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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         
Commission File Number: 001-38098 
appn-20220930_g1.jpg
APPIAN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware54-1956084
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
7950 Jones Branch Drive
McLean, VA
22102
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (703) 442-8844
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Class A Common StockAPPNThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filerAccelerated filer
Non-accelerated filer
Small reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No  ☒

As of October 31, 2022, there were 41,049,803 shares of the registrant’s Class A common stock and 31,497,796 shares of the registrant’s Class B common stock, each with a par value of $0.0001 per share, outstanding.




Table of Contents

Page
PART I.
Item 1.
Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2


PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

APPIAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share data) 
As of
September 30, 2022December 31, 2021
(unaudited)
Assets
Current assets
Cash and cash equivalents$51,802 $100,796 
Short-term investments and marketable securities40,885 55,179 
Accounts receivable, net of allowance of $1,901 and $1,400, respectively
143,385 130,049 
Deferred commissions, current27,874 24,668 
Prepaid expenses and other current assets31,976 26,781 
Restricted cash, current2,053 791 
Total current assets297,975 338,264 
Property and equipment, net of accumulated depreciation of $18,189 and $14,106, respectively
38,692 36,913 
Long-term investments 12,044 
Goodwill24,045 27,795 
Intangible assets, net of accumulated amortization of $2,131 and $1,260, respectively
5,139 7,144 
Right-of-use assets for operating leases31,841 27,897 
Deferred commissions, net of current portion51,526 49,017 
Deferred tax assets2,518 1,025 
Restricted cash, net of current portion 2,373 
Other assets2,824 2,047 
Total assets$454,560 $504,519 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$5,082 $5,766 
Accrued expenses12,710 15,483 
Accrued compensation and related benefits35,408 35,126 
Deferred revenue, current161,154 150,169 
Operating lease liabilities, current7,434 8,110 
Other current liabilities2,603 1,067 
Total current liabilities224,391 215,721 
Operating lease liabilities, net of current portion52,710 48,784 
Deferred revenue, net of current portion3,408 2,430 
Deferred tax liabilities153 209 
Other non-current liabilities956 3,458 
Total liabilities281,618 270,602 
Stockholders’ equity
Class A common stock—par value $0.0001; 500,000,000 shares authorized and 41,043,099 shares issued and outstanding as of September 30, 2022; 500,000,000 shares authorized and 39,964,298 shares issued and outstanding as of December 31, 2021
4 4 
Class B common stock—par value $0.0001; 100,000,000 shares authorized and 31,497,796 shares issued and outstanding as of September 30, 2022; 100,000,000 shares authorized and 31,497,796 shares issued and outstanding as of December 31, 2021
3 3 
Additional paid-in capital549,760 497,128 
Accumulated other comprehensive loss(2,790)(5,687)
Accumulated deficit(374,035)(257,531)
Total stockholders’ equity172,942 233,917 
Total liabilities and stockholders’ equity$454,560 $504,519 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3



APPIAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue
Subscriptions$86,520 $67,240 $246,908 $187,952 
Professional services31,356 25,177 95,297 76,319 
Total revenue117,876 92,417 342,205 264,271 
Cost of revenue
Subscriptions9,313 7,092 26,065 19,806 
Professional services24,447 19,415 72,011 56,065 
Total cost of revenue33,760 26,507 98,076 75,871 
Gross profit84,116 65,910 244,129 188,400 
Operating expenses
Sales and marketing54,912 42,071 157,104 118,575 
Research and development37,623 26,510 101,401 71,062 
General and administrative29,357 20,226 90,014 56,726 
Total operating expenses121,892 88,807 348,519 246,363 
Operating loss(37,776)(22,897)(104,390)(57,963)
Other non-operating expense
Other expense, net5,876 2,329 12,815 4,141 
Interest expense89 72 222 233 
Total other non-operating expense5,965 2,401 13,037 4,374 
Loss before income taxes(43,741)(25,298)(117,427)(62,337)
Income tax expense (benefit)255 86 (924)459 
Net loss$(43,996)$(25,384)$(116,503)$(62,796)
Net loss per share:
Basic and diluted$(0.61)$(0.36)$(1.61)$(0.89)
Weighted average common shares outstanding:
Basic and diluted72,503 71,119 72,372 70,936 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



4


APPIAN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited, in thousands)

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net loss$(43,996)$(25,384)$(116,503)$(62,796)
Comprehensive income (loss), net of income taxes
Foreign currency translation adjustments308 28 3,032 2,569 
Unrealized gains (losses) on available-for-sale securities59  (135)31 
Total other comprehensive loss, net of income taxes$(43,629)$(25,356)$(113,606)$(60,196)
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


APPIAN CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited, in thousands, except share data)

Accumulated Other Comprehensive (Loss) IncomeTotal Stockholders' Equity
Common StockAdditional Paid-In CapitalAccumulated Deficit
SharesAmount
Balance, December 31, 202171,462,094 $7 $497,128 $(5,687)$(257,531)$233,917 
Net loss— — — — (23,154)(23,154)
Issuance of common stock to directors2,395 — — — — — 
Vesting of restricted stock units47,038 — — — — — 
Exercise of stock options815,833 — 24,404 — — 24,404 
Stock-based compensation expense— — 6,943 — — 6,943 
Other comprehensive income— — — 646 — 646 
Balance, March 31, 202272,327,360 7 528,475 (5,041)(280,685)242,756 
Net loss— — — — (49,354)(49,354)
Issuance of common stock to directors2,565 — — — — — 
Vesting of restricted stock units52,634 — — — — — 
Exercise of stock options61,955 — 626 — — 626 
Stock-based compensation expense— — 9,148 — — 9,148 
Other comprehensive income— — — 1,884 — 1,884 
Balance, June 30, 202272,444,514 7 538,249 (3,157)(330,039)205,060 
Net loss— — — — (43,996)(43,996)
Issuance of common stock to directors4,613 — — — — — 
Vesting of restricted stock units67,164 — — — — — 
Exercise of stock options24,604 — 175 — — 175 
Stock-based compensation expense— — 11,336 — — 11,336 
Other comprehensive income— — — 367 — 367 
Balance, September 30, 202272,540,895 $7 $549,760 $(2,790)$(374,035)$172,942 

6


APPIAN CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited, in thousands, except share data)

Accumulated Other Comprehensive (Loss) IncomeTotal Stockholders' Equity
Common StockAdditional Paid-In CapitalAccumulated Deficit
SharesAmount
Balance, December 31, 202070,679,190 $7 $470,498 $(5,010)$(168,890)$296,605 
Net loss— — — — (13,587)(13,587)
Issuance of common stock to directors960 — — — — — 
Vesting of restricted stock units56,326 — — — — — 
Exercise of stock options88,269 — 625 — — 625 
Stock-based compensation expense— — 7,894 — — 7,894 
Other comprehensive income— — — 4,023 — 4,023 
Balance, March 31, 202170,824,745 7 479,017 (987)(182,477)295,560 
Net loss— — — — (23,825)(23,825)
Issuance of common stock to directors1,175 — — — — — 
Vesting of restricted stock units43,024 — — — — — 
Exercise of stock options211,651 — 1,464 — — 1,464 
Stock-based compensation expense— — 4,598 — — 4,598 
Other comprehensive loss— — — (1,451)— (1,451)
Balance, June 30, 202171,080,595 7 485,079 (2,438)(206,302)276,346 
Net loss— — — — (25,384)(25,384)
Issuance of common stock to directors1,130 — — — — — 
Vesting of restricted stock units38,148 — — — — — 
Exercise of stock options46,960 — 286 — — 286 
Stock-based compensation expense— — 5,200 — — 5,200 
Other comprehensive loss— — — 28 — 28 
Balance, September 30, 202171,166,833 $7 $490,565 $(2,410)$(231,686)$256,476 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7


APPIAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

Nine Months Ended September 30,
20222021
Cash flows from operating activities
Net loss$(116,503)$(62,796)
Adjustments to reconcile net loss to net cash used by operating activities
Stock-based compensation27,427 17,692 
Depreciation and amortization5,332 4,071 
Bad debt expense561 61 
Loss on disposal of property and equipment 78 
Change in fair value of available-for-sale securities (31)
Deferred income taxes(1,549)(522)
Changes in assets and liabilities
Accounts receivable(9,114)(10,005)
Prepaid expenses and other assets(6,723)2,734 
Deferred commissions(5,715)(11,570)
Accounts payable and accrued expenses(3,654)10,797 
Accrued compensation and related benefits1,634 5,782 
Other current and non-current liabilities(383)2,858 
Deferred revenue15,414 6,829 
Operating lease liabilities(685)(476)
Net cash used by operating activities(93,958)(34,498)
Cash flows from investing activities
Purchases of investments(31,214) 
Proceeds from investments57,417 84,592 
Payments for acquisitions, net of cash acquired (30,729)
Purchases of property and equipment(5,861)(2,473)
Net cash provided by investing activities20,342 51,390 
Cash flows from financing activities
Proceeds from exercise of common stock options25,205 2,375 
Net cash provided by financing activities25,205 2,375 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash(1,694)(1,367)
Net (decrease) increase in cash, cash equivalents, and restricted cash(50,105)17,900 
Cash, cash equivalents, and restricted cash at beginning of period103,960 112,462 
Cash, cash equivalents, and restricted cash at end of period$53,855 $130,362 
Supplemental disclosure of cash flow information
Cash paid for interest$243 $240 
Cash paid for income taxes$749 $1,196 
Supplemental disclosure of non-cash investing and financing activities
Accrued capital expenditures$317 $ 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8

APPIAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. Organization and Description of Business

Appian Corporation (together with its subsidiaries, “Appian,” the “Company,” “we,” or “our”) is a unified platform for change. We accelerate customers’ businesses by discovering, designing, and automating their most important processes. The Appian Low-Code Platform combines the key capabilities needed to get work done faster, Process Mining + Workflow + Automation, in a unified low-code platform. Appian is open, enterprise grade, and trusted by industry leaders.

We are headquartered in McLean, Virginia and operate both in the U.S. and internationally, including Australia, Canada, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

2. Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for interim financial reporting. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ equity, and cash flows. The results of operations for the current period are not necessarily indicative of the results for the full year or the results for any future periods. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on February 17, 2022.

Use of Estimates

The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Although we believe the estimates we use are reasonable, due to the inherent uncertainty involved in making these estimates, actual results reported in future periods could differ from those estimates.

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

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Appian and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition

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

9

APPIAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Cost of Revenue

Subscriptions

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

Professional Services

Cost of professional services revenue includes all direct and indirect costs to deliver our professional services and training, including employee compensation for our global professional services and training personnel, third-party contractor costs, allocated facility costs and overhead, and the costs of billable expenses such as travel and lodging. The unpredictability of the timing of providing services related to significant professional services agreements sold on a standalone basis may cause significant fluctuations in our quarterly financial results.

Concentration of Credit and Customer Risk

Our financial instruments exposed to concentration of credit and customer risk consist primarily of cash, cash equivalents, restricted cash, accounts receivable, and our short- and long-term investments. Deposits held with banks may exceed the amount of insurance provided on such deposits; however, we believe the financial institutions holding our cash deposits are financially sound and, accordingly, minimal credit risk exists with respect to these balances.

With regard to our customers, credit evaluation and account monitoring procedures are used to minimize the risk of loss. Revenue generated from government agencies represented 21.2% and 19.2% of our revenue for the three and nine months ended September 30, 2022, respectively, of which the top three U.S. federal government agencies generated 5.5% and 4.8% of our revenue for the three and nine months ended September 30, 2022, respectively. Additionally, 31.3% and 33.2% of our revenue during the three and nine months ended September 30, 2022, respectively, was generated from foreign customers. Revenue generated from government agencies represented 19.2% and 20.0% of our revenue for the three and nine months ended September 30, 2021, respectively, of which the top three U.S. federal government agencies generated 7.5% and 6.3% of our revenue for the three and nine months ended September 30, 2021, respectively. Additionally, 32.0% and 33.1% of our revenue during the three and nine months ended September 30, 2021, respectively, was generated from foreign customers.

Cash, Cash Equivalents, and Restricted Cash

We consider all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase, as well as overnight repurchase agreements, to be cash equivalents. Restricted cash consists of cash designated to settle an escrow liability stemming from a holdback agreement enacted pursuant to our acquisition of Lana Labs GmbH (“Lana Labs”). We paid 25% of the balance on September 28, 2022, and the remaining 75% of the balance is due on August 11, 2023.

The following table presents a reconciliation of cash, cash equivalents, and restricted cash as presented in the consolidated statements of cash flows (in thousands):

As of
September 30, 2022December 31, 2021September 30, 2021December 31, 2020
Cash and cash equivalents$51,802 $100,796 $127,122 $112,462 
Restricted cash, current2,053 791   
Restricted cash, net of current portion 2,373 3,240  
Total cash, cash equivalents, and restricted cash$53,855 $103,960 $130,362 $112,462 

10

APPIAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at realizable value, net of an allowance for doubtful accounts. The allowance for doubtful accounts is based on our assessment of the collectability of accounts and incorporates an estimation of expected lifetime credit losses on our receivables. We regularly review the composition of the accounts receivable aging, historical bad debts, changes in payment patterns, customer creditworthiness, and current economic trends. If the financial condition of our customers were to deteriorate, resulting in their inability to make required payments, additional provisions for doubtful accounts would be required and would increase bad debt expense. The allowance for doubtful accounts totaled $1.9 million and $1.4 million as of September 30, 2022 and December 31, 2021.

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

We capitalize costs of obtaining a contract with a customer, which consists of sales commissions paid to our sales team, that are incremental costs to obtaining customer contracts. These costs are recorded as deferred commissions in the consolidated balance sheets. Costs to obtain a contract for a new customer or upsell are amortized over an estimated economic life of five years as sales commissions on initial sales are not commensurate with sales commissions on contract renewals. We determine the estimated economic life based on both qualitative and quantitative factors such as expected renewals, product life cycles, contractual terms, and customer attrition. We periodically review the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the estimated economic life. Commissions paid relating to contract renewals are deferred and amortized over the related renewal period. We also capitalize the incremental fringe benefits associated with commission expenses paid to our direct sales team. Costs to obtain a contract for professional services arrangements are expensed as incurred as the contractual period of our professional services arrangements are one year or less.

Amortization associated with deferred commission is recorded to sales and marketing expense in our consolidated statements of operations. Commission expense was $9.5 million and $26.5 million for the three and nine months ended September 30, 2022, respectively. Commission expense was $8.2 million and $22.5 million for the three and nine months ended September 30, 2021, respectively.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Significant additions or improvements extending the useful life of an asset are capitalized, while repairs and maintenance costs which do not significantly improve the related assets or extend their useful lives are charged to expense as incurred.

The following table outlines the useful lives of our major asset categories:

Asset CategoryUseful Life (in years)
Computer software3
Computer hardware3
Equipment5
Office furniture and fixtures10
Leasehold improvements
(a)
(a) Leasehold improvements have an estimated useful life of the shorter of the useful life of the assets or the lease term.

Investments and Fair Value of Financial Instruments

Refer to Note 15 for a detailed discussion on our policies specific to investments and determining fair value.

Stock-Based Compensation

Refer to Note 11 for a detailed discussion on our policies related to stock-based compensation.
11

APPIAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Recent Accounting Pronouncements

Adopted

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

Not Yet Adopted

There is no pending accounting guidance that we expect to have a material impact on our condensed consolidated financial statements or disclosures.

3. Revenue

Revenue Recognition

We generate subscriptions revenue primarily through the sale of cloud subscriptions bundled with maintenance and support and hosting services as well as term license subscriptions bundled with maintenance and support. We generate professional services revenue from fees for our consulting services, including application development and deployment assistance as well as training related to our platform.

The following table summarizes revenue recorded during the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Cloud subscriptions$60,621 $46,699 $171,083 $128,238 
Term license subscriptions19,773 15,114 58,543 44,290 
Maintenance and support6,126 5,427 17,282 15,424 
Total subscriptions86,520 67,240 246,908 187,952 
Professional services31,356 25,177 95,297 76,319 
Total revenue$117,876 $92,417 $342,205 $264,271 

Performance Obligations and Timing of Revenue Recognition

We primarily sell products and services that fall into the categories discussed below. Each category contains one or more performance obligations that are either (1) capable of being distinct (i.e., the customer can benefit from the product or service on its own or together with readily available resources, including those purchased separately from us) and distinct within the context of the contract (i.e., separately identified from other promises in the contract) or (2) a series of distinct products or services that are substantially the same and have the same pattern of transfer to the customer. Our term license subscriptions are delivered at a point in time while our cloud subscriptions, maintenance and support, and professional services are delivered over time.

Subscriptions Revenue

Subscriptions revenue is primarily related to (1) cloud subscriptions bundled with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support. We generally charge subscription fees on a per-user basis or through non-user based single application licenses. We bill customers and collect payment for subscriptions to our platform in advance on an annual, quarterly, or monthly basis. In certain instances, our customers have paid their entire contract up front.

Cloud Subscriptions
12

APPIAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

We generate cloud-based subscriptions revenue primarily from the sales of subscriptions to access our cloud offering, together with related support services to our customers. We perform all required maintenance and support for our cloud offering. Revenue is recognized on a ratable basis over the contract term beginning on the date the service is made available to the customer. Our cloud-based subscription contracts generally have a term of one to three years in length. We bill customers and collect payment for subscriptions to our platform in advance, and they are non-cancellable.

Term License Subscriptions

Our term license subscription revenue is derived from customers with on-premises installations of our platform. The majority of our contracts are one year in length. Although term license subscriptions are sold with maintenance and support, the software is fully functional at the beginning of the subscription and is considered a distinct performance obligation. On rare occasions, a cloud-based subscription may include the right for the customer to take possession of the license and as such, the revenue is treated as a term license. Revenue from term license subscriptions is recognized when control of the software license has transferred to the customer, which is the later of delivery or commencement of the contract term.

Maintenance and Support

Maintenance and support subscriptions include both technical support and when-and-if-available software upgrades, which are treated as a single performance obligation as they are considered a series of distinct services that are substantially the same and have the same duration and measure of progress. Revenue from maintenance and support is recognized ratably over the contract period, which is the period over which the customer has continuous access to maintenance and support.

Professional Services Revenue

Our professional services revenue is comprised of fees for consulting services, including application development and deployment assistance as well as training services related to our platform. Our professional services are considered distinct performance obligations when sold standalone or with other products.

Consulting Services

We sell consulting services to assist customers in planning and executing the deployment of our software. Customers are not required to use consulting services to fully benefit from the software. Consulting services are regularly sold on a standalone basis and either (1) under a fixed-fee arrangement or (2) on a time and materials basis. Consulting services contracts are considered separate performance obligations because they do not integrate with each other or with other products and services to deliver a combined output to the customer, do not modify or customize (or are not modified or customized by) each other or other products and services, and do not affect the customer's ability to use the other consulting offerings or other products and services. Revenue under consulting contracts is recognized over time as services are delivered. For time and materials-based consulting contracts, we have elected the practical expedient of recognizing revenue upon invoicing since the invoiced amount corresponds directly to the value of our service to date.

Training Services

We sell various training services to our customers. Training services are sold in the form of prepaid training credits that are redeemed based on a fixed rate per course. Training revenue is recognized when the associated training services are delivered.

Significant Judgments and Estimates

Determining the Transaction Price

The transaction price is the total amount of consideration we expect to receive in exchange for the service offerings in a contract and may include both fixed and variable components. Variable consideration is included in the transaction price to the extent it is probable a significant reversal will not occur. The amount of variable consideration excluded from the transaction price for the three and nine months ended September 30, 2022 and 2021 was insignificant. Our estimates of variable
13

APPIAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
consideration are also subject to subsequent true-up adjustments and may result in changes to transaction prices; however, such true-up adjustments are not expected to be material.

Allocating the Transaction Price Based on Standalone Selling Prices (“SSP”)

We allocate the transaction price to each performance obligation in a contract based on its relative SSP. The SSP is the observable price at which we sell the product or service separately. In the absence of observable pricing, we estimate SSP using the residual approach. We establish SSP as follows:

1.Cloud subscriptions - Given the highly variable selling price of our cloud subscriptions, we establish the SSP of our cloud subscriptions using a residual approach after first determining the SSP of consulting and training services. We have concluded the residual approach to estimating SSP of our cloud subscriptions is an appropriate allocation of the transaction price.

2.Term license subscriptions - Given the highly variable selling price of our term license subscriptions, we have established SSP of term license subscriptions using a residual approach after first determining the SSP of maintenance and support. Maintenance and support is sold on a standalone basis in conjunction with renewals of our legacy perpetual software licenses and within a narrow range of the net license fee. Because an economic relationship exists between the license and maintenance and support, we have concluded the residual approach to estimating SSP of term license subscriptions is an appropriate allocation of the transaction price.

3.Maintenance and support - We establish the SSP of maintenance and support as a percentage of the stated net subscription fee based on observable pricing of maintenance and support renewals from our legacy perpetual software licenses.

4.Consulting and training services - The SSP of consulting and training services is established based on the observable pricing of standalone sales within each geographic region where the services are sold.

Contract Balances

Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to our contracts with customers. Contract assets primarily relate to unbilled amounts for contracts with customers for which the amount of revenue recognized exceeds the amount billed to the customer. Contract assets are transferred to accounts receivable when the right to invoice becomes unconditional. As of September 30, 2022 and December 31, 2021, contract assets of $15.3 million and $14.0 million, respectively, are included in the Prepaid expenses and other current assets and Other assets line items in our consolidated balance sheets.

Contract liabilities consist of deferred revenue and include payments received in advance of the satisfaction of performance obligations. Deferred revenue is then recognized as the revenue recognition criteria are met. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current. For the nine months ended September 30, 2022, we recognized $134.4 million of revenue that was included in the deferred revenue balance as of December 31, 2021.

Transaction Price Allocated to the Remaining Performance Obligations

As of September 30, 2022, we had an aggregate transaction price of $319.9 million allocated to unsatisfied performance obligations. We expect to recognize $209.6 million of this balance as revenue over the next 12 months with the remaining amount recognized thereafter.

4. Leases

As of September 30, 2022, our lease portfolio consists entirely of operating leases, most of which are for corporate offices. Our operating leases have remaining lease terms with various expiration dates through 2031, and some leases include options to extend the term for up to an additional 10 years.

Lease Costs
14

APPIAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense. We have lease agreements which require payments for lease and non-lease components (i.e., common area maintenance) that are accounted for as a single lease component. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as maintenance costs based on future obligations, are not included in ROU assets or lease liabilities but rather are expensed as incurred and recorded as variable lease expense.

The following table sets forth the components of lease expense for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Operating lease cost$1,708 $1,659 $4,968 $4,984 
Short-term lease cost170 23 334 77 
Variable lease cost952 947 2,878 1,744 
Total$2,830 $2,629 $8,180 $6,805 

Supplemental Lease Information

Supplemental balance sheet information related to operating leases as of September 30, 2022 and December 31, 2021 was as follows (in thousands, except for lease term and discount rate):

As of
September 30, 2022December 31, 2021
Right-of-use assets for operating leases$31,841$27,897
Operating lease liabilities, current$7,434$8,110
Operating lease liabilities, net of current portion52,71048,784
Total operating lease liabilities$60,144$56,894
Weighted average remaining lease term (in years)9.09.5
Weighted average discount rate9.5 %9.5 %

Supplemental cash flow and expense information related to operating leases for the three and nine months ended September 30, 2022 and 2021 was as follows (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Operating cash outflows for operating leases$2,099 $1,792 $6,258 $5,295 
Amortization of operating lease ROU assets364 685 995 1,380 
Interest expense on operating lease liabilities1,332 521 3,957 1,448 

15

APPIAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A summary of our future minimum lease commitments under non-cancellable leases as of September 30, 2022 is as follows (in thousands):

Operating Leases
2022 (excluding the nine months ended September 30, 2022)
$2,040 
20238,367 
20249,464 
202510,202 
202610,603 
202710,892 
Thereafter44,762 
Total lease payments96,330 
Less: imputed interest(36,186)
Total$60,144 

5. Business Combinations

In August 2021, we acquired 100% of the outstanding common stock of Lana Labs, a developer of process mining software, for approximately $30.7 million, net of cash acquired and debt. The acquisition was made due to the attractive nature of the product offerings of Lana Labs and in furtherance of our objective to enhance our automation platform. The transaction was financed through available cash on hand.

The allocation of the purchase price was based upon the fair value of the assets acquired and liabilities assumed. As of the acquisition date, the purchase price was assigned to the acquired assets and assumed liabilities as follows (in thousands):

Cash acquired$256 
Other current assets106 
Property and equipment59 
Developed technology5,974 
Customer relationships750 
Goodwill24,521 
Other non-current assets27 
Total assets acquired31,693 
Current liabilities638 
Non-current liabilities38 
Total liabilities assumed676 
Net assets acquired$31,017 

There were no changes to our reportable segments as a result of the acquisition, and acquisition costs incurred in relation to the transaction were immaterial. We do not expect the purchase price allocated to goodwill and intangible assets to be deductible for tax purposes.

During the third quarter of 2022, we finalized the fair value of the assets acquired and liabilities assumed in the acquisition, and the amounts presented above are now final. Measurement period adjustments, recorded during the first quarter of 2022, included a $0.8 million adjustment to developed technology and goodwill related to an update to the discount rate utilized in our valuation of intangibles, a $0.3 million increase in deferred revenue stemming from our early adoption of new accounting guidance surrounding deferred revenue recognized pursuant to a business combination, a $0.1 million deferred tax adjustment,
16

APPIAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
and an immaterial adjustment to working capital. No additional measurement period adjustments were recognized for the nine months ended September 30, 2022.

6. Goodwill and Intangible Assets

Goodwill was comprised of the following as of September 30, 2022 and December 31, 2021 (in thousands):

Carrying Amount
Balance as of December 31, 2020
$4,862 
Goodwill acquired24,521 
Foreign currency translation adjustments(1,588)
Balance as of December 31, 2021
27,795 
Goodwill acquired 
Foreign currency translation adjustments(3,750)
Balance as of September 30, 2022
$24,045 

Intangible assets, net consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):

As of
September 30, 2022December 31, 2021
Developed technology$6,290 $7,271 
Customer relationships - Non-Robotic Process Automation (“RPA”)754 872 
Customer relationships - RPA226 261 
Intangible assets, gross7,270 8,404 
Less: accumulated amortization(2,131)(1,260)
Intangible assets, net$5,139 $7,144 

Intangible amortization expense was $0.4 million and $1.1 million for the three and nine months ended September 30, 2022, respectively. Intangible amortization expense was $0.3 million and $0.5 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, the weighted average remaining amortization periods for developed technology, non-RPA customer relationships, and RPA customer relationships were approximately 3.7 years, 8.7 years, and 7.3 years, respectively.

The projected annual amortization expense related to amortizable intangible assets as of September 30, 2022 is as follows (in thousands):

Projected Amortization
2022 (excluding the nine months ended September 30, 2022)
$347 
20231,342 
20241,342 
20251,068 
2026687 
202784 
Thereafter269 
Total projected amortization expense$5,139 

17


7. Property and Equipment, net

Property and equipment, net consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022December 31, 2021
Leasehold improvements$43,308 $41,005 
Office furniture and fixtures3,224 2,536 
Computer hardware8,761 6,001 
Computer software1,353 1,353 
Equipment235 124 
Property and equipment, gross56,881 51,019 
Less: accumulated depreciation(18,189)(14,106)
Property and equipment, net$38,692 $36,913 

Depreciation expense totaled $1.4 million and $4.2 million for the three and nine months ended September 30, 2022, respectively. Depreciation expense totaled $1.2 million and $3.6 million for the three and nine months ended September 30, 2021, respectively. We had no disposals or retirements and recorded no gains or losses on disposal during each of the three and nine months ended September 30, 2022. We recorded $0.1 million in losses on disposal for the three and nine months ended September 30, 2021.

8. Accrued Expenses

Accrued expenses consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022December 31, 2021
Hosting costs$2,917 $1,995 
Legal costs966 5,511 
Marketing and tradeshow expenses744 1,167 
Third party license fees1,821 1,066 
Contract labor costs1,453 891 
Reimbursable employee expenses1,246 870 
Taxes payable542 550 
Audit and tax expenses