What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-03 · 188 added, 217 removed, 248 unchanged (62% of the section changed)

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This Quarterly Report on Form 10-Q contains “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.

These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would,” or the negative or plural of these words or similar expressions or variations, including statements regarding our future financial and operating performance, anticipated expansion of the usage of partners to perform professional services, the increase of our subscriptions revenue as a percentage of total revenue, the fluctuation of gross margin on a quarterly basis, and our future capital requirements.

Such forward-looking statements are subject to a number of risks, uncertainties, assumptions, and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements.

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Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Appian is a unified platform for change.

We accelerate customers’ businesses by discovering, designing, and automating their most important processes.

The Appian Low-Code Platform combines the key capabilities needed to get work done faster, Process Mining + Workflow + Automation, in a unified low-code platform.

Appian is open, enterprise grade, and trusted by industry leaders.

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

With our platform, organizations can rapidly and easily discover, design, and automate powerful, enterprise-grade workflows and custom applications through our intuitive, visual interface with little or no coding required.

Our customers have used workflows and applications built on our platform to launch new business lines, automate vital employee workflows, manage complex trading platforms, accelerate drug development, and build global procurement systems.

With our platform, decision makers can reimagine their products, services, processes, and customer interactions by removing much of the complexity and many of the challenges associated with traditional approaches to software development.

Appian 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 have generated the majority of our revenue from sales of subscriptions, which include (1) cloud subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support.

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Due to the variability of our billing terms and the episodic nature of our customers purchasing additional subscriptions, we do not believe changes in our deferred revenue in a given period are directly correlated with our revenue growth.

We invested in our Customer Success organization to help ensure customers are able to build and deploy applications on our platform.

We have several strategic partnerships, including with KPMG, Accenture, PwC, Infosys, Wipro, and Deloitte, for them to refer customers to us in order to purchase subscriptions and then our partners provide professional services directly to the customers using our platform.

We have invested in our Customer Success organization to help ensure customers are able to build and deploy applications on our platform.

We have several strategic partnerships, including with KPMG, Accenture, PwC, EY, Infosys, Wipro, and Deloitte, which allow them to refer customers to us in order to purchase subscriptions and then our partners provide professional services directly to the customers using our platform.

We intend to further grow our base of strategic partners to provide broader customer coverage and solution delivery capabilities.

In addition, over time we expect professional services revenue as a percentage of total revenue to decline as we increasingly rely on strategic partners to help our customers deploy our software.

We believe our

investment in professional services, including strategic partners building their practices around Appian, will drive increased adoption of our platform.

In addition, over time we expect our professional services revenue as a percentage of total revenue to decline as we increasingly rely on strategic partners to help our customers deploy our software.

We believe our investment in professional services, including strategic partners building their practices around Appian, will drive increased adoption of our platform.

Our customers include financial services, government, life sciences, insurance, manufacturing, energy, healthcare, telecommunications, and transportation organizations.

Generally, our sales team targets its efforts to organizations with over 2,000 employees and $2 billion in annual revenue.

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

This compares to revenue from government agencies of 19.2% and 20.0% of our total revenue in the three and nine months ended September 30, 2021, respectively.

No single end-customer accounted for more than 10% of our total revenue in the three and nine months ended September 30, 2022 or 2021.

Revenue from government agencies represented 20.5% and 18.1% of our total revenue for the three months ended March 31, 2023 and 2022, respectively.

No single end-customer accounted for more than 10% of our total revenue in the three months ended March 31, 2023 or 2022.

We offer our platform globally.

Our platform supports multiple languages to facilitate collaboration and address challenges in multinational organizations.

In the three and nine months ended September 30, 2022, 31.3% and 33.2% , respectively, of our total revenue was generated from customers outside of the United States as compared to 32.0% and 33.1% in the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, we operated in 15 countries.

In the three months ended March 31, 2023 and 2022, 33.4% and 33.5%, respectively, of our total revenue was generated from customers outside of the United States.

As of March 31, 2023, we operated in 15 countries.

We believe we have a significant opportunity to continue to grow our international footprint, and we are investing in new geographies, including through investment in direct and indirect sales channels, professional services, and customer support and implementation partners.

Our business model focuses on maximizing the lifetime value of customer relationships, which is a function of the duration of a customer’s deployment of our platform as well as the price and number of subscriptions of our platform that a customer purchases.

We incur significant customer acquisition costs, including expenses associated with hiring new sales representatives, who can take anywhere from six months to a year to become productive given the length of our sales cycle, and marketing costs, with the exception of sales commissions, are expensed as incurred.

We incur significant customer acquisition costs, including expenses associated with hiring new sales representatives, who can take anywhere from six months to a year to become productive given the length of our sales cycle, and marketing costs which, with the exception of certain types of sales commissions, are expensed as incurred.

Key Factors Affecting Our Performance

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We offer a leading custom software platform and intend to continue to invest to expand our customer base.

The degree to which prospective customers recognize the need for low-code software that enables organizations to digitally transform, and subsequently allocate budget dollars to purchase our software, will drive our ability to acquire new customers and increase sales to existing customers, which, in turn, will affect our future financial performance.

The degree to which prospective customers recognize the need for our software platform that enables organizations to digitally transform, and subsequently allocate budget dollars to purchase our software, will drive our ability to acquire new customers and increase sales to existing customers, which, in turn, will affect our future financial performance.

• Growth of Our Customer Base.

We believe we have a substantial opportunity to grow our customer base.

We define a customer as an entity with an active subscription or maintenance and support contract as of the specified measurement date.

We define a customer as an entity with an active subscription or maintenance and support contract or a legacy perpetual license as of the specified measurement date.

Furthermore, we define a new customer as an entity that has entered into its first active subscription or maintenance and support contract within one calendar year of the specified measurement date while existing customers are defined as entities that have maintained an active subscription or maintenance and support contract for at least one calendar year from the specified measurement date.

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Many of our customers begin by building a single application and then grow to build dozens of applications on our platform.

Generally, the development of new applications on our platform results in the expansion of our user base within an organization and a corresponding increase in revenue.

Generally, the development of new

applications on our platform results in the expansion of our user base within an organization and a corresponding increase in revenue.

As a result of this “land and expand” strategy, we have generated significant additional revenue from our customer base.

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We have also re-focused some of our professional services personnel to become customer success managers.

Their role is to ensure the customer realizes value from our platform and support strategic partners and the “land and expand” strategy versus delivering billable hours.

Their role is to ensure customers realize value from our platform and support strategic partners and the “land and expand” strategy versus delivering billable hours.

• Mix of Subscriptions and Professional Services Revenue.

We believe our professional services have driven customer success and facilitated the adoption of our platform by customers.

During the initial period of deployment by a customer, we generally provide a greater amount of support in building applications and training than later in the deployment, with a typical engagement extending from two to six months.

At the same time, many of our customers have historically purchased subscriptions only for a limited set of their total potential end users.

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As the usage of partners expands, we expect the proportion of our total revenue from subscriptions to increase over time relative to professional services.

For the nine months ended September 30, 2022 and 2021, 72.2% and 71.1% of our revenue, respectively, was derived from sales of subscriptions while the remaining 27.8% and 28.9%, respectively, was derived from the sale of professional services.

For the three months ended March 31, 2023 and 2022, 73.2% and 73.3% of our revenue, respectively, was derived from sales of subscriptions while the remaining 26.8% and 26.7%, respectively, was derived from the sale of professional services.

• Investments in Growth.

We have made, and plan to continue to make, investments for long-term growth, including investment in our platform and infrastructure to continuously maximize their power and speed, to meet the evolving needs of our customers, and to take advantage of our market opportunity.

In addition, we continue to pursue strategic acquisitions that enhance our product offerings.

We have made, and plan to continue to make, investments for long-term growth, including investing in our platform and infrastructure to continuously maximize their power and speed, meet the evolving needs of our customers, and take advantage of our market opportunity.

In addition, we may pursue strategic acquisitions that enhance our product offerings.

We also intend to continue to invest in sales and marketing as we further expand our sales teams, increase our marketing activities, and grow our international operations.

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Cloud Subscription Revenue

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

2022 2021 % Change 2022 2021 % Change

Three Months Ended March 31,

2023 2022 % Change

Cloud subscription revenue $ 69,692 $ 53,379 30.6 %

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Cloud Subscription Revenue Retention Rate

As of September 30,

As of March 31,

Cloud subscription revenue retention rate 115 % 117 %

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Subscriptions

Subscriptions revenue is primarily derived from:

• Cloud subscriptions bundled with maintenance and support and hosting services;

• On-premises term license subscriptions bundled with maintenance and support.

Subscriptions revenue is primarily derived from cloud subscriptions bundled with maintenance and support and hosting services and on-premises term license subscriptions bundled with maintenance and support.

Our maintenance and support agreements provide customers with the right to unspecified software upgrades, maintenance releases and patches released during the term of the maintenance and support agreement on a when-and-if-available basis, and rights to technical support.

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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, including payroll and benefits for our technology operations and customer support

teams, amortization of developed technology, and allocated overhead costs.

We expect cost of revenue to continue to increase in absolute dollars for the foreseeable future as our customer base grows.

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Professional services gross margin is also impacted by the amount of services performed by subcontractors and partners as opposed to internal resources.

In 2021, we had a lower usage of subcontractors and performed fewer in-person professional services engagements and deployments, both of which reduced certain classes of expenses and improved professional services margins.

In 2022, these margins have declined but remain subject to fluctuation based on the factors discussed above.

In 2023, we expect professional services gross margin to be consistent with 2022;

however, the margin remains subject to fluctuation based on the factors discussed above.

Operating Expenses

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Personnel-related costs such as salaries, bonuses, commissions, payroll tax payments, and stock-based compensation expense are the most significant components of each of these expense categories.

Other components of each category include professional fees for third-party services such as contract labor, legal, software development resources, and consulting as well as allocated facility and overhead, which can include, among other types of costs, travel and entertainment expenditures, human resources costs such as placement fees, referral bonuses, training costs, and employee relations spending, office-related expenditures, and information technology costs for such items as infrastructure, software, and cloud computing services.

In general, our operating expenses are expected to continue to increase in absolute dollars as we invest resources in growing our various teams.

Other components of each category include professional fees for third-party services such as contract labor, legal, software development resources, and consulting as well as allocated overhead costs, which can include, among other types of costs, facility costs, travel and entertainment expenditures, human resources costs such as placement fees, referral bonuses, training costs, and employee relations spending, office-related expenditures, and information technology costs for such items as infrastructure, software, and cloud computing services.

In general, our operating expenses are expected to continue to increase in absolute dollars as we invest resources in growing our various teams although at a more measured rate than prior years.

Sales and Marketing Expense

Sales and marketing expense primarily includes personnel costs, including salaries, bonuses, commissions, stock-based compensation, and other personnel costs related to sales teams.

Additional expenses in this category include travel and entertainment, marketing activities and promotional events, subcontracting fees, and allocated overhead costs.

Additional major expenses in this category include travel and entertainment, marketing activities and promotional events, subcontracting fees, and allocated overhead costs.

In order to continue to grow our business, geographical footprint, and brand awareness, we expect to continue investing resources in sales and marketing by increasing the number of sales and account management teams.

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Research and development expense consists primarily of personnel costs for our employees who develop and enhance our platform, including salaries, bonuses, stock-based compensation, and other personnel costs.

Also included are non-personnel costs such as subcontracting, consulting and professional fees to third party development resources, allocated facility costs, and overhead.

Our research and development efforts are focused on enhancing the speed and power of our software platform.

We expect research and development expense to continue to increase in absolute dollars as such costs are critical to maintain and improve the quality of applications and our competitive position.

Also included are non-personnel costs such as subcontracting, consulting and professional fees to third party development resources, and allocated overhead costs.

Our research and development efforts are focused on enhancing the capabilities, speed, and power of our software platform.

In 2022, we opened a new product development center in India.

Although we expect research and development expense to continue to increase in absolute dollars as such costs are critical to maintain and improve the quality of applications and our competitive position, we believe our new product development center will result in cost savings over time.

General and Administrative Expense

General and administrative expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, and other personnel costs for our administrative, legal, information technology, human resources, finance, and accounting, as well as our senior executives.

Additional expenses included in this category are non-personnel costs such as travel-related expenses, contracting and professional fees for such services as audits, taxation, and legal, insurance and other corporate expenses, including allocated overhead costs, and bad debt expenses.

Absent certain non-recurring legal expenses incurred in 2022 and prior years, we expect our general and administrative expense to increase in absolute dollars as we continue to support our growth.

Other Non-Operating Expense

Other Expense, Net

Other expense, net consists primarily of unrealized and realized gains and losses related to changes in foreign currency exchange rates, interest income on our cash and cash equivalents and investments, and other sources of income or expense not related to our core business operations.

In 2023, we expect our general and administrative expense to decrease in absolute dollars largely due to an anticipated decline in legal costs.

Other Non-Operating (Income) Expense

Other (Income) Expense, Net

Other (income) expense, net consists primarily of unrealized and realized gains and losses related to changes in foreign currency exchange rates, interest income on our cash and cash equivalents and investments, and other sources of income or expense not related to our core business operations.

Interest Expense

Interest expense consists primarily of unused credit facility fees and commitment fees on our letters of credit.

Interest expense consists primarily of interest on our debt, amortization of deferred financing fees, unused credit facility fees, and commitment fees on our letters of credit.

Results of Operations

The following table sets forth our consolidated statements of operations data (in thousands):

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

2022 2021 2022 2021

Three Months Ended March 31,

Subscriptions $ 98,957 $ 83,720

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Subscriptions (1)

9,313 7,092 26,065 19,806

Professional services (1)

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Other non-operating expense

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

Other (income) expense, net (2,690) 787

Interest expense 3,118 74

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(1) Stock-based compensation as a component of these line items is as follows:

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

2022 2021 2022 2021

Three Months Ended March 31,

Cost of revenue

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The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue:

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

2022 2021 2022 2021

Three Months Ended March 31,

Subscriptions 73.2 % 73.3 %

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Other non-operating expense

Other expense, net 5.0 2.5 3.7 1.6

Other (income) expense, net (2.0) 0.7

Interest expense 2.3 0.1

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Net loss (27.2) % (20.3) %

Comparison of the Three Months Ended September 30, 2022 and 2021

Three Months Ended September 30,

* Totals may not foot due to rounding.

Comparison of the Three Months Ended March 31, 2023 and 2022

Three Months Ended March 31,

2023 2022 $ Change % Change

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Total revenue $ 135,235 $ 114,266 $ 20,969 18.4 %

Total revenue increased $25.5 million , or 27.5% , in the three months ended September 30, 2022 compared to the same period in 2021 due to an increase in our subscriptions revenue of $19.3 million and an increase in our professional services revenue of $6.2 million .

The increase in subscriptions revenue was driven by a $13.9 million increase in cloud subscription revenue, a $4.7 million increase in on-premises subscription revenue, and a $0.7 million increase in maintenance and support revenue.

With respect to new versus existing customers, there was a $14.1 million increase in subscriptions revenue stemming from expanded deployments and corresponding sales of additional subscriptions to existing customers while $5.1 million of the increase was the result of sales of subscriptions to new customers.

The increase in professional services revenue was due

primarily to a $5.2 million increase in sales to new customers, coupled with a $0.9 million increase in revenue from existing customers.

Total revenue increased $21.0 million, or 18.4%, in the three months ended March 31, 2023 compared to the same period in 2022 due to an increase in our subscriptions revenue of $15.2 million and an increase in our professional services revenue of $5.7 million.

The increase in subscriptions revenue was driven by a $16.3 million increase in cloud subscription revenue and a $0.5 million increase in maintenance and support revenue, both of which were partially offset by a $1.6 million decrease in on-premises subscription revenue.

With respect to new versus existing customers, there was a $7.8 million increase in subscriptions revenue stemming from sales of

subscriptions to new customers, while the remaining $7.4 million of the increase was attributable to expanded deployments and corresponding sales of additional subscriptions to existing customers.

The increase in professional services revenue was due primarily to a $6.4 million increase in sales to new customers, which was partially offset by a $0.7 million decrease in revenue from existing customers.

Cost of Revenue

Three Months Ended September 30,

Three Months Ended March 31,

2023 2022 $ Change % Change

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Total gross margin 73.3 % 72.9 %

Cost of revenue increased $7.3 million, or 27.4%, in the three months ended September 30, 2022 compared to the same period in 2021, primarily due to a $3.7 million increase in professional services and product support personnel costs, a $1.5 million increase in hosting costs, a $1.3 million increase in contractor costs, and a $0.6 million increase in travel and entertainment expenses.

Personnel costs increased due to an increase in professional services and product support personnel headcount of 15.9% from September 30, 2021 to September 30, 2022 in addition to increased wages and fringe benefits, coupled with a $0.5 million increase in stock-based compensation expense.

Hosting costs increased as sales of our cloud offering increased in the three months ended September 30, 2022.

Contractor costs increased in the three months ended September 30, 2022 compared to the same period in 2021 due to an increase in the usage of subcontractors and consultants for professional services engagements.

Subscriptions gross margin slightly decreased to 89.2% for the three months ended September 30, 2022 compared to 89.5% in the same period in 2021 due to increased hosting costs as sales of our cloud offering increased.

However, this increase in hosting costs was partially offset by an increase in subscriptions revenue during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Professional services gross margin decreased to 22.0% for the three months ended September 30, 2022 compared to 22.9% in the same period in 2021 due largely to higher personnel and other allocated costs such as human resources, information technology, and office-related spending in the comparable periods, partially offset by an increase in professional services revenue.

Furthermore, fewer in-person professional services engagements and deployments during the three months ended September 30, 2021 as compared to the three months ended September 30, 2022 led to temporarily improved margins in the prior year.

Gross margin increased slightly to 71.4% for the three months ended September 30, 2022 compared to 71.3% for the three months ended September 30, 2021.

Cost of revenue increased $5.2 million, or 16.7%, in the three months ended March 31, 2023 compared to the same period in 2022, primarily due to a $2.7 million increase in professional services and product support personnel costs, a $1.4 million increase in hosting costs, a $0.5 million increase in contractor costs, and a $0.3 million increase in travel and entertainment expenses.

Personnel costs increased due to an increase in professional services and product support personnel headcount of 12.7% from March 31, 2022 to March 31, 2023 in addition to increased wages and fringe benefits, coupled with a $0.6 million increase in stock-based compensation expense.

Hosting costs increased as sales of our cloud offering increased in the three months ended March 31, 2023.

Contractor costs increased in the three months ended March 31, 2023 compared to the same period in 2022 due to an increase in the usage of subcontractors and consultants for professional services engagements.

Subscriptions gross margin slightly decreased to 89.4% for the three months ended March 31, 2023 compared to 90.2% in the same period in 2022 due to increased hosting costs as sales of our cloud offering increased.

The increase in hosting costs was partially offset by an increase in subscriptions revenue during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Professional services gross margin increased to 29.3% for the three months ended March 31, 2023 compared to 25.7% in the same period in 2022 due largely to the aforementioned increase in professional services revenue.

The increase in professional services revenue was partially offset by higher personnel and other allocated costs such as human resources, information technology, and office-related spending in the comparable periods.

Gross margin rose slightly to 73.3% for the three months ended March 31, 2023 compared to 72.9% for the three months ended March 31, 2022.

Sales and Marketing Expense

Three Months Ended September 30,

Three Months Ended March 31,

2023 2022 $ Change % Change

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% of revenue 46.7 % 40.2 %

Sales and marketing expense increased $12.8 million, or 30.5%, in the three months ended September 30, 2022 compared to the same period in 2021, primarily due to a $8.4 million increase in sales and marketing personnel costs, a $5.0 million increase in overhead costs, and a $0.4 million increase in marketing costs, which were partially offset by a $0.9 million decrease in professional fees.

Personnel costs increased due to an increase in sales and marketing personnel headcount of 24.5% from September 30, 2021 to September 30, 2022 in addition to increased wages and fringe benefits, a $1.3 million increase in

commissions expense due to increased sales, and a $1.2 million increase in stock-based compensation expense.

Sales and marketing expense increased $17.2 million, or 37.4%, in the three months ended March 31, 2023 compared to the same period in 2022, primarily due to a $15.2 million increase in sales and marketing personnel costs and a $2.7 million increase in overhead costs, which were partially offset by a $0.7 million decrease in marketing costs.

Personnel costs increased due to an increase in sales and marketing personnel headcount of 29.0% from March 31, 2022 to March 31, 2023 in addition to increased wages and fringe benefits, a $3.6 million

increase in severance costs, a $2.7 million increase in commissions expense due to increased sales, and a $0.7 million increase in stock-based compensation expense.

Overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Additionally, travel and entertainment expense increased due to a higher number of in-person engagements and events as compared to the prior year.

Marketing costs increased due to an increase in advertising expense stemming from an increase in the number of advertising campaigns launched in the three months ended September 30, 2022 relative to the three months ended September 30, 2021.

Professional fees decreased due to a decrease in the use of third-party sales and marketing consultants for certain initiatives.

Marketing costs decreased primarily due to a decrease in advertising expense stemming from a decrease in the number of advertising campaigns launched in the three months ended March 31, 2023 relative to the three months ended March 31, 2022.

Research and Development Expense

Three Months Ended September 30,

Three Months Ended March 31,

2023 2022 $ Change % Change

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% of revenue 30.8 % 26.1 %

Research and development expense increased $11.1 million, or 41.9%, in the three months ended September 30, 2022 compared to the same period in 2021, primarily due to a $9.3 million increase in research and development personnel costs, a $1.4 million increase in overhead costs, and a $0.4 million increase in professional fees.

Personnel costs increased due to an increase in research and development personnel headcount of 25.6% from September 30, 2021 to September 30, 2022 in addition to increased wages and fringe benefits, coupled with a $2.2 million increase in stock-based compensation expense.

Overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Professional fees increased due to an increase in consulting fees stemming from higher usage of external resources to assist in our platform development efforts.

Research and development expense increased $11.8 million, or 39.5%, in the three months ended March 31, 2023 compared to the same period in 2022, primarily due to an $11.9 million increase in research and development personnel costs and a $0.1 million increase in overhead costs.

These increases were partially offset by a $0.2 million decrease in professional fees.

Personnel costs increased due to an increase in research and development personnel headcount of 31.5% from March 31, 2022 to March 31, 2023 in addition to increased wages and fringe benefits coupled with a $1.3 million increase in stock-based compensation expense and a $0.2 million increase in severance costs.

Overhead costs increased due to increases in certain allocated costs tied directly to our growth.

Professional fees decreased due to a decrease in consulting fees stemming from a lower usage of external resources to assist in our platform development efforts relative to the prior year.

General and Administrative Expense

Three Months Ended September 30,

Three Months Ended March 31,

2023 2022 $ Change % Change

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% of revenue 22.0 % 27.5 %

General and administrative expense increased $9.1 million, or 45.1%, in the three months ended September 30, 2022 compared to the same period in 2021, primarily due to a $6.6 million increase in general and administrative personnel costs and a $2.8 million increase in overhead costs, both of which were partially offset by a $0.3 million decrease in professional fees.

Personnel costs increased due to an increase in general and administrative personnel headcount of 38.2% from September 30, 2021 to September 30, 2022 in addition to increased wages and fringe benefits, as well as a $2.2 million increase in stock-based compensation expense.

Overhead costs increased primarily due to an increase in certain allocated costs tied to our growth such as insurance premiums, information technology spending, human resources costs, and office-related expenses.

Professional fees decreased due to a $2.1 million decline in legal fees incurred relative to the three months ended September 30, 2021, which was substantially offset by a $1.7 million increase in consulting fees.

Other Non-Operating Expense, Net

Three Months Ended September 30,

General and administrative expense decreased $1.8 million, or 5.6%, in the three months ended March 31, 2023 compared to the same period in 2022 primarily due to an $8.5 million decrease in professional fees.

This decrease was partially offset by a $5.6 million increase in general and administrative personnel costs and a $1.2 million increase in overhead costs.

Professional fees decreased due to a $9.9 million decline in legal fees incurred relative to the three months ended March 31, 2022, which was partially offset by a $1.2 million increase in consulting fees.

Personnel costs increased due to an increase in general and administrative personnel headcount of 27.2% from March 31, 2022 to March 31, 2023 in addition to increased wages and fringe benefits, as well as a $1.5 million increase in stock-based compensation expense.

Overhead costs increased primarily due to an increase in certain allocated costs tied to our growth such as information technology spending and office-related expenses.

Other Non-Operating (Income) Expense, Net

Three Months Ended March 31,

2023 2022 $ Change % Change

(dollars in thousands)

Other expense, net $ 5,876 $ 2,329 $ 3,547 ***

Other (income) expense, net $ (2,690) $ 787 $ (3,477) ***

% of revenue (2.0) % 0.7 %

*** Indicates a percentage that is not meaningful.

Other expense, net was $5.9 million in the three months ended September 30, 2022 compared to other expense, net of $2.3 million in the three months ended September 30, 2021.

This change was primarily due to $6.1 million in foreign exchange losses in the three months ended September 30, 2022 as compared to $2.3 million in foreign exchange losses in the three months ended September 30, 2021.

The primary reason for the increase in foreign exchange losses was the strengthening of the U.S.

dollar against the British pound, Euro, and Swiss franc.

Other income, net was $2.7 million in the three months ended March 31, 2023 compared to other expense, net of $0.8 million in the three months ended March 31, 2022.

This change was primarily due to $0.6 million in foreign exchange gains in the three months ended March 31, 2023 as compared to $1.9 million in foreign exchange losses in the three months ended March 31, 2022 as well as a $2.0 million increase in interest income in the three months ended March 31, 2023 related to our investments.

Interest Expense

Three Months Ended September 30,

Three Months Ended March 31,

2023 2022 $ Change % Change

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% of revenue 2.3 % 0.1 %

Interest expense increased by a nominal amount in the three months ended September 30, 2022 compared to the same period in 2021, primarily due to slightly higher commitment fees on the letters of credit outstanding.

Comparison of the Nine Months Ended September 30, 2022 and 2021

Nine Months Ended September 30,

2022 2021 $ Change % Change

(dollars in thousands)

Subscriptions $ 246,908 $ 187,952 $ 58,956 31.4 %

Professional services 95,297 76,319 $ 18,978 24.9 %

Total revenue $ 342,205 $ 264,271 $ 77,934 29.5 %

Total revenue increased $77.9 million , or 29.5% , in the nine months ended September 30, 2022 compared to the same period in 2021 due to an increase in our subscriptions revenue of $59.0 million and an increase in our professional services revenue of $19.0 million.

The increase in subscriptions revenue was driven largely by a $42.8 million increase in cloud subscription revenue, a $14.3 million increase in on-premises subscription revenue, and a $1.9 million increase in maintenance and support revenue.

With respect to new versus existing customers, there was a $46.4 million increase in subscriptions revenue stemming from expanded deployments and corresponding sales of additional subscriptions to existing customers while $12.3 million of the increase was the result of sales of subscriptions to new customers.

The increase in professional services revenue was due primarily to a $14.8 million increase in sales to new customers, in addition to a $4.2 million increase in revenue from existing customers.

Cost of Revenue

Nine Months Ended September 30,

2022 2021 $ Change % Change

(dollars in thousands)

Cost of revenue

Subscriptions $ 26,065 $ 19,806 $ 6,259 31.6 %

Professional services 72,011 56,065 $ 15,946 28.4 %

Total cost of revenue $ 98,076 $ 75,871 $ 22,205 29.3 %

Subscriptions gross margin 89.4 % 89.5 %

Professional services gross margin 24.4 % 26.5 %

Total gross margin 71.3 % 71.3 %

Cost of revenue increased $22.2 million, or 29.3%, in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to a $13.6 million increase in professional services and product support personnel costs, a $4.0 million increase in hosting costs, a $2.2 million increase in contractor costs, a $1.2 million increase in travel and entertainment expenses, and a $1.2 million increase in overhead costs.

Hosting costs increased as sales of our cloud offering increased in the nine months ended September 30, 2022.

Contractor costs increased in the nine months ended September 30, 2022 compared to the same period in 2021 due to an increase in the usage of subcontractors and consultants for professional services engagements.

Travel and entertainment expenses increased due to a larger number of in-person engagements, events, and other business-related traveling.

The increase in overhead costs was due largely to an increase in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Subscriptions gross margin was 89.4% for nine months ended September 30, 2022 as compared to 89.5% for the nine months ended September 30, 2021.

Revenue from our cloud offering increased and became a larger proportion of our overall subscriptions revenue.

However, the increase in revenue was offset by increased hosting costs.

Professional services gross margin decreased to 24.4% for the nine months ended September 30, 2022 compared to 26.5% in the same period in 2021 due largely to higher personnel and human resources costs in the current year, partially offset by an increase in professional services revenue.

Furthermore, fewer in-person professional services engagements and deployments during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2022 led to temporarily improved margins in the prior year.

Based on the above offsetting factors, gross margin remained consistent at 71.3% for the nine months ended September 30, 2022 and 2021.

Sales and Marketing Expense

Nine Months Ended September 30,

2022 2021 $ Change % Change

(dollars in thousands)

Sales and marketing $ 157,104 $ 118,575 $ 38,529 32.5 %

% of revenue 45.9 % 44.9 %

Sales and marketing expense increased $38.5 million, or 32.5%, in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to a $23.4 million increase in sales and marketing personnel costs, an $11.3 million increase in overhead costs, and a $5.5 million increase in marketing costs, which were partially offset by a $1.6 million decrease in professional fees.

Personnel costs increased due to an increase in sales and marketing personnel headcount of 24.5% from September 30, 2021 to September 30, 2022, in addition to increased wages and fringe benefits, increased sales commissions driven by our revenue growth, and a $3.0 million increase in stock-based compensation expense.

Overhead costs

increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Additionally, travel and entertainment expenses increased due to a higher number of in-person engagements and events relative to the prior year.

Marketing costs increased due to an increase in the number of marketing events held during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, including spending on our annual user conference Appian World, which resumed its in-person format in April 2022.

Additionally, marketing costs increased due to an increase in spending on advertising campaigns.

Professional fees decreased due to a decrease in the use of third-party sales and marketing consultants for certain initiatives.

Research and Development Expense

Nine Months Ended September 30,

2022 2021 $ Change % Change

(dollars in thousands)

Research and development $ 101,401 $ 71,062 $ 30,339 42.7 %

% of revenue 29.6 % 26.9 %

Research and development expense increased $30.3 million, or 42.7%, in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to a $25.1 million increase in research and development personnel costs, a $3.9 million increase in overhead costs, and a $1.3 million increase in professional fees.

Personnel costs increased due to an increase in research and development personnel headcount of 25.6% from September 30, 2021 to September 30, 2022 in addition to increased wages and fringe benefits, coupled with a $5.5 million increase in stock-based compensation expense.

Overhead costs increased due to increases in certain allocated costs tied directly to our growth such as spending for offices, human resources costs, and information technology infrastructure.

Professional fees increased due to an increase in consulting fees stemming from higher usage of external resources to assist in our platform development efforts.

General and Administrative Expense

Nine Months Ended September 30,

2022 2021 $ Change % Change

(dollars in thousands)

General and administrative expense $ 90,014 $ 56,726 $ 33,288 58.7 %

% of revenue 26.3 % 21.5 %

General and administrative expense increased $33.3 million, or 58.7%, in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to a $16.6 million increase in professional fees, an $8.8 million increase in overhead costs, and a $7.8 million increase in general and administrative personnel costs.

Professional fees increased due to higher legal fees incurred in connection with two separate lawsuits, one involving an effort to enforce our intellectual property rights and one involving reciprocal false advertising and related claims with a competitor.

Refer to Item 1.

Legal Proceedings, within Part II of this Form 10-Q for further information.

Other Non-Operating Expense, Net

Nine Months Ended September 30,

2022 2021 $ Change % Change

(dollars in thousands)

Other expense, net $ 12,815 $ 4,141 $ 8,674 ***

% of revenue 3.7 % 1.6 %

*** Indicates a percentage that is not meaningful.

Other expense, net was $12.8 million in the nine months ended September 30, 2022 compared to other expense, net of $4.1 million in the nine months ended September 30, 2021.

This change was primarily due to $14.5 million in foreign exchange losses in the nine months ended September 30, 2022 as compared to $4.3 million in foreign exchange losses in the nine months ended September 30, 2021.

The primary reason for the increase in foreign exchange losses was the strengthening of the U.S.

dollar against the British pound, Euro, and Swiss franc.

Interest Expense

Nine Months Ended September 30,

2022 2021 $ Change % Change

(dollars in thousands)

Interest expense increased $3.0 million in the three months ended March 31, 2023 as compared to the corresponding period in 2022 primarily due to interest expense on the new term loan facility we entered into during the fourth quarter of 2022.

Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain non-GAAP financial performance measures.

We use these non-GAAP financial performance measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons.

Management believes these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenses that may not be indicative of our recurring core business operating results.

We believe both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods.

These non-GAAP financial measures also facilitate management’s internal comparisons to historical performance as well as comparisons to competitors’ operating results.

We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to measures used by management in its financial and operational decision-making and (2) they are used by institutional investors and the analyst community to help them analyze the health of our business.

Our non-GAAP financial performance measures include non-GAAP net loss, non-GAAP net loss per share, and non-GAAP operating loss.

These non-GAAP financial performance measures exclude the effect of stock-based compensation expense, certain litigation-related expenses consisting of legal and other professional fees associated with the Pegasystems cases, which are not indicative of our core operating performance, and severance costs related to involuntary reductions in our workforce.

While these items may be recurring in nature and should not be disregarded in the evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends compared to other periods as these items can vary significantly from period to period depending on specific underlying transactions or events that may occur.

Therefore, while we may incur or recognize these types of expenses in the future, the Company believes removing these items for purposes of calculating the non-

GAAP financial measures provides investors with a more focused presentation of our ongoing operating performance.

We also discuss adjusted EBITDA, a non-GAAP financial performance measure we believe offers a useful view of the overall operation of its businesses.

We define adjusted EBITDA as net loss before (1) other non-operating (income) expenses, net, (2) interest expense, (3) income tax expense (benefit), (4) depreciation and amortization, (5) stock-based compensation expense, (6) litigation expenses directly associated with the Pegasystems cases, and (7) severance costs.

The most directly comparable GAAP financial measure to adjusted EBITDA is net loss.

Users should consider the limitations of using adjusted EBITDA, including the fact this measure does not provide a complete measure of our operating performance.

Adjusted EBITDA is not intended to purport to be an alternative to net loss as a measure of operating performance or to cash flows from operating activities as a measure of liquidity.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to the financial information prepared and presented in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies.

The following tables reconcile our non-GAAP measures to their nearest comparable GAAP measures.

The reconciliation of GAAP operating loss to non-GAAP operating loss for the three months ended March 31, 2023 and 2022 is as follows (in thousands):

Three Months Ended March 31,

GAAP operating loss $ (35,266) $ (23,866)

Stock-based compensation expense 11,056 6,943

Litigation expenses 1,842 11,792

Severance costs 4,204 —

Non-GAAP operating loss $ (18,164) $ (5,131)

The following table reconciles GAAP net loss to non-GAAP net loss for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

GAAP net loss $ (36,829) $ (23,154)

Stock-based compensation expense 11,056 6,943

Litigation expenses 1,842 11,792

Severance costs 4,204 —

Non-GAAP net loss $ (19,727) $ (4,419)

The following table sets forth non-GAAP net loss per share for the three months ended March 31, 2023 and 2022 (in thousands except per share data):

Three Months Ended March 31,

Non-GAAP net loss $ (19,727) $ (4,419)

Weighted average shares used to compute net loss per share, basic and diluted 72,869 72,217

Non-GAAP net loss per share, basic and diluted $ (0.27) $ (0.06)

GAAP basic and diluted weighted average shares outstanding were equal to non-GAAP basic and diluted weighted average shares outstanding for each of the three months ended March 31, 2023 and 2022.

The following table reconciles GAAP net loss per share to non-GAAP net loss per share for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

GAAP net loss per share, basic and diluted $ (0.51) (0.32)

Non-GAAP adjustments to net loss per share 0.24 0.26

Non-GAAP net loss per share, basic and diluted $ (0.27) $ (0.06)

The following table reconciles GAAP net loss to adjusted EBITDA for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

GAAP net loss $ (36,829) $ (23,154)

Other (income) expense, net (2,690) 787

Interest expense 3,118 74

% of revenue 0.1 % 0.1 %

Interest expense decreased by a nominal amount in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to lower commitment fees on the letters of credit outstanding.

Income tax expense (benefit) 1,135 (1,573)

Depreciation and amortization 2,342 1,773

Stock-based compensation expense 11,056 6,943

Litigation expenses 1,842 11,792

Severance costs 4,204 —

Adjusted EBITDA $ (15,822) $ (3,358)

Liquidity and Capital Resources

The following table presents selected financial information and statistics pertaining to liquidity and capital resources as of September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

The following table presents selected financial information and statistics pertaining to liquidity and capital resources as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

Cash and cash equivalents $ 198,679 $ 148,132

1 unchanged sentence

Property and equipment, net 45,877 41,855

Long-term investments — 12,044

Working capital* 145,549 149,996

* Defined as current assets net of current liabilities, excluding the current portion of restricted cash

As of September 30, 2022, we had $51.8 million of cash and cash equivalents and $40.9 million of short-term investments and marketable securities.

As of March 31, 2023, we had $198.7 million of cash and cash equivalents and $55.8 million of short-term investments and marketable securities.

We believe our existing cash and cash equivalents and short-term investments and marketable securities, together with any positive cash flows from operations and available borrowings under our line of credit, will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months.

We recently have, and in the future may enter into, investments in or acquisitions of complementary businesses, products, or technologies, which could also require us to seek additional equity financing, incur indebtedness, or use cash resources.

have no present binding agreements or commitments to enter into any such acquisitions.

We have in the past and may in the future enter into, investments in or acquisitions of complementary businesses, products, or technologies, which could also require us to seek additional equity financing, incur indebtedness, or use cash resources.

We have no present binding agreements or commitments to enter into any such acquisitions.

If we are unable to raise additional capital when desired, our business, operating results, and financial condition could be adversely affected.

Sources of Funds

Since becoming a public company in 2017, we have financed our operations in large part with equity financing arrangements, including net proceeds of $77.8 million from our initial public offering in May 2017, net proceeds of $57.8 million from our underwritten public offering in August 2018, net proceeds of $101.3 million from our underwritten public offering in September 2019, and net proceeds of $107.9 million from our underwritten public offering in June 2020.

In addition, we have financed our operations through sales of subscriptions and professional services.

As of September 30, 2022, we had a $20.0 million revolving line of credit with a lender, and as of that date, we had no outstanding borrowings and were in compliance with all covenants.

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

The new Credit Agreement matures on November 3, 2027.

We have historically financed our operations in large part with equity financing arrangements.

Through 2022, we have completed four public offerings and received net proceeds of $344.8 million.

Outside of equity offerings, we have financed our operations through sales of subscriptions and professional services.

To further help strengthen our financial position and support our growth initiatives, in 2022 we entered into a Senior Secured Credit Facilities Credit Agreement, or the Credit Agreement, which provides for a five-year term loan facility in an aggregate principal amount of $120.0 million and, in addition, up to $60.0 million for a revolving credit facility, including a letter of credit sub-facility in the aggregate availability amount of $15.0 million and a swingline sub-facility in the aggregate availability amount of $10.0 million (as a sublimit of the revolving loan facility).

On February 21, 2023, we executed the second amendment to the credit agreement which increased the aggregate principal amount of the term loan facility by $30.0 million and the limit of the revolving credit facility by $15.0 million.

The Credit Agreement matures on November 3, 2027.

We will use the proceeds from the $150.0 million term loan to fund the continued growth of our business and support our working capital requirements.

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

We were in compliance with all covenants as of March 31, 2023.

We believe, based on our current financial forecasts and trends, that we will remain compliant with all covenants for the foreseeable future.

As of March 31, 2023, we had used borrowing capacity of $62.0 million under our $75.0 million revolving credit facility, and we had outstanding letters of credit totaling $12.0 million in connection with securing our leased office space.

We expect future sources of funds to consist primarily of cash generated from sales of subscriptions and the related professional services.

We may also elect to raise additional sources of funding through draws on our new revolving credit facility, entering into new debt financing arrangements, or conducting additional public offerings.

Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, particularly internationally, the introduction of new and enhanced products and functions as well as platform enhancements and professional services offerings, and the level of market acceptance of our applications.

We may also elect to raise additional sources of funding through entering into new debt financing arrangements or conducting additional public offerings.

Uses of Funds

3 unchanged sentences

However, as we continue to invest in growing our business, operating expenses have also increased.

Outside of cash used in operations, other uses of cash in 2022 to date have included capital expenditures related to the expansion of our headquarters and purchases of short-term investments.

Non-operating cash uses in the prior year through September 30, 2021 consisted primarily of the acquisition of Lana Labs and modest capital expenditures.

Outside of cash used in operations, other uses of cash in 2023 to date have included capital expenditures related to the expansion of our headquarters, repayments of existing debt, and purchases of investments.

Non-operating cash uses in the prior year through March 31, 2022 consisted primarily of capital expenditures related to the expansion of our headquarters.

Furthermore, in 2021 we executed a non-cancellable cloud hosting arrangement with Amazon Web Services that contains provisions for minimum purchase commitments.

Purchase commitments under the agreement total $131.0 million over five years, including $22.0 million in the first year, $25.0 million in the second year, and $28.0 million in each of the third, fourth, and fifth years.

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

The agreement, which is in its second year, contains minimum spending requirements of $25.0 million in the second year and $28.0 million in each of the third, fourth, and fifth years.

The timing of payments under the agreement may vary, and the total amount of payments may exceed the minimum depending on the volume of services utilized.

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

Spending under this agreement for the three months ended March 31, 2023 and 2022, totaled $9.4 million and $7.8 million, respectively.

We expect to meet our minimum purchase commitments for the remainder of the contract term.

Silicon Valley Bank

In March 2023, Silicon Valley Bank’s (“SVB”) U.S.

operations were placed into receivership by the Federal Deposit Insurance Corporation (“FDIC”), and its U.K.

operations were placed into a Bank Insolvency Procedure by the Bank of England.

operations were later sold to First Citizens Bank and Trust Company (“First Citizens”), and its U.K.

operations were sold to HSBC UK Bank, Plc (“HSBC”).

We have access to all of our cash, cash equivalents, and investments that were in accounts previously held by SVB, and we do not expect a material impact to our ongoing operations stemming from the SVB matter.

We believe the financial institutions holding our cash deposits are financially sound.

We are closely monitoring the ongoing events involving limited liquidity, defaults, non-performance, or other adverse developments that affect financial institutions or other companies in the financial services industry.

In March 2023, we elected to draw down $62.0 million of our available revolving line of credit to protect us against disruptions and volatility in the credit markets.

We continue to believe we have sufficient assets and liquidity to cover our future obligations and to maintain compliance with the covenants contained in our Credit Agreement.

Historical Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

2023 2022 $ Change % Change

7 unchanged sentences

Investing activities:

Net cash provided by investing activities 20,342 51,390 (31,048) (60.4)

Net cash (used by) provided by investing activities (12,316) 2,099 (14,415) ***

Financing activities:

1 unchanged sentence

Effect of exchange rates 15 40 (25) (62.5)

Net change in cash (50,105) 17,900 (68,005) ***

Net change 50,578 5,939 44,639 ***

Ending cash, cash equivalents, and restricted cash $ 200,959 $ 109,899 $ 91,060 82.9 %

1 unchanged sentence

Operating Activities

Net cash used by operating activities was $94.0 million for the nine months ended September 30, 2022 as compared to $34.5 million used by operating activities for the nine months ended September 30, 2021.

The increase in net cas h used by operating activities was primarily due to a $53.7 million increase in net losses, most notably driven by the increase in operating expenses as discussed above.

In addition, the increase in cash used by operating activities for the nine months ended September 30, 2022 was attributed to a decline in cash flows from working capital of $16.2 million .

This change in working capital is comprised primarily of a $14.5 million decrease in accounts payable and accrued expenses due to timing, a $9.5 million increase in prepaid expenses and other assets driven by higher prepayments under the AWS cloud hosting arrangement, and a $3.2 million decrease in other current and non-current liabilities due in part to the decrease in the escrow liability related to the Lana Labs acquisition.

Net cash used by operating activities was $25.3 million for the three months ended March 31, 2023 as compared to $20.6 million used by operating activities for the three months ended March 31, 2022.

The increase in net cash used by operating activities was primarily due to a $13.7 million increase in net losses, most notably driven by the increase in operating expenses as discussed above.

The increase in net losses was partially offset by a decrease in cash flows used by working capital of $2.7 million.

This change in working capital was comprised primarily of a $9.2 million increase from accounts receivable due to collections from large renewals that occurred in the fourth quarter of 2022, partially offset by an increase in disbursements from accounts payable and accrued expenses of $4.2 million driven by the timing of vendor payments.

Investing Activities

Net cash provided by investing activities was $20.3 million for the nine months ended September 30, 2022 as compared to $51.4 million provided by investing activities for the nine months ended September 30, 2021.

Net cash provided by investing activities was primarily impacted by $31.2 million increase in purchases of investments during the nine months ended September 30, 2022, a $3.4 million increase in capital expenditures, and a $27.2 million decrease in proceeds from the sale of investments.

Partially offsetting these increases was a $30.7 million decrease in payments for business acquisitions due to the August 2021 acquisition of Lana Labs.

Net cash used by investing activities was $12.3 million for the three months ended March 31, 2023 as compared to $2.1 million in net cash provided by investing activities for the three months ended March 31, 2022.

This change was primarily driven by a $7.9 million increase in purchases of investments, a $5.4 million decrease in proceeds from the sale of investments, and a $1.0 million increase in capital expenditures.

Financing Activities

Net cash provided by financing activities was $25.2 million for the nine months ended September 30, 2022 as compared to $2.4 million provided by financing activities for the nine months ended September 30, 2021.

The increase in net cash provided by financing activities was primarily due to $23.8 million in proceeds received from the exercise of the 2019 CEO stock option during the nine months ended September 30, 2022.

Net cash provided by financing activities was $88.1 million for the three months ended March 31, 2023 as compared to $24.4 million of net cash provided by financing activities for the three months ended March 31, 2022.

The increase in net cash provided by financing activities was primarily due to a $92.0 million increase in proceeds from borrowings during the three months ended March 31, 2023.

This increase was partially offset by a $24.3 million decrease in proceeds received from the exercise of stock options, a $3.0 million increase in payments for employee tax withholdings associated with the net settlement of stock awards, and a $0.8 million increase in debt repayments.

Critical Accounting Estimates

4 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis