Hello. And welcome to the Appian Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. It is now my pleasure to introduce Vice President of Investor Relations, Jack Andrews.

Good morning and thank you for joining us. Today we will review Appian’s third quarter 2024 financial results. With me 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 considered forward-looking. These include comments related to our financial results, trends and guidance for the third quarter and full year 2024, 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. These statements reflect our views only as of today and don’t represent our views as of any subsequent date. We won’t update these statements as a result of new information unless required by law. Actual results may differ materially from expectations due to the risks and uncertainties described in our SEC filings. Additionally, non-GAAP financial measures will be discussed on this conference call. Reconciliation of GAAP to non-GAAP measures are provided in our earnings release. With that, I’d like to turn the call over to our CEO, Matt Calkins. Matt?

Thanks, Jack. In the third quarter of 2024, Appian's cloud subscription revenue grew 22% year-over-year to $94.1 million. Subscriptions revenue grew 19% to $123.1 million. Total revenue grew 12% to $154.1 million. Our cloud subscriptions revenue retention rate was 117% as of September 30th. Adjusted EBITDA was positive $10.8 million. Appian continues to grow even as we become more efficient. Growth remains our top priority. We now project positive adjusted EBITDA for the full current year 2024, and improvement from our break-even forecast last quarter. Mark will provide more details. Appian has pivoted to a more efficient cost structure. We did that with minimal short-term impact and without losing any long-term growth potential. We've streamlined our priorities, focusing on high-value implementations in core verticals and use cases. We've become more closely engaged with our very happy customer base. We've reorganized some departments to become leaner and more effective, and we're seeing the first results. For example, our advisory service attachment rates are rising. Our existing customer renewal uplifts are also up. Under our new system, we're realizing higher pricing. Our pipeline shows a larger median deal size. These are the first fruits of our efforts, the first indications that our strategy can work. We're early in this process and there's a lot more we can achieve in this direction. We're in the amusing position of being an analyst designated leader in many markets, though we offer only one product. Depending on whether you consult Gartner, Forrester, Everest, or somebody else, Appian leads in process automation, or orchestration, or mining, or low code, et cetera. This linguistic confusion has been a weight on our market, which wants clarity. I'll try to offer some here. Appian is a process company. Sometimes we call ourselves the process company, but anyway we've been focused…

Thanks, Matt, and thank you to everyone joining us today. I'll review the financial highlights for the quarter and then we'll provide guidance for the fourth quarter and full year 2024. Our key metrics of cloud revenue, total revenue, and adjusted EBITDA all came in above the high end of our guidance ranges. Cloud subscription revenue was $94.1 million, an increase of 22% year-over-year. Our cloud subscription gross renewal rate remained stable at 99%, up from 97% a year ago, and consistent with the prior quarter. Our cloud subscription revenue retention rate was 117% as of September 30, 2024, compared to 117% a year ago and 118% in the prior quarter. We continue to target a cloud subscription revenue retention rate between 110% and 120% on a quarterly basis. Approximately 88% of our total net new software bookings this quarter was for the cloud, compared to 71% in the prior year's third quarter. Total subscriptions revenue was $123.1 million, an increase of 19% year-over-year. Professional services revenue was $30.9 million, down 7% year-over-year. As we've previously stated, professional services revenue can fluctuate quarter to quarter due to the timing of large projects. We continue to leverage our professional services to enable partners and drive customer success. Over the long term, we expect professional services revenue to continue to decline as a percentage of total revenue. Total revenue was $154.1 million, an increase of 12% year-over-year. Subscription revenue represented 80% of total revenue, compared to 76% in the year ago period, and 77% in the prior quarter. We continue to see global demand for our platform, with our international operations contributing 36% of total revenue, compared with 35% in the year ago period. Foreign exchange movements provided a small revenue tailwind of slightly less than 1% this quarter. Turning to profitability…

[Operator Instructions] Our first question comes from the line of Sanjit Singh with Morgan Stanley.

Hey, this is Keith Weiss actually filling in for Sanjit Singh this morning. Very nice quarter. Thank you for taking the question. A couple questions for you guys, if you will. One for Matt just in terms of the discussion of like process versus agents. Is it really process versus agents or is agents sort of like a user interface and execution layer on top of process? So are you talking to us about an ability to create better agents or are you saying that just utilizing process kit? Basically obviate the need to use agents, if you will.

Okay, I see agents not just as a means to an end but more importantly as an end. The most important thing about the Agentic AI movement in my opinion is the interest in having AI that takes actions and how you get there is up for debate. And I'm proposing that there be a different a better way to get there to get toward action taking agents. If you empower those agents with information from a data fabric, structured, collaborators with whom to work and a set of pre-coded output levers that it can pull and utilize. We've just made our agents bionic is basically what I'm saying. I think process empowers and agents to be stronger. So I'm proposing process as a better way to achieve a superior version of the same intent.

Got it, that’s super clear. A couple of nice wins in federal. If we take it -- if we extract that up a little bit and was federal overall, it was a good federal quarter for you guys compared to prior year compared to kind of your expectations or was it just a couple of good wins in the quarter?

Yes, let me speak to federal. This has been a good year for federal overall. I think it has been our best performing theater in the world this year and that's due to the success of our GAM suite. It's due to our momentum. As I say, we're in all 15 cabinet-level agencies. We have a strong reputation, and we're seeing a lot of growth. We just came off our government annual event last week, and the vibe, so to speak, was very strong. Government is one of the cylinders that's really hitting for Appian right now.

Got it. And then just maybe one on the margin side of the equation. Really impressive results in EBITDA this quarter. Maybe you could talk a little bit to kind of what enabled that upside in the quarter, what went much better than expected to enable EBITDA to drop down, and perhaps dig in a little bit on where some of these efficiency savings are coming from. Investors could be, and analysts could be a little bit skeptical about lowering costs without any trade-offs, if you will, not having to pay for sort of lower overall investment.

Sure, yes. I mean, look, this has been an ongoing effort to look at the company and the organization as a whole from an efficiency standpoint. And the definition of efficiency is when people are working on things that aren't adding value, right, or when we're investing in activities that were perhaps not getting that higher level of return that we wanted. And so I think we've done an ongoing scrub. I think this is not a one and done sort of situation. This is a posture of efficient growth that the company's in. In Q3, certainly we had help from a revenue beat. That's helped our adjusted EBITDA as well. But we've seen a lot of dividends paying off from our overall efficiency posture that the company's kind of gone through over the past 18 months or so.

And our next question comes from the line of Derrick Wood with TD Cowen.

Great, thanks. I guess Matt, touching back on Agentic AI, I mean, you and your competitors are rolling out new capabilities. What would you highlight are some of your key differentiators in tackling this market compared to other approaches?

Yes, well, first of all, we can source data better because we have access, we can quickly provision information from anywhere in the enterprise using our data fabric, unlike our competitors that have to gather the data into their own proprietary data center before they can properly interact with it. We can read and write from that data fabric, and I want to clarify that that is, our functionality is quite different from what's passing as data fabric in the market today. So that gives us an informidness advantage and then given that we believe that Agentic should happen within the context of a frame of a process, the actions are also far more auditable and specifiable. And in certain industries and for high-level tasks, certain industries like the government, they shy away from improvisatory behaviors and they want to see something they can truly predict, audit, and improve. So this slightly more structured approach to agents is more appealing to our customers.

Got it, thanks. And a question on pricing, actually it's kind of a two-parter, I don't know if that mattered for Mark, but you guys raised, first of all, you guys raised pricing on some of your core tiers earlier in the year. How is this going in terms of customer adoption and any meaningful impact to revenue growth at this point? And second part, just pricing around consumption with your AI solutions. Give us an update on what that looks like and how that's being rolled out?

Yes, we are pricing by consumption with AI. I don't have much to say about it yet, other than that that's our pricing framework. As for our pricing system that we rolled out this year with our three tiers, really two so far, just know that the top one is being filled out over time with more features, but the advanced tier, we've seen substantial interest in the advanced tier, which is higher priced and higher functionality than the standard tier, which is more on a line with what we offered in our full package in years in the past. The advanced tier has been particularly popular as a start point for new customers who tend to buy into that level almost as a default. We lead with it, we sell advanced first, we focus on the specific features that you get from advanced and of course we tried very hard to make those essential and we find that most of our incoming customers have sprung for it. So we're getting the reaction we wanted and now we're also going back to our existing customer base and proposing upgrades to advanced and we're beginning to get those as well.

Got it. And just if I could squeeze one more just on the nice bookings mix from the cloud. Mark, is there anything, any new trend here or should we be expecting this to bounce around a quarter-to-quarter?

Yes, I wouldn't read into it too much. We certainly prefer the cloud but that's been the case for years now and we'll see some bouncing around a little bit.

And our next question comes from the line of Raimo Lenschow with Barclays.

Thank you. Congrats, that was a great performance this quarter. Matt, can I stay on that pricing? Like if you think about Agentic AI, this consumption but then it's also like a bigger debate about like outcome based pricing, like is that, will that be different for you because you're coming more from the process angle or is that something that we kind of should consider or the industry needs to consider?

Okay, first of all, let me say that I love outcome based pricing or usage based pricing provided we have the right context in which to judge it. I wish to move us in that direction but we must know the context. When you sell as a platform you don't know what to price, your usage at and the outcomes becomes a subjective discussion and so I want to start in places where we have a clearly. defined value proposition. I'm talking about solutions, use cases, at very least industries. We're trying to move in that direction, but we have nothing to say about it right now. That's merely an intention. So right now, our price is not usage-based. We're just aspiring towards it.

Yes, okay, and then just double-clicking again on the strong cloud performance this quarter. Like, obviously you executed really well. Do you sense also like a change in the market in terms of how you're engaging with customers, how they are kind of understanding AI better and now finding the right vendors to engage, et cetera? Like, what are you seeing more from the bigger picture? And you might have addressed it earlier and I might have missed it.

Yes, well, I do think customers are getting smarter about AI. And specifically, we're seeing more focus on places where AI can actually make a difference, an impact, which is why we're so much stressing putting AI in the frame of a process. When you give AI a job and you give it connections, levers to pull, information to process, it's exceptionally productive. When you leave it alone in the midst of an undefined job and hope that it fields questions and does things, I find it far less effective. So I believe that AI will really blossom in an enterprise setting first within the benefit of structure around it as to what its role is, what its capabilities are, what its inputs are. And so we're trying to establish value in what I think is the first killer app, which is this sort of structured instantiation of AI. And that's where we're seeing our biggest growth. And it was a big growth, back quarter.

And our next question comes from the line of Steve Enders with Citi.

Okay, great, thanks for taking the questions. And Mark, great to have with you all these years. I guess just to start, I want to ask on just kind of what you're seeing out there on the macro landscape. And I think we've heard from others about a prospect of a Q4 budget flush. And this would be great to kind of get your thoughts on what you're seeing out there and the prospect of that.

Okay, I don't have any insight into a Q4 budget flush. We're seeing a macro environment where we can succeed. Of course, there's certain tightness and variables we have to deal with, but macro is not a factor in our decision-making right now. It's not a factor in budget setting. It's not a factor in target setting. We believe we can operate in this environment.

Okay, perfect, that's helpful. And then just on the changes on the sales and go-to-market side, and I guess how are you kind of dealing it about those changes that you were made and with new head of sales coming in, and what's kind of the focus, and what will they be focused on as they hit the ground here?

Yes, well, we come in with a couple of key sales priorities with our new leader, Mark. We're going to shift our energy ever more to larger opportunities. We're going to focus more on our existing and very happy customer base and expect to sell more back to them. And we want to bring forward our personalities, the human side, the partnership of Appian to differentiate us from our large bureaucratic competitors. We should be, and we should appear to be, the anti-big tech when customers do business with us. They should feel like they have more of a personal connection, and we're going to put that forward. So those are the main ways that we want to sell or continue to evolve our sales process.

And our next question comes from the line of Jake Roberge with William Blair.

Yes, thanks for taking the questions. Could you just talk a little bit more about kind of what you're seeing on the demand front for data fabric and some of the use cases that customers are pulling you into? And just from a competitive perspective, we've obviously heard a few other vendors launch their own kind of fabric term solutions over the past few months. So can you kind of walk through the differentiation of your product and how you're doing things differently versus some of those other players?

Yes, absolutely. Thank you for asking. Our data fabric is a world apart from anybody else's, and it's one of the most important features that we've ever written. It's one of the best adopted features we've ever written. It is broadly used across our whole user base. Our data fabric allows you to treat the whole enterprise worth of data sources as if they were local data sources, addressable in a programmatic way as if they were local. You can read and write, and it's performance tuned. So we create indexes, we tune it so you can get instant response. Our competitors, by and large, are putting the data fabric label on a product that repairs broken integrations between their own products internally to their own siloed ecosystem. As I say, it's a world apart. Data fabric is more important than it's ever been, because AI is effective when and only when you provision it with data. In order to answer a question well, you need to provide AI the context. There's really two ways to do that. One is you preload the AI with all the data it could need and expect it to be ready for any question. That's fine for some. It's expensive. It might be a bad thing for privacy to hand out over your data. You might feel like you're beholden or in a bad negotiating position against your AI provider, but for some, they're willing to just train AI beforehand. We're not. That's not our approach. Our approach is the other way that you can inform AI, and that is to wait until the question arrives and then quickly fetch the data that's pertinent to the question and send the query with the data all at once. That's retrieval augmented generation, or RAG, and it allows you to be far more private in what you share with AI and far less beholden to your AI provider. It's also more auditable. It's more changeable. You can train it. There’re so many advantages to it, but it all depends on one key factor, one non-negotiable technology you simply must have in order to use model number two, and that is you have to be able to fetch pertinent data within a second. From across your enterprise, you have to find the data that makes sense related to the question that was just asked. No matter where it exists across your enterprise, and that requires a data fabric that is both comprehensive and performant. That's the data fabric we have, and you see it's actually the key to the best model of AI. The best approach to private AI actually depends upon the kind of data fabric that we provide and others don't. That's why I'm so dialed into this, why I think it's such an important thing, because it's actually the foundation to our approach to AI.

Okay, that's really helpful. Then just on the monetization front, I think you've talked about monetization for fabric coming when customers start to connect you to multiple different data sources. I guess the question is, what are you seeing from some of the early data fabric customers and users and just their propensity to connect you to more and more data sources within their organization? Like, are you seeing that unlocked start to happen?

Yes, we are. Yes, and you're right. If you want to use data fabric on multiple data sources, you must upgrade to the advanced tier. And as I mentioned, we've got a broad participation from most new clients. They're deciding that advanced is the right tier to buy, and we've got migration from existing customers starting to upgrade to advanced. So yes, it is happening, and data fabric is one of the most compelling reasons to do it.

Thank you. And thank you for participating. This concludes today's program. You may now disconnect.