What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-01 · 182 added, 149 removed, 389 unchanged (46% of the section changed)

8 unchanged sentences

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 software company that automates business processes.

The Appian AI Process 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.

Appian is a software company that orchestrates business processes.

The Appian Platform empowers leaders to design, automate, and optimize important processes from start to finish.

With our industry-leading platform and commitment to customer success, Appian is trusted by top organizations to drive transformational process change.

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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Our customers primarily 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 22.6% and 22.1% of our total revenue for the three and six months ended June 30, 2024, respectively.

Revenue from government agencies represented 20.1% and 20.3% of our total revenue for the three and six months ended June 30, 2023, respectively.

No single end-customer accounted for more than 10% of our total revenue in the three and six months ended June 30, 2024 or 2023.

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

Revenue from U.S.

federal government

agencies represented 23.2% and 22.5% of our total revenue for the three and nine months ended September 30, 2024, respectively.

Revenue from U.S.

federal government agencies represented 21.1% and 20.6% of our total revenue for the three and nine months ended September 30, 2023, respectively.

No single end-customer accounted for more than 10% of our total revenue in the three and nine months ended September 30, 2024 or 2023.

We offer our platform globally.

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

In the three and six months ended June 30, 2024, 38.2% and 37.7%, respectively, of our total revenue was generated from customers outside of the United States as compared to 38.4% and 35.8% in the three and six months ended June 30, 2023, respectively.

As of June 30, 2024, we operated in 16 countries.

In the three and nine months ended September 30, 2024, 36.3% and 37.2%, respectively, of our total revenue was generated from customers outside of the United States as compared to 35.3% and 35.6% in the three and nine months ended September 30, 2023, respectively.

As of September 30, 2024, we operated in 16 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.

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

For the three months ended June 30, 2024 and 2023, 77.1% and 73.4% of our revenue, respectively, was derived from sales of subscriptions while the remaining 22.9% and 26.6%, respectively, was derived from the sale of professional services.

For the six months ended June 30, 2024 and 2023, 77.9% and 73.3% of our revenue, respectively, was subscriptions-based while the remaining 22.1% and 26.7%, respectively, was related to professional services.

For the three months ended September 30, 2024 and 2023, 79.9% and 75.7% of our revenue, respectively, was derived from sales of subscriptions while the remaining 20.1% and 24.3%, respectively, was derived from the sale of professional services.

For the nine months ended September 30, 2024 and 2023, 78.6% and 74.1% of our revenue, respectively, was subscriptions-based while the remaining 21.4% and 25.9%, respectively, was related to professional services.

• Investments in Growth - 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.

4 unchanged sentences

Cloud Subscriptions Revenue

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 % Change 2024 2023 % Change

5 unchanged sentences

Cloud Subscriptions Revenue Retention Rate

As of June 30,

As of September 30,

Cloud subscriptions revenue retention rate

43 unchanged sentences

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 legal, software development resources, and contractors.

In addition, operating expenses include allocated overhead costs, which are primarily comprised of facility costs such as rent, employee medical benefits, employee relations expense, and certain information technology costs for such items as infrastructure, software, and cloud computing services.

Other components of each category include professional fees for third-party services such as legal, software development resources, contractors, 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.

22 unchanged sentences

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

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

18 unchanged sentences

Operating loss (7,157) (15,217) (65,886) (91,145)

Other non-operating expense

Other non-operating (income) expense

Other (income) expense, net (12,544) 1,939 (5,882) (4,637)

Interest expense 6,168 4,917 17,921 12,790

Total other non-operating expense 4,562 869 18,415 1,297

Total other non-operating (income) expense (6,376) 6,856 12,039 8,153

Loss before income taxes (781) (22,073) (77,925) (99,298)

Income tax (benefit) expense (164) 824 (629) 1,959

Income tax expense 1,319 178 690 2,137

Net loss $ (2,100) $ (22,251) $ (78,615) $ (101,435)

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

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

13 unchanged sentences

Operating loss (4.6) (11.1) (14.6) (22.8)

Other non-operating expense

Other non-operating (income) expense

Other (income) expense, net (8.1) 1.4 (1.3) (1.2)

4 unchanged sentences

(0.5) (16.1) (17.3) (24.8)

Income tax (benefit) expense (0.1) 0.6 (0.2) 0.7

Income tax expense 0.9 0.1 0.2 0.5

(1.4) % (16.2) % (17.5) % (25.4) %

* Totals may not foot due to rounding.

Comparison of the Three Months Ended June 30, 2024 and 2023

Three Months Ended June 30,

Comparison of the Three Months Ended September 30, 2024 and 2023

Three Months Ended September 30,

2024 2023 $ Change % Change

3 unchanged sentences

Total revenue $ 154,052 $ 137,094 $ 16,958 12.4 %

Total revenue increased $18.7 million, or 14.7%, in the three months ended June 30, 2024 compared to the same period in 2023 due to an increase in our subscriptions revenue of $19.2 million.

Total revenue increased $17.0 million, or 12.4%, in the three months ended September 30, 2024 compared to the same period in 2023 due to an increase in our subscriptions revenue of $19.3 million.

This increase was partially offset by a decrease in our professional services revenue of $2.4 million.

The increase in subscriptions revenue was driven by a $14.0 million increase in cloud subscription revenue, a $4.2 million increase in on-premises subscription revenue, and a $1.0 million increase in maintenance and support revenue.

With respect to new versus existing customers, there was an $8.4 million increase in subscriptions revenue stemming from sales of subscriptions to new customers, while the remaining $10.7 million of the increase was attributable to expanded deployments, price increases on renewals, and corresponding sales of additional subscriptions to existing customers.

The decrease in

professional services revenue was due primarily to a $6.3 million decrease in revenue from existing customers, which was partially offset by a $5.9 million increase in sales to new customers.

The increase in subscriptions revenue was driven by a $16.8 million increase in cloud subscription revenue, a $1.3 million increase in maintenance and support revenue, and a $1.2 million increase in on-premises subscription revenue.

With respect to new versus existing customers, there was a $5.6 million increase in subscriptions revenue from sales to new customers, while the

remaining $13.7 million of the increase was attributable to expanded deployments, price increases on renewals, and corresponding sales of additional subscriptions to existing customers.

The decrease in professional services revenue was due primarily to a $8.4 million decrease in revenue from existing customers, which was partially offset by a $6.1 million increase in sales to new customers.

Cost of Revenue

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 $ Change % Change

7 unchanged sentences

Total gross margin 75.9 % 73.7 %

Cost of revenue increased $2.6 million, or 7.0%, in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $2.2 million increase in hosting costs and a $0.8 million increase in professional services and product support personnel costs.

These increases were partially offset by a $0.7 million decrease in contractor costs.

Hosting costs increased due to an increase in sales of our cloud offering during the three months ended June 30, 2024.

Although cost of sales headcount fell 3% year over year, personnel costs increased due to a $1.3 million increase in severance expense from June 30, 2023 to June 30, 2024.

Cost of revenue increased $1.0 million, or 2.8%, in the three months ended September 30, 2024 compared to the same period in 2023, primarily due to a $2.5 million increase in hosting costs.

This increase was partially offset by a $0.5 million decrease in contractor costs, a $0.3 million decrease in professional services and product support personnel costs, and a $0.1 million decrease in employee relations costs.

Hosting costs increased due to an increase in sales of our cloud offering during the three months ended September 30, 2024.

Contractor costs decreased due to a decrease in the usage of subcontractors for professional services engagements.

Subscriptions gross margin decreased slightly to 88.3% for the three months ended June 30, 2024, compared to 88.5% in the same period in 2023.

The decrease in subscriptions gross margin was attributable to an increase in hosting costs, which was substantially offset by an increase in subscriptions revenue during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Professional services gross margin decreased to 21.9% for the three months ended June 30, 2024 compared to 23.2% in the same period in 2023 due largely to an increase in professional services severance expense as described above coupled with a modest decrease in professional services revenue in the comparable period.

Gross margin increased to 73.1% for the three months ended June 30, 2024 compared to 71.2% for the three months ended June 30, 2023, driven largely by the increase in subscriptions revenue.

Professional services and product support personnel costs decreased due to a decrease in cost of sales headcount of 9% from September 30, 2023 to September 30, 2024 as well as a $0.2 million decrease in stock compensation expense.

Subscriptions gross margin decreased slightly to 88.6% for the three months ended September 30, 2024, compared to 89.1% in the same period in 2023.

The decrease in subscriptions gross margin was attributable to an increase in hosting costs, which was substantially offset by an increase in subscriptions revenue during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Professional services gross margin increased slightly to 25.6% for the three months ended September 30, 2024 compared to 25.5% in the same period in 2023 due largely to a decrease in professional services expense as described above, which was offset by a decrease in professional services revenue in the comparable period.

Gross margin increased to 75.9% for the three months ended September 30, 2024 compared to 73.7% for the three months ended September 30, 2023, driven largely by the increase in subscriptions revenue.

Sales and Marketing Expense

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 $ Change % Change

2 unchanged sentences

% of revenue 33.0 % 40.6 %

Sales and marketing expense increased $4.0 million, or 6.4%, in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $2.8 million increase in marketing costs, a $0.8 million increase in sales and marketing personnel costs, and a $0.3 million increase in travel expenses.

Marketing costs increased primarily due to higher spending on our annual Appian World user conference and increases in advertising, public relations, and lead generation expenses.

Sales and marketing personnel costs increased primarily due to a $2.9 million increase in severance costs and a $0.2 million increase in commissions expense, both of which were partially offset by reductions in other personnel costs stemming from a decrease in sales and marketing headcount of 5% from June 30, 2023 to June 30, 2024.

Sales and marketing expense decreased $4.8 million, or 8.6%, in the three months ended September 30, 2024 compared to the same period in 2023, primarily due to a $5.0 million decrease in sales and marketing personnel costs.

This decrease was partially offset by a $0.7 million increase in marketing costs and a $0.4 million increase travel and entertainment costs.

Sales and marketing personnel costs decreased due to a decrease in sales and marketing headcount of 21% from September 30, 2023 to September 30, 2024 and a $1.5 million decrease in stock

compensation expense.

Marketing costs increased primarily due to higher spending on various marketing events and public relations.

Travel and entertainment expense increased due to a higher number of in-person events and engagements relative to the prior year.

Research and Development Expense

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 $ Change % Change

2 unchanged sentences

% of revenue 25.0 % 27.1 %

Research and development expense decreased $0.3 million, or 0.7%, in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $1.9 million decrease in research and development personnel costs, which was substantially offset by a $0.7 million increase in employee medical benefits and a $0.4 million increase in rent expense.

Although wages and salaries were higher due to research and development personnel headcount increasing 6% from June 30, 2023 to June 30, 2024, overall personnel costs decreased primarily due to lower bonus expense, a $0.8 million decrease in severance expense, and additional realized cost savings stemming from our product development center in India.

Research and development expense increased $1.4 million, or 3.9%, in the three months ended September 30, 2024 compared to the same period in 2023, primarily due to a $0.9 million increase in research and development personnel costs, a $0.4 million increase in cloud computing expense, and a $0.3 million increase in employee medical benefits.

Wages, salaries, and medical benefits were all higher due to research and development personnel headcount increasing 5% from September 30, 2023 to September 30, 2024, while cloud computing expense increased due to increased spending on cloud migrations.

General and Administrative Expense

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 $ Change % Change

3 unchanged sentences

% of revenue 22.5 % 17.1 %

General and administrative expense increased $11.0 million, or 37.6%, in the three months ended June 30, 2024 compared to the same period in 2023 primarily due to increases of $5.5 million from lease impairment charges, $4.5 million in amortization expense primarily related to our judgment preservation insurance policy, and $0.3 million in professional fees.

Other Non-Operating Income, Net

Three Months Ended June 30,

General and administrative expense increased $11.2 million, or 48.0%, in the three months ended September 30, 2024 compared to the same period in 2023 primarily due to increases of $7.7 million in professional fees and $1.6 million in insurance expense.

These increases were partially offset by a $0.9 million decrease in personnel costs.

Higher professional fees were driven by an increase in legal fees incurred in the three months ended September 30, 2024 relative to the prior year along with a $5.7 million decrease in insurance reimbursements associated with our litigation against Pegasystems as a result of receiving reimbursements in the prior year compared to none in the current year.

The increase in insurance expense was driven by the continued amortization of our judgment preservation insurance policy, which was entered into on September 1, 2023.

Personnel costs were lower due to general and administrative personnel headcount decreasing by 6% from September 30, 2023 to September 30, 2024.

Other Non-Operating (Income) Expense, Net

Three Months Ended September 30,

2024 2023 $ Change % Change

(dollars in thousands)

Other income, net

Other (income) expense, net

$ (12,544) $ 1,939 $ (14,483) ***

% of revenue (8.1) % 1.4 %

Other income, net was $1.5 million in the three months ended June 30, 2024 compared to other income, net of $3.9 million in the three months ended June 30, 2023.

This change was primarily due to $0.2 million in foreign exchange losses in the three months ended June 30, 2024 as compared to $1.2 million in foreign exchange gains in the three months ended June 30, 2023.

In addition, there was a $0.9 million decrease in interest income in the three months ended June 30, 2024 relative to the prior year.

*** Indicates a percentage that is not meaningful.

Other income, net was $12.5 million in the three months ended September 30, 2024 compared to other expense, net of $1.9 million in the three months ended September 30, 2023.

This change was primarily due to

$9.2 million in foreign exchange gains in the three months ended September 30, 2024 as compared to $4.3 million in foreign exchange losses in the three months ended September 30, 2023.

In addition, there was a $1.8 million increase in other income related to short-swing profit disgorgement payments to us from a public stockholder of our Class A common stock during the three months ended September 30, 2024.

These increases were partially offset by a $0.9 million decrease in interest income during the three months ended September 30, 2024 relative to the prior year.

Interest Expense

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 $ Change % Change

2 unchanged sentences

% of revenue 4.0 % 3.6 %

Interest expense increased by $1.4 million in the three months ended June 30, 2024 as compared to the corresponding period in 2023 primarily due to interest expense incurred on additional credit facility borrowings that we entered into during the first quarter of 2024 and the latter half of 2023.

Income Tax (Benefit) Expense

Three Months Ended June 30,

Interest expense increased by $1.3 million in the three months ended September 30, 2024 as compared to the corresponding period in 2023 primarily due to interest expense incurred on additional credit facility borrowings that we entered into during the first quarter of 2024.

Income Tax Expense

Three Months Ended September 30,

2024 2023 $ Change % Change

(dollars in thousands)

Income tax (benefit) expense

$ (164) $ 824 $ (988) ***

Income tax expense

$ 1,319 $ 178 $ 1,141 ***

*** Indicates a percentage that is not meaningful.

Income tax (benefit) expense decreased by $1.0 million in the three months ended June 30, 2024 as compared to the corresponding period in 2023.

This change was primarily driven by a discrete benefit in the three months ended June 30, 2024 related to net operating loss true-ups at one of our foreign subsidiaries.

Comparison of the Six Months Ended June 30, 2024 and 2023

Six Months Ended June 30,

Income tax expense increased by $1.1 million in the three months ended September 30, 2024 as compared to the corresponding period in 2023.

This change was primarily driven by increased pre-tax book income in our certain international subsidiaries for the three months ended September 30, 2024.

The change in pre-tax book income was primarily attributable to fluctuations in non-operating unrealized foreign exchange gains and losses.

Comparison of the Nine Months Ended September 30, 2024 and 2023

Nine Months Ended September 30,

2024 2023 $ Change % Change

3 unchanged sentences

Total revenue $ 450,337 $ 400,044 $ 50,293 12.6 %

Total revenue increased $33.3 million, or 12.7%, in the six months ended June 30, 2024 compared to the same period in 2023 due to an increase in our subscriptions revenue of $37.9 million.

Total revenue increased $50.3 million, or 12.6%, in the nine months ended September 30, 2024 compared to the same period in 2023 due to an increase in our subscriptions revenue of $57.2 million.

This increase was partially offset by a decrease in our professional services revenue of $6.9 million.

The increase in subscriptions revenue was driven by a $30.9 million increase in cloud subscription revenue, a $4.8 million increase in on-premises subscription revenue, and a $2.2 million increase in maintenance and support revenue.

With respect to new versus existing customers, there was a $13.3 million increase in subscriptions revenue stemming from sales of subscriptions to new customers, while the remaining $24.6 million of the increase was attributable to expanded deployments, price increases on renewals, and corresponding sales of additional subscriptions to existing customers.

The increase in subscriptions revenue was driven by a $47.7 million increase in cloud subscription revenue, a $6.1 million increase in on-premises subscription

revenue, and a $3.4 million increase in maintenance and support revenue.

With respect to new versus existing customers, there was a $15.0 million increase in subscriptions revenue from sales to new customers, while the remaining $42.2 million of the increase was attributable to expanded deployments, price increases on renewals, and corresponding sales of additional subscriptions to existing customers.

The decrease in professional services revenue was due primarily to a $20.8 million decrease in revenue from existing customers, which was partially offset by a $13.8 million increase in sales to new customers.

Cost of Revenue

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 $ Change % Change

7 unchanged sentences

Total gross margin 74.6 % 72.8 %

Cost of revenue increased $4.5 million, or 6.1%, in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to a $3.8 million increase in hosting costs and a $1.7 million increase in professional services and product support personnel costs.

These increases were partially offset by a $1.2 million decrease in contractor costs.

Hosting costs increased due to an increase in sales of our cloud offering during the six months ended June 30, 2024.

Although cost of sales headcount fell 3% year over year, personnel costs increased due to a $1.2 million increase in severance expense from June 30, 2023 to June 30, 2024, which was partially offset by slightly lower wages and salaries expense.

Cost of revenue increased $5.5 million, or 5.0%, in the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to a $6.3 million increase in hosting costs and a $1.4 million increase in professional services and product support personnel costs.

These increases were partially offset by a $1.7 million decrease in contractor costs and a $0.2 million decrease in travel expense.

Hosting costs increased due to an increase in sales of our cloud offering during the nine months ended September 30, 2024.

Although cost of sales headcount fell 9% year over year, personnel costs increased due to a $1.2 million increase in severance expense during the nine months ended September 30, 2024.

Contractor costs decreased due to a decrease in the usage of subcontractors for professional services engagements.

Subscriptions gross margin decreased slightly to 88.9% for the six months ended June 30, 2024, compared to 89.0% in the same period in 2023.

The decrease in subscriptions gross margin was attributable to increased hosting costs, which were substantially offset by an increase in subscriptions revenue during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Professional services gross margin decreased to 20.9% for the six months ended June 30, 2024 compared to 26.3% in the same period in 2023 due largely to a decrease in professional services revenue in the comparable periods coupled with a modest increase in professional services expenses, driven by an increase in severance expense.

Gross margin increased to 73.9% for the six months ended June 30, 2024 compared to 72.3% for the six months ended June 30, 2023, driven largely by the increase in subscriptions revenue.

Subscriptions gross margin decreased slightly to 88.8% for the nine months ended September 30, 2024, compared to 89.0% in the same period in 2023.

The decrease in subscriptions gross margin was attributable to increased hosting costs, which were substantially offset by an increase in subscriptions revenue during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Professional services gross margin decreased to 22.4% for the nine months ended September 30, 2024 compared to 26.1% in the same period in 2023 due largely to a decrease in professional services revenue in the comparable periods, partially offset by a decrease in professional services expenses.

Gross margin increased to 74.6% for the nine months ended September 30, 2024 compared to 72.8% for the nine months ended September 30, 2023, driven largely by the increase in subscriptions revenue.

Sales and Marketing Expense

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 $ Change % Change

2 unchanged sentences

% of revenue 39.0 % 45.3 %

Sales and marketing expense decreased $0.9 million, or 0.7%, in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to a $5.8 million decrease in sales and marketing personnel costs.

This decrease was partially offset by a $3.6 million increase in marketing costs, a $1.0 million increase in travel expenses, and a $0.2 million increase in contractor costs.

Sales and marketing personnel costs decreased due to a decrease in sales and marketing headcount of 5% from June 30, 2023 to June 30, 2024 in addition to a $0.8 million decrease in severance costs, both of which were partially offset by a $0.7 million increase in commissions expense.

Marketing costs increased primarily due to spending on our annual Appian World conference and internal sales and marketing events as well as increased spending on public relations and lead generation.

Sales and marketing expense decreased $5.7 million, or 3.2%, in the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to a $10.9 million decrease in sales and marketing personnel costs.

This decrease was partially offset by a $4.3 million increase in marketing costs and a $1.4 million increase in

travel expenses.

Sales and marketing personnel costs declined due to a decrease in sales and marketing headcount of 21% from September 30, 2023 to September 30, 2024 in addition due to a $2.2 million decrease in stock-based compensation expense and a $0.8 million decrease in severance costs.

These decreases were partially offset by a $2.0 million increase in commissions expense.

Travel and entertainment expense increased due to a higher number of in-person events and engagements relative to the prior year.

Research and Development Expense

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 $ Change % Change

2 unchanged sentences

% of revenue 26.2 % 29.6 %

Research and development expense decreased $2.2 million, or 2.6%, in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to a $4.5 million decrease in research and development personnel costs and a $0.2 million decrease in professional fees.

These decreases were partially offset by a $0.9 million increase in employee medical benefits and a $0.7 million increase in rent expense.

Although research and development personnel headcount increased 6% from June 30, 2023 to June 30, 2024, overall personnel costs decreased due to lower bonus expense, a $1.0 million decrease in severance expense, a $0.6 million decrease in stock-based compensation expense, and additional realized cost savings from our product development center in India.

Professional fees decreased due to a decline in consulting fees from lower usage of external resources to assist in our platform development efforts in the six months ended June 30, 2024 relative to the six months ended June 30, 2023.

Research and development expense decreased $0.7 million, or 0.6%, in the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to a $3.6 million decrease in research and development personnel costs and a $0.2 million decrease in professional fees.

These decreases were partially offset by a $1.2 million increase in employee medical benefits, a $1.1 million increase in cloud computing expense, and a $0.7 million increase in rent expense.

Although research and development personnel headcount increased 5% from September 30, 2023 to September 30, 2024, overall personnel costs decreased partially due to lower bonus expense, a $1.0 million decrease in severance expense, a $0.6 million decrease in stock-based compensation expense, and additional realized cost savings from our product development center in India.

Professional fees decreased due to a decline in consulting fees from lower usage of external resources to assist in our platform development efforts in the nine months ended September 30, 2024 relative to the nine months ended September 30, 2023.

General and Administrative Expense

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 $ Change % Change

3 unchanged sentences

% of revenue 24.1 % 20.6 %

General and administrative expense increased $14.7 million, or 25.0%, in the six months ended June 30, 2024 compared to the same period in 2023 primarily due to increases of $9.0 million in amortization expense related to our judgment preservation insurance policy and $5.5 million in rent expense from lease impairment charges.

Other Non-Operating Expense (Income), Net

Six Months Ended June 30,

General and administrative expense increased $26.0 million, or 31.6%, in the nine months ended September 30, 2024 compared to the same period in 2023 primarily due to an increase of $11.2 million in amortization expense related to our judgment preservation insurance policy.

In addition, professional fees increased $7.2 million due to higher legal fees incurred in the nine months ended September 30, 2024 relative to the prior year and a $5.7 million decrease in insurance reimbursements associated with our litigation against Pegasystems as a result of receiving reimbursements in the prior year compared to none in the current year.

Rent expense also increased $6.3 million, primarily driven by $5.5 million of lease impairment charges recognized during the second quarter of 2024.

Other Non-Operating Income, Net

Nine Months Ended September 30,

2024 2023 $ Change % Change

(dollars in thousands)

Other expense (income), net

Other income, net

$ (5,882) $ (4,637) $ (1,245) 26.8 %

(1.3) % (1.2) %

*** Indicates a percentage that is not meaningful.

Other expense, net was $6.7 million in the six months ended June 30, 2024 compared to other income, net of $6.6 million in the six months ended June 30, 2023.

This change was primarily due to $11.7 million in foreign exchange losses in the six months ended June 30, 2024 as compared to $1.9 million in foreign exchange gains in the six months ended June 30, 2023.

In addition, there was a $1.1 million decrease in interest income in the six months ended June 30, 2024 relative to the prior year.

These decreases were partially offset by a $1.4 million increase in other income attributable to a payment from a state government related to the achievement of certain capital investment goals.

Other income, net was $5.9 million in the nine months ended September 30, 2024 compared to other income, net of $4.6 million in the nine months ended September 30, 2023.

This change was attributed to a $1.8 million increase in other income related to short-swing profit disgorgement payments to us from a public stockholder of our Class A common stock during the nine months ended September 30, 2024.

In addition, in the first quarter of 2024, we received a $1.4 million payment from a state government related to the achievement of certain capital investment goals.

These increases were partially offset by a $1.9 million decrease in interest income in the nine months ended September 30, 2024 relative to the prior year stemming from decreased investments.

Interest Expense

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 $ Change % Change

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% of revenue 4.0 % 3.2 %

Interest expense increased by $3.9 million in the six months ended June 30, 2024 as compared to the corresponding period in 2023 primarily due to interest expense incurred on additional credit facility borrowings that we entered into during the first quarter of 2024 and the latter half of 2023.

Income Tax (Benefit) Expense

Six Months Ended June 30,

Interest expense increased by $5.1 million in the nine months ended September 30, 2024 as compared to the corresponding period in 2023 primarily due to interest expense incurred on additional credit facility borrowings that we entered into during the first quarter of 2024 and the latter half of 2023.

Income Tax Expense

Nine Months Ended September 30,

2024 2023 $ Change % Change

(dollars in thousands)

Income tax (benefit) expense

$ (629) $ 1,959 $ (2,588) ***

Income tax expense

$ 690 $ 2,137 $ (1,447) (67.7) %

*** Indicates a percentage that is not meaningful.

Income tax expense decreased by $2.6 million in the six months ended June 30, 2024 as compared to the corresponding period in 2023 primarily due to lower pre-tax book income at our foreign subsidiaries as well as a discrete benefit in the six months ended June 30, 2024 related to net operating loss true-ups at one of our foreign subsidiaries.

Income tax expense decreased by $1.4 million in the nine months ended September 30, 2024 as compared to the corresponding period in 2023 primarily due to lower pre-tax book income at our foreign subsidiaries as well as a discrete benefit recognized in the nine months ended September 30, 2024.

The discrete benefit was primarily related to net operating loss adjustments at one of our foreign subsidiaries.

Non-GAAP Financial Measures

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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.

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.

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Our non-GAAP financial performance measures include the following:

non-GAAP subscriptions cost of revenue, non-GAAP professional services costs of revenue, non-GAAP total cost of revenue, non-GAAP total operating expense, non-GAAP operating loss, non-GAAP income tax (benefit) expense, non-GAAP net loss, and non-GAAP net loss per share, basic and diluted.

These non-GAAP financial performance measures exclude the effect of stock-based compensation expense, certain non-ordinary litigation-related expenses consisting of legal and other professional fees associated with the Pegasystems cases (net of insurance reimbursements), or Litigation Expense, amortization of the judgment preservation insurance policy, or JPI Amortization, and severance costs related to an involuntary reduction in our workforce, or Severance Costs, and lease impairment charges related to actions taken reduce the footprint of our leased office spaces, or Lease Impairment Charges.

non-GAAP subscriptions cost of revenue, non-GAAP professional services costs of revenue, non-GAAP total cost of revenue, non-GAAP total operating expense, non-GAAP operating loss, non-GAAP income tax expense, non-GAAP net income (loss), and non-GAAP net income (loss) per share, basic and diluted.

These non-GAAP financial performance measures exclude the effect of stock-based compensation expense, certain non-ordinary litigation-related expenses consisting of legal and other professional fees associated with the Pegasystems cases (net of insurance reimbursements), or Litigation Expense, amortization of the judgment preservation insurance policy, or JPI Amortization, severance costs related to an involuntary reduction in our workforce, or Severance Costs, lease impairment and lease-related charges associated with actions taken to reduce the footprint of our leased office spaces, or Lease Impairment and Lease-Related Charges, and a short-swing profit disgorgement paid to us by an investor, or Short-Swing Profit Payment.

While some of 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.

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

We define adjusted EBITDA as net loss before (1) other expense (income), net, (2) interest expense, (3) income tax (benefit) expense, (4) depreciation expense and amortization of intangible assets, (5) stock-based compensation expense, (6) Litigation Expense, (7) JPI Amortization, (8) Severance Costs, and (9) Lease Impairment Charges.

We define adjusted EBITDA as net loss before (1) other expense (income), net, (2) interest expense, (3) income tax expense, (4) depreciation expense and amortization of intangible assets, (5) stock-based compensation expense, (6) Litigation Expense, (7) JPI Amortization, (8) Severance Costs, and (9) Lease Impairment and Lease-Related Charges.

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

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The following tables reconcile our non-GAAP measures to their nearest comparable GAAP measures (in thousands, except per share data):

GAAP Measure Stock-Based Compensation Litigation Expense JPI Amortization Severance Costs Lease Impairment Charges

GAAP Measure Stock-Based Compensation Litigation Expense JPI Amortization Severance Costs Lease Impairment and Lease-Related Charges

Short-Swing Profit Payment

Non-GAAP Measure

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

Subscriptions cost of revenue $ 14,082 $ (211) $ — $ — $ — $ — $ — $ 13,871

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Total operating expense 124,125 (7,969) (1,979) (3,635) — (324) — 110,218

Operating loss (39,194) 9,900 721 4,504 5,534 5,462 (13,073)

Income tax (benefit) expense (164) 537 — — 1,096 — 1,469

Net loss (43,592) 9,363 721 4,504 4,438 5,462 (19,104)

Net loss per share, basic and diluted $ (0.60) $ 0.13 $ 0.01 $ 0.06 $ 0.06 $ 0.08 $ (0.26)

Six Months Ended June 30, 2024

Operating (loss) income

(7,157) 9,505 1,979 3,635 — 324 — 8,286

Income tax expense

1,319 117 — — — — — 1,436

Net (loss) income

(2,100) 9,388 1,979 3,635 — 324 (1,799) 11,427

Net (loss) income per share, basic

$ (0.03) $ 0.13 $ 0.03 $ 0.05 $ — $ — $ (0.02) $ 0.16

Net (loss) income per share, diluted (a,b)

$ (0.03) $ 0.13 $ 0.03 $ 0.05 $ — $ — $ (0.02) $ 0.15

Nine Months Ended September 30, 2024

Subscriptions cost of revenue $ 39,614 $ (641) $ — $ — $ — $ — $ — $ 38,973

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Total operating expense 401,729 (25,006) (3,442) (12,643) (4,136) (5,786) — 350,716

Operating loss (58,729) 20,506 1,463 9,008 5,534 5,462 (16,756)

Income tax (benefit) expense

Operating (loss) income

(65,886) 30,011 3,442 12,643 5,534 5,786 — (8,470)

Net loss (76,515) 19,365 1,463 9,008 4,438 5,462 (36,779)

Net loss per share, basic and diluted (a)

Income tax expense

690 1,258 — — 1,096 — — 3,044

(a) Per share amounts do not foot due to rounding.

Net (loss) income

(78,615) 28,753 3,442 12,643 4,438 5,786 (1,799) (25,352)

Net (loss) income per share, basic and diluted (b)

$ (1.08) $ 0.40 $ 0.05 $ 0.17 $ 0.06 $ 0.08 $ (0.02) $ (0.35)

(a) Accounts for the impact of 1.8 million shares of dilutive securities.

(b) Per share amounts do not foot due to rounding.

GAAP Measure Stock-Based Compensation Litigation Expense

Severance Costs

JPI Amortization Severance Costs

Non-GAAP Measure

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Subscriptions cost of revenue $ 11,265 $ (211) $ — $ — $ — $ 11,054

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Total operating expense 116,242 (9,265) 4,961 (1,485) — 110,453

Operating loss (40,662) 11,148 347 2,095 (27,072)

Operating (loss) income

(15,217) 11,011 (4,961) 1,485 — (7,682)

Income tax expense

178 88 — — — 266

Net loss (42,355) 11,369 354 2,137 (28,495)

Net loss per share, basic and diluted $ (0.58) $ 0.16 $ — $ 0.03 $ (0.39)

Six Months Ended June 30, 2023

Net (loss) income

(22,251) 11,099 (4,961) 1,485 — (14,628)

Net (loss) income per share, basic and diluted

$ (0.30) $ 0.15 $ (0.07) $ 0.02 $ — $ (0.20)

Nine Months Ended September 30, 2023

Subscriptions cost of revenue $ 32,492 $ (713) $ — $ — $ (30) $ 31,749

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Total operating expense 382,182 (27,904) 2,772 (1,485) (6,111) 349,454

Operating loss (75,928) 22,204 2,189 6,299 (45,236)

Operating (loss) income

(91,145) 33,215 (2,772) 1,485 6,299 (52,918)

Income tax expense

2,137 731 — — 139 3,007

Net loss (79,184) 22,767 2,245 6,459 (47,713)

Net loss per share, basic and diluted (a)

Net (loss) income

(101,435) 33,946 (2,772) 1,485 6,438 (62,338)

Net (loss) income per share, basic and diluted (a)

$ (1.39) $ 0.46 $ (0.04) $ 0.02 $ 0.09 $ (0.86)

(a) Per share amounts do not foot due to rounding.

The following table reconciles GAAP net loss to adjusted EBITDA for the three and six months ended June 30, 2024 and 2023 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

The following table reconciles GAAP net loss to adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023 (in thousands):

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

2024 2023 2024 2023

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Interest expense 6,168 4,917 17,921 12,790

Income tax (benefit) expense

Income tax expense

1,319 178 690 2,137

8 unchanged sentences

— — 5,534 6,299

Lease Impairment Charges

Lease Impairment and Lease-Related Charges

324 — 5,786 —

1 unchanged sentence

Liquidity and Capital Resources

The following table presents selected financial information and statistics pertaining to liquidity and capital resources as of June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

The following table presents selected financial information and statistics pertaining to liquidity and capital resources as of September 30, 2024 and December 31, 2023:

September 30, 2024 December 31, 2023

Cash and cash equivalents $ 99,193 $ 149,351

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We have been using the proceeds to fund the growth of our business and support our working capital requirements.

As of June 30, 2024, we were in compliance with all covenants, had used borrowing capacity of $62.0 million under our $100.0 million revolving credit facility, and had outstanding letters of credit totaling $14.5 million in connection with securing our leased office space.

As of September 30, 2024, we were in compliance with all covenants, had used borrowing capacity of $62.0 million under our $100.0 million revolving credit facility, and had outstanding letters of credit totaling $14.7 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.

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The total cost of the policy was $57.3 million, which we paid with operating cash on hand.

In addition, in February 2024 our Board of Directors authorized a share repurchase program, under which we repurchased approximately $50.0 million worth of our common stock during the first quarter of 2024.

In addition, in February 2024 our Board of Directors authorized a share repurchase program, under which we repurchased approximately 1.3 million shares of our common stock for approximately 50.0 million during the first quarter of 2024.

Outside of the above items and cash used by operations, other uses of cash in 2024 to date have included capital expenditures related to the expansion of the new leased facility for our research development center in India and principal repayments of our term loan debt.

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

The agreement, which started in July 2021 and is now in its third year as of June 30, 2024, contains minimum spending requirements of $28.0 million in each of the third, fourth, and fifth years.

Spending under this agreement for the three and six months ended June 30, 2024, totaled $10.7 million and $21.0 million, respectively.

Spending under this agreement for the three and six months ended June 30, 2023, totaled $9.1 million and $18.5 million, respectively.

The agreement, which started in July 2021 and is now in its fourth year as of September 30, 2024, contains minimum spending requirements of $28.0 million in both the fourth and fifth years.

Spending under this agreement for the three and nine months ended September 30, 2024, totaled $10.8 million and $31.8 million, respectively.

Spending under this agreement for the three and nine months ended September 30, 2023, totaled $9.3 million and $27.8 million, respectively.

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.

Historical Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 $ Change % Change

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Changes in working capital 25,974 (41,248) 67,222 ***

Net cash provided by (used by) operating activities 1,251 (37,202) 38,453 ***

Net cash used by operating activities (6,993) (102,198) 95,205 (93.2)

Investing activities:

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Net change (50,158) (19,620) (30,538) ***

Ending cash, cash equivalents, and restricted cash $ 120,787 $ 173,802 $ (53,015) (30.5)%

Ending cash and cash equivalents

$ 99,193 $ 130,761 $ (31,568) (24.1)%

*** Indicates a percentage that is not meaningful.

Operating Activities

Net cash provided by operating activities was $1.3 million for the six months ended June 30, 2024 as compared to $37.2 million used by operating activities for the six months ended June 30, 2023.

The increase in net cash provided by operating activities was due to stronger collections from accounts receivable and a decline in legal fees and other operating expenses during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Net cash used by operating activities was $7.0 million for the nine months ended September 30, 2024 as compared to $102.2 million used by operating activities for the nine months ended September 30, 2023.

The decrease in net cash used by operating activities was primarily due to the prior year payment of $57.3 million for our JPI policy.

In addition, the decrease in cash used by operating activities was attributed to stronger cash collections from accounts receivable as a result of increased revenues as well as headcount reductions and other cost management activities during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Investing Activities

Net cash used by investing activities was $21.6 million for the six months ended June 30, 2024 as compared to $25.4 million in net cash used by investing activities for the six months ended June 30, 2023.

This change was primarily driven by a $25.1 million decrease in purchases of investments, partially offset by a decline of $26.2 million in proceeds from the sale of investments and a $4.9 million decrease in capital expenditures.

Net cash used by investing activities was $34.3 million for the nine months ended September 30, 2024 as compared to $0.9 million in net cash provided by investing activities for the nine months ended September 30, 2023.

This change was primarily driven by a decline of $51.0 million in proceeds from the sale of investments, which was partially offset by a $10.8 million decrease in purchases of investments and a $5.0 million decrease in capital expenditures.

Financing Activities

Net cash used by financing activities was $6.7 million for the six months ended June 30, 2024 as compared to $85.7 million of net cash provided by financing activities for the six months ended June 30, 2023.

The decrease in net cash provided by financing activities was primarily due to a $50.0 million increase in common stock repurchases, a $42.0 million decrease in proceeds from borrowings, a $0.8 million increase in debt repayments, and a $0.6 million decrease in payments for employee taxes related to the net share settlement of equity awards during the six months ended June 30, 2024.

Net cash used by financing activities was $8.5 million for the nine months ended September 30, 2024 as compared to $82.4 million of net cash provided by financing activities for the nine months ended September 30, 2023.

The decrease in net cash provided by financing activities was primarily due to a $50.0 million increase in common stock repurchases, a $42.0 million decrease in proceeds from borrowings, and a $1.1 million increase in debt repayments, all of which were partially offset by a $2.4 million decrease in payments for employee taxes related to the net share settlement of equity awards during the nine months ended September 30, 2024.

Critical Accounting Estimates

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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