Item 1. Business
Item 1. Business.
Overview
Appian Corporation (together with its subsidiaries, “Appian,” “the Company,” “we,” or “our”) provides a process automation platform that helps organizations unleash digital innovation and drive efficiency. Appian was founded on the optimistic premise that when given a platform to do so, people will embrace the opportunity to transform the way they work. We combine people, technologies, and data in end-to-end processes that maximize our customers' resources and dramatically improve business results.
Our unified platform for process automation is a key differentiator in the marketplace. Today, we are one of the only enterprise software vendors that offer Workflow, Artificial Intelligence, or AI, Robotic Process Automation, or RPA, Data Fabric, and Process Mining in one fully integrated low-code platform. The result is a platform that makes it easier and faster to address complex use cases, particularly those that involve multiple departments within an organization and their external customers and vendors.
Organizations across all industries are digitally transforming by leveraging software to automate and optimize mission-critical operations, enhance customer experiences, and drive competitive differentiation. Historically, organizations have relied on off-the-shelf packaged software and custom software solutions to operationalize and automate their businesses. Packaged software often fails to address unique use cases or to enable differentiation. It also requires organizations to adapt their business (processes, systems of record, etc.) to the software package, as opposed to adapting the software to their unique business needs. While traditional custom software solutions can be differentiated and tailored to meet strategic objectives, development requires a long, iterative, and cumbersome process, as well as costly integration that relies on scarce developer talent. Our platform greatly reduces the iterative development process, allowing for real-time optimization and ultimately shortening the time it takes to design, build, and deploy applications.
Our go-to-market strategy consists of both direct sales and sales through strategic partners. We sell our software almost exclusively through subscriptions. We intend to grow our revenue both by adding new customers and increasing the number of users or applications built on our platform at existing customers. Our strategic partners include industry-leading global system integrators, software vendors, and cloud and technology providers. We intend to continue to invest in our partner ecosystem, with a particular emphasis on expanding our strategic alliances and cloud-focused partnerships with global system integrators.
The Appian Platform
Our platform is the only fully integrated automation platform that enables organizations to transform the way they work, allowing them to design, automate, and optimize end-to-end processes and complex business operations. Global organizations use the Appian Platform to improve customer and employee experiences, achieve operational excellence, and simplify global risk management and compliance.
We believe effective processes are at the heart of highly successful organizations. Appian helps our customers master and scale up their unique business processes. Our platform allows organizations to deliver excellent customer experiences, maximize operational efficiency, and effortlessly ensure compliance with laws and regulations. We provide a unified platform with the capabilities our customers need to quickly achieve process excellence. These capabilities include a unified toolset for data, process automation, total experience, and process optimization that supports data-driven decision-making, enhanced customer experiences, and optimized processes for maximum efficiency and effectiveness.
4
Automation
Our platform provides a comprehensive range of native automation capabilities that enable our customers to streamline their operations. The Appian Process Modeler allows organizations to connect customers, employees, systems, AI, and software robots in end-to-end processes for complete control over business operations. Our business rules technology allows organizations to encode and enforce policies and routing decisions that reduce risk, while our native RPA and AI enable organizations to automate process steps to deliver greater efficiency and increase customer and employee satisfaction. We sell our platform as a unified set of automation technologies that accelerates customer implementation times and return on investment.
Data Fabric
Our patented data fabric architecture delivers an innovative solution, enabling organizations to make informed decisions and intelligently route processes from a 360-degree view of business operations. The architecture comprises an extensive library of integration adapters to enterprise systems that integrate previously siloed data into a single, powerful data fabric. In addition, the secure infrastructure of our data fabric architecture provides a safe environment for storing and handling sensitive information, ensuring that confidential data remains protected. The unique and patented design of our data fabric architecture sets it apart from other solutions on the market, providing organizations with a comprehensive platform for making data-driven decisions and optimizing workflows through intelligent process routing and gaining a complete view of their business operations.
Total Experience
Our complete platform further extends our customers’ ability to engage external and internal users in a total experience that merges the customer journey with the employee experience. Our patented Self-Assembling Interface Layer, or SAIL, technology and utilization of low-code design allow our customers to quickly create dynamic and intuitive user experiences and deploy them across web and mobile devices. Our customers then use our platform to seamlessly engage users with their business processes across digital touchpoints, such as Internet of things, or IoT, devices, chatbots, or virtual personal assistants, no matter where they are located.
5
Optimization
Our integrated process analytics and mining capabilities enable customers to measure and track their process performance accurately. With this functionality, our customers gain a deeper understanding of their business operations and pinpoint areas for improvement. Using this data, customers can drive continuous process improvement and optimize their processes for maximum efficiency and effectiveness. These features provide customers with the necessary insights to make informed decisions and optimize their operations to meet the evolving needs of their business.
Go-to-Market Strategy
Our go-to-market strategy consists of both direct sales and sales through strategic partners. We sell our software almost exclusively as subscriptions. We intend to grow our revenue by adding new customers, increasing the product usage of existing customers, and expanding product usage across new business processes and applications. Our strategic partners work with organizations undergoing digital transformation projects, and when they recognize an opportunity for our platform, they often introduce us to potential customers.
Many of our customers begin by building a single application and grow to create dozens of applications on our platform, which implicitly increases their return on investment. Generally, the development of new applications results in the expansion of our product usage within an organization and a corresponding increase in our revenue due to subscription fees. Every additional application an organization creates on our platform increases the value of our platform for that organization because it further integrates people, processes, and data and facilitates knowledge sharing. Applications built on our platform may be used only on our platform and only while customers have active subscriptions, creating a substantial incentive for customers to avoid the difficulties and costs associated with moving to a different software platform. At the same time, our industry-leading Customer Success team helps customers to build and deploy applications on our platform to achieve their digital transformation goals more quickly.
Our Growth Strategy
Key elements of our growth strategy include:
• Expand our customer base. We continue to grow our customer base in various industries, including financial services, government, life sciences, insurance, manufacturing, energy, healthcare, telecommunications, and transportation. We believe the market for our platform is still in its early stages, and we have a significant opportunity to add additional large enterprise and government customers globally. We offer the Appian Community Edition, a free trial platform with guided learning for our prospects and customers to quickly access the Appian Platform for up to 15 users. Once prospects or customers decide to move forward from trial to transaction, they can transfer from the Appian Community Edition over to a production environment with a seamless export.
• Grow revenue from key industry verticals. While our platform is industry-agnostic, we continue to make investments to enhance the expertise of our sales and marketing organization within our key industry verticals of financial services, government, insurance, and life sciences. In 2022, we generated over 71% of our subscriptions revenue from customers in these verticals. We believe focusing on the digital transformation needs of organizations within these industry verticals helps drive adoption of our platform.
• Continue to innovate and enhance our platform . We continue to invest in research and development to strengthen our platform and expand the number of features available to our customers. We offer multiple upgrades each year that allow our customers to benefit from ongoing innovation. As we continue to increase the functionality of our platform and further reduce the amount of developer skill required to quickly deliver value for our customers, we believe we have the potential to expand the use of our platform.
• Offer industry solutions to accelerate customer usage . Our platform enables our customers to build applications quickly. Appian and our partners offer pre-built solutions in certain of our key industries such as financial services, government acquisition, and insurance to give our customers an even faster start. Every Appian solution is built on our platform and designed to be standardized, upgradeable, and compatible with each other.
6
• Expand our international footprint. Our platform is designed to be natively multilingual to facilitate collaboration and address challenges in multinational organizations. Appian Cloud meets the data residency requirements of our global customers by operating in 15 countries across 31 regions and 99 availability zones. In 2022, approximately 34% of our total revenue was generated from customers outside of the United States. As of December 31, 2022, we were operating in 15 countries, and we believe we have a significant opportunity to continue to grow our international footprint. We are investing in new geographies through direct and indirect sales channels, professional services and customer support, and implementation partners.
• Grow our partner base. We have strategic partnerships including with KPMG, Accenture, PwC, EY, Infosys, Wipro, and Deloitte. These partners work with organizations undergoing digital transformation projects. When they recognize an opportunity for our platform, they introduce us to potential customers. Additionally, they leverage pre-built solutions using our platform, delivering software license revenue to Appian. We intend to further grow our base of partners to provide broader customer coverage and solution delivery capabilities.
Sales and Marketing
Sales
Our sales organization is responsible for account acquisition and overall market development, which includes managing relationships with our customers. We also sell our software through our strategic partners. While our platform is industry-agnostic, we continue to make investments to enhance the expertise of our sales organization within our core industry verticals of financial services, government, insurance, and life sciences. We expect to continue to grow our sales headcount in all of our principal markets and expand into countries where we currently do not have a direct sales presence. We also intend to expand our partner base to provide broader customer coverage and solution delivery capabilities.
Marketing
Our marketing efforts focus on building our brand reputation and increasing market awareness of our platform. Marketing activities include sponsorship of, and attendance at, trade shows and conferences; our annual Appian World, Appian Europe, and Appian Asia, Pacific, and Japan conferences; social media, advertising, and other digital programs; management of our corporate website and partner portal; press outreach; and customer relations. As global concerns about the COVID-19 pandemic decline, we plan to responsibly increase the number of in-person marketing events as compared to 2020 through 2022.
Partner Strategy
We have a strong and growing ecosystem of partners that helps accelerate our customers' digital transformation initiatives and deliver customer value at scale. Our platform's ability to design, automate, and optimize end-to-end processes, and our partners' industry and functional domain experience help organizations digitally transform their businesses. Partners also allow us to offer industry-focused solutions that help our joint customers deliver end-to-end process control for crucial business functions.
We have strategic partnerships around the world including with companies such as KPMG, Accenture, PwC, EY, Infosys, Wipro, and Deloitte. These partners refer software subscription customers to us and generally perform professional services with respect to any new service contracts they originate, increasing our subscription revenue without any change to our professional services revenue. We expect professional services revenue to decline as a percentage of total revenue over time, since our growing strategic partner network may perform more of the professional services associated with our software subscriptions.
We are also growing our network of regional and channel partners further to expand our business into traditional and new markets. These partners provide delivery services, sales and marketing capabilities, and contract fulfillment.
Research and Development
Our ability to compete depends in large part on our continuous commitment to research and development and our ability to introduce new pre-built solutions, technologies, features, and capabilities in a timely manner. Our research and development organization is responsible for the design, development, testing, and release of our solutions and platform's new technologies,
7
features and integrations. Our efforts are focused on developing new products and core technologies and further enhancing the functionality, reliability, performance, and flexibility of existing capabilities. We focus our efforts on anticipating customer demand in bringing new products and new versions of existing products to market in order to remain competitive in the marketplace. We plan to continue to invest in research and development to broaden and expand our platform capabilities.
Human Capital Resources and Management
Employees, Culture, and Labor Relations
Our distinct culture of innovation is an important contributor to our success as a company. We promote an inclusive environment where our employees can contribute their unique perspectives to help create transformative solutions for our customers. Our culture was purposefully cultivated by our four founders, who are still heavily involved in operating our business, including recruiting, interviewing, and educating new employees at Appian. Led by Matt Calkins, one of our founders and our Chief Executive Officer, we have grown our business organically by employing a unified team to maximize the cohesion and simplicity of our platform and our company.
We respect all people. We believe diversity of ideas and an inclusive environment are paramount to our continued success. We also believe our individual experiences, knowledge, and ways of working enable us to learn from one another and be innovative. We sponsor several affinity groups, initiated by employees, that aim to build stronger internal and external networks and partnerships, create a positive lasting impact through social and educational outreach, and create development opportunities for future leaders.
As of December 31, 2022, we had a total global workforce of 2,307 full-time employees, 1,668 of which were based in the United States. None of our U.S. employees are covered by collective bargaining agreements. We believe our employee relations are good, and we have not experienced any work stoppages. Additionally, we are subject to, and comply with, local labor law requirements in all countries in which we operate.
Talent Acquisition and Development
We have a robust talent acquisition program to attract, recruit, and retain new talent. We utilize an extensive campus recruiting program, provide an employee referral program, and offer opportunities for internal transfers, and competitive compensation and benefits programs. We also provide resources to help our employees grow in their current roles and build new skills, including access to Appian University, a system that houses Appian's in-house learning and development solutions.
Inclusion and Diversity
We respect all people. We believe diversity of ideas and an inclusive environment are paramount to our continued success. We also believe our individual experiences, knowledge, and ways of working enable us to learn from one another and discover creative solutions. We sponsor a number of affinity groups, initiated by employees, that aim to build stronger internal and external networks and partnerships, create a positive lasting impact through social and educational outreach, and create development opportunities for future leaders.
Facilities
As of December 31, 2022, we lease our headquarters office in McLean, Virginia, and we also have four leased offices in cities outside the United States. In addition to our leased offices, we occupied seven flexible workspaces outside of the United States. Our use of flexible workspaces is dependent upon our current business needs. We believe our facilities are adequate to meet our ongoing needs, including substantial rights to expand within certain properties we lease. If we require additional space in the future, we believe we will be able to obtain additional facilities on commercially reasonable terms.
Our Customers
Our customers operate in various industries, including financial services, government, life sciences, insurance, manufacturing, energy, healthcare, telecommunications, and transportation. As of December 31, 2022, we had 925 customers, of which 712 customers were commercial and 213 customers were government or non-commercial entities. Generally, our sales
8
team targets its efforts to organizations with over 2,000 employees and $2 billion in annual revenue. The number of customers paying us in excess of $1 million of annual recurring revenue has grown from 75 at the end of 2021 to 94 at the end of 2022. No single end customer accounted for more than 10% of our total revenue in 2022, 2021, or 2020.
Our Competition
Our main competitors fall into three categories: (1) providers of custom software solutions that address, or are developed to address, some of the use cases that applications developed on our platform target; (2) providers of low-code development platforms such as Microsoft, Salesforce.com, ServiceNow, OutSystems, and Mendix; and (3) providers of one or more automation technologies, including business process management, case management, process mining, and robotic process automation. Such providers include Pegasystems, Celonis, UiPath, SAP, and Oracle.
As our market grows, we expect it will attract more highly specialized vendors as well as larger vendors that may continue to acquire or bundle their products more effectively. The principal competitive factors in our market include:
• Platform features, reliability, performance, and effectiveness;
• Ease of use and speed;
• Platform extensibility and ability to integrate with other technology infrastructures;
• Deployment flexibility;
• Robustness of professional services and customer support;
• Price and total cost of ownership;
• Strength of platform security and adherence to industry standards and certifications;
• Strength of sales and marketing efforts; and
• Brand awareness and reputation.
We believe we generally compete favorably with our peer group with respect to the features, security, and performance of our platform, the ease of integration of our applications, and the relatively low total cost of ownership of our applications. However, many of our competitors have substantially greater financial, technical, and other resources, greater name recognition, larger sales and marketing budgets, broader distribution, more diversified product lines, and larger and more mature intellectual property portfolios.
Intellectual Property
Our success depends in part upon our ability to protect our core technology and intellectual property. We rely on patents, trademarks, copyrights, trade secret laws, confidentiality procedures, and employee disclosure and invention assignment agreements to protect our intellectual property rights.
As of December 31, 2022, we had 11 granted patents and six patents pending related to our platform and its technology. None of our issued patents expire before 2034. We cannot provide complete assurance that any of our patent applications will result in the issuance of a patent or that the examination process will not require us to narrow our claims. Any patents we may be issued may be contested, circumvented, found unenforceable, or invalidated, and we may not be able to prevent third parties from infringing them. We also license software from third parties for integration into our products, including open source software and other software available on commercially reasonable terms. We control access to and use of our proprietary software and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, end customers, and partners, and our software is protected by U.S. and international copyright and trade secret laws.
Corporate Information
Our Class A common stock is listed on the Nasdaq Global Market under the symbol “APPN”.
9
Our corporate headquarters is located at 7950 Jones Branch Drive, McLean, Virginia 22102, and our telephone number is (703) 442-8844.
“Appian,” the Appian logo, and other trademarks or service marks of Appian Corporation appearing in this Annual Report on Form 10-K are the property of Appian Corporation. This Annual Report on Form 10-K contains additional trade names, trademarks, and service marks of others, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this Annual Report on Form 10-K exclude the ® or TM symbols.
Available Information
Our website address is www.appian.com . Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act are made available free of charge on or through our website at investors.appian.com as soon as reasonably practicable after such reports are filed with, or furnished to, the United States Securities and Exchange Commission, or SEC. The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our website are intended to be inactive textual references only.
Forward-Looking Statements
This Annual Report on Form 10-K, including the sections entitled “Business,” “Risk Factors,” and “Management's Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by these forward-looking statements. Statements that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. In some cases, forward-looking statements can be identified by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These forward-looking statements include, but are not limited to, statements concerning the following:
• Our market opportunity and the expansion of our core software markets in general;
• The effects of increased competition as well as innovations by new and existing competitors in our market;
• Our ability to adapt to technological change and effectively enhance, innovate, and scale our platform and professional services;
• Our ability to effectively manage or sustain our growth and to achieve profitability;
• Potential acquisitions and integration of complementary businesses and technologies;
• Our ability to maintain, or strengthen awareness of, our brand;
• Perceived or actual problems with the integrity, reliability, quality, or compatibility of our platform, including unscheduled downtime or outages;
• The anticipated expansion of the usage of partners to perform professional services;
• General macroeconomic conditions, including rising interest rates and inflation, slower growth or recession, and geopolitical turmoil;
• Future revenue, hiring plans, expenses, capital expenditures, capital requirements, and stock performance;
• Our ability to attract and retain qualified employees and key personnel and manage our overall headcount;
• The expected benefits to our clients and potential clients of our product and service offerings;
10
• The timing of revenue recognition under license and cloud arrangements;
• Our expectation that subscriptions revenue as a percentage of total revenue will continue to increase;
• Our backlog of license, maintenance, cloud, and services agreements and the timing of future cash receipts from committed license and cloud arrangements;
• Our expectation that cost of revenue, sales and marketing expenses, research and development expenses, and general and administrative expenses will continue to increase in absolute dollar values;
• The fluctuation of subscriptions gross margin and professional services gross margin over time;
• Our expectations regarding the impact of recent accounting pronouncements on our consolidated financial statements;
• Our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally;
• Our ability to maintain, protect, and enhance our intellectual property; and
• Costs associated with defending intellectual property infringement and other claims.
These statements represent the beliefs and assumptions of our management based on information currently available to us. Such forward-looking statements are subject to risks, uncertainties, and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” included under Part I, Item 1A. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report.
Risk Factors Summary
The risk factors summarized below could materially harm our business, operating results, and/or financial condition, impair our future prospects, and/or cause the price of our common stock to decline. These risks are discussed more fully in the section titled “Risk Factors”. Material risks that may affect our business, financial condition, results of operations, and trading price of our Class A common stock include, but are not necessarily limited to, the following:
• Our recent growth may not be indicative of our future growth and, if we continue to grow, we may not be able to manage our growth effectively.
• If we are unable to sustain our revenue growth rate, we may not achieve or maintain profitability in the future.
• We may not be able to scale our business quickly enough to meet our customers’ growing needs, and if we are not able to grow efficiently, our operating results could be harmed.
• We are dependent on a single product, and the lack of continued market acceptance of our platform could cause our operating results to suffer.
• Market adoption of low-code platforms to drive digital transformation is new and unproven and may not grow as we expect, which may harm our business and prospects.
• We currently face significant competition.
• If our security measures are actually or perceived to have been breached or unauthorized access to our platform or customer data is otherwise obtained, our platform may be perceived as not being secure, customers may reduce the use of or stop using our platform, and we may incur significant liabilities.
• We derive a material portion of our revenue from a limited number of customers, and the loss of one or more of these customers could adversely impact our business, results of operations, and financial condition.
• We rely on the performance of highly skilled personnel, including senior management and our engineering, professional services, sales, and technology professionals.
• If we do not continue to innovate and provide a platform that is useful to our customers, we may not remain competitive, and our revenue and operating results could suffer.
11
• We are substantially dependent upon customer renewals, the addition of new customers, and the continued growth of our subscriptions revenue.
• Because we generally recognize revenue from cloud subscriptions ratably over the term of the subscription agreement, near term changes in sales may not be reflected immediately in our operating results.
• We rely upon Amazon Web Services, or AWS, to operate our cloud offering; any disruption of or interference with our use of AWS would adversely affect our business, results of operations, and financial condition.
• We employ third-party licensed software for use in or with our software, and the inability to maintain these licenses or errors in the software we license could result in increased costs or reduced service levels, which would adversely affect our business.
• If we do not or cannot maintain the compatibility of our platform with third-party applications that our customers use in their businesses, our revenue will decline.
• Because our software could be used to collect and store personal information, domestic and international privacy concerns could result in additional costs and liabilities to us or inhibit sales of our software.
• If our platform fails to function in a manner that allows our customers to operate in compliance with regulations and/or industry standards, our revenue and operating results could be harmed.
• We are subject to anti-corruption laws with respect to our domestic and international operations.
• We are subject to governmental export and import controls and economic and trade sanctions that could impair our ability to conduct business in international markets and subject us to liability if we are not in compliance with applicable laws and regulations.
• Any failure to protect our proprietary technology and intellectual property rights could substantially harm our business and operating results.
• Portions of our platform utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.
• If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
• Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.
• The dual class structure of our common stock and the existing ownership of capital stock by Matt Calkins, our founder and Chief Executive Officer, has the effect of concentrating voting control with Mr. Calkins for the foreseeable future, which will limit the ability of others to influence corporate matters.
• Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management, and limit the market price of our Class A common stock.
• Our stock price may be volatile, and investors may lose some or all of their investment.
12