Thank you for standing by. And at this time, I would like to welcome everyone to the Appian Second Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Sri Anantha, Senior Director Finance and Investor Relations, you may begin your conference.

Thank you, operator. Good afternoon and thank you for joining us to review Appian's second quarter 2022 financial results. With me today are Matt Calkins, Chairman and Chief Executive Officer; and Mark Matheos, Chief Financial Officer. After prepared remarks, we will open the call for questions. 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 third quarter and full year 2022; the impact of macroeconomic changes; 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 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 available on our Investors section of our Web site. Additionally, non-GAAP financial results will be discussed on this conference call. Refer to the tables in our earnings release and Investors section of our Web site for a reconciliation of these measures to their directly comparable GAAP financial results. With that, I would like to turn the call to our CEO, Matt Calkins. Matt?

Thanks, Sri, and thank you everyone for joining us today. In the second quarter of 2022, Appian's cloud subscription revenue grew 34% year-over-year to 57.1 million. Subscriptions revenue grew by 35% to 76.7 million. Total revenue grew 33% year-over-year to 110.1 million. Our cloud subscriptions revenue retention rate was 116% as of June 30. And our adjusted EBITDA was a loss of 25 million. Appian is a unified platform. We combine process mining, workflow and automation in a single low-code suite. This natural synergy between these technologies, together they're more powerful, more predictable, faster and more affordable in terms of total operating cost. This strength fueled the demand for our software, and they are even more important in times of economic uncertainty. Appian is leading the convergence of the low-code market. We believe that in a year or two buying process mining separate from workflow will be unthinkable, and the same for automation. These formerly separate industries belong together. We're pioneering the convergence. Appian is officially bearish on the economy. I'm bearish. I think inflation will persist and economy-wide demand will slow, and the U.S. will probably end up accommodating an unhealthy level of inflation while suffering the penalties of reduced growth as well, essentially the opposite of the soft landing theory. I say this upfront because I want to be clear that while my forecast informs Appian's plans, it stands apart from Appian's experience. Appian is not seeing any evidence of a downturn. None of the symptoms I just described are visible from the perspective of our business. We saw some deals slip out of the second quarter, which could be taken as a sign that deal cycles are lengthening but we always see a few deals slip, and Q2 wasn't unusual. Of course, we're still affected by FX…

Thanks, Matt. I'll review the financial highlights for the quarter and then we'll provide guidance for Q3 and the full year 2022. We delivered another strong quarter, driven by subscriptions revenue growth of more than 30% year-over-year. We also saw strong growth in key industry verticals and each of our geographical regions. Let's go into the details. Cloud subscription revenue was 57.1 million, an increase of 34% year-over-year and above the top end of our guidance. As discussed on our last earnings call, foreign currency changes had an unfavorable impact of approximately 2 percentage points on cloud subscription revenue when compared to our initial guidance on February 17. Our total subscriptions revenue was 76.7 million, an increase of 35% year-over-year. Professional services revenue was 33.4 million, an increase of 28% year-over-year. The strength in professional services was driven by the U.S. public sector, U.S. commercial and APAC. As previously noted, Appian's professional services are complementary to partner offerings, and in certain cases support large programs that are run by our partners. While still early, we're seeing a healthy uptake of Appian's Accelerate consulting offering, in particular. This offering allows customers and partners to engage Appian architects and customer success managers. Importantly, customers who buy Accelerate end up more than doubling their spend on new software purchases in year two and year three. Long term, we continue to believe partners will be a larger part of our growth strategy. Over time, we expect professional services revenue will continue to decline as a percentage of total revenue. Subscriptions revenue was 70% of total revenue as compared to 69% in the prior year period and 73% in the prior quarter. The sequential decline in subscriptions revenue mix is partly due to the seasonality associated with term license revenue. Total revenue was 110.1 million,…

[Operator Instructions]. Your first question is from Sanjit Singh of Morgan Stanley. Please go ahead. Your line is open. Sanjit Singh, your line is open.

Thank you. Can you hear me?

Yes.

Perfect. Thanks, guys. Matt, I wanted to pick up on your comments on the economy and then Appian's ability to execute in that economy. And when I look at sort of the guidance coming off a very strong quarter, the guidance is sort of reiterated. And so I wanted to better understand in terms of you're not seeing an impact, why that we didn't see a little bit more of a raise on the guidance? Was that sort of FX? And Mark, if you could give us maybe some context on the guidance in terms of what you're sort of assuming in terms of sales cycles, conversion rates on your pipeline, going into Q3 and Q4 versus what you may have seen in the June quarter, any context around the assumptions on those factors would be super helpful in sort of understanding how you guys are positioning for the second half?

Yes, that's great. Well, of course, we figured FX into the projections for Q3 and Q4. And we left a higher range of possible variants, because we are in a moment of economic uncertainty. Whether or not there is a downturn, there is uncertainty. And as you know, we prefer to be on the cautious side. And so that is why we issued the guidance that we did. I can tell you if I don't mind to preempt your answer that our sales cycles didn't show any difference from this quarter to a year ago quarter or for that matter, serially. And so the signs for us are not there. I believe we've got a solid product that is deeply appreciated by our customers, and is thus insulated from some of the effects that we might have seen otherwise. I believe that we are able to pivot our messaging, particularly with an efficiency product like process mining [indiscernible] in order to be relevant in a downturn. And I'd like to remind the audience that we have been through several downturns as a bootstrap. And so we know exactly how to be prudent in economic strife, if it comes to that. So I like our position very much. And in spite of my pessimism as an economist, as a business person we are right to keep growing, because we're not seeing the symptoms. And if other companies choose to pull back, this is an opportunity to grow past them. Mark, did you want to add anything to that?

I think Matt kind of stole a little bit of my thunder, but it's pretty much on point. I would just sum it up on the guidance piece by saying we're normally conservative and there's an extra layer of conservatism that's warranted by the current economic uncertainty that's kind of baked into our guide.

That's super helpful. And then one follow up, if I may. As you think about sort of vertical and industry concentration, I think it's a lot of business from some pretty stable industries, financial services, government, healthcare and fin, I think, correct me if I'm wrong, your major verticals. What do you see the trends in those kinds of core verticals? And I don't think you guys sort of discussed this before, but your exposure to sort of SMB customers who may be more prone to churn and your exposure to younger tech startups who may have to run more efficiently and optimize their spend, your exposure to that to vertical, just give any sort of color on those customer cohorts, that would be helpful as well?

Yes, well, you're right about our primary industries. I do want to note that our churn is as always exceptionally low. In fact, it's at the low end of low with a 99% gross renewal rate, we're just not seeing much churn, which could be attributed to the solidity of our industries. But I would prefer to attribute it to the appeal of our value proposition. And I think that's primarily why customers of all stripes stick with us.

Yes, with regard to exposure to SMB, I think you mentioned startups. There isn't any significant exposure to those areas.

Great. Perfect. Thank you for all the context.

Your next question comes from the line of Kevin Kumar from Goldman Sachs. Your line is open.

Hi. Thanks for taking my question. I wanted to ask about a recent deal with the Municipality of Milan. Can you talk a bit about the broader opportunity for international government entities? How large do you think that market is? And how important are partners bringing in these types of deals? Thanks.

I love this question, because Appian has long been very strong within the U.S. government and yet bided our time before approaching other layers of government, be they international or state and local within the U.S. And we're finally branching out. And so you'll see some public sector deals outside of federal U.S. I believe it's an extraordinary growth potential sector for us. And I think that you'll hear a lot more about it in years ahead. This is just one example. But our expertise here, there's a whole special handshake you got to do to do business with public entity and we're long used to it. And our calls are terrific, based on the scale, the criticality of the applications we've deployed. And it's high time that we branched out from U.S. federal. So we're doing that now, and you'll hear more.

Got it. That's helpful. And then curious if there's any changes to how the sales force is going to market in a more volatile macro environment? Is there a shift in terms of the types of use cases sales reps are pitching in to customers at all? Thank you.

Right now, I'd say there's not a shift in the use cases, and the assembly of a conservative value proposition centered around efficiency, ROI, cost optimization is a speculative offering to be deployed as necessary. I believe right now, it's not hardly being deployed. But I want our team to be ready for conservative buying patterns in case they emerge.

Got it. Thanks for taking my questions.

Your next question comes from the line of Joseph Meares with Truist. Your line is open.

Great. Thanks for taking my questions, guys, and congrats on the 99% growth retention in this environment. I'm just curious on the federal side and the public sector in general. Has the IL-5 certification that you received in the first quarter led to any new business? Are there any new conversations that could potentially lead to additional pipeline through the rest of the year?

That was a major certification for us, that IL-5. I'm not aware of any business that it led to within this short period. And as you know, the public sector sales cycles are long and so we wouldn't expect to qualify for a deal last quarter and then to win it already, but it's going to be telling. And it's a barrier to entry against a lot of our competition. And it's a testament to Appian's high end credentials that we could get it and get it so quickly. So I think it's going to have an impact. I don't believe it's had an impact yet.

Okay, that's helpful. And then I think also on the ones you call management, you guys noted that there were 75 partner written solutions in total. And I think you said -- I think you called out in the prepared remarks that North American fuel supplier had purchased a prebuilt solution. I'm just curious if the number of solutions has grown, and where you see that going? And that's it for me. Thank you.

Yes, the number of partner authored solutions is growing all the time. There was a lot of enthusiasm amongst our partners at the latest Appian World. And they were demoing their own solutions. And some of them had many solutions to show running on different monitors at their booth. There's a lot of enthusiasm around this. So absolutely, the number is growing. And even better, the ones that are most successful are becoming more successful. That's going to be the inspiration for the broadening of the community most of all. So the answer is yes.

Thanks.

Your next question comes from the line of Jacob Roberge from William Blair. Your line is open.

Hi, guys. Thanks for taking my questions. So we've talked about productizing on the platform for a while now, and you've introduced a few solutions over the past year. How is the strength that you're seeing and what you call it out with customer demand for new products, like Portals elevated the awareness of the rest of Appian's platform within customers?

Yes, something like Portals is wonderful for elevating awareness, because it appeals to so many more users. Traditionally, Appian has done intra-applications which are used only by members of an organization. Now there may be a lot of members, but there aren't as many members that there are customers or vendors or suppliers or partners. And so if you can create an application that appeals externally, you suddenly get a lot more interaction. And I love that for raising our profile. It really broadens the user count. Now, of course, we're not getting the same dollars per user for external users that we're getting for internal. But it's very good for raising awareness, as you mentioned.

Yes. And then it seems like the partner activity was really strong in the quarter. Have you seen any increase in partner resources as a result of some of the headwinds that some of your other low-code competitors are seeing in their businesses as well as just throughout this macro environment?

Yes, definitely. Yes, we have partners saying that they're converting more of their practice over to Appian. They're training more. They're converting people who used to be dedicated to a different system, they're training on Appian. There's definitely evidence of that.

Great. Well, thanks for taking my questions and congrats on a solid quarter.

Thank you.

Your next question comes from the line of Derrick Wood with Cowen. Your line is open.

Great. It's Andrew on for Derrick. Thanks, guys. Matt, in the past you've talked about shorter sales cycles helped by value selling methodologies and your newer pricing model. Have you seen that help this quarter? And is this helping overall in this environment given pressure seen on sales cycles in general? I know you called out a little bit of longer cycles, but is it helping relative to past cycles maybe?

Yes. Overall, I'd say our business is experiencing equal cycles over time that they have not increased nor decreased. The factors that I expect to lead a decrease would be partners, because the partner could eliminate some options, expedite a customer's decision, introduce Appian. I would expect a shorter sales cycle to partner deal and also a solution should shorten the sales cycle because there's less speculation, less proof of concept. You can see it prebuilt. I think either one of those factors could be a shortening agent. But right now, I would say that our sales cycles are instead consistent.

Great. And was wondering if you saw any impact from the Pega lawsuit in the quarter? Has that helped you competitively at all or any feedback from customers on that?

Yes. Look, I have a little bit of feedback from customer and it's just the occasional comment about how maybe they're dialing back. I can't say for sure that there's an impact yet. I've got a few circumstantial observations. I can't be sure. But with regards to the verdict itself, I can tell you that we believe the verdict is supported by the evidence and the law. And we're confident it's going to be upheld. Keep in mind that the jury did not award us punitive damages, which would be overturned relatively easy. We didn't even ask for punitive damages. Instead, we were awarded unjust enrichment damages. And as for the timeline, we can't be sure when all the appeals are resolved. But two to three years is a reasonable estimate.

Great. Thanks, guys.

Your next question comes from the line of Fred Havemeyer with Macquarie. Your line is open.

Hi. Thank you. I think I wanted to begin with Matt and then Mark is around the lines of profitability. And as you're discussing potentially a more adverse macroeconomic condition and backdrop and positioning being defensively, you're mentioning how you were thinking about profitable growth I believe earlier too. So with this year being another year where Appian is guiding to as you consistently guided to adjusted EBITDA usage and negative adjusted EBITDA, how do you think about driving towards profitable growth in the future? And how do you find that balance of growth and profitability potentially against the backdrop of an adverse, really a recession?

Yes, that's right. And I want to emphasize that our strategy of growth is a cautious and careful and prudent strategy of growth. And we're going to measure all of these expenditures against the increase in revenue that they will give us and the time that we expect that increase to take. This is a very careful growth strategy. But I do believe that a moment like this -- even if it becomes a recession, a moment like this could be an opportunity for a business with an exceptionally loyal customer base and a high revenue retention to make investments to acquire new business at a time when our rivals may not be as forceful in acquiring that new business. And as you can tell from revenue retention rate like we've got, when we acquire a new customer, that's a long stream of revenue that we've brought on board, expected revenue, mind you, right? That isn't -- that's a long string of very likely payments and growth that we will probably experience. And so that new customer is worth making an investment on, because of the long tail that follows it. So we're going to be extremely cautious about this. And we'll only make expenditures where I believe that the return is worth the investment. But I think this may be an environment in which a company with our strengths could still make some wise investments.

Thank you. And then I'd like to ask also about traction that you might be seeing with unlimited or generally how you're seeing the mix of uptake across some of your different pricing options evolving? I know that we've discussed in the past unlimited and what that brings to the table. So if you could provide any update about trends or ways in which customers are choosing Appian pricing, it'd be quite helpful? Thank you.

Sure. Unlimited remains a minority pricing option, which is to say most customers don't choose it. I wish every customer would choose it. I love it. I think it's good for them and good for us. But it is unusual. And so most of the time, we need to conform to the pricing preferences of the buyer. And in an industry that's complicated enough already, we choose not to force our preferred model on the customer. Instead, we'll allow them to buy by the seat, by the app. We'll give them options and we will conform to their preference most of the time. But thanks for bringing it up. I love unlimited, and I think it orients -- it aligns our interests really well. So if I had my way, they'd all price that way.

Thank you.

Your next question comes from the line of Vinod Srinivasaraghavan from Barclays. Your line is open.

Thanks for taking my question. Earlier this year, you had talked about how the amount of data transversing throughout the platform was really much higher and how that indicated your platform usage was much broader. Can you just talk about how that's trended throughout the year, and especially into June and July? And then can you also speak to maybe some of the bundling and bracing levers that you've kind of pulled on that will help you better monetize the platform? Thanks.

Yes. First of all, I am very excited about the trends in data usage on the Appian platform. I can't get into the numbers here. We're not disclosing it this quarter. But the trend has been spectacular. And it shows that Appian's low-code data functionality from last year has been adopted strongly. The point of that was to take the hardest part of the application creation process, which has always been the data, integrating to it, having it in real time, aggregating it, it's always been the toughest part. And it's often required people to be a data expert before they can even build an application. And we simplified it radically. So it's now drag and drop. It's easy data. It's now just one more object that you can deploy with your mouse onto a process model. And that has been adopted in great amounts. And we have multiplied the amount of data coming through Appian. Speaking in somewhat vague terms here, but multiplied it. And the momentum is tremendous, the trajectory is tremendous. And it shows that we're becoming an integral part of the way organizations digest and process their own information, which was the goal of that feature in the first place. So I believe that has a lot to do with our staying power and our value proposition and fulfilling our goal to be low code, which is to say truly easy to use, despite being very powerful at the same time. So it's one of the features I'm personally most excited about. Don't have a number for you today, but the momentum is terrific.

Thanks. I appreciate that. And then can you just maybe comment on new logo growth? It seems like existing expansion is fine with your cloud retention rate at 116 I think you said, but can you just talk about new logo growth? How did that kind of evolve throughout the quarter?

That is another thing that we are not disclosing other than to say that new customers -- I had several stories about it. We won big deals, right? We won great customers. We're proud of the large world leading institutions that continue to choose Appian and rely on us for mission critical projects. That's what we're about fundamentally. More than any other market segment, we appeal to large organizations doing important things and wanting to be able to change and pivot the way they do those important things. So while I don't have numbers around that, I want to say that we continue to hold that place in the market as a frequent choice of the largest businesses doing the most important things.

Got it. So you're saying that you didn't really see it change in June or even into July compared to prior trends?

Partner trends did you say, like partner onboarding? Maybe the -- partners still touch about 80% of our new logos, and that's been consistent. So they're very influential, and we mean to work with them because of that. We know they're influential and we want their alliance in order to reassure the strategic customers that depend on them that we and they make a good team to handle their big issues.

Okay. Thank you.

There are no further questions at this time. I would like to turn the call over back to the presenters.

All right. Well, we're just going to wrap it up then. We appreciate your interest, and we look forward to speaking to you in individual sessions. Thank you.

This concludes today's conference call. You may now disconnect.