Appian (APPN) Risk Analysis

Companies in the software and technology industries, including some of our current and potential competitors, own significant numbers of patents, copyrights, trademarks, and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. In addition, many of these companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. The litigation may involve patent holding companies or other adverse patent owners that have no relevant product revenue and against which our patents may therefore provide little or no deterrence. In the past, we have been subject to allegations of patent infringement that were unsuccessful, and we may in the future be subject to claims we have misappropriated, misused, or infringed other parties' intellectual property rights, and, to the extent we gain greater market visibility or face increasing competition, we face a higher risk of being the subject of intellectual property infringement claims, which is not uncommon with respect to enterprise software companies. We also generally grant our customers ownership of any custom applications we develop for them, subject to our continued ownership of our pre-existing intellectual property rights and, in the past, a customer for whom we have developed custom applications has incorrectly alleged applications we have independently developed infringed the customer's intellectual property rights. In addition, we have in the past, and may in the future, be subject to claims that our employees, contractors, or we ourselves have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of our competitors or other parties. To the extent intellectual property claims are made against our customers based on their usage of our technology, we have certain obligations to indemnify and defend such customers from those claims. The term of our contractual indemnity provisions often survives termination or expiration of the applicable agreement. Large indemnity payments, defense costs, or damage claims from contractual breach could harm our business, results of operations, and financial condition. There may be third-party intellectual property rights, including issued or pending patents that cover significant aspects of our technologies or business methods. Any intellectual property claims, with or without merit, could be very time-consuming, expensive to settle or litigate, divert our management's attention and other resources, and result in adverse publicity. These claims could also subject us to making substantial payments for legal fees, settlement payments, and other costs or damages, potentially including treble damages if we are found to have willfully infringed patents or copyrights. These claims could also result in our having to stop making, selling, offering for sale, or using technology found to be in violation of a third party's rights. We might be required to seek a license for the third-party intellectual property rights, which may not be available on reasonable terms or at all. Moreover, to the extent we only have a license to any intellectual property used in our platform, there may be no guarantee of continued access to such intellectual property, including on reasonable terms. As a result, we may be required to develop alternative non-infringing technology, which could require significant effort and expense. If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop technology for any infringing aspect of our business, we would be forced to limit or stop sales of our software or cease business activities covered by such intellectual property and may be unable to compete effectively. Any of these results would adversely affect our business, results of operations, financial condition, and cash flows. Further, our use of AI technologies internally and implemented as part of our platform may expose us to additional risks regarding our intellectual property. To the extent we do not have sufficient rights to use any data or other material or content produced by generative AI in our business, or if we experience cybersecurity incidents in connection with our use of AI, it could adversely affect our reputation and expose us to legal liability or regulatory risk, including with respect to third-party intellectual property, privacy, publicity, contractual, or other rights. Given we rely on third-party providers for underlying large language model technology, and we do not have full knowledge as to the entire set of data on which each underlying third-party AI model was trained on, our ability to mitigate such risks directly is limited. For more information on the legal and regulatory risks associated with the use of AI, please see our risk factors above at "-AI is a disruptive set of technologies that may affect the markets for our software dramatically and in unpredictable ways," and "-Regulatory and legislative developments related to the use of AI could adversely affect our use of such technologies in our products, services, and business."

The emerging technologies described as AI, which include machine learning, generative AI, including large language models, and similar means of algorithm self-generation, have the ability to affect the market for our software by directing what are now human-orchestrated processes into machine-orchestrated processes. In recent years, AI technologies have been the subject of great interest to our customers and to followers of our markets, and these technologies have been showcased and subject to substantial interest among our customer base. Should we fail to effectively compete with, adopt, or integrate emerging AI technologies that show benefits to our customers, or should AI technologies for code generation or application development reduce the demand for our process automation platform, we could struggle to continue to grow our business or lose business with existing customers to such technologies. We have incorporated, and may continue to incorporate, AI in our products and services, and this incorporation of AI in our business and operations may become more significant over time. The use of generative AI, a technology that has evolved significantly over recent years, exposes us to additional risks, such as competitive, reputational, operational, legal, regulatory and other risks, including additional costs. For example, generative AI has been known to produce false or "hallucinatory" inferences or output, and the models, prompts, algorithms, and datasets on which AI relies, as well as the content, analyses, or other output generated thereby, may be invalid, inaccurate, or biased or contain other errors or inadequacies, any of which may not be easily detectable by us or any of our related third-party providers. While we make efforts to implement and use AI technologies designed to improve the accuracy and reduce the chances of hallucinatory inferences or outputs, we cannot completely eliminate the foregoing risks. Additionally, the use of AI technologies by companies has resulted in, and may in the future result in, cybersecurity incidents and data privacy violations that implicate the confidential, proprietary, or personal information of users of such AI technologies. If any of our employees, contractors, vendors, or service providers use any third-party AI technologies in connection with our business or the products or services they provide to us, it may lead to the inadvertent disclosure or incorporation of our confidential, sensitive, or proprietary information into publicly available or other third-party training sets which may impact our ability to realize the benefit of, or adequately maintain, protect and enforce our intellectual property or sensitive or confidential information, harming our competitive position and business. Our ability to mitigate risks associated with disclosure of our proprietary, sensitive, or confidential information, including in connection with the use of AI, will depend on our implementation, maintenance, monitoring, and enforcement of appropriate technical and administrative safeguards, policies, and procedures governing the use of AI in our business. Moreover, given we rely on third-party providers for the underlying large language models and other technology, as do many others in the software industry, we do not have full access to the underlying software code to address such issues. If the AI technologies that we or our third-party providers use are, or are perceived to be, deficient, inaccurate, biased, unethical or otherwise flawed, our reputation, competitive position and business may be materially and adversely affected. In addition, new laws and regulations, or the interpretation of existing laws and regulations, in any of the jurisdictions we operate may affect our ability to leverage AI in any of our operations, products, and services and may expose us to government enforcement or civil suits. As the legal and regulatory framework encompassing AI evolves, it may result in increases in our operational, compliance, and development expenses that impact our ability to develop, earn revenue from, or utilize any products or services incorporating AI. If we do not have sufficient rights to use the models, prompts, algorithms, and datasets on which our AI and machine learning technologies rely, or the content, analyses, recommendations or other output generated thereby, we could also incur liability through the violation of applicable laws and regulations, third-party intellectual property, privacy or other rights or contracts to which we are a party. In the U.S., a number of civil lawsuits have been initiated related to the foregoing and other concerns, any of which may, amongst other things, require us to limit the ways in which AI technologies are trained, refined or implemented, and may affect our ability to develop or use products or services using or incorporating AI. Furthermore, our competitors, customers, or other third parties may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively. Given we rely on third-party providers for the underlying large language models and other technology, our ability to differentiate our AI products or services from our competitors could be limited. Further, to the extent other, larger technology companies with greater resources and market power gain exclusive or advantageous access to large language model or other AI technology providers, our ability to offer competing AI products or services could be negatively impacted. The increasing use of generative AI by third parties may also negatively impact the integrity of our own proprietary data, data sets, and content databases if and to the extent any invalid, inaccurate, incomplete, misleading, biased, or otherwise flawed data produced by any such AI technologies may inadvertently be incorporated in our proprietary data, data sets, or content databases, negatively affecting our reputation and the value of our proprietary data, data sets, or content databases. As generative AI and other AI technologies are relatively new, sophisticated, and evolving quickly, we cannot predict all of the risks that may arise from our current or future use of AI in our business. Any of the foregoing and any similar issues, whether actual or perceived, could negatively impact our customers' experience and diminish the perceived quality and value of our products and services. This in turn could damage our brand, reputation, competitive position, and business.

Our business is subject to regulation by various federal, state, local, and foreign governments. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions, or other collateral consequences. If any governmental sanctions are imposed or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management's attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, reputation, results of operations, and financial condition.

As of December 31, 2025, we had gross U.S. federal and state net operating loss carryforwards, or NOLs, of $325.6 million available to offset future taxable income. NOLs generated in tax years ended on or prior to December 31, 2017 will substantially expire by 2037 if unused. As a result of certain provisions in the Tax Cuts and Jobs Act of 2017, or the TCJA, as modified by the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, federal NOLs generated in tax years beginning after December 31, 2017 may be carried forward indefinitely but, in the case of tax years beginning after 2020, may only be used to offset 80% of our taxable income annually. Under the provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, substantial changes in our ownership may limit the amount of pre-change NOLs that can be utilized annually in the future to offset taxable income. Section 382 of the Internal Revenue Code imposes limitations on a company's ability to use NOLs if a company experiences a more-than-50-percent ownership change over a three-year testing period. Based upon our analysis as of December 31, 2025, we have determined we do not expect these limitations to impair our ability to use our NOLs prior to expiration. However, if changes in our ownership occur in the future, our ability to use our NOLs may be further limited. For these reasons, we may not be able to utilize a material portion of the NOLs. As of December 31, 2025, we also had gross foreign NOLs of $231.6 million, primarily at our Swiss subsidiary, Appian Software International. As of December 31, 2025, we had tax-effected Swiss NOLs of $26.2 million. We also had tax-effected Swiss NOL expirations of $3.0 million in 2025, and some of our foreign NOLs will continue to expire each year if unutilized. If we are limited in our ability to use our NOLs in future years in which we have taxable income, we will pay more taxes than if we were able to fully utilize our NOLs. This could adversely affect our operating results and the market price of our Class A common stock.

We believe our future success will depend in large part on growth in the demand for process automation platforms to drive software-enabled process automation. It is difficult to predict customer demand for our platform, renewal rates, the rate at which existing customers expand their subscriptions, the size and growth rate of the market for our platform, the entry of competitive products, or the success of existing competitive products. Any expansion in our addressable market depends on a number of factors, including businesses continuing to desire to differentiate themselves through software-enabled process automation, increasing their reliance on process automation solutions, changes in the competitive landscape, technological changes, including due to advancements in AI, budgetary constraints of our customers, and changes in economic conditions. If our platform does not achieve widespread adoption or there is a reduction in demand for process automation solutions caused by these factors, it could result in reduced customer purchases, reduced renewal rates, and decreased revenue, any of which will adversely affect our business, operating results, and financial condition.

The market for our platform is still evolving, and competitive dynamics may cause pricing levels to change as the market matures and as existing and new market participants introduce new types of solutions and different approaches to enable customers to address their needs. In the past, we have changed or reduced the prices we charge for software and may continue to need to do so. In addition, we may be required to offer terms less favorable to us for new and renewing agreements. We generally sell our software on a per-user basis or through non-user-based single application licenses. We have changed, and expect we will continue to need to change, our pricing model from time to time. As competitors introduce new products that compete with ours or reduce their prices, we may be unable to attract new customers or retain existing customers based on our historical pricing. We also must determine the appropriate price to enable us to compete effectively internationally. Moreover, mid- to large-size enterprises may demand substantial price discounts as part of the negotiation of sales contracts. As a result, we may be required or choose to reduce our prices or change our pricing model, which could adversely affect our business, operating results, and financial condition.

General worldwide economic conditions have experienced significant instability due to the global economic uncertainty and financial market conditions caused by the ongoing Russia-Ukraine war and unrest in the Middle East. In addition, inflation rates in the recent past rose to historically high levels. The existence of inflation in the U.S. and global economy has, and may continue to result in, higher interest rates and capital costs, increased costs of labor, fluctuating exchange rates, and other similar effects. These conditions make it extremely difficult for customers and us to accurately forecast and plan future business activities and could cause customers to reduce or delay their software spending. At this time, the potential impact on customer spend from an economic slowdown is difficult to predict and, therefore, it is not possible to fully determine the impact on our future results. Historically, economic downturns have resulted in overall reductions in software spending. If macroeconomic conditions deteriorate or are characterized by uncertainty or volatility, customers may curtail or freeze spending on software in general and for software such as ours specifically, which could have an adverse impact on our business, financial condition, and operating results. Furthermore, we cannot predict the timing, strength, or duration of any economic slowdown or recovery. In addition, even if the overall economy is robust, we cannot provide assurances the market for services such as ours will experience growth or that we will experience growth.

Our software incorporates certain third-party software obtained under licenses from other companies, including database software from Kx Systems. We anticipate we will continue to rely on such third-party software and development tools from third parties in the future. Although we believe there are commercially reasonable alternatives to the third-party software we currently license, including open source software, this may not always be the case, or it may be difficult or costly to migrate to other third-party software. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties. In addition, integration of the third-party software used in our software with new third-party software may require significant work and require substantial investment of our time and resources. Also, any undetected errors or defects in third-party software could prevent the deployment or impair the functionality of our software, delay new updates or enhancements to our platform, or result in a failure of our platform, injuring our reputation.