Greetings and welcome to Appian Corporation First Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.[Operator Instructions] As a reminder this conference is being recorded. I would now like to turn the conference over to your host, Kevin Brogan [ph]. Please go ahead.

Thank you operator. Good afternoon and thank you for joining us today to review Appian's first quarter 2018 financial results. With me on the call today are Matt Calkins, Chairman and Chief Executive Officer; and Mark Lynch, Chief Financial Officer. After prepared remarks, we will open up the call to a question-and-answer session. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Including statements related to our financial results, trends, and guidance for the first quarter and full-year 2018, the benefits of our platform, industry, and market trends, our go-to-market and growth strategy, our market opportunity and ability to expand our leadership position, our ability to maintain and up-sell existing customers, and our ability to acquire new customers. The words anticipate, continue, estimate, expect, intend, will, and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our 2017 10-K filing and our other periodic filings with the SEC. These documents and the earnings call presentation are available in the Investors Relations section of our website at www.appian.com. Additionally, non-GAAP financial measures will be discussed on the conference call. Please refer to the tables in our earnings release and the Investor Relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. With that, I'd like to turn the call over to our CEO, Matt Calkins. Matt?

Thank you, Kevin and thank you all for joining us today. In the first quarter 2018 Appian subscription revenue grew 36% year-over-year to $25.5 million. Our subscription revenue retention remained high at 119%. These results exceeded our guidance. We’re all just back from Appian World, our annual conference held last week in Miami. We had a big turnout with 55% more customer attendees and 55% more partner attendees than last year. Also, Steve Wozniak was there. At Appian World, we made two major platform announcements one regarding artificial intelligence and the other a new product, both will be generally available next month. AI is now a native part of the Appian cloud. We provide real-time sentiment analysis on any text stream. So us a bunch of words and we tell you from 1 to 100 how happy is the author of those words, using artificial intelligence. This is great for knowing whether your customers satisfied when they write you emails, letters texts, tweets and the like you can also analyzed call transcripts, is good for managing a call center. It’s good for knowing what makes customers happy, what products, which employees most of all it further Appian’s goal of making AI practical and easy. In my opinion the height to value ratio on AI is really high right now and here at Appian we have an opportunity to make AI not just cool, but useful. Built in sentiment analysis makes it easy to get value from AI. We also announced native integration with three leading AI platform, so that customers can run their own AI algorithms. In true local fashion with a minimum of clicks and keystrokes our customers can connect Appian processes with any fit for purpose AI algorithms made on Amazon, Google or Microsoft Azure. The fact that…

Thanks Matt. This is another solid quarter for Appian. I will review the financial highlights of the quarter and then provide details on our Q2 and full year 2018 guidance. Subscription revenue was 25.5 million an increase of 36% year-over-year and above our expectations. Our total subscription software and support revenue was 27 million an increase of 26% year-over-year. Professional services revenue was 24.7 million, up from 16.9 million in the prior year. But down from 25.2 million in the prior quarter. Customers are often spend more on services in their first years compared to later years and the surge in new customers was met by a surge in professional services work. As we continue to work with our partners, we expect services growth to moderate. Total revenue in the first quarter was 51.7 million, up 35% year-over-year and ahead of our expectations. Our subscription revenue retention rate was 119% as of March 31, 2018 which was at the high-end of the 110% to 120% range that we target on a quarterly basis. We are pleased with our customers expanded use of our platform. Our international operations contributed 33% of total revenue for Q1 compared with 23% in the prior year, reflecting the investments that we are making work to grow our business globally, we are pleased with the attraction that we're gaining internationally. Now I will turn to our profitability metrics. Our non-GAAP gross profit margin was 60% compared to 67% margin in the same period last year. Subscription software and support non-GAAP gross profit margin was 91% in the first quarter compared to 90% in the first quarter of 2017. Our non-GAAP professional services gross margin was 26% in the first quarter compared to 37% in the first quarter of 2017. We expect our services gross margins to…

[Operator Instructions] Our first question comes from Terry Tillman with SunTrust Robinson. Please go ahead.

Hey good afternoon Matt and Mark. Can you all hear me, okay?

Yes.

Well thanks for the update and congrats on the solid start to the year. I guess Matt the first question just relates to talking about native AI in the platform, could you maybe help us with a lot of companies are talking about AI machine learning etcetera, how you differentiate and how you cut through the clutter and the noise out there in the markets? And secondly, as AI comes into general availability, is this one of the reasons why you slightly raise the prices, the list prices for your products?

First all Terry, thank you for that question. While you know start with AI and then I will get to the prices. We believe that everybody realizes how important AI is and therefore it's hard to out AI the rest of them, they don't all realize that AI has to be practical. I see a lot of features a lot of talking about AI the just sizzle related, whereas at Appian we’re focused on practicality. Our intention is to make it a useful part of your customer experience. And so by bundling it in, by making a low code experience whereas in most cases it's anything but, and by -- the other we are differentiating is being agnostic across many AI platforms rather than aligning with just one of them, we allow you to take your favorite. So we respect the choices that our customers make. Our customers tend to be best-of-breed deciders and that's what led them to Appian in the first place. So we want to respect that habit. And also we’re bridge across different AI services in case that customer should wish to create or change allegiances as they evolve. So I would say those are two primary differentiators in AI, our emphasis on practicality and our agnosticism. We mean to be the easiest way to use AI toward the creation of real value that in a nutshell that's what I go for you. As for raising our prices, it had actually nothing to do with AI, nothing at all.

Okay. I guess, Mark or Matt my second question relates to sales and marketing, you guys you know talked about that in the last quarterly call and given the market opportunity and why you thought these investments were worthwhile? I don't know maybe I just miss model, but you actually came in several million below my sales and marketing. So maybe it's a shame on me and I didn’t know how to model it in the quarter. I don't know. But is there anything to think about these gross investments, are they more backend loaded in the year or/and or did you actually hired to kind of and spend to the level of you were thinking about spending in the quarter? Thanks and you did nice job.

I can say that our hiring and our spending is roughly in line with our intentions, maybe that's what I can say to that question. We do have these investment plans and we are in line with our expectations.

Thank you. Our next question comes from Raimo Lenschow with Barclays. Please proceed.

Thanks guys for taking my question. This is Mohit Gogia actually on for Raimo. My question is around the professional services strength which I guess you can justify based on an easier comp from last year. But also as the as you have been pointing out it was driven by just an almost growth in our customers and did the customers tend to spend more in the first year on later. But I guess the question is to given the new role you mentioned that you introduced in Q1 how do see that growth trending and as to how do you like manage that professional services business going forward in light of the new role and then the growth you are trying to manage in that business? And I have a follow up question to that. Thank you.

We understand that we've made some changes to the way professional services is oriented and run, and that introduces some degree of volatility. We don't expect to see more volatility. We want to actually settle down a little bit and get into a pattern. So Q1 was rather different from what we've seen in the past in terms of the introduction of these new customer success managers. And I think you'll see us not changing the ratio of customer success managers to line consultants or the ratio of billable to unbuildable staff and the professional services department in any meaningful way in the quarters to follow. We're going to digest this change and see how it works, see how effective it is and getting follow on sales. So that's what I'd say to that.

If you look at professional services revenue Q1 versus Q4 was sequentially down. And so we're starting to work with more partners and pushing more work off to them as well. Even though we did, as we said, had, we did have a surgeon in the upfront services from the 85 net new customers that we added last year.

Understood. Thanks for that. The follow up question I have is on big contact center solution, so I mean it, it's a competitive market. It's not only the pure play contact center vendors play in there, but also some high profile CRM vendors are in that market. I guess you guys laid out to your different variation in that market versus the competitive field, but also I was wondering as to how this is your first out of the box solution based on the Appian platform. How do you see the strategy evolving going forward? The thing is you can expect more horizontal or vertical out of the box solutions coming out from you guys or is this just context center was such a, a, an obvious choice that this had to be done. Thanks for taking my question. Thank you.

Thank you for the question. I believe it was an obvious choice and it did have to be done. I think this is a good beginning and I want to reiterate Appian’s general philosophy toward launching new initiatives. Instead of launching several at once, we launched one and we watch it really closely and we learned from it. And we put our best behind it. And then based on that we can make decisions going forward about whether to do it again, whether you do it five times, zero times, that sort of thing. But a lot depends on, a lot is focused on the effort at hand. So no further plans just, we do our best with this.

Our next question comes from Jesse Hulsing with Goldman Sachs. Please proceed.

Hi, this is Kevin [ph] on for Jesse. Thanks for taking my question. Did GDPR have a positive impact during the quarter at all? And if so, how long do you think that'll last? Thanks.

Well. Hi Kevin. Thank you for the question. I would say that GDPR had no impact, no or nearly no impact on our results in Q1. It's really just in the early stages right now and I believe it to be a wonderful opportunity. We've got partnerships lined up to focus on GDPR, but I don't believe you're seeing the results of that in the first quarter.

Got it. Thanks. And do you see any particular strength in any specific verticals during the quarter of anything they're call at there?

I would say that we, we saw continuation in the strength of the verticals that are already the strongest for us, particularly financial services, which has for years now been our number one. That was our number one again. Yeah, I call up Financial services not that that would surprise you, but that was our top.

Great. Thank you.

Our next question comes from Sanjit Singh with Morgan Stanley. Please go ahead.

Hi. Thank you for taking the question rather than a nice start to the year, that maybe I had a question, maybe a higher level in terms of how customers think about using the Appian platform versus some of the alternatives out in the market. .:

Yeah, we wouldn't want them to make a choice. So I'm going to use your question as an excuse to talk about containerization, which I love and which we are focused on a lot this year. We did announce that Appian world, but I didn't put it into my remarks, our initial containerization functionality. So I think it'd be run containerized and we're leveraging a Docker and Kubernetes. This is a wonderful thing for us partly because it makes it easy and fast to install and get going with our software. And as you know, we emphasize simplicity and ease of use than in potentiation is one of our primary virtue. So we love that about it. And we love the ability to adjust the presence of, you know, different parts of the application, you need more this, more that with containerization, we're able to scale and conform to usage patterns as they arise. So that's terrific. But the bonus advantage that Appian gets out of containerization specifically means more to us than a means to anybody else is, the new path to agnosticism. The new path to multicloud availability. That is, really terrific for us. And I love the way coobernetti's unlocks that and makes it so simple. We're a big believer in that and we will, we will continue to have to ride this wave in order to get the most out of it. We're circling back to your first question. I don't know to what degree our customers may be using Red Hat's approach versus us, but I will say that I don't consider them substitutes and what you can develop in Appian and the rate at which you can develop it as very different from what you might be able to dev ops with containers and other technologies. We regard ourselves as being in a very different race, a different contest then those technical solutions. Our intention is to allow for the creation of an application in maybe 5% to 10% of the time that it would have otherwise taken because you drawing it instead of writing it. And then that application is preconfigured in many ways, so it already runs on every cloud and already runs on every device. You can already have your data in one place. It's already integrated with other applications and it upgrades on its own, stays fresh forever. That's a really different experience. It's like escalator versus stairs. And so, you know, we don't consider ourselves in a, in a horse race against these component players like Red Hat.

I appreciate it and appreciate your comments on the containerization. I'll be one of my follow-up questions, but questions for Mark actually, and so it relates to guidance and how maybe we should think about cash flow or operating cash flow for the year, given that figure cash balances now just north of 60 million that they had some cash for this quarter. How should we think about the trends and operating cash flow for this year and…

We generally don't guide to cash flow because it's lumpy. But I would say that Q1, cash flow like the collections as I mentioned in my prepared remarks, the collections in April were strong. And basically we had some delays and some of the collections, it was a little bit delayed in the cash flow would've been better if we had collected earlier.

Okay. Thanks.

Our next question comes from Gregg Moskowitz with Cowen & Company. Please go ahead.

Hi is Matt Brenner for Greg. Thanks for taking my call. So you saw a nice uptick in new logos in Europe in 2017. Just curious if I mentioned continued into the first quarter.

Hey Matt, thanks for the question. We're not going to discuss logo acquisition on a quarterly basis. Sorry, we're only going to discuss it on an annual basis. So I, I can't answer that one.

Okay. And I know that the sales cycles can be fairly long, but I'm curious how you would characterize sales productivity at this time from the folks that sort of came aboard in early 2017.

I would say it's too early to reach any conclusion about them. This would be their year. Generally we expect a sales reps first year to be a learning experience and then they're supposed to break out in the second year. But I, I have not drawn any conclusions and wouldn't feel comfortable representing any to you.

Okay. And then I guess finally, I guess just on the new professional services sort of model, I guess, it’s obviously very early, I mean what's the initial feedback been from customers?

That's been great. I've been out there this, this idea has been a pet thing for me for a few quarters. And so, I've probably told more customers about this program than anybody else at Appian. And invariably they love it. They love the idea of strategic advice and guidance. I lock it into sending out a tugboat when a giant container ship has arrived in unfamiliar harbor and we're just going to send tug boats out for all the biggest ships that come to us. I think customers find it immensely reassuring, and this is before they even meet the person. They just loved the idea and they love the comfort that they get, knowing that we would do that for our customers. And so it's already a win in that regards and I am hopeful that will -- it'll soon become a quantifiable win as we get some, some good follow on business from satisfied customers.

Okay. Thanks very much.

Our next question comes from Richard Davis with Canaccord. Please go ahead.

Hey, DJ Hynes on for Richard. Matt, you said in no prepared remarks that you guys have always resisted building application. So I guess I'll ask a high level question. I mean, did, did you always see Appian pursuing this type of strategy in and if not, what drove the change and I guess more importantly why now?

Yeah. Our commitment to platform build out, I think was somewhat unusual historically. If you look across the tech industry, this is generally how it's done. We had a limited resources, we were largely self-funded. Hence so we chose to deploy our resources to create a platform that would be useful for many things. And you can see in the customer profile that we acquired prior to our IPO that, that's exactly what they did with it. Many things. Many industries, many places, we had a true and remarkable diversity of customer behaviors on our platform. We reach a point however, where I think we have the sophistication and the profile to execute an application on top of that platform at the same time as we can maintain that platform to world leading standards. And that realization came along more or less roughly at the same time as this call center opportunity which I think is just too good to pass up. There's a number of reasons why Appian belongs in this market. And briefly that is our, our leadership in case management confirmed again by this Forrester report. But number one in case management according to that report and our ability to bring data to bear, so that you have this continuous conversation feel, and then this being such a natural change point. And on top of that we see our competitors doing this, this exact thing, having a call center and charging higher prices for it. It is as applications go and exceptionally safe play for us.

Yep. Make sense. And then the follow-up question, I think the most common question that we get about you guys is tied to services is a percent of revenue mix. And you've talked about how customers kind of wean away from your services organization as they grow with you. I guess the question is, is there any way that you can quantify what percent of services come from customers maybe in their first or second year of their relationship with you?

Well, historically we have revealed numbers like that. We did so at the IPO and at the secondary offering, a while I don't have fresh statistics to share with you. I can say that anecdotally, customers spend far more in their initial year on Appian then they spend in a years after that. We're also doing strange and unusual acts to encourage partners to take over some of the service demand and to offload some of our top service personnel into customer success management positions. We've been amused by the kind of strong wave of services demand which has come to us over the last year and we didn't want to turn it away. We want those customers to be well served and happy. But we're also interested in using that demand to cultivate a great partner ecosystem. And so we are performing that balancing act as best we can.

Sure. Yeah. It's a good business that you guys run at a nicely profitable services organization. So thank you. I'll pass the line.

[Operator Instructions] Our next question comes from Bhavan Suri with William Blair. Please go ahead.

Hey guys. Thanks for taking my question. I guess one tactical, one first, and then maybe one that's a little broader. But just first on customer penetration, you guys had a great sort of expansion rate, and that's been a powerful sort of growth driver for you guys last few years. If you think about sort of the most mature customers and think about penetration and think about the applications that they have today that they could rebuild for the mobile world, for mobile first, for better processes for better automation, what sort of penetration rate do you think you would have within those customers?

Well, I thank you for bringing up mobile, the first of all. Appian doesn't consider itself mobile first, but rather to coin the phrase mobile always. Every application that's built on Appian automatically runs on all the leading mobile platforms and it runs natively as if it had been designed for that operating system, that device and even that orientation on that device. And so we love to see new mobile adoption. We believe that every mobile device should be a window onto the enterprise and should not be for separately created mobile apps usable only in mobile circumstances. We think the best thing you can do with a mobile application is to unite your mobile and your non mobile users in one kind of single consciousness so that they can react to each other, share data, continue their work between the two platforms just to bring people together rather than to create a parallel universe. So our market share could be substantial in the mobile side and particularly if customers were to think about mobile our way in a kind of a stitching together objective instead of a parallel universe objective, I think that we would have very nice market share and it would be reinforcing each other. The fact that we were strong on premise would make them want to use us more mobile. And the fact that we are strong on mobile devices would be get more use on premise.

And I guess that point before I get to my sort of higher level strategic question, I guess, how many of your customers do you think have got that sort of approach that it's everywhere? Um, as opposed to running it as a parallel to some on premise system? Is anyone really there? Are we still sort of sorely that maybe it's one or two guys who really get it from a customer perspective?

No, it's not one or two. There are absolutely customers who have done this in a big way and who unify mobile and uh, and not mobile. He seamlessly and usefully a Dallas fort worth airport comes to mind where the users are in a, in a back office and many, many of the other users are walking around the terminals as terminal managers and ambassadors essentially making things right as they walk around and they've all got windows back onto the same enterprise and the same application set. And they're sharing awareness and responding in real time. That's one of many, many examples. So, no, this is not an isolated thing. I think this is a coming around our way of thinking about it and the results speak for themselves. We've got a lot of productivity to show from this approach to mobile.

One sort of just brought a question here, especially in relation to your comment about containers and orchestration will be a critical part of this. Right? So orchestration across platforms between on premise, orchestration between your apps, integrated apps or a pageant manager through a rest API or something like that. How do you guys think about the orchestration and is that slung shot, it's just naturally built into the platform, the Appian platform or is that something you're working on or is that something that's still partially down? Do you think about sort of the orchestration that. Because that's going to be obviously critical given sort of what containers can do for, um, automatic provisioning and automatic movement of workloads across, you know, totally disparate platforms?

Yeah. This is a great question. We made an emphasis of this at Appian world last week. Appian is becoming more and more orchestration platform. The more haul outs you do in your enterprise to specialized technologies, be that an artificial intelligence algorithm or an RPA both or something else. The more you need one layer that coordinates all those inputs and makes it cohesive and binds it to a purpose and Appian is becoming that. But years ago you could have assumed that any delegation from the Appian process would go to a human being and you can't assume that any more. So we've been rising into the role of orchestration layer already. Now that's not to say that we aspire to be a Coobernetti's style orchestration layer. Right, so we're, we're happy to just be compatible and benefit from it. But I think overall we're assuming a lot more orchestration responsibilities and facilitating that for our clients who find themselves inundated with great technologies they want to make use of, but without the capacity to pay the overhead cost for the management and the integration of each one of those technologies.

Yeah. That's very helpful. Thanks guys. Thanks for taking my questions.

There are no further questions at this time. I would like to turn the floor over to Matt for closing comments.

We appreciate your time. We feel we had a solid quarter. We look forward to taking your questions in one on one calls. Thank you all.

Well, this concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.