APPIAN CORP

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 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.

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 U.S. federal government agencies represented 23.2% and 22.5% of our total revenue for the three and nine months ended September 30, 2024, respectively. Revenue from U.S. federal government agencies represented 21.1% and 20.6% of our total revenue for the three and nine months ended September 30, 2023, respectively. No single end-customer accounted for more than 10% of our total revenue in the three and nine months ended September 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 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.

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 nine months ended September 30, 2024, 36.3% and 37.2%, respectively, of our total revenue was generated from customers outside of the United States as compared to 35.3% and 35.6% in the three and nine months ended September 30, 2023, respectively. As of September 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

•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.

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 September 30, 2024 and 2023, 79.9% and 75.7% of our revenue, respectively, was derived from sales of subscriptions while the remaining 20.1% and 24.3%, respectively, was derived from the sale of professional services. For the nine months ended September 30, 2024 and 2023, 78.6% and 74.1% of our revenue, respectively, was subscriptions-based while the remaining 21.4% and 25.9%, respectively, was related to professional services.

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 such as rent, 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, contractors, and cloud computing services. In addition, operating expenses include allocated overhead costs, which are primarily comprised of facility costs such as rent, employee medical benefits, employee relations expense, and certain information technology costs.

Previous 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.

Current wording

Total revenue increased $17.0 million, or 12.4%, in the three months ended September 30, 2024 compared to the same period in 2023 due to an increase in our subscriptions revenue of $19.3 million. This increase was partially offset by a decrease in our professional services revenue of $2.4 million. The increase in subscriptions revenue was driven by a $16.8 million increase in cloud subscription revenue, a $1.3 million increase in maintenance and support revenue, and a $1.2 million increase in on-premises subscription revenue. With respect to new versus existing customers, there was a $5.6 million increase in subscriptions revenue from sales to new customers, while the remaining $13.7 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 $8.4 million decrease in revenue from existing customers, which was partially offset by a $6.1 million increase in sales to new customers.

Previous wording

Cost of revenue increased $4.5 million, or 6.1%, in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to a $3.8 million increase in hosting costs and a $1.7 million increase in professional services and product support personnel costs. These increases were partially offset by a $1.2 million decrease in contractor costs. Hosting costs increased due to an increase in sales of our cloud offering during the six months ended June 30, 2024. Although cost of sales headcount fell 3% year over year, personnel costs increased due to a $1.2 million increase in severance expense from June 30, 2023 to June 30, 2024, which was partially offset by slightly lower wages and salaries expense. Contractor costs decreased due to a decrease in the usage of subcontractors for professional services engagements.

Current wording

Cost of revenue increased $1.0 million, or 2.8%, in the three months ended September 30, 2024 compared to the same period in 2023, primarily due to a $2.5 million increase in hosting costs. This increase was partially offset by a $0.5 million decrease in contractor costs, a $0.3 million decrease in professional services and product support personnel costs, and a $0.1 million decrease in employee relations costs. Hosting costs increased due to an increase in sales of our cloud offering during the three months ended September 30, 2024. Contractor costs decreased due to a decrease in the usage of subcontractors for professional services engagements. Professional services and product support personnel costs decreased due to a decrease in cost of sales headcount of 9% from September 30, 2023 to September 30, 2024 as well as a $0.2 million decrease in stock compensation expense.

Previous 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.

Current wording

Subscriptions gross margin decreased slightly to 88.6% for the three months ended September 30, 2024, compared to 89.1% 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 September 30, 2024 as compared to the three months ended September 30, 2023. Professional services gross margin increased slightly to 25.6% for the three months ended September 30, 2024 compared to 25.5% in the same period in 2023 due largely to a decrease in professional services expense as described above, which was offset by a decrease in professional services revenue in the comparable period. Gross margin increased to 75.9% for the three months ended September 30, 2024 compared to 73.7% for the three months ended September 30, 2023, driven largely by the increase in subscriptions revenue.

Previous wording

Sales and marketing expense increased $4.0 million, or 6.4%, in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $2.8 million increase in marketing costs, a $0.8 million increase in sales and marketing personnel costs, and a $0.3 million increase in travel expenses. Marketing costs increased primarily due to higher spending on our annual Appian World user conference and increases in advertising, public relations, and lead generation expenses. Sales and marketing personnel costs increased primarily due to a $2.9 million increase in severance costs and a $0.2 million increase in commissions expense, both of which were partially offset by reductions in other personnel costs stemming from a decrease in sales and marketing headcount of 5% from June 30, 2023 to June 30, 2024.

Current wording

Sales and marketing expense decreased $4.8 million, or 8.6%, in the three months ended September 30, 2024 compared to the same period in 2023, primarily due to a $5.0 million decrease in sales and marketing personnel costs. This decrease was partially offset by a $0.7 million increase in marketing costs and a $0.4 million increase travel and entertainment costs. Sales and marketing personnel costs decreased due to a decrease in sales and marketing headcount of 21% from September 30, 2023 to September 30, 2024 and a $1.5 million decrease in stock compensation expense. Marketing costs increased primarily due to higher spending on various marketing events and public relations. 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 $0.3 million, or 0.7%, in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $1.9 million decrease in research and development personnel costs, which was substantially offset by a $0.7 million increase in employee medical benefits and a $0.4 million increase in rent expense. Although wages and salaries were higher due to research and development personnel headcount increasing 6% from June 30, 2023 to June 30, 2024, overall personnel costs decreased primarily due to lower bonus expense, a $0.8 million decrease in severance expense, and additional realized cost savings stemming from our product development center in India.

Current wording

Research and development expense increased $1.4 million, or 3.9%, in the three months ended September 30, 2024 compared to the same period in 2023, primarily due to a $0.9 million increase in research and development personnel costs, a $0.4 million increase in cloud computing expense, and a $0.3 million increase in employee medical benefits. Wages, salaries, and medical benefits were all higher due to research and development personnel headcount increasing 5% from September 30, 2023 to September 30, 2024, while cloud computing expense increased due to increased spending on cloud migrations.

Previous 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.

Current wording

$9.2 million in foreign exchange gains in the three months ended September 30, 2024 as compared to $4.3 million in foreign exchange losses in the three months ended September 30, 2023. In addition, there was a $1.8 million increase in other income related to short-swing profit disgorgement payments to us from a public stockholder of our Class A common stock during the three months ended September 30, 2024. These increases were partially offset by a $0.9 million decrease in interest income during the three months ended September 30, 2024 relative to the prior year.

Previous wording

Interest expense increased by $3.9 million in the six 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.

Current wording

Interest expense increased by $1.3 million in the three months ended September 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.

Previous wording

Total revenue increased $33.3 million, or 12.7%, in the six months ended June 30, 2024 compared to the same period in 2023 due to an increase in our subscriptions revenue of $37.9 million. This increase was partially offset by a decrease in our professional services revenue of $4.6 million. The increase in subscriptions revenue was driven by a $30.9 million increase in cloud subscription revenue, a $4.8 million increase in on-premises subscription revenue, and a $2.2 million increase in maintenance and support revenue. With respect to new versus existing customers, there was a $13.3 million increase in subscriptions revenue stemming from sales of subscriptions to new customers, while the remaining $24.6 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 $15.1 million decrease in revenue from existing customers, which was partially offset by a $10.5 million increase in sales to new customers.

Current wording

Total revenue increased $50.3 million, or 12.6%, in the nine months ended September 30, 2024 compared to the same period in 2023 due to an increase in our subscriptions revenue of $57.2 million. This increase was partially offset by a decrease in our professional services revenue of $6.9 million. The increase in subscriptions revenue was driven by a $47.7 million increase in cloud subscription revenue, a $6.1 million increase in on-premises subscription revenue, and a $3.4 million increase in maintenance and support revenue. With respect to new versus existing customers, there was a $15.0 million increase in subscriptions revenue from sales to new customers, while the remaining $42.2 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 $20.8 million decrease in revenue from existing customers, which was partially offset by a $13.8 million increase in sales to new customers.

Previous 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.

Current wording

Cost of revenue increased $5.5 million, or 5.0%, in the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to a $6.3 million increase in hosting costs and a $1.4 million increase in professional services and product support personnel costs. These increases were partially offset by a $1.7 million decrease in contractor costs and a $0.2 million decrease in travel expense. Hosting costs increased due to an increase in sales of our cloud offering during the nine months ended September 30, 2024. Although cost of sales headcount fell 9% year over year, personnel costs increased due to a $1.2 million increase in severance expense during the nine months ended September 30, 2024. Contractor costs decreased due to a decrease in the usage of subcontractors for professional services engagements.

Previous wording

Subscriptions gross margin decreased slightly to 88.9% for the six months ended June 30, 2024, compared to 89.0% in the same period in 2023. The decrease in subscriptions gross margin was attributable to increased hosting costs, which were substantially offset by an increase in subscriptions revenue during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. Professional services gross margin decreased to 20.9% for the six months ended June 30, 2024 compared to 26.3% 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, driven by an increase in severance expense. Gross margin increased to 73.9% for the six months ended June 30, 2024 compared to 72.3% for the six months ended June 30, 2023, driven largely by the increase in subscriptions revenue.

Current wording

Subscriptions gross margin decreased slightly to 88.8% for the nine months ended September 30, 2024, compared to 89.0% in the same period in 2023. The decrease in subscriptions gross margin was attributable to increased hosting costs, which were substantially offset by an increase in subscriptions revenue during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Professional services gross margin decreased to 22.4% for the nine months ended September 30, 2024 compared to 26.1% in the same period in 2023 due largely to a decrease in professional services revenue in the comparable periods, partially offset by a decrease in professional services expenses. Gross margin increased to 74.6% for the nine months ended September 30, 2024 compared to 72.8% for the nine months ended September 30, 2023, driven largely by the increase in subscriptions revenue.

Previous 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.

Current wording

Sales and marketing expense decreased $5.7 million, or 3.2%, in the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to a $10.9 million decrease in sales and marketing personnel costs. This decrease was partially offset by a $4.3 million increase in marketing costs and a $1.4 million increase in travel expenses. Sales and marketing personnel costs declined due to a decrease in sales and marketing headcount of 21% from September 30, 2023 to September 30, 2024 in addition due to a $2.2 million decrease in stock-based compensation expense and a $0.8 million decrease in severance costs. These decreases were partially offset by a $2.0 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, advertising, 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 $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.

Current wording

Research and development expense decreased $0.7 million, or 0.6%, in the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to a $3.6 million decrease in research and development personnel costs and a $0.2 million decrease in professional fees. These decreases were partially offset by a $1.2 million increase in employee medical benefits, a $1.1 million increase in cloud computing expense, and a $0.7 million increase in rent expense. Although research and development personnel headcount increased 5% from September 30, 2023 to September 30, 2024, overall personnel costs decreased partially 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 nine months ended September 30, 2024 relative to the nine months ended September 30, 2023.

Previous wording

Other expense, net was $6.7 million in the six months ended June 30, 2024 compared to other income, net of $6.6 million in the six months ended June 30, 2023. This change was primarily due to $11.7 million in foreign exchange losses in the six months ended June 30, 2024 as compared to $1.9 million in foreign exchange gains in the six months ended June 30, 2023. In addition, there was a $1.1 million decrease in interest income in the six months ended June 30, 2024 relative to the prior year. These decreases were partially offset by a $1.4 million increase in other income attributable to a payment from a state government related to the achievement of certain capital investment goals.

Current wording

Other income, net was $5.9 million in the nine months ended September 30, 2024 compared to other income, net of $4.6 million in the nine months ended September 30, 2023. This change was attributed to a $1.8 million increase in other income related to short-swing profit disgorgement payments to us from a public stockholder of our Class A common stock during the nine months ended September 30, 2024. In addition, in the first quarter of 2024, we received a $1.4 million payment from a state government related to the achievement of certain capital investment goals. These increases were partially offset by a $1.9 million decrease in interest income in the nine months ended September 30, 2024 relative to the prior year stemming from decreased investments.

Previous 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.

Current wording

Interest expense increased by $5.1 million in the nine months ended September 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

Income tax expense decreased by $2.6 million in the six months ended June 30, 2024 as compared to the corresponding period in 2023 primarily due to lower pre-tax book income at our foreign subsidiaries as well as a discrete benefit in the six months ended June 30, 2024 related to net operating loss true-ups at one of our foreign subsidiaries.

Current wording

Income tax expense decreased by $1.4 million in the nine months ended September 30, 2024 as compared to the corresponding period in 2023 primarily due to lower pre-tax book income at our foreign subsidiaries as well as a discrete benefit recognized in the nine months ended September 30, 2024. The discrete benefit was primarily related to net operating loss adjustments at one of our foreign subsidiaries.

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, 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.

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

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, (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.

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 expense, (4) depreciation expense and amortization of intangible assets, (5) stock-based compensation expense, (6) Litigation Expense, (7) JPI Amortization, (8) Severance Costs, and (9) Lease Impairment and Lease-Related Charges. The most directly comparable GAAP financial measure to adjusted EBITDA is net loss. 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 and six months ended June 30, 2024 and 2023 (in thousands):

Current wording

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

Previous 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.

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 September 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 $14.7 million in connection with securing our leased office space.

Previous 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.

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 1.3 million shares of our common stock for approximately 50.0 million 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 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.

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 fourth year as of September 30, 2024, contains minimum spending requirements of $28.0 million in both the fourth and fifth years. Spending under this agreement for the three and nine months ended September 30, 2024, totaled $10.8 million and $31.8 million, respectively. Spending under this agreement for the three and nine months ended September 30, 2023, totaled $9.3 million and $27.8 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 $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.

Current wording

Net cash used by operating activities was $7.0 million for the nine months ended September 30, 2024 as compared to $102.2 million used by operating activities for the nine months ended September 30, 2023. The decrease in net cash used by operating activities was primarily due to the prior year payment of $57.3 million for our JPI policy. In addition, the decrease in cash used by operating activities was attributed to stronger cash collections from accounts receivable as a result of increased revenues as well as headcount reductions and other cost management activities during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Previous 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.

Current wording

Net cash used by investing activities was $34.3 million for the nine months ended September 30, 2024 as compared to $0.9 million in net cash provided by investing activities for the nine months ended September 30, 2023. This change was primarily driven by a decline of $51.0 million in proceeds from the sale of investments, which was partially offset by a $10.8 million decrease in purchases of investments and a $5.0 million decrease in capital expenditures.

Previous 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.

Current wording

Net cash used by financing activities was $8.5 million for the nine months ended September 30, 2024 as compared to $82.4 million of net cash provided by financing activities for the nine months ended September 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, and a $1.1 million increase in debt repayments, all of which were partially offset by a $2.4 million decrease in payments for employee taxes related to the net share settlement of equity awards during the nine months ended September 30, 2024.