemental cash flow information related to leases for the years ended December 31, 2021 and 2020 was as follows (in thousands):

Supplemental cash flow and expense information related to operating leases for the years ended December 31, 2022 and 2021 is as follows (in thousands):

Year Ended December 31,

2022 2021 2020

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash outflows for operating leases $ 7,073 $ 7,732 $ 3,407

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Financing cash outflows for finance leases — — 3,822

ROU assets obtained in exchange for lease obligations:

Operating leases — — 523

Finance leases — — 4,475

Amortization of operating lease ROU assets 1,495 1,361 1,554

Interest expense on operating lease liabilities 5,406 5,268 1,853

A summary of our future minimum lease commitments under non-cancellable leases as of December 31, 2022 is as follows (in thousands):

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Total $ 65,906

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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 platform.

The transaction was financed through available cash on hand.

The allocation of the purchase price is preliminary pending the finalization of the fair value of the acquired net assets, liabilities assumed, deferred income taxes, and any assumed income and non-income based tax liabilities.

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.

From the acquisition date to December 31, 2021, Lana Labs' revenue was $ 0.3 million and net loss before taxes was $ 2.6 million.

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.

Measurement period adjustments recognized in the year ended December 31, 2021 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 $ 0.1 million deferred tax adjustment, and an immaterial adjustment to working capital.

Additionally, as a result of our early adoption of ASU 2021-08, deferred revenue as of the acquisition date increased by $ 0.3 million, $ 0.1 million of which was recognized as revenue through December 31, 2021.

Novayre Solutions SL

In January 2020, we acquired 100 % of the outstanding common stock of Novayre Solutions SL (“Novayre”), a developer of a robotic process automation platform, for approximately $ 6.9 million.

The acquisition was made due to the attractive nature of the product offerings of Novayre and in furtherance of our objective to enhance our platform.

The transaction was financed through available cash on hand.

The acquisition was made due to the attractive nature

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The allocation of the purchase price was based upon estimated fair values 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):

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.

The purchase price allocated to goodwill and intangible assets is not deductible for tax purposes.

The following table summarizes the fair value of the assets acquired and liabilities assumed in connection with the acquisition (in thousands):

Cash acquired $ 256

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Net assets acquired $ 31,017

There were no changes to our reportable segments as a result of the acquisition.

Additionally, 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 in 2021 included a $ 0.8 million adjustment to developed technology and goodwill related to an update to the discount rate utilized in our valuation of intangible assets, a $ 0.3 million increase in deferred revenue stemming from our early adoption of new accounting guidance relating to deferred revenue recognized pursuant to a business combination, a $ 0.1 million deferred tax adjustment, and an immaterial adjustment to working capital.

Goodwill and Intangible Assets

Goodwill was comprised of the following as of December 31, 2021 and 2020 (in thousands):

The following table summarizes goodwill balances as of December 31, 2022 and 2021 (in thousands):

Carrying Amount

Balance as of December 31, 2020

Goodwill acquired 4,348

Goodwill acquired, net of measurement period adjustments 24,521

Foreign currency translation adjustments ( 1,588 )

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Balance as of December 31, 2022

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

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Intangible assets, net $ 5,251 $ 7,144

Intangible amortization expense was $ 0.8 million and $ 0.4 million for the years ended December 31, 2021 and 2020, respectively.

Intangible amortization expense was $ 1.5 million, $ 0.8 million, and $ 0.4 million for the years ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022, the weighted average remaining amortization periods for developed technology, non-RPA customer relationships, and RPA customer relationships were approximately 3.4 years, 8.7 years, and 7.0 years, respectively.

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The projected annual amortization expense related to amortizable intangible assets as of December 31, 2022 is as follows (in thousands):

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Depreciation expense totaled $ 5.8 million, $ 4.9 million, and $ 5.4 million for the years ended December 31, 2022, 2021, and 2020, respectively.

During the year ended December 31, 2021, we retired $ 0.1 million of leasehold improvements, and $ 0.1 million losses on disposal were recorded.

During the year ended December 31, 2020, we retired $ 1.3 million of leasehold improvements, $ 0.2 million of computer hardware, and $ 0.1 million of office furniture and fixtures, and nominal losses on disposal were recorded.

During the year ended December 31, 2022, we retired and disposed of fully depreciated laptops and computer hardware with a gross asset value of approximately $ 1.0 million.

Disposals during the year ended December 31, 2021 were not significant.

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As of December 31,

Accrued hosting costs $ 1,995 $ 1,229

Accrued labor costs 891 908

Accrued marketing and tradeshow expenses 1,167 596

Accrued audit and tax expenses 439 370

Accrued taxes payable 550 —

Accrued legal costs 5,511 760

Accrued reimbursable employee expenses 870 231

Accrued third party license fees 1,066 570

Accrued capital expenditures 379 —

Hosting costs $ 2,802 $ 1,995

Contract labor costs 1,465 891

Marketing and tradeshow expenses 1,000 1,167

Audit and tax expenses 911 439

Taxes payable 827 550

Legal costs 475 5,511

Reimbursable employee expenses 1,004 870

Third party license fees 1,223 1,066

Capital expenditures 744 379

Other accrued expenses 1,776 2,615

Total $ 12,227 $ 15,483

Line of Credit

In November 2017, we entered into a $ 20.0 million revolving line of credit with a lender with an original maturity date of November 2022.

In December 2021, we executed the first loan modification agreement which extended the revolving line of credit's maturity date to November 2025 and amended certain borrowing terms and financial covenants.

Under the amended agreement, we may elect whether amounts drawn on the revolving line of credit bear interest on the outstanding principal amount at a rate per annum equal to either a) the Prime rate plus an additional interest rate margin or b) the secured overnight financing rate (“SOFR”) plus an additional interest rate margin that is determined by the availability of the borrowings under the revolving line of credit.

The additional interest rate margin will range from 0.75 % to 1.25 % in the case of Prime rate advances and from 1.75 % to 2.25 % in the case of SOFR rate advances.

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

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

Any amounts borrowed under the credit facility are collateralized by substantially all of our assets.

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).

On December 13, 2022, we executed the first amendment to the credit agreement which increased the aggregate principal amount of the term loan facility by $ 20.0 million and the limit of the revolving credit facility by $ 10.0 million.

The Credit Agreement matures on November 3, 2027.

We will use the proceeds from the $ 120.0 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 0.50 % 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 or from 2.5 % to 3.5 % in the case of Term SOFR advances, depending on our debt to recurring revenue leverage ratio (as defined in the Credit Agreement).

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 leverage ratio (as defined in the Credit Agreement).

In addition, the Credit Agreement contains other 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 customary events of default, 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.

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The following table summarizes outstanding long-term debt balances (in thousands):

As of December 31,

Secured term loan facility $ 119,375 $ —

Debt issuance costs ( 1,256 ) —

Total long-term debt, net of debt issuance costs $ 118,119 $ —

Long-term debt, current $ 2,740 $ —

Long-term debt, net of current portion 115,379 —

Total long-term debt $ 118,119 $ —

The following table summarizes the annual maturities of the principal amount of total debt due (in thousands):

Repayment schedule of principal long-term debt as of December 31, 2022

Total $ 119,375

We were in compliance with all covenants as of December 31, 2022.

As of December 31, 2021, we had no outstanding borrowings under this revolving line of credit, and we had outstanding letters of credit totaling $ 11.2 million in connection with securing our leased office space.

As of December 31, 2022, we had no outstanding borrowings under the revolving credit facility, and we had outstanding letters of credit totaling $ 12.0 million in connection with securing our leased office space.

For the years ended December 31, 2022, 2021, and 2020, our loss before income taxes was comprised of the following (in thousands):

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Total $ ( 150,228 ) $ ( 87,863 ) $ ( 32,594 )

For the years ended December 31, 2021, 2020, and 2019, our income tax expense (benefit) was comprised of the following (in thousands):

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For the years ended December 31, 2022, 2021, and 2020, our income tax expense (benefit) was comprised of the following (in thousands):

Year Ended December 31,

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Other accrued expense 16 1,452

Capitalized research and development costs 29,991 —

Other 431 301

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Depreciation ( 4,275 ) ( 3,892 )

Intangible ( 2,102 ) —

Intangible assets ( 1,540 ) ( 2,102 )

Other ( 123 ) ( 603 )

Total deferred tax liabilities ( 31,303 ) ( 27,782 )

Net deferred tax asset $ 816 $ 419

Net deferred tax assets $ 1,839 $ 816

As of December 31, 2022 and 2021, we had $ 237.7 million and $ 239.9 million of gross net operating loss (“NOL”) carryforwards for U.S.

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federal and state NOL carryforwards are available for use as of December 31, 2022.

Beginning in 2022, the TCJA eliminated the option to deduct research and development expenditures immediately in the year incurred and requires companies to amortize such expenditures over five or fifteen years for tax purposes, depending on whether the activities were incurred in the U.S.

or outside of the U.S.

This change resulted in an increase to gross deferred tax assets of approximately $ 30.0 million in 2022.

Due to the full valuation allowance recorded against our U.S.

deferred tax assets, there was no impact to net deferred tax assets.

Additionally, there was no cash tax impact for 2022 due to our ability to use NOL carryforwards to fully offset taxable income generated by the changes to research and development expenditures.

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As of December 31, 2022 and 2021, we had $ 19.3 million and $ 13.7 million, respectively, of U.S.

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Due to the TCJA, certain state NOL carryforwards generated after 2017 have an indefinite carryforward period.

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As of December 31, 2022 and 2021, we had foreign gross NOL carryforwards of $ 163.4 million and $ 126.6 million, respectively, primarily attributable to our subsidiary in Switzerland.

Those NOL carryforwards will begin to expire, if unused, between 2022 to 2029.

The net change in the total valuation allowance during the year ended December 31, 2021 was $ 28.5 million, primarily driven by the valuation allowance recorded against the United States, Switzerland, and Germany (Lana Labs GmbH) deferred tax assets.

In 2022, $ 8.1 million of Swiss NOLs expired related to the 2015 tax year.

An additional piece of those NOL carryforwards will expire each year, if unused, between 2023 and 2029.

The net change in the total valuation allowance during the year ended December 31, 2022 was $ 38.2 million, primarily driven by the valuation allowance recorded against the United States and Switzerland deferred tax assets.

The $ 1.1 million valuation allowance against the Germany (Lana Labs GmbH) deferred tax assets was released in 2022 as a result of post-integration tax planning and the merger of German subsidiaries.

As of December 31, 2022, we continued to maintain a full valuation allowance against U.S.

deferred tax assets based on our cumulative operating results as of December 31, 2021, three-year cumulative loss, and assessment of our expected future results of operations.

deferred tax assets based on our cumulative operating results as of December 31, 2022, three-year cumulative loss, and an assessment of our expected future results of operations.

We have evaluated all evidence, both positive and negative, in assessing the likelihood of realizability, and we determined the negative evidence outweighed the positive evidence.

As of December 31, 2021, we have a valuation allowance of $ 14.8 million against foreign deferred tax assets, primarily for deferred tax assets at our subsidiary in Switzerland and Germany.

Based on our cumulative operating results as of December 31, 2021 and assessment of our expected future results of operations, we determined it was not more likely than not that we would be able to realize the deferred tax assets prior to expiration.

As of December 31, 2022, we have a valuation allowance of $ 18.7 million against foreign deferred tax assets at our subsidiary in Switzerland.

Based on our cumulative operating results as of December 31, 2022 and assessment of our expected future results of operations, we determined it was not more likely than not we would be able to realize the deferred tax assets prior to expiration.

We plan to distribute previously undistributed earnings of our foreign subsidiaries back to the United States in future years.

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As of December 31, 2022 and 2021, we had unrecognized tax benefits of $ 4.5 million and $ 3.1 million, respectively, none of which would affect our effective tax rate if recognized due to the valuation allowance.

The following table summarizes the activity related to our unrecognized tax benefit from January 1, 2019 to December 31, 2021 (in thousands):

The following table summarizes the activity related to our unrecognized tax benefit from December 31, 2019 to December 31, 2022 (in thousands):

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Balance as of December 31, 2019

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We anticipate total unrecognized tax benefits will not decrease over the next year.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We file income tax returns in the U.S.

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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.

The 2017 Plan provides for the grant of incentive stock options to employees and for the grant of nonstatutory stock options, restricted stock awards, restricted stock units (“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.

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The expected term represents the period of time the stock options are expected to be outstanding.

Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options, we use the simplified method to estimate the expected term for our stock options.

Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to derive an estimate, we use the simplified method to estimate the expected term for our stock options.

Under the simplified method, the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term.

Expected volatility is based on historical volatilities for our common stock and the publicly traded stock of comparable companies over the estimated expected term of the stock options.

We assume no dividend yield because dividends are not expected to be paid in the near future, which is consistent with our history of not paying dividends.

In May 2019, 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 “2019 CEO Grant”) under the 2017 Plan with an exercise price of $ 33.98 per share.

The 2019 CEO Grant is eligible to vest based on the achievement of a stock price appreciation target of our Class A common stock.

Specifically, the 2019 CEO Grant vests when shares of our Class A common stock close at or above $ 84.63 per share for a period equal to or greater than 90 consecutive calendar days or upon the occurrence of a change in control in which the value of our Class A common stock is equal to or greater than $ 84.63 per share within five years of the grant date.

Expected volatility is based on the

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 $ 9.5 million and is amortized over the derived service period of 2.6 years.

Effective February 2021, the 2019 CEO Grant has satisfied all of the conditions required to be considered fully vested.

As a result, we accelerated the recognition of approximately $ 3.3 million in stock-based compensation expense during the year ended December 31, 2021.

The following table summarizes the assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2021, 2020, and 2019:

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 years to 4.1 years.

The only stock option awarded during the years ended December 31, 2022, 2021, and 2020 was the 2022 CEO Grant.

The following table summarizes the assumptions used to estimate the fair value of the 2022 CEO stock option grant:

Year Ended December 31,

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* Not applicable because no stock options were granted during the period.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

** Each Vesting Price Threshold for the 2022 CEO grant has a unique expected term ranging from 3.4 years to 4.1 years.

The following table summarizes stock option activity for the years ended December 31, 2022, 2021, and 2020:

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4,458,611 $ 12.30 5.8 $ 115,501

Granted 700,000 33.98

Exercised ( 1,001,411 ) 6.39 81,181

Expired ( 1,380 ) 11.82

Forfeited ( 56,580 ) 11.33

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2,953,356 15.16 4.0 147,812

Granted 700,000 50.63

Exercised ( 937,217 ) 27.14 32,858

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1,997,959 $ 9.60 3.6 $ 45,867

There were no stock options granted during the years ended December 31, 2021 and 2020.

The weighted average grant date fair value of stock options granted during the year ended December 31, 2019 was $ 13.57 per share.

The total fair value of stock options that vested during the years ended December 31, 2021, 2020, and 2019 was $ 10.8 million, $ 2.8 million, and $ 2.0 million, respectively.

As of December 31, 2021, the total compensation cost related to unvested stock options not yet recognized was $ 0.1 million, which will be recognized over a weighted average period of 0.4 years.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The total fair value of stock options that vested during the years ended December 31, 2022, 2021, and 2020 was $ 0.9 million, $ 10.8 million, and $ 2.8 million, respectively.

As of December 31, 2022, the total compensation cost related to unvested stock options not yet recognized, which relates exclusively to the 2022 CEO Grant, was $ 16.0 million.

This amount will be recognized over a weighted average period of 3.19 years.

Restricted Stock Units

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As of December 31, 2022, total unrecognized compensation cost related to unvested RSUs was approximately $ 58.3 million, which will be recognized over a weighted average period of 1.6 years.

In November 2018, our co-founders were granted 255,930 RSUs under the 2017 Plan at a fair value of $ 30.06 per share.

The awards were approved by the Board of Directors.

The value of these awards at the grant date was $ 7.7 million and was amortized over the vesting periods .

The RSUs vested during the year ended December 31, 2020.

Stock-Based Compensation Expense

The following table summarizes the components of our stock-based compensation expense by instrument type for the years ended December 31, 2022, 2021, and 2020 (in thousands):

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Net loss per share, basic and diluted $ ( 2.08 ) $ ( 1.25 ) $ ( 0.48 )

The following outstanding securities, prior to the use of the treasury stock method or the if-converted method, have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been antidilutive:

Due to net losses for the years ended December 31, 2022, 2021, and 2020, basic and diluted net loss per share were the same as the effect of potentially dilutive securities would have been antidilutive.

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:

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31,

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Non-vested restricted stock units 1,190,720 1,209,529 1,165,003

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

Contractual Warranty and Indemnification Obligations

We provide limited product warranties.

Historically, any payments made under these provisions have been immaterial.

We also agree to standard indemnification provisions in the ordinary course of business.

Pursuant to these provisions, we agree to indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our customers, in connection with certain intellectual property infringement claims by any third party arising from the use of our products or services in accordance with the agreement.

The term of our contractual indemnity provisions often survives termination or expiration of the applicable agreement.

We carry insurance that covers certain third-party claims relating to our services and limits our exposure.

We have never incurred costs to defend lawsuits or settle claims related to these indemnification provisions.

Minimum Purchase Commitments

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Spending under this agreement for the year ended December 31, 2022 totaled $ 33.1 million.

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 consolidated statements of operations.

Letters of Credit

At each of December 31, 2021 and 2020, we had outstanding letters of credit totaling $ 11.2 million in connection with securing our leased office space.

All letters of credit are secured by our borrowing arrangement as described in Note 9.

At December 31, 2022 and 2021, we had outstanding letters of credit totaling $ 12.0 million and $ 11.2 million, respectively, in connection with securing our leased office space.

All letters of credit are secured by our current or historical borrowing arrangements as described in Note 9.

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.

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, and on February 6, 2023, Pegasystems filed its opening brief with the Court of Appeals of Virginia.

Appian expects to file its responsive brief in March 2023, to which Pegasystems will file a reply brief.

After submission of the reply brief, the timeline of the case is solely within the control of the Court of Appeals until it rules.

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 consolidated financial statements until all contingencies are resolved and we collect on the judgment.

Other Legal Matters

From time to time, we are subject to legal, regulatory, and other proceedings and claims that arise in the ordinary course of business.

There are no issues or resolutions of any matters expected to have a material adverse impact on our consolidated financial statements.

Other Commitments

We also have entered into a non-cancellable agreement for the use of technology that is integral in the development of our software and pay annual royalty fees of $ 0.3 million.

Segment and Geographic Information

We consider operating segments to be components of our business in which separate financial information is available and evaluated regularly by our Chief Operating Decision Maker (“CODM”).

Our CODM, who is our Chief Executive Officer, reviews financial information on a consolidated basis when deciding how to allocate resources and assessing performance.

Accordingly, we have determined we have a single reporting segment and operating unit structure.

Other than as disclosed elsewhere in this Annual 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.

We do not believe any material liability will be imposed as a result of any of the foregoing matters.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment and Geographic Information

The following table summarizes revenue by geography for the years ended December 31, 2022, 2021, and 2020 (in thousands):

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With respect to geographic information, revenue is attributed to respective geographies based on the contracting address of the customer.

There were no individual foreign countries from which more than 10% of our total revenue was attributable for the year ended December 31, 2021.

Revenue from customers attributed to the United Kingdom were 12.5 % and 12.2 % of our total revenue for the year ended December 31, 2020 and 2019, respectively.

There were no individual foreign countries from which more than 10% of our total revenue was attributable for the years ended December 31, 2022 and 2021.

Revenue from customers attributed to the United Kingdom were 12.5 % of our total revenue for the year ended December 31, 2020.

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

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With limited exceptions, all employees over the age of 21 on the first day of the month immediately following the month of hiring are eligible to participate in the Plan.

The Plan excludes United States expatriate employees, employees who are residents of Puerto Rico, and employees covered by another country’s pension retirement plan who are receiving employer contributions in that plan.

The Plan allows eligible employees to make salary-deferred contributions up to 75 % of their pre-tax annual compensation, as defined in the Plan, as long as the total contributed does not exceed the annual maximum allowable amount under the Internal Revenue Code.

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For the years ended December 31, 2022, 2021, and 2020, we incurred $ 11.5 million, $ 8.7 million, and $ 6.8 million, respectively, in contribution expense related to employer matching contributions.

We are obligated to make plan contributions for the employees of certain of our wholly-owned foreign subsidiaries.

For the years ended December 31, 2021, 2020, and 2019, we incurred $ 2.4 million, $ 1.7 million, and $ 1.5 million, respectively, in contribution expense related to our foreign subsidiaries.

Investments and Fair Value Measurements

Fair Value Measurements

We use 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.

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.

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

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

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.

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There were no instruments measured at fair value on a recurring basis using significant unobservable inputs during the years ended December 31, 2022 and 2021.

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

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

• Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

• Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts;

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

The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value as of December 31, 2021 and December 31, 2020 because of the relatively short duration of these instruments.

• Market approach.

Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

• Income approach.

Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts;

• Cost approach.

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

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

Additionally, the carrying value of our debt associated with the term loan facility approximates fair value because the interest rates are variable and reset on a relatively short durations to the then market rates.

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).

Our investments as of December 31, 2021 and 2020 are as follows (in thousands):

Changes in the fair value of available-for-sale securities, excluding other-than-temporary impairments, are recorded in accumulated other comprehensive loss in our consolidated balance sheets.

The components of our investments as of December 31, 2022 and 2021 are as follows (in thousands):

As of December 31, 2022

Fair Value Measurement Balance Sheet Classification

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

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

Money market fund Level 1 $ 39,469 $ — $ 39,469 $ 39,469 $ —

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Corporate bonds Level 2 9,353 ( 12 ) 9,341 — 9,341

Asset-backed securities Level 2 15,655 ( 8 ) 15,647 — 15,647 —

Agency bonds Level 2 2,432 3 2,435 2,435

Total investments $ 87,354 $ ( 22 ) $ 87,332 $ 39,469 $ 47,863

As of December 31, 2021, our investments consisted of the following (in thousands):

As of December 31, 2021

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Total investments $ 105,546 $ ( 22 ) $ 105,524 $ 38,301 $ 55,179 $ 12,044

There were no Level 3 assets held at any point during the year ended December 31, 2021 and 2020.

Additionally, there were no transfers between Levels 1 and 2 during the year ended December 31, 2021 and 2020.

APPIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There were no Level 3 assets held at any point during the year ended December 31, 2022 and 2021.

Additionally, there were no transfers between Levels 1 and 2 during the years ended December 31, 2022 and 2021.

Interest income on our investments totaled $ 0.9 million for the year ended December 31, 2022.

The amortized cost basis and fair value of debt securities at December 31, 2022 and 2021, by contractual maturity, are as follows (in thousands):

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Actual maturities may differ from the contractual maturities in the table above because borrowers have the right to call or prepay certain obligations.

Subsequent Events

In January 2022, our Chief Executive Officer exercised the 2019 CEO Grant of stock options as described in Note 11.

Pursuant to this exercise, we received cash proceeds from the exercise of common stock options totaling $ 23.8 million.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data