APPIAN CORP

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2023 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on February 15, 2024.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2023 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on February 15, 2024.

Previous wording

Our customers primarily include financial services, government, life sciences, insurance, manufacturing, energy, healthcare, telecommunications, and transportation organizations. Generally, our sales team targets its efforts to organizations with over 2,000 employees and $2 billion in annual revenue. Revenue from government agencies represented 21.7% and 20.5% of our total revenue for the three months ended March 31, 2024 and 2023, respectively. No single end-customer accounted for more than 10% of our total revenue in the three months ended March 31, 2024 or 2023.

Current wording

Our customers primarily include financial services, government, life sciences, insurance, manufacturing, energy, healthcare, telecommunications, and transportation organizations. Generally, our sales team targets its efforts to organizations with over 2,000 employees and $2 billion in annual revenue. Revenue from government agencies represented 22.6% and 22.1% of our total revenue for the three and six months ended June 30, 2024, respectively. Revenue from government agencies represented 20.1% and 20.3% of our total revenue for the three and six months ended June 30, 2023, respectively. No single end-customer accounted for more than 10% of our total revenue in the three and six months ended June 30, 2024 or 2023.

Previous wording

We offer our platform globally. Our platform supports multiple languages to facilitate collaboration and address challenges in multinational organizations. In the three months ended March 31, 2024 and 2023, 37.2% and 33.4%, respectively, of our total revenue was generated from customers outside of the United States. As of March 31, 2024, we operated in 16 countries. We believe we have a significant opportunity to continue to grow our international footprint, and we are investing in new geographies, including through investment in direct and indirect sales channels, professional services, and customer support and implementation partners.

Current wording

We offer our platform globally. Our platform supports multiple languages to facilitate collaboration and address challenges in multinational organizations. In the three and six months ended June 30, 2024, 38.2% and 37.7%, respectively, of our total revenue was generated from customers outside of the United States as compared to 38.4% and 35.8% in the three and six months ended June 30, 2023, respectively. As of June 30, 2024, we operated in 16 countries. We believe we have a significant opportunity to continue to grow our international footprint, and we are investing in new geographies, including through investment in direct and indirect sales channels, professional services, and customer support and implementation partners.

Previous wording

•Further Penetration of Existing Customers -Our sales team seeks to generate additional revenue from existing customers by adding new users to our platform. Many of our customers begin by building a single application and then grow to build dozens of applications on our platform. 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. 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 and professional services teams, customers’ level of satisfaction with our platform and professional services, pricing, economic conditions, and our customers’ overall spending levels. We have also re-focused some of our professional services personnel to become customer success managers. Their role is to ensure customers realize value from our platform and support strategic partners and the “land and expand” strategy versus delivering billable hours.

Current wording

•Further Penetration of Existing Customers -Our sales team seeks to generate additional revenue from existing customers by adding new users to our platform. Many of our customers begin by building a single application and then grow to build dozens of applications on our platform. 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. 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 and professional services teams, customers’ level of satisfaction with our platform and professional services, pricing, economic conditions, and our customers’ overall spending levels. Some of our professional services personnel are customer success managers. Their role is to ensure customers realize value from our platform and support strategic partners and the “land and expand” strategy versus delivering billable hours.

Previous wording

•Mix of Subscriptions and Professional Services Revenue - We believe our professional services have driven customer success and facilitated the adoption of our platform by customers. During the initial period of deployment of our platform by a customer, we generally provide a greater amount of support in building applications and training than later in the deployment, with a typical engagement lasting from two to six months. At the same time, many of our customers have historically purchased subscriptions for only a limited set of their total potential end users. As a result of these factors, the proportion of total revenue for a customer associated with professional services is relatively high during the initial deployment period. 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 continue to 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 originate. As the usage of strategic partners expands, we expect the proportion of our total revenue from subscriptions to increase over time relative to professional services. For the three months ended March 31, 2024 and 2023, 78.5% and 73.2% of our revenue, respectively, was derived from sales of subscriptions while the remaining 21.5% and 26.8%, respectively, was derived from the sale of professional services.

Current wording

•Mix of Subscriptions and Professional Services Revenue - We believe our professional services have driven customer success and facilitated the adoption of our platform by customers. During the initial period of deployment of our platform by a customer, we generally provide a greater amount of support in building applications and training than later in the deployment, with a typical engagement lasting from two to six months. At the same time, many of our customers have historically purchased subscriptions for only a limited set of their total potential end users. As a result of these factors, the proportion of total revenue for a customer associated with professional services is relatively high during the initial deployment period. 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 continue to 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 originate. As the usage of strategic partners expands, we expect the proportion of our total revenue from subscriptions to increase over time relative to professional services. For the three months ended June 30, 2024 and 2023, 77.1% and 73.4% of our revenue, respectively, was derived from sales of subscriptions while the remaining 22.9% and 26.6%, respectively, was derived from the sale of professional services. For the six months ended June 30, 2024 and 2023, 77.9% and 73.3% of our revenue, respectively, was subscriptions-based while the remaining 22.1% and 26.7%, respectively, was related to professional services.

Previous wording

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 subscriptions revenue retention rate for a particular trailing 12-month period, we first establish the recurring cloud subscriptions revenue for the previous trailing 12-month period. This effectively represents recurring dollars we should expect in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period without any expansion or contraction. We subsequently measure the recurring cloud subscriptions revenue in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period. Cloud subscriptions revenue retention rate is then calculated by dividing the aggregate recurring cloud subscriptions revenue in the current trailing 12-month period by the previous trailing 12-month period. This calculation includes the combined impact on our revenue from customer non-renewals, pricing changes, and growth in the number of users on our platform. Our cloud subscriptions revenue retention rate can fluctuate from period to period due to large customer contracts in any given period.

Current wording

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 subscriptions revenue retention rate for a particular trailing 12-month period, we first establish the recurring cloud subscriptions revenue for the previous trailing 12-month period. This effectively represents recurring dollars we should expect in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period without accounting for any expansion or contraction. We subsequently measure the recurring cloud subscriptions revenue in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period. Cloud subscriptions revenue retention rate is then calculated by dividing the aggregate recurring cloud subscriptions revenue in the current trailing 12-month period by the previous trailing 12-month period. This calculation includes the combined impact on our revenue from customer non-renewals, pricing changes, and growth in the number of users on our platform. Our cloud subscriptions revenue retention rate can fluctuate from period to period due to large customer contracts in any given period.

Previous wording

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

Current wording

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

Previous wording

Operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel-related costs such as salaries, bonuses, commissions, payroll tax payments, and stock-based compensation expense are the most significant components of each of these expense categories. Other components of each category include professional fees for third-party services such as legal, software development resources, and contractors. In addition, operating expenses include allocated overhead costs, which are primarily comprised of facility costs, employee medical benefits, employee relations expense, and certain information technology costs for such items as infrastructure, software, and cloud computing services.

Current wording

Operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel-related costs such as salaries, bonuses, commissions, payroll tax payments, and stock-based compensation expense are the most significant components of each of these expense categories. Other components of each category include professional fees for third-party services such as legal, software development resources, and contractors. In addition, operating expenses include allocated overhead costs, which are primarily comprised of facility costs such as rent, employee medical benefits, employee relations expense, and certain information technology costs for such items as infrastructure, software, and cloud computing services.

Previous wording

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 sales and marketing headcount in our principal markets and strategic growth areas. We expect sales and marketing expense to increase in absolute dollars as we continue to invest to acquire new customers and further expand usage of our platform within our existing customer base. We will continue our efforts to build on our brand reputation and increase market awareness of our platform.

Current wording

In order to continue to grow our business, geographical footprint, and brand awareness, we expect to continue investing resources in sales and marketing in our principal markets and strategic growth areas. We expect sales and marketing expense to increase in absolute dollars as we continue to invest to acquire new customers and further expand usage of our platform within our existing customer base. We will continue our efforts to build on our brand reputation and increase market awareness of our platform.

Previous wording

Research and development expense consists primarily of personnel costs for our employees who develop and enhance our platform, including salaries, bonuses, stock-based compensation, and other personnel costs. Also included are non-personnel costs such as subcontracting, consulting, professional fees to third party development resources, and allocated overhead costs.

Current wording

Research and development expense consists primarily of personnel costs for our employees who develop and enhance our platform, including salaries, bonuses, stock-based compensation, and other personnel costs. Also included are non-personnel costs such as subcontracting, consulting, professional fees to third party development resources, certain information technology expenses, and allocated overhead costs.

Previous wording

General and administrative expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, and other personnel costs for our administrative, legal, information technology, human resources, finance, and accounting teams as well as our senior executives. Additional expenses included in this category are non-personnel costs such as travel-related expenses, contracting and professional fees for such services as audits, taxation, and legal, insurance and other corporate expenses, including allocated overhead costs, and bad debt expenses. In 2024, we expect our general and administrative expense to increase in absolute dollars largely due to amortization expense associated with the judgment preservation insurance as discussed in Note 12 to the condensed consolidated financial statements and investments in our information technology team.

Current wording

General and administrative expense consists primarily of personnel costs, including salaries, bonuses, stock-based compensation, and other personnel costs for our administrative, legal, information technology, human resources, finance, and accounting teams as well as our senior executives. Additional expenses included in this category are non-personnel costs such as travel-related expenses, contracting and professional fees for such services as audits, taxation, and legal, insurance and other corporate expenses, including allocated overhead costs, and bad debt expenses. In 2024, we expect our general and administrative expense to increase in absolute dollars largely due to amortization expense associated with the judgment preservation insurance policy (as discussed in Note 12 to the consolidated financial statements), lease impairments (as discussed in Note 4), and investments in our information technology team.

Previous wording

Total revenue increased $14.6 million, or 10.8%, in the three months ended March 31, 2024 compared to the same period in 2023 due to an increase in our subscriptions revenue of $18.7 million. This increase was partially offset by a decrease in our professional services revenue of $4.1 million. The increase in subscriptions revenue was driven by a $16.9 million increase in cloud subscription revenue, a $1.2 million increase in maintenance and support revenue, and a $0.6 million increase in on-premises subscription revenue. With respect to new versus existing customers, there was a $5.9 million increase in subscriptions revenue stemming from sales of subscriptions to new customers, while the remaining $12.9 million of the increase was attributable to expanded deployments, price increases on renewals, and corresponding sales of additional subscriptions to existing customers. The decrease in professional services revenue was due primarily to a $9.2 million decrease in revenue from existing customers, which was partially offset by a $5.0 million increase in sales to new customers.

Current wording

Total revenue increased $18.7 million, or 14.7%, in the three months ended June 30, 2024 compared to the same period in 2023 due to an increase in our subscriptions revenue of $19.2 million. This increase was partially offset by a decrease in our professional services revenue of $0.4 million. The increase in subscriptions revenue was driven by a $14.0 million increase in cloud subscription revenue, a $4.2 million increase in on-premises subscription revenue, and a $1.0 million increase in maintenance and support revenue. With respect to new versus existing customers, there was an $8.4 million increase in subscriptions revenue stemming from sales of subscriptions to new customers, while the remaining $10.7 million of the increase was attributable to expanded deployments, price increases on renewals, and corresponding sales of additional subscriptions to existing customers. The decrease in professional services revenue was due primarily to a $6.3 million decrease in revenue from existing customers, which was partially offset by a $5.9 million increase in sales to new customers.

Previous wording

Cost of revenue increased $1.9 million, or 5.3%, in the three months ended March 31, 2024 compared to the same period in 2023, primarily due to a $1.6 million increase in hosting costs and a $0.8 million increase in professional services and product support personnel costs. These increases were partially offset by a $0.5 million decrease in contractor costs. Hosting costs increased due to an increase in sales of our cloud offering during the three months ended March 31, 2024. Although cost of sales headcount was flat year over year, personnel costs increased due to increased wages from March 31, 2023 to March 31, 2024, which were partially offset by a $0.1 million decrease in stock-based compensation expense. Contractor costs decreased due to a decrease in the usage of subcontractors for professional services engagements.

Current wording

Cost of revenue increased $2.6 million, or 7.0%, in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $2.2 million increase in hosting costs and a $0.8 million increase in professional services and product support personnel costs. These increases were partially offset by a $0.7 million decrease in contractor costs. Hosting costs increased due to an increase in sales of our cloud offering during the three months ended June 30, 2024. Although cost of sales headcount fell 3% year over year, personnel costs increased due to a $1.3 million increase in severance expense from June 30, 2023 to June 30, 2024. Contractor costs decreased due to a decrease in the usage of subcontractors for professional services engagements.

Previous wording

Subscriptions gross margin increased to 89.6% for the three months ended March 31, 2024, compared to 89.4% in the same period in 2023. The increase in subscriptions gross margin was attributable to an increase in subscriptions revenue during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, which was substantially offset by an increase in hosting costs. Professional services gross margin decreased to 20.0% for the three months ended March 31, 2024 compared to 29.3% in the same period in 2023 due largely to a decrease in professional services revenue in the comparable periods coupled with a modest increase in professional services expenses. Gross margin increased to 74.6% for the three months ended March 31, 2024 compared to 73.3% for the three months ended March 31, 2023, driven largely by the increase in subscriptions revenue and the improved subscriptions gross margin as compared to the prior year.

Current wording

Subscriptions gross margin decreased slightly to 88.3% for the three months ended June 30, 2024, compared to 88.5% in the same period in 2023. The decrease in subscriptions gross margin was attributable to an increase in hosting costs, which was substantially offset by an increase in subscriptions revenue during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. Professional services gross margin decreased to 21.9% for the three months ended June 30, 2024 compared to 23.2% in the same period in 2023 due largely to an increase in professional services severance expense as described above coupled with a modest decrease in professional services revenue in the comparable period. Gross margin increased to 73.1% for the three months ended June 30, 2024 compared to 71.2% for the three months ended June 30, 2023, driven largely by the increase in subscriptions revenue.

Previous wording

Other expense, net was $8.2 million in the three months ended March 31, 2024 compared to other income, net of $2.7 million in the three months ended March 31, 2023. This change was primarily due to $11.5 million in foreign exchange losses in the three months ended March 31, 2024 as compared to $0.6 million in foreign exchange gains in the three months ended March 31, 2023. In addition, there was a $0.1 million decrease in interest income in the three months ended March 31, 2024 relative to the prior year.

Current wording

Other income, net was $1.5 million in the three months ended June 30, 2024 compared to other income, net of $3.9 million in the three months ended June 30, 2023. This change was primarily due to $0.2 million in foreign exchange losses in the three months ended June 30, 2024 as compared to $1.2 million in foreign exchange gains in the three months ended June 30, 2023. In addition, there was a $0.9 million decrease in interest income in the three months ended June 30, 2024 relative to the prior year.

Previous wording

Interest expense increased by $2.5 million in the three months ended March 31, 2024 as compared to the corresponding period in 2023 primarily due to interest expense incurred on additional credit facility borrowings that we entered into during the three months ended March 31, 2024 and the latter half of 2023.

Current wording

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

Previous wording

Sales and marketing expense decreased $4.9 million, or 7.8%, in the three months ended March 31, 2024 compared to the same period in 2023, primarily due to a $6.7 million decrease in sales and marketing personnel costs. This decrease was partially offset by a $0.8 million increase in marketing costs and a $0.7 million increase in travel expenses. Sales and marketing personnel costs decreased due to a decrease in sales and marketing headcount of 7.3% from March 31, 2023 to March 31, 2024 in addition to a $2.9 million decrease in severance costs. These personnel decreases were partially offset by a $0.5 million increase in commissions expense. Marketing costs increased primarily due to spending on our annual internal sales and marketing event and increased spending on public relations and lead generation.

Current wording

Sales and marketing expense decreased $0.9 million, or 0.7%, in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to a $5.8 million decrease in sales and marketing personnel costs. This decrease was partially offset by a $3.6 million increase in marketing costs, a $1.0 million increase in travel expenses, and a $0.2 million increase in contractor costs. Sales and marketing personnel costs decreased due to a decrease in sales and marketing headcount of 5% from June 30, 2023 to June 30, 2024 in addition to a $0.8 million decrease in severance costs, both of which were partially offset by a $0.7 million increase in commissions expense. Marketing costs increased primarily due to spending on our annual Appian World conference and internal sales and marketing events as well as increased spending on public relations and lead generation. Travel and entertainment expense increased due to a higher number of in-person events and engagements relative to the prior year.

Previous wording

Research and development expense decreased $1.9 million, or 4.5%, in the three months ended March 31, 2024 compared to the same period in 2023, primarily due to a $2.6 million decrease in research and development personnel costs and a $0.2 million decrease in professional fees. These decreases were partially offset by a $0.9 million increase in overhead costs. Although research and development personnel headcount increased 2.1% from March 31, 2023 to March 31, 2024, overall personnel costs decreased due to realized cost savings stemming from our product development center in India as well as a $0.6 million decrease in stock-based compensation expense. Professional fees decreased due to a decline in consulting fees stemming from a lower usage of external resources to assist in our platform development efforts in the three months ended March 31, 2024 relative to the three months ended March 31, 2023. Overhead costs increased primarily due to an increase in certain allocated costs tied to our growth, primarily related to cloud computing services, our new leased facility in India, and computer software costs.

Current wording

Research and development expense decreased $2.2 million, or 2.6%, in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to a $4.5 million decrease in research and development personnel costs and a $0.2 million decrease in professional fees. These decreases were partially offset by a $0.9 million increase in employee medical benefits and a $0.7 million increase in rent expense. Although research and development personnel headcount increased 6% from June 30, 2023 to June 30, 2024, overall personnel costs decreased due to lower bonus expense, a $1.0 million decrease in severance expense, a $0.6 million decrease in stock-based compensation expense, and additional realized cost savings from our product development center in India. Professional fees decreased due to a decline in consulting fees from lower usage of external resources to assist in our platform development efforts in the six months ended June 30, 2024 relative to the six months ended June 30, 2023.

Previous wording

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain non-GAAP financial performance measures. We use these non-GAAP financial performance measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Management believes these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenses that may not be indicative of our recurring core business operating results. We believe both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to historical performance as well as comparisons to competitors’ operating results. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to measures used by management in its financial and operational decision-making and (2) they are used by institutional investors and the analyst community to help them analyze the health of our business.

Current wording

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain non-GAAP financial performance measures. We use these non-GAAP financial performance measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Management believes these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenses that may not be indicative of our recurring core business operating results. We believe both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to historical performance as well as comparisons to competitors’ operating results. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to measures used by management in its financial and operational decision-making and (2) they are used by institutional investors and the analyst community to help them analyze the health of our business.

Previous wording

Our non-GAAP financial performance measures include the following: non-GAAP subscriptions cost of revenue, non-GAAP professional services costs of revenue, non-GAAP total cost of revenue, non-GAAP total operating expense, non-GAAP operating loss, non-GAAP income tax (benefit) expense, non-GAAP net loss, and non-GAAP net loss per share, basic and diluted. These non-GAAP financial performance measures exclude the effect of stock-based compensation expense, certain non-ordinary litigation-related expenses consisting of legal and other professional fees associated with the Pegasystems cases (net of insurance reimbursements), or Litigation Expense, amortization of the judgment preservation insurance policy, or JPI Amortization, and severance costs related to an involuntary reduction in our workforce in 2023, or Severance Costs. While some of these items may be recurring in nature and should not be disregarded in the evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends compared to other periods as these items can vary significantly from period to period depending on specific underlying transactions or events that may occur. Therefore, while we may incur or recognize these types of expenses in the future, we believe removing these items for purposes of calculating our non-GAAP financial measures provides investors with a more focused presentation of our ongoing operating performance.

Current wording

Our non-GAAP financial performance measures include the following: non-GAAP subscriptions cost of revenue, non-GAAP professional services costs of revenue, non-GAAP total cost of revenue, non-GAAP total operating expense, non-GAAP operating loss, non-GAAP income tax (benefit) expense, non-GAAP net loss, and non-GAAP net loss per share, basic and diluted. These non-GAAP financial performance measures exclude the effect of stock-based compensation expense, certain non-ordinary litigation-related expenses consisting of legal and other professional fees associated with the Pegasystems cases (net of insurance reimbursements), or Litigation Expense, amortization of the judgment preservation insurance policy, or JPI Amortization, and severance costs related to an involuntary reduction in our workforce, or Severance Costs, and lease impairment charges related to actions taken reduce the footprint of our leased office spaces, or Lease Impairment Charges. While some of these items may be recurring in nature and should not be disregarded in the evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends compared to other periods as these items can vary significantly from period to period depending on specific underlying transactions or events that may occur.

Previous wording

We also discuss adjusted EBITDA, a non-GAAP financial performance measure we believe offers a useful view of the overall operation of our business. We define adjusted EBITDA as net loss before (1) other expense (income), net, (2) interest expense, (3) income tax (benefit) expense, (4) depreciation expense and amortization of intangible assets, (5) stock-based compensation expense, (6) Litigation Expense, (7) JPI Amortization, and (8) Severance Costs. The most directly comparable GAAP financial measure to adjusted EBITDA is net loss. Users should consider the limitations of using adjusted EBITDA, including the fact this measure does not provide a complete measure of our operating performance. Adjusted EBITDA is not intended to purport to be an alternative to net loss as a measure of operating performance or to cash flows from operating activities as a measure of liquidity.

Current wording

We also discuss adjusted EBITDA, a non-GAAP financial performance measure we believe offers a useful view of the overall operation of our business. We define adjusted EBITDA as net loss before (1) other expense (income), net, (2) interest expense, (3) income tax (benefit) expense, (4) depreciation expense and amortization of intangible assets, (5) stock-based compensation expense, (6) Litigation Expense, (7) JPI Amortization, (8) Severance Costs, and (9) Lease Impairment Charges. The most directly comparable GAAP financial measure to adjusted EBITDA is net loss. Users should consider the limitations of using adjusted EBITDA, including the fact that this measure does not provide a complete measure of our operating performance. Adjusted EBITDA is not intended to purport to be an alternative to net loss as a measure of operating performance or to cash flows from operating activities as a measure of liquidity.

Previous wording

The following table reconciles GAAP net loss to adjusted EBITDA for the three months ended March 31, 2024 and 2023 (in thousands):

Current wording

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

Previous wording

We have historically financed our operations in large part with equity financing arrangements. Our last public offering was completed in June 2020, which was our fourth round of public offerings. Through these public offerings, we received net proceeds of $344.8 million.

Current wording

We have historically financed our operations in large part with equity financing arrangements. Our last public offering was completed in June 2020. Through these public offerings, we received net proceeds of $344.8 million.

Previous wording

The Credit Agreement matures on November 3, 2027. We will use the proceeds from the term loan to fund the continued growth of our business and support our working capital requirements. We were in compliance with all covenants as of March 31, 2024. As of March 31, 2024, we had used borrowing capacity of $62.0 million under our $100.0 million revolving credit facility, and we had outstanding letters of credit totaling $11.8 million in connection with securing our leased office space.

Current wording

The Credit Agreement matures on November 3, 2027. We have been using the proceeds to fund the growth of our business and support our working capital requirements. As of June 30, 2024, we were in compliance with all covenants, had used borrowing capacity of $62.0 million under our $100.0 million revolving credit facility, and had outstanding letters of credit totaling $14.5 million in connection with securing our leased office space.

Previous wording

In 2023, we entered into a Judgment Preservation Insurance (“JPI”) policy in connection with our $2.036 billion judgment against Pegasystems. See Note 12 to the condensed consolidated financial statements for additional details. The total cost of the policy was $57.3 million, which we paid with operating cash on hand. In addition, in February 2024 our Board of Directors authorized a share repurchase program, under which we repurchased approximately $50.0 million worth of our common stock during the three months ended March 31, 2024.

Current wording

In 2023, we entered into a Judgment Preservation Insurance policy in connection with our $2.036 billion judgment against Pegasystems. See Note 12 to the consolidated financial statements for additional details. The total cost of the policy was $57.3 million, which we paid with operating cash on hand. In addition, in February 2024 our Board of Directors authorized a share repurchase program, under which we repurchased approximately $50.0 million worth of our common stock during the first quarter of 2024.

Previous wording

Furthermore, we have a non-cancellable cloud hosting arrangement with Amazon Web Services that contains provisions for minimum purchase commitments. Specifically, purchase commitments under the agreement total $131.0 million over five years. The agreement, which started in July 2021 and is now in its third year as of March 31, 2024, contains minimum spending requirements of $28.0 million in each of the third, fourth, and fifth years. Spending under this agreement for the three months ended March 31, 2024 and 2023, totaled $10.3 million and $9.4 million, respectively. The timing of payments under the agreement may vary, and the total amount of payments may exceed the minimum depending on the volume of services utilized.

Current wording

Furthermore, we have a non-cancellable cloud hosting arrangement with Amazon Web Services that contains provisions for minimum purchase commitments. Specifically, purchase commitments under the agreement total $131.0 million over five years. The agreement, which started in July 2021 and is now in its third year as of June 30, 2024, contains minimum spending requirements of $28.0 million in each of the third, fourth, and fifth years. Spending under this agreement for the three and six months ended June 30, 2024, totaled $10.7 million and $21.0 million, respectively. Spending under this agreement for the three and six months ended June 30, 2023, totaled $9.1 million and $18.5 million, respectively. The timing of payments under the agreement may vary, and the total amount of payments may exceed the minimum depending on the volume of services utilized.

Previous wording

Net cash provided by operating activities was $18.9 million for the three months ended March 31, 2024 as compared to $25.3 million used in operating activities for the three months ended March 31, 2023. The increase in net cash provided by operating activities was due to stronger collections from accounts receivable and a decline in legal fees and other operating expenses across the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Current wording

Net cash provided by operating activities was $1.3 million for the six months ended June 30, 2024 as compared to $37.2 million used by operating activities for the six months ended June 30, 2023. The increase in net cash provided by operating activities was due to stronger collections from accounts receivable and a decline in legal fees and other operating expenses during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Previous wording

Net cash provided by investing activities was $7.5 million for the three months ended March 31, 2024 as compared to $12.3 million in net cash used in investing activities for the three months ended March 31, 2023. This change was primarily driven by a $24.2 million decrease in purchases of investments, partially offset by a decline of $6.6 million in proceeds from the sale of investments and a $2.2 million decrease in capital expenditures.

Current wording

Net cash used by investing activities was $21.6 million for the six months ended June 30, 2024 as compared to $25.4 million in net cash used by investing activities for the six months ended June 30, 2023. This change was primarily driven by a $25.1 million decrease in purchases of investments, partially offset by a decline of $26.2 million in proceeds from the sale of investments and a $4.9 million decrease in capital expenditures.

Previous wording

Net cash used in financing activities was $4.2 million for the three months ended March 31, 2024 as compared to $88.1 million of net cash provided by financing activities for the three months ended March 31, 2023. The decrease in net cash provided by financing activities was primarily due to a $50.0 million increase in common stock repurchases, a $42.0 million decrease in proceeds from borrowings, and a $0.5 million increase in debt repayments during the three months ended March 31, 2024.

Current wording

Net cash used by financing activities was $6.7 million for the six months ended June 30, 2024 as compared to $85.7 million of net cash provided by financing activities for the six months ended June 30, 2023. The decrease in net cash provided by financing activities was primarily due to a $50.0 million increase in common stock repurchases, a $42.0 million decrease in proceeds from borrowings, a $0.8 million increase in debt repayments, and a $0.6 million decrease in payments for employee taxes related to the net share settlement of equity awards during the six months ended June 30, 2024.

Previous wording

See Note 2 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

Current wording

See Note 2 to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.