UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2020
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
APPIAN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or other jurisdiction of incorporation or organization)
54-1956084
(I.R.S. Employer Identification No.)
7950 Jones Branch Drive
McLean, VA
(Address of principal executive offices)
22102
(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 class
Class A Common Stock
Trading symbol
APPN
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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 filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller 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 has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
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 June 30, 2020, the aggregate market value of the registrant’s voting Class A common stock and Class B common
stock held by non-affiliates of the registrant was $1,309,078,699 and $123,649,286, respectively, based on a closing price of
$51.25 per share of the registrant’s Class A common stock as reported on The Nasdaq Global Market on June 30, 2020. For
purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates.
Such determination should not be deemed to be an admission that such officers, directors, or 10% beneficial owners are, in fact,
affiliates of the registrant.
As of February 15, 2021, there were 38,988,594 shares of the registrant’s Class A common stock and 31,707,466 shares of
the registrant’s Class B common stock, each with a par value of $0.0001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 2021 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K are incorporated by reference in Part III, Items 10-14 of this Annual Report on
Form 10-K.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Item 16.
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Forward-Looking Statements
PART I
This Annual Report on Form 10-K, including the sections entitled "Business," "Risk Factors," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements that involve
known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or
achievements to be materially different from the information expressed or implied by these forward-looking statements.
Statements that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. In some cases, forward-looking statements can be identified by the words “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,”
“should,” “will,” or “would,” or the negative of these terms, or other comparable terminology intended to identify statements
about the future. These forward-looking statements include, but are not limited to, statements concerning the following:
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Our market opportunity and the expansion of our core software markets in general;
The effects of increased competition as well as innovations by new and existing competitors in our market;
Our ability to adapt to technological change and effectively enhance, innovate, and scale our platform and professional
services;
Our ability to effectively manage or sustain our growth and to achieve profitability;
Potential acquisitions and integration of complementary businesses and technologies;
Our ability to maintain, or strengthen awareness of, our brand;
Perceived or actual problems with the integrity, reliability, quality, or compatibility of our platform, including
unscheduled downtime or outages;
Uncertain impacts COVID-19 may have on our business, financial condition, results of operations, and changes in the
overall level of spending and volatility in the global economy;
Future revenue, hiring plans, expenses, capital expenditures, capital requirements, and stock performance;
Our ability to attract and retain qualified employees and key personnel and further expand our overall headcount;
The expected benefits to our clients and potential clients of our product and service offerings;
The timing of revenue recognition under license and cloud arrangements;
Our expectation that subscriptions revenue as a percentage of total revenue will continue to increase;
Our backlog of license, maintenance, cloud, and services agreements and the timing of future cash receipts from
committed license and cloud arrangements;
Our expectation that cost of revenue, sales and marketing expenses, and general and administrative expenses will
continue to increase in absolute dollar values;
Our expectations regarding the impact of recent accounting pronouncements on our consolidated financial statements;
Our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our
business both in the United States and internationally;
Our ability to maintain, protect, and enhance our intellectual property; and
Costs associated with defending intellectual property infringement and other claims.
These statements represent the beliefs and assumptions of our management based on information currently available to us.
Such forward-looking statements are subject to risks, uncertainties, and other important factors that could cause actual results
and the timing of certain events to differ materially from future results expressed or implied by such forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the
section titled “Risk Factors” included under Part I, Item 1A. Furthermore, such forward-looking statements speak only as of the
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date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect
events or circumstances that occur after the date of this report.
Risk Factors Summary
The risk factors summarized below could materially harm our business, operating results, and/or financial condition, impair
our future prospects, and/or cause the price of our common stock to decline. These risks are discussed more fully in the section
titled "Risk Factors". Material risks that may affect our business, financial condition, results of operations, and trading price of
our Class A common stock include, but are not necessarily limited to, the following:
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Our recent growth may not be indicative of our future growth and, if we continue to grow, we may not be able to
manage our growth effectively.
If we are unable to sustain our revenue growth rate, we may not achieve or maintain profitability in the future.
• We may not be able to scale our business quickly enough to meet our customers’ growing needs, and if we are not able
to grow efficiently, our operating results could be harmed.
• We are dependent on a single product, and the lack of continued market acceptance of our platform could cause our
operating results to suffer.
• Market adoption of low-code platforms to drive digital transformation is new and unproven and may not grow as we
expect, which may harm our business and prospects.
• We currently face significant competition.
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If our security measures are breached or unauthorized access to our platform or customer data is otherwise obtained,
our platform may be perceived as not being secure, customers may reduce the use of or stop using our platform, and
we may incur significant liabilities.
• We derive a material portion of our revenue from a limited number of customers, and the loss of one or more of these
customers could adversely impact our business, results of operations, and financial condition.
• We rely on the performance of highly skilled personnel, including senior management and our engineering,
professional services, sales, and technology professionals.
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If we do not continue to innovate and provide a platform that is useful to our customers, we may not remain
competitive, and our revenue and operating results could suffer.
• We are substantially dependent upon customer renewals, the addition of new customers, and the continued growth of
our subscriptions revenue.
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Because we generally recognize revenue from cloud subscriptions ratably over the term of the subscription agreement,
near term changes in sales may not be reflected immediately in our operating results.
• We rely upon Amazon Web Services, or AWS, to operate our cloud offering; any disruption of or interference with
our use of AWS would adversely affect our business, results of operations, and financial condition.
• We employ third-party licensed software for use in or with our software, and the inability to maintain these licenses or
errors in the software we license could result in increased costs or reduced service levels, which would adversely affect
our business.
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If we do not or cannot maintain the compatibility of our platform with third-party applications that our customers use
in their businesses, our revenue will decline.
Because our software could be used to collect and store personal information, domestic and international privacy
concerns could result in additional costs and liabilities to us or inhibit sales of our software.
If our platform fails to function in a manner that allows our customers to operate in compliance with regulations and/or
industry standards, our revenue and operating results could be harmed.
• We are subject to anti-corruption laws with respect to our domestic and international operations.
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• We are subject to governmental export and import controls and economic and trade sanctions that could impair our
ability to conduct business in international markets and subject us to liability if we are not in compliance with
applicable laws and regulations.
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Any failure to protect our proprietary technology and intellectual property rights could substantially harm our business
and operating results.
Portions of our platform utilize open source software, and any failure to comply with the terms of one or more of these
open source licenses could negatively affect our business.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations
could be adversely affected.
Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.
The dual class structure of our common stock and the existing ownership of capital stock by Matthew Calkins, our
founder and Chief Executive Officer, has the effect of concentrating voting control with Mr. Calkins for the
foreseeable future, which will limit your ability to influence corporate matters.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more
difficult, limit attempts by our stockholders to replace or remove our current management, and limit the market price
of our Class A common stock.
The effects of national and global epidemics, including the recent COVID-19 pandemic, could have an adverse impact
on our business, operations, and the markets and communities in which we operate.
Our stock price may be volatile, and you may lose some or all of your investment.
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Item 1. Business.
Overview
Appian Corporation (together with its subsidiaries, "Appian," the "Company," "we," "us," or "our") provides a low-code
automation platform that accelerates the creation of high-impact business applications and workflows, 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.
With our platform, organizations can rapidly and easily design, build, and implement powerful, enterprise-grade custom
applications through our intuitive, visual interface with little or no coding required. Our customers have used applications built
on our platform to launch new business lines, automate vital employee workflows, manage complex trading platforms,
accelerate drug development, and build global procurement systems. With our platform, decision makers can reimagine their
products, services, processes, and customer interactions by removing much of the complexity and many of the challenges
associated with traditional approaches to software development.
Organizations across all industries are digitally transforming by leveraging software to automate and optimize mission
critical operations, enhance customer experiences, and drive competitive differentiation. Historically, organizations have
principally relied on packaged software and custom software solutions to operationalize and automate their businesses.
Packaged software often fails to address unusual use cases or to enable differentiation and requires organizations to adapt their
individual processes, needs, and systems of record to standardized frameworks. While traditional custom software solutions can
be differentiated and tailored to meet strategic objectives, development requires a long, iterative, and cumbersome process, as
well as costly integration, and relies on scarce developer talent.
We enable organizations to differentiate themselves from their competition through software-enabled digital
transformation. Our low-code automation platform employs an intuitive, visual interface and pre-built development modules
that reduce the time required to build powerful and unique applications. Our platform automates the creation of forms,
workflows, data structures, reports, and other software elements that would otherwise need to be manually coded. This
functionality greatly reduces the iterative development process, allowing for real-time optimization and ultimately shortening
the time it takes to design, build, and deploy applications. Our customers take advantage of our complete automation
capabilities, including our industry-leading workflow engine, rules engine, native Robotic Process Automation, or RPA,
capabilities, leading case management capabilities, and integrated Google-based artificial intelligence, or AI. Our customers can
leverage these technologies to apply the right automation approach for each specific use case.
Further, our patented Self-Assembling Interface Layer, or SAIL, technology ensures applications developed on our
platform can be immediately and natively deployed across a full range of mobile and desktop devices with no additional
customization, including desktop web browsers, tablets, and mobile phones. Updates to applications developed with SAIL
disseminate automatically across device types to ensure all users benefit from the most up-to-date functionality. At the same
time, we unify enterprise data in a single searchable environment, providing organizations with a comprehensive view of
customer, product, organizational asset, and other critical information. Rich reporting dashboards capture detailed performance
metrics, providing valuable business intelligence and analytics that enable business process optimization. Our platform can be
deployed in the cloud or on-premises, with organizations able to access the same functionality and data sources in all cases.
Our go-to-market strategy consists of both direct sales and sales through strategic partners. We sell our software almost
exclusively through subscriptions and intend to grow our revenue both by adding new customers and increasing the number of
users at existing customers that use our applications or increase the number of applications developed on our platform. Strategic
partners work with organizations undergoing digital transformations projects and, when these partners recognize an opportunity
for our platform, they often introduce us to potential customers.
Many of our customers begin by building a single application and grow to build dozens of applications on our platform,
which implicitly reduces the per-user cost of each application. Generally, the development of new applications results in the
expansion of our user base within an organization and a corresponding increase in revenue to us because we charge subscription
fees on a per-user basis and, to a lesser degree, non-user based single application licenses. Every additional application an
organization creates on our platform increases the value of our platform for that organization because it further integrates
people, processes, and data across the organization and facilitates knowledge sharing. At the same time, our industry-leading
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Customer Success organization enables our customers to more easily build and deploy applications on our platform to achieve
their digital transformation goals.
We have experienced strong revenue growth, with revenue of $304.6 million, $260.4 million, and $226.7 million in 2020,
2019, and 2018, respectively. Our subscriptions revenue was $198.7 million, $151.3 million, and $126.0 million in 2020, 2019,
and 2018, respectively, and includes sales of our software-as-a-service, or SaaS, subscriptions, on-premises term license
subscriptions, and maintenance and support. SaaS subscription revenue, which is also referred to as cloud subscription revenue,
was $129.2 million, $95.0 million, and $67.4 million in 2020, 2019, and 2018, respectively, representing year-over-year growth
rates of 36% from 2019 to 2020 and 41% from 2018 to 2019. Our professional services revenue, generated by our Customer
Success organization, was $105.9 million, $109.1 million, and $100.7 million in 2020, 2019, and 2018, respectively. Over time,
as the need for professional services associated with user deployments decreases and the number of end users increases, we
expect subscriptions revenue as a percentage of total revenue will continue to increase. Further, as the usage of partners
expands, we expect the proportion of our total revenue from subscriptions to increase over time.
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 $33.5 million, $50.7 million, and
$49.5 million in 2020, 2019, and 2018, respectively. We also used cash in operations of $7.6 million, $8.9 million, and $31.3
million in 2020, 2019, and 2018, respectively.
COVID-19
Beginning in late 2019 and continuing into 2021, the outbreak of the novel coronavirus disease, or COVID-19, has resulted
in the declaration of a global pandemic and adversely affected economic activity across virtually all sectors and industries on a
local, national, and global scale. The impact of the COVID-19 pandemic on the economy and our business continues to be a
dynamic situation.
Operationally, we remain focused on supporting our customers, employees, and communities during this time. We have
responded quickly to adopt a virtual corporate strategy consisting of enabling most of our employees to work productively from
home while continuing to guard the health and safety of our teams, support our customers, and mitigate risk. We are focused on
ensuring continuity for our customers. To the extent possible, we are conducting business as usual, with necessary or advisable
modifications to employee travel, employee work locations, and marketing events. Refer to Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report on Form 10-K for further
discussion regarding the impact of the COVID-19 pandemic on our fiscal year 2020 financial results.
Through December 31, 2020, we have not seen a meaningful adverse impact to our financial position, results of operations,
and cash flows and liquidity as a result of COVID-19. While the verticals from which we have historically generated the
majority of our revenue have been less impacted by COVID-19 to date, there may be impacts to our financial condition and
results of operations in 2021 as a result of reduced demand for our products and services and longer sales cycles. 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.
Industry and Market Data
Information contained in this Annual Report on Form 10-K concerning our industry and the market in which we operate,
including our general expectations and market position, market opportunity, and market size is based on information from
various sources, including independent industry publications by Forrester Research Inc., or Forrester, Gartner, Inc., or Gartner,
Prescient & Strategic Intelligence, and International Data Corporation, or IDC. In presenting this information, we have also
made assumptions based on such data and other similar sources, and based on our knowledge of, and our experience to date in,
the markets for our services. This information involves a number of assumptions and limitations, and we caution readers not to
give undue weight to such estimates. Although we have not independently verified the accuracy or completeness of any third-
party information, we believe the market position, market opportunity, and market size information included in this Annual
Report on Form 10-K is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a
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variety of factors, including those described in the “Risk Factors” section. These and other factors could cause results to differ
materially from those expressed in the estimates made by the independent parties and by us.
The Gartner content described herein, or the Gartner Content, represent(s) research opinion or viewpoints published, as
part of a syndicated subscription service, by Gartner, and are not representations of fact. The Gartner Content speaks as of its
original publication date and not as of the date of this Annual Report on Form 10-K, and the opinions expressed in the Gartner
Content are subject to change without notice. Gartner does not endorse any vendor, product or service depicted in its research
publications and does not advise technology users to select only those vendors with the highest ratings or other designation.
Gartner research publications consist of the opinions of Gartner’s Research & Advisory organization and should not be
construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including
any warranties of merchantability or fitness for a particular purpose.
Benefits of Our Platform
We enable organizations to differentiate themselves from their competition through software-enabled digital
transformation. With our platform, organizations can rapidly and easily design, build, and implement powerful, enterprise-grade
custom applications and workflows through our intuitive, visual interface, with little or no coding required. Our patented SAIL
technology ensures applications developed on our platform can be immediately and natively deployed across a full range of
mobile and desktop devices with no additional customization, including desktop web browsers, tablets, and mobile phones. We
also enable organizations to easily modify and enhance applications and automatically disseminate these updates across device
types to ensure all users benefit from the most up-to-date functionality.
Key benefits of our platform include:
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Powerful applications to solve critical and complex challenges. At the core of our platform is an advanced engine that
enables the modeling, modification, and management of complex processes and business rules. Our heritage as a
business process management, or BPM, company provides us with this differentiated understanding of complex
processes, and we have incorporated that expertise into our platform to enable the development of powerful
applications. Organizations have used our platform to launch new business lines, build large procurement systems,
manage retail store layouts, conduct predictive maintenance on field equipment, optimize supply chain logistics, and
manage trading platforms, among a range of other use cases.
Rapid and simple innovation through our powerful platform. Our platform employs a low-code, intuitive, visual
interface and pre-built development modules that reduce the time required to build powerful and unique applications.
Our platform automates the creation of forms, workflows, data structures, reports, and other software elements that
would otherwise need to be manually coded or configured. This functionality greatly reduces the iterative development
process, allowing for real-time optimization and ultimately shortening the time it takes to design, build, and deploy
applications. In turn, organizations can better leverage scarce and costly developer talent to accomplish more digital
transformation objectives.
Build once, deploy everywhere. Our patented SAIL technology allows developers to build an application once and use
it everywhere with the consistency of experience and optimal performance levels that users expect. Applications
developed on our platform can be immediately and natively deployed across a full range of mobile and desktop
devices with no additional customization, including desktop web browsers, tablets, and mobile phones.
Delivering measurable results using automation. Our low-code automation allows companies to combine people,
existing systems, data, process mining, RPA, and AI in a single workflow to quickly deliver a meaningful business
impact. Our RPA automates the routine tasks across legacy and modern systems, increasing efficiency and providing
even more value to the customer. AI boosts business outcomes by making the applications intelligent, and our platform
allows companies to design, execute, manage, and optimize workflows.
Seamless integration with existing systems and data. In contrast to typical enterprise software, our platform does not
require data to reside within it in order to enable robust data analysis or cross-department and cross-application insight.
Our platform seamlessly integrates with many of the most popular enterprise software applications and data
repositories and can be used within many legacy environments. For example, organizations frequently use our platform
to extend the life and enhance the functionality of legacy systems of record, such as those used for enterprise resource
planning, human capital management, and customer relationship management, by building new applications that
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enhance the functionality of those systems and by leveraging the data within those systems to further optimize and
automate operations.
Deployment flexibility to serve customer needs. Our platform can be installed in any cloud or on-premises, with
organizations able to access the same functionality and data sources in all cases. Our flexible deployment model also
preserves a seamless path to future cloud deployments for organizations initially choosing on-premises for their most
sensitive workloads.
Industry-leading security. Our platform is designed to meet the highest demands of our U.S. federal government and
large enterprise customers. Therefore, it holds some of the highest security certifications available. Our platform was
one of the first to achieve Federal Risk and Authorization Management Program (FedRAMP) compliance.
Additionally, government agencies can deploy our platform into a fully managed environment at the Impact Level IV
security levels with a comprehensive SLA. Our platform is also certified under the Payment Card Industry Data
Security Standard (PCI DSS) and meets all requirements under the HITRUST Common Security Framework (CSF).
To protect personal health information, our platform is Health Insurance Portability and Accountability Act (HIPAA)
compliant and enables General Data Protection Regulation (GDPR) compliance. Our controls are documented in our
SOC-2 Type 2 report, in which an independent audit firm provides a detailed review of Appian Cloud’s security,
availability, and confidentiality controls. Also, our platform is ISO 27001 certified and possesses both a SOC-1 Type 2
report and a SOC-3 report.
Our approach to digital transformation goes beyond simply enabling organizations to build custom applications fast. We
empower decision makers to reimagine their products, services, processes, and customer interactions with software by
removing much of the complexity and many of the challenges associated with traditional approaches to software development.
Because we make application development easy, organizations can build specific and competitively differentiated functionality
into applications to deliver enhanced user experiences and streamlined business operations.
Our Growth Strategy
Key elements of our growth strategy include:
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Expand our customer base. We continue to grow our customer base in a variety of industries, including financial
services, government, life sciences, telecommunications, media, energy, manufacturing, and transportation. We believe
the market for our low-code automation platform is still in its early stages, and we have a significant opportunity to
add additional large enterprise and government customers.
Grow through our differentiated land and expand model. Many of our customers begin by building a single
application and grow to build dozens of applications on our platform, which implicitly reduces the per-user cost of
each application. Generally, the development of new applications results in the expansion of our user base within an
organization and a corresponding increase in revenue to us because we usually charge subscription fees on a per-user
basis and, to a lesser degree, non-user based single application licenses. Every additional application an organization
creates on our platform increases the value of our platform for that organization because it further integrates people,
process, and data across the organization and facilitates knowledge sharing. Applications built on our platform may be
used only on our platform while customers have active subscriptions, creating a substantial incentive for customers to
avoid the difficulties and costs associated with moving to a different software platform.
Grow revenue from key industry verticals. While our platform is industry-agnostic, we have made, and plan to
continue to make, investments to enhance the expertise of our sales and marketing organization within our key
industry verticals of financial services, government, and life sciences. In 2020, we generated over 69% of our
subscriptions revenue from customers in these verticals. We believe focusing on the digital transformation needs of
organizations within these industry verticals can help drive adoption of our platform.
Continue to innovate and enhance our platform. We have made, and will continue to make, investments in research
and development to strengthen our platform and expand the number of features available to our customers. We offer
multiple upgrades each year that allow our customers to benefit from ongoing innovation. As we continue to increase
the functionality of our platform and further reduce the amount of developer skill required to build robust applications
on our platform, we believe we have the potential to expand the use of our platform.
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Offer industry solutions to accelerate customer usage. Our platform enables our customers to build applications
quickly. To give our customers an even faster start, we and our partners offer pre-built solutions. Every Appian
solution is built on our platform so they are fully standardized, upgradeable, and compatible.
Expand our international footprint. Our platform is designed to be natively multilingual to facilitate collaboration and
address challenges in multinational organizations. In 2020, approximately 34% of our total revenue was generated
from customers outside of the United States. As of December 31, 2020, we operated in 12 countries and believe we
have a significant opportunity to continue to grow our international footprint. We are investing in new geographies,
including through investment in direct and indirect sales channels, professional services and customer support, and
implementation partners.
Grow our partner base. We have several strategic partnerships including with KPMG, PwC, Accenture, and Deloitte.
These partners work with organizations undergoing digital transformation projects and, when these partners recognize
an opportunity for our platform, they often introduce us to potential customers in addition to building solutions on our
platform. We intend to further grow our base of partners to provide broader customer coverage and solution delivery
capabilities.
Our Opportunity
We believe we have a significant market opportunity in helping organizations accelerate their digital transformation by
leveraging our low-code automation platform.
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Current core software markets. We believe our platform addresses several key core software markets, as follows:
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Low-code. A low-code application development platform enables rapid application delivery with minimal
hand-coding and quick setup and deployment. According to the Low-Code Development Platform Market
Research Report published by Prescient & Strategic Intelligence in June 2020, the market for low-code
development platforms was valued at $10.3 billion in 2019 and is expected to grow at a 28% compound
annual growth rate to $57.3 billion by 2026. We were recognized as a "Leader" based on our completeness of
vision and ability to execute in the 2020 Gartner Magic Quadrant for Enterprise Low-Code Application
Platforms.1
Application PaaS. Application platform as a service, or application PaaS, is a cloud service that provides the
necessary infrastructure to enable the development, deployment, and hosting of software applications. We
believe we are well positioned to capture a portion of the application PaaS market. According to Gartner, the
global application PaaS market was valued at $41.3 billion in 2019 and is expected to grow at a 23%
compound annual growth rate to $118.3 billion by 2024.2
Robotic Process Automation. RPA allows for the automation of high volume, rule-based, repetitive tasks
performed by people and/or connecting to legacy systems that do not use modern application program
interfaces, or APIs. According to Gartner, the market for RPA totaled $2.2 billion in 2019 and is expected to
grow at a 16% compound annual growth rate to $3.4 billion by 2024.3
Intelligent Process Automation. Intelligent process automation, or IPA, combines task automation with
process automation to orchestrate coordination across systems, humans, and digital workforce in a unified
workflow. According to IDC, the market for worldwide IPA software totaled $16.3 billion in 2019 and is
expected to grow at a compound annual growth rate of 13% to $30.5 billion by 2024.4 We were included as a
"Leader" based on the strength of our current offering, our strategy, and our market presence in The Forrester
WaveTM:: Software For Digital Process Automation for Deep Deployments, Q2 2019, in June 2019.
1 Gartner Magic Quadrant for Enterprise Low-Code Application Platforms , Published 30 September 2020; Authored by: Paul Vincent, Yefim Natis, Jason
Wong, Saikat Ray, et al.
2 Gartner, Forecast: Public Cloud Services, Worldwide, 2018-2024, 4Q20 Update, Colleen Graham, Neha Gupta, et al., 21 December 2020.
3 Gartner Forecast Analysis: Robotic Process Automation, Worldwide; Published 2 September 2020; Authored by: Fabrizio Biscotti, Cathy Tornbohm, Arthur
Villa, et. al).
4 IDC: Worldwide Intelligent Process Automation Software Forecast, 2020-2024; Published 15 July 2020; Authored by Maureen Fleming.
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Taken together, these current core software markets are expected to represent a combined $70.1 billion market
opportunity currently and a combined $209.5 billion market opportunity in the near term.
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Traditional custom enterprise software market. In addition to our current core software markets, we believe our
platform better addresses certain needs of enterprise companies that have historically used manually-developed custom
software. The global enterprise application software market is expected to reach $231 billion in 2021, according to
Gartner.5
Our internal estimate. Based on approximately 166,000 global companies and government institutions in relevant
industries and revenue-based size segments as well as our industry- and size-specific average annual recurring revenue
for customers as of December 31, 2020, we internally estimate our market opportunity to have been approximately $37
billion in 2020. We determined relevant global companies and government institutions by industry and size by
referencing certain independent industry data from S&P Global Market Intelligence. We calculated industry-and size-
specific average annual recurring revenue as of December 31, 2020 by adding the aggregate annual recurring revenue
from all existing customers within each industry and size segment and dividing the total by the number of our existing
customers in each industry and size segment.
5 Gartner, Forecast: Enterprise Application Software, Worldwide, 2018-2024, 4Q20 Update, Neha Gupta, Chris Pang, et al., 18 December 2020.
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Our Platform
With our platform, organizations can rapidly and easily design, build, and implement powerful, enterprise-grade custom
applications through our intuitive, visual interface, with little or no coding required. We also enable organizations to easily
modify and enhance applications and automatically disseminate these updates across device types to ensure all users benefit
from the most up-to-date functionality. Through the speed and power of our platform, organizations can make their digital
transformations happen more effectively and efficiently than could be achieved through building an application with standard
programming languages.
We believe the key elements of our technology infrastructure are as follows:
Low-code Automation Offering
Our heritage as a BPM company provides us with a differentiated understanding and ability to automate complex
processes, and we have incorporated that expertise into our platform to enable the development of powerful business software.
Appian applications can leverage our complete automation capabilities, applying the right automation approach for each
specific use case:
• Workflow. At the core of our platform is an advanced engine that enables the modeling, modification, and
management of complex processes. Appian combines people, technologies, and data into a single workflow to
maximize resources and improve business results. Workflow can include any worker (people, RPA, AI) or any
resource (data and system).
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Decision Rules. Appian includes a declarative environment for defining and executing business logic or rules. These
rules can be highly complex and applied within the Appian platform to many use cases, ranging from automated
decision making to user experience personalization.
Robotic Process Automation. Appian includes native software robots which can be used to execute simple repetitive
tasks, reducing the human burden of that work. These robots facilitate integration with legacy systems that do not offer
modern APIs.
Artificial Intelligence. Appian includes a range of AI features based on Google’s AI services. These features include
sentiment analysis, translation, and document and image analysis. Appian also allows customers to integrate with their
preferred AI provider using our zero-code connectors.
Case Management. Appian case management enables automation of many of the most common patterns of
collaborative human work such as service management, incident management, and investigations.
Appian combines the power of workflow, decision rules, RPA, AI, and case management into a unified platform. Our
platform has the complete automation capabilities to fuel enterprise-wide workflows and the ability to scale with an
organization's growth through performance, governance, and security. Our complete automation offering is core to unlocking
business results for organizations by bringing people, technologies, and data into a single workflow along with the development
speed to keep organizations agile.
Web-Based Development Environment
The Appian design interface is a model-driven, web-based development environment for application creation, testing,
deployment, and performance optimization. Appian design is a shared repository of all Appian components (interfaces, process
models, APIs, new component builders, and user collaboration modules) and serves as an administration utility for managing
people, processes, and data.
The Appian design repository incorporates best practices and years of lessons learned from digital transformation
initiatives. Common development operations tasks require just a few clicks and can be automated for hands-off deployment.
Dramatic improvements in developer productivity can be achieved through user-friendly capabilities such as fast impact
analysis of all changes, auto-updating applications and components when data types change, and live views of interfaces under
development.
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Appian design guides developers through the necessary steps to create the foundation elements of reusable interfaces,
records, and business processes, while providing all the power developers need to design, build, and implement enterprise
systems at scale.
Our Patented SAIL Technology
SAIL is our patented technology that allows developers to create dynamic and responsive web and native-mobile user
interfaces through a “build once, deploy everywhere” architecture. SAIL interfaces only need to be created once, and SAIL
automatically assembles customer applications for optimal viewing on each device type, including desktop web browsers,
tablets, and mobile phones, as well as each device operating system, including iOS and different permutations of Android.
SAIL leverages native functionality inherent across a myriad of devices and operating systems to ensure the consistency of
experience and optimal performance levels users expect. Updates to applications developed with SAIL are automatically
disseminated across device types to ensure all users benefit from the most up-to-date functionality. This approach enables
enterprise mobility without the extensive time and resources other development approaches require.
We believe SAIL provides a significant advantage over other platforms that both require extensive customization for
various devices at the time of the creation of the new applications and on an on-going basis as mobile device manufacturers
continue to update their software and capabilities.
Low-Code Data
Appian Records is an advanced data management technology that allows end users to discover and unite enterprise data
into a single searchable environment, providing a comprehensive view of an organization’s data. In contrast to typical enterprise
software, our platform does not require data to reside within it in order to enable robust data analysis and cross-department and
cross-application insight. Using standard database software and service connection frameworks, including APIs, our platform
seamlessly integrates with many of the most popular enterprise software applications and data repositories and can be used
within many legacy environments. Users simply need to assign a name to a given topic and decide which existing data sources
within the enterprise they want to capture. In addition to the benefits of having an immediate snapshot of all centralized data
relating to the customer, product, employee, or service request, Appian Records also allows organizations to analyze the end-to-
end journeys of any given person, entity, or asset. Once the connections are established, users may navigate, analyze,
collaborate, and take action on data from our intuitive dashboards and interactive reports.
Unified End User Interfaces
Our end user interfaces enable users to discover data, collaborate with other end users, and participate in process actions.
The end user experience begins with a news feed that allows end users to monitor key events from processes, systems, and
other end users, providing a unified view of all applications and activity in one place. End users can collaborate with others,
obtain status updates, send direct and secure messages, and create social tasks for other end users. Our activity stream is
designed to be intuitive for end users familiar with popular consumer social interfaces, allowing them to instantly track
important events and occurrences and collaborate with little to no training. We also enforce company security policies, so end
users can confidently collaborate without fear of compromising regulatory compliance. Our end user interfaces solve the
problem of information silos, allowing organizations to respond to constituent feedback in real time by uniting the right team
with the right information.
At the same time, our platform provides transparency, visibility, and control across all of our applications through a
dynamic and powerfully flexible tasking environment. We provide detailed tracking of all human process tasks on our platform,
including when tasks have been assigned, addressed, and completed by any user. Business Activity Monitoring reports display
real-time enterprise performance, bottleneck detection, and process optimization while scaling to millions of tasks.
Technology
We designed our platform to support large global enterprises and government organizations at scale, in the cloud or on-
premises. We design, deploy, and manage our platform with the goal of it being a “joy to use” for both developers and users of
applications.
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Our customers build powerful and unique applications using our proprietary and patented SAIL technology, which we also
use ourselves to develop features of our platform. We also employ cutting-edge React technology for building web and mobile
user interfaces. We use third-party proprietary database and database language technology licensed from Kx Systems, Inc., or
Kx, to power the high-performance in-memory database of our platform. Under our agreement with Kx, we are permitted to
distribute Kx’s software as a component part of our software platform as well as to host Kx’s software on behalf of our
customers through our cloud offering. Our agreement requires Kx to provide maintenance directly to us on the software we
license as long as it provides maintenance to any other customers. We pay a variable license fee based on the number of
applications built by our customers, subject to an overall cap on payment. We have paid Kx the overall license fee cap in each
of the last five years. We may maintain the contract as long as we pay maintenance fees. Kx may terminate the agreement if we
materially breach the agreement, become insolvent, make an assignment for the benefit of creditors, or if a bankruptcy
proceeding is initiated against us. Unless we fail to pay amounts due under the contract or violate certain of Kx’s intellectual
property rights, Kx may not terminate the agreement until either it has successfully litigated a breach action or six months,
whichever is earlier.
Our cloud offering is hosted by Amazon Web Services, or AWS, and is available in 77 availability zones in 24 geographic
regions. Our software is also able to run in the Microsoft Azure cloud and the Google Cloud Platform. Our enablement of the
Microsoft Azure cloud and the Google Cloud Platform is consistent with our principle of platform neutrality.
We have also implemented a wide set of technical, physical, and personnel-based security controls designed to protect
against the compromise of confidential data belonging to both our customers and us.
Professional Services
Since inception, we have invested in our Customer Success organization to help ensure customers are able to deploy and
adopt our platform. We believe our investment in professional services, as well as efforts by partners to build their practices
around Appian, will drive increased adoption of our platform.
When we first acquire a new customer, our professional services experts or our partners’ professional services experts start
the implementation process. Delivery specialists facilitate deployment of our platform, and training personnel provide
comprehensive support throughout the implementation process. Customers have access to our Appian Academy, which trains
analysts and developers of different skill sets on our platform. We also provide instructor-led courses globally, delivered either
virtually or in-person.
Once our customers have deployed and implemented our platform, our Appian Architects review our customers’ programs
and applications to find potential issues and provide recommendations on best practices. Our professional services team also
assists customers by building applications on our platform for them.
Over time, we expect professional services revenue as a percentage of total revenue to continue to decline as we
increasingly rely on strategic partners to help our customers deploy our software.
Customer Support
Our customer support personnel are trained engineers and designers who can work with customers on the front lines to
address support issues. We provide e-mail and phone support via teams in the United States, the United Kingdom, and
Australia. Developers can also find answers to their questions on the Appian Community, a community site that provides online
customer support, real-time collaboration and networking, a growing knowledge base of answers for common questions, and
live product webinars and training. The Appian Community also includes documentation, methodologies, and reusable
components for our platform. We have consistently been able to achieve at least a 98% customer satisfaction rating for our
customer support organization, based on our surveys.
Our Customers
Our customers operate in a variety of industries, including financial services, government, life sciences, education,
technology, media and telecommunications, consumer, and industrials. As of December 31, 2020, we had 693 customers, of
which 548 customers were commercial and 145 customers were government or non-commercial entities. Generally, our sales
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force targets its efforts to organizations with over 2,000 employees and $2 billion in annual revenue. Our number of customers
paying us in excess of $1 million of annual recurring revenue has grown from 48 at the end of 2019 to 55 at the end of 2020. As
of December 31, 2020, 25% of our commercial customers were Global 2000 organizations, and 60 of our customers were
Fortune 500 companies. No single end-customer accounted for more than 10% of our total revenue in 2020, 2019, or 2018.
Human Capital Resources and Management
Employees, Culture, and Labor Relations
Our distinct culture of innovation is an important contributor to our success as a company. We promote an inclusive
environment where our employees can thrive every day and contribute their unique, diverse perspectives to help create
transformative solutions for our customers. Our culture was purposefully cultivated by our four founders, who are still heavily
involved in operating our business, including recruiting, interviewing, and educating new employees at Appian. Led by Matt
Calkins, one of our founders and our Chief Executive Officer, we have grown our business organically by employing a unified
team to maximize the cohesion and simplicity of our platform and our company.
As of December 31, 2020, we had a total global workforce of 1,460 full-time employees, 1,124 of which were based in the
United States. During 2020, we had a voluntary attrition rate of only 9% among all employees, which we believe is a testament
to the strength of our culture. None of our U.S. employees are covered by collective bargaining agreements. We believe our
employee relations are good, and we have not experienced any work stoppages. Additionally, we are subject to, and comply
with, local labor law requirements in all countries in which we operate.
Talent Acquisition and Development
We have a robust talent acquisition program to attract, recruit, and retain new talent. We utilize an extensive campus
recruiting program, provide for an employee referral program, offer opportunities for internal transfers, and offer competitive
compensation and benefits programs. We also provide a variety of resources to help our employees grow in their current roles
and build new skills, including access to Appian University, a system that houses Appian’s in-house learning and development
solutions.
Inclusion and Diversity
We believe employee diversity and an inclusive environment are paramount to our continued success, as our individual
styles of communication, management, and problem-solving enable us to learn from one another and discover creative
solutions. We sponsor a number of affinity groups, initiated by employees, that aim to build stronger internal and external
networks and partnerships, create a positive lasting impact through social and educational outreach and other activities, and
create development opportunities for future leaders.
Our Competition
Our main competitors fall into three categories: (1) providers of custom software and customer software solutions that
address, or are developed to address, some of the use cases that can be addressed by applications developed on our platform; (2)
providers of low-code development platforms, such as Microsoft, Salesforce.com, ServiceNow, OutSystems, and Mendix; and
(3) providers of business process management and case management software, such as Pegasystems, IBM, Bizagi, Oracle, and
Nintex.
As our market grows, we expect it will attract more highly specialized vendors as well as larger vendors that may continue
to acquire or bundle their products more effectively. The principal competitive factors in our market include:
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Platform features, reliability, performance, and effectiveness;
Ease of use and speed;
Platform extensibility and ability to integrate with other technology infrastructures;
Deployment flexibility;
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Robustness of professional services and customer support;
Price and total cost of ownership;
Strength of platform security and adherence to industry standards and certifications;
Strength of sales and marketing efforts; and
Brand awareness and reputation.
We believe we generally compete favorably with our peer group with respect to the features, security, and performance of
our platform, the ease of integration of our applications, and the relatively low total cost of ownership of our applications.
However, many of our competitors have substantially greater financial, technical, and other resources, greater name
recognition, larger sales and marketing budgets, broader distribution, more diversified product lines, and larger and more
mature intellectual property portfolios.
Seasonality
We have historically experienced seasonality in terms of when we enter into agreements with customers. We typically enter
into a significantly higher percentage of agreements with new customers, as well as renewal agreements with existing
customers, in the fourth quarter. The increase in customer agreements for the fourth quarter is attributable to large enterprise
account buying patterns typical in the software industry. Furthermore, we usually enter into a significant portion of agreements
with customers during the last month, and often the last two weeks, of each quarter. However, we recognize the majority of our
subscriptions revenue ratably over the terms of our subscriptions agreements, which are generally one to three years in length.
As a result, a substantial portion of the subscriptions revenue we report in each period will be derived from the recognition of
deferred revenue relating to agreements entered into during previous periods. Consequently, a decline in new sales or renewals
in any one period may not be immediately reflected in our revenue results for that period. However, this decline will negatively
affect our revenue in future periods. Accordingly, the effect of significant downturns in sales and market acceptance of our
platform and 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 due to the
upfront revenue recognition associated with our term license subscription agreements.
Sales and Marketing
Sales
Our sales organization is responsible for account acquisition and overall market development, which includes managing
relationships with our customers. We also sell our software through our strategic partners. While our platform is industry-
agnostic, we have recently made, and plan to continue to make, investments to enhance the expertise of our sales organization
within our core industry verticals of financial services, government, and life sciences. We expect to continue to grow our sales
headcount in all of our principal markets and expand our presence into countries where we currently do not have a direct sales
presence. We also intend to further grow our base of partners to provide broader customer coverage and solution delivery
capabilities.
Marketing
Our marketing efforts focus on building our brand reputation and increasing market awareness of our platform. Marketing
activities include sponsorship of, and attendance at, trade shows and conferences, our annual Appian World event, social media,
advertising and other digital programs, management of our corporate website and partner portal, press outreach, and customer
relations. In response to the COVID-19 pandemic, we have reduced the number of in-person marketing events, including
shifting Appian World to virtual-only in 2020 and 2021.
Intellectual Property
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Our success depends in part upon our ability to protect our core technology and intellectual property. We rely on patents,
trademarks, copyrights, trade secret laws, confidentiality procedures, and employee disclosure and invention assignment
agreements to protect our intellectual property rights.
As of December 31, 2020, we had five granted patents and six patents pending related to our platform and its technology.
None of our issued patents expire before 2034. We cannot provide complete assurance that any of our patent applications will
result in the issuance of a patent or that the examination process will not require us to narrow our claims. Any patents we may
be issued may be contested, circumvented, found unenforceable, or invalidated, and we may not be able to prevent third parties
from infringing them. We also license software from third parties for integration into our products, including open source
software and other software available on commercially reasonable terms. We control access to and use of our proprietary
software and other confidential information through the use of internal and external controls, including contractual protections
with employees, contractors, end customers, and partners, and our software is protected by U.S. and international copyright and
trade secret laws.
Facilities
As of December 31, 2020, we leased our headquarters office in McLean, Virginia and offices in three cities outside the
United States. In addition to our leased offices, we occupied two flexible workspaces outside of the United States. In 2020, as
part of our response to the COVID-19 pandemic, we reduced the number of offices we occupied as we shifted to largely remote
work. Our use of flexible workspaces is dependent upon our current business needs. We believe our facilities are adequate to
meet our ongoing needs, including substantial rights to expand within certain properties we lease. If we require additional space
in the future, we believe we will be able to obtain additional facilities on commercially reasonable terms.
Corporate Information
Our Class A common stock is listed on the Nasdaq Global Market under the symbol "APPN".
Our current principal executive offices are located at 7950 Jones Branch Drive, McLean, Virginia 22102, and our telephone
number is (703) 442-8844.
“Appian”, the Appian logo, and other trademarks or service marks of Appian Corporation appearing in this Annual Report
on Form 10-K are the property of Appian Corporation. This Annual Report on Form 10-K contains additional trade names,
trademarks, and service marks of others, which are the property of their respective owners. Solely for convenience, trademarks
and trade names referred to in this Annual Report on Form 10-K exclude the ® or TM symbols.
Available Information
Our website address is www.appian.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act are made
available free of charge on or through our website at investors.appian.com as soon as reasonably practicable after such reports
are filed with, or furnished to, the United States Securities and Exchange Commission, or SEC. The information contained on,
or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K or in any
other report or document we file with the SEC, and any references to our website are intended to be inactive textual references
only.
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Item 1A. Risk Factors.
Our operations and financial results are subject to various risks and uncertainties including those described below. You
should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual
Report on Form 10-K, including our consolidated financial statements and related notes. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are
not material, may also become important factors that adversely affect our business. If any of the following risks or others not
specified below materialize, our business, financial condition, and results of operations could be materially and adversely
affected, and the trading price of our Class A common stock could decline.
Risks Related to Our Business and Industry
Our recent growth may not be indicative of our future growth and, if we continue to grow, we may not be able to
manage our growth effectively.
We continue to experience rapid growth in our headcount and operations. We have also significantly increased the size of
our customer base over the last several years. We anticipate we will continue to significantly expand our operations and
headcount in the near term. Our growth has placed, and any future growth will place, a significant strain on our management,
administrative, operational, and financial infrastructure. Our success will depend in part on our ability to manage this growth
effectively. To manage the expected growth of our operations and personnel, we will need to continue to improve our
operational, financial, and management controls and our reporting systems and procedures. Failure to effectively manage our
growth could result in difficulty or delays in deploying our platform to customers, declines in quality or customer satisfaction,
increases in costs, difficulties in introducing new features, or other operational difficulties. Any of these difficulties could
adversely impact our business performance and results of operations.
If we are unable to sustain our revenue growth rate, we may not achieve or maintain profitability in the future.
We have experienced revenue growth with revenue of $304.6 million, $260.4 million, and $226.7 million in 2020, 2019,
and 2018, respectively. Although we have experienced rapid revenue growth historically, we may not continue to grow as
rapidly in the future, and our revenue growth rates may decline. Any success we may experience in the future will depend in
large part on our ability to, among other things:
• Maintain and expand our customer base;
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Increase revenue from existing customers through increased or broader use of our platform within their organizations;
Further penetrate the existing industry verticals we serve and expand into other industry verticals; and
Continue to successfully expand our business domestically and internationally.
If we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult
to achieve and maintain profitability. You should not rely on our revenue for any prior quarterly or annual periods as any
indication of our future revenue or revenue growth.
We may not be able to scale our business quickly enough to meet our customers’ growing needs, and if we are not able
to grow efficiently, our operating results could be harmed.
As usage of our platform grows and as customers use our platform for more advanced and more frequent projects, we may
need to devote additional resources to improving our software architecture, integrating with third-party systems, and
maintaining infrastructure performance. In addition, we will need to appropriately scale our internal business operations as well
as grow our partner services systems, including our Customer Success organization and operations, to serve our growing
customer base, particularly as our customer base expands over time. Any failure of or delay in these efforts could cause
impaired system performance and reduced customer satisfaction. These issues could reduce the attractiveness of our platform to
customers, resulting in decreased sales to new customers, lower renewal rates by existing customers, the issuance of service
credits, or requested refunds, which could hurt our revenue growth and our reputation. Even if we are able to upgrade our
systems and expand our staff, any such expansion will be expensive and complex, requiring management time and attention.
We could also face inefficiencies or operational failures as a result of our efforts to scale our infrastructure. Moreover, there are
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inherent risks associated with upgrading, improving, and expanding our information technology systems. We cannot be sure the
expansion and improvements to our infrastructure and systems will be fully or effectively implemented on a timely basis, if at
all. These efforts may reduce revenue and our margins and adversely impact our financial results.
We are dependent on a single product, and the lack of continued market acceptance of our platform could cause our
operating results to suffer.
Sales of our software platform account for substantially all of our subscriptions revenue and are the source of substantially
all of our professional services revenue. We expect we will be substantially dependent on our platform to generate revenue for
the foreseeable future. As a result, our operating results or revenue growth rates could suffer due to:
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Any decline or lower than expected growth in demand for our platform;
The failure of our platform to achieve continued market acceptance;
The market for low-code solutions not continuing to grow or growing more slowly than we expect;
The introduction of products and technologies that serve as a replacement or substitute for, or represent an
improvement over, our platform;
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Technological innovations or new standards that our platform does not address;
Sensitivity to current or future prices offered by us or competing solutions;
The inability to further penetrate our existing industry verticals or expand our customer base; and
Our inability to release enhanced versions of our platform on a timely basis.
Our sales cycle is long and unpredictable, particularly with respect to large customers, and our sales efforts require
considerable time and expense, all of which may cause our operating results to fluctuate.
Our operating results may fluctuate, in part, because of the resource-intensive nature of our sales efforts, the length and
variability of the sales cycle of our platform, and the difficulty we face in adjusting our short-term operating expenses. Our
operating results depend in part on sales to large customers and promotion of increasing usage by those large customers. The
length of our sales cycle, from initial evaluation to delivery of and payment for our software, varies substantially from customer
to customer, and it is difficult to predict if or when we will make a sale to a potential customer. We may spend substantial time,
effort, and money on our sales and marketing efforts without any assurance our efforts will result in revenue. As a result of
these factors, we may face greater costs, longer sales cycles, and less predictability in the future. In the past, certain individual
sales have occurred in periods later than we expected or have not occurred at all. The loss or delay of one or more large
transactions in a quarter could impact our operating results for that quarter and any future quarters in which such revenue
otherwise would have been recognized because a substantial portion of our expenses are relatively fixed in the short-term. As a
result of these factors, it is difficult for us to forecast our revenue accurately in any quarter, and our quarterly results may
fluctuate substantially.
Market adoption of low-code platforms to drive digital transformation is new and unproven and may not grow as we
expect, which may harm our business and prospects.
We believe our future success will depend in large part on growth in the demand for low-code platforms to drive software-
enabled digital transformation. It is difficult to predict customer demand for our platform, renewal rates, the rate at which
existing customers expand their subscriptions, the size and growth rate of the market for our platform, the entry of competitive
products, or the success of existing competitive products. The utilization of low-code software to drive digital transformation is
still relatively new. Any expansion in our addressable market depends on a number of factors, including businesses continuing
to desire to differentiate themselves through software-enabled digital transformation, increasing their reliance on low-
code solutions, changes in the competitive landscape, technological changes, budgetary constraints of our customers, and
changes in economic conditions. If our platform does not achieve widespread adoption or there is a reduction in demand
for low-code solutions caused by these factors, it could result in reduced customer purchases, reduced renewal rates, and
decreased revenue, any of which will adversely affect our business, operating results, and financial condition.
We currently face significant competition.
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The markets for low-code automation platforms, business process management, case management software, and custom
software are highly competitive, rapidly evolving, and have relatively low barriers to entry. The principal competitive factors in
our market include the following: platform features, reliability, performance, and effectiveness; ease of use and speed; platform
extensibility and ability to integrate with other technology infrastructures; deployment flexibility; robustness of professional
services and customer support; price and total cost of ownership; strength of platform security and adherence to industry
standards and certifications; strength of sales and marketing efforts; and brand awareness and reputation. If we fail to compete
effectively with respect to any of these competitive factors, we may fail to attract new customers or lose or fail to renew
existing customers, which would cause our operating results to suffer.
Our main competitors fall into three categories: (1) providers of custom software and customer software solutions that
address, or are developed to address, some of the use cases that can be addressed by applications developed on our platform, (2)
providers of low-code development platforms, such as Microsoft, Salesforce.com, ServiceNow, OutSystems, and Mendix, and
(3) providers of business process management and case management software, such as Pegasystems, IBM, Bizagi, Oracle, and
Nintex.
Some of our actual and potential competitors have advantages over us such as longer operating histories, more established
relationships with current or potential customers and commercial partners, significantly greater financial, technical, marketing,
or other resources, stronger brand recognition, larger intellectual property portfolios, and broader global distribution and
presence. Such competitors may make their solutions available at a low cost or no cost basis in order to enhance their overall
relationships with current or potential customers. Our competitors may also be able to respond more quickly and effectively
than we can to new or changing opportunities, technologies, standards, or customer requirements. With the introduction of new
technologies and new market entrants, we expect competition to intensify in the future. In addition, some of our larger
competitors have substantially broader offerings and can bundle competing products with other software offerings. As a result,
customers may choose a bundled offering from our competitors, even if individual products have more limited functionality
than our platform. These larger competitors are also often in a better position to withstand any significant reduction in capital
spending and will therefore not be as susceptible to economic downturns.
If our security measures are breached or unauthorized access to our platform or customer data is otherwise obtained,
our platform may be perceived as not being secure, customers may reduce the use of or stop using our platform, and we may
incur significant liabilities.
Our platform, which can be deployed in the cloud or on-premises, allows for the storage and transmission of our
customers’ proprietary or confidential information, which may include trade secrets, personally identifiable information,
personal health information, and payment card information. Any actual or perceived unauthorized access to, or security
breaches affecting, our platform or the information stored on or transmitted by our platform, including through unauthorized
and/or malicious activity by one of our employees, could result in the loss of information, litigation, regulatory investigations,
penalties, indemnity obligations and other costs, expenses, and liability, which could exceed our existing insurance coverage
and could result in a substantial financial loss. While we have security measures in place designed to protect customer
information and prevent data loss and other security breaches, there can be no assurance these measures will be effective in
protecting against unauthorized access to our platform or our customers’ information. Similarly, if cyber incidents such as
phishing attacks, viruses, denial of service attacks, malware installation, server malfunction, software or hardware failures, loss
of data or other computer assets, adware, or other similar issues impair the integrity or availability of our systems by affecting
our data or reducing access to or shutting down one or more of our computing systems or our IT network, we may be subject to
negative treatment by our customers, our business partners, the press, and the public at large. Further, because the techniques
used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are
launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
Additionally, we may be subject to attacks on our networks or systems or attempts to gain unauthorized access to our
proprietary or confidential information or other data we or our vendors maintain such as data about our employees. Such attacks
and other breaches of security may occur as a result of malicious attacks, human error, social engineering, or other causes. Any
actual or perceived breach of our security measures or failure to adequately protect our customers’ or our confidential or
proprietary information could negatively affect our ability to attract new customers, cause existing customers to elect to not
renew their subscriptions to our software, or result in reputational damage, any of which could adversely affect our operating
results.
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Further, security compromises experienced by our customers with respect to data hosted on our platform, even if caused by
the customer’s own misuse or negligence, may lead to public disclosures, which could harm our reputation, erode customer
confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, or cause
existing customers to elect not to renew their subscriptions with us. We may be subjected to indemnity demands, regulatory
proceedings, audits, penalties, or litigation based on our customers’ misuse of our platform with respect to such sensitive
information and defending against such litigation and otherwise addressing such matters may be expensive, cause distraction,
and may result in us incurring liability, all of which may affect our operating results.
While we maintain general liability insurance coverage and coverage for errors or omissions, we cannot assure you such
coverage will be adequate or otherwise protect us from liabilities or damages with respect to claims alleging compromises of
personal data or that such coverage will continue to be available on acceptable terms or at all.
We derive a material portion of our revenue from a limited number of customers, and the loss of one or more of these
customers could adversely impact our business, results of operations, and financial condition.
Our customer base is concentrated. For example, during the years ended December 31, 2020, 2019, and 2018, revenue
from U.S. federal government agencies represented 18.1%, 17.1%, and 15.7% of our total revenue, respectively, and the top
three U.S. federal government customers generated 6.6%, 7.4%, and 7.8% of our total revenue for the years ended
December 31, 2020, 2019, and 2018, respectively. Further, nearly 8% of our subscription customers spent more than $1 million
on our software in 2020. If we were to lose one or more of our significant customers, our revenue may significantly decline. In
addition, revenue from significant customers may vary from period to period depending on the timing of renewing existing
agreements or entering into new agreements. The loss of one or more of our significant customers could adversely affect our
business, results of operations, and financial condition.
A portion of our revenue is generated from subscriptions sold to governmental entities and heavily regulated
organizations, which are subject to a number of challenges and risks.
A significant portion of our revenue is generated from subscriptions sold to governmental entities, both in the United States
and internationally. Additionally, many of our current and prospective customers such as those in the financial services,
pharmaceuticals, insurance, and life sciences industries are highly regulated and may be required to comply with more stringent
regulations in connection with subscribing to and implementing our platform. Selling subscriptions to these entities can be
highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance
we will successfully complete a sale. In addition, if our software does not meet the standards of new or existing regulations, we
may be in breach of our contracts with our customers, allowing them to terminate their agreements.
Governmental demand and payment for our platform may also be impacted by public sector budgetary cycles and funding
authorizations, with funding reductions or delays adversely affecting public sector demand for our platform. Governmental and
highly regulated entities, including the General Services Administration, whose schedule accounts for many of our U.S. federal
government contracts, impose compliance requirements that are complicated, require preferential pricing or “most favored
nation” terms and conditions, or are otherwise time-consuming and expensive to satisfy. In the United States, applicable federal
contracting regulations change frequently, and the President may issue executive orders requiring federal contractors to adhere
to new compliance requirements after a contract is signed. If we undertake to meet special standards or requirements and do not
meet them, we could be subject to significant liability from our customers or regulators. Even if we do meet these special
standards or requirements, the additional costs associated with providing our platform to government and highly regulated
customers could harm our operating results. Moreover, changes in the underlying statutory and regulatory conditions that affect
these types of customers could harm our ability to efficiently provide them access to our platform and to grow or maintain our
customer base. In addition, engaging in sales activities to foreign governments introduces additional compliance risks specific
to the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and other similar statutory requirements prohibiting bribery
and corruption in the jurisdictions in which we operate.
We have experienced losses in the past, and we may not achieve or sustain profitability in the future.
We generated net losses of $33.5 million, $50.7 million, and $49.5 million in 2020, 2019, and 2018, respectively. As of
December 31, 2020, we had an accumulated deficit of $168.9 million. We will need to generate and sustain increased revenue
levels in future periods in order to achieve or sustain profitability in the future. We also expect our costs to increase in future
22
periods, which could negatively affect our future operating results if our revenue does not increase commensurately. For
example, we intend to continue to expend significant funds to expand our sales and marketing operations, develop and enhance
our platform, meet the increased compliance requirements associated with our operation as a public company, and expand into
new markets. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our
revenue enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons,
including the other risks described in this Annual Report on Form 10-K, and unforeseen expenses, difficulties, complications
and delays, and other unknown events. If we are unable to achieve and sustain profitability, our stock price may significantly
decrease.
Our future quarterly results of operations may fluctuate significantly due to a wide range of factors, which makes our
future results difficult to predict.
Our revenue and results of operations have historically varied from period to period, and we expect they will continue to do
so as a result of a number of factors, many of which are outside of our control, including:
•
•
•
•
The level of demand for our platform and our professional services;
The rate of renewal of subscriptions with, and extent of sales of additional subscriptions to, existing customers;
Large customers failing to renew their subscriptions;
The size, timing, and terms of our subscription agreements with existing and new customers, including revenue
recognition issues raised by multiple element arrangements;
•
Variations in the revenue mix of our professional services and growth rates of our cloud subscription and professional
services offerings, including the timing of subscriptions and sales offerings that include an on-premises software element for
which the revenue allocated to that deliverable is recognized upfront;
•
•
The timing and growth of our business, in particular through our hiring of new employees and international expansion;
The timing of our adoption of new or revised accounting pronouncements applicable to public companies and the
impact on our results of operations;
•
The introduction of new products and product enhancements by existing competitors or new entrants into our market,
and changes in pricing for solutions offered by us or our competitors;
•
•
•
•
Network outages, security breaches, technical difficulties, or interruptions with our platform;
Changes in the growth rate of the markets in which we compete;
The mix of subscriptions to our platform and professional services sold during a period;
Customers delaying purchasing decisions in anticipation of new developments or enhancements by us or our
competitors or otherwise;
•
•
•
•
•
•
•
•
•
Changes in customers’ budgets;
Seasonal variations related to sales and marketing and other activities such as expenses related to our customers;
Our ability to increase, retain, and incentivize the strategic partners that market and sell our platform;
Our ability to control costs, including our operating expenses;
Our ability to hire, train, and maintain our direct sales force;
Unforeseen litigation and intellectual property infringement;
Any changes in accounting principles generally accepted in the United States, or GAAP;
Fluctuations in our effective tax rate; and
General economic and political conditions, both domestically and internationally, as well as economic conditions
specifically affecting industries in which our customers operate.
23
Any one of these or other factors discussed elsewhere in this Annual Report on Form 10-K or the cumulative effect of
some of these factors may result in fluctuations in our revenue and operating results, meaning quarter-to-quarter comparisons of
our revenue, results of operations, and cash flows may not necessarily be indicative of our future performance, may cause us to
miss our guidance or analyst expectations, and may cause our stock price to decline.
In addition, we have historically experienced seasonality in terms of when we enter into agreements with customers. We
typically enter into a significantly higher percentage of agreements with new customers, as well as renewal agreements with
existing customers, in the fourth quarter and, to a lesser extent, the second quarter. The increase in customer agreements for the
fourth quarter is attributable to large enterprise account buying patterns typical in the software industry. Furthermore, we
usually enter into a significant portion of agreements with customers during the last month, and often the last two weeks, of
each quarter. This seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent, in revenue, due
to the fact we recognize cloud subscription revenue over the term of the subscription agreement, which is generally one to three
years. We expect seasonality will continue to affect our operating results in the future and may reduce our ability to predict cash
flow and optimize the timing of our operating expenses.
We may fail to meet our publicly announced guidance or other expectations about our business and future operating
results, which could cause our stock price to decline.
We have provided and may continue to provide guidance about our business, future operating results, and other business
metrics. In developing this guidance, our management must make certain assumptions and judgments about our future
performance. Some of those key assumptions relate to the impact of the COVID-19 pandemic and the associated economic
uncertainty on our business and the timing and scope of economic recovery globally, which are inherently difficult to predict.
Furthermore, analysts and investors may develop and publish their own projections of our business, which may form a
consensus about our future performance. Our business results may vary significantly from such guidance or that consensus due
to a number of factors, many of which are outside of our control, including due to the global economic uncertainty and financial
market conditions caused by the COVID-19 pandemic, which could adversely affect our operations and operating results.
Furthermore, if our publicly announced guidance of future operating results fails to meet our previously announced guidance or
the expectations of securities analysts, investors, or other interested parties, the price of our common stock would decline.
If we are unable to successfully transition to new leadership in key departments, our results could suffer.
Appian has undergone change in departments directly responsible for substantially all of Appian's revenue. While Appian
believes its new leaders in these departments are highly qualified and will perform well in their roles, there can be no
assurances the transition to new leadership will be executed without any disruption or effect on performance. New leadership
requires time to become familiar with Appian's product offerings and its customer base, and such transition could lead to
delayed implementation of strategies, revision of key practices and policies, re-training of personnel, and other disruptions.
While we will make efforts to mitigate such risk through extensive collaboration at the executive level, the effects of this
transition could have an impact on our ability to sustain our growth in revenues or our ability to retain existing talent within the
organization.
We rely on the performance of highly skilled personnel, including senior management and our engineering,
professional services, sales, and technology professionals; if we are unable to retain or motivate key personnel or hire,
retain, and motivate qualified personnel, our business would be harmed.
We believe our success has depended, and continues to depend, on the efforts and talents of our senior management team,
particularly Matthew Calkins, our founder and Chief Executive Officer, and our highly skilled team members, including our
sales personnel, professional services personnel, cloud engineering and support personnel, and software engineers. We do not
maintain key man insurance on any of our executive officers or key employees. From time to time, there may be changes in our
senior management team resulting from the termination or departure of our executive officers and key employees. Our senior
management and key employees are employed on an at-will basis, which means they could terminate their employment with us
at any time. Many of our executive officers and key employees receive equity compensation as a significant portion of their
overall compensation package. A substantial decrease in the market price of our Class A common stock would effectively
reduce the compensation of such persons and could increase the risk they depart from our company. The loss of any of our
senior management or key employees, particularly Mr. Calkins, could adversely affect our ability to build on the efforts they
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have undertaken and to execute our business plan, and we may not be able to find adequate replacements. We cannot ensure we
will be able to retain the services of any members of our senior management or other key employees.
Our ability to successfully pursue our growth strategy also depends on our ability to attract, motivate, and retain our
personnel. Competition for well-qualified employees in all aspects of our business, including sales personnel, professional
services personnel, cloud engineering and support personnel, and software engineers, is intense. Our recruiting efforts focus on
elite universities, and our primary recruiting competition are well-known, high-paying firms. Our continued ability to compete
effectively depends on our ability to attract new employees and to retain and motivate existing employees. Further, a small
portion of our employees are immigrants to the United States or foreign nationals holding visas. If immigration to the United
States is further restricted by the federal government, we might lose existing employees who are unable to remain in the United
States and our pool of qualified applicants might also be diminished, thereby hampering our recruiting efforts. If we do not
succeed in attracting well-qualified employees or retaining and motivating existing employees, our business would be adversely
affected.
If we do not continue to innovate and provide a platform that is useful to our customers, we may not remain competitive,
and our revenue and operating results could suffer.
Our success depends on continued innovation to provide features that make our platform useful for our customers, our
ability to persuade existing customers to expand their use of our platform to additional use cases and additional applications,
and to purchase additional software licenses to our platform. We must continue to invest significant resources in research and
development in order to continually improve the simplicity and power of our platform. We may introduce significant changes to
our platform or develop and introduce new and unproven products, including using technologies with which we have little or no
prior development or operating experience. If we are unable to continue offering innovative solutions or if new or enhanced
solutions fail to engage our customers, we may be unable to attract additional customers or retain our current customers, which
may adversely affect our business, operating results, and financial condition.
We may need to reduce or change our pricing model to remain competitive.
We generally sell our software on a per-user basis and, to a lesser degree, non-user based single application licenses. We
have changed and expect we will continue to need to change our pricing model from time to time. As competitors introduce
new products that compete with ours or reduce their prices, we may be unable to attract new customers or retain existing
customers based on our historical pricing. We also must determine the appropriate price to enable us to compete effectively
internationally. Moreover, mid- to large-size enterprises may demand substantial price discounts as part of the negotiation of
sales contracts. As a result, we may be required or choose to reduce our prices or change our pricing model, which could
adversely affect our business, operating results, and financial condition.
Our business could be adversely affected if our customers are not satisfied with the deployment services provided by us
or our partners.
The success of our business depends on our customers’ satisfaction with our platform, the support we provide for our
platform, and the professional services we provide to help our customers deploy our platform. Professional services may be
performed by our own staff, by a third party, or by a combination of the two. Our strategy is to work with third parties to
increase the breadth, capability, and depth of capacity for delivery of these services to our customers, and third parties provide a
significant portion of our deployment services. If a customer is not satisfied with the quality of work performed by us or a third
party or with the type of applications delivered, we could incur additional costs to address the deficiency, which would diminish
the profitability of the customer relationship. Further, a customer’s dissatisfaction with our services could impair our ability to
expand the number of licenses to our software purchased by that customer or adversely affect the customer’s renewal of
existing licenses. In addition, negative publicity related to our customer relationships, regardless of accuracy, may further
damage our business by affecting our ability to compete for new business with actual and prospective customers.
We are substantially dependent upon customer renewals, the addition of new customers, and the continued growth of
our subscriptions revenue.
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We derive, and expect to increasingly derive in the future, a substantial portion of our revenue from the sale of software
subscriptions. For 2020, 2019, and 2018, approximately 65.2%, 58.1%, and 55.6%, respectively, of our total revenue was
subscriptions revenue. The market for our platform is still evolving, and competitive dynamics may cause pricing levels to
change as the market matures and as existing and new market participants introduce new types of solutions and different
approaches to enable customers to address their needs. As a result, we may be forced to reduce the prices we charge for
software and may be required to offer terms less favorable to us for new and renewing agreements.
In order for us to improve our operating results, it is important our customers renew their subscriptions with us when their
initial term expires, as well as purchase additional subscriptions from us. In general, our customers have no renewal obligation
after their initial term expires, and we cannot assure you we will be able to renew subscriptions with any of our customers at the
same or higher contract value.
Further, while we offer access to our platform primarily through multi-year subscription agreements, some agreements may
have shorter durations. Additionally, some of our contracts limit the amount we can increase prices from period to period or
include pricing guarantees. If our customers do not renew their agreements, terminate their agreements, renew their agreements
on terms less favorable to us, or fail to purchase additional software subscriptions, our revenue may decline and our operating
results would likely be harmed as a result.
Because we generally recognize revenue from cloud subscriptions ratably over the term of the subscription agreement,
near term changes in sales may not be reflected immediately in our operating results.
We offer our solution primarily through multi-year cloud subscription agreements and generally recognize revenue ratably
over the related subscription period. As a result, much of the revenue we report in each quarter is derived from the recognition
of previously unbilled or deferred contract value relating to agreements entered into during prior periods. Accordingly, a
decline in new or renewal subscription agreements in any quarter is not likely to be reflected immediately in our revenue results
for that quarter. Such declines, however, would negatively affect our revenue, and to a lesser extent, deferred revenue balance
in future periods, and the effect of significant downturns in sales and market acceptance of our platform and potential changes
in our rate of renewals may not be fully reflected in our results of operations until future periods.
If we are not able to maintain and enhance our brand, our business and operating results may be adversely affected.
We believe developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to
achieving widespread acceptance of our platform and attracting new customers. Brand promotion activities may not generate
customer awareness or increase revenue and, even if they do, any increase in revenue may not offset the expenses we incur in
building our brand. If we fail to successfully promote and maintain our brand or incur substantial expenses, we may fail to
attract or retain customers necessary to realize a sufficient return on our brand-building efforts or to achieve the widespread
brand awareness critical for broad customer adoption of our platform.
If our platform fails to perform properly or there are defects or disruptions in the rollout of our platform updates or
enhancements, our reputation could be adversely affected, our market share could decline, and we could be subject to
liability claims.
Our platform is inherently complex and may contain material defects or errors. Any defects in functionality or that cause
interruptions in the availability of our platform could result in:
•
•
•
•
•
•
Loss or delayed market acceptance and sales;
Breach of warranty claims;
Sales credits or refunds for prepaid amounts related to unused subscription services;
Loss of customers;
Diversion of development and support resources; and/or
Injury to our reputation.
26
The costs incurred in correcting any material defects or errors might be substantial and could adversely affect our operating
results.
Our customer agreements often provide service level commitments on a monthly basis. If we are unable to meet the stated
service level commitments or suffer extended periods of unavailability for our platform, we may be contractually obligated to
provide these customers with service credits or refunds for prepaid amounts, or we could face contract terminations. Our
revenue could be significantly affected if we suffer unscheduled downtime that exceeds the allowed downtimes under our
agreements with our customers.
Because of the large amount of data we collect and manage, it is possible hardware failures or errors in our systems could
result in data loss or corruption, or cause the information we collect to be incomplete or contain inaccuracies our customers
regard as significant. Furthermore, the availability or performance of our platform could be adversely affected by a number of
factors, including customers’ inability to access the internet, our customers' increased usage of our cloud offering, the failure of
our network or software systems, security breaches, or variability in user traffic for our services. For example, our cloud
offering customers access our platform through their internet service providers. If a customer's service provider fails to provide
sufficient capacity to support our platform or otherwise experiences service outages, such failure could interrupt our customers’
access to our platform, adversely affect their perception of our platform’s reliability, and reduce our revenue. In addition to
potential liability, if we experience interruptions in the availability of our cloud offering, our reputation could be adversely
affected, and we could lose customers.
We also provide frequent incremental releases of software updates and functional enhancements to our platform. Despite
extensive pre-release testing, such new versions occasionally contain undetected errors when first introduced or released. We
have, from time to time, found errors in our software, and new errors in our existing software may be detected in the future.
Since our customers use our software for important aspects of their business, any errors, defects, disruptions in our platform, or
other performance problems with our solution could hurt our reputation and may damage our customers’ businesses. If that
occurs, our customers may delay or withhold payment to us, elect not to renew, make service credit claims, warranty claims, or
other claims against us, and we could lose future sales. The occurrence of any of these events could result in an increase in our
bad debt expense, an increase in collection cycles for accounts receivable, decreased future revenue and earnings, require us to
increase our warranty provisions, or incur the risk or expense of litigation.
We rely upon AWS to operate our cloud offering; any disruption of or interference with our use of AWS would
adversely affect our business, results of operations, and financial condition.
We outsource substantially all of the infrastructure relating to our cloud offering to AWS, which hosts our platform on our
customers’ behalf. Customers of our cloud offering need to be able to access our platform at any time, without interruption or
degradation of performance, and we provide them with service level commitments with respect to uptime. AWS runs its own
platform we access, and we are, therefore, vulnerable to service interruptions at AWS. We may experience interruptions, delays,
and outages in service and availability from time to time as a result of problems with our AWS provided infrastructure, which
could render our cloud offering inaccessible to customers. Additionally, AWS has suffered outages at specific customer
locations in the past, rendering the customer unable to access our offering for periods of time. Lack of availability of our AWS
infrastructure could be due to a number of potential causes including technical failures, natural disasters, fraud, or security
attacks we cannot predict or prevent. Such outages could lead to the triggering of our service level agreements and the issuance
of credits to our cloud offering customers, which may impact our operating results.
In addition, if the security of the AWS infrastructure is compromised or believed to have been compromised, our business,
results of operations, and financial condition could be adversely affected. It is possible our customers and potential customers
would hold us accountable for any breach of security affecting the AWS infrastructure, and we may incur significant liability
from those customers and from third parties with respect to any breach affecting AWS systems. Because our agreement with
AWS limits AWS’s liability for damages, we may not be able to recover a material portion of our liabilities to our customers
and third parties from AWS. Customers and potential customers may refuse to do business with us because of the perceived or
actual failure of our cloud offering as hosted by AWS, and our operating results could be harmed.
Our agreement with AWS allows AWS to terminate the agreement by providing two years' prior written notice and may
allow AWS to terminate in case of a breach of contract if such breach is uncured for 30 days or to terminate upon thirty days'
advance written notice if AWS’s further provision of services to us becomes impractical for legal or regulatory reasons.
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Although we expect we could receive similar services from other third parties if any of our arrangements with AWS are
terminated, we could experience interruptions on our platform and in our ability to make our platform available to customers, as
well as delays and additional expenses in arranging alternative cloud infrastructure services.
Our growth depends in part on the success of our strategic relationships with third parties.
In order to grow our business, we anticipate we will continue to depend on relationships with strategic partners to provide
broader customer coverage and solution delivery capabilities. Identifying partners, and negotiating and documenting
relationships with them, requires significant time and resources. Our agreements with our strategic partners are non-
exclusive and do not prohibit them from working with our competitors or offering competing solutions. Our competitors may
be effective in providing incentives to third parties to favor their products or services or to prevent or reduce subscriptions to
our services. If our partners choose to place greater emphasis on products of their own or those offered by our competitors or do
not effectively market and sell our platform, our ability to grow our business and sell software and professional services may be
adversely affected. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of our
current and potential customers, as our partners may no longer facilitate the adoption of our platform by potential customers.
If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the
marketplace or to grow our revenue could be impaired and our operating results may suffer. Even if we are successful, we
cannot assure you these relationships will result in increased customer usage of our platform or increased revenue.
Because our long-term growth strategy involves further expansion of our sales to customers outside the United States,
our business will be susceptible to risks associated with international operations.
A component of our growth strategy involves the further expansion of our operations and customer base internationally. In
2020, 2019, and 2018, revenue generated from customers outside the United States was 33.8%, 32.3%, and 28.7%, respectively,
of our total revenue. We currently have international offices in the United Kingdom, Italy, and Australia, which focus primarily
on selling and implementing our platform in those regions. In the future, we may expand to other international locations. Our
current international operations and future initiatives will involve a variety of risks, including:
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Changes in a specific country’s or region’s political or economic conditions;
Unexpected changes in regulatory requirements, taxes, or trade laws;
• More stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal
information, particularly in the European Union;
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Differing labor regulations, especially in the European Union, where labor laws are generally more advantageous to
employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;
•
Challenges inherent in efficiently managing an increased number of employees over large geographic distances,
including the need to implement appropriate systems, policies, benefits, and compliance programs;
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Difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems,
alternative dispute systems, and regulatory systems;
•
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Increased travel, real estate, infrastructure, and legal compliance costs associated with international operations;
Currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of
entering into hedging transactions if we choose to do so in the future;
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Limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our
operations in other countries;
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Laws and business practices favoring local competitors or general preferences for local vendors;
Limited or insufficient levels of protection of our corporate proprietary information and assets, including intellectual
property and customer information and records;
•
Political instability or terrorist activities;
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•
Exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt
Practices Act and similar laws and regulations in other jurisdictions; and
•
Adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.
Our limited experience in operating our business internationally increases the risk any potential future expansion efforts we
may undertake will not be successful. If we invest substantial time and resources to expand our international operations and are
unable to do so successfully and in a timely manner, our business and operating results will suffer.
We may require additional capital to support business growth, and this capital might not be available on acceptable
terms, if at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to
business challenges, including the need to develop new features or enhance our platform, improve our operating infrastructure,
or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to
secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences,
and privileges superior to those of holders of our Class A common stock. Our loan and security agreement with Silicon Valley
Bank for our current revolving line of credit includes restrictive covenants relating to our capital raising activities and other
financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business
opportunities, including potential acquisitions, and any debt financing we secure in the future could include similar restrictive
covenants. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain
adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business
growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.
We may not achieve market acceptance of our pre-built solutions, which may adversely impact our financial results.
We have begun the process of developing and releasing pre-built solutions on our software platform in order to maximize
the value of our platform to our customers and to reduce the sales cycles associated with software sales to new and existing
customers. Each solution requires an investment in development, marketing, sales, support, finance, and legal resources to bring
the solution to market. Although we make efforts to identify the solutions that will receive favorable market acceptance, there
can be no guarantee any solution will become the source of material revenue, and the investment in the solution may not
produce a positive return. If unsuccessful, such solutions may adversely impact our financial results to the extent our expenses
increase without any increase in sales, or to the extent that attempted sales of such solutions reduce sales of our existing
platform.
If currency exchange rates fluctuate substantially in the future, our financial results, which are reported in U.S. dollars,
could be adversely affected.
Generally, contracts executed by our foreign operations are denominated in the currency of that country or region and a
portion of our revenue is therefore subject to foreign currency risks. As we continue to expand our international operations, we
become more exposed to the effects of fluctuations in currency exchange rates. A strengthening of the U.S. dollar could reduce
the dollar value of revenues generated by our customers outside of the United States, adversely affecting our business
operations and financial results. We incur expenses for employee compensation and other operating expenses at our non-
U.S. locations in the local currency, and fluctuations in the exchange rates between the U.S. dollar and other currencies could
result in the dollar equivalent of such expenses being higher. This could have a negative impact on our reported operating
results. To date, we have not engaged in any hedging strategies, and any such strategies such as forward contracts, options, and
foreign exchange swaps related to transaction exposures we may implement to mitigate this risk may not eliminate our exposure
to foreign exchange fluctuations.
We employ third-party licensed software for use in or with our software, and the inability to maintain these licenses or
errors in the software we license could result in increased costs, or reduced service levels, which would adversely affect our
business.
Our software incorporates certain third-party software obtained under licenses from other companies, including database
software from Kx. We anticipate we will continue to rely on such third-party software and development tools from third parties
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in the future. Although we believe there are commercially reasonable alternatives to the third-party software we currently
license, including open source software, this may not always be the case, or it may be difficult or costly to migrate to other
third-party software. Our use of additional or alternative third-party software would require us to enter into license agreements
with third parties. In addition, integration of the third-party software used in our software with new third-party software may
require significant work and require substantial investment of our time and resources. Also, any undetected errors or defects in
third-party software could prevent the deployment or impair the functionality of our software, delay new updates or
enhancements to our platform, result in a failure of our platform, and injure our reputation.
If we do not or cannot maintain the compatibility of our platform with third-party applications that our customers use in
their businesses, our revenue will decline.
The functionality and attractiveness of our platform depends, in part, on our ability to integrate our platform with third-
party applications and platforms, including customer relationship management, human resources information, accounting, and
enterprise resource planning systems our customers use and from which they obtain data. Third-party providers of applications
and APIs may change the features of their applications and platforms, restrict our access to their applications and platforms, or
alter the terms governing use of their applications and APIs and access to those applications and platforms in an adverse
manner. Such changes could functionally limit or terminate our ability to use these third-party applications and platforms in
conjunction with our platform, which could negatively impact our offerings and harm our business. If we fail to integrate our
software with new third-party applications and platforms our customers use, we may not be able to offer the functionality our
customers need, which would negatively impact our ability to generate revenue and adversely impact our business.
Catastrophic events may disrupt our business.
Our corporate headquarters are located in northern Virginia. The area around Washington, D.C. could be subjected to
domestic or foreign terrorist attacks. Additionally, we rely on our network and third-party infrastructure and enterprise
applications, internal technology systems, and our website for our development, marketing, operational support, hosted
services, and sales activities. In the event of a major hurricane, earthquake, or catastrophic event such as fire, power loss,
telecommunications failure, cyberattack, outbreak of regional or global pandemic diseases, war, or terrorist attack, we may be
unable to continue our operations and may endure system interruptions, reputational harm, delays in our software development,
lengthy interruptions in our services, breaches of data security, and loss of critical data, all of which could have an adverse
effect on our future operating results. For example, the ongoing coronavirus outbreak at the beginning of 2020 has resulted in
increased travel restrictions and extended shutdown of certain businesses in the region. At this point, the extent to which the
coronavirus may impact our operating results is uncertain.
Adverse economic conditions may negatively impact our business.
Our business depends on the overall demand for enterprise software and on the economic health of our current and
prospective customers. The economies of countries in Europe have been experiencing weakness associated with high sovereign
debt levels, weakness in the banking sector, and uncertainties surrounding the future of the Euro zone and the United
Kingdom's relationship with the European Union. We have operations in the United Kingdom and in Europe and current and
potential new customers in Europe. If economic conditions in Europe and other key markets for our platform continue to remain
uncertain or deteriorate further, many customers may delay or reduce their information technology spending. This could result
in reductions in sales of our platform, a decrease in our renewal rate, longer sales cycles, reductions in subscription duration and
value, slower adoption of new technologies, and increased price competition. Any of these events would likely have an adverse
effect on our business, operating results, and financial position.
Future acquisitions could disrupt our business and adversely affect our business operations and financial results.
We may choose to expand by acquiring businesses or technologies. For instance, in January 2020, we acquired Novayre
Solutions S.L., or Novayre, developer of the Jidoka RPA platform, which we are continuing to integrate along with their
personnel. Our ability as an organization to successfully acquire and integrate technologies or businesses is unproven.
Acquisitions involve many risks, including the following:
•
An acquisition may negatively affect our financial results because it may require us to incur charges or assume
substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to
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claims and disputes by third parties, including intellectual property claims and disputes, or may not generate sufficient financial
return to offset additional costs and expenses related to the acquisition;
• We may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products,
personnel, or operations of any company we acquire, particularly if key personnel of the acquired company decide not to work
for us;
•
An acquisition may disrupt our ongoing business, divert resources, increase our expenses, and distract our
management;
•
An acquisition may result in a delay or reduction of customer purchases for both us and the company acquired due to
customer uncertainty about continuity and effectiveness of service from either company;
• We may encounter difficulties in successfully selling, or may be unable to successfully sell, any acquired solutions;
•
An acquisition may involve the entry into geographic or business markets in which we have little or no prior
experience or where competitors have stronger market positions;
•
•
Our use of cash to pay for an acquisition would limit other potential uses for our cash; and
If we incur debt to fund such acquisition, such debt may subject us to material restrictions on our ability to conduct our
business as well as financial maintenance covenants.
The occurrence of any of these risks could have a material adverse effect on our business operations and financial results.
In addition, we may only be able to conduct limited due diligence on an acquired company’s operations. Following an
acquisition, we may be subject to unforeseen liabilities arising from an acquired company’s past or present operations, and
these liabilities may be greater than the warranty and indemnity limitations we negotiate. Any unforeseen liability greater than
these warranty and indemnity limitations could have a negative impact on our financial condition.
Risks Related to Regulatory Compliance and Governmental Matters
Failure to comply with governmental laws and regulations could harm our business.
Our business is subject to regulation by various federal, state, local, and foreign governments. In certain jurisdictions, these
regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or
requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of
profits, fines, damages, civil and criminal penalties, injunctions, or other collateral consequences. If any governmental sanctions
are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial
condition could be materially adversely affected. In addition, responding to any action will likely result in a significant
diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions
could harm our business, reputation, results of operations, and financial condition.
Because our software could be used to collect and store personal information, domestic and international privacy
concerns could result in additional costs and liabilities to us or inhibit sales of our software and subject us to complex and
evolving federal, state, and foreign laws and regulations regarding privacy, data protection, and other related matters.
Personal privacy has become a significant issue in the United States and in many other countries where we offer our
software for sale. The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain
for the foreseeable future. Many federal, state, and foreign government bodies and agencies have adopted or are considering
adopting laws and regulations regarding the collection, use, storage, and disclosure of personal information and breach
notification procedures. Interpretation of these laws, rules, and regulations and their application to our software and
professional services in the United States and foreign jurisdictions is ongoing and cannot be fully determined at this time.
In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission,
the Electronic Communications Privacy Act, Computer Fraud and Abuse Act, the Health Insurance Portability and
Accountability Act of 1996, the Gramm Leach Bliley Act, the California Consumer Privacy Act, or the CCPA, and other state
laws relating to privacy and data security. The CCPA, which became effective on January 1, 2020, drastically changes the
ability for individuals to control the use of their personal data. It contains detailed requirements regarding collecting and
processing personal information, imposes certain limitations on how such information may be used, and provides rights to
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consumers that have never before been available in the past, all of which may be imposed on us by our customers. This could
increase our costs of doing business. Further, California voters approved a new privacy law, the California Privacy Rights Act,
or CPRA, in the November 3, 2020 election. Effective starting on January 1, 2023, the CPRA will significantly modify the
CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information. The CPRA also creates
a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. New legislation
proposed or enacted in various other states will continue to shape the data privacy environment nationally. Certain state laws
may be more stringent or broader in scope, or offer greater individual rights, with respect to confidential, sensitive, and personal
information than federal, international, or other state laws, and such laws may differ from each other, which may complicate
compliance efforts.
Internationally, the European Union adopted a comprehensive general data protection regulation, or the GDPR, which took
effect in May 2018 and contains numerous requirements and changes related to rights of data subjects in their personal data,
including more robust obligations on data processors and heavier documentation requirements for data protection compliance
programs by companies. In addition, recent rulings in the European Union related to the EU-U.S. Privacy Shield and Standard
Contractual Clauses have called into question how to legally transfer data from the European Economic Area to the United
States.
Virtually every jurisdiction in which we operate has established its own data security and privacy legal framework with
which we or our customers must comply. Since we are agnostic as to the data uploaded into our cloud offering by our cloud
offering customers or processed by our platform in on-premises deployments, we may be hosting or otherwise processing
substantial amounts of individually identifiable health information and other types of personally identifiable information. The
effects of any of this legislation could be potentially far-reaching and may require us to modify our data management practices
and to incur substantial expense in an effort to comply.
In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory
standards that may apply to us. Because the interpretation and application of privacy and data protection laws are still uncertain,
it is possible these laws and other actual or alleged legal obligations such as contractual or self-regulatory obligations may be
interpreted and applied in a manner inconsistent with our existing data management practices or the features of our platform. If
so, in addition to the possibility of fines, lawsuits, and other claims, we could be required to fundamentally change our business
activities and practices or modify our software, which could have an adverse effect on our business. Any inability to adequately
address privacy concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations, and
policies, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our
business.
Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies applicable to
the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our platform. Privacy
concerns, whether valid or not valid, may inhibit market adoption of our platform particularly in certain industries and foreign
countries.
If our platform fails to function in a manner that allows our customers to operate in compliance with regulations and/or
industry standards, our revenue and operating results could be harmed.
Certain of our customers use our platform to create applications that ensure secure communications given the nature of the
content being distributed and associated applicable regulatory requirements. Governmental and other customers may also
require our platform to comply with certain privacy, security, and other certifications and standards. Our cloud platform holds
various security certifications from government agencies and industry organizations, including the Federal Risk and
Authorization Management Program (FedRAMP) compliance, HITRUST certification, and meets the ISO 27001, Payment
Card Industry Data Security Standard (PCI DSS), and the various United States Health Insurance Portability and Accountability
Act (HIPAA) standards. Governments and industry organizations may also adopt new laws, regulations, or requirements or
make changes to existing laws or regulations that could impact the demand for, or value of, our applications such as the
European Banking Authority's regulations updated in September 2019 and the CCPA that took effect January 1, 2020. If we fail
to maintain our current security certifications and/or to continue to meet security standards, or if we are unable to adapt our
platform to changing legal and regulatory standards or other requirements in a timely manner, our customers may lose
confidence in our platform, and our business could be negatively impacted.
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Changes in laws and regulations related to the internet or changes in the internet infrastructure itself may diminish the
demand for our platform and could have a negative impact on our business.
The future success of our business, and particularly our cloud offering, depends upon the continued use of the internet as a
primary medium for commerce, communication, and business applications. Federal, state, or foreign government bodies or
agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the internet as a
commercial medium. Changes in these laws or regulations could require us to modify our platform in order to comply with
these changes. In addition, government agencies or private organizations may begin to impose taxes, fees, or other charges for
accessing the internet or commerce conducted via the internet. These laws or charges could limit the growth of internet-related
commerce or communications generally, resulting in reductions in the demand for internet-based solutions such as ours.
In addition, the use of the internet as a business tool could be adversely affected due to delays in the development or
adoption of new standards and protocols to handle increased demands of internet activity, security, reliability, cost, ease of use,
accessibility, and quality of service. The performance of the internet and its acceptance as a business tool have been adversely
affected by viruses, worms, and similar malicious programs, along with distributed denial of service (DDoS) and similar
attacks. As a result, the internet has experienced a variety of outages and other delays as a result of such damage to or attacks on
portions of its infrastructure. If the use of the internet is adversely affected by these issues, demand for our platform could
suffer.
We are subject to anti-corruption laws with respect to our domestic and international operations, and non-
compliance with such laws can subject us to criminal and/or civil liability and materially harm our business.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery
statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the United Kingdom Bribery Act 2010, and other anti-corruption laws
in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit our company from
authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private
sector. We use third-party law firms, accountants, and other representatives for regulatory compliance, sales, and other purposes
in several countries. We can be held liable for the corrupt or other illegal activities of these third-party representatives, our
employees, contractors, and other agents, even if we do not explicitly authorize such activities. In addition, although we have
implemented policies and procedures to ensure compliance with anti-corruption laws, there can be no assurance all of our
employees, representatives, contractors, or agents will comply with these laws at all times.
Noncompliance with these laws could subject us to whistleblower complaints, investigations, sanctions, settlements,
prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or
injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm,
adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or
other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of
operations, and financial condition could be materially harmed. In addition, responding to any action will likely result in a
materially significant diversion of management’s attention and resources and significant defense costs and other professional
fees. Enforcement actions and sanctions could further harm our business, results of operations, and financial condition.
Moreover, as an issuer of securities, we also are subject to the accounting and internal controls provisions of the FCPA. These
provisions require us to maintain accurate books and records and a system of internal controls sufficient to detect and prevent
corrupt conduct. Failure to abide by these provisions may have an adverse effect on our business, operations, or financial
condition.
We are subject to governmental export and import controls and economic and trade sanctions that could impair our
ability to conduct business in international markets and subject us to liability if we are not in compliance with applicable
laws and regulations.
The United States and other countries maintain and administer export and import laws and regulations, including various
economic and trade sanctions including those administered by the Office of Foreign Assets Control, or OFAC, which apply to
our business. We are required to comply with these laws and regulations. If we fail to comply with such laws and regulations,
we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export
or import privileges, fines which may be imposed on us and responsible employees or managers, and, in extreme cases, the
incarceration of responsible employees or managers.
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Changes in our platform, or changes in applicable export or import laws and regulations, may create delays in the
introduction and sale of our platform in international markets or, in some cases, prevent the export or import of our platform to
certain countries, governments or persons altogether. Any change in export or import laws and regulations or economic or trade
sanctions, shift in the enforcement or scope of existing laws and regulations, or change in the countries, governments, persons,
or technologies targeted by such laws and regulations could also result in decreased use of our platform, or in our decreased
ability to export or sell our platform to existing or potential customers. Any decreased use of our services or limitation on our
ability to export or sell our services would likely adversely affect our business, financial condition, and results of operations.
We incorporate encryption technology into certain of our products. Encryption products may be exported outside of the
United States only with the required export authorization, including by license, license exception, or other appropriate
government authorization. Obtaining the necessary export license or other authorization for a particular sale may be time-
consuming and may result in the delay or loss of sales opportunities. In addition, various countries regulate the import of certain
encryption technology, including import permitting and licensing requirements, and have enacted laws that could limit our
ability to distribute our products or could limit our customers’ ability to implement our products in those countries. Although
we take precautions to prevent our products from being provided in violation of such laws, our products may have been in the
past, and could in the future, be provided inadvertently in violation of such laws, despite the precautions we take. Governmental
regulation of encryption technology and regulation of imports or exports, or our failure to obtain required import or export
approval for our products, could harm our international sales and adversely affect our revenue.
Moreover, U.S. export control laws and economic sanctions programs prohibit the provision of services to countries,
governments, and persons subject to U.S. economic embargoes and trade sanctions. Even though we take precautions to prevent
our platform from being used by U.S. sanctions targets, our platform could be used by a sanctioned person or in an embargoed
country despite such precautions. Any such shipment could have negative consequences, including government investigations,
penalties, and reputational harm.
Risks Related to Our Intellectual Property
Any failure to protect our proprietary technology and intellectual property rights could substantially harm our business
and operating results.
Our success and ability to compete depend in part on our ability to protect our proprietary technology and intellectual
property. To safeguard these rights, we rely on a combination of patent, trademark, copyright, and trade secret laws and
contractual protections in the United States and other jurisdictions, all of which provide only limited protection and may not
now or in the future provide us with a competitive advantage.
As of December 31, 2020, we had five granted patents and six pending patent applications related to our platform and its
technology. We have registered the “Appian” name and logo in the United States and certain other countries. We have
registrations and/or pending applications for additional marks in the United States. We cannot assure you any current or future
applications for registrations for patent or trademark applications will result in the grant of any valid, enforceable intellectual
property rights. Further, we cannot assure you any granted patent or trademark will provide the protection we seek, will be valid
if challenged, or will be sufficiently broad in actions against alleged infringers. Moreover, any of our granted intellectual
property rights may be rendered invalid by future changes in the law, defects in our prosecution processes, or preexisting
technology, rights, or marks.
In order to protect our unpatented proprietary technologies and processes, we rely on trade secret laws and confidentiality
and invention assignment agreements with our employees, consultants, strategic partners, vendors, and others. Despite our
efforts to protect our proprietary technology and trade secrets, unauthorized parties may attempt to misappropriate, copy,
reverse engineer, or otherwise obtain and use them. In addition, others may independently discover our trade secrets, in which
case we would not be able to assert trade secret rights or develop similar technologies and processes. Further, the contractual
provisions we enter into may not prevent unauthorized use or disclosure of our proprietary technology or intellectual property
rights and may not provide an adequate remedy in the event of any such unauthorized use or disclosure.
Policing unauthorized use of our technologies, trade secrets, and intellectual property is difficult, expensive, and time-
consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in
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the United States and where mechanisms for enforcement of intellectual property rights may be weak. To the extent we expand
our activities outside of the United States, our exposure to unauthorized copying and use of our platform and proprietary
information may increase. We may be unable to determine the extent of any unauthorized use or infringement of our platform,
technologies, or intellectual property rights.
There can be no assurance the steps we take will be adequate to protect our proprietary technology and intellectual
property, that others will not develop or patent similar or superior technologies, products or services, or that our trademarks,
patents, and other intellectual property will not be challenged, invalidated, or circumvented by others. Furthermore, effective
trademark, patent, copyright, and trade secret protection may not be available in every country in which our software is
available or where we have employees or independent contractors.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect
these rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and
distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our
efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the
validity and enforceability of our intellectual property rights. Our failure to secure, protect, and enforce our intellectual property
rights could seriously adversely affect our brand and adversely impact our business.
We may be subject to intellectual property rights claims by third parties, which are extremely costly to defend, could
require us to pay significant damages and could limit our ability to use certain technologies.
Companies in the software and technology industries, including some of our current and potential competitors, own
significant numbers of patents, copyrights, trademarks, and trade secrets and frequently enter into litigation based on allegations
of infringement or other violations of intellectual property rights. In addition, many of these companies have the capability to
dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought
against them. The litigation may involve patent holding companies or other adverse patent owners that have no relevant product
revenue and against which our patents may therefore provide little or no deterrence. In the past, we have been subject to
allegations of patent infringement that were unsuccessful, and we may in the future be subject to claims we have
misappropriated, misused, or infringed other parties’ intellectual property rights, and, to the extent we gain greater market
visibility or face increasing competition, we face a higher risk of being the subject of intellectual property infringement claims,
which is not uncommon with respect to enterprise software companies. We also generally grant our customers ownership of any
custom applications we develop for them, subject to our continued ownership of our pre-existing intellectual property rights
and, in the past, a customer for whom we have developed custom applications has incorrectly alleged applications we have
independently developed infringed the customer’s intellectual property rights. In addition, we have in the past and may in the
future be subject to claims employees or contractors, or we, have inadvertently or otherwise used or disclosed trade secrets or
other proprietary information of our competitors or other parties. To the extent intellectual property claims are made against our
customers based on their usage of our technology, we have certain obligations to indemnify and defend such customers from
those claims. The term of our contractual indemnity provisions often survives termination or expiration of the applicable
agreement. Large indemnity payments, defense costs, or damage claims from contractual breach could harm our business,
results of operations, and financial condition.
There may be third-party intellectual property rights, including issued or pending patents that cover significant aspects of
our technologies or business methods. Any intellectual property claims, with or without merit, could be very time-consuming,
could be expensive to settle or litigate, could divert our management’s attention and other resources, and could result in adverse
publicity. These claims could also subject us to making substantial payments for legal fees, settlement payments, and other
costs or damages, potentially including treble damages if we are found to have willfully infringed patents or copyrights. These
claims could also result in our having to stop making, selling, offering for sale, or using technology found to be in violation of a
third party’s rights. We might be required to seek a license for the third-party intellectual property rights, which may not be
available on reasonable terms or at all. Moreover, to the extent we only have a license to any intellectual property used in our
platform, there may be no guarantee of continued access to such intellectual property, including on reasonable terms. As a
result, we may be required to develop alternative non-infringing technology, which could require significant effort and expense.
If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we
cannot license or develop technology for any infringing aspect of our business, we would be forced to limit or stop sales of our
software or cease business activities covered by such intellectual property and may be unable to compete effectively. Any of
these results would adversely affect our business, results of operations, financial condition, and cash flows.
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Portions of our platform utilize open source software, and any failure to comply with the terms of one or more of these
open source licenses could negatively affect our business.
Our software contains software licensed to us by third parties under so-called “open source” licenses, including the GNU
Lesser General Public License, the BSD License, and others. From time to time, there have been claims against companies that
distribute or use open source software in their products and services, asserting such open source software infringes the
claimants’ intellectual property rights. We could be subject to suits by parties claiming what we believe to be licensed open
source software infringes their intellectual property rights. Use and distribution of open source software may entail greater risks
than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual
protections regarding infringement claims or the quality of the code. In addition, certain open source licenses require source
code for software programs subject to the license be made available to the public and that any modifications or derivative works
to such open source software continue to be licensed under the same terms.
Although we monitor our use of open source software in an effort both to comply with the terms of the applicable open
source licenses and to avoid subjecting our software to conditions we do not intend, the terms of many open source licenses
have not been interpreted by U.S. courts, and there is a risk these licenses could be construed in a way that could impose
unanticipated conditions or restrictions on our ability to commercialize our platform. By the terms of certain open source
licenses, we could be required to release the source code of our software and to make our software available under open source
licenses, if we combine or distribute our software with open source software in a certain manner. In the event portions of our
software are determined to be subject to an open source license, we could be required to publicly release the affected portions of
our source code, re-engineer all, or a portion of, that software or otherwise be limited in the licensing of our software, each of
which could reduce or eliminate the value of our platform. Many of the risks associated with usage of open source software
cannot be eliminated and could negatively affect our business, results of operations, and financial condition.
Risks Related to Tax and Accounting Matters
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations
could be adversely affected.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our
estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, as
provided in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this
Annual Report on Form 10-K. The results of these estimates form the basis for making judgments about the carrying values of
assets, liabilities, and equity, and the amount of revenue and expenses. Significant assumptions and estimates used in preparing
our consolidated financial statements include those related to revenue recognition, income taxes and the related valuation
allowance, and stock-based compensation. Our results of operations may be adversely affected if our assumptions change or if
actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the
expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A common stock.
Our operating results may be negatively affected by additional tax liabilities.
We currently collect and remit sales and use, value added, and other transaction taxes in certain of the jurisdictions where
we do business based on our assessment of whether tax is owed by us in such jurisdictions. However, in some jurisdictions in
which we do business, we do not believe we owe such taxes, and therefore we currently do not collect and remit such taxes or
record contingent tax liabilities in those jurisdictions. Further, due to uncertainty in the application and interpretation of
applicable tax laws in various jurisdictions, we may be exposed to sales and use, value added, or other transaction tax liability.
A successful assertion that we are required to pay additional taxes in connection with sales of our platform, or the imposition of
new laws or regulations requiring the payment of additional taxes, would create increased costs and administrative burdens for
us. If we are subject to additional taxes and determine to offset such increased costs by collecting and remitting sales taxes from
our customers, or otherwise passing those costs through to our customers, companies may be discouraged from using our
platform. Any increased tax burden may decrease our ability or willingness to compete in relatively burdensome tax
jurisdictions, result in substantial tax liabilities related to past sales, or otherwise harm our business and operating results.
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In addition, as a multinational organization, we may be subject to taxation in several jurisdictions around the world with
increasingly complex tax laws and the amount of taxes we pay in these jurisdictions could increase substantially as a result of
changes in the applicable tax principles, including increased tax rates, new tax laws, or revised interpretations of existing tax
laws and precedents. Furthermore, the authorities in these jurisdictions could review our tax returns and impose additional tax,
interest, and penalties, and the authorities could claim various withholding requirements apply to us or our subsidiaries or assert
benefits of tax treaties are not available to us or our subsidiaries, any of which could have a material impact on us and the
results of our operations.
Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.
As of December 31, 2020, we had gross U.S. federal and state net operating loss carryforwards, or NOLs, of $183.9 million
and $177.2 million, respectively, available to offset future taxable income. NOLs generated in tax years ended on or prior to
December 31, 2017 will substantially expire by 2037 if unused. As a result of certain provisions in the Tax Cuts and Jobs Act of
2017, or the TCJA, as modified by the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, federal NOLs
generated in tax years beginning after December 31, 2017 may be carried forward indefinitely but, in the case of tax years
beginning after 2020, may only be used to offset 80% of our taxable income annually. Under the TCJA, as modified by the
CARES Act, federal NOLs generated in taxable years beginning in 2018, 2019, and 2020 will similarly carry forward
indefinitely but will not be subject to such 80% of annual taxable income limitation. Under the provisions of the Internal
Revenue Code of 1986, as amended, or the Internal Revenue Code, substantial changes in our ownership may limit the amount
of pre-change NOLs that can be utilized annually in the future to offset taxable income. Section 382 of the Internal Revenue
Code imposes limitations on a company’s ability to use NOLs if a company experiences a more-than-50-percent ownership
change over a three-year testing period. Based upon our analysis as of December 31, 2020, we have determined we do not
expect these limitations to impair our ability to use our NOLs prior to expiration. However, if changes in our ownership occur
in the future, our ability to use our NOLs may be further limited. For these reasons, we may not be able to utilize a material
portion of the NOLs, even if we achieve profitability.
As of December 31, 2020, we also had gross foreign NOLs of $78.6 million, primarily at our Swiss subsidiary, Appian
Software International. These NOLs will begin to expire in 2021 to 2027, if unused. If we are limited in our ability to use our
NOLs in future years in which we have taxable income, we will pay more taxes than if we were able to fully utilize our NOLs.
This could adversely affect our operating results and the market price of our Class A common stock.
Forecasting our estimated annual effective tax rate for financial accounting purposes is complex and subject to
uncertainty, and there may be material differences between our forecasted and actual tax rates.
Forecasts of our income tax position and effective tax rate for financial accounting purposes are complex and subject to
uncertainty because our income tax position for each year combines the effects of a mix of profits earned and losses incurred by
us in various tax jurisdictions with a broad range of income tax rates, as well as changes in the valuation of deferred tax assets
and liabilities, the impact of various accounting rules and changes to these rules and tax laws, the results of examinations by
various tax authorities, and the impact of any acquisition, business combination, or other reorganization or financing
transaction. To forecast our global tax rate, we estimate our pre-tax profits and losses by jurisdiction and forecast our tax
expense by jurisdiction. If the mix of profits and losses, our ability to use tax credits, or effective tax rates by jurisdiction is
different than those estimated, our actual tax rate could be materially different than forecasted, which could have a material
impact on our results of business, financial condition, and results of operations.
We are obligated to develop and maintain proper and effective internal controls over financial reporting, and any
failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as
a result, the value of our Class A common stock.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to furnish a report by management on,
among other things, the effectiveness of our internal control over financial reporting on an annual basis. This assessment
includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
During the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our
internal control over financial reporting, we will be unable to assert our internal control over financial reporting is effective.
While we have established certain procedures and controls over our financial reporting processes, we cannot assure you these
37
efforts will prevent restatements of our financial statements in the future. Our independent registered public accounting firm is
also required, pursuant to Section 404, to attest to, and report on, management's assessment of our internal control over
financial reporting, which report is included elsewhere in this Annual Report on Form 10-K. This assessment is required to
include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. For
future reporting periods, our independent registered public accounting firm may issue a report that is adverse in the event it is
not satisfied with the level at which our controls are documented, designed, or operating. We may not be able to remediate any
future material weaknesses or to complete our evaluation, testing, and any required remediation in a timely fashion.
Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our
financial condition or results of operations. If we are unable to conclude our internal control over financial reporting is
effective, or if our independent registered public accounting firm determines we have a material weakness or significant
deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness
of our financial reports, the market price of our Class A common stock could decline, and we could be subject to sanctions or
investigations by the Nasdaq Stock Market, the SEC, or other regulatory authorities. Failure to remedy any material weakness
in our internal control over financial reporting, or to implement or maintain other effective control systems required of public
companies, could also restrict our future access to the capital markets.
Risks Related to Our Class A Common Stock
The dual class structure of our common stock and the existing ownership of capital stock by Matthew Calkins, our
founder and Chief Executive Officer, has the effect of concentrating voting control with Mr. Calkins for the foreseeable
future, which will limit your ability to influence corporate matters.
Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share. Given the
greater number of votes per share attributed to our Class B common stock, our Class B stockholders collectively beneficially
owned shares representing approximately 89% of the voting power of our outstanding capital stock as of December 31, 2020.
Further, Mr. Calkins, our founder and Chief Executive Officer, together with his affiliates, collectively beneficially owned
shares representing approximately 77% of the voting power of our outstanding capital stock as of December 31, 2020.
Consequently, Mr. Calkins, together with his affiliates, is able to control a majority of the voting power even if their stock
holdings represent as few as approximately 25% of the outstanding number of shares of our common stock. This concentrated
control will limit your ability to influence corporate matters for the foreseeable future. For example, Mr. Calkins will be able to
control elections of directors, amendments of our certificate of incorporation or bylaws, increases to the number of shares
available for issuance under our equity incentive plans or adoption of new equity incentive plans, and approval of any merger or
sale of assets for the foreseeable future. This concentrated control could also discourage a potential investor from acquiring our
Class A common stock due to the limited voting power of such stock relative to the Class B common stock and might harm the
market price of our Class A common stock. In addition, Mr. Calkins has the ability to control the management and major
strategic investments of our company as a result of his position as our Chief Executive Officer and his ability to control the
election or replacement of our directors. As a board member and officer, Mr. Calkins owes a fiduciary duty to our stockholders
and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. However, as a
stockholder, even a controlling stockholder, Mr. Calkins is entitled to vote his shares, and shares over which he has voting
control, in his own interests, which may not always be in the interests of our stockholders generally.
Future transfers by Mr. Calkins and other holders of Class B common stock will generally result in those shares converting
on a 1:1 basis to Class A common stock, which will have the effect, over time, of increasing the relative voting power of those
holders of Class B common stock who retain their shares in the long-term.
38
We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your
investment will depend on appreciation in the price of our Class A common stock.
We have never declared or paid any cash dividends on our common stock, and we do not intend to pay any cash dividends
in the foreseeable future. Although we paid a cash dividend in connection with the conversion of our Series A preferred stock to
Class B common stock immediately prior to the closing of the IPO, which was agreed to at the time of the original issuance of
the Series A preferred stock, we anticipate we will retain all of our future earnings for use in the development of our business
and for general corporate purposes. Additionally, our ability to pay dividends on our common stock is limited by restrictions
under the terms of our loan and security agreement with Silicon Valley Bank. Any determination to pay dividends in the future
will be at the discretion of our Board of Directors. Accordingly, investors must rely on sales of their Class A common stock
after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more
difficult, limit attempts by our stockholders to replace or remove our current management, and limit the market price of our
Class A common stock.
In addition to the effects of our dual class structure, provisions in our amended and restated certificate of incorporation and
amended and restated bylaws may have the effect of delaying or preventing a change in control or changes in our management.
Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that may frustrate or
prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for
stockholders to replace members of our Board of Directors, which is responsible for appointing the members of our
management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the
Delaware General Corporation Law, which generally prohibit a Delaware corporation from engaging in any of a broad range of
business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder
became an “interested” stockholder. Any of the foregoing provisions could limit the price investors might be willing to pay in
the future for shares of our Class A common stock, and they could deter potential acquirers of our company, thereby reducing
the likelihood you would receive a premium for your shares of our Class A common stock in an acquisition.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the
exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to
obtain a favorable judicial forum for disputes with us and limit the market price of our Class A common stock.
Pursuant to our amended and restated certificate of incorporation, unless we consent in writing to the selection of an
alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (1) any derivative
action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our
directors, officers, or other employees to us or our stockholders, (3) any action asserting a claim arising pursuant to any
provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and
restated bylaws, or (4) any action asserting a claim governed by the internal affairs doctrine. Our amended and restated
certificate of incorporation also provides the federal district courts of the United States of America will be the exclusive forum
for resolving any complaint asserting a cause of action arising under the Securities Act. Our amended and restated certificate of
incorporation further provides any person or entity purchasing or otherwise acquiring any interest in shares of our Class A
common stock is deemed to have notice of and consented to the foregoing provisions. The forum selection clause in our
amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for
disputes with us and limit the market price of our Class A common stock.
GENERAL RISK FACTORS
The effects of national and global epidemics, including the recent COVID-19 pandemic, could have an adverse impact
on our business, operations, and the markets and communities in which we operate.
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. Our business and
operations could be adversely affected by national and global epidemics, including the recent COVID-19 pandemic, impacting
the markets and communities in which we operate.
39
In response to the COVID-19 pandemic, many state, local, and foreign governments have put in place, and others in the
future may put in place, quarantines, executive orders, shelter-in-place orders, and similar government orders and restrictions in
order to control the spread of the disease. Such orders or restrictions, or the perception that such orders or restrictions could
occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, and travel
restrictions, among other effects that could negatively impact productivity and disrupt our operations. For example, we have
implemented a work-from-home policy for employees, and we may take further actions that alter our operations as may be
required by federal, state, or local authorities or which we determine are in the best interests of our employees and stockholders.
In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in
particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant
disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our
liquidity. The COVID-19 pandemic also could reduce the demand for our customers’ products and services, which could
negatively impact our customers’ willingness to renew or enter into contracts with us or our ability to collect accounts
receivable on a timely basis, which, if significant, could materially and adversely affect our business, results of operations, and
financial condition.
The global pandemic of COVID-19 continues to rapidly evolve, and we will continue to monitor the COVID-19 situation
closely. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change.
We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy as a whole,
which makes our future results difficult to predict. In addition, to the extent the ongoing COVID-19 pandemic adversely affects
our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties
described herein.
Unfavorable conditions in the global economy or the vertical markets we serve could limit our ability to grow our
business and negatively affect our operating results.
General worldwide economic conditions have experienced significant instability due to the global economic uncertainty
and financial market conditions caused by the COVID-19 pandemic. These conditions make it extremely difficult for customers
and us to accurately forecast and plan future business activities and could cause customers to reduce or delay their software
spending. For example, we believe there could be some short-term impact from the COVID-19 pandemic on spending by our
customers. At this time, the potential impact on customer spend from the COVID-19 pandemic is difficult to predict and,
therefore, it is not possible to fully determine the impact on our future results. Historically, economic downturns have resulted
in overall reductions in software spending. If macroeconomic conditions deteriorate or are characterized by uncertainty or
volatility, customers may curtail or freeze spending on software in general and for software such as ours specifically, which
could have an adverse impact on our business, financial condition, and operating results.
We have historically generated a majority of our revenue from customers in the financial services, government, and life
sciences verticals. While these verticals have not been affected as severely by weak economic conditions caused by COVID-19
as the retail, hospitality, and entertainment industries, we cannot assure these verticals will not suffer more severe losses in the
future. Furthermore, we cannot predict the timing, strength, or duration of any economic slowdown or recovery. In addition,
even if the overall economy is robust, we cannot assure the market for services such as ours will experience growth or that we
will experience growth.
Our stock price may be volatile, and you may lose some or all of your investment.
The market price of our Class A common stock may be highly volatile and may fluctuate substantially as a result of a
variety of factors. Since shares of our Class A common stock were sold in our initial public offering, or IPO, in May 2017 at a
price of $12.00 per share, our stock price has ranged from an intraday low of $14.60 to an intraday high of $260.00 through
February 15, 2021. Factors that may affect the market price of our Class A common stock and our ability to raise capital
through the sale of additional equity securities include:
•
•
•
Actual or anticipated fluctuations in our financial condition and operating results;
Variance in our financial performance from expectations of securities analysts;
Changes in the prices of subscriptions to our platform;
40
•
•
•
•
•
•
•
•
Changes in our projected operating and financial results;
Changes in laws or regulations applicable to our platform;
Announcements by us or our competitors of significant business developments, acquisitions, or new offerings;
Our involvement in any litigation;
Our sale of our Class A common stock or other securities in the future;
Changes in senior management or key personnel;
The trading volume of our Class A common stock;
Trading activity by one or both large stockholders who together owned approximately 32% of our publicly traded
Class A common stock as of December 31, 2020;
•
•
Changes in the anticipated future size and growth rate of our market; and
General economic, regulatory, and market conditions.
The stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the
market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the
operating performance of those companies. Broad market and industry fluctuations, as well as general economic, political,
regulatory, and market conditions, may negatively impact the market price of our Class A common stock. In the past,
companies that have experienced volatility in the market price of their securities have been subject to securities class action
litigation. We may be the target of this type of litigation in the future, which could result in substantial costs and divert our
management’s attention.
If securities or industry analysts do not publish research or reports about our business, or publish negative reports
about our business, our stock price and trading volume could decline.
The trading market for our Class A common stock depends, in part, on the research and reports securities or industry
analysts publish about us or our business. We do not have any control over these analysts. If our financial performance fails to
meet analyst estimates or one or more of the analysts who cover us downgrade our shares or change their opinion of our shares,
our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
41
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Our corporate headquarters occupies approximately 240,000 square feet in McLean, Virginia under an operating lease that
expires in October 2031. As of December 31, 2020, we also lease space in the United Kingdom, Italy, and Australia under
operating lease agreements with various expiration dates through 2026. In addition, we utilize flexible work spaces depending
on the occupancy needs in each of the countries we operate in. We believe our facilities are suitable and adequate to meet our
needs.
Item 3. Legal Proceedings.
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of
our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or
taken together have a material adverse effect on our business, operating results, financial condition, or cash flows. Regardless of
the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management
time and resources, and other factors.
Item 4. Mine Safety Disclosures.
Not applicable.
42
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities.
Market Information
Our Class A common stock is listed on the Nasdaq Global Market under the symbol "APPN". Our Class B common stock
is not listed or traded on any stock exchange.
As of February 15, 2021, there were 16 holders of record of our Class A common stock and 39 holders of record of our
Class B common stock. Because many of our shares of Class A common stock are held by brokers and other institutions on
behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Dividends
We have never declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends on
our common stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of
our Board of Directors, subject to applicable laws, and will depend on then existing conditions, including our financial
condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our Board of
Directors may deem relevant.
Stock Performance Graph
This section is not deemed "filed" with the SEC and shall not be deemed incorporated by reference into any of our other
filings under the Exchange Act or the Securities Act, irrespective of any general incorporation language in any such filing.
The following graph shows a comparison from May 25, 2017 (the date our Class A common stock commenced trading on
the Nasdaq Global Market) through December 31, 2020, of the cumulative total return for an investment of $100 in our Class A
common stock, the Nasdaq Global Market Composite Index, and the Nasdaq Computer Index. Data for the Nasdaq Global
Market Composite Index and the Nasdaq Computer Index assume reinvestment of any dividends. The comparisons in the graph
below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common
stock.
43
COMPARISON OF CUMULATIVE TOTAL RETURN
Among Appian Corporation, the Nasdaq Global Market Composite Index, and the Nasdaq Computer Index
May 25,
2017
June 30,
2017
December
31, 2017
June 30,
2018
December
31, 2018
June 30,
2019
December
31, 2019
June 30,
2020
December
31, 2020
Appian Corporation
$
100.00 $
120.92 $
209.73 $
240.91 $
177.95 $
240.31 $
254.56 $
341.44 $ 1,079.88
Nasdaq Global Market
Composite
Nasdaq Computer
$
$
100.00 $
105.12 $
117.68 $
137.10 $
110.09 $
145.34 $
151.77 $
167.07 $
250.25
100.00 $
96.18 $
113.49 $
124.53 $
109.31 $
134.76 $
164.33 $
193.05 $
246.46
Recent Sales of Unregistered Securities
Not applicable.
Use of Proceeds from Public Offering of Common Stock
Not applicable.
Purchase of Equity Securities by the Issuer and Affiliated Purchases
None.
Item 6. Selected Financial Data
Reserved.
44
Appian CorporationNasdaq Global Market CompositeNasdaq Computer5/176/1712/176/1812/186/1912/196/2012/20$—$250.00$500.00$750.00$1,000.00$1,250.00 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction
with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In
addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans,
estimates, and beliefs. Our actual results could differ materially from those contained in or implied by any forward-looking
statements. 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.
Overview
We provide 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.
With our platform, organizations can rapidly and easily design, build, and implement powerful, enterprise-grade custom
applications through our intuitive, visual interface with little or no coding required. Our customers have used applications built
on our platform to launch new business lines, automate vital employee workflows, manage complex trading platforms,
accelerate drug development, and build global procurement systems. With our platform, decision makers can reimagine their
products, services, processes, and customer interactions by removing much of the complexity and many of the challenges
associated with traditional approaches to software development.
We have generated the majority of our revenue from sales of subscriptions, which include (1) SaaS subscriptions bundled
with maintenance and support and hosting services and (2) term license subscriptions bundled with maintenance and support.
Our subscription fees are based primarily on the number of users who access and utilize the applications built on our platform
or, alternatively, non-user based single application licenses. Our customer contract terms generally vary from one to three years
with most providing for payment in advance on an annual, quarterly, or monthly basis. Due to the variability of our billing
terms and the episodic nature of our customers purchasing additional subscriptions, we do not believe changes in our deferred
revenue in a given period are directly correlated with our revenue growth.
Since inception, we have invested in our Customer Success organization to help ensure customers are able to build and
deploy applications on our platform. We have several strategic partnerships, including with KPMG, PwC, Accenture, and
Deloitte, for them to refer customers to us in order to purchase subscriptions and then to provide professional services directly
to the customers using our platform. We intend to further grow our base of strategic partners to provide broader customer
coverage and solution delivery capabilities. In addition, over time we expect professional services revenue as a percentage of
total revenue to decline as we increasingly rely on strategic partners to help our customers deploy our software. We believe our
investment in professional services, including strategic partners building their practices around Appian, will drive increased
adoption of our platform.
As of December 31, 2020, we had 693 customers in a variety of industries, of which 548 customers were commercial and
145 customers were government or non-commercial entities. Our customers include financial services, government, life
sciences, telecommunications, media, energy, manufacturing, and transportation organizations. Generally, our sales force
targets its efforts to organizations with over 2,000 employees and $2 billion in annual revenue. As of December 31, 2020, 25%
of our commercial customers were Global 2000 organizations, and 60 of our customers were Fortune 500 companies. Revenue
from government agencies represented 18.1%, 17.1%, and 15.7% of our total revenue in 2020, 2019, and 2018, respectively.
No single end-customer accounted for more than 10% of our total revenue in 2020, 2019, and 2018.
Our platform supports multiple languages to facilitate collaboration and address challenges in multinational organizations.
We offer our platform globally. In 2020, 2019, and 2018, 33.8%, 32.3%, and 28.7%, respectively, of our total revenue was
generated from customers outside of the United States. As of December 31, 2020, we operated in 12 countries. We believe we
have a significant opportunity to grow our international footprint. We are investing in new geographies, including through
investment in direct and indirect sales channels, professional services, and customer support and implementation partners.
We have experienced strong revenue growth, with revenue of $304.6 million, $260.4 million, and $226.7 million in 2020,
2019, and 2018, respectively. Our subscriptions revenue was $198.7 million, $151.3 million, and $126.0 million in 2020, 2019,
45
and 2018, respectively, and includes sales of our SaaS subscriptions, on-premises term license subscriptions, and maintenance
support. Our cloud subscription revenue was $129.2 million, $95.0 million, and $67.4 million in 2020, 2019, and 2018,
respectively.
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 $33.5 million, $50.7 million, and
$49.5 million in 2020, 2019, and 2018, respectively. We also used cash in operations of $7.6 million, $8.9 million, and $31.3
million in 2020, 2019, and 2018, respectively.
COVID-19
Beginning in late 2019 and continuing into 2021, the outbreak of the novel coronavirus disease, or COVID-19, has resulted
in the declaration of a global pandemic and adversely affected economic activity across virtually all sectors and industries on a
local, national, and global scale. The impact of COVID-19 on the economy and our business continues to be a fluid situation.
Operationally, we remain focused on supporting our customers, employees, and communities during this time. We have
responded quickly to adopt a virtual corporate strategy consisting of enabling most of our employees to work productively from
home while continuing to guard the health and safety of our teams, support our customers, and mitigate risk. We are focused on
ensuring continuity for our customers. To the extent possible, we are conducting business as usual, with necessary or advisable
modifications to employee travel, employee work locations, and marketing events.
Through December 31, 2020, we have not seen a meaningful adverse impact to our financial position, results of operations,
and cash flows and liquidity as a result of COVID-19. While the verticals from which we have historically generated the
majority of our revenue have been less impacted by COVID-19 to date, there may be impacts to our financial condition and
results of operations in 2021 as a result of reduced demand for our products and services and longer sales cycles. 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.
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 Appian as well as the price and number of subscriptions of Appian a customer purchases. We
incur significant customer acquisition costs, including expenses associated with hiring new sales representatives, who generally
take more than one year to become productive given the length of our sales cycle, and marketing costs, all of which, with the
exception 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. Over time, we expect a large portion of our customers to renew their
subscriptions and purchase additional subscriptions as they continue to build more applications and add more users to our
platform. Over the last three completed fiscal years, we had an average cloud subscription renewal rate of 98%. We calculate
our cloud subscription renewal rate by dividing (i) the cloud subscription revenue from renewing cloud customers in the current
12-month period that were cloud customers during the entirety of the prior 12-month period, giving effect to price increases but
excluding additional cloud subscriptions for additional users, or upsells, by (ii) our cloud subscription revenue from all cloud
customers in the corresponding prior 12-month period that were cloud customers during the entirety of such prior 12-month
period. For example, to obtain our cloud subscription renewal rate for the 12-month period ended December 31, 2020, we
identified the amount of cloud subscription revenue in 2020 from cloud customers that were our cloud customers for all of 2019
and subtracted the amount of upsells to such cloud customers and new users from those cloud customers in 2020. We then
divided the balance of 2020 cloud subscription revenue from such cloud customers by all cloud subscription revenue generated
in 2019 from cloud customers that were cloud customers for the entirety of 2019. With respect to the average for our last three
completed fiscal years, we calculated the average of the three applicable 12-month periods. We also expect the proportion of
annual revenue from existing customers to grow relative to annual revenue from new customers. We believe this mix shift over
time will have a positive impact on our operating margins, as we expect the percentage of revenue spent on sales and marketing
to decline.
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We measure the effectiveness of our business model by comparing the lifetime value of our customer relationships to our
customer acquisition costs. For fiscal years 2018 and prior, revenue was recognized under Accounting Standards Codification
Topic 605, Revenue Recognition, or ASC 605. Under ASC 605, we calculated lifetime customer value as (1) average gross
margin multiplied by average subscription and maintenance and support revenue from customers for a given month divided by
(2) the average percentage of monthly recurring revenue that did not renew in each month for the previous 12 months. We then
divided this calculated lifetime customer value by our customer acquisition cost, which is the total sales and marketing expense
incurred during the corresponding month.
In response to our adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic
606), or ASC 606, in the year ended December 31, 2019, we revised the calculation of the lifetime value of our customer
relationships by replacing subscription revenue with cloud subscription revenue in the calculation. Because we primarily
recognize revenue from our on-premises term license subscriptions upfront under ASC 606, we believe cloud subscription
revenue better reflects the performance of our business. The calculation of lifetime customer value as compared to customer
acquisition costs for the prior years were unchanged.
On a rolling 12 month basis, we estimate that for each of the past five fiscal years, the average lifetime value of a customer
has exceeded 7x the associated average cost of acquiring them, including the year ended December 31, 2020.
Key Factors Affecting Our Performance
The following are several key factors that affect our performance:
• Market Adoption of Our Platform. Our ability to grow our customer base and drive market adoption of our platform is
affected by the pace at which organizations digitally transform. We expect our revenue growth will be primarily driven
by the pace of adoption and penetration of our platform. We offer a leading custom software automation platform and
intend to continue to invest to expand our customer base. The degree to which prospective customers recognize the
need for low-code software that enables organizations to digitally transform, and subsequently allocate budget dollars
to purchase our software, will drive our ability to acquire new customers and increase sales to existing customers,
which, in turn, will affect our future financial performance.
•
•
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 related to a perpetual software
license as of the specified measurement date. To the extent we contract with one or more entities under common
control, we count those entities as separate customers. We have aggressively invested, and intend to continue to invest,
in our sales force 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, and life
sciences. In addition, we have established relationships with strategic partners who work with organizations
undergoing digital transformations. We had a total customer count of 693, 533, and 436 as of December 31, 2020,
2019, and 2018, respectively. Our number of customers with active software subscription agreements was 654, 487,
and 378 as of December 31, 2020, 2019, and 2018, respectively. As of December 31, 2020, 25% of our commercial
customers were Global 2000 organizations, and 60 of our customers were Fortune 500 companies. 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 force 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. 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 to us because
we charge subscription fees on a per-user basis and, to a lesser degree, non-user based single application licenses. As a
result of this “land and expand” strategy, we have generated significant additional revenue from our customer base.
Our ability to increase sales to existing customers will depend on a number of factors, including the size of our sales
force 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
47
professional services personnel to become customer success managers. Their role is to ensure the customer realizes
value from our platform and support the "land and expand" strategy versus delivering billable hours.
• Mix of Subscriptions and Professional Services Revenue. We believe our professional services have driven customer
success and facilitated the adoption of our platform by customers. During the initial period of deployment by a
customer, we generally provide a greater amount of support in building applications and training than later in the
deployment, with a typical engagement extending from two to six months. At the same time, many of our customers
have historically purchased subscriptions only for a limited set of their total potential end users. 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. Over time, as the need for professional services associated with user deployments
decreases and the number of end users increases, we expect subscriptions revenue as a percentage of total revenue to
increase. In addition, we intend to further grow our base of strategic partners to provide broader customer coverage
and solution delivery capabilities. These partners perform professional services with respect to any new service
contracts they sign. As the usage of partners expands, we expect the proportion of our total revenue from subscriptions
to increase over time relative to professional services. In 2020, 2019, and 2018, 65.2%, 58.1%, and 55.6% of our
revenue, respectively, was derived from sales of subscriptions, while the remaining 34.8%, 41.9%, and 44.4%,
respectively, was derived from the sale of professional services.
•
Investments in Growth. We have made, and plan to continue to make, investments for long-term growth, including
investment in our platform and infrastructure to continuously maximize the power and simplicity of the platform to
meet the evolving needs of our customers and to take advantage of our market opportunity. In addition, we continue to
pursue strategic acquisitions that enhance our product offerings. We 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.
Key Metrics
We monitor the following metrics to help us measure and evaluate the effectiveness of our operations. All dollar amounts
are presented in thousands.
Cloud Subscription Revenue
Cloud Subscription Revenue
Year Ended December 31,
2020
2019
2018
$
129,219 $
95,028 $
67,447
Pursuant to adoption of ASC 606 in 2019, we primarily recognize revenue from our on-premises term license subscriptions
upfront. As a result, we believe our previous key business metric, subscription revenue, no longer best reflects the performance
of our business and overemphasizes the volatility in our results. Therefore, we are no longer presenting subscription revenue
and have transitioned to a new key metric, cloud subscription revenue.
Cloud subscription revenue includes SaaS subscriptions bundled with maintenance and support and hosting services. In
2020, 2019, and 2018, 65.0%, 62.8%, and 53.5%, respectively, of subscriptions revenue was cloud subscription revenue. As we
generally sell our SaaS subscriptions on a per-user basis, our cloud subscription revenue for any customer is primarily
determined by the number of users who access and utilize the applications built on our platform as well as the price paid. We
believe increasing cloud subscription revenue is an indicator of the demand for our platform, the pace at which the market for
our solutions is growing, the productivity of our sales force and strategic relationships in growing our customer base, and our
ability to further penetrate our existing customer base. The adoption of ASC 606 did not have a material impact on our cloud
subscription revenue.
48
Cloud Subscription Revenue Retention Rate
Cloud Subscription Revenue Retention Rate
As of December 31,
2020
2019
2018
119 %
115 %
131 %
A key factor to our success is the renewal and expansion of subscription agreements with our existing customers. We
calculate this metric over a set of customers who have been with us for at least one full year. To calculate our cloud subscription
revenue retention rate for a particular trailing 12-month period, we first establish the recurring cloud subscription 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 subscription revenue in the current trailing 12-month period from the cohort of
customers from the previous trailing 12-month period. Cloud subscription revenue retention rate is then calculated by dividing
the aggregate recurring cloud subscription revenue in the current trailing 12-month period by the previous trailing 12-month
period. This calculation includes the impact on our revenue from customer non-renewals, pricing changes, and growth in the
number of users on our platform. Our cloud subscription revenue retention rate can fluctuate from period to period due to large
customer contracts in any given period. The cloud subscription revenue retention rate as of December 31, 2018 was elevated as
we focused on converting customers with on-premises term license subscriptions to cloud subscriptions. The adoption of ASC
606 did not have a material impact on our cloud subscription revenue retention rate.
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we
provide investors with certain non-GAAP financial measures, including non-GAAP operating loss, non-GAAP net loss, non-
GAAP net loss per share, non-GAAP weighted average shares outstanding, and adjusted EBITDA, which we collectively refer
to as non-GAAP financial measures. As reflected in the following reconciliation tables, these non-GAAP financial measures
exclude either or both stock-based compensation expense and gain or loss on disposal of asset. We define non-GAAP operating
loss as operating loss before stock-based compensation expense. We define non-GAAP net loss as net loss before stock-based
compensation expense and gain or loss on disposal of assets. In periods we report non-GAAP net income, we calculate non-
GAAP weighted average shares outstanding as GAAP weighted average shares outstanding adjusted for the effect of potentially
dilutive securities that would otherwise be antidilutive under GAAP. We define adjusted EBITDA as net loss before (1) other
(income) expense, net, (2) interest expense, (3) income tax expense, (4) depreciation and amortization expense, and (5) stock-
based compensation expense.
We exclude stock-based compensation expense because of varying available valuation methodologies, subjective
assumptions, and the variety of equity instruments that can impact our non-cash expense. We believe providing non-
GAAP financial measures excluding stock-based compensation expense allow for more meaningful comparisons between our
operating results from period to period. We exclude gains or losses on disposals of assets as these transactions are unrelated to
current operations nor predictive of future results, which we believe allows for a more meaningful comparison between our
operating results from period to period. Accordingly, we believe excluding these expenses and income provides investors and
management with greater visibility into the underlying performance of our business operations, facilitates comparison of our
results with other periods, and may also provide comparison with the results of other companies in our industry.
The presentation of non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or
superior to the financial information prepared and presented in accordance with GAAP. We use non-GAAP financial measures
for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We believe
our non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of
past financial performance and future prospects, and allow for greater transparency with respect to metrics used by our
management in its financial and operational decision making. A reconciliation of our non-GAAP financial measures to the
comparable GAAP financial measures is included below for review. Reliance should not be placed on any single financial
measure to evaluate our business.
Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other
companies in our industry as other companies in our industry may calculate non-GAAP financial results differently, particularly
49
with respect to non-recurring, unusual items. Non-GAAP financial measures do not have uniform definitions, and our
definitions will likely differ from the definitions used by other companies, including peer companies. In addition, non-
GAAP financial measures exclude expenses that may have a material impact upon our reported financial results. Further, stock-
based compensation expense will continue to be a significant recurring expense in our business and an important part of the
compensation provided to our employees for the foreseeable future.
Note for the years ended December 31, 2020 and 2019, revenue was recognized under ASC 606 while for the year ended
December 31, 2018, revenue was recognized under ASC 605. Consequently, our non-GAAP financial measures across those
years are not directly comparable to one another. For a reconciliation of the impact of the adoption of ASC 606 on our non-
GAAP financial measures for the year ended December 31, 2019, refer to our Annual Report on Form 10-K for the fiscal year
ended December 31, 2019, filed with the SEC on February 20, 2020.
The table below reconciles GAAP operating loss to non-GAAP operating loss for the years ended December 31, 2020,
2019, and 2018 (in thousands):
GAAP operating loss
Add back:
Stock-based compensation expense
Non-GAAP operating loss
Year Ended December 31,
2020
2019
2018
$
(37,902) $
(50,468) $
(46,719)
15,279
16,443
16,054
$
(22,623) $
(34,025) $
(30,665)
The following table reconciles GAAP net loss to non-GAAP net loss for the years ended December 31, 2020, 2019, and
2018 (in thousands):
GAAP net loss
Add back:
Stock-based compensation expense
Loss (gain) on disposal of asset
Non-GAAP net loss
Year Ended December 31,
2020
2019
2018
$
(33,477) $
(50,714) $
(49,451)
15,279
22
16,443
146
16,054
(4)
$
(18,176) $
(34,125) $
(33,401)
The following table sets forth non-GAAP net loss per share for the years ended December 31, 2020, 2019, and 2018 (in
thousands except share and per share data):
Non-GAAP net loss
Non-GAAP weighted average shares used to compute net loss per share, basic and
diluted
Non-GAAP net loss per share, basic and diluted
Year Ended December 31,
2020
2019
2018
(18,176) $
(34,125) $
(33,401)
69,050,565
65,479,327
62,140,684
(0.26) $
(0.52) $
(0.54)
$
$
GAAP basic and diluted weighted average shares outstanding were equal to non-GAAP basic and diluted weighted average
shares outstanding for each of the years ended December 31, 2020, 2019, and 2018.
50
The following table reconciles GAAP net loss per share to non-GAAP net loss per share for the years ended December 31,
2020, 2019, and 2018:
GAAP net loss per share, basic and diluted
Add back:
Non-GAAP adjustments to net loss per share
Non-GAAP net loss per share, basic and diluted
Year Ended December 31,
2020
2019
2018
(0.48) $
(0.77) $
(0.80)
0.22
0.25
(0.26) $
(0.52) $
0.26
(0.54)
$
$
The following table reconciles GAAP net loss to adjusted EBITDA for the years ended December 31, 2020, 2019, and
2018 (in thousands):
GAAP net loss
Other (income) expense, net
Interest expense
Income tax expense
Depreciation and amortization expense
Stock-based compensation expense
Adjusted EBITDA
Key Components of Results of Operations
Revenue
Year Ended December 31,
2020
2019
2018
$
(33,477) $
(50,714) $
(49,451)
(5,786)
478
883
5,851
15,279
(941)
367
820
4,742
16,443
2,295
198
239
2,020
16,054
$
(16,772) $
(29,283) $
(28,645)
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 and, to a lesser degree, 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:
Subscriptions
Subscriptions revenue is primarily derived from:
•
•
SaaS 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. On-premises term license subscriptions are offered when the customer prefers to self-manage the
deployment of our platform within their own infrastructure. When our platform is delivered as a SaaS subscription, we manage
their operational needs in third-party hosted data centers.
Professional Services
51
Our professional services revenue is comprised of fees for consulting services, including application development,
deployment assistance, and training related to our platform. Over time, as the need for professional services associated with user
deployments decreases and the number of end users increases, we expect professional services revenue as a percentage of total
revenue to decrease. Additionally, if there is a decline in our procurement of new customers as a result of the COVID-19
pandemic, we may also see a similar decline in professional services revenue.
We have several strategic partnerships, including with KPMG, PwC, Accenture, and Deloitte. Our agreements with our
strategic partners have indefinite terms and may be terminated for convenience by either party. We intend to further grow our
base of strategic partners to provide broader customer coverage and solution delivery capabilities. These partners refer software
subscription customers to us and generally perform professional services with respect to any new service contracts they
originate, increasing our subscriptions revenue without any change to our professional services revenue. As we expand the
network of strategic partners, we expect professional services revenue to decline as a percentage of total revenue over time
since our strategic partners may perform professional services associated with software subscriptions we sell.
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, including payroll and benefits for our technology operations and customer support
teams, and allocated facility costs and overhead. We expect cost of revenue to continue to increase in absolute dollars for the
foreseeable future as our customer base grows.
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 entering into significant professional services agreements sold on a standalone basis may cause significant
fluctuations in our quarterly financial results and allocated facility costs and overhead.
Gross Margin
Gross profit and gross margin, or gross profit as a percentage of total revenue, have been, and will continue to be, affected
by various factors, including the mix of SaaS 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
facilities, 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.
Subscriptions Gross Margin
Subscriptions gross margin is primarily affected by the growth in our subscriptions revenue as compared to the growth in,
and timing of, costs to support such revenue. We expect to continue to invest in customer support and SaaS operations to
support growth in our business, and the timing of those investments is expected to cause gross margins to fluctuate in the short
term but improve over time.
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 cost of our Customer Success organization as we continue to invest in the growth of our business.
Professional services gross margin is also impacted by the amount of services performed by subcontractors and partners as
opposed to internal resources. More recently, we have reduced our usage of subcontractors, and the COVID-19 pandemic has
resulted in fewer in-person professional services engagements and deployments, both of which have reduced certain classes of
expenses and improved professional services margins. However, our improved margins may not be indicative of future trends
52
and are subject to fluctuation based on factors discussed above and uncertainties related to the COVID-19 pandemic outside of
our control.
Operating Expenses
Operating expenses consist of sales and marketing, research and development, and general and administrative expenses.
Salaries, bonuses, and other personnel-related costs are the most significant components of each of these expense categories. In
general, our operating expenses are expected to continue to increase as we invest resources in growing our various teams. We
grew from 1,275 employees at December 31, 2019 to 1,460 employees at December 31, 2020, and we expect to continue to hire
new employees in order to support our anticipated revenue growth.
Sales and Marketing Expense
Sales and marketing expense primarily includes personnel costs, including salaries, bonuses, commissions, stock-based
compensation, and other personnel costs related to sales teams. Additional expenses in this category include travel and
entertainment, marketing activities and promotional events, subcontracting fees, and allocated facility costs and overhead.
The number of employees in sales and marketing functions grew from 403 at December 31, 2019 to 445 at December 31,
2020. In order to continue to grow our business, geographical footprint, and brand awareness, we expect to continue investing
resources in sales and marketing by increasing the number of sales and account management teams. As a result, 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.
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, and professional fees to third party development resources, allocated facility costs, and
overhead.
Our research and development efforts are focused on enhancing the speed and power of our software platform. The number
of employees in research and development functions grew from 332 at December 31, 2019 to 381 at December 31, 2020. We
expect research and development expense to continue to increase as they are critical to maintain and improve the quality of
applications and our competitive position.
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 employees, and executives. Additional expenses included in this category are non-personnel costs such as travel-
related expenses, contracting and professional fees, audit fees, tax services and legal fees, insurance and other corporate
expenses, allocated facility costs and overhead, bad debt expenses, and depreciation and amortization costs.
The number of employees in general and administrative functions grew from 156 at December 31, 2019 to 206 at
December 31, 2020. We expect our general and administrative expense to increase in absolute dollars as we continue to support
our growth.
Other (Income) Expense
Other (Income) Expense, Net
Other (income) expense, net consists primarily of unrealized and realized gains and losses related to changes in foreign
currency exchange rates, interest income on our cash and cash equivalents, gains or losses on the disposal of property and
equipment, and other sources of income or expense not related to our core business.
53
Interest Expense
Interest expense consists primarily of interest on our finance leases and debt, unused credit facility fees, and commitment
fees on our letters of credit.
Results of Operations
The following table sets forth our consolidated statement of operations data (in thousands):
Consolidated Statement of Operations Data:
Year Ended December 31,
2020
2019
2018
Revenue:
Subscriptions
Professional services
Total revenue
Cost of revenue(1):
Subscriptions
Professional services
Total cost of revenue
Gross profit
Operating expenses(1):
Sales and marketing
Research and development
General and administrative
Total operating expenses
Operating loss
Other (income) expense:
Other (income) expense, net
Interest expense
Total other (income) expense
Loss before income taxes
Income tax expense
Net loss
(1) Stock-based compensation as a component of these line items is as follows:
Cost of revenue
Subscriptions
Professional services
Operating expenses
Sales and marketing
Research and development
General and administrative
$
198,710 $
151,299 $
105,863
304,573
20,826
67,940
88,766
109,053
260,352
17,098
76,743
93,841
215,807
166,511
117,440
58,043
41,496
216,979
(50,468)
(941)
367
(574)
130,316
70,241
53,152
253,709
(37,902)
(5,786)
478
(5,308)
(32,594)
883
126,012
100,731
226,743
11,997
72,928
84,925
141,818
105,992
44,724
37,821
188,537
(46,719)
2,295
198
2,493
(49,894)
(49,212)
820
239
$
(33,477) $
(50,714) $
(49,451)
Year Ended December 31,
2020
2019
2018
(in thousands)
$
943 $
647 $
1,477
2,748
2,821
2,718
7,320
4,742
3,480
4,826
514
1,717
3,473
2,416
7,934
Total stock-based compensation expense
$
15,279 $
16,443 $
16,054
54
The following table sets forth our consolidated statement of operations data expressed as a percentage of total revenue:
Consolidated Statement of Operations Data:
Revenue:
Subscriptions
Professional services
Total revenue
Cost of revenue:
Subscriptions
Professional services
Total cost of revenue
Gross margin
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Operating loss
Other (income) expense:
Other (income) expense, net
Interest expense
Total other (income) expense
Loss before income taxes
Income tax expense
Net loss
Year Ended December 31,
2020
2019
2018
65.2 %
58.1 %
55.6 %
34.8
100.0
6.8
22.3
29.1
70.9
42.8
23.1
17.5
83.4
41.9
100.0
6.6
29.5
36.1
63.9
45.1
22.3
15.9
83.3
44.4
100.0
5.3
32.2
37.5
62.5
46.7
19.7
16.7
83.1
(12.5)
(19.4)
(20.6)
(1.9)
0.2
(1.7)
(10.8)
0.3
(11.1) %
(0.4)
0.1
(0.3)
(19.1)
0.3
(19.4) %
1.0
0.1
1.1
(21.7)
0.1
(21.8) %
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Revenue
Revenue:
Subscriptions
Professional services
Total revenue
Year Ended December 31,
% Change
2020
2019
(dollars in thousands)
$
$
198,710 $
105,863
304,573 $
151,299
109,053
260,352
31.3%
(2.9)%
17.0%
Total revenue increased $44.2 million, or 17.0%, in 2020 compared to 2019 due to an increase in our subscriptions revenue
of $47.4 million, which was partially offset by a decrease in our professional services revenue of $3.2 million. Of the increase
in subscriptions revenue, $34.2 million was attributable to cloud subscription revenue, $11.0 million was attributable to on-
premises software revenue, and $2.2 million was attributable to maintenance and support revenue. With respect to new versus
existing customers, $36.5 million of the increase in subscriptions revenue stemmed from expanded deployments and
corresponding sales of additional subscriptions to existing customers while the remaining increase of $10.9 million was the
result of sales of subscriptions to new customers, $2.8 million of which related to a three-year on-premises contract which
closed in the first quarter of 2020. The decrease in professional services revenue was due primarily to a $16.9 million decrease
55
in revenue from existing customers which was substantially offset by $13.7 million in sales to new customers. Further
contributing to the decrease in professional services revenue was our increased usage of partners to perform professional
services in 2020 as compared to 2019, which has resulted in increases to our subscriptions revenue without any change to our
professional services revenue.
Cost of Revenue
Cost of revenue:
Subscriptions
Professional services
Total cost of revenue
Subscriptions gross margin
Professional services gross margin
Total gross margin
Year Ended December 31,
% Change
2020
2019
(dollars in thousands)
$
$
20,826
67,940
88,766
$
$
17,098
76,743
93,841
21.8%
(11.5)%
(5.4)%
89.5 %
35.8 %
70.9 %
88.7 %
29.6 %
64.0 %
Cost of revenue decreased $5.1 million, or 5.4%, in 2020 compared to 2019, primarily due to a $10.4 million decrease in
contractor costs, a $4.1 million decrease in billable expenses, and a $0.4 million decrease in facility and overhead costs. These
decreases were partially offset by a $6.8 million increase in professional services and product support personnel costs and a
$3.0 million increase in other cost of revenue. Contractor costs decreased in 2020 compared to 2019 because of a decrease in
the usage of subcontractors for professional service engagements. Billable expenses decreased primarily due to lower travel and
entertainment related expenses as a result of our shift to largely remote work in 2020 while the decrease in facility and overhead
costs was largely due to a reduction in rent expense. Personnel costs increased due to an increase in professional services and
product support staff personnel headcount of 11.5% from December 31, 2019 to December 31, 2020. The increase in other cost
of revenue was due to increased hosting costs as sales of our cloud offering increased in 2020.
Subscriptions gross margin was 89.5% in 2020 compared to 88.7% in 2019 due to an increase in subscriptions revenue in
2020, partially offset by increased hosting costs as sales of our cloud offering increased and became a larger proportion of our
overall subscriptions revenue. Professional services gross margin was 35.8% in 2020 compared to 29.6% in 2019 due to a
decrease in the usage of subcontractors for professional services engagements, a decrease in travel and entertainment related
expenses, a decrease in rent expenses, and a $1.3 million decrease in stock-based compensation expense. Due to the higher
percentage of subscriptions revenue for the comparable periods as well as the aforementioned declines in professional services
expenses, gross margin was 70.9% in 2020 as compared to 64.0% in 2019.
Sales and Marketing Expense
Sales and marketing
% of revenue
Year Ended December 31,
% Change
2020
2019
(dollars in thousands)
$
130,316
$
117,440
11.0%
42.8 %
45.1 %
Sales and marketing expense increased $12.9 million, or 11.0%, in 2020 compared to 2019, primarily due to a $17.6
million increase in sales and marketing personnel costs and a $2.3 million increase in professional fees, which were partially
offset by a $6.7 million decrease in facility and overhead costs and a $0.4 million decrease in marketing costs. Personnel costs
increased due to an increase in sales and marketing personnel headcount of 10.4% from December 31, 2019 to December 31,
2020 and increased sales commissions driven by our subscriptions revenue growth, partially offset by a $1.9 million decrease in
stock-based compensation expense. Professional fees increased due to an increase in consulting fees and contract labor to
support our growth. Facility and overhead costs decreased due to lower travel and entertainment related expenses as a result of
our shift to largely remote work in 2020. Marketing costs decreased due to reduced costs incurred as a result of moving our
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annual user conference, Appian World, to virtual-only as well as a reduction in the number of in-person marketing events held
in 2020, partially offset by an increase in advertising expenses.
Research and Development Expense
Research and development
% of revenue
Year Ended December 31,
% Change
2020
2019
(dollars in thousands)
$
70,241
$
58,043
21.0%
23.1 %
22.3 %
Research and development expense increased $12.2 million, or 21.0%, in 2020 compared to 2019, primarily due to a
$13.1 million increase in research and development personnel costs, partially offset by a $0.5 million decrease in facility and
overhead costs and a $0.3 million decrease in professional fees. Personnel costs increased due to an increase in research and
development personnel headcount of 14.8% from December 31, 2019 to December 31, 2020, partially offset by a $0.8 million
decrease in stock-based compensation expense. Facilities and overhead costs decreased due to non-recurring charges incurred in
2019 to support our personnel growth coupled with lower travel and entertainment related expenses as a result of our shift to
largely remote work in 2020. Professional fees decreased due to a decrease in consulting fees.
General and Administrative Expense
General and administrative expense
% of revenue
Year Ended December 31,
% Change
2020
2019
(dollars in thousands)
$
53,152
$
41,496
28.1%
17.5 %
15.9 %
General and administrative expense increased $11.7 million, or 28.1%, in 2020 compared to 2019, primarily due to a $7.2
million increase in general and administrative personnel costs, a $3.0 million increase in professional fees, and a $1.5 million
increase in facility and overhead costs. Personnel costs increased due to an increase in general and administrative personnel
headcount of 32.1% from December 31, 2019 to December 31, 2020 coupled with a $2.5 million increase in stock-based
compensation expense in 2020, which was primarily attributable to a stock option to purchase 700,000 shares of our Class A
common stock granted to our Chief Executive Officer in May 2019. Professional fees increased due to increased legal fees.
Facility and overhead costs increased due to costs incurred to support our personnel growth, an increase in bad debt expense,
and an increase in amortization expense stemming from our intangible assets which were acquired in 2020.
Other Income, Net
Other income, net
% of revenue
*** - Indicates a percentage that is not meaningful
Year Ended December 31,
% Change
2020
2019
(dollars in thousands)
$
(5,786)
$
(1.9) %
(941)
(0.4) %
***
Other income, net increased by $4.8 million in 2020 compared to 2019, primarily due to $4.3 million in foreign exchange
gains in 2020 compared to $0.2 million in foreign exchange losses in 2019. The increase in foreign exchange gains was
primarily due to currency fluctuations of the Euro, Swedish krona, British pound sterling, and Swiss franc versus the U.S. dollar
in 2020 compared to the same period in 2019. Additionally, we recognized $1.0 million of other income in 2020 due to a
payment received from a state government as a result of our achievement of certain job creation and capital investment goals.
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Interest Expense
Interest expense
% of revenue
Year Ended December 31,
% Change
2020
2019
(dollars in thousands)
$
478
$
0.2 %
367
0.1 %
30.2%
Interest expense increased by $0.1 million, or 30.2%, in 2020 compared to the same period in 2019, primarily due to
commitment fees on the letter of credit outstanding.
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
For a discussion and analysis of changes in financial condition and results of operations for the year ended December 31,
2019 as compared to the year ended December 31, 2018, refer to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2019, filed with the SEC on February 20, 2020.
Seasonality
We have historically experienced seasonality in terms of when we enter into agreements with customers. We typically enter
into a significantly higher percentage of agreements with new customers, as well as renewal agreements with existing
customers, in the fourth quarter. The increase in customer agreements for the fourth quarter is attributable to large enterprise
account buying patterns typical in the software industry. Furthermore, we usually enter into a significant portion of agreements
with customers during the last month of each quarter. However, we recognize the majority of our subscriptions revenue ratably
over the terms of our subscriptions agreements, which are generally one to three years in length. As a result, a substantial
portion of the subscriptions revenue we report in each period will be derived from the recognition of deferred revenue relating
to agreements entered into during previous periods. Consequently, a decline in new sales or renewals in any one period may not
be immediately reflected in our revenue results for that period. This decline, however, will negatively affect our revenue in
future periods. Accordingly, the effect of significant downturns in sales and market acceptance of our platform and 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.
Backlog
Backlog represents non-cancellable future amounts to be recognized under SaaS and term license subscription agreements
and is representative of our remaining performance obligations. As of December 31, 2020 and 2019, we had backlog of $206.2
million and $176.0 million, respectively. Approximately 32% of our backlog as of December 31, 2020 is not expected to be
recognized in 2021. The increase in backlog is due to an increase in the number of multiple-year SaaS agreements entered into
during 2020.
We expect the amount of backlog relative to the total value of our contracts will change from quarter to quarter and year to
year for several reasons, including the specific timing and duration of SaaS and 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 SaaS subscription agreements. Backlog may vary based on changes in the average non-
cancellable term of SaaS and term license subscription agreements. The change in backlog resulting from changes in the
average non-cancellable term of SaaS and term license subscription agreements may not be an indicator of the likelihood of
renewal or expected future revenue. Accordingly, we believe fluctuations in backlog may not be a reliable indicator of future
revenue, and we do not utilize backlog as a key management metric internally.
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Liquidity and Capital Resources
The following table presents selected financial information and statistics as of and for the years ended December 31, 2020,
2019, and 2018 (in thousands):
Cash and cash equivalents
Short-term investments and marketable securities
Long-term investments
Property and equipment, net
Working capital
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
As of December 31,
2020
2019
2018
$
112,462 $
159,755 $
94,930
109,826
36,120
35,404
209,532
—
—
39,554
165,381
—
—
7,539
81,225
Year Ended December 31,
2020
2019
2018
$
(7,620) $
(8,926) $
(31,321)
(153,357)
110,468
(32,421)
105,549
(7,010)
60,962
As of December 31, 2020, we had $112.5 million of cash and cash equivalents and $109.8 million of short-term
investments and marketable securities. We believe our existing cash and cash equivalents and short-term investments and
marketable securities, together with any positive cash flows from operations and available borrowings under our revolving line
of credit, will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. 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, the level of
market acceptance of our applications, spending we may incur on our new headquarters, and the global economic uncertainty
caused by the COVID-19 pandemic and its impact on financial market conditions and our business.
In the event additional financing is required from outside sources, we may be unable to raise the funds on acceptable terms,
if at all. To the extent existing cash and cash equivalents, short-term investments, and cash from operations are not sufficient to
fund future activities, we may need to raise additional funds. We may seek to raise additional funds through equity, equity-
linked, or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness may have
rights that are senior to holders of our equity securities and could contain covenants that restrict operations. Any additional
equity financing may be dilutive to our existing stockholders. 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 no present binding agreements or commitments to enter into any
such acquisitions. If we are unable to raise additional capital when desired, our business, operating results, and financial
condition could be adversely affected.
Sources of Funds
We have financed our operations in large part with equity and debt financing arrangements, specifically proceeds raised
from our initial public offering in 2017 and subsequent underwritten public offerings as summarized in the table below (in
thousands except share and per share information):
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May 2017 initial public offering
August 2018 public offering
September 2019 public offering
June 2020 public offering
Total
*
Net of underwriting discounts and commissions and offering expenses
Shares Sold by
Us
Price per Share Proceeds to Us*
77,789
12.00 $
7,187,500 $
1,675,000
1,825,000
1,931,206
12,618,706
35.15
55.70
56.50
57,829
101,303
107,914
$
344,835
In addition, we have financed our operations through sales of subscriptions and professional services. We also have the
ability to draw upon a $20.0 million revolving line of credit which we entered into in November 2017. 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 the LIBOR or the Prime rate plus an additional interest rate margin determined by the availability of 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 and (ii) minimum adjusted EBITDA in the amounts and for the periods set forth in the
agreement. Any amounts borrowed under the credit facility are collateralized by substantially all of our assets. We were in
compliance with all covenants as of December 31, 2020. As of December 31, 2020, we had not made any borrowings under this
revolving line of credit, and we had outstanding letters of credit totaling $11.2 million in connection with securing our leased
office space.
Uses of Funds
Our current principal uses of cash are funding operations and other working capital requirements. More recently, we have
utilized cash to pay for the acquisition of Novayre, which we believe is complementary to our business. Over the past several
years, revenue has increased significantly from year to year and, as a result, cash flows from customer collections have
increased. However, operating expenses have also increased as we have invested in growing our business. Our uses of cash in
2020 included purchases of investments, the acquisition of Novayre, and modest capital expenditures while cash uses in 2019
and 2018 included the build out of our new headquarters, which included spending approximately $21.0 million above the
$18.4 million tenant improvement allowance provided by the landlord for the build out, $4.5 million of which related to the
financing of office furniture and fixtures and computer hardware.
With respect to future uses of funds, we expect to incur annual royalty fees of $0.3 million for the foreseeable future related
to a non-cancellable agreement for the use of technology that is integral in the development of our software. Additionally, we
expect to incur capital expenditures in relation to the expanded occupancy of our headquarters which commenced in July 2020,
although such expenditures do not represent capital commitments. Furthermore, we are contractually obligated to make cash
payments on our various operating leases through October 2031. As of December 31, 2020, the amount of funds we expect to
utilize over this time period for our lease commitments is approximately $99.0 million. Refer to Note 13 for discussion on our
commitments and contingencies and to Note 4 for further information related to our current lease portfolio.
Historical Cash Flows
Operating Activities
For the year ended December 31, 2020, net cash used in operating activities of $7.6 million consisted of a net loss of $33.5
million, offset by $22.0 million in adjustments for non-cash items and $3.9 million of cash provided by changes in working
capital. Adjustments for non-cash items consisted primarily of stock-based compensation of $15.3 million, depreciation and
amortization expense of $5.9 million, and bad debt expense of $1.0 million, offset by a provision for deferred income taxes of
$0.2 million. The increase in cash and cash equivalents resulting from changes in working capital primarily consisted of a $27.6
million increase in deferred revenue as a result of increased subscription sales, an $11.8 million increase in accrued
compensation and related benefits as a result of higher employee benefit accruals such as vacation and bonuses, a $3.7 million
increase in other liabilities due to the deferral of social security tax payments pursuant to the provisions of the CARES Act and
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a contract liability arising from a three year deal that included a termination for convenience clause, a $3.7 million decrease in
prepaid expenses and other assets attributable to timing, and a $3.4 million increase in operating lease liabilities as a result of
recognizing a new right-of-use liability related to the expanded occupancy of our headquarters building. The increase to
working capital was partially offset by a $33.6 million increase in accounts receivable stemming from increased sales as well as
the timing of billings and collections, an $8.6 million increase in deferred commissions due to increased sales activity, and a
$4.2 million decrease in accounts payable and accrued expenses due to the timing of payments.
For the year ended December 31, 2019, net cash used in operating activities of $8.9 million consisted of a net loss of $50.7
million, offset by $21.1 million in adjustments for non-cash items and $20.7 million of cash provided by changes in working
capital. Adjustments for non-cash items consisted of stock-based compensation of $16.4 million, depreciation and amortization
expense of $4.7 million, a loss on disposal of equipment of $0.1 million, and bad debt expense of $0.1 million, offset by a
provision for deferred income taxes of $0.3 million. The increase in cash and cash equivalents resulting from changes in
working capital primarily consisted of a $12.6 million increase in deferred revenue adjusted for the impact of the $35.4 million
reduction to the opening balance resulting from the adoption of ASC 606. The increase in deferred revenue was due to
increased subscription sales. There was also a $9.0 million decrease in prepaid expenses and other assets adjusted for the impact
of the $20.4 million increase to the opening balance from the adoption of ASC 606. The decrease in prepaid expenses and other
assets was primarily due to the receipt of the non-trade receivable resulting from our tenant improvement allowance. In
accordance with GAAP, the $17.0 million of tenant improvement allowance reimbursements received during the year ended
December 31, 2019 are a source of cash in operating activities, whereas the capital expenditures are recorded as cash used in
investing activities. There was also a $7.4 million decrease in accounts receivable due to increased cash collections during the
year ended December 31, 2019. There was also a $6.8 million increase in operating lease liabilities following the adoption of
ASC 842, as a result of taking initial possession of the second phase of our new headquarters in February 2019. There was also
a $1.3 million increase in other current liabilities. These increases were partially offset by a $9.3 million increase in deferred
commissions adjusted for the impact of the $5.1 million increase to the opening balance from the adoption of ASC 606. The
increase was due to increased sales as well as an increase in the estimated economic life over which deferred commissions are
amortized. There was also a $4.0 million decrease in accounts payable and accrued expenses, primarily due to the timing of
payments and a $3.1 million decrease in accrued compensation and related benefits, primarily due to a decrease in accrued
vacation expense because of our new paid-time off policy, which took effect on January 1, 2019.
Investing Activities
For the year ended December 31, 2020, net cash used in investing activities was $153.4 million, which was primarily the
result of $146.0 million in purchases of investments and $6.1 million in payments, net of cash acquired, related to the
acquisition of Novayre. In addition, there were approximately $1.3 million in purchases of property and equipment.
For the year ended December 31, 2019, net cash used in investing activities was $32.4 million which was related to the
build-out of our new headquarters and the purchase of property and equipment.
Financing Activities
For the year ended December 31, 2020, net cash provided by financing activities was $110.5 million, consisting of $108.3
million in proceeds from our underwritten public offering, net of underwriting discounts and commissions, and $6.4 million in
proceeds received from stock option exercises. These increases were offset by principal payments on finance lease obligations
of $3.8 million and payment of public offering costs of $0.3 million.
For the year ended December 31, 2019, net cash provided by financing activities was $105.5 million, consisting of $101.7
million in proceeds from our underwritten public offering, net of underwriting discounts and commissions, and $4.9 million in
proceeds received from stock option exercises. These increases were offset by principal payments on finance lease obligations
of $0.7 million and payment of public offering costs of $0.4 million.
For a discussion and analysis of net cash used in or provided by operating, investing, and financing activities for the year
ended December 31, 2018, refer to our 2019 Annual Report on Form 10-K, filed with the Securities and Exchange
Commission, or SEC, on February 20, 2020.
Off-Balance Sheet Arrangements
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During the year ended December 31, 2020, we did not have any relationships with unconsolidated entities or financial
partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for
the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage
in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded
contracts. As a result, we believe we are not materially exposed to any financing, liquidity, market, or credit risks that could
arise if we had engaged in these relationships.
Critical Accounting Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the
U.S. requires us to make estimates and judgments that affect the amounts reported in those financial statements and
accompanying notes. Although we believe the estimates we use are reasonable, due to the inherent uncertainty involved in
making those estimates, actual results reported in future periods could differ from those estimates.
We believe the following accounting estimates involve a high degree of judgment and complexity. Accordingly, these are
the estimates we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition
and results of our operations. See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on
Form 10-K for a description of our other significant accounting policies and estimates.
Revenue Recognition
We generate subscriptions revenue primarily through the sale of SaaS subscriptions bundled with maintenance and support
and hosting services and 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 and training
related to our platform. Significant judgments and estimates inherent in our revenue recognition are as follows:
Determining the Transaction Price
The transaction price, or the amount of consideration we expect to be entitled to receive in exchange for transferring
services to our customers, includes both fixed and variable components. The variable components of our contracts, which have
been nominal to date, include performance penalties, extended payment terms or implied price concessions, and warranty
refunds. If necessary, we estimate these components using the expected value method, which estimates variable consideration
as the sum of probability-weighted amounts in a range of possible consideration amounts. We believe this method is the most
appropriate to utilize because our variable components could vary by contract, leading to multiple potential outcomes.
Our variable consideration estimates are subject to subsequent true-up adjustments which may result in changes to
transaction prices, but such true-up adjustments are not expected to be material. Variable consideration is also included in the
transaction price only to the extent it is probable a significant reversal will not occur. Factors considered when determining to
incorporate variable consideration in the transaction price include, but are not limited to, whether the variable consideration is
highly susceptible to factors outside of the company's influence, the length of time the uncertainty surrounding reversal is
expected to last, our experience levels with similar types of contracts, our historical practices for similar contracts in similar
circumstances, and the number and range of possible consideration amounts. The amount of variable consideration excluded
from the transaction price for the year ended December 31, 2020 was insignificant.
Allocating the Transaction Price Based on Standalone Selling Prices
We allocate the transaction price to each performance obligation in a contract based on its relative standalone selling price,
or 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. 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.
2. Term license subscriptions - Given the highly variable selling price of our term license subscriptions, we have
established the SSP of term license subscriptions using a residual approach after first determining the SSP of
62
maintenance and support. Maintenance and support is sold on a standalone basis with renewals of our legacy perpetual
software licenses and within a narrow range of the net license fee, resulting in a defined economic relationship existing
between the license and maintenance and support.
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 services and training services - The 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.
Stock-Based Compensation
We measure and recognize compensation expense for all instrument types, including stock options, awards with market
conditions, and restricted stock units, or RSUs, based on the estimated fair value of the award on the grant date. The methods
for determining fair value vary by instrument type.
Options
For the vast majority of our stock options, we estimate fair value using the Black-Scholes Option Pricing Model. For the
option to purchase 700,000 shares of our Class A common stock granted to our Chief Executive Officer in May 2019, we
estimated fair value using a Monte Carlo simulation because the award contains a market condition. Both valuation methods
require the use of subjective assumptions, including but not limited to, the following:
1. 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. 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.
2. Current trading price - The current price of our stock is based on the closing market price of our Class A common
stock as quoted on the Nasdaq Global Market on the date of grant.
3. The expected stock price volatility - Expected volatility is based on historical volatilities of our publicly traded stock
as well as the publicly traded stock of comparable companies within our industry over the estimated expected term of
the stock options. Expected volatility is sensitive to market- and company-specific conditions which may cause our
stock price or the stock prices of our peers to fluctuate. Furthermore, expected volatility can be impacted by the
companies we select as peers for inclusion in the analysis.
4. Expected dividend yield - We assume no dividend yield because dividends on our common stock are not expected to
be paid in the near future, which is consistent with our history of not paying dividends on our common stock.
5. The risk-free interest rate - We utilize the yields of U.S. government securities, typically U.S. Treasury bonds, that
have maturities commensurate with the expected term of the options.
RSUs
The fair value of RSUs is based on the closing market price of our Class A common stock as quoted on the Nasdaq Global
Market on the date of grant.
We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective
basis. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates,
which could materially impact our future stock-based compensation expense.
Income Taxes
We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be reversed. We establish a valuation allowance against our deferred tax
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assets to the extent it is more likely than not that some or all of the deferred tax assets will not be realized. This requires us to
make judgments and estimates regarding future reversals of existing taxable temporary differences, future taxable income, and
the impact of tax planning strategies.
Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We recognize the tax
benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the
taxing authority. We measure the tax benefit recognized as the largest amount of benefit which is more likely than not to be
realized upon settlement with the taxing authority. This determination involves significant judgment in estimating the impact of
uncertainties in the application of GAAP and complex tax laws.
We calculate the current and deferred income tax provision based on estimates and assumptions that could differ from the
actual results reflected in income tax returns filed in subsequent years and record adjustments based on filed income tax returns
when identified. The amount of income taxes paid is subject to examination by U.S. federal, state, and foreign tax authorities.
The estimate of the potential outcome of any uncertain tax issue is subject to our assessment of relevant risks, facts, and
circumstances existing at that time. To the extent the assessment of such tax position changes, we record the change in estimate
in the period in which we make that determination.
Recent Accounting Pronouncements
See Note 2 of our consolidated financial statements for information related to recently issued accounting standards.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may
impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily
the result of fluctuations in interest rates and foreign currency exchange rates.
Interest Rate Risk
We had cash and cash equivalents of $112.5 million as of December 31, 2020, which consisted of cash in readily available
checking accounts, overnight repurchase investments, and short term investments with remaining maturities of 90 days or less.
These securities are not dependent on interest rate fluctuations that may cause the principal amount of these assets to fluctuate.
At December 31, 2020, we had no outstanding borrowings.
Inflation Risk
We do not believe inflation has had a material effect on our business, financial condition, or results of operations. If our
costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price
increases. Our inability or failure to do so could harm our business, financial condition, and results of operations.
Foreign Currency Exchange Risk
Our reporting currency is the U.S. dollar. Due to our international operations, we have foreign currency risks related to
revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the British pound sterling, Euro,
Australian dollar, and Swiss franc. Our sales contracts are primarily denominated in the local currency of the customer making
the purchase. In addition, portions of operating expenses are incurred outside the United States and are denominated in foreign
currencies. Decreases in the relative value of the U.S. dollar to other currencies may negatively affect revenue and other
operating results as expressed in U.S. dollars. We do not believe an immediate 10% increase or decrease in the relative value of
the U.S. dollar to other currencies would have a material effect on operating results.
We have experienced, and will continue to experience, fluctuations in net loss as a result of transaction gains or losses
related to remeasuring certain current asset and current liability balances denominated in currencies other than the functional
currency of the entities in which they are recorded. We have not engaged in the hedging of foreign currency transactions to
date, although we may choose to do so in the future.
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65
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm - Opinion on Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm - Opinion on Internal Controls over Financial Reporting
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
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69
70
71
72
73
74
75
66
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Appian Corporation
McLean, Virginia
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Appian Corporation (the “Company”) as of December 31,
2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as
the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) and our report dated February 18, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition for Multiple Performance Obligations
As discussed in Note 3 to the consolidated financial statements, certain of the Company's revenue contracts contain multiple
performance obligations that might include Software as a Service (“SaaS”) subscriptions, term license subscriptions,
maintenance and support and professional services. The Company accounts for individual products and services separately if
they are capable of being distinct and are distinct within the context of the contract. In such cases, the transaction price is
allocated to the distinct performance obligations based on their relative standalone selling price or residual approach and
revenue is recognized when control of the distinct performance obligation is transferred.
67
We identified the identification of distinct performance obligations and the determination of standalone selling prices as a
critical audit matter. Auditing these elements of revenue recognition was especially challenging due to the significant judgment
involved in assessing the completeness of the distinct performance obligations in arrangements containing multiple
performance obligations. In addition, the evaluation of the reasonableness of the range of prices used to establish the standalone
selling price for maintenance and support and professional services was complex, which directly affects the amount of SaaS and
term license subscriptions revenue recognized using the residual approach.
The primary procedures we performed to address this critical audit matter included:
•
•
•
Testing the design and operating effectiveness of internal controls over the Company's revenue recognition process
including controls over: (i) the identification of distinct performance obligations, and (ii) the determination of
standalone selling prices for the distinct performance obligations.
Testing a sample of revenue contracts and underlying order documents to evaluate management’s identification of
distinct performance obligations.
Evaluating the reasonableness of management’s analysis supporting the standalone selling prices by tracing, on a
sample basis, revenue transactions to the underlying source documents and recalculating the mathematical accuracy of
the analysis.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2013.
McLean, Virginia
February 18, 2021
68
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Appian Corporation
McLean, Virginia
Opinion on Internal Control over Financial Reporting
We have audited Appian Corporation’s (the “Company’s”) internal control over financial reporting as of December 31, 2020,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated
statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2020, and the related notes and our report dated February 18, 2021 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A,
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
McLean, Virginia
February 18, 2021
69
APPIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
Assets
Current assets
Cash and cash equivalents
Short-term investments and marketable securities
Accounts receivable, net of allowance of $1,400 and $600 as of December 31, 2020 and December 31, 2019,
respectively
Deferred commissions, current
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Long-term investments
Goodwill
Intangible assets, net of accumulated amortization of $429 as of December 31, 2020
Operating right-of-use assets
Deferred commissions, net of current portion
Deferred tax assets
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
Accrued expenses
Accrued compensation and related benefits
Deferred revenue, current
Operating lease liabilities, current
Finance lease liabilities, current
Other current liabilities
Total current liabilities
Operating lease liabilities, net of current portion
Finance lease liabilities, net of current portion
Deferred revenue, net of current portion
Deferred tax liabilities
Other non-current liabilities
Total liabilities
Commitments and contingent liabilities (see Notes 4 and 13)
Stockholders’ equity
Class A common stock—par value $0.0001; 500,000,000 shares authorized and 38,971,324 shares issued and
outstanding as of December 31, 2020; 500,000,000 shares authorized and 34,525,386 shares issued and outstanding
as of December 31, 2019
Class B common stock—par value $0.0001; 100,000,000 shares authorized and 31,707,866 shares issued and
outstanding as of December 31, 2020; 100,000,000 shares authorized and 32,942,636 shares issued and outstanding
as of December 31, 2019
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
As of December 31,
2020
2019
$
112,462 $
159,755
109,826
97,278
17,899
27,955
365,420
35,404
36,120
4,862
1,744
30,659
34,198
489
3,625
—
70,408
14,543
32,955
277,661
39,554
—
—
—
24,205
28,979
494
592
$
$
512,521 $
371,485
2,967 $
5,821
22,981
116,256
6,923
—
940
155,888
51,194
—
3,886
70
4,878
5,222
7,488
10,691
82,201
3,836
1,447
1,395
112,280
44,416
2,375
7,139
38
—
215,916
166,248
4
3
470,498
(5,010)
(168,890)
296,605
$
512,521 $
3
3
340,929
(285)
(135,413)
205,237
371,485
The accompanying notes are an integral part of these consolidated financial statements.
70
APPIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Revenue
Subscriptions
Professional services
Total revenue
Cost of revenue
Subscriptions
Professional services
Total cost of revenue
Gross profit
Operating expenses
Sales and marketing
Research and development
General and administrative
Total operating expenses
Operating loss
Other (income) expense
Other (income) expense, net
Interest expense
Total other (income) expense
Loss before income taxes
Income tax expense
Net loss
Net loss per share:
Basic and diluted
Weighted average common shares outstanding:
Basic and diluted
Year Ended December 31,
2020
2019
2018
$
198,710 $
151,299 $
105,863
304,573
20,826
67,940
88,766
109,053
260,352
17,098
76,743
93,841
126,012
100,731
226,743
11,997
72,928
84,925
215,807
166,511
141,818
130,316
70,241
53,152
253,709
117,440
58,043
41,496
216,979
(37,902)
(50,468)
105,992
44,724
37,821
188,537
(46,719)
2,295
198
2,493
(5,786)
478
(5,308)
(32,594)
883
(941)
367
(574)
(49,894)
(49,212)
820
239
$
$
(33,477) $
(50,714) $
(49,451)
(0.48) $
(0.77) $
(0.80)
69,050,565
65,479,327
62,140,684
The accompanying notes are an integral part of these consolidated financial statements.
71
APPIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Net loss
Comprehensive income (loss), net of income taxes:
Foreign currency translation adjustment
Unrealized losses on available-for-sale securities
Year Ended December 31,
2020
2019
2018
$
(33,477) $
(50,714) $
(49,451)
(4,703)
(22)
(827)
—
103
—
Total other comprehensive loss, net of income taxes
$
(38,202) $
(51,541) $
(49,348)
The accompanying notes are an integral part of these consolidated financial statements.
72
APPIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)
Balance, December 31, 2017
60,599,877 $
6 $ 141,268 $
439 $
(96,189) $
45,524
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
Equity
Net loss
Issuance of common stock from public
offering, net of issuance costs
Issuance of common stock to directors
Vesting of restricted stock units
Exercise of stock options
Stock-based compensation expense
Other comprehensive income
—
1,675,000
11,952
143,390
1,486,218
—
—
Balance, December 31, 2018
63,916,437
Cumulative-effect adjustment for the
adoption of ASC 606
Net loss
Issuance of common stock from public
offering, net of issuance costs
Issuance of common stock to directors
Vesting of restricted stock units
Exercise of stock options
Stock-based compensation expense
Other comprehensive loss
—
—
1,825,000
10,654
521,460
1,194,471
—
—
Balance, December 31, 2019
67,468,022
Net loss
Issuance of common stock from public
offering, net of issuance costs
Issuance of common stock to directors
Vesting of restricted stock units
Exercise of stock options
Stock-based compensation expense
Other comprehensive loss
—
1,931,206
7,942
270,609
1,001,411
—
—
—
—
—
—
—
—
—
6
—
—
—
—
—
—
—
—
6
—
1
—
—
—
—
—
—
57,829
—
—
3,133
16,054
—
218,284
—
—
101,303
—
—
4,899
16,443
—
340,929
—
107,914
—
—
6,376
15,279
—
—
—
—
—
—
—
103
542
—
—
—
—
—
—
—
(827)
(285)
—
—
—
—
—
—
(4,725)
(49,451)
(49,451)
—
—
—
—
—
—
57,829
—
—
3,133
16,054
103
(145,640)
73,192
60,941
60,941
(50,714)
(50,714)
—
—
—
—
—
—
101,303
—
—
4,899
16,443
(827)
(135,413)
205,237
(33,477)
(33,477)
—
—
—
—
—
—
107,915
—
—
6,376
15,279
(4,725)
Balance, December 31, 2020
70,679,190 $
7 $ 470,498 $
(5,010) $
(168,890) $
296,605
The accompanying notes are an integral part of these consolidated financial statements.
73
APPIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Year Ended December 31,
2020
2019
2018
$
(33,477) $
(50,714) $
(49,451)
Depreciation and amortization
Bad debt expense
Loss (gain) on disposal of property and equipment
Change in fair value of available-for-sale securities
Deferred income taxes
Stock-based compensation
Changes in assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Deferred commissions
Accounts payable and accrued expenses
Accrued compensation and related benefits
Other liabilities
Deferred revenue
Operating lease liabilities
Deferred rent, non-current
Net cash used in operating activities
Cash flows from investing activities:
Purchases of investments
Payments for acquisitions, net of cash acquired
Proceeds from sale of equipment
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Principal payments on finance leases
Proceeds from public offerings, net of underwriting discounts
Payments of costs related to public offerings
Proceeds from exercise of common stock options
Net cash provided by financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for income taxes
Supplemental disclosure of non-cash financing information:
Finance lease obligations to acquire new office furniture and fixtures and
computer hardware
$
$
$
$
5,851
984
22
22
4,742
99
146
—
(184)
15,279
(334)
16,443
(33,559)
3,740
(8,575)
(4,238)
11,801
3,681
27,626
3,407
—
7,432
8,972
(9,319)
(4,039)
(3,072)
1,318
12,573
6,827
—
2,021
211
(4)
—
(218)
16,054
(23,332)
(1,025)
(7,615)
7,461
(3)
1,823
23,023
—
(266)
(7,620)
(8,926)
(31,321)
(145,968)
(6,138)
—
(1,251)
(153,357)
—
—
—
(32,421)
(32,421)
(3,822)
(653)
108,260
101,653
(346)
(350)
6,376
110,468
3,216
(47,293)
159,755
4,899
105,549
623
64,825
94,930
112,462 $
159,755 $
—
—
4
(7,014)
(7,010)
—
58,258
(429)
3,133
60,962
(1,459)
21,172
73,758
94,930
165 $
1,182 $
331 $
356 $
46
680
— $
4,475 $
—
The accompanying notes are an integral part of these consolidated financial statements.
74
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 (the “Codification” or “ASC”).
We adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("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 to January 1, 2019.
For fiscal years 2018 and prior, revenue was recognized under ASC Topic 605, Revenue Recognition ("ASC 605").
Use of Estimates
The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and
judgments that affect the amounts reported in these 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 consolidated financial statements include revenue recognition, income taxes and the
related valuation allowance, the valuation of goodwill and intangible assets, leases, costs to obtain a contract with a customer,
the valuation of financial instruments, and stock-based compensation.
The ongoing 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. We cannot estimate the impacts COVID-19 will have on our business going forward
as such impacts 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
The accompanying consolidated financial statements include the accounts of Appian and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Public Offerings
In June 2020, we completed an underwritten public offering of 2,500,000 shares of our Class A common stock, of which
1,931,206 shares of Class A common stock were sold by us and 568,794 shares of Class A common stock were sold by existing
stockholders. The underwriter purchased the shares from us and the selling stockholders at a price of $56.50 per share. Our net
75
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
proceeds from the offering were $107.9 million, after deducting underwriting discounts and commissions and offering
expenses. We did not receive any of the proceeds from the sale of shares by the selling stockholders.
In September 2019, we completed an underwritten public offering of 2,329,000 shares of our Class A common stock, of
which 1,825,000 shares of Class A common stock were sold by us and 504,000 shares of Class A common stock were sold by
existing stockholders. The underwriter purchased the shares from us and the selling stockholders at a price of $55.70 per
share. Our net proceeds from the offering were $101.3 million, after deducting underwriting discounts and commissions and
offering expenses. We did not receive any of the proceeds from the sale of shares by the selling stockholders.
In August 2018, we completed an underwritten public offering of 2,000,000 shares of our Class A common stock, of which
1,675,000 shares of Class A common stock were sold by us and 325,000 shares of Class A common stock were sold by existing
stockholders, at an offering price to the public of $35.15 per share. Our net proceeds from the offering were $57.8 million, after
deducting underwriting discounts and commissions and offering expenses. We did not receive any of the proceeds from the sale
of shares by the selling stockholders.
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, 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 entering into significant professional services agreements sold on a standalone basis may cause significant
fluctuations in our quarterly financial results 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, trade accounts receivable, and our short- and long-term investments. 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. Revenue
generated from government agencies represented 18.1%, 17.1%, and 15.7% of our revenue for the years ended December 31,
2020, 2019, and 2018, respectively, of which the top three federal government agencies generated 6.6%, 7.4%, and 7.8% of our
revenue for the years ended December 31, 2020, 2019, and 2018, respectively. Additionally, 33.8%, 32.3%, and 28.7% of our
revenue during the years ended December 31, 2020, 2019, and 2018, respectively, was generated from customers outside the
United States.
Cash and Cash Equivalents
76
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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. There was a $0.8 million increase in the allowance for doubtful accounts from
December 31, 2019 to December 31, 2020.
Activity in the allowance for doubtful accounts was as follows (in thousands):
Balance as of January 1
Additions
Less write-offs, net of recoveries
Balance as of December 31
Non-Trade Receivables
Year Ended December 31,
2020
2019
2018
$
$
600 $
984
(184)
1,400 $
600 $
99
(99)
600 $
400
211
(11)
600
We record non-trade receivables to reflect amounts due for activities other than sales of subscriptions to our platform and
professional services. Our non-trade receivables related entirely to a receivable resulting from our tenant improvement
allowance. The tenant improvement allowance receivable was $14.4 million as of December 31, 2018 and was classified within
Prepaid expenses and other current assets in the accompanying consolidated balance sheets. We recognized our initial tenant
improvement allowance receivable of $15.8 million related to our new headquarters once we took initial possession of the space
in October 2018. We recognized an additional tenant improvement allowance receivable of $2.6 million when we took
possession of adjacent office space in February 2019. We had received the entire tenant improvement allowance of $17.0
million as of December 31, 2019, and therefore, there was no receivable balance remaining as of such date.
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
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 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 consolidated statements
of operations. The following table summarizes the activity of costs to obtain a contract with a customer for the years ended
December 31, 2020 and December 31, 2019 (in thousands):
77
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Balance as of January 1
Adoption of ASC 606
Additional contract costs deferred
Amortization of deferred contract costs
Balance as of December 31
Year Ended December 31,
2020
2019
$
43,522 $
—
31,898
(23,323)
$
52,097 $
29,108
5,094
25,004
(15,684)
43,522
For the periods prior to January 1, 2019 under ASC 605, deferred commissions are the incremental costs directly associated
with subscription agreements with customers and consist of sales commissions paid to our direct sales force. Commissions are
considered direct and incremental and as such are deferred and amortized over the terms of the related customer contracts
consistent with the related revenue.
Commission expense was $23.3 million, $15.7 million, and $15.6 million for the years ended December 31, 2020, 2019,
and 2018, 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 the useful lives of our major asset categories:
Asset Category
Computer software
Computer hardware
Equipment
Office furniture and fixtures
Leasehold improvements
(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
Useful Life (in
years)
3
3
5
10
(a)
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 years ended December 31, 2020, 2019, and 2018.
Investments and Fair Value of Financial Instruments
Refer to Note 16 for a detailed discussion on our policies specific to investments and determining fair value.
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 ("RSUs") 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 such as RSUs, 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
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APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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.
Basic and Diluted Loss per Common Share
We compute net loss per common share using the two-class method required for multiple classes of common stock and
participating securities. The rights, including the liquidation and dividend rights, of the Class A common stock and Class B
common stock are substantially identical, other than voting and conversion rights. Accordingly, the Class A common stock and
Class B common stock share equally in our net losses.
Basic net loss per common share is computed by dividing net loss by the weighted-average number of shares of common
stock outstanding during the period. Diluted net loss per common share is computed by dividing net loss attributable to
common stockholders by the weighted-average number of shares of common stock outstanding during the period increased by
common shares that could be issued upon the conversion or exercise of other outstanding securities to the extent those
additional common shares would be dilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net loss
per share by application of the treasury stock method.
Due to net losses for the years ended December 31, 2020, 2019, and 2018, basic and diluted net loss per share were the
same as the effect of potentially dilutive securities would have been anti-dilutive.
Income Taxes
We use the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
reversed. We recognize the effect on deferred tax assets and liabilities of a change in tax rates as income and expense in the
period that includes the enactment date. A valuation allowance is established if it is more likely than not that all or a portion of
the deferred tax asset will not be realized.
Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We recognize the tax
benefit of an uncertain tax position only if it is more likely than not the position is sustainable upon examination by the taxing
authority. We measure the tax benefit recognized as the largest amount of benefit which is more likely than not to be realized
upon settlement with the taxing authority. We recognize penalties and interest related to unrecognized tax benefits as income
tax expense.
We calculate the current and deferred income tax provision based on estimates and assumptions that could differ from the
actual results reflected in income tax returns filed in subsequent years and record adjustments based on filed income tax returns
when identified. The amount of income taxes paid is subject to examination by U.S. federal, state, and foreign tax authorities.
The estimate of the potential outcome of any uncertain tax issue is subject to our assessment of relevant risks, facts, and
circumstances existing at that time. To the extent the assessment of such tax position changes, we record the change in estimate
in the period in which we make that determination.
Segment Reporting
Operating segments are defined as components of an enterprise for which discrete financial information is available that is
evaluated regularly by the chief operating decision maker (“CODM”) for purposes of allocating resources and evaluating
financial performance. Our CODM is our chief executive officer, who reviews financial information presented on a company
wide basis for purposes of allocating resources and evaluating financial performance. As such, our operations constitute a single
operating segment and one reportable segment.
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APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency
Our operations located outside of the United States where the local currency is the functional currency are translated into
U.S. dollars using the current rate method. Results of operations are translated at the average rate of exchange for the period.
Assets and liabilities are translated at the closing rates on the balance sheet date. Gains and losses on translation of these
accounts are accumulated and reported as a separate component of stockholders’ equity and other comprehensive income.
Gains and losses on foreign currency transactions are recognized in the accompanying consolidated statements of
operations as a component of other expense, net. Transaction gains and losses from transactions denominated in foreign
currencies resulted in net transaction gains of $4.3 million for the year ended December 31, 2020 and net transaction losses of
$0.2 million and $3.0 million for the years ended December 31, 2019 and 2018, respectively.
Research and Development
Research and development expenses include payroll, employee benefits, and other headcount-related costs associated with
product development. Our product utilizes a common codebase, whether accessed by customers via the cloud or via an on-
premises installation. Since our software is sold and licensed externally, we consider our software as external-use software for
purposes of applying the capitalized software development guidance. Product development costs are expensed as incurred until
technological feasibility has been established, which we define as the completion of all planning, designing, coding, and testing
activities necessary to establish products that meet design specifications including functions, features, and technical
performance requirements. We have determined technological feasibility for our software products is reached shortly before
they are released for sale. Costs incurred after technological feasibility is established are not significant, and accordingly we
expense all research and development costs when incurred.
Advertising Expenses
We expense advertising costs as they are incurred. Advertising expenses were $6.0 million, $4.1 million, and $3.9 million
for the years ended December 31, 2020, 2019, and 2018, respectively.
Recent Accounting Pronouncements
Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments ("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. Adopting the standard did not have a material impact on our 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. Adopting the standard did not have a material impact on our
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
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Adopting the
standard did not have a material impact on our consolidated financial statements.
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APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate
Reform on Financial Reporting (Topic 848), which provides temporary optional expedients and exceptions to the GAAP
guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market
transition from LIBOR and other interbank offered rates to alternative reference rates such as the Secured Overnight Financing
Rate (SOFR). This guidance is effective upon issuance and generally can be applied through the end of calendar year 2022. We
are currently evaluating the impact and applicability of this new standard.
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 years ended December 31, 2020 and 2019
(in thousands):
SaaS subscriptions
Term license subscriptions
Maintenance and support
Professional services
Total revenue
Year Ended December 31,
2020
2019
$
129,219 $
51,415
18,076
105,863
$
304,573 $
95,028
40,428
15,843
109,053
260,352
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. 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.
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APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Term License Subscriptions
Our term license subscription revenue is derived from customers with on-premises 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 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 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 years ended December 31, 2020 and 2019 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")
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APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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 December 31, 2020 and December 31, 2019, contract assets of
$20.1 million and $22.8 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 year ended December 31, 2020, we recognized $83.4 million of revenue that was included in the deferred
revenue balance as of December 31, 2019.
Transaction Price Allocated to the Remaining Performance Obligations
As of December 31, 2020, we had an aggregate transaction price of $206.2 million allocated to unsatisfied performance
obligations. We expect to recognize $189.6 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 the Property and equipment,
net, Finance lease liabilities, current, and Finance lease liabilities, net of current portion line items in our consolidated balance
sheets.
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APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the
expected lease term. The implicit rates 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
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. Operating lease ROU
assets also include 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 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, are not included in ROU assets or lease liabilities but are rather expensed as incurred and
recorded as variable lease expense.
As of December 31, 2020, we have operating leases for corporate offices. Our operating leases have remaining lease terms
ranging from 3 months to 11 years, some of which include options to extend the leases for up to 10 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 an additional 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 office space. Occupancy of the added
space commenced on 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 ROU asset and the lease costs on the
new space are charged at prevailing market rates. Effective July 1, 2020, we took possession of the space, began to recognize
rent expense, and reported a $7.9 million ROU asset and lease liability on our consolidated balance sheets.
In October 2020, we paid the full $2.7 million principal balances outstanding under our finance leases pursuant to an option
permitting us to pay such balances in full at any time. As of the date of the paydown, the titles to the assets were transferred to
us, the associated ROU liabilities were retired, the carrying values of the purchased assets were adjusted, and the assets were
reclassified from finance leases to property and equipment, net on the consolidated balance sheets.
The following table sets forth the components of lease expense for the years ended December 31, 2020 and 2019 (in
thousands):
Operating lease cost
Finance lease costs:
Amortization of right-of-use assets
Interest on lease liabilities
Short-term lease cost
Variable lease cost
Total
Year Ended December 31,
2020
2019
$
6,649 $
9,733
1,242
150
565
281
700
108
462
409
$
8,887 $
11,412
Supplemental balance sheet information related to leases as of December 31, 2020 and December 31, 2019 was as follows
(in thousands, except for lease term and discount rate):
84
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating Leases
Operating right-of-use assets
Operating lease liabilities, current
Operating lease liabilities, net of current portion
Total operating lease liabilities
Finance Leases
Property and equipment, at cost
Accumulated depreciation
Property and equipment, net
Finance lease liabilities, current
Finance lease liabilities, net of current portion
Total finance lease liabilities
Weighted Average Remaining Lease Term (in years)
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
$
$
$
$
$
$
$
As of December 31,
2020
2019
30,659
$
24,205
6,923
$
51,194
58,117
$
3,836
44,416
48,252
—
—
—
—
—
—
$
$
$
$
10.6
0.0
9.6 %
— %
4,475
(703)
3,772
1,447
2,375
3,822
11.4
2.5
9.8 %
5.5 %
For the year ended December 31, 2020, amortization of operating ROU assets totaled $1.6 million while interest expense
on operating ROU liabilities totaled $1.9 million.
Supplemental cash flow information related to leases for the years ended December 31, 2020 and 2019 was as follows (in
thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases
Operating cash outflows for finance leases
Financing cash outflows for finance leases
ROU assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Year Ended December 31,
2020
2019
$
3,407 $
150
3,822
—
—
6,413
108
653
523
4,475
A summary of our future minimum lease commitments under non-cancellable leases as of December 31, 2020 is as follows
(in thousands):
85
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating
Leases
$
$
7,487
8,104
8,174
8,571
9,265
57,386
98,987
(40,870)
58,117
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: imputed interest
Total
5. Acquisitions
Novayre Solutions SL
In January 2020, we acquired 100% of the outstanding common stock of Novayre Solutions SL ("Novayre"), 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 was based upon estimated fair values of the assets acquired and liabilities assumed.
The final allocation of the purchase price is as follows:
Cash acquired
Other current assets
Property and equipment
Developed technology
Customer relationships
Goodwill
Other noncurrent assets
Total assets acquired
Current liabilities
Noncurrent liabilities
Total liabilities assumed
Net assets acquired
$
731
213
22
1,537
406
4,348
10
7,267
14
344
358
$
6,909
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 December 31, 2020 were immaterial. Additionally, acquisition costs incurred in relation to the
transaction were immaterial.
Acquired property and equipment is depreciated on a straight-line basis over the assets' respective estimated remaining
useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets
acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify
for separate recognition, including assembled workforce, non-contractual relationships, and expected future synergies. We do
not expect the purchase price allocated to goodwill and intangible assets to be deductible for tax purposes.
6. Property and Equipment, net
Property and equipment, net consisted of the following as of December 31, 2020 and 2019 (in thousands):
86
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Leasehold improvements
Office furniture and fixtures
Computer hardware
Computer software
Equipment
Property and equipment, gross
Less: accumulated depreciation
Property and equipment, net
As of December 31,
2020
2019
$
36,263 $
37,130
2,521
4,535
1,352
49
44,720
(9,316)
$
35,404 $
4,963
3,365
1,350
72
46,880
(7,326)
39,554
Depreciation expense totaled $5.4 million, $4.7 million, and $2.0 million for the years ended December 31, 2020, 2019,
and 2018, respectively. During the year ended December 31, 2020, we retired $1.3 million of leasehold improvements, $0.2
million of computer hardware, and $0.1 million of office furniture and fixtures and equipment, and nominal losses on disposal
were recorded. During the year ended December 31, 2019, we retired $3.2 million of leasehold improvements, $0.9 million of
computer hardware, $0.4 million of office furniture and fixtures, $0.4 million of software, and $0.1 million of equipment and
recorded a loss on disposal of $0.1 million.
7. Accrued Expenses
Accrued expenses consisted of the following as of December 31, 2020 and 2019 (in thousands):
Accrued hosting costs
Accrued contract labor costs
Accrued marketing and trade show expenses
Accrued audit and tax expenses
Accrued legal costs
Accrued reimbursable employee expenses
Accrued third party license fees
Other accrued expenses
Total
8. Debt
Line of Credit
As of December 31,
2020
2019
$
1,229 $
908
596
370
760
231
570
1,157
$
5,821 $
1,865
1,921
365
315
422
1,353
288
959
7,488
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
the agreement. Any amounts borrowed under the credit facility are collateralized by substantially all of our assets. We were in
compliance with all covenants as of December 31, 2020. As of December 31, 2020, we had no outstanding borrowings under
this revolving line of credit, and we had outstanding letters of credit totaling $11.2 million in connection with securing our
87
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
leased office space. We are monitoring the LIBOR to SOFR transition, which may result in modification or amendment of our
existing revolving line of credit.
9. Income Taxes
For the years ended December 31, 2020, 2019, and 2018, our loss before income taxes was comprised of the following (in
thousands):
Domestic
Foreign
Total
Year Ended December 31,
2020
2019
2018
$
$
(25,463) $
(32,091) $
(7,131)
(17,803)
(32,594) $
(49,894) $
(30,663)
(18,549)
(49,212)
For the years ended December 31, 2020, 2019, and 2018, our income tax expense (benefit) was comprised of the following
(in thousands):
Current:
Federal
State
Foreign
Total current expense
Deferred:
Federal
State
Foreign
Total deferred benefit
Total income tax expense
Year Ended December 31,
2020
2019
2018
$
11 $
3 $
79
977
1,067
—
—
(184)
(184)
60
1,091
1,154
—
—
(334)
(334)
$
883 $
820 $
—
25
432
457
—
—
(218)
(218)
239
For the years ended December 31, 2020, 2019, and 2018, the provision for income taxes differs from the amount computed
by applying the federal statutory income tax rates to our loss before the provision (benefit) for income taxes as follows:
U.S. federal statutory tax rate
State tax expense
Foreign rate differential
Nondeductible expenses
Equity compensation
Tax credits
Unrecognized tax benefits
Other
Remeasurement of deferred taxes
Change in valuation allowance
Total
Year Ended December 31,
2020
2019
2018
21.0 %
21.0 %
21.0 %
18.2
(3.6)
(0.6)
46.2
12.0
(2.2)
(1.1)
(1.7)
7.1
(5.1)
(0.7)
12.0
6.5
(1.1)
(0.8)
(1.6)
7.2
(5.1)
(0.7)
9.5
3.9
(0.8)
0.6
—
(90.9)
(2.7) %
(38.9)
(1.6) %
(36.0)
(0.4) %
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APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effective tax rate of (2.7)% in 2020 includes $29.6 million of tax expense attributable to the change in the valuation
allowance in the United States and Switzerland, partially offset by $18.8 million of favorable excess tax benefits for equity
compensation and research credits.
Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amount of the
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of December 31, 2020
and 2019, significant components of our deferred tax assets and liabilities were as follows (in thousands):
Deferred tax assets:
Net operating losses
Tax credits
Deferred revenue
Equity compensation
Lease liabilities
Accrued vacation
Bad debt
Other
Gross deferred tax assets
Less: Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Prepaid expenses
Right-of-use assets
Unbilled receivables
Depreciation
Other
Total deferred tax liabilities
Net deferred tax asset
As of December 31,
2020
2019
$
59,417 $
34,875
11,922
824
3,090
15,768
339
383
1,234
92,977
(65,914)
27,063
(11,082)
(8,270)
(2,559)
(4,221)
(512)
8,648
1,291
1,668
13,066
409
164
260
60,381
(35,607)
24,774
(9,562)
(6,488)
(3,849)
(4,377)
(42)
(26,644)
(24,318)
$
419 $
456
As of December 31, 2020 and 2019, we had $183.9 million and $99.3 million of gross net operating loss (“NOL”)
carryforwards for U.S. federal tax purposes, respectively. U.S. federal NOL carryforwards in the amount of $24.4 million,
gross, generated prior to 2018 will expire, if unused, in 2037. Under the Tax Cuts and Jobs Act of 2017 (the "TCJA"), as
modified by the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act"), federal NOL carryforwards
generated in tax years beginning after December 31, 2017 may be carried forward indefinitely. As of December 31, 2020, we
had $159.5 million of gross NOL carryforwards generated after 2017 for U.S. federal tax purposes, which may be used to offset
80% of our taxable income annually.
Section 382 of the Internal Revenue Code limits the utilization of NOL carryforwards when ownership changes occur, as
defined by that section. A number of states have similar state laws that limit utilization of state NOL carryforwards when
ownership changes occur. We have performed an analysis of our Section 382 ownership changes and have determined all U.S.
federal and state NOL carryforwards are available for use as of December 31, 2020.
As of December 31, 2020 and 2019, we had $10.5 million and $7.5 million, respectively, of U.S. federal tax credit
carryforwards which will expire, if unused, between 2031 and 2040.
As of December 31, 2020 and 2019, we had U.S. gross state NOL carryforwards of $177.2 million and $100.9 million,
respectively. We had tax effected state NOL carryforwards of $11.2 million and $6.5 million as of December 31, 2020 and
2019, respectively. The rules regarding carryforwards vary from state to state, and the ability to utilize NOLs varies based on
89
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
timing and amount. The majority of state NOL carryforwards generated prior to 2018 will expire, if unused, in 2037. Due to the
TCJA, certain state NOL carryforwards generated after 2017 have an indefinite carryforward period.
As of December 31, 2020 and 2019, we had foreign gross NOL carryforwards of $78.6 million and $62.8 million,
respectively, primarily attributable to our subsidiary in Switzerland. Those NOL carryforwards will begin to expire, if unused,
between 2021 to 2027.
The net change in the total valuation allowance during the year ended December 31, 2020 was $30.3 million, primarily
driven by the valuation allowance recorded against the United States and Switzerland deferred tax assets.
As of December 31, 2020, we continued to maintain a full valuation allowance against U.S. deferred tax assets based on
our cumulative operating results as of December 31, 2020, three-year cumulative loss, and assessment of our expected future
results of operations. We have evaluated all evidence, both positive and negative, in assessing the likelihood of realizability,
and we determined the negative evidence outweighed the positive evidence.
As of December 31, 2020, we have a valuation allowance of $9.2 million against foreign deferred tax assets, primarily for
deferred tax assets at our subsidiary in Switzerland. Based on our cumulative operating results as of December 31, 2020 and
assessment of our expected future results of operations, we determined it was not more likely than not that we would be able to
realize the deferred tax assets prior to expiration.
We plan to distribute previously undistributed earnings of our foreign subsidiaries back to the United States in future years.
Upon repatriation of those earnings, if any, we may be subject to taxes, including withholding taxes, net of any applicable
foreign tax credits. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable.
As of December 31, 2020 and 2019, we had unrecognized tax benefits of $2.3 million and $1.6 million, respectively, of
which none would affect our effective tax rate if recognized due to the valuation allowance. The following table summarizes the
activity related to our unrecognized tax benefit from January 1, 2018 to December 31, 2020 (in thousands):
Balance as of December 31, 2017
Additions for tax positions in current years
Additions for tax positions in prior years
Reductions due to lapse in statutes of limitations
Settlements
Balance as of December 31, 2018
Additions for tax positions in current years
Additions for tax positions in prior years
Reductions due to lapse in statutes of limitations
Settlements
Balance as of December 31, 2019
Additions for tax positions in current years
Additions for tax positions in prior years
Reductions due to lapse in statutes of limitations
Settlements
Balance as of December 31, 2020
$
651
388
—
—
—
1,039
536
—
—
—
1,575
702
—
—
—
$
2,277
We recognize interest and penalties related to uncertain tax positions in income tax expense. During the years ended
December 31, 2020 and 2019, we recognized nominal amounts in interest. We did not recognize any interest during the year
ended December 31, 2018. The cumulative balance of interest and penalties as of December 31, 2020 and 2019 were not
meaningful.
We anticipate total unrecognized tax benefits will not decrease over the next year.
90
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The tax years 2017
through 2020 remain open to examination by the major taxing jurisdictions to which we are subject. There are no open
examinations that would have a meaningful impact to our consolidated financial statements.
The CARES Act also includes various other income and payroll tax measures outside of the carryforward provisions
discussed previously. Pursuant to one of these measures, we have elected the option to defer the deposit and payment of our
share of social security taxes that would otherwise be due between March 27, 2020 and December 31, 2020. Under the CARES
Act, half of these deferred payments are due by the end of fiscal year 2021 while the other half are due by the end of fiscal year
2022.
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,
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 December 31,
2020, there were 7,165,409 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 4,276,377
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
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 close at or above $84.63 per share for a
period equal to or greater than 90 consecutive 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. Refer to Note 17 for further details on the status of this
award.
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APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the assumptions used to estimate the fair value of stock options granted during the years
ended December 31, 2020, 2019, and 2018:
Risk-free interest rate
Expected term (in years)
Expected volatility
Expected dividend yield
* Not applicable because no stock options were granted during the period.
Year Ended December 31,
2020
*
*
*
*
2019
2.1%
2.6
55.0%
—%
2018
*
*
*
*
The following table summarizes stock option activity for the years ended December 31, 2020, 2019, and 2018:
Outstanding at December 31, 2017
Granted
Exercised
Canceled
Outstanding at December 31, 2018
Granted
Exercised
Canceled
Outstanding at December 31, 2019
Granted
Exercised
Expired
Canceled
Outstanding at December 31, 2020
Number of
Shares
Weighted
Average
Exercise Price
7,010,887 $
—
(1,486,218)
(503,601)
5,021,068
700,000
(1,194,471)
(67,986)
4,458,611
—
(1,001,411)
(1,380)
(56,580)
3,399,240 $
6.36
—
2.10
9.51
7.30
33.98
4.11
10.17
12.30
—
6.39
11.82
11.33
14.06
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic Value
(in thousands)
6.6 $
176,122
41,606
6.4
97,440
44,081
5.8
115,501
81,181
4.9 $
503,174
Exercisable at December 31, 2020
2,232,140 $
8.38
5.1 $
343,098
There were no stock options granted during the years ended December 31, 2020 and 2018. The weighted average grant date
fair value of stock options granted during the year ended December 31, 2019 was $13.57 per share. The total fair value of stock
options that vested during the years ended December 31, 2020, 2019, and 2018 was $2.8 million, $2.0 million, and $10.5
million, respectively. As of December 31, 2020, the total compensation cost related to unvested stock options not yet
recognized was $4.0 million, which will be recognized over a weighted average period of one year.
92
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Units
The following table summarizes RSU activity for the years ended December 31, 2020, 2019, and 2018:
Non-vested and outstanding at December 31, 2017
Granted
Vested
Canceled
Non-vested and outstanding at December 31, 2018
Granted
Vested
Canceled
Non-vested and outstanding at December 31, 2019
Granted
Vested
Canceled
Non-vested and outstanding at December 31, 2020
Number of
Shares
Weighted
Average Grant
Date Fair
Value
731,975 $
622,166
(143,390)
(35,702)
1,175,049
436,912
(521,460)
(67,666)
1,022,835
589,692
(270,609)
(176,915)
1,165,003 $
22.16
29.60
22.19
23.97
26.04
40.70
27.81
26.38
31.39
60.47
31.29
32.01
46.04
As of December 31, 2020, total unrecognized compensation cost related to unvested RSUs was approximately
$48.0 million, which will be recognized over a weighted average period of 2.3 years.
In November 2018, our co-founders were granted 255,930 RSUs under the 2017 Plan at a fair value of $30.06 per share.
The awards were approved by the Board of Directors. The value of these awards at the grant date was $7.7 million and was
amortized over the vesting periods. The RSUs vested during the year ended December 31, 2019.
The following table summarizes the components of our stock-based compensation expense by instrument type for the years
ended December 31, 2020, 2019, and 2018 (in thousands):
RSUs
Stock options
Common stock awards to Board of Directors
Total stock-based compensation expense
Year Ended December 31,
2020
2019
2018
$
$
10,745 $
12,667 $
4,164
370
3,408
368
7,714
7,947
393
15,279 $
16,443 $
16,054
93
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based compensation expense for RSUs, stock options, and issuances of common stock to directors is included in the
following line items in the accompanying consolidated statements of operations for the years ended December 31, 2020, 2019,
and 2018 (in thousands):
Cost of revenue
Subscriptions
Professional services
Operating expenses
Sales and marketing
Research and development
General and administrative
Year Ended December 31,
2020
2019
2018
$
943 $
647 $
1,477
2,748
2,821
2,718
7,320
4,742
3,480
4,826
514
1,717
3,473
2,416
7,934
Total stock-based compensation expense
$
15,279 $
16,443 $
16,054
11. Stockholders' Equity
As of December 31, 2020, we had authorized 500,000,000 shares of Class A common stock and 100,000,000 shares of
Class B common stock, each with a par value of $0.0001 per share, of which 38,971,324 shares of Class A common stock and
31,707,866 shares of Class B common stock were issued and outstanding. The rights of the holders of Class A common stock
and Class B common stock are identical, except with respect to voting and conversion rights. The holders of Class A common
stock are entitled to one vote per share, and the holders of Class B common stock are entitled to ten votes per share on all
matters subject to stockholder vote. The holders of Class B common stock also have approval rights for certain corporate
actions. Each share of Class B common stock may be converted into one share of Class A common stock at the option of its
holder and will be automatically converted upon transfer thereof, subject to certain exceptions. In addition, upon the date on
which the outstanding shares of Class B common stock represent less than 10% of the aggregate voting power of our capital
stock, all outstanding shares of Class B common stock shall convert automatically into Class A common stock.
12. Basic and Diluted Loss per Common Share
The following table sets forth the computation of basic and diluted net loss per share for the years ended December 31,
2020, 2019, and 2018 (in thousands, except share and per share data):
94
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Numerator:
Net loss
Denominator:
Year Ended December 31,
2020
2019
2018
$
(33,477) $
(50,714) $
(49,451)
Weighted average common shares outstanding, basic and diluted
69,050,565
65,479,327
62,140,684
Net loss per share, basic and diluted
$
(0.48) $
(0.77) $
(0.80)
The following outstanding securities, prior to the use of the treasury stock method or the if-converted method, have been
excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they
would have been antidilutive:
Stock options
Non-vested restricted stock units
13. Commitments and Contingencies
Contractual Warranty and Indemnification Obligations
Year Ended December 31,
2020
2019
2018
3,399,240
1,165,003
4,458,611
1,022,835
5,021,068
1,175,049
We provide limited product warranties. Historically, any payments made under these provisions have been immaterial. We
also agree to standard indemnification provisions in the ordinary course of business. Pursuant to these provisions, we agree to
indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party,
generally our customers, in connection with certain intellectual property infringement claims by any third party arising from the
use of our products or services in accordance with the agreement. The term of our contractual indemnity provisions often
survives termination or expiration of the applicable agreement. We carry insurance that covers certain third-party claims
relating to our services and limits our exposure. We have never incurred costs to defend lawsuits or settle claims related to these
indemnification provisions.
Letters of Credit
At December 31, 2020 and 2019, we had outstanding letters of credit totaling $11.2 million and $10.5 million, respectively,
in connection with securing our leased office space. All letters of credit are secured by our borrowing arrangement as described
in Note 8.
Legal
From time to time, we are subject to legal, regulatory, and other proceedings and claims that arise in the ordinary course of
business. There are no issues or resolutions of any matters expected to have a material adverse impact on our consolidated
financial statements.
Other Commitments
We also have entered into a non-cancellable agreement for the use of technology that is integral in the development of our
software and pay annual royalty fees of $0.3 million.
95
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Segment and Geographic Information
The following table summarizes revenue by geography for the years ended December 31, 2020, 2019, and 2018 (in
thousands):
Domestic
International
Total
Year Ended December 31,
2020
2019
2018
$
$
201,483 $
176,187 $
103,090
84,165
304,573 $
260,352 $
161,716
65,027
226,743
With respect to geographic information, revenue is attributed to respective geographies based on the contracting address of
the customer. Revenues from customers attributed to the United Kingdom were 12.5% and 12.2% of our total revenue for the
years ended December 31, 2020 and 2019, respectively. There were no individual foreign countries from which more than 10%
of our total revenue was attributable for the year ended December 31, 2018. Substantially all of our long-lived assets were held
in the United States as of December 31, 2020 and December 31, 2019.
15. Retirement Plans
We have a defined contribution 401(k) retirement and savings plan (the “401(k) Plan”) to provide retirement benefits for all
eligible employees. All employees over the age of 21 on their first day of the month immediately following the month of hiring
are eligible to participate in the 401(k) Plan. The Plan excludes United States expatriate employees, employees who are
residents of Puerto Rico, and employees covered by another country’s pension retirement plan who are receiving employer
contributions in that plan. The 401(k) Plan allows eligible employees to make salary-deferred contributions up to 75% of their
pre-tax annual compensation, as defined and subject to certain Internal Revenue Service limitations. Employer contributions are
made semi-monthly and calculated as 100% of the employee's contribution for each pay period up to a maximum of 4% of the
employee's eligible gross compensation for the pay period. Employer contributions vest at 25% per year over four years,
beginning with the completion of the first year of service. For the years ended December 31, 2020, 2019, and 2018, we incurred
$6.8 million, $5.5 million, and $4.7 million, respectively, in contribution expense related to employer matching contributions.
We are obligated to make plan contributions for the employees of certain of our wholly-owned foreign subsidiaries. For the
years ended December 31, 2020, 2019, and 2018, we incurred $1.7 million, $1.5 million, and $1.3 million, respectively, in
contribution expense related to our foreign subsidiaries.
16. Investments and Fair Value Measurements
Fair Value Measurements
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.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input
that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and
96
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
minimize the use of unobservable inputs. There were no instruments measured at fair value on a recurring basis using
significant unobservable inputs during the years ended December 31, 2020 and 2019.
The valuation techniques that may be used to measure fair value are as follows:
• Market approach - Uses prices and other relevant information generated by market transactions involving identical or
comparable assets or liabilities;
•
•
Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current
market expectations about those future amounts;
Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (i.e.,
replacement cost).
The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses
approximate fair value as of December 31, 2020 and December 31, 2019 because of the relatively short duration of these
instruments.
Investments
Our investment portfolio consists largely of debt investments classified as available-for-sale. Changes in the fair value of
available-for-sale securities, excluding other-than-temporary impairments, are recorded in other comprehensive income (loss).
The components of our investments as of December 31, 2020 are as follows (in thousands):
Year Ended December 31, 2020
Fair Value Measurement
Balance Sheet Classification
Fair Value
Level
Cost Basis
Unrealized
Gains /
(Losses)
Market
Value
Cash and
Cash
Equivalents
Short-term
Investments
Long-term
Investments
Money market fund
U.S. Treasury bonds
Commercial paper
Corporate bonds
Asset-backed securities
Total investments
Level 1
Level 1
Level 2
Level 2
Level 2
$
27,150 $
— $
27,150 $
27,150 $
— $
24,445
76,905
34,738
26,373
(3)
—
(11)
(8)
24,442
76,905
34,727
26,365
—
16,493
—
—
16,273
60,412
27,542
5,599
$
189,611 $
(22) $
189,589 $
43,643 $
109,826 $
—
8,169
—
7,185
20,766
36,120
There were no Level 3 assets held at any point during the year ended December 31, 2020. Additionally, there were no
transfers between Levels 1 and 2 during the year ended December 31, 2020.
The amortized cost basis and fair value of debt securities at December 31, 2020, by contractual maturity, are as follows (in
thousands):
Due in one year or less
Due after one year through five years
Total investments
As of December 31, 2020
Cost Basis
Fair Value
$
$
153,483 $
36,128
189,611 $
153,469
36,120
189,589
Actual maturities may differ from the contractual maturities in the table above because borrowers have the right to call or
prepay certain obligations.
97
APPIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Subsequent Events
Effective February 3, 2021, the 2019 CEO Grant as discussed in Note 10 has satisfied all of the conditions required to be
considered fully vested. As a result, we expect to accelerate the recognition of approximately $3.3 million in stock-based
compensation expense in the first quarter of 2021.
98
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange
Act that are designed to ensure information required to be disclosed by a company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required
to be disclosed by a company in the reports it files or submits under the Exchange Act is accumulated and communicated to its
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures as of December 31, 2020. Based on the evaluation of our disclosure
controls and procedures as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded, as of
such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rules 13a-15(f) and 15(d)-15(f) of the Exchange Act. Our management assessed the effectiveness of our
internal control over financial reporting as of December 31, 2020 based on the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this
assessment, management concluded that, as of December 31, 2020, our internal control over financial reporting was effective.
The Annual Report on Form 10-K includes an attestation report of our independent registered public accounting firm
regarding internal control over financial reporting, which appears in Part II, Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended December 31,
2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes our disclosure controls and
procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their
objectives and are effective at the reasonable assurance level. However, our management does not expect our disclosure
controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance the objectives of the control
system are met. Further, the design of a control system must reflect the fact there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent
limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a
simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the controls. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance any design will succeed in achieving its
stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions
or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be detected.
99
Item 9B. Other Information.
Not applicable.
100
Item 10. Directors, Executive Officers and Corporate Governance.
Part III
The information required by this item is incorporated by reference to our Proxy Statement for our 2021 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2020.
We have adopted a Code of Conduct, applicable to all of our employees, executive officers, and directors. The Code of
Conduct is available on our website at www.appian.com. We expect any amendments to the Code of Conduct or any waivers of
its requirement will be disclosed on our website (www.appian.com) as required by applicable law or the listing standards of the
Nasdaq Stock Market. The information contained on, or that can be accessed through, our website is not incorporated by
reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to
our website are intended to be inactive textual references only.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to our Proxy Statement for our 2021 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated by reference to our Proxy Statement for our 2021 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2020.
Item 13. Certain Relationships and Related Transactions and Director Independence.
The information required by this item is incorporated by reference to our Proxy Statement for our 2021 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2020.
Item 14. Principal Accounting Fees and Services.
The information required by this item is incorporated by reference to our Proxy Statement for our 2021 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2020.
101
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report on Form 10-K:
Part IV
(1) Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm are shown in the
Index to Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
(2) All financial statement schedules are omitted because they are not applicable or the required information is shown in
the financial statements or notes thereto.
(3) Exhibits are incorporated herein by reference or are filed with this Annual Report on Form 10-K as indicated below.
(b) Exhibits
Exhibit No. Description
3.1
Amended and Restated Certificate of
Incorporation of Appian Corporation.
Amended and Restated Bylaws of Appian
Corporation.
Form of Class A common stock certificate of
Appian Corporation.
3.2
4.1
4.2
Reference
Previously filed as Exhibit 3.2 to Amendment No. 3 to the Company’s
Registration Statement on Form S-1 (File No. 333-217510), filed with the
Securities and Exchange Commission on May 12, 2017, and incorporated
herein by reference.
Previously filed as Exhibit 3.4 to Amendment No. 2 to the Company’s
Registration Statement on Form S-1 (File No. 333-217510), filed with the
Securities and Exchange Commission on May 10, 2017, and incorporated
herein by reference.
Previously filed as Exhibit 4.1 to Amendment No. 3 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-217510), filed with the
Securities and Exchange Commission on May 12, 2017, and incorporated
herein by reference.
Amended and Restated Investors' Rights
Agreement by and among Appian
Corporation and certain of its stockholders,
dated February 21, 2014.
Previously filed as Exhibit 4.2 to the Company’s Registration Statement on
Form S-1 (File No. 333-217510), filed with the Securities and Exchange
Commission on April 27, 2017, and incorporated herein by reference.
4.3
Description of Securities.
Previously filed as Exhibit 4.3 to the Company's Annual Report on Form 10-
K (File No. 001-38098), filed with the Securities and Exchange Commission
on February 20, 2020, and incorporated herein by reference.
10.1
10.2
10.3
10.4
10.5
2007 Stock Option Plan and Form of Option
Agreement and Exercise Notice thereunder,
as amended to date.+
Previously filed as Exhibit 10.1 to the Company’s Registration Statement on
Form S-1 (File No. 333-217510), filed with the Securities and Exchange
Commission on April 27, 2017, and incorporated herein by reference.
2017 Equity Incentive Plan and Forms of
Stock Option Agreement, Notice of Exercise
and Stock Option Grant Notice thereunder.+
Previously filed as Exhibit 10.2 to Amendment No. 2 to the Company’s
Registration Statement on Form S-1 (File No. 333-217510), filed with the
Securities and Exchange Commission on May 10, 2017, and incorporated
herein by reference.
Non-Employee Director Compensation Plan,
as amended December 16, 2020.+
Filed herewith.
Form of Indemnification Agreement by and
between Appian Corporation and each of its
directors and executive officers.+
Previously filed as Exhibit 10.4 to Amendment No. 2 to the Company’s
Registration Statement on Form S-1 (File No. 333-217510), filed with the
Securities and Exchange Commission on May 10, 2017, and incorporated
herein by reference.
Employment Agreement, dated as of
September 7, 2012, by and between Appian
Corporation and Matthew Calkins.+
Previously filed as Exhibit 10.5 to the Company’s Registration Statement on
Form S-1 (File No. 333-217510), filed with the Securities and Exchange
Commission on April 27, 2017, and incorporated herein by reference.
102
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
Form of Amended and Restated Employment
Agreement, dated as of April 27, 2017, by
and between Appian Corporation and each of
Mark Lynch and Chris Winters.+
Senior Executive Cash Incentive Bonus Plan.
+
Previously filed as Exhibit 10.7 to the Company’s Registration Statement on
Form S-1 (File No. 333-217510), filed with the Securities and Exchange
Commission on April 27, 2017, and incorporated herein by reference.
Previously filed as Exhibit 10.11 to the Company’s Annual Report on Form
10-K (File No. 001-38098), filed with the Securities and Exchange
Commission on February 23, 2018, and incorporated herein by reference.
Forms of Restricted Stock Unit Grant Notices
and Restricted Stock Unit Award Agreements
under 2017 Equity Incentive Plan.+
Previously filed as Exhibit 10.12 to the Company’s Annual Report on Form
10-K (File No. 001-38098), filed with the Securities and Exchange
Commission on February 23, 2018, and incorporated herein by reference.
Forms of Restricted Stock Award Grant
Notice and Restricted Stock Award
Agreement under 2017 Equity Incentive Plan.
+
Previously filed as Exhibit 10.13 to the Company’s Annual Report on Form
10-K (File No. 001-38098), filed with the Securities and Exchange
Commission on February 23, 2018, and incorporated herein by reference.
2017 Equity Incentive Plan French
Qualifying Sub-Plan, with Forms of
Restricted Stock Unit Grant Notice and
Restricted Stock Unit Award Agreement
thereunder.+
2017 Equity Incentive Plan CSOP Sub-Plan
for UK Eligible Employees, with Forms of
CSOP Stock Option Grant Notice and CSOP
Option Agreement thereunder.+
Previously filed as Exhibit 10.14 to the Company’s Annual Report on Form
10-K (File No. 001-38098), filed with the Securities and Exchange
Commission on February 23, 2018, and incorporated herein by reference.
Previously filed as Exhibit 10.15 to the Company’s Annual Report on Form
10-K (File No. 001-38098), filed with the Securities and Exchange
Commission on February 23, 2018, and incorporated herein by reference.
Stock Option Cancellation Agreement, dated
December 7, 2018, between Appian
Corporation and Matthew Calkins.+
Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-
K (File No. 001-38098), filed with the Securities and Exchange Commission
on December 10, 2018, and incorporated herein by reference.
Deed of Lease, dated April 17, 2018, between
Appian Corporation and Tamares 7950
Owner LLC.
Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-
K (File No. 001-38098), filed with the Securities and Exchange Commission
on April 23, 2018, and incorporated herein by reference.
First Amendment to Deed of Lease, dated
December 23, 2019, between Appian
Corporation and Tamares 7950 Owner LLC.
Previously filed as Exhibit 10.15 to the Company's Annual Report on Form
10-K (File No. 001-38098), filed with the Securities and Exchange
Commission on February 20, 2020, and incorporated herein by reference.
Second Amendment to Deed of Lease,
effective as of January 1, 2020, between
Appian Corporation and Tamares 7950
Owner LLC.
Software Enterprise OEM License
Agreement, dated as of June 15, 2016, by and
between Appian Corporation and Kx
Systems, Inc.†
Addendum No. 1 to Software Enterprise
OEM License Agreement, dated as of August
20, 2019, by and between Appian
Corporation and Kx Systems, Inc.
Third Amended and Restated Loan and
Security Agreement, dated as of November 1,
2017, by and between Appian Corporation
and Silicon Valley Bank.†
Previously filed as Exhibit 10.16 to the Company's Annual Report on Form
10-K (File No. 001-38098), filed with the Securities and Exchange
Commission on February 20, 2020, and incorporated herein by reference.
Previously filed as Exhibit 10.11 to the Company’s Registration Statement
on Form S-1 (File No. 333-217510), filed with the Securities and Exchange
Commission on April 27, 2017, and incorporated herein by reference.
Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q (File No. 001-38098) filed with the Securities and Exchange
Commission on October 31, 2019, and incorporated herein by reference.
Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-
K (File No. 001-38098), filed with the Securities and Exchange Commission
on November 2, 2017, and incorporated herein by reference.
Employment Agreement, dated as of
September 7, 2012, by and between Appian
Corporation and Robert Kramer.+
Previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q (File No. 001-38098) filed with the Securities and Exchange
Commission on May 7, 2020, and incorporated herein by reference.
Employment Agreement, dated as of
February 16, 2018, by and between Appian
Corporation and David Mitchell.+
Previously filed as Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q (File No. 001-38098) filed with the Securities and Exchange
Commission on May 7, 2020, and incorporated herein by reference.
Separation Agreement, dated as of May 1,
2020, by and between Appian Corporation
and David Mitchell.+
Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q (File No. 001-38098) filed with the Securities and Exchange
Commission on August 6, 2020, and incorporated herein by reference.
103
10.22
Employment Agreement, dated as of May 6,
2020, by and between Appian Corporation
and Eric Cross.+
Previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q (File No. 001-38098) filed with the Securities and Exchange
Commission on August 6, 2020, and incorporated herein by reference.
21.1
23.1
24.1
31.1
31.2
32.1
Subsidiaries of Appian Corporation.
Filed herewith.
Consent of BDO USA, LLP, independent
registered public accounting firm.
Filed herewith.
Power of Attorney. Reference is made to the
signature page hereto.
Filed herewith.
Certification of Principal Executive Officer
Pursuant to Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer
Pursuant to Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certifications of Principal Executive Officer
and Principal Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.*
Filed herewith.
Filed herewith.
Filed herewith.
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
XBRL Instance Document - The instance
document does not appear in the interactive
data file because its XBRL tags are embedded
within the inline XBRL document.
Attached.
Inline XBRL Taxonomy Extension Schema
Document
Attached.
Inline XBRL Taxonomy Extension
Calculation Linkbase Document
Attached.
Inline XBRL Taxonomy Extension Definition
Linkbase Document
Attached.
Inline XBRL Taxonomy Extension Label
Linkbase Document
Inline XBRL Taxonomy Extension
Presentation Linkbase Document
Attached.
Attached.
Cover page interactive data file (formatted as
Inline XBRL and contained in Exhibit 101)
Attached.
+
Indicates management contract or compensatory plan.
†
Securities and Exchange Commission.
Confidential treatment has been granted as to certain portions of this exhibit. These portions have been omitted and filed separately with the
This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the
*
liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.
Item 16. Form 10-K Summary.
Not applicable.
104
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
SIGNATURE
Date: February 18, 2021
By:
/s/ Matthew Calkins
APPIAN CORPORATION
Name: Matthew Calkins
Title: Chief Executive Officer and Chairman of the Board
(On behalf of the Registrant and as Principal Executive Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and
appoints Matthew Calkins, Mark Lynch, and Christopher Winters, and each of them acting individually, as his or her true and
lawful attorneys-in-fact and agents, with full power of each to act alone, with full powers of substitution and resubstitution, for
him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-K with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and
purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or
his, her or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Matthew Calkins
Matthew Calkins
/s/ Mark Lynch
Mark Lynch
/s/ Robert C. Kramer
Robert C. Kramer
/s/ A.G.W. "Jack" Biddle, III
A.G.W. "Jack" Biddle, III
/s/ Prashanth “PV” Boccassam
Prashanth “PV” Boccassam
/s/ Michael G. Devine
Michael G. Devine
/s/ Barbara “Bobbie” Kilberg
Barbara “Bobbie” Kilberg
/s/ Michael J. Mulligan
Michael J. Mulligan
Title
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date
February 18, 2021
February 18, 2021
General Manager and Director
February 18, 2021
February 18, 2021
February 18, 2021
February 18, 2021
February 18, 2021
February 18, 2021
Director
Director
Director
Director
Director
105