APPIAN CORP

Previous wording

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 Accenture, Capgemini, Deloitte, EY, KPMG, PwC, and TCS, which allow them to refer customers to us in order to purchase subscriptions. Our partners then provide professional services directly to the customers using our platform. We intend to continue focusing on adding new customers with our strategic partners. In addition, over time we expect our 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.

Current wording

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 Accenture, Capgemini, Deloitte, EY, KPMG, PwC, and TCS, which allow them to refer customers to us in order to purchase subscriptions. Our partners then provide professional services directly to the customers using our platform. Additionally, they often go to market with their own pre-built solutions using our platform, delivering software license revenue to us. We intend to continue focusing on adding new customers with our strategic partners. In addition, over time we expect our 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.

Previous wording

As of December 31, 2023, we had approximately 1,000 customers. 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 21.3%, 19.2%, and 19.6% of our total revenue in 2023, 2022, and 2021, respectively. No single end-customer accounted for more than 10% of our total revenue in 2023, 2022, and 2021.

Current wording

As of December 31, 2024, we had over 1,000 customers. 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 $2.0 billion in annual revenue. Revenue from government agencies represented 32.2%, 29.1%, and 26.1% of our total revenue in 2024, 2023, and 2022, respectively. No single end-customer accounted for more than 10% of our total revenue in 2024, 2023, and 2022.

Previous wording

We offer our platform globally. Our platform supports multiple languages to facilitate collaboration and address challenges in multinational organizations. In 2023, 2022, and 2021, 35.8%, 33.5%, and 34.0%, respectively, of our total revenue was generated from customers outside of the United States. As of December 31, 2023, 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 2024, 2023, and 2022, 36.6%, 35.8%, and 33.5%, respectively, of our total revenue was generated from customers outside of the United States. As of December 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.

Previous wording

We have experienced strong revenue growth, with revenue of $545.4 million, $468.0 million, and $369.3 million in 2023, 2022, and 2021, respectively. Our subscriptions revenue was $412.3 million, $340.2 million, and $263.7 million in 2023, 2022, and 2021, respectively, and includes sales of our cloud subscriptions, on-premises term license subscriptions, and maintenance and support. Our cloud subscriptions revenue was $304.5 million, $236.9 million, and $179.4 million in 2023, 2022, and 2021, respectively.

Current wording

We have experienced strong revenue growth, with revenue of $617.0 million, $545.4 million, and $468.0 million in 2024, 2023, and 2022, respectively. Our subscriptions revenue was $490.6 million, $412.3 million, and $340.2 million in 2024, 2023, and 2022, respectively, and includes sales of our cloud subscriptions, on-premises term license subscriptions, and maintenance and support. Our cloud subscriptions revenue was $368.0 million, $304.5 million, and $236.9 million in 2024, 2023, and 2022, respectively.

Previous wording

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 $111.4 million, $150.9 million, and $88.6 million in 2023, 2022, and 2021, respectively. We also used cash in operations of $110.4 million, $106.6 million, and $53.9 million in 2023, 2022, and 2021, respectively.

Current wording

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. As a result, we incurred net losses of $92.3 million, $111.4 million, and $150.9 million in 2024, 2023, and 2022, respectively. In 2024, cash provided by operations was $6.9 million, while cash used by operations totaled $110.4 million and $106.6 million in 2023 and 2022, respectively.

Previous wording

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 our platform as well as the price and number of subscriptions of our platform a customer purchases. We incur significant customer acquisition costs, including expenses associated with hiring new sales representatives, who can take anywhere from six months to a year to become productive given the length of our sales cycle, and marketing costs which, with the exception of certain types of sales commissions, are expensed as incurred.

Current wording

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 our platform as well as the price and number of subscriptions of our platform a customer purchases. We incur significant customer acquisition costs, including expenses associated with hiring new sales representatives, who can take anywhere from six months to a year to become productive given the length of our sales cycle, sales commissions, and marketing costs, all of which, with the exception of certain types of sales commissions, are expensed as incurred.

Previous wording

•Growth of Our Customer Base - We believe we have a substantial opportunity to grow our customer base. We have aggressively invested, and intend to continue to invest, in our sales team 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, life sciences, insurance, and manufacturing. In 2023, we generated over 76% of our subscriptions revenue from customers in these verticals. In addition, we have established relationships with strategic partners who work with organizations undergoing digital transformations. As of December 31, 2023 our total customer count was approximately 1,000. 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.

Current wording

•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 or a legacy perpetual license as of the specified measurement date. Furthermore, we define a new customer as an entity that has entered into its first active subscription or maintenance and support contract within one calendar year of the specified measurement date. We have aggressively invested, and intend to continue to invest, in our sales team 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, life sciences, and insurance. In 2024, we generated over 77% of our subscriptions revenue from customers in these verticals. In addition, we have established relationships with strategic partners who work with organizations undergoing digital transformations. 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.

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.

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 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 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. In 2023, 2022, and 2021, 75.6%, 72.7%, and 71.4% of our revenue, respectively, was derived from sales of subscriptions, while the remaining 24.4%, 27.3%, and 28.6%, 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. In 2024, 2023, and 2022, 79.5%, 75.6%, and 72.7% of our revenue, respectively, was derived from sales of subscriptions, while the remaining 20.5%, 24.4%, and 27.3%, respectively, was derived from the sale of professional services.

Previous wording

•Investments in Growth - We have made, and plan to continue to make, investments for long-term growth, including investing in our platform and infrastructure to continuously maximize their power and speed, meet the evolving needs of our customers, and take advantage of our market opportunity. In addition, we may 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.

Current wording

•Investments in Growth - We have made, and plan to continue to make, investments for long-term growth, including investing in our platform and infrastructure to continuously maximize their power and speed, meet the evolving needs of our customers, and take advantage of our market opportunity. We will continue to prioritize investments in revenue generating areas and limit growth in corporate functions. In addition, we will continue to grow and leverage our product development center in India to gain efficiencies in research and development spending. We may 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.

Previous wording

Cloud subscriptions revenue includes cloud subscriptions bundled with maintenance and support and hosting services. In 2023, 2022, and 2021, 73.8%, 69.7%, and 68.0%, respectively, of subscriptions revenue was cloud subscriptions revenue. Our cloud subscriptions revenue for any customer is primarily determined by the number of users who access and utilize the applications built on our platform or by the number of application licenses purchased, as well as the price paid. We believe increasing cloud subscriptions 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 team and strategic relationships in growing our customer base, and our ability to further penetrate our existing customer base.

Current wording

Cloud subscriptions revenue includes cloud subscriptions bundled with maintenance and support and hosting services. In 2024, 2023, and 2022, 75.0%, 73.8%, and 69.7%, respectively, of subscriptions revenue was cloud subscriptions revenue. Our cloud subscriptions revenue for any customer is primarily determined by the number of users who access and utilize the applications built on our platform or by the number of application licenses purchased, as well as the price paid. We believe increasing cloud subscriptions 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 team and strategic relationships in growing our customer base, and our ability to further penetrate our existing customer base.

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

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 or through 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.

Current wording

We generate revenue primarily through sales of subscriptions to our platform as well as professional services. We typically sell our software on a per-user basis or through 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.

Previous wording

Subscriptions revenue is primarily derived from cloud 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 cloud subscription, we manage operational needs in third-party hosted data centers.

Current wording

Subscriptions revenue is primarily derived from cloud 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 updates, patches released during the term of the maintenance and support agreement on a when-and-if-available basis, and 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 cloud subscription, we manage operational needs in third-party hosted data centers.

Previous wording

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, amortization of developed technology, and allocated overhead costs. We expect cost of revenue to continue to increase in absolute dollars for the foreseeable future as our customer base grows.

Current wording

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, amortization of acquired technology, and allocated overhead costs. We expect cost of revenue to continue to increase in absolute dollars for the foreseeable future as our customer base grows.

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 preceding factors.

Previous wording

Professional services gross margin is affected by the growth in our professional services revenue as compared to the growth in, and timing of, the costs of our Customer Success organization as we continue to invest in the growth of our business, as well as by consultant utilization rates. Professional services gross margin is also impacted by the amount of services performed by subcontractors and partners as opposed to internal resources. In

Current wording

Professional services gross margin is affected by the growth in our professional services revenue as compared to the growth in, and timing of, the costs of our Customer Success organization as well as by consultant utilization rates. Professional services gross margin is also impacted by the amount of services performed by subcontractors and partners as opposed to internal resources. In 2025, we expect professional services gross margin to be consistent with 2024; however, the margin remains subject to fluctuation based on the factors discussed above.

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, severance costs, 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

In general, our operating expenses are expected to continue to increase in absolute dollars as we invest resources in growing our various teams. During 2023, our total employee headcount remained relatively consistent, decreasing from 2,307 employees at December 31, 2022 to 2,257 employees at December 31, 2023. In 2024, we expect to hire new employees in key growth areas, although at a more measured rate than prior years.

Current wording

In general, our operating expenses are expected to continue to increase in absolute dollars as we invest resources in enhancing our product and growing our business, although such growth is expected to be at a more measured rate than prior years. In 2024, our total employee headcount decreased from 2,257 employees at December 31, 2023 to 2,033 employees at December 31, 2024. In 2025, we expect overall headcounts to rise slightly as we hire new employees in key growth areas while maintaining headcounts at or near current levels in non-customer facing teams.

Previous wording

The number of employees in sales and marketing functions decreased from 730 at December 31, 2022 to 666 at December 31, 2023. While headcount declined in 2023, we expect to grow sales and marketing headcount during 2024 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

The number of employees in sales and marketing functions decreased from 666 at December 31, 2023 to 509 at December 31, 2024. While headcount declined in 2024 due to changes in our go-to-market functions, we expect sales and marketing headcount to marginally increase from current levels in 2025 due to expected growth in our principal markets and strategic growth areas. Furthermore, we expect sales and marketing expense to increase in absolute dollars as we continue to invest in acquiring new customers, further expand usage of our platform within our existing customer base, and broaden 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

Our research and development efforts are focused on enhancing the capabilities, speed, and power of our software platform. The number of employees in research and development functions grew from 652 at December 31, 2022 to 681 at December 31, 2023. Most of this increase was attributable to expansion at our product development center in India that we opened in August 2022. Although we expect research and development expense to continue to increase in absolute dollars as such costs are critical to maintain and improve the quality of applications and our competitive position, we believe our product development center will result in cost savings over time.

Current wording

Our research and development efforts are focused on enhancing the capabilities, speed, and power of our software platform. The number of employees in research and development functions increased from 681 at December 31, 2023 to 702 at December 31, 2024. Most of this increase was attributable to continued expansion at our product development center in India that we opened in August 2022. Although we expect research and development expense to continue to increase in absolute dollars as such costs are critical to maintain and improve the quality of applications and our competitive position, we believe our product development center will result in cost efficiencies over time.

Previous wording

The number of employees in general and administrative functions decreased from 316 at December 31, 2022 to 280 at December 31, 2023. In 2024, we expect general and administrative expense to increase in absolute dollars largely due to amortization expense associated with the judgment preservation insurance as discussed in Note 13 to the consolidated financial statements and investments in our information technology team.

Current wording

The number of employees in general and administrative functions decreased from 280 at December 31, 2023 to 267 at December 31, 2024. In 2025, we expect general and administrative expense to increase in absolute dollars largely due to investments in our information technology team.

Previous wording

Other (income) expense, net, consists primarily of gains and losses related to changes in foreign currency exchange rates, interest income on our cash and cash equivalents and investments, and other sources of income or expense not related to our core business operations.

Current wording

Other expense (income), net, consists primarily of gains and losses related to changes in foreign currency exchange rates, interest income on our cash and cash equivalents and investments, and other sources of income or expense not related to our core business operations.

Previous wording

Total revenue increased $77.4 million, or 16.5%, in 2023 compared to 2022 due to an increase in our subscriptions revenue of $72.2 million and an increase in our professional services revenue of $5.2 million. The increase in subscriptions revenue was driven by a $67.6 million increase in cloud subscriptions revenue, a $2.5 million increase in on-premises software revenue, and a $2.1 million increase in maintenance and support revenue. With respect to new versus existing customers, $53.8 million of the increase in subscriptions revenue was derived from expanded deployments and corresponding sales of additional subscriptions to existing customers while $18.4 million was driven from sales of subscriptions to new customers. The increase in professional services revenue was due to a $12.5 million increase in sales to new customers, which was partially offset by a $7.3 million decrease in revenue from existing customers.

Current wording

Total revenue increased $71.7 million, or 13.1%, in 2024 compared to 2023 due to an increase in our subscriptions revenue of $78.2 million, which was partially offset by a decrease in our professional services revenue of $6.6 million. The increase in subscriptions revenue was driven by a $63.5 million increase in cloud subscriptions revenue, a $9.9 million increase in on-premises software revenue, and a $4.8 million increase in maintenance and support revenue. With respect to new versus existing customers, $63.3 million of the increase in subscriptions revenue was derived from expanded deployments and corresponding sales of additional subscriptions to existing customers while $14.9 million was driven from sales of subscriptions to new customers. The decrease in professional services revenue was due to an $18.7 million decrease in revenue from existing customers, which was partially offset by a $12.1 million increase in sales to new customers.

Previous wording

Cost of revenue increased $10.0 million, or 7.5%, in 2023 compared to 2022, primarily due to a $5.9 million increase in hosting costs, a $2.8 million increase in professional services and product support personnel costs, and a $1.7 million increase in overhead costs. These increases were partially offset by a $0.8 million decrease in contractor costs. Hosting costs increased due to an increase in sales of our cloud offering during 2023. Personnel costs increased due to an increase in professional services and product support personnel headcount of 3.4% from December 31, 2022 to December 31, 2023 in addition to increased wages, coupled with a $0.7 million increase in stock-based compensation. The increase in overhead costs was driven by higher costs associated with employee medical benefits and information technology expenses. Contractor costs decreased in 2023 compared to 2022 due to a decrease in the usage of subcontractors for professional service engagements.

Current wording

Cost of revenue increased $6.9 million, or 4.8%, in 2024 compared to 2023, primarily due to an $8.5 million increase in hosting costs and a $0.2 million increase in professional services and product support personnel costs, both of which were partially offset by a $1.5 million decrease in contractor costs. Hosting costs increased due to an increase in sales of our cloud offering during 2024. Although professional services and product support personnel headcount decreased 11.9% from December 31, 2023 to December 31, 2024, personnel costs increased due to a $1.2 million increase in severance costs and slightly higher salaries and benefits, which were substantially offset by a $0.7 million decrease in bonus expense and a $0.5 million decrease in stock compensation expense. Contractor costs decreased in 2024 compared to 2023 due to a decrease in the usage of subcontractors for professional service engagements.

Previous wording

Subscriptions gross margin was 89.4% in 2023, consistent with the prior year as increases in subscriptions revenue were offset by a corresponding increase in hosting costs. Professional services gross margin increased to 25.0% in 2023 as compared to 23.9% in 2022 due to higher professional services revenue, which was partially offset by higher personnel costs in 2023. Total gross margin increased to 73.7% in 2023 as compared to 71.5% in 2022 driven largely by the increases in revenue and the improved professional services gross margin as compared to the prior year.

Current wording

Subscriptions gross margin was 89.1% in 2024, consistent with an 89.4% margin in the prior year as increases in subscriptions revenue were offset by a corresponding increase in hosting costs. Professional services gross margin decreased to 23.5% in 2024 as compared to 25.0% in 2023 due to a decline in professional services revenue and a marginal increase in personnel costs, both of which were partially offset by lower contractor costs. Total gross margin increased to 75.7% in 2024 as compared to 73.7% in 2023 driven largely by the increase in subscriptions revenue.

Previous wording

Sales and marketing expense increased $22.0 million, or 10.0%, in 2023 compared to 2022, primarily due to a $25.1 million increase in sales and marketing personnel costs and a $1.0 million increase in overhead costs. These increases were partially offset by a $3.6 million decrease in marketing costs. Although there was a 8.8% decrease in sales and marketing personnel headcount from December 31, 2022 to December 31, 2023, personnel costs overall increased due to increased wages, a $7.4 million increase in sales commissions driven by both contracts with new customers and renewals with existing customers, a $4.7 million increase in severance expense, and a $1.7 million increase in stock-based compensation expense. Overhead costs increased primarily due to a $0.8 million increase in employee relations costs stemming from higher expenditures related to internal sales and marketing events. Marketing costs decreased due to declines in advertising and lead generation expenses as well as a decrease in spending on marketing materials.

Current wording

Sales and marketing expense decreased $11.5 million, or 4.7%, in 2024 compared to 2023, primarily due to a $15.3 million decrease in sales and marketing personnel costs and a $1.5 million decrease in information technology costs. These decreases were partially offset by a $3.6 million increase in marketing costs and a $1.7 million increase in travel and entertainment expenses. Personnel costs decreased due to a 23.6% decrease in sales and marketing personnel headcount from December 31, 2023 to December 31, 2024 and a $2.6 million decrease in stock compensation expense, both of which were partially offset by a $3.5 million increase in sales commissions driven by both contracts with new customers and renewals with existing customers. Information technology costs decreased primarily due to lower cloud computing expenses. Marketing costs increased due to a $3.2 million increase in spending on marketing events, in addition to increases in digital marketing and public relations expense. Travel and entertainment expenses rose due to increases in airfare and lodging associated with a higher number of in-person events and engagements relative to the prior year.

Previous wording

Other income, net was $17.6 million in 2023 compared to other expense, net of $3.5 million in 2022. There were $8.7 million in foreign exchange gains in 2023 compared to $6.1 million in foreign exchange losses in 2022. Additionally, there was a $7.7 million increase in interest income stemming from increased investments. These increases were partially offset by a $1.2 million decrease in other income attributable to a payment received in 2022 from a local government as a result of achieving certain economic development criteria.

Current wording

Other expense, net was $6.8 million in 2024 compared to other income, net of $17.6 million in 2023. There were $16.8 million in foreign exchange losses in 2024 compared to $8.7 million in foreign exchange gains in 2023. Additionally, there was a $2.1 million decrease in interest income across the comparative periods. These decreases were partially offset by a $3.2 million increase in other income attributable to payments received in 2024, including a payment from a local government as a result of achieving certain economic development criteria and payments related to a short-swing profit disgorgement paid to us by a public shareholder of our Class A common stock.

Previous wording

Interest expense increased $16.2 million in 2023 compared to the same period in 2022, primarily due to interest expense on the new term loan facility we entered into during the fourth quarter of 2022.

Current wording

Interest expense increased $5.7 million in 2024 as compared to the corresponding period in 2023, primarily due to interest expense attributable to higher outstanding balances on our credit facility related to amendments we entered into during the fourth quarter of 2023 and first quarter of 2024.

Previous wording

Backlog represents non-cancellable future amounts to be recognized under cloud and on-premises term license subscription agreements and is representative of our remaining performance obligations. As of December 31, 2023 and 2022, we had backlog of $489.7 million and $376.5 million, respectively. Approximately 37% of our backlog as of December 31, 2023 is not expected to be recognized in 2024. Additionally, we expect backlog to continue to increase in absolute dollars as we continue to increase the number of cloud agreements we enter into. However, the amount of backlog relative to the total value of our contracts can change from quarter to quarter and year to year for several reasons, including the specific timing and duration of cloud and on-premises 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 cloud subscription agreements. Backlog may vary based on changes in the average non-cancellable term of our cloud and on-premises term license subscription agreements.

Current wording

Backlog represents non-cancellable future amounts to be recognized under cloud and on-premises term license subscription agreements and is representative of our remaining performance obligations. As of December 31, 2024 and 2023, we had backlog of $546.0 million and $489.7 million, respectively. Approximately 34% of our backlog as of December 31, 2024 is not expected to be recognized in 2025. Additionally, we expect backlog to continue to increase in absolute dollars as we continue to increase the number of cloud agreements we enter into. However, the amount of backlog relative to the total value of our contracts can change from quarter to quarter and year to year for several reasons, including the specific timing and duration of cloud and on-premises term license subscription agreements with large customers, the specific timing of customer renewals, changes in customer financial circumstances, and foreign currency fluctuations. Additionally, we often sign multiple-year subscription agreements, and backlog may vary based on changes in the average non-cancellable term of our cloud and on-premises term license subscription agreements.

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 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 cost 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 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, severance costs related to involuntary reductions 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 a shareholder, 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 non-operating (income) expenses, 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, 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 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 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

Defined as current assets net of current liabilities, excluding the current portion of restricted cash

Current wording

Defined as current assets net of current liabilities.

Previous wording

As of December 31, 2023, we had $149.4 million of cash and cash equivalents and $9.7 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 line of credit, will be sufficient to support working capital and capital expenditure requirements for at least the next twelve months.

Current wording

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 line of credit, will be sufficient to support working capital and capital expenditure requirements for at least the next twelve months.

Previous wording

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.

Current wording

We have in the past, and may in the future, 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.

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

To further help strengthen our financial position and support our growth initiatives, in November 2022 we entered into a Senior Secured Credit Facilities Credit Agreement, or the Credit Agreement, which provides for a five-year term loan facility in an aggregate principal amount of $150.0 million and, in addition, up to $75.0 million for a revolving credit facility, including a letter of credit sub-facility in the aggregate availability amount of $15.0 million and a swingline sub-facility in the aggregate availability amount of $10.0 million (as a sublimit of the revolving loan facility).

Current wording

To further help strengthen our financial position and support our growth initiatives, in November 2022 we entered into a Senior Secured Credit Facilities Credit Agreement, or the Credit Agreement, which, as amended to date, provides for a five-year term loan facility in an aggregate principal amount of $200.0 million and, in addition, up to $100.0 million for a revolving credit facility, including a letter of credit sub-facility in the aggregate availability amount of $20.0 million and a swingline sub-facility in the aggregate availability amount of $10.0 million (as a sublimit of the revolving loan facility).

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 December 31, 2023. As of December 31, 2023, we had used borrowing capacity of $62.0 million under our $75.0 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 December 31, 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 $14.6 million in connection with securing our leased office space.

Previous wording

We expect future sources of funds to consist primarily of cash generated from sales of subscriptions and the related professional services. We may also elect to raise additional sources of funding through draws on our revolving credit facility, entering into new debt financing arrangements, or conducting additional public offerings. 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, and the level of market acceptance of our product.

Current wording

We expect future sources of funds to consist primarily of cash generated from sales of subscriptions and the related professional services. We may also elect to raise additional sources of funding through draws on our revolving credit facility, entering into new debt financing arrangements or conducting additional public offerings. 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, the introduction of new and enhanced product solutions and functions as well as platform enhancements and professional services offerings, and the level of market acceptance of our product.