What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-19 compared with 2024-02-15 · 140 added, 137 removed, 382 unchanged (42% of the section changed)

4 unchanged sentences

Factors that could cause or contribute to these differences include those under “Risk Factors” included in Part I, Item 1A or in other parts of this Annual Report on Form 10-K.

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.

5 unchanged sentences

Our partners then provide professional services directly to the customers using our platform.

Additionally, they often go to market with their own pre-built solutions using our platform, delivering software license revenue to us.

We intend to continue focusing on adding new customers with our strategic partners.

1 unchanged sentence

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

As of December 31, 2023, we had approximately 1,000 customers.

As of December 31, 2024, we had over 1,000 customers.

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

11 unchanged sentences

We have invested in developing our platform, expanding our sales and marketing and research and development capabilities, and providing general and administrative resources to support our growth.

We intend to continue to invest in our business to take advantage of our market opportunity.

As a result, we incurred net losses of $92.3 million, $111.4 million, and $150.9 million in 2024, 2023, and 2022, respectively.

We also used cash in operations of $110.4 million, $106.6 million, and $53.9 million in 2023, 2022, and 2021, respectively.

In 2024, cash provided by operations was $6.9 million, while cash used by operations totaled $110.4 million and $106.6 million in 2023 and 2022, respectively.

We intend to continue to invest in our business to take advantage of our market opportunity.

In 2025, we will take a more balanced approach to growth, making ongoing, targeted investments that enhance our capabilities and competitive position, while ensuring we continue on our path to profitability.

Our Business Model

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 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 which, with the exception of certain types 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, sales commissions, and marketing costs, all of which, with the exception of certain types of sales commissions, are expensed as incurred.

At the same time, we believe the costs we incur to retain customers and drive additional purchases of software are lower than our customer acquisition costs on a relative basis.

10 unchanged sentences

• 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 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.

We have aggressively invested, and intend to continue to invest, in our sales team in order to drive sales to new customers.

We continue to make investments to enhance the expertise of our sales and marketing organization within our key industry verticals of financial services, government, life sciences, insurance, and manufacturing.

We continue to make investments to enhance the expertise of our sales and marketing organization within our key industry verticals of financial services, government, life sciences, and insurance.

In 2024, we generated over 77% of our subscriptions revenue from customers in these verticals.

In addition, we have established relationships with strategic partners who work with organizations undergoing digital transformations.

As of December 31, 2023 our total customer count was approximately 1,000.

In addition, we have established relationships

with strategic partners who work with organizations undergoing digital transformations.

Our ability to continue to grow our customer base is dependent, in part, upon our ability to differentiate ourselves within the increasingly competitive markets in which we participate.

• Further Penetration of Existing Customers - Our sales team seeks to generate additional revenue from existing customers by adding new users to our platform.

Many of our customers begin by building a

single application and then grow to build dozens of applications on our platform.

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.

1 unchanged sentence

Our ability to increase sales to existing customers will depend on a number of factors, including the size of our sales and professional services teams, customers’ level of satisfaction with our platform and professional services, pricing, economic conditions, and our customers’ overall spending levels.

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

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 of our platform 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 lasting 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.

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

As a result of these factors, the proportion of total revenue for a customer associated with professional services is relatively high during the initial deployment period.

5 unchanged sentences

• 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.

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

We will continue to prioritize investments in revenue generating areas and limit growth in corporate functions.

In addition, we will continue to grow and leverage our product development center in India to gain efficiencies in research and development spending.

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.

8 unchanged sentences

Accordingly, the effect of significant downturns in sales, the market acceptance of our platform, or potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods.

While we will continue to recognize the majority of our subscriptions revenue ratably over the terms of our subscription agreements, we may experience greater variability and reduced comparability of our quarterly revenue and results with respect to the timing and nature of our term license subscription agreements due to the upfront revenue recognition.

and results with respect to the timing and nature of our term license subscription agreements due to the upfront revenue recognition.

See Note 3 to the consolidated financial statements for further details on our revenue recognition policies.

18 unchanged sentences

To calculate our cloud subscriptions revenue retention rate for a particular trailing 12-month period, we first establish the recurring cloud subscriptions revenue for the previous trailing 12-month period.

This effectively represents recurring dollars we should expect in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period without any expansion or contraction.

We subsequently measure the recurring cloud subscriptions revenue in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period.

4 unchanged sentences

We generate revenue primarily through sales of subscriptions to our platform as well as professional services.

We generally sell our software on a per-user basis or through non-user-based single application licenses.

We typically sell our software on a per-user basis or through non-user-based single application licenses.

We generally bill customers and collect payment for subscriptions to our platform in advance on an annual, quarterly, or monthly basis.

In certain instances, we have had customers pay their entire contract value up front.

Our revenue is comprised of the following:

1 unchanged sentence

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.

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

On-premises term license subscriptions are offered when the customer prefers to self-manage the deployment of our platform within their own infrastructure.

5 unchanged sentences

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.

3 unchanged sentences

Gross Profit and Gross Margin

Gross profit and gross margin (defined as gross profit as a percentage of total revenue), have been, and will continue to be, affected by various factors, including the mix of cloud subscriptions and on-premises term license subscriptions, the mix of total subscriptions revenue and professional services revenue, subscription pricing, the costs associated with third-party hosting providers, and the extent to which we expand our professional services to support future growth.

Our gross margin may fluctuate from period to period based on the above factors.

Our gross margin may fluctuate from period to period based on the preceding factors.

Subscriptions Gross Margin

2 unchanged sentences

Professional Services Gross Margin

Professional services gross margin is affected by the growth in our professional services revenue as compared to the growth in, and timing of, the costs of our Customer Success organization as we continue to invest in the growth of our business, as well as by consultant utilization rates.

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

2022, 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 2023, these margins began to decline.

In 2025, we expect professional services gross margin to be consistent with 2024;

2 unchanged sentences

Operating expenses consist of sales and marketing, research and development, and general and administrative expenses.

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, employee medical benefits, employee relations expense, and certain 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.

During 2023, our total employee headcount remained relatively consistent, decreasing from 2,307 employees at December 31, 2022 to 2,257 employees at December 31, 2023.

In 2024, we expect to hire new employees in key growth areas, although at a more measured rate than prior years.

Personnel-related costs such as salaries, bonuses, commissions, payroll tax payments, severance costs, 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, contractors, and cloud computing services.

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.

In general, our operating expenses are expected to continue to increase in absolute dollars as we invest resources in enhancing our product and growing our business, although such growth is expected to be at a more measured rate than prior years.

In 2024, our total employee headcount decreased from 2,257 employees at December 31, 2023 to 2,033 employees at December 31, 2024.

In 2025, we expect overall headcounts to rise slightly as we hire new employees in key growth areas while maintaining headcounts at or near current levels in non-customer facing teams.

Sales and Marketing Expense

2 unchanged sentences

The number of employees in sales and marketing functions decreased from 666 at December 31, 2023 to 509 at December 31, 2024.

While headcount declined in 2023, we expect to grow sales and marketing headcount during 2024 in our principal markets and strategic growth areas.

We expect sales and marketing expense to increase in absolute dollars as we continue to invest to acquire new customers and further expand usage of our platform within our existing customer base.

We will continue our efforts to build on our brand reputation and increase market awareness of our platform.

While headcount declined in 2024 due to changes in our go-to-market functions, we expect sales and marketing headcount to marginally increase from current levels in 2025 due to expected growth in our principal markets and strategic growth areas.

Furthermore, we expect sales and marketing expense to increase in absolute dollars as we continue to invest in acquiring new customers, further expand usage of our platform within our existing customer base, and broaden our efforts to build on our brand reputation and increase market awareness of our platform.

Research and Development Expense

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, professional fees to third party development resources, and allocated overhead costs.

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

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

The number of employees in research and development functions grew from 652 at December 31, 2022 to 681 at December 31, 2023.

Most of this increase was attributable to expansion at our product development center in India that we opened in August 2022.

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 product development center will result in cost savings over time.

The number of employees in research and development functions increased from 681 at December 31, 2023 to 702 at December 31, 2024.

Most of this increase was attributable to continued expansion at our product development center in India that we opened in August 2022.

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 teams 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.

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.

The number of employees in general and administrative functions decreased from 280 at December 31, 2023 to 267 at December 31, 2024.

In 2024, we expect general and administrative expense to increase in absolute dollars largely due to amortization expense associated with the judgment preservation insurance as discussed in Note 13 to the consolidated financial statements and investments in our information technology team.

In 2025, we expect general and administrative expense to increase in absolute dollars largely due to investments in our information technology team.

Other Non-Operating Expense

Other Expense (Income), Net

Other (income) expense, net, consists primarily of 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.

Other expense (income), net, consists primarily of 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

24 unchanged sentences

Other non-operating expense

Other (income) expense, net (17,603) 3,545 3,584

Other expense (income), net 6,773 (17,603) 3,545

Interest expense 23,582 17,862 1,673

3 unchanged sentences

Net loss $ (92,262) $ (111,441) $ (150,920)

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

Year Ended December 31,

2023 2022 2021

(in thousands)

Cost of revenue

Subscriptions $ 925 $ 996 $ 1,199

Professional services 6,055 5,309 3,131

Operating expenses

Sales and marketing 10,842 9,152 5,426

Research and development 12,486 12,523 5,224

General and administrative 13,079 10,850 8,864

Total stock-based compensation expense $ 43,387 $ 38,830 $ 23,844

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

16 unchanged sentences

Other non-operating expense

Other (income) expense, net (3.2) 0.8 1.0

Other expense (income), net 1.1 (3.2) 0.8

Interest expense 3.8 3.3 0.4

10 unchanged sentences

Total revenue $ 617,022 $ 545,363 $ 71,659 13.1%

Total revenue increased $77.4 million, or 16.5%, in 2023 compared to 2022 due to an increase in our subscriptions revenue of $72.2 million and an increase in our professional services revenue of $5.2 million.

Total revenue increased $71.7 million, or 13.1%, in 2024 compared to 2023 due to an increase in our subscriptions revenue of $78.2 million, which was partially offset by a decrease in our professional services revenue of $6.6 million.

The increase in subscriptions revenue was driven by a $63.5 million increase in cloud subscriptions revenue, a $9.9 million increase in on-premises software revenue, and a $4.8 million increase in maintenance and support revenue.

With respect to new versus existing customers, $63.3 million of the increase in subscriptions revenue was derived from expanded deployments and corresponding sales of additional subscriptions to existing customers while $14.9 million was driven from sales of subscriptions to new customers.

The increase in professional services revenue was due to a $12.5 million increase in sales to new customers, which was partially offset by a $7.3 million decrease in revenue from existing customers.

The decrease in professional services revenue was due to an $18.7 million decrease in revenue from existing customers, which was partially offset by a $12.1 million increase in sales to new customers.

Cost of Revenue

9 unchanged sentences

Total gross margin 75.7 % 73.7 %

Cost of revenue increased $10.0 million, or 7.5%, in 2023 compared to 2022, primarily due to a $5.9 million increase in hosting costs, a $2.8 million increase in professional services and product support personnel costs, and a $1.7 million increase in overhead costs.

These increases were partially offset by a $0.8 million decrease in contractor costs.

Cost of revenue increased $6.9 million, or 4.8%, in 2024 compared to 2023, primarily due to an $8.5 million increase in hosting costs and a $0.2 million increase in professional services and product support personnel costs, both of which were partially offset by a $1.5 million decrease in contractor costs.

Hosting costs increased due to an increase in sales of our cloud offering during 2024.

Personnel costs increased due to an increase in professional services and product support personnel headcount of 3.4% from December 31, 2022 to December 31, 2023 in addition to increased wages, coupled with a $0.7 million increase in stock-based compensation.

The increase in overhead costs was driven by higher costs associated with employee medical benefits and information technology expenses.

Although professional services and product support personnel headcount decreased 11.9% from December 31, 2023 to December 31, 2024, personnel costs increased due to a $1.2 million increase in severance costs and slightly higher salaries and benefits, which were substantially offset by a $0.7 million decrease in bonus expense and a $0.5 million decrease in stock compensation expense.

Contractor costs decreased in 2024 compared to 2023 due to a decrease in the usage of subcontractors for professional service engagements.

Subscriptions gross margin was 89.4% in 2023, consistent with the prior year as increases in subscriptions revenue were offset by a corresponding increase in hosting costs.

Professional services gross margin increased to 25.0% in 2023 as compared to 23.9% in 2022 due to higher professional services revenue, which was partially offset by higher personnel costs in 2023.

Total gross margin increased to 73.7% in 2023 as compared to 71.5% in 2022 driven largely by the increases in revenue and the improved professional services gross margin as compared to the prior year.

Subscriptions gross margin was 89.1% in 2024, consistent with an 89.4% margin in the prior year as increases in subscriptions revenue were offset by a corresponding increase in hosting costs.

Professional services gross margin decreased to 23.5% in 2024 as compared to 25.0% in 2023 due to a decline in professional services revenue and a marginal increase in personnel costs, both of which were partially offset by lower contractor costs.

Total gross margin increased to 75.7% in 2024 as compared to 73.7% in 2023 driven largely by the increase in subscriptions revenue.

Sales and Marketing Expense

4 unchanged sentences

% of revenue 37.4 % 44.4 %

Sales and marketing expense increased $22.0 million, or 10.0%, in 2023 compared to 2022, primarily due to a $25.1 million increase in sales and marketing personnel costs and a $1.0 million increase in overhead costs.

These increases were partially offset by a $3.6 million decrease in marketing costs.

Although there was a 8.8% decrease in sales and marketing personnel headcount from December 31, 2022 to December 31, 2023, personnel costs overall increased due to increased wages, a $7.4 million increase in sales commissions driven by both contracts with new customers and renewals with existing customers, a $4.7 million increase in severance expense, and a $1.7 million increase in stock-based compensation expense.

Overhead costs increased primarily due to a $0.8 million increase in employee relations costs stemming from higher expenditures related to internal sales and marketing events.

Marketing costs decreased due to declines in advertising and lead generation expenses as well as a decrease in spending on marketing materials.

Sales and marketing expense decreased $11.5 million, or 4.7%, in 2024 compared to 2023, primarily due to a $15.3 million decrease in sales and marketing personnel costs and a $1.5 million decrease in information technology costs.

These decreases were partially offset by a $3.6 million increase in marketing costs and a $1.7 million increase in travel and entertainment expenses.

Personnel costs decreased due to a 23.6% decrease in sales and marketing personnel headcount from December 31, 2023 to December 31, 2024 and a $2.6 million decrease in stock compensation expense, both of which were partially offset by a $3.5 million increase in sales commissions driven by both contracts with new customers and renewals with existing customers.

Information technology costs decreased primarily due to lower cloud computing expenses.

Marketing costs increased due to a $3.2 million increase in spending on marketing events, in addition to increases in digital marketing and public relations expense.

Travel and entertainment expenses rose due to increases in airfare and lodging associated with a higher number of in-person events and engagements relative to the prior year.

Research and Development Expense

4 unchanged sentences

% of revenue 25.1 % 28.1 %

Research and development expense increased $13.9 million, or 10.0%, in 2023 compared to 2022, primarily due to a $13.1 million increase in research and development personnel costs and a $1.4 million increase in overhead costs.

These increases were partially offset by a $0.6 million decrease in professional fees.

Personnel costs increased due to an increase in research and development personnel headcount of 4.4% from December 31, 2022 to December 31, 2023 in addition to increased wages and a $1.0 million increase in severance expense.

Overhead costs increased due to higher costs associated with employee medical benefits and rent.

Professional fees decreased due to a decrease in consulting services fees driven by lower usage of external resources to assist in our platform development efforts.

Research and development expense increased $1.9 million, or 1.2%, in 2024 compared to 2023, primarily due to a $1.9 million increase in employee medical benefits and a $1.8 million increase in information technology costs.

These increases were partially offset by a $1.6 million decrease in research and development personnel costs.

Information technology costs increased primarily due to higher cloud computing expense.

Although research and development personnel headcount increased 3.1% from December 31, 2023 to December 31, 2024, personnel costs decreased due to realized cost savings from our product development center in India, a $1.0 million decrease in severance expense, and a $0.8 million decrease in stock compensation expense.

General and Administrative Expense

4 unchanged sentences

% of revenue 23.0 % 21.0 %

General and administrative expense decreased $5.6 million, or 4.6%, in 2023 compared to 2022, primarily due to a $21.1 million decrease in professional fees.

These decreases were partially offset by a $9.9 million increase in overhead costs and a $6.0 million increase in general and administrative personnel costs.

Professional fees decreased due largely to lower legal and consulting fees.

Overhead costs increased primarily due to a $6.0 million increase in amortization expense associated with our judgment preservation insurance policy, a $2.4 million increase in depreciation expense, and higher costs associated with employee medical benefits.

Although there was a decrease in general and administrative personnel headcount of 11.4% from December 31, 2022 to December 31, 2023, personnel costs increased due to increased wages, a $2.2 million increase in stock compensation expense, and a $0.4 million increase in severance expense.

Other (Income) Expense, Net

General and administrative expense increased $27.3 million, or 23.8%, in 2024 compared to 2023, primarily due to a $9.8 million increase in amortization expense related to our judgment preservation insurance policy.

Additionally, professional fees increased $7.4 million, which was the result of higher net legal fees driven by 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 $6.9 million, primarily attributable to a $5.5 million in lease impairment charge recognized in the second quarter of 2024.

These increases were partially offset by a $1.8 million decrease in general and administrative personnel costs, driven largely by a 4.6% decrease in general and administrative headcount from December 31, 2023 to December 31, 2024.

Other Expense (Income), Net

Year Ended December 31,

1 unchanged sentence

(dollars in thousands)

Other (income) expense, net

Other expense (income), net

$ 6,773 $ (17,603) $ 24,376 ***

% of revenue 1.1 % (3.2) %

Other income, net was $17.6 million in 2023 compared to other expense, net of $3.5 million in 2022.

There were $8.7 million in foreign exchange gains in 2023 compared to $6.1 million in foreign exchange losses in 2022.

Additionally, there was a $7.7 million increase in interest income stemming from increased investments.

These increases were partially offset by a $1.2 million decrease in other income attributable to a payment received in 2022 from a local government as a result of achieving certain economic development criteria.

*** - Indicates a percentage change that is not meaningful

Other expense, net was $6.8 million in 2024 compared to other income, net of $17.6 million in 2023.

There were $16.8 million in foreign exchange losses in 2024 compared to $8.7 million in foreign exchange gains in 2023.

Additionally, there was a $2.1 million decrease in interest income across the comparative periods.

These decreases were partially offset by a $3.2 million increase in other income attributable to payments received in 2024, including a payment from a local government as a result of achieving certain economic development criteria and payments related to a short-swing profit disgorgement paid to us by a public shareholder of our Class A common stock.

Interest Expense

4 unchanged sentences

% of revenue 3.8 % 3.3 %

*** - Indicates a percentage change that is not meaningful

Interest expense increased $16.2 million in 2023 compared to the same period in 2022, primarily due to interest expense on the new term loan facility we entered into during the fourth quarter of 2022.

Interest expense increased $5.7 million in 2024 as compared to the corresponding period in 2023, primarily due to interest expense attributable to higher outstanding balances on our credit facility related to amendments we entered into during the fourth quarter of 2023 and first quarter of 2024.

Income Tax Expense

Year Ended December 31,

2024 2023 $ Change % Change

(dollars in thousands)

Income tax expense

$ 1,054 $ 3,209 $ (2,155) (67.2)%

% of revenue 0.2 % 0.6 %

Income tax expense decreased by $2.2 million in 2024 as compared to the corresponding period in 2023.

This change was primarily driven by decreased pre-tax book income in certain international subsidiaries in 2024.

The change in pre-tax book income was primarily attributable to increases in unrealized foreign exchange losses.

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

5 unchanged sentences

However, the amount of backlog relative to the total value of our contracts can change from quarter to quarter and year to year for several reasons, including the specific timing and duration of cloud and on-premises term license subscription agreements with large customers, the specific timing of customer renewals, changes in customer financial circumstances, and foreign currency fluctuations.

We often sign multiple-year cloud subscription agreements.

Backlog may vary based on changes in the average non-cancellable term of our cloud and on-premises term license subscription agreements.

Additionally, we often sign multiple-year subscription agreements, and backlog may vary based on changes in the average non-cancellable term of our cloud and on-premises term license subscription agreements.

Non-GAAP Financial Measures

2 unchanged sentences

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.

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.

1 unchanged sentence

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 expense, non-GAAP net loss, and non-GAAP net loss per share, basic and diluted.

reduction in our workforce in 2023, or Severance Costs.

non-GAAP subscriptions cost of revenue, non-GAAP professional services cost 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 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, severance costs related to involuntary reductions 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 a shareholder, 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.

1 unchanged sentence

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 non-operating (income) expenses, 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, and (8) Severance Costs.

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.

4 unchanged sentences

GAAP Measure Stock-Based Compensation Litigation Expense

JPI Amortization Severance Costs Non-GAAP Measure

JPI Amortization Severance Costs Lease Impairment and Lease-Related Charges

Short-Swing Profit Payment

Non-GAAP Measure

Year Ended December 31, 2024

6 unchanged sentences

Total operating expense 527,696 (32,523) (4,602) (15,795) (4,136) (6,104) — 464,536

Operating loss (107,973) 43,387 (2,064) 6,038 6,299 (54,313)

Operating (loss) income

(60,853) 39,045 4,602 15,795 5,534 6,104 — 10,227

Income tax expense 1,054 1,499 — — 1,096 — — 3,649

Net loss (111,441) 42,085 (2,064) 6,038 6,160 (59,222)

Net loss per share, basic and diluted

Net (loss) income

(92,262) 37,546 4,602 15,795 4,438 6,104 (1,799) (25,576)

Net (loss) income per share, basic and diluted

$ (1.26) $ 0.51 $ 0.06 $ 0.22 $ 0.06 $ 0.08 $ (0.02) $ (0.35)

Year Ended December 31, 2023

6 unchanged sentences

Total operating expense 510,014 (36,407) 2,064 (6,038) (6,111) — — 463,522

Operating loss (145,010) 38,830 22,886 — — (83,294)

Net loss (150,920) 38,830 22,886 — — (89,204)

Net loss per share, basic and diluted

Operating (loss) income

(107,973) 43,387 (2,064) 6,038 6,299 — — (54,313)

Income tax expense

3,209 1,302 — — 139 — — 4,650

Net (loss) income

(111,441) 42,085 (2,064) 6,038 6,160 — — (59,222)

Net (loss) income per share, basic and diluted

$ (1.52) $ 0.58 $ (0.03) $ 0.08 $ 0.08 $ — $ — $ (0.81)

Year Ended December 31, 2022

7 unchanged sentences

479,695 (32,525) (22,886) — — — — 424,284

Operating loss

Operating (loss) income

(145,010) 38,830 22,886 — — — — (83,294)

Net (loss) income

(150,920) 38,830 22,886 — — — — (89,204)

Net loss per share, basic and diluted

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

$ (2.08) $ 0.54 $ 0.32 $ — $ — $ — $ — $ (1.23)

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

The following table reconciles GAAP net loss to adjusted EBITDA for the years ended December 31, 2024, 2023, and 2022 (in thousands):

2 unchanged sentences

GAAP net loss $ (92,262) $ (111,441) $ (150,920)

Other (income) expense, net (17,603) 3,545 3,584

Other expense (income), net 6,773 (17,603) 3,545

Interest expense 23,582 17,862 1,673

6 unchanged sentences

JPI Amortization

15,795 6,038 —

Severance Costs

5,534 6,299 —

Lease Impairment and Lease-Related Charges

Adjusted EBITDA $ 20,257 $ (44,840) $ (75,997)

7 unchanged sentences

80,787 43,183

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

As of December 31, 2023, we had $149.4 million of cash and cash equivalents and $9.7 million of short-term investments and marketable securities.

* Defined as current assets net of current liabilities.

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 twelve 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.

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.

2 unchanged sentences

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

Our last public offering was completed in June 2020, which was our fourth round of public offerings.

Our last public offering was completed in June 2020.

Through these public offerings, we received net proceeds of $344.8 million.

To further help strengthen our financial position and support our growth initiatives, in November 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 $150.0 million and, in addition, up to $75.0 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).

In addition, on February 12, 2024, we executed the fourth amendment to the credit agreement, which increased the aggregate principal amount of the term loan facility by $50.0 million, increased the limit of the revolving credit facility by $25.0 million, and amended certain covenants and definitions.

The total aggregate term loan facility is now $200.0 million and the revolving credit facility is $100.0 million.

To further help strengthen our financial position and support our growth initiatives, in November 2022 we entered into a Senior Secured Credit Facilities Credit Agreement, or the Credit Agreement, which, as amended to date, provides for a five-year term loan facility in an aggregate principal amount of $200.0 million and, in addition, up to $100.0 million for a revolving credit facility, including a letter of credit sub-facility in the aggregate availability amount of $20.0 million and a swingline sub-facility in the aggregate availability amount of $10.0 million (as a sublimit of the revolving loan facility).

The Credit Agreement matures on November 3, 2027.

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

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

As of December 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 $11.8 million in connection with securing our leased office space.

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

As of December 31, 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 $14.6 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 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 product.

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, the introduction of new and enhanced product solutions and functions as well as platform enhancements and professional services offerings, and the level of market acceptance of our product.

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 2023 included capital expenditures related to the expansion of our headquarters, repayments of existing debt, and purchases of investments.

In addition, in September 2023, we entered into a judgment preservation insurance policy in connection with our $2.036 billion judgment against Pegasystems.

The policy provides up to $500.0 million of coverage.

In 2023, we entered into a Judgment Preservation Insurance policy in connection with our $2.036 billion judgment against Pegasystems.

See Note 13 to the consolidated financial statements for additional details.

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 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 included capital expenditures related to the expansion of the recently leased facility for our research development center in India and principal repayments of our term loan debt.

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

Specifically, purchase commitments under the agreement total $220.0 million over five years.

The agreement, which started in July 2021 and is now in its third year as of December 31, 2023, contains minimum spending requirements of $28.0 million in each of the third, fourth, and fifth years.

The agreement, which was originated in July 2021 and amended in October 2024, currently contains minimum annual spending requirements of $44.0 million from November 2024 to October 2029.

Spending under this agreement for the years ended December 31, 2024, 2023, and 2022 totaled $41.2 million, $36.6 million, and $33.1 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.

We expect to meet our minimum annual spending requirement during the term of the arrangement.

Historical Cash Flows

7 unchanged sentences

Changes in working capital 26,408 (39,592) 66,000 ***

Net cash used by operating activities (110,442) (106,551) (3,891) 3.7

Net cash provided by (used by) operating activities

6,878 (110,442) 117,320 ***

Investing activities:

Net cash provided by investing activities 28,590 10,264 18,326 ***

Net cash (used by) provided by investing activities (35,390) 28,590 (63,980) ***

Financing activities:

Net cash provided by financing activities 79,165 142,867 (63,702) (44.6)

Net cash (used by) provided by financing activities (258) 79,165 (79,423) ***

Effect of exchange rates (2,029) 1,657 (3,686) ***

Net (decrease) increase in cash, cash equivalents, and restricted cash (1,030) 46,421 (47,451) ***

Net decrease in cash, cash equivalents, and restricted cash

(30,799) (1,030) (29,769) ***

Ending cash, cash equivalents, and restricted cash $ 118,552 $ 149,351 $ (30,799) (20.6) %

1 unchanged sentence

Operating Activities

Net cash used by operating activities was $110.4 million for 2023 as compared to $106.6 million used by operating activities for 2022.

The increase in net cash used by operating activities was primarily due to the $57.3 million payment for the premium of our judgment preservation insurance policy.

This increase was partially offset by a $25.3 million decline in legal fees and stronger collections from accounts receivable during 2023.

Net cash provided by operating activities was $6.9 million for 2024 as compared to net cash used by operating activities of $110.4 million for 2023.

The increase in net cash provided by operating activities was primarily due to the prior year payment of $57.3 million for our judgment preservation insurance policy.

Additionally, there were stronger cash collections from accounts receivable as a result of increased revenues as well as reduced expenditures stemming from headcount reductions and other cost management activities in 2024 as compared to 2023.

Investing Activities

Net cash provided by investing activities was $28.6 million for 2023 as compared to $10.3 million in net cash provided by investing activities for 2022.

The increase in net cash provided by investing activities was primarily impacted by an $11.8 million decrease in purchases of investments and a $7.0 million increase in proceeds from the maturities of investments, both of which were partially offset by a $0.5 million increase in capital expenditures.

Net cash used by investing activities was $35.4 million for 2024 as compared to $28.6 million in net cash provided by investing activities for 2023.

This change was primarily driven by a decline of $71.6 million in proceeds from investments.

This decrease was partially offset by a $5.8 million decrease in capital expenditures and a $1.8 million decrease in purchases of investments.

Financing Activities

Net cash provided by financing activities was $79.2 million for 2023 as compared to $142.9 million in net cash provided by financing activities for 2022.

The decrease in net cash provided by financing activities was primarily due to a $28.0 million decrease in proceeds from borrowings and a $24.7 million decrease in proceeds received from the exercise of stock options.

In addition, the decrease was driven by a $9.7 million increase in payments for employee tax withholdings associated with the net settlement of stock awards and a $2.9 million increase in principal payments on the term loan.

These decreases were partially offset by a $1.7 million decrease in payments for debt issuance costs.

For a discussion and analysis of net cash used in or provided by operating, investing, and financing activities for the year ended December 31, 2021, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 16, 2023.

Net cash used by financing activities was $0.3 million for 2024 as compared to $79.2 million in net cash provided by financing activities for 2023.

This change was primarily due to a $50.0 million increase in share repurchases, a $42.0 million decrease in proceeds from borrowings, and a $2.7 million increase in principal payments on the term loan, partially offset by a $13.7 million increase in proceeds received from the exercise of stock options and a $1.8 million decrease in payments for employee tax withholdings associated with the net settlement of stock awards.

For a discussion and analysis of net cash used by or provided by operating, investing, and financing activities for the year ended December 31, 2022, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 15, 2024.

Critical Accounting Estimates

31 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-K

Item 7. Management’s Discussion and Analysis