Quick10K

Appian

Price	50.46		EPS	-1
Shares	66		P/E	-62
MCap	3,306		P/FCF	-1,117
Net Debt	-166		EBIT	-53
TEV	3,140		TEV/EBIT	-59
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-05-07 Print
10-K	2019-12-31	Filed 2020-02-20 Print
10-Q	2019-09-30	Filed 2019-10-31 Print
10-Q	2019-06-30	Filed 2019-08-08 Print
10-Q	2019-03-31	Filed 2019-05-02 Print
10-K	2018-12-31	Filed 2019-02-21 Print
10-Q	2018-09-30	Filed 2018-11-01 Print
10-Q	2018-06-30	Filed 2018-08-02 Print
10-Q	2018-03-31	Filed 2018-05-03 Print
10-K	2017-12-31	Filed 2018-02-23 Print
10-Q	2017-09-30	Filed 2017-11-02 Print
10-Q	2017-06-30	Filed 2017-08-03 Print

8-K	2020-06-12
8-K	2020-06-01
8-K	2020-05-07
8-K	2020-02-20
8-K	2019-10-31
8-K	2019-09-04
8-K	2019-08-08
8-K	2019-06-06
8-K	2019-05-23
8-K	2019-05-02
8-K	2019-02-21
8-K	2019-01-02
8-K	2018-12-10
8-K	2018-11-01
8-K	2018-08-20
8-K	2018-08-02
8-K	2018-06-07
8-K	2018-05-03
8-K	2018-04-17
8-K	2018-02-22

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Balance Sheet	Income Statement	Cash Flow
CopyHistoryView Assets, Equity	CopyHistoryView Rev, G Profit, Net Income	CopyHistoryView Ops, Inv, Fin

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PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

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1. Organization and Description of Business

Appian Corporation (together with its subsidiaries, “Appian,” the “Company,” “we” or “our”) provides a low-code automation platform that accelerates the creation of high-impact business applications, enabling our customers to automate the most important aspects of their business. Global organizations use our applications to improve customer experience, achieve operational excellence, and simplify global risk management and compliance. We were incorporated in the state of Delaware in August 1999. We are headquartered in McLean, Virginia and operate in Canada, Switzerland, the United Kingdom, France, Germany, the Netherlands, Italy, Australia, Spain, Singapore, and Sweden.

2. Significant 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 information. 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, 2019, filed with the Securities and Exchange Commission (the “SEC”) on February 20, 2020.

We adopted ASC 606, the new revenue recognition guidance, on January 1, 2019 using the modified retrospective method. Under this method of adoption, we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit and applied the new standard only to contracts that were not completed prior January 1, 2019.

Because we were an emerging growth company until December 31, 2019, the Jumpstart Our Business Startups Act allowed us to delay adoption of ASC 606 until such time it was made applicable to private companies. We elected to use this extended transition period, and accordingly, did not report revenues under ASC 606 in our Quarterly Reports on Form 10-Q during 2019. Refer to our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 20, 2020, for a complete reconciliation of our revenues under the old and new guidance. Prior period revenue amounts in this Form 10-Q have been recast as if we had reported under ASC 606 for the applicable periods.

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 revenue recognition, income taxes and the related valuation allowance, the valuation of goodwill and intangible assets, and stock-based compensation.

The outbreak of the novel coronavirus disease ("COVID-19") has resulted in the declaration of a global pandemic and introduced a level of disruption and uncertainty into the financial markets and global economy. While we continue to monitor the developments surrounding the pandemic, as of the date of issuance of these financial statements, we are not aware of any specific events or circumstances that would require us to update our estimates, assumptions, and judgments or revise the carrying value of our assets or liabilities. However, the ultimate impact of COVID-19 on our business is not estimable at this time and will be largely dependent upon a number of factors outside of our control including the extent and duration of the outbreak as well as any mitigating actions which may be undertaken by global governments and the general public.

Principles of Consolidation

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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.

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, 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, travel costs, third-party contractor costs, and allocated facility costs and overhead.

Concentration of Credit and Customer Risk

Our financial instruments exposed to concentration of credit and customer risk consist primarily of cash and cash equivalents and trade accounts receivable. Deposits held with banks may exceed the amount of insurance provided on such deposits. 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. We believe no additional credit risk beyond amounts provided for collection loss are inherent in accounts receivable. When accounted for under ASC 606, revenue generated from government agencies represented 14.9% and 17.8% of our revenue for the three months ended March 31, 2020 and March 31, 2019, respectively, of which the top three federal government agencies generated 6.0% and 8.5% of our revenue for the three months ended March 31, 2020 and March 31, 2019, respectively. Additionally, 33.5% and 31.9% of our revenue during the three months ended March 31, 2020 and March 31, 2019, respectively, was generated from foreign customers.

Cash and Cash Equivalents

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 investments, to be cash equivalents.

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. To date, our allowance and related bad debt write-offs have been nominal. There was a $0.2 million increase in the allowance for doubtful accounts from December 31, 2019 to March 31, 2020.

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

We capitalize the incremental costs of obtaining a contract with a customer, including sales commissions paid to our direct sales force that are incremental costs to obtaining customer contracts. These costs are recorded as deferred commissions in the condensed consolidated balance sheets. Costs to obtain a contract for a new customer or upsell are amortized on a straight-line basis 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 on a straight-line basis over the related renewal period. We also capitalize the incremental fringe benefits associated with commission expenses paid to our direct sales force. 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 commission expense is recorded to sales and marketing costs in our condensed consolidated statements of operations. Commission expense was $5.3 million and $3.1 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. 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 useful lives of our major asset categories:

Asset Category						Useful Life (in years)
Computer software						3
Computer hardware						3
Equipment						5
Office furniture and fixtures						10
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.

Impairment of Long-Lived Assets

Long-lived assets and certain intangible assets are reviewed for impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable through undiscounted cash flows from the use of the assets. If such assets are considered to be impaired, the assets are written down to their estimated fair value. No indicators of impairment were identified for the three months ended March 31, 2020 and March 31, 2019.

Fair Value of Financial Instruments

The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value as of March 31, 2020 and December 31, 2019 because of the relatively short duration of these instruments. Our line of credit is recorded at carrying value, which approximates fair value.

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We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires us to use observable inputs when available and to minimize the use of unobservable inputs when determining fair value. The three tiers are defined as follows:

•Level 1. Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities;

•Level 2. Inputs other than quoted prices in active markets that are observable either directly or indirectly; and

•Level 3. Unobservable inputs for which there is little or no market data, which require us to develop our own assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs

There were no instruments measured at fair value on a recurring basis using significant unobservable inputs as of March 31, 2020 and December 31, 2019.

Stock-Based Compensation

We account for stock-based compensation expense related to stock-based awards based on the estimated fair value of the award on the grant date. We calculate the fair value of stock options containing only a service condition using the Black-Scholes Option Pricing Model. The fair value of restricted stock units is based on the closing market price of our common stock on the Nasdaq Global Market on the date of grant. For service-based awards, stock-based compensation expense is recognized on a straight-line basis over the requisite service period. For performance-based awards, stock-based compensation expense is recognized using the accelerated attribution method based on the probability of satisfying the performance condition. For awards that contain market conditions, compensation expense is measured using a Monte Carlo simulation and recognized using the accelerated attribution method over the derived service period based on the expected market performance as of the grant date. For restricted stock units, stock-based compensation expense is recognized on a straight-line basis over the requisite service period. We account for forfeitures as they occur rather than estimating expected forfeitures.

Leases

Refer to Note 4 for a detailed discussion on our policies specific to leasing arrangements.

Recent Accounting Pronouncements

Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) ("ASU 2016-13"), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Adopting the standard did not have a material impact on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which eliminates, modifies, and adds disclosure requirements for fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted. Adopting the standard did not have a material impact on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is

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3. Revenue

Revenue Recognition

We generate subscriptions revenue primarily through the sale of software as a service ("SaaS") 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 from contracts with customers for the three months ended March 31, 2020 and March 31, 2019 (in thousands):

Copy History

			Three Months Ended March 31,
			2020						2019
SaaS subscriptions			$	28,390					$	21,278
Term license subscriptions			17,793						9,557
Maintenance and support			4,253						3,722
Professional services			28,428						25,747
Total revenue			$	78,864					$	60,304

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 SaaS subscriptions, maintenance and support, and professional services are delivered over time.

Subscriptions Revenue

Subscriptions revenue is primarily related to (1) SaaS 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 and, to a lesser degree, 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.

SaaS Subscriptions

We generate cloud-based subscription 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, and we do not separately charge customers for hosting costs. 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

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Our term license subscription revenue is derived from customers with on-premise installations of our platform pursuant to contracts that were historically one to three years in length. The majority of recent contracts have been 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 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

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 stand alone 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 contracts are each 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 includes both fixed and variable consideration. 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 months ended March 31, 2020 was insignificant. Our estimates of variable 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:

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1.SaaS subscriptions - Given the highly variable selling price of our SaaS subscriptions, we establish the SSP of our SaaS 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 SaaS 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 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 services and training services - SSP of consulting services 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 March 31, 2020 and December 31, 2019, contract assets of $23.4 million and $22.8 million, respectively, are included in the prepaid expenses and other current assets and other assets line items in our condensed consolidated balance sheets.

Contract liabilities consists 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 three months ended March 31, 2020, we recognized $35.6 million of revenue that was included in the deferred revenue balance as of January 1, 2020.

Transaction Price Allocated to the Remaining Performance Obligations

As of March 31, 2020, we had an aggregate transaction price of $172.5 million allocated to unsatisfied performance obligations. We expect to recognize $155.6 million of this balance as revenue over the next 24 months with the remaining amount recognized thereafter.

4. Leases

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease. Operating leases with a term greater than one year are recognized on the balance sheet as right-of-use ("ROU") assets, lease liabilities, and, if applicable, long-term lease liabilities. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We have elected not to recognize on the balance sheet leases with a term of one year or less. For contracts with lease and non-lease components, we have elected not to allocate the contract consideration and to account for the lease and non-lease components as a single lease component. Finance leases are included in property and equipment, net, finance lease liability, current, and finance lease liability, net of current portion line items in our condensed consolidated balance sheets.

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rate within most of our leases are generally not determinable; therefore, we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of our incremental borrowing rate requires judgment and is estimated for each lease based on the rate we would

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have to pay for a collateralized loan with the same term and payments as the lease. We consider various factors, including our level of collateralization, estimated credit rating, and the currency in which the lease is denominated. The operating lease ROU also includes any lease prepayments, offset by lease incentives. Certain of our leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option while an option to terminate is considered as well unless it is reasonably certain we will not exercise the option. For certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest 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. Variable lease payments are not included in the ROU assets or lease liabilities but rather are expensed as incurred and recorded as variable lease expense.

We have operating and finance leases for corporate offices, office furniture and fixtures, and computer hardware. Our leases have remaining lease terms of 1 year to 12 years, some of which include options to extend the leases for up to 5 years.

In April 2018, we entered into a lease agreement with respect to 176,222 square feet of office space in McLean, Virginia for a new corporate headquarters. The initial term of the lease was 150 months. We took initial possession of the first phase of the new headquarters in October 2018 and began to recognize rent expense as of that date. In February 2019, we took possession of a further 28,805 square feet of adjacent office space.

In January 2020, we entered into an amendment which adjusts the original terms of the headquarters lease. Under this amendment, we exercised an option to expand occupancy, adding 34,158 square feet of space. Occupancy of the added space is to commence upon the earlier of the completion of certain improvements or October 14, 2020. Pursuant to the guidance of ASC 842, the amendment is considered a modification to the original lease and is accounted for as a separate contract because it represents a new right-of-use asset and the lease costs charged on the new space are at prevailing market rates. As of March 31, 2020, we have not taken possession of the space nor met the criteria for the lease to be considered commenced. Accordingly, we have not reported a right-of-use asset or liability on our condensed consolidated balance sheets nor have recorded expense on our condensed consolidated statements of operations in relation to the additional space.

The following table sets forth the components of lease expense for the three months ended March 31, 2020 (in thousands):

Copy History

			Three Months Ended March 31, 2020
Operating lease cost			$	1,868
Finance lease costs:
Amortization of right-of-use assets			373
Interest on lease liabilities			51
Short-term lease cost			185
Variable lease cost			183
Total			$	2,660

Supplemental balance sheet information related to leases as of March 31, 2020 was as follows (in thousands, except for lease term and discount rate):

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Copy History

			As of
			March 31, 2020
Operating Leases
Operating right-of-use assets			$	23,340
Operating lease liabilities, current			$	3,755
Operating lease liabilities, net of current portion			44,778
Total operating lease liabilities			$	48,533
Finance Leases
Property and equipment, at cost			$	4,471
Accumulated depreciation			(1,073)
Property and equipment, net			$	3,398
Finance lease liabilities, current			$	1,466
Finance lease liabilities, net of current portion			1,998
Total finance lease liabilities			$	3,464
Weighted Average Remaining Lease Term (in years)
Operating leases			11.2
Finance leases			2.3
Weighted Average Discount Rate
Operating leases			9.9		%
Finance leases			5.5		%

For the three months ended March 31, 2020, amortization of operating right-of-use assets totaled $0.7 million and interest expense on operating right-of-use liabilities totaled $0.4 million.

Supplemental cash flow information related to leases for the three months ended March 31, 2020 was as follows (in thousands):

			Three Months Ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases			$	772
Operating cash outflows for finance leases			51
Financing cash outflows for finance leases			357

A summary of our future minimum lease commitments under non-cancellable leases as of March 31, 2020 is as follows (in thousands):

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5. Acquisitions

Novayre Solutions SL

In January 2020, we acquired 100% of the outstanding common stock of Novayre Solutions SL, a developer of a robotic process automation platform, for approximately $6.9 million. The acquisition was made due to the attractive nature of the product offerings of Novayre 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 is preliminary pending the finalization of the fair value of the acquired net assets, liabilities assumed, deferred income taxes, and assumed income and non-income based tax liabilities. As of the acquisition date, the purchase price was assigned to the acquired assets and assumed liabilities as follows (in thousands):

Copy History

Cash acquired			$	731
Other current assets			213
Property and equipment			22
Developed technology			1,537
Customer relationships			406
Goodwill			4,308
Other noncurrent assets			10
Total assets acquired			7,227
Current liabilities			14
Noncurrent liabilities			344
Total liabilities assumed			358
Net assets acquired			$	6,869

There were no changes to our reportable segments as a result of the acquisition, and revenue and expenses from the date of the acquisition through March 31, 2020 were immaterial. Additionally, acquisition costs incurred in relation to the transaction were immaterial.

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Property and equipment, net consisted of the following as of March 31, 2020 and December 31, 2019 (in thousands):

Copy History

			March 31, 2020						December 31, 2019
Leasehold improvements			$	35,951					$	37,130
Office furniture and fixtures			4,860						4,963
Computer hardware			3,362						3,365
Computer software			1,352						1,350
Equipment			47						72
			45,572						46,880
Less: accumulated depreciation			(7,247)						(7,326)
Property and equipment, net			$	38,325					$	39,554

Depreciation expense totaled $1.4 million and $0.8 million for the three months ended March 31, 2020 and March 31, 2019, respectively. During the three months ended March 31, 2020, we retired $1.3 million of leasehold improvements, $0.1 million of computer hardware, $0.1 million of office furniture and fixtures and equipment. Nominal losses on disposal were recorded for the three months ended March 31, 2020. There were no retirements of property or equipment and no gains or losses recorded on disposal during the three months ended March 31, 2019.

At March 31, 2020, property and equipment included $4.5 million of assets acquired under finance lease arrangements. Accumulated depreciation related to these finance lease arrangements totaled $1.1 million at March 31, 2020. Amortization of assets acquired under finance leases is included in depreciation and amortization expense.

7. Accrued Expenses

Accrued expenses consisted of the following as of March 31, 2020 and December 31, 2019 (in thousands):

Copy History

			March 31, 2020						December 31, 2019
Accrued contract labor costs			$	1,984					$	1,921
Accrued hosting costs			1,177						1,865
Accrued reimbursable employee expenses			969						1,353
Accrued legal costs			288						422
Accrued marketing and tradeshow expenses			730						365
Accrued audit and tax expenses			754						315
Accrued third party license fees			244						288
Other accrued expenses			1,390						959
Total			$	7,536					$	7,488

8. Debt

Line of Credit

In November 2017, we entered into a $20.0 million revolving line of credit with a lender. The facility matures in November 2022. We may elect whether amounts drawn on the revolving line of credit bear interest at a floating rate per annum equal to either LIBOR or the prime rate plus an additional interest rate margin that is determined by the availability of the borrowings under the revolving line of credit. The additional interest rate margin will range from 2.00% to 2.50% in the case of LIBOR advances and from 1.00% to 1.50% in the case of prime rate advances. The revolving line of credit contains an unused facility fee in an amount between 0.15% and 0.25% of the average unused portion of the revolving line of credit, which is payable quarterly. The agreement contains certain customary affirmative and negative covenants and requires us to maintain (i) an adjusted quick ratio of at least 1.35 to 1.00 and (ii) minimum adjusted EBITDA, in the amounts and for the periods set forth in

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9. Income Taxes

The provision for income taxes is based upon the estimated annual effective tax rates for the year applied to the current period income before tax plus the tax effect of any significant or unusual items, discrete events, or changes in tax law. Our operating subsidiaries are exposed to statutory effective tax rates ranging from zero to approximately 32%. Fluctuations in the distribution of pre-tax income among our operating subsidiaries can lead to fluctuations of the effective tax rate in the condensed consolidated financial statements. For the three months ended March 31, 2020 and March 31, 2019, the actual effective tax rates were 1.6% and (0.8)%, respectively.

We assess uncertain tax positions in accordance with ASC 740-10, Accounting for Uncertainties in Income Taxes. As of March 31, 2020, our net unrecognized tax benefits totaled $1.6 million, which if recognized would result in no net effect on the effective tax rate due to a valuation allowance. The amount of reasonably possible unrecognized tax benefits that could decrease over the next 12 months due to the expiration of certain statutes of limitations or settlements of tax audit is not material to our condensed consolidated financial statements.

We file income tax returns in the United States federal jurisdiction and in many states and foreign jurisdictions. The tax years 2016 through 2019 remain open to examination by the major taxing jurisdictions to which we are subject. We are not currently under examination by the Internal Revenue Service for any open tax years.

In response to the COVID-19 pandemic, the United States passed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act in March 2020. The CARES Act includes various income and payroll tax measures. At this time, the CARES Act is not expected to materially impact our financial statements, but we continue to evaluate potential impacts.

10. Stock-Based Compensation

Equity Incentive Plans

In May 2017, our Board of Directors adopted, and our stockholders approved, the 2017 Equity Incentive Plan (the “2017 Plan”), which became effective as of the date of the final prospectus for our initial public offering. The 2017 Plan provides for the grant of incentive stock options to employees, and for the grant of nonstatutory stock options, restricted stock awards, restricted stock unit awards ("RSUs"), stock appreciation rights, performance-based stock awards, and other forms of equity compensation to employees, including officers, non-employee directors, and consultants. We initially reserved 6,421,442 shares of Class A common stock for issuance under the 2017 Plan, which included 421,442 shares that remained available for issuance under our 2007 Stock Option Plan (the “2007 Plan”) at the time the 2017 Plan became effective. The number of shares reserved under the 2017 Plan increases for any shares subject to outstanding awards originally granted under the 2007 Plan that expire or are forfeited prior to exercise. As a result of the adoption of the 2017 Plan, no further grants may be made under the 2007 Plan. As of March 31, 2020, there were 7,129,569 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 4,595,825 were available to be issued.

Stock Options

We estimate the fair value of stock options containing only a service condition using the Black-Scholes option pricing model, which requires the use of subjective assumptions, including the expected term of the option, the current price of the underlying stock, the expected stock price volatility, expected dividend yield, and the risk-free interest rate for the expected term of the option. The expected term represents the period of time the stock options are expected to be outstanding. Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options, we use the simplified method to estimate the expected term for our stock options. Under the simplified method, the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated

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expected term of the stock options. We assume no dividend yield because dividends are not expected to be paid in the near future, which is consistent with our history of not paying dividends.

In May 2019, our Board of Directors granted a stock option to purchase 700,000 shares of our Class A common stock to our Chief Executive Officer (the "2019 CEO Grant") under the 2017 Plan with an exercise price of $33.98 per share. The 2019 CEO Grant is eligible to vest based on the achievement of a stock price appreciation target of our Class A common stock. Specifically, the 2019 CEO Grant will vest when shares of our Class A common stock closes at or above $84.63 per share for a period equal to or greater than 90 calendar days or upon the occurrence of a change in control in which the value of our Class A common stock is equal to or greater than $84.63 per share within five years of the grant date. The fair value of the 2019 CEO Grant was determined using a Monte Carlo simulation. The fair value of the award at the grant date was $9.5 million and will be amortized over the derived service period of 2.6 years.

The following table summarizes the stock option activity for the three months ended March 31, 2020:

Copy History

			Number of Shares						Weighted Average Exercise Price						Weighted Average Remaining Contractual Term (Years)						Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2020			4,458,611						$	12.30					5.8						$	115,501
Granted			—						—
Exercised			(129,082)						5.16												$	4,900
Canceled			(21,520)						10.99
Outstanding at March 31, 2020			4,308,009						$	12.53					5.55						$	119,352
Exercisable at March 31, 2020			2,776,009						$	7.64					5.55						$	90,481

There were no stock options granted during the three months ended March 31, 2020 and March 31, 2019. The total fair value of stock options that vested during each of the three months ended March 31, 2020 and March 31, 2019 was $0.3 million. As of March 31, 2020, the total compensation cost related to unvested stock options not yet recognized was $7.2 million, which will be recognized over a weighted average period of 1.7 years.

Restricted Stock Units

The following table summarizes RSU activity for the three months ended March 31, 2020:

Copy History

			Number of Shares						Weighted Average Grant Date Fair Value
Non-vested and outstanding at January 1, 2020