The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with (1) our condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q and (2) the audited consolidated financial statements and
the related notes and management's discussion and analysis of financial
condition and results of operations for the year ended December 31, 2019
included in our Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, or SEC, on February 20, 2020.

This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, or the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. These statements are often identified by the use
of words such as "anticipate," "believe," "continue," "could," "estimate,"
"expect," "intend," "may," "plan," "project," "will," "would," or the negative
or plural of these words or similar expressions or variations, including
statements regarding our future financial and operating performance, anticipated
expansion of the usage of partners to perform professional services, the
increase of our subscriptions revenue as a percentage of total revenue, the
fluctuation of gross margin in the short term and improvement of gross margin
over time, our future capital requirements, and uncertain negative impacts that
COVID-19 may have on our business, financial condition, results of operations,
and changes in overall level of spending and volatility in the global economy.
Such forward-looking statements are subject to a number of risks, uncertainties,
assumptions, and other factors that could cause actual results and the timing of
certain events to differ materially from future results expressed or implied by
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those identified herein and those
discussed in the section titled "Risk Factors," set forth in Part I, Item 1A of
our Annual Report on Form 10-K filed with the SEC on February 20, 2020 and in
our other filings with the SEC. You should not rely upon forward-looking
statements as predictions of future events. Furthermore, such forward-looking
statements speak only as of the date of this report. Except as required by law,
we undertake no obligation to update any forward-looking statements to reflect
events or circumstances after the date of such statements.

Overview



We provide a low-code automation platform that accelerates the creation of
high-impact business applications, enabling our customers to automate the most
important aspects of their business. Global organizations use our applications
to improve customer experience, achieve operational excellence, and simplify
global risk management and compliance.

With our platform, organizations can rapidly and easily design, build, and
implement powerful, enterprise-grade custom applications through our intuitive,
visual interface with little or no coding required. Our customers have used
applications built on our platform to launch new business lines, automate vital
employee workflows, manage complex trading platforms, accelerate drug
development, and build global procurement systems. With our platform, decision
makers can reimagine their products, services, processes, and customer
interactions by removing much of the complexity and many of the challenges
associated with traditional approaches to software development.

We have generated the majority of our revenue from sales of subscriptions, which
include (1) software as a service subscriptions bundled with maintenance and
support and hosting services and (2) term license subscriptions bundled with
maintenance and support. Our subscription fees are based primarily on the number
of users who access and utilize the applications built on our platform or,
alternatively, non-user based single application licenses. Our customer contract
terms generally vary from one to three years with most providing for payment in
advance on an annual, quarterly, or monthly basis. Due to the variability of our
billing terms and the episodic nature of our customers purchasing additional
subscriptions, we do not believe changes in our deferred revenue in a given
period are directly correlated with our revenue growth.

Since inception, we have invested in our professional services organization to
help ensure customers are able to build and deploy applications on our platform.
We have several strategic partnerships, including with KPMG, PwC, Accenture, and
Deloitte, for them to refer customers to us in order to purchase subscriptions
and then to provide professional services directly to the customers using our
platform. We intend to further grow our base of strategic partners to provide
broader customer coverage and solution delivery capabilities. In addition, over
time we expect professional services revenue as a percentage of total revenue to
decline as we increasingly rely on strategic partners to help our customers
deploy our software. We believe our
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investment in professional services, including strategic partners building their practices around Appian, will drive increased adoption of our platform.



Our customers include financial services, life sciences, government,
telecommunications, media, energy, manufacturing, and transportation
organizations. Generally, our sales force targets its efforts on organizations
with over 2,000 employees and $2 billion in annual revenue. Revenue from
government agencies represented 19.9% and 17.9% of our total revenue in the
three and nine months ended September 30, 2020, respectively, as compared to
19.5% and 18.0% of our total revenue in the three and nine months ended
September 30, 2019, respectively. No single end-customer accounted for more than
10% of our total revenue in the three and nine months ended September 30, 2020
or September 30, 2019.

Our platform supports multiple languages to facilitate collaboration and address
challenges in multi-national organizations. We offer our platform globally. In
the three and nine months ended September 30, 2020, 32.2% and 34.0%,
respectively, of our total revenue was generated from customers outside of the
United States as compared to 31.0% and 31.9% in the three and nine months ended
September 30, 2019, respectively. As of September 30, 2020, we operated in 12
countries. We believe we have a significant opportunity to grow our
international footprint. We are investing in new geographies, including through
investment in direct and indirect sales channels, professional services, and
customer support and implementation partners.

Basis of Reporting - ASC 606



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

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

Recent Developments

Public Offering



In June 2020, we completed an underwritten public offering of 2,500,000 shares
of our Class A common stock, of which 1,931,206 shares of Class A common stock
were sold by us and 568,794 shares of Class A common stock were sold by existing
stockholders. The underwriter purchased the shares from us and the selling
stockholders at a price of $56.50 per share. Our net proceeds from the offering
were $107.9 million, after deducting underwriting discounts and commissions and
offering expenses. We did not receive any of the proceeds from the sale of
shares by the selling stockholders.

COVID-19



Beginning in late 2019 and continuing into the third quarter of 2020, the
outbreak of the novel coronavirus disease, or COVID-19, has resulted in the
declaration of a global pandemic and adversely affected economic activity across
virtually all sectors and industries on a local, national, and global scale. The
impact of COVID-19 on the economy and our business continues to be a fluid
situation.

Operationally, we remain focused on supporting our customers, employees, and
communities during this time. We have responded quickly to adopt a virtual
corporate strategy consisting of enabling most of our employees to work
productively from home while continuing to guard the health and safety of our
teams, support our customers, and mitigate risk. We are focused on ensuring
continuity for our customers. To the extent possible, we are conducting business
as usual, with necessary or advisable modifications to employee travel, employee
work locations, and marketing events.

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Through September 30, 2020, we have not seen a meaningful adverse impact to our
financial position, results of operations, and cash flows and liquidity as a
result of COVID-19. While the verticals from which we have historically
generated the majority of our revenue have been less impacted by COVID-19 to
date, there may be impacts to our financial condition and results of operations
in the fourth quarter of 2020 and beyond as a result of reduced demand for our
products and services and longer sales cycles. The ultimate impact of COVID-19
on our business is not estimable at this time and will be largely dependent upon
a number of factors outside of our control including the extent and duration of
the outbreak as well as any mitigating actions which may be undertaken by global
governments and the general public.

Our Business Model



Our business model focuses on maximizing the lifetime value of customer
relationships, which is a function of the duration of a customer's deployment of
Appian as well as the price and number of subscriptions of Appian that a
customer purchases. We incur significant customer acquisition costs, including
expenses associated with hiring new sales representatives, who generally take
more than one year to become productive given the length of our sales cycle, and
marketing costs, all of which, with the exception of sales commissions, are
expensed as incurred.

Key Factors Affecting Our Performance

The following are several key factors that affect our performance:



•Market Adoption of Our Platform. Our ability to grow our customer base and
drive market adoption of our platform is affected by the pace at which
organizations digitally transform. We expect our revenue growth will be
primarily driven by the pace of adoption and penetration of our platform. We
offer a leading custom software automation platform and intend to continue to
invest to expand our customer base. The degree to which prospective customers
recognize the need for low-code software that enables organizations to digitally
transform, and subsequently allocate budget dollars to purchase our software,
will drive our ability to acquire new customers and increase sales to existing
customers, which, in turn, will affect our future financial performance.

•Growth of Our Customer Base. We believe we have a substantial opportunity to
grow our customer base. We define a customer as an entity with an active
subscription or maintenance and support contract related to a perpetual software
license as of the specified measurement date. To the extent we contract with one
or more entities under common control, we count those entities as separate
customers. We have aggressively invested, and intend to continue to invest, in
our sales force in order to drive sales to new customers. In particular, we have
recently made, and plan to continue to make, investments to enhance the
expertise of our sales and marketing organization within our key industry
verticals of financial services, life sciences, and government. 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 compete within
the increasingly competitive markets in which we participate.

•Further Penetration of Existing Customers. Our sales force seeks to generate
additional revenue from existing customers by adding new users to our platform.
Many of our customers begin by building a single application and then grow to
build dozens of applications on our platform. Generally, the development of new
applications on our platform results in the expansion of our user base within an
organization and a corresponding increase in revenue to us because we charge
subscription fees on a per-user basis for the significant majority of our
customer contracts. As a result of this "land and expand" strategy, we have
generated significant additional revenue from our customer base. Our ability to
increase sales to existing customers will depend on a number of factors,
including the size of our sales force and professional services teams,
customers' level of satisfaction with our platform and professional services,
pricing, economic conditions, and our customers' overall spending levels. We
have also refocused some of our professional services personnel to become
customer success managers. Their role is to ensure the customer realizes value
from our platform and support the "land and expand" strategy versus delivering
billable hours.

•Mix of Subscription and Professional Services Revenue. We believe our
professional services have driven customer success and facilitated the adoption
of our platform by customers. During the initial period of deployment by a
customer, we generally provide a greater amount of support in building
applications and training than later in the deployment, with a typical
engagement extending from two to six months. At the same time, many of our
customers have historically purchased subscriptions only for a limited set of
their total potential end users. As a result of these factors, the proportion of
                                       27
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total revenue for a customer associated with professional services is relatively
high during the initial deployment period. Over time, as the need for
professional services associated with user deployments decreases and the number
of end users increases, we expect subscriptions revenue as a percentage of total
revenue to increase. In addition, we intend to further grow our base of
strategic partners to provide broader customer coverage and solution delivery
capabilities. These partners perform professional services with respect to any
new service contracts they sign. As the usage of partners expands, we expect the
proportion of our total revenue from subscriptions to increase over time
relative to professional services. For the three and nine months ended September
30, 2020, 65.7% and 64.0% of our revenue, respectively, was derived from sales
of subscriptions while the remaining 34.3% and 36.0%, respectively, was derived
from the sale of professional services. For the three and nine months ended
September 30, 2019, 57.1% and 56.9% of our revenue, respectively, was derived
from sales of subscriptions while the remaining 42.9% and 43.1%, respectively,
was derived from the sale of professional services.

•Investments in Growth. We have made and plan to continue to make investments
for long-term growth, including investment in our platform and infrastructure to
continuously maximize the power and simplicity of the platform to meet the
evolving needs of our customers and to take advantage of our market opportunity.
In addition, we continue to pursue strategic acquisitions that enhance our
product offerings as evidenced by our recent acquisition of Novayre. We also
intend to continue to invest in sales and marketing as we further expand our
sales teams, increase our marketing activities, and grow our international
operations.

Key Metrics

We monitor the following metrics to help us measure and evaluate the effectiveness of our operations. All dollar amounts are presented in thousands.



Cloud Subscription Revenue

                                                     Three Months Ended 

September 30, Nine Months Ended September 30,


                                                         2020                2019               2020                2019
Cloud subscription revenue                           $   34,312          $  24,573          $   92,282          $  68,647



Cloud subscription revenue includes SaaS subscriptions bundled with maintenance
and support and hosting services. As we generally sell our SaaS subscriptions on
a per-user basis, our cloud subscription revenue for any customer is primarily
determined by the number of users who access and utilize the applications built
on our platform as well as the price paid. We believe increasing cloud
subscription revenue is an indicator of the demand for our platform, the pace at
which the market for our solutions is growing, the productivity of our sales
force and strategic relationships in growing our customer base, and our ability
to further penetrate our existing customer base.

Cloud Subscription Revenue Retention Rate


                                                      As of September 30,
                                                        2020

2019


Cloud subscription revenue retention rate                     115  %     

121 %





A key factor to our success is the renewal and expansion of subscription
agreements with our existing customers. We calculate this metric over a set of
customers who have been with us for at least one full year. To calculate our
cloud subscription revenue retention rate for a particular trailing 12-month
period, we first establish the recurring cloud subscription revenue for the
previous trailing 12-month period. This effectively represents recurring dollars
we should expect in the current trailing 12-month period from the cohort of
customers from the previous trailing 12-month period without any expansion or
contraction. We subsequently measure the recurring cloud subscription revenue in
the current trailing 12-month period from the cohort of customers from the
previous trailing 12-month period. Cloud subscription revenue retention rate is
then calculated by dividing the aggregate recurring cloud subscription revenue
in the current trailing 12-month period by the previous trailing 12-month
period. This calculation includes the impact on our revenue from customer
non-renewals, pricing changes, and growth in the number of users on our
platform. Our cloud subscription revenue retention rate can fluctuate from
period to period due to large
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customer contracts in any given period. The cloud subscription revenue retention rate as of September 30, 2019 was elevated as we continued to focus on converting customers with on-premise term license subscriptions to cloud subscriptions.

Key Components of Results of Operations

Revenue



We generate revenue primarily through sales of subscriptions to our platform as
well as professional services. We generally sell our software on
a per-user basis and, to a lesser degree, non-user based single application
licenses. We generally bill customers and collect payment for subscriptions to
our platform in advance on an annual, quarterly, or monthly basis. In certain
instances, we have had customers pay their entire contract value up front.

Our revenue is comprised of the following:

Subscriptions

Subscriptions revenue is primarily derived from:

•SaaS subscriptions bundled with maintenance and support and hosting services; and

•On-premise 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. When our
platform is deployed within a customer's own data center or private cloud, it is
installed on the customer's infrastructure and generally offered as a term
license. When our platform is delivered as a SaaS subscription, we handle its
operational needs in third-party hosted data centers.

Professional Services



Our professional services revenue is comprised of fees for consulting services,
including application development and deployment assistance and training related
to our platform. Over time, as the need for professional services associated
with user deployments decreases and the number of end users increases, we expect
professional services revenue as a percentage of total revenue to decrease.
Additionally, if there is a decline in our procurement of new customers as a
result of the COVID-19 pandemic, we may also see a similar decline in
professional services revenue.

We have several strategic partnerships, including with KPMG, PwC, Accenture, and
Deloitte. Our agreements with our strategic partners have indefinite terms and
may be terminated for convenience by either party. We intend to further grow our
base of strategic partners to provide broader customer coverage and solution
delivery capabilities. These partners refer software subscription customers to
us and generally perform professional services with respect to any new service
contracts they originate, increasing our subscriptions revenue without any
change to our professional services revenue. As we expand the network of
strategic partners, we expect professional services revenue to decline as a
percentage of total revenue over time since our strategic partners may perform
professional services associated with software subscriptions that we sell.

Cost of Revenue

Subscriptions



Cost of subscriptions revenue consists primarily of fees paid to our third-party
managed hosting providers and other third-party service providers, personnel
costs, including payroll and benefits for our technology operations and customer
support teams, and allocated facility costs and overhead. We expect cost of
revenue to continue to increase in absolute dollars for the foreseeable future
as our customer base grows.

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Professional Services



Cost of professional services revenue includes all direct and indirect costs to
deliver our professional services and training, including employee compensation
for our global professional services and training personnel, travel costs,
third-party contractor costs, and allocated facility costs and overhead as well
as the costs of billable expenses such as travel and lodging. The
unpredictability of the timing of entering into significant professional
services agreements sold on a standalone basis may cause significant
fluctuations in our quarterly financial results.

Gross Margin



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

Subscriptions Gross Margin



Subscriptions gross margin is primarily affected by the growth in our
subscriptions revenue as compared to the growth in, and timing of, costs to
support such revenue. We expect to continue to invest in customer support and
SaaS operations to support growth in the business, and the timing of those
investments is expected to cause gross margins to fluctuate in the short term
but improve over time.

Professional Services Gross Margin



Professional services gross margin is affected by the growth in our professional
services revenue as compared to the growth in, and timing of, the cost of our
professional services organization as we continue to invest in the growth of our
business. Professional services gross margin is impacted by the amount of
services performed by subcontractors as opposed to internal resources. Our
professional services gross margin is also impacted by the amount of services
performed by partners as opposed to internal resources.
Operating Expenses

Operating expenses consist of sales and marketing, research and development, and
general and administrative expenses. Salaries, bonuses, and other
personnel-related costs are the most significant components of each of these
expense categories. In general, our operating expenses are expected to continue
to increase as we invest resources in growing our various teams.

Sales and Marketing Expense

Sales and marketing expense primarily includes personnel costs, including salaries, bonuses, commissions, stock-based compensation, and other personnel costs related to sales teams. Additional expenses in this category include travel and entertainment, marketing and promotional events, marketing activities, subcontracting fees, and allocated facility costs and overhead.



In order to continue to grow our business, geographical footprint, and brand
awareness, we expect sales and marketing expense to increase in absolute dollars
as we continue to invest to acquire new customers and further expand usage of
our platform within our existing customer base.

Research and Development Expense



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

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Our research and development efforts are focused on enhancing the speed and
power of our software platform. We expect research and development expenses to
continue to increase as they are critical to maintain and improve the quality of
applications and our competitive position.

General and Administrative Expense



General and administrative expense consists primarily of personnel costs,
including salaries, bonuses, stock-based compensation, and other personnel costs
for our administrative, legal, information technology, human resources, finance
and accounting employees, and executives. Additional expenses included in this
category are non-personnel costs such as travel-related expenses, contracting
and professional fees, audit fees, tax services and legal fees, insurance and
other corporate expenses, allocated facility costs and overhead, and
depreciation and amortization costs.

We expect our general and administrative expense to increase in absolute dollars as we continue to support our growth.

Other (Income) Expense

Other (Income) Expense, Net



Other (income) expense, net consists primarily of unrealized and realized gains
and losses related to changes in foreign currency exchange rates, interest
income on our cash and cash equivalents, and gains or losses on the disposal of
property and equipment.

Interest Expense

Interest expense consists primarily of interest on our finance leases and debt, unused credit facility fees, and commitment fees on our letters of credit.


                                       31
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Results of Operations

The following table sets forth our consolidated statement of operations data (in thousands):



                                             Three Months Ended September 30,       Nine Months Ended September 30,
                                                 2020                2019               2020                2019
Revenue
Subscriptions                                $   50,760          $     37,774       $  142,614          $    109,191
Professional services                            26,544                28,381           80,329                82,543
Total revenue                                    77,304             66,155             222,943            191,734
Cost of revenue
Subscriptions(1)                                  5,101                 4,484           15,185                12,105
Professional services(1)                         16,450                19,467           51,641                58,963
Total cost of revenue                            21,551             23,951              66,826             71,068
Gross profit                                     55,753             42,204             156,117            120,666
Operating expenses
Sales and marketing(1)                           31,633                27,603           94,891                86,186
Research and development(1)                      18,150                15,697           51,366                42,418
General and administrative(1)                    13,485                11,191           38,076                29,468
Total operating expenses                         63,268             54,491             184,333            158,072
Operating loss                                   (7,515)           (12,287)            (28,216)           (37,406)
Other (income) expense
Other (income) expense, net                      (4,277)                2,262           (1,845)                1,881
Interest expense                                    119                    96              390                   236
Total other (income) expense                     (4,158)             2,358              (1,455)             2,117
Loss before income taxes                         (3,357)           (14,645)            (26,761)           (39,523)
Income tax expense                                  255                     5              335                   394
Net loss                                     $   (3,612)         $ (14,650)         $  (27,096)         $ (39,917)


(1) Stock-based compensation as a component of these line items is as follows:

                                            Three Months Ended September 30,        Nine Months Ended September 30,
                                                 2020                2019               2020                2019
Cost of revenue
Subscriptions                               $       236          $     147          $      678          $     462
Professional services                               406                243                 935              2,461
Operating expenses
Sales and marketing                                 427                776               1,837              3,971
Research and development                            669                433               1,841              2,983
General and administrative                        1,840              1,542               5,377              3,178

Total stock-based compensation expense $ 3,578 $ 3,141

        $   10,668          $  13,055



                                       32

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The following table sets forth our consolidated statement of operations data expressed as a percentage of total revenue:



                                                 Three Months Ended September 30,                 Nine Months Ended September 30,
                                                   2020                    2019                     2020                    2019
Revenue
Subscriptions                                          65.7  %                 57.1  %                  64.0  %                 56.9  %
Professional services                                  34.3                    42.9                     36.0                    43.1
Total revenue                                         100.0                   100.0                    100.0                   100.0
Cost of revenue
Subscriptions                                           6.6                     6.8                      6.8                     6.3
Professional services                                  21.3                    29.4                     23.2                    30.8
Total cost of revenue                                  27.9                    36.2                     30.0                    37.1
Gross profit                                           72.1                    63.8                     70.0                    62.9
Operating expenses
Sales and marketing                                    40.9                    41.7                     42.6                    45.0
Research and development                               23.5                    23.7                     23.0                    22.1
General and administrative                             17.4                    16.9                     17.1                    15.4
Total operating expenses                               81.8                    82.4                     82.7                    82.4
Operating loss                                         (9.7)                  (18.6)                   (12.7)                  (19.5)
Other (income) expense
Other (income) expense, net                            (5.5)                    3.4                     (0.8)                    1.0
Interest expense                                        0.2                     0.1                      0.2                     0.1
Total other (income) expense                           (5.4)                    3.6                     (0.7)                    1.1
Loss before income taxes                               (4.3)                  (22.1)                   (12.0)                  (20.6)
Income tax expense                                      0.3                       -                      0.2                     0.2
Net loss                                               (4.7) %                (22.1) %                 (12.2) %                (20.8) %

Comparison of the Three Months Ended September 30, 2020 and 2019



Revenue

                                     Three Months Ended September 30,
                                            2020                      2019        % Change
                                          (dollars in thousands)
     Revenue
     Subscriptions           $         50,760                      $ 37,774         34.4  %
     Professional services             26,544                        28,381         (6.5) %
     Total revenue           $         77,304                      $ 66,155         16.9  %



Total revenue increased $11.1 million, or 16.9%, in the three months ended
September 30, 2020 compared to the same period in 2019 due to an increase in our
subscriptions revenue of $13.0 million, partially offset by a decrease in our
professional services revenue of $1.8 million. The increase in subscriptions
revenue was driven largely by a $9.7 million increase in cloud subscription
revenue and a $2.6 million increase in on-premise software revenue. With respect
to new versus existing customers, there was a $9.2 million increase stemming
from expanded deployments and corresponding sales of additional subscriptions to
existing customers while the remaining increase of $3.8 million was the result
of sales of subscriptions to new customers. The decrease in professional
services revenue was due primarily to a $7.5 million decrease in revenue from
existing customers which was substantially offset by a $5.7 million increase in
sales to new customers. Further contributing to the
                                       33
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decrease in professional services revenue was our increased usage of partners to
perform professional services in the three months ended September 30, 2020 as
compared to the same period in 2019, which has resulted in increases to our
subscriptions revenue without any change to our professional services revenue.

Cost of Revenue

                                                         Three Months Ended September 30,
                                                             2020                   2019                % Change
                                                              (dollars in thousands)
Cost of revenue
Subscriptions                                         $         5,101           $   4,484                     13.8  %
Professional services                                          16,450              19,467                    (15.5) %
Total cost of revenue                                 $        21,551           $  23,951                    (10.0) %
Subscriptions gross margin                                       90.0   %            88.1  %
Professional services gross margin                               38.0   %            31.4  %
Total gross margin                                               72.1   %            63.8  %



Cost of revenue decreased $2.4 million, or 10.0%, in the three months ended
September 30, 2020 compared to the same period in 2019, primarily due to a
$3.4 million decrease in contractor costs coupled with a $1.2 million decrease
in billable expenses and a $0.2 million decrease in facility and overhead costs.
These decreases were partially offset by a $1.7 million increase in professional
services and product support personnel costs and a $0.6 million increase in
other cost of revenue. Contractor costs decreased in the three months ended
September 30, 2020 compared to the same period in 2019 because of a decrease in
the usage of subcontractors for professional services engagements. Billable
expenses decreased primarily due to lower travel and entertainment related
expenses as a result of our shift to largely remote work while the decrease in
facility and overhead costs was due largely to a reduction in rent expense.
Personnel costs increased due to an increase in professional services and
product support staff headcount of 15.4% from September 30, 2019 to
September 30, 2020. The increase in other cost of revenue was due to increased
hosting costs as sales of our cloud offering increased in the three months ended
September 30, 2020.

Subscriptions gross margin increased to 90.0% for the three months ended
September 30, 2020 compared to 88.1% in the same period in 2019 due to an
increase in subscriptions revenue during the three months ended September 30,
2020 as compared to the three months ended September 30, 2019, partially offset
by increased hosting costs as sales of our cloud offering increased and became a
larger proportion of our overall subscriptions revenue. Professional services
gross margin increased to 38.0% for the three months ended September 30, 2020
compared to 31.4% in the same period in 2019 due to a decrease in the usage of
subcontractors for professional services engagements, a decrease in travel and
entertainment related expenses, and a decrease in rent expenses. Due to the
higher percentage of subscriptions revenue for the comparable periods and the
aforementioned declines in professional services expenses, gross margin rose to
72.1% in the three months ended September 30, 2020 as compared to 63.8% in the
same period in 2019.

Sales and Marketing Expense

                                     Three Months Ended September 30,
                                            2020                         2019        % Change
                                          (dollars in thousands)
   Sales and marketing     $                                31,633    $   27,603       14.6  %
   % of revenue                                            40.9  %      41.7   %



Sales and marketing expense increased $4.0 million, or 14.6%, in the three
months ended September 30, 2020 compared to the same period in 2019, primarily
due to a $4.4 million increase in sales and marketing personnel costs, a $1.0
million increase in marketing costs, and a $0.8 million increase in professional
fees, which were partially offset by a $2.1 million decrease in
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facility and overhead costs. Personnel costs increased due to an increase in
sales and marketing personnel headcount of 12.1% from September 30, 2019 to
September 30, 2020 and increased sales commissions driven by our subscriptions
revenue growth, partially offset by a $0.3 million decrease in stock-based
compensation expense. Marketing costs increased largely due to increased
advertising and business development costs during the three months ended
September 30, 2020 as compared to the three months ended September 30, 2019.
Professional fees increased due to an increase in consulting fees and contract
labor to support our growth. Facility and overhead costs decreased due to lower
travel and entertainment related expenses as a result of our shift to largely
remote work in 2020.

Research and Development Expense



                                      Three Months Ended September 30,
                                             2020                         2019        % Change
                                           (dollars in thousands)
 Research and development   $                                18,150    $   15,697       15.6  %
 % of revenue                                               23.5  %      23.7   %



Research and development expense increased $2.5 million, or 15.6%, in the three
months ended September 30, 2020 compared to the same period in 2019, primarily
due to a $3.1 million increase in research and development personnel costs,
partially offset by a $0.4 million decrease in facility and overhead costs and a
$0.1 million decrease in professional fees. Personnel costs increased due to an
increase in research and development personnel headcount by 13.5% from
September 30, 2019 to September 30, 2020. Facility and overhead costs decreased
due to non-recurring charges which were incurred in 2019 to support our
personnel growth coupled with lower travel and entertainment related expenses as
a result of our shift to largely remote work in 2020. Professional fees
decreased due to a decrease in consulting fees.

General and Administrative Expense



                                                            Three Months Ended September 30,
                                                               2020                    2019                 % Change
                                                                 (dollars in thousands)
General and administrative expense                      $            13,485       $       11,191                  20.5  %
% of revenue                                                        17.4  %             16.9   %



General and administrative expense increased $2.3 million, or 20.5%, in the
three months ended September 30, 2020 compared to the same period in 2019 due to
a $1.3 million increase in general and administrative personnel costs, a $0.6
million increase in facility and overhead costs, and a $0.4 million increase in
professional fees. Personnel costs increased due to an increase in general and
administrative personnel headcount by 30.7% from September 30, 2019 to
September 30, 2020. Facility and overhead costs increased primarily due to an
increase in bad debt expense during the three months ended September 30, 2020,
partially offset by lower travel and entertainment related expenses as a result
of our shift to largely remote work in 2020. Professional fees increased due to
increased legal fees.

Other (Income) Expense, Net

                                                       Three Months Ended September 30,
                                                           2020                   2019                % Change
                                                            (dollars in thousands)
Other (income) expense, net                         $           (4,277)       $       2,262             ***
% of revenue                                                    (5.5) %              3.4  %

*** - Indicates a percentage that is not meaningful


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Other (income) expense, net increased by $6.5 million in the three months ended
September 30, 2020 compared to the same period in 2019, primarily due to $3.3
million in foreign exchange gains in the three months ended September 30, 2020
compared to $2.4 million in foreign exchange losses in the three months ended
September 30, 2019. The increase in foreign exchange gains was primarily due to
currency fluctuations of the Australian dollar, British Pound Sterling, Euro,
Swedish krona, Singapore dollar, and Swiss franc versus the U.S. dollar during
the three months ended September 30, 2020 compared to the same period in 2019.
Additionally, we recognized $1.0 million in other income during the three months
ended September 30, 2020 due to a payment received from a state government as a
result of our achievement of certain job creation and capital investment goals.

Interest Expense

                                   Three Months Ended September 30,
                                 2020                                  2019       % Change
                                        (dollars in thousands)
    Interest expense     $           119                              $ 96          24.0%
    % of revenue                     0.2    %                          0.1  %


Interest expense increased by a nominal amount in the three months ended September 30, 2020 compared to the same period in 2019, primarily due to commitment fees on the letter of credit outstanding.

Comparison of the Nine Months Ended September 30, 2020 and 2019



Revenue

                                     Nine Months Ended September 30,
                                           2020                     2019         % Change
                                          (dollars in thousands)
      Revenue
      Subscriptions           $        142,614                   $ 109,191         30.6  %
      Professional services             80,329                      82,543         (2.7) %
      Total revenue           $        222,943                   $ 191,734         16.3  %



Total revenue increased $31.2 million, or 16.3%, in the nine months ended
September 30, 2020 compared to the same period in 2019 due to an increase in our
subscriptions revenue of $33.4 million which was partially offset by a decrease
in our professional services revenue of $2.2 million. Of the increase in
subscriptions revenue, $23.6 million, was attributable to cloud subscription
revenue while $8.1 million, was attributable to on-premise software revenue.
With respect to new versus existing customers, $24.4 million of the increase in
revenue stemmed from expanded deployments and corresponding sales of additional
subscriptions to existing customers while the remaining increase of $9.0 million
was the result of sales of subscriptions to new customers, $2.8 million of which
related to a three year on-premise contract which closed in the first quarter of
2020. The decrease in professional services revenue was due primarily to a $15.6
million decrease in revenue from existing customers which was substantially
offset by $13.4 million in sales to new customers. Further contributing to the
decrease in professional services revenue was our increased usage of partners to
perform professional services in the nine months ended September 30, 2020 as
compared to the same period in 2019, which has resulted in increases to our
subscriptions revenue without any change to our professional services revenue.

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Cost of Revenue

                                                         Nine Months Ended September 30,
                                                             2020                   2019                % Change
                                                              (dollars in thousands)
Cost of revenue
Subscriptions                                         $        15,185           $     12,105                  25.4  %
Professional services                                          51,641                 58,963                 (12.4) %
Total cost of revenue                                 $        66,826           $  71,068                     (6.0) %
Subscriptions gross margin                                       89.4   %            88.9  %
Professional services gross margin                               35.7   %            28.6  %
Total gross margin                                               70.0   %            62.9  %



Cost of revenue decreased $4.2 million, or 6.0%, in the nine months ended
September 30, 2020 compared to the same period in 2019, primarily due to an
$8.2 million decrease in contractor costs, a $2.6 million decrease in billable
expenses, and a $0.3 million decrease in facility and overhead costs. These
decreases were partially offset by a $4.6 million increase in professional
services and product support personnel costs and a $2.2 million increase in
other cost of revenue. Contractor costs decreased in the nine months ended
September 30, 2020 compared to the same period in 2019 because of a decrease in
the usage of subcontractors for professional service engagements. Billable
expenses decreased primarily due to lower travel and entertainment related
expenses as a result of our shift to largely remote work while the decrease in
facility and overhead costs was due largely to a reduction in rent expense.
Personnel costs increased due to an increase in professional services and
product support staff personnel headcount of 15.4% from September 30, 2019 to
September 30, 2020. The increase in other cost of revenue was due to increased
hosting costs as sales of our cloud offering increased in the nine months ended
September 30, 2020.

Subscriptions gross margin was 89.4% for the nine months ended September 30,
2020 compared to 88.9% in the same period in 2019 due to an increase in
subscriptions revenue during the nine months ended September 30, 2020, partially
offset by increased hosting costs as sales of our cloud offering increased and
became a larger proportion of our overall subscriptions revenue. Professional
services gross margin was 35.7% for the nine months ended September 30, 2020
compared to 28.6% in the same period in 2019 due to a decrease in the usage of
subcontractors for professional services engagements, a decrease in travel and
entertainment related expenses, a decrease in rent expenses, and a $1.3 million
decrease in stock-based compensation expense due to the vesting of restricted
stock units granted to three of our co-founders during the nine months ended
September 30, 2019. Due to the higher percentage of subscriptions revenue for
the comparable periods as well as the aforementioned declines in professional
services expenses, gross margin was 70.0% in the nine months ended September 30,
2020 as compared to 62.9% in the same period in 2019.

Sales and Marketing Expense

                                     Nine Months Ended September 30,
                                            2020                        2019        % Change
                                          (dollars in thousands)
   Sales and marketing     $                               94,891    $   86,186       10.1  %
   % of revenue                                           42.6  %      45.0   %



Sales and marketing expense increased $8.7 million, or 10.1%, in the nine months
ended September 30, 2020 compared to the same period in 2019, primarily due to a
$12.4 million increase in sales and marketing personnel costs and a $1.8 million
increase in professional fees, which were partially offset by a $4.5 million
decrease in facility and overhead costs and a $0.9 million decrease in marketing
costs. Personnel costs increased due to an increase in sales and marketing
personnel headcount by 12.1% from September 30, 2019 to September 30, 2020 and
increased sales commissions driven by our subscriptions revenue growth,
partially offset by a $2.1 million decrease in stock-based compensation expense.
Professional fees increased due to an
                                       37
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increase in consulting fees and contract labor to support our growth. Facility
and overhead costs decreased due to lower travel and entertainment related
expenses as a result of our shift to largely remote work in 2020. Marketing
costs decreased due to reduced costs incurred as a result of moving our annual
user conference Appian World to virtual-only as well as a reduction in the
number of in-person marketing events.

Research and Development Expense



                                       Nine Months Ended September 30,
                                              2020                        2019        % Change
                                            (dollars in thousands)
  Research and development   $                               51,366    $   42,418       21.1  %
  % of revenue                                              23.0  %      22.1   %



Research and development expense increased $8.9 million, or 21.1%, in the nine
months ended September 30, 2020 compared to the same period in 2019, primarily
due to a $9.6 million increase in research and development personnel costs,
partially offset by a $0.4 million decrease in facility and overhead cost and a
$0.2 million decrease in professional fees. Personnel costs increased due to an
increase in research and development personnel headcount by 13.5% from
September 30, 2019 to September 30, 2020, partially offset by a $1.1 million
decrease in stock-based compensation expense. Facilities and overhead costs
decreased due to non-recurring charges which were incurred in 2019 to support
our personnel growth coupled with lower travel and entertainment related
expenses as a result of our shift to largely remote work in 2020. Professional
fees decreased due to a decrease in consulting fees.

General and Administrative Expense



                                                            Nine Months Ended September 30,
                                                               2020                    2019                 % Change
                                                                 (dollars in thousands)
General and administrative expense                      $            38,076       $       29,468                  29.2  %
% of revenue                                                        17.1  %             15.4   %



General and administrative expense increased $8.6 million, or 29.2%, in the nine
months ended September 30, 2020 compared to the same period in 2019 due to a
$5.6 million increase in general and administrative personnel costs, a $1.8
million increase in professional fees, and a $1.2 million increase in facility
and overhead costs. Personnel costs increased due to an increase in general and
administrative personnel headcount by 30.7% from September 30, 2019 to
September 30, 2020 coupled with a $2.2 million increase in stock-based
compensation expense during the nine months ended September 30, 2020 which was
primarily attributable to a stock option to purchase 700,000 shares of our Class
A common stock granted to our Chief Executive Officer in May 2019. Professional
fees increased due to increased legal fees. Facility and overhead costs
increased to support our personnel growth as well as a result of an increase in
bad debt expense.

Other (Income) Expense, Net



                                        Nine Months Ended September 30,
                                               2020

2019 % Change


                                            (dollars in thousands)
Other (income) expense, net   $                              (1,845)    $   1,881        ***
% of revenue                                                 (0.8) %       1.0  %

*** - Indicates a percentage that is not meaningful


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Other (income) expense, net increased by $3.7 million in the nine months ended
September 30, 2020 compared to the same period in 2019, primarily due to $0.4
million in foreign exchange gains compared to $2.5 million in foreign exchange
losses in the nine months ended September 30, 2019. The increase in foreign
exchange gains was primarily due to currency fluctuations of the Euro, Swedish
krona, and Swiss franc versus the U.S. dollar during the nine months ended
September 30, 2020 compared to the same period in 2019. Additionally, we
recognized $1.0 million of other income in the nine months ended September 30,
2020 due to a payment received from a state government as a result of our
achievement of certain job creation and capital investment goals.

Interest Expense

                                   Nine Months Ended September 30,
                                 2020                                 2019       % Change
                                        (dollars in thousands)
     Interest expense     $          390                            $ 236          65.3%
     % of revenue                    0.2    %                         0.1  %


Interest expense increased by $0.2 million, or 65.3%, in the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to commitment fees on the letter of credit outstanding.

Liquidity and Capital Resources

As of September 30, 2020, we had $251.1 million of cash and cash equivalents.



In June 2020, we completed an underwritten public offering of 2,500,000 shares
of our Class A common stock, of which 1,931,206 shares of Class A common stock
were sold by us and 568,794 shares of Class A common stock were sold by existing
stockholders. The underwriter purchased the shares from us and the selling
stockholders at a price of $56.50 per share. Our net proceeds from the offering
were $107.9 million, after deducting underwriting discounts and commissions and
offering expenses. We did not receive any of the proceeds from the sale of
shares by the selling stockholders.

We believe our existing cash and cash equivalents, 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 12 months. Our future capital requirements
will depend on many factors, including our growth rate, the timing and extent of
spending to support research and development efforts, the expansion of sales and
marketing activities, particularly internationally, the introduction of new and
enhanced products and functions as well as platform enhancements and
professional services offerings, the level of market acceptance of our
applications, spending we may incur on our new headquarters, and the global
economic uncertainty and financial market conditions caused by the COVID-19
pandemic and its impact on our business. In the event additional financing is
required from outside sources, we may be unable to raise the funds on acceptable
terms, if at all. To the extent existing cash and cash equivalents and
investments and cash from operations are not sufficient to fund future
activities, we may need to raise additional funds. We recently have raised and
may continue to seek to raise additional funds through equity, equity-linked, or
debt financings. If we raise additional funds through the incurrence of
indebtedness, such indebtedness may have rights that are senior to holders of
our equity securities and could contain covenants that restrict operations. Any
additional equity financing may be dilutive to our existing stockholders. We
recently have, and in the future may continue to, invest or acquire stakes in
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.

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The following table shows a summary of our cash flows for the nine months ended September 30, 2020 and 2019 (in thousands):



                                                  Nine Months Ended 

September 30,


                                                        2020                      2019
  Cash used in operating activities       $         (13,453)                   $ (2,880)
  Cash used in investing activities                  (7,174)                    (31,430)
  Cash provided by financing activities             110,337                     105,394



Sources of Funds

We have financed our operations in large part with equity and debt financing
arrangements, including net proceeds of $77.8 million from our initial public
offering in May 2017, net proceeds of $57.8 million from our underwritten public
offering in August 2018, net proceeds of $101.3 million from our underwritten
public offering in September 2019, and net proceeds of $107.9 million from our
underwritten public offering in June 2020. In addition, we have financed our
operations through sales of subscriptions and professional services and
borrowings under our credit facilities. We also financed $3.7 million of office
furniture and fixtures and $0.8 million of equipment, both associated with the
build out of our new headquarters.

In November 2017, we entered into a $20.0 million revolving line of credit with
a lender. The facility matures in November 2022. We may elect whether amounts
drawn on the revolving line of credit bear interest at a floating rate per annum
equal to either the LIBOR or the prime rate plus an additional interest rate
margin that is determined by the availability of borrowings under the revolving
line of credit. The additional interest rate margin will range from 2.00% to
2.50% in the case of LIBOR advances and from 1.00% to 1.50% in the case of prime
rate advances. The revolving line of credit contains an unused facility fee in
an amount between 0.15% and 0.25% of the average unused portion of the revolving
line of credit, which is payable quarterly. The agreement contains certain
customary affirmative and negative covenants and requires us to maintain (1) an
adjusted quick ratio of at least 1.35 and (ii) minimum adjusted EBITDA in the
amounts and for the periods set forth in the agreement. Any amounts borrowed
under the credit facility are collateralized by substantially all of our assets.
We were in compliance with all covenants as of September 30, 2020. As of
September 30, 2020, we had not made any borrowings under this revolving line of
credit, and we had outstanding letters of credit totaling $11.2 million in
connection with securing our leased office space.

Use of Funds



Our principal uses of cash are funding operations and other working capital
requirements. More recently, we have utilized cash to pay for the acquisition of
an entity we believe is complementary to our business. Over the past several
years, revenue has increased significantly from year to year and, as a result,
cash flows from customer collections have increased. However, operating expenses
have also increased as we have invested in growing our business. Our uses of
cash in 2020 to date have included the acquisition of Novayre and modest capital
expenditures while cash uses in 2019 included the build out of our new
headquarters, which included spend approximately $21.0 million above the $18.4
million tenant improvement allowance provided by the landlord for the build out,
of which $4.5 million related to office furniture and fixtures and computer
hardware that has been financed. For the nine months ended September 30, 2020,
the majority of the $7.2 million of cash used in investing activities was
related to the acquisition of Novayre.

Historical Cash Flows

Operating Activities



For the nine months ended September 30, 2020, net cash used in operating
activities of $13.5 million consisted of a net loss of $27.1 million and $2.1
million of cash used from changes in working capital, offset by $15.8 million in
adjustments for non-cash items. Adjustments for non-cash items consisted
primarily of stock-based compensation of $10.7 million, depreciation and
amortization expense of $4.5 million, and bad debt expense of $0.8 million. The
decrease in cash and cash equivalents resulting from changes in working capital
primarily consisted of a $22.6 million increase in accounts receivable stemming
from increased sales as well as the timing of billings and collections, a $10.5
million increase in deferred revenue as a result of
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increased subscription sales, a $5.8 million increase in accrued compensation
and related benefits as a result of higher employee benefit accruals such as
vacation and bonuses, a $4.3 million increase in deferred commissions due to
increased sales activity, a $3.4 million increase in operating lease liabilities
as a result of recognizing a new right-of-use liability related to the expanded
occupancy of our headquarters building, and a $3.0 million increase in other
liabilities due to the deferral of social security tax payments pursuant to the
provisions of the CARES Act. These decreases to working capital were partially
offset by a $4.5 million decrease in prepaid expenses and other assets and a
$2.5 million decrease in accounts payable and accrued expenses, both of which
were primarily due to the timing of payments.

For the nine months ended September 30, 2019, net cash used in operating
activities of $2.9 million consisted of a net loss of $39.9 million, offset by
$16.4 million in adjustments for non-cash items and $20.7 million of cash
provided by changes in working capital. Adjustments for non-cash items consisted
of stock-based compensation of $13.1 million, depreciation and amortization
expense of $3.3 million, a loss on disposal of equipment of $0.1 million, and
bad debt expense of $0.1 million, offset by a provision for deferred income
taxes of $0.2 million. The increase in cash and cash equivalents resulting from
changes in working capital primarily consisted of a $23.3 million decrease in
prepaid expenses and other assets, primarily due to the receipt of the non-trade
receivable resulting from our tenant improvement allowance. In accordance with
accounting principles generally accepted in the United States of America, or
U.S. GAAP, the $17.0 million of tenant improvement allowance reimbursements
received during the nine months ended September 30, 2019 were a source of cash
in operating activities, whereas the capital expenditures were recorded as cash
used in investing activities. There was also a $1.9 million decrease in accounts
receivable due to increased cash collections and a $5.7 million increase in
deferred rent, non-current, as a result of taking initial possession of the
second phase of our new headquarters in February 2019 and recording an
additional lease incentive obligation. There was also a $2.3 million increase in
deferred revenue as a result of increased subscription sales. These increases
were partially offset by a $3.9 million decrease in accounts payable and accrued
expenses, primarily due to the timing of payments, a $6.2 million increase in
deferred commissions due to increased sales, and a $2.2 million decrease in
accrued compensation and related benefits primarily due to a decrease in accrued
vacation expense because of our new paid-time off policy, which took effect on
January 1, 2019. There was also a $0.3 million decrease in other current
liabilities.

Investing Activities



For the nine months ended September 30, 2020, net cash used in investing
activities was $7.2 million which was primarily the result of $6.1 million in
payments, net of cash acquired, related to the acquisition of Novayre. In
addition, there were approximately $1.0 million in purchases of property and
equipment.

For the nine months ended September 30, 2019, net cash used in investing activities was $31.4 million and related primarily to the build-out of our new headquarters and the purchase of property and equipment.

Financing Activities



For the nine months ended September 30, 2020, net cash provided by financing
activities was $110.3 million, consisting of $108.2 million in proceeds from our
underwritten public offering in June 2020, net of underwriting discounts and
commissions and the payment of offering expenses, and $3.2 million in proceeds
received from stock option exercises, partially offset by $1.1 million in
principal payments on finance leases.

For the nine months ended September 30, 2019, net cash provided by financing
activities was $105.4 million, consisting of $101.7 million in proceeds from our
underwritten public offering in September 2019, net of underwriting discounts
and commissions and the payment of offering expenses, and $4.1 million in
proceeds received from stock option exercises. These increases were offset by
principal payments on capital lease obligations of $0.3 million.

Contractual Obligations and Commitments



As of September 30, 2020, there was no material change in our contractual
obligations and commitments from those disclosed in our Annual Report on Form
10-K for the year ended December 31, 2019, filed with the SEC on February 20,
2020.

Off-Balance Sheet Arrangements


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As of September 30, 2020, we did not have any relationships with unconsolidated
entities or financial partnerships, including entities sometimes referred to as
structured finance or special purpose entities, that were established for the
purpose of facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes. We do not engage in off-balance sheet financing
arrangements. In addition, we do not engage in trading activities involving
non-exchange traded contracts. We therefore believe we are not materially
exposed to any financing, liquidity, market, or credit risks that could arise if
we had engaged in these relationships.

Critical Accounting Policies and Estimates



The preparation of our condensed consolidated financial statements in conformity
with U.S. GAAP requires us to make estimates and judgments that affect the
amounts reported in our financial statements and accompanying notes. Although we
believe the estimates we use are reasonable, due to the inherent uncertainty
involved in making those estimates, actual results reported in future periods
could differ from those estimates. Significant estimates and judgments embedded
in the consolidated financial statements for the periods presented include
revenue recognition, stock-based compensation, the valuation of goodwill and
intangible assets, leases, costs to obtain a contract with a customer, and
income taxes.

While we continue to monitor the developments surrounding the COVID-19 pandemic,
we are not aware of any specific events or circumstances that would require us
to update our estimates, assumptions, and judgments.

There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 20, 2020.

Recent Accounting Pronouncements

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

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