Good day and welcome to the Appian Corporation Fourth Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Sri Anantha, Director of Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon and thank you for joining us to review Appian's fourth quarter and full year 2021 financial results. With me today are Matt Calkins, Chairman and Chief Executive Officer; and Mark Lynch, Chief Financial Officer. After prepared remarks, we will open the call for questions. Today, you will want to follow along with our earnings presentation. You can download it from the main page of our Investors site at investors.appian.com. During this call, we may make statements related to our business that are forward-looking under federal securities laws and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These include comments related to our financial results, trends and guidance for the first quarter and full year 2022; the impact of COVID on our business and on the global economy; 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 upsell 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. They do not represent our views as of any subsequent date. They 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, refer to our 2021 10-K and other periodic filings with the SEC. These documents are also available on our Investors section of our website. Additionally, non-GAAP financial measures will be discussed on this conference call. Refer to the tables in our earnings release and the Investors section of our website for a reconciliation of these measures to their most widely – most directly comparable GAAP financial measures. With that, I'll turn the call to our CEO, Matt Calkins. Matt?

Thanks, Sri, and thanks, everyone, for joining us today. In the fourth quarter of 2021, Appian's cloud subscription revenue grew 39% year-over-year to $51.2 million. Subscriptions revenue grew by 35% to $75.8 million. Total revenue grew 29% year-over-year to $105.0 million. $105 million makes Q4 our first $100 million quarter. Our cloud subscription revenue retention rate was 116% as of December 31, 2021 and our adjusted EBITDA was a loss of $10.0 million. For the full year, Appian's cloud subscription revenue also grew 39% year-over-year to $179.4 million. Subscriptions revenue grew 33% year-over-year to $263.7 million. Total revenue grew 21% year-over-year to $369.3 million. Our adjusted EBITDA was a loss of $37.9 million. These results exceeded our guidance. Appian's earnings typically follow a format. We open with a few headline metrics, like the ones I just mentioned, and then we present a theme with some customer stories as validation. This time we'll do something completely different. I want to take you behind the curtain for a detailed numerical tour of our business. We will compare Appian today to Appian one year ago. You'll also see some multi-year history stretching back to our IPO in 2017. I'll be sharing some information we've never before disclosed. I encourage you to follow along with the slides in our earnings presentation, but it will not be necessary as I will speak to all the key numbers. Let's begin on Slide 5, talking about Appian revenue over the five years since our IPO. There's a slight discontinuity at the 605-606 transition, of course. That's the vertical line down the middle of the chart, but the trend is still clear. Growth is strong and steady, and it's rising. Our total revenue growth is accelerating from a 17% rate in 2020 to a 21% rate in 2021.…

Thanks, Matt. I'll review the financial highlights for the quarter, and then we'll provide details on our Q1 and full year 2022 guidance. We delivered another solid quarter with subscriptions revenue growth of more than 30% year-over-year. We also saw strong subscriptions growth in key industry verticals in each of our geographical regions. Our investments in the platform, sales and marketing and go-to-market initiatives are bearing fruit. Let's go into the details. Cloud subscription revenue for the fourth quarter was $51.2 million, an increase of 39% year-over-year and above the top end of our guidance. Our total subscriptions revenue was $75.8 million, an increase of 35% year-over-year. We are pleased with the continued strength of our revenue growth. Professional services revenue was $29.2 million, an increase of 14% from $25.5 million in the prior year period and up 16% from $25.2 million in the prior quarter. We expect our professional services revenue to continue to decline as a percentage of total revenue. Subscriptions revenue was 72% of total revenue in the fourth quarter and 71% for the full year of 2021 as compared to 69% and 65%, respectively, in the prior year periods. Total revenue in the fourth quarter was $105 million, an increase of 29% year-over-year and also above our guidance range. Our cloud subscription revenue retention rate as of December 31, 2021, was 116% as compared to 117% last quarter. As a reminder, we continue to target a cloud subscription revenue retention rate of 110% to 120% on a quarterly basis. Our international operations contributed 36% of total revenue for Q4 2021 versus 33% a year ago. The growth in international revenue was driven by continued healthy growth in both APAC and EMEA regions and demonstrates the balance of our business, both domestically and internationally. Our cloud software…

Thank you, Mr. Speaker. [Operator Instructions] We will take the first question from Arjun Bhatia from William Blair. Your line is open. Please go ahead sir.

Yes, thank you. Congrats guys on a great quarter and a great end to the year. I wanted to start with the seven-figure customers that you disclosed in the slide deck. It seemed like you added, I think, 20 new customers in that $1 million-plus cohort, which is more than double the adds that you had last year in this cohort. So, I was hoping you could just maybe unwrap for us the expansion drivers that are getting customers to be that larger size? Is it more apps that customers are building on Appian, more modules, more complexity? Or is it just the partners that are helping customers scale their Appian deployments?

Yes, I'd like to say it's all of the above. We're offering more value. We're showing reliability and uptime. We're expanding the industry into what is effectively a larger industry. We exist at the top end of that industry. So, we're differentiated from our rivals who serve the lower-priced and lower-value market. I believe that we're realizing our correct place in the market, fulfilling the expectations of that place and developing the market, pioneering it by putting together the architecture that we showed on Slide 12, I believe it was. Partners are also helping us, absolutely, as is the experience we have establishing value with existing clients. After all, a client could have been already our client and bought more in order to cross that $1 million threshold. So, it's not merely that we're selling fresh $1 million deals. It could also just be promoting, expanding in existing customers. But I feel like we're realizing our value proposition. That's the most important thing I can tell you on this question.

Perfect. That's very helpful. And I know that we've been talking about this holistic platform that you're building or have built at this point with low-code, RPA and process mining. And we've talked about that value proposition quite a bit. I'm just curious where are customers in understanding what you've built by bringing all of these components together in one place? Are you still educating customers? And for those that have adopted and have deployed all three of these, what's the early feedback you are hearing from them as opposed to the alternative approach would be to maybe stitch together these parts through several different vendors?

Yes. An innovator is always doing some degree of education. This market is not entirely knowledgeable about what they could expect or should expect. But I can tell you that when they hear the message, when they see the demo, it makes sense quickly. That's the difference between an innovation that's going to be straightforward and one that's going to be a hard fight is whether it makes sense to people when they hear it. And it does. I also see some noise around the market for other firms putting together something similar to this, perhaps without the same degree of integration and synergy. And I believe that that noise is helping to substantiate and legitimize our message.

Perfect. I’ll leave it there. Congratulations guys.

We will take the next question from Mr. Sanjit Singh from Morgan Stanley. Your line is open. Please go ahead.

Thank you for taking the question. And congrats on [indiscernible] everywhere, 30% subscription growth, cloud growth, big customers. 30% seemed to be like the theme of your presentation, Matt. And so to that end, where do you think the company is getting better at if you sort of look at when you sort of called the narrative since IPO? But if you just looked over the last year or two, where is the business getting better from your perspective? Is it sort of on landing new customers? Is it expanding new customers? Is it on the pricing side? Where would you say the most improvement has been?

Yes. Well, the one easy answer would be yes, I think, we're advancing on all fronts. But I want to speak to one transformative inflection point that we're going through right now. And the same is true for everybody else in this industry and any software industry that matures. We are transitioning from being a company that's about what it offers to a company, it's about what it's for, right? We're going to be less about the technology and more about the experience of using the technology. Less about the features we provide than the effect we convey. I think that's an essential transition. And as you go through that transition, you become mainstream. A company that customers rely on for a need rather than for a feature. I believe that that has a lot to do with what we're experiencing as well. But we're better at the blocking and tackling. We're better at the operational things. We continue to improve. Not only are we scaling up, but I think that we're just a little more dialed in than we had been before. And I'd say it's partly execution therefore and partly realizing the market and maturing. How about the next question?

We’re going to take the next question. The next question is from Steve Enders from KeyBanc. Your line is open. Please go ahead.

This is George [ph] on for Steve. Thanks for taking my question. Congrats on the quarter and the $100 million revenue quarter. Great to see. My question was about the Great Resignation and whether that's come up in customer conversations as a potential tailwind to demand as they are sort of grappling with these? Are they turning to low-code and automation to sort of alleviate some of those pressures?

Yes. I actually think there are tailwinds. I don't know that they've manifested themselves or that they are measurable. But in theory, I like to think that there is going to be tailwinds, maybe not yet. But the Great Resignation, first of all, stems from a situation, which people and assets are extremely dispersed. There's never been a time in business where your employees, your customers, your data and your facilities have all been so far apart from each other as they are today. And when your assets are dispersed and you still want them to work together coherently, a workflow would be an ideal way to make them work well together. So, our technology fits the moment in that regards. But also, I think a lot of people are switching to new roles because they don't like maybe the drudgery or the robotic work they have to do. And if you were to automate some of that work, you would elevate the humanity or the human side of people's tasks and make the work more gratifying. That was spelled out nicely in an Economist article about our low-code industry from two to three weeks ago. I thought that was a nice article. They explained how it was both fulfilling for people to work in an automated environment and also empowering for them, so they can get better jobs and promotions, and add more value and realize their capabilities. So, I think that low-code has something to say in terms of elevating human talent at a moment like this.

Great answer. Thank you. One quick follow-up. I wanted to ask about process mining. How has the rollout been going? I know there was a lot of customer excitement following the acquisition. I want to know if there's been any impact on top of funnel. Are you able to get into some of these engagers sort of earlier on in the cycle?

Well, it feels great. I love the initial feedback. It's too soon to declare victory on process mining because it's only been out there for a couple of weeks. But right now, it appears to be getting a lot of applause from the customer base, a lot of understanding. A lot of people are like, well, of course, right, this is the natural thing you should be doing next. And for that matter, everyone in your industry should be doing. And I particularly think that we're going to get good use out of process mining as a means of inspiring new demand. It's just perfect for that. We can use this at an existing customer site, for example, to explore processes that may be too slow, maybe too expensive, maybe keeping your customers waiting for too long, analyze that and then neatly convert the findings into a workflow. So, I'm very excited about both the diagnostic effect of process mining, but also the low-friction convergence from process mining into workflow.

Great. Thank you and congrats again on the quarter.

The next question came from Derrick Wood, Cowen and Company. Your line is open. Please go ahead, sir.

Hey guys. Thanks for taking my question. Just to follow up, I guess on that line of thinking, could you just give us a little more color on the strategy of how you're thinking about selling the new process mining offering this year and driving more cross-selling uptake in 2022 and how that may impact net revenue retention rate?

Yes. We will sell it to existing customers who don't have a license for it. But the main impact that it's going to have is going to be a demand generator. That's the purpose. Now you can do other things with it. It's great for monitoring the return on investment for applications you've already deployed. And that might be the ideal way to get the camel's nose under the tent is to use it as an ROI measuring tool or even to give it to partners and let them use it for free anywhere they're doing services deployments, which is also something we're doing. But the main thing that we're going to get out of this is discovery of new demand, which we will easily be able to satisfy, in fact, which we will have a unique advantage in satisfying because of the ease of conversion from the diagnostic findings into the workflow prescription. So that is the primary way in which I expect to use process mining to raise revenue.

Great. Thanks and Mark, you guys are guiding for a little bit higher EBITDA losses this year versus last year. I guess that you're expecting some more T&E. And then also to call out in terms of where there's incremental investments this year versus last year. And how should we be thinking about the growth versus margin leverage framework medium term over the next few years?

Yes. I think over time, you can see that – if you look at the customer unit economics, they're exceptional. So over time, we're going to get leverage in the model. We're just choosing to invest a little bit more this year. And it's not much more than what we did in 2021. It's based on the results that we've achieved. I think we had a great quarter, a great finish to the year, and we're pretty excited about where we're heading going into 2022. So we're doing some incremental investments in the sales, go-to-market partner folks as well as the R&D function as well to kind of build out the suite. So it's incremental. It's not crazy, and it's – I think it's well warranted right now.

Great. Thanks and congrats on a good quarter.

Thanks.

The next question is from Mr. Vinod Srinivasaraghavan from Barclays. Your line is open. Please go ahead, sir.

Hi. Thanks for taking my question. I just saw that you guys are – the government cloud got provisional authorization the other day. Can you maybe talk about some of the federal engagements that you could be pulled into now where you couldn't before? And can this be an incremental contributor for you in 2022?

I'm so glad you mentioned the IL-5 certification, which we got two days ago. I'm pretty excited about it actually around here at the office. I think it's a big step for us. It is a frequent requirement in contracts that we feel we're very qualified to bid on, that we think that we're going to be able to deliver value in many of the projects that require that threshold. It's too soon, obviously, to speak of any financial impact, but this is something that we've invested in for a long time. I want to note that we are ahead of all of our direct competitors in this regards. And it's similar to the way we were ahead on FedRAMP. We were one of the first two dozen companies in the world to get FedRAMP back when that was a new thing. We're also ahead on IL-5. It demonstrates our commitment to security, to protecting sensitive data. And it's in line with Appian's long-term focus on the top of the market, which is to say the largest organizations with the most critical needs. We have always been focused on providing to that customer, the level of reliability that they need.

Great. Thanks and then at your Analyst Day, you also mentioned that you are aggressively hiring sales reps for different verticals and accounts. Are you happy of your progress over the last year? And there's kind of a step-up in OpEx in your guide mostly relate to hiring more quota-carrying reps? Or would you say it's more equally divided between sales and product investments? Thank you.

I would say that sales is one of the very central places and reps specifically that that money is going to be placed. And we're doing that out of confidence in the market, confidence in our success in the market, our win rate, our growth rate, our customer satisfaction, our leverage in an account. We see the proposition, and we like it. We want to increase our participation in this proposition. And so yes, to sales, it's not the only place that we'll invest. We're investing in other high-impact areas, and I want to highlight engineering as one of those. But sales, yes, center of the bull's eye for us right now.

Great. Congrats again on the quarter.

Thank you.

The next question is from Mr. Fred Havemeyer from Macquarie. Your line is open. Please go ahead sir.

Hi. Thank you. Firstly, I just wanted to say thank you to the team for the additional disclosures this quarter. I think that the walk-through of the financials is quite helpful to better understand Appian's model and your business. I wanted to ask about both customer adds and also subscription revenue per customer as well. I think – I feel like I hit on this now every year, but it's nice to see that subscription revenue per customer is rising, although it looks like your total net adds actually declined year-over-year in comparison with 2020. So when I'm thinking about your growth algorithm and how you consider your go-to-market going into 2022 and beyond, what do you think the interplay is between accelerating net adds consistently versus driving more subscription revenue per customer?

Mr. Fred, please stand by for a while. We're waiting for the speakers to answer your question.

Am I still connected to the line?

Yes, sir, you're still connected to the line. I'm still checking with the speakers. Please hold on for a while, sir. Mr. Sri, can you hear me?

Yes, I can.

All right. Mr. Fred, are you still on the line?

Yes, still here.

Hey Fred, I apologize.

Can you please repeat your question? Please go ahead.

Okay. Yes. I'll run back through that, no problem there. I'm not sure which part began, which part ended, so I'll just cut right to the question here. What I was curious about is I want to understand how I should think about Appian's growth algorithm in 2022 and beyond in terms of the interplay between driving growth in subscription revenue per customer versus driving volume through net new adds? And I'm curious because it was nice to see subscription revenue per customer rising materially year-over-year in 2021, although it looks like the number of net adds also declined year-over-year. So I'm just trying to think – I'm hoping to get some additional context about how you at Appian are thinking about this growth algorithm? Thank you.

Thanks, Fred. Our intention is to push on both of dimensions. We've been successful at increasing the value of our deployments, and I believe that we're doing a lot to increase the value of the product and the usage of the product. And monetizing that usage would lead to more dollars per customer and per deployment. We would also, however, like to empower our partners and solutions to gather many more customers. We've put focus in both of these dimensions and in 2022 our goal is to pursue both of them.

Thank you. Just take your time, I will jump back into the queue.

We'll take the next question from Mr. Joe Meares from Truist. Your line is open. Please go ahead sir.

Great. Thanks for taking the question. I'd also like to thank you for the increased transparency in the slide deck, like how simple it was. So I had a question about, in lieu of getting the new customer deals you guys had, I was just wondering if you had any deals in the quarter that you were happy with in terms of maybe new verticals like last – I know last quarter, you had like a franchise deal with a restaurant. I'm just wondering if there are any deals like that, that you'd call out as being new or exciting?

It's actually a really strong quarter for new deals and good logos, and we're saving those stories for next quarter. Generally, we talk a lot about our Customer Success stories. We detail them in the prepared remarks. And this time, we decided to break entirely away from it. Thought if you'll tune in next quarter, we'll be talking about the new customer acquisitions from both Q4 and Q1. And yes, there's some good news in there.

All right. Cool. I'll be here for that. So as a follow-up, I think in the past, you've said that where your Customer Success teams are involved in projects, the NRR is – can be as much as 20% higher than without them. So my question is, can you quantify what vintage of projects are currently being served by Customer Success reps? And then do you expect that percentage to change over the course of 2022 as you continue to hire throughout the year? Thanks so much.

That statistic is a powerful testament to the quality of our Customer Success team, and they are terrific. However, it doesn't mean that they've got to do the implementation themselves. It merely means they've got to be involved in some way. And so our goal is to find new means by which they can work alongside our partners as advisers, as strategists, as occasional reference points, and thereby, touch as many customers as we possibly can. And so I think – I agree with you that it's an important statistic. And I agree with you that it's determinative of whether we can do this in more places. And I want to point out that that 20% boost is roughly equivalent, whether we did the deployment ourselves or we did the deployment as an adviser to our partner's equivalent boost. And so we just need to do more of the latter. We're creating packaged offerings and new selling strategies to be sure that we spread to more customers by focusing on that second model that's more efficient for us.

Yes. And one of the things we guided is lower professional services margins because we're taking some Customer Success folks and working side-by-side with the partners in that billing because we see that benefit as it relates to the NRR. And so we want to be there, preferably billing from my perspective, but regardless, we want to be involved in some form or fashion.

Great. Thanks again.

It appears that there is no further question at this time. Mr. Speaker, I'd like to turn the conference back to you for any additional or closing remarks.

Great. I just want to say thank you for your attention this evening. Appreciate you waiting while there were that heavy difficulty and we look forward to speaking to you in 90 days. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.