Good day, and welcome to Appian's First Quarter 2025 Earnings Conference Call. All participants will be in the listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jack Andrews, Vice President of Investor Relations. Please go ahead.

Good morning and thank you for joining us. Today, we'll review Appian's first quarter 2025 financial results. With me are Matt Calkins, Chairman and Chief Executive Officer; and Mark Lynch, Interim Chief Financial Officer. After prepared remarks, we'll 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 second quarter and full year 2025, 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. Reconciliations of GAAP to non-GAAP financial 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, and thanks everyone for joining us today. In the first quarter 2025, Appian's cloud subscription revenue grew 15% year-over-year to $99.8 million. Subscriptions revenue grew 14% to $134.4 million. Total revenue grew 11% year-over-year to $166.4 million. Our cloud subscription revenue retention rate was 112% as of March 31. Adjusted EBITDA was $16.8 million, a strong follow up to the prior quarter's adjusted EBITDA of $21.2 million and a continued demonstration of our inherent earnings potential. We held our annual conference last week, Appian World. Our focus was squarely on AI and AI agents and how AI can be deployed inside a process to deliver practical value. I appreciate the many customers who spoke about their experiences with Appian, the value they created using Appian AI and the success they achieved. Speakers from Aeon, NASA and MagMutual shared stories of how their organizations optimized processes with Appian. Neuberger Berman revealed it onboards tens of billions of dollars in funds faster with Appian. Hitachi reported reducing operating expenses by 20% using Appian. Acclaim Autism uses Appian to ingest medical documents, accelerating its patient intake process by 83%. My keynote was about bringing AI to work. By that I mean finding the place in your enterprise where work is heaviest and most important, and deploying AI there. We focus on AI the worker, not AI the helper. In order to make AI a worker, you must integrate AI into a business process, because that's how the most critical work is done, by teams taking coordinated action. We don't believe in asking AI to make staggering leaps of creativity, not in 2025 anyway. Instead, AI is for doing regular work with superhuman efficiency, things like document intake and response, which AI can do faster and better than anyone else. My favorite…

Thanks Matt and thank you everyone joining us today. I'll review the financial highlights for the quarter and then we'll provide guidance for Q2 and the full year 2025. Appian exceeded the guidance ranges we provided on our key metrics of cloud revenue, total revenue, and adjusted EBITDA. Cloud subscriptions revenue was And adjusted EBITDA cloud subscriptions revenue was $99.8 million, an increase of 15% year-over-year. Total subscriptions revenue was $134.4 million, an increase of 14% year-over-year. On a constant currency basis, total subscriptions revenue grew 15% year-over-year. Professional services revenue was $32.1 million, flat growth compared to the first quarter of 2024. As a reminder, services revenue can be volatile quarter-to-quarter. We continue to expect professional services revenue to decline as a percentage of total revenue over the long-term. Subscriptions revenue represented 81% of total revenue compared to 79% in the year ago period and 82% in the prior quarter. Total revenue is $166.4 million, an increase of 11% year-over-year. On a constant currency basis total revenue grew 12% year-over-year. Our cloud subscriptions revenue retention rate was 112% as of March 31, 2025 compared to 120% a year ago and 116% in the prior quarter. We continue to target a cloud subscriptions revenue retention rate of 110% to 120% on a quarterly basis. Our international operations contributed 36% of total revenue compared to 37% in the year ago period. Cloud net new ACV bookings were approximately 82% of total net new software bookings in Q1 consistent with the prior year. Let's turn to profitability metrics. Non-GAAP Gross margin was 78% compared to 76% in the year ago period and 80% in the prior quarter. Our subscriptions non-GAAP gross profit margin was 89% compared to 90% in both the year ago period and prior quarter. This margin remains best-in-class in…

Certainly. [Operator Instructions] The first question comes from Sanjit Singh with Morgan Stanley. Please go ahead.

Thank you for taking the questions and congrats on the continued progress on the profitability front. That's really nice to see. I wanted to ask about the good government performance this quarter. To what degree was there any sort of potential pull forward into Q1 ahead of some of the uncertainty around ordering patterns due to DOGE? And then as we think out into Q3, the Federal Government and the fiscal year spend, what sort of the baseline assumptions that you guys are making with respect to the UN Federal budget spending periods?

All right, thank you for the question. First of all, I don't believe pull forwards to have been a meaningful factor in Q1. I'm not aware of any pull forwards. So I hesitate to say I'm sure it was zero, but I don't believe it to be meaningful. With regards to Q3, we understand that there's a higher variance this year on the federal business than there have been in previous years. But so far we're on the good side of that variance, and I think that we're keeping possibilities open. We're cautiously optimistic about how Q3 will be.

Awesome. That's great to hear. And then just as a follow up, if I look at sort of the cloud net retention rate certainly within the range that you guys have talked about historically, 110% to 120%. It did dip down more meaningfully in Q1 and doesn't sound like that's coming from the government side of the House. Any sort of spending hesitation you're seeing on the enterprise commercial side of the business that drove that that net retention rate down 4 points quarter-over-quarter?

Not really. First of all, it's a reminder that this is a trailing metric. It's basically 12 months over 12 months. So it's backward looking. Basically a couple of things happen. There were some down sells in Q1 of 2024 that are working their way through the calculation now and they're predominantly unrelated downsells and also we had some revenue growth rates and some of the customers level off during the recent 12-month period. So those kind of conspired to lower the rate a little bit.

I appreciate the color. Thanks, Mark.

Our next question comes from Raimo Lenschow with Barclays. Please go ahead.

Perfect. Thanks for all the clarity on federal and congrats on the quarter. Matt, I wanted to ask on AI and the new agentic world, how do you like, and I appreciate you as a founder, you always think more bigger picture than a lot of other guys, how do you think this new world is going to play out? I mean you clearly have a lot of success, but there's obviously a lot of noise, marketing noise in the market of people. Everyone is doing agents now and agentic, et cetera. Like how do you think like what's ultimately the big thing for a customer and how you fit in there? And then a follow up for Mark.

Yes, this agent's topic, it's both the most important application of AI and as such an exceptionally worthy topic for conversation and development. And at the same time it's overstated and the market is still dominated by more hype than results. And so we're at pains to differentiate ourselves from that and the fact that we rely mostly on customer stories to make our point and that we use words like boring, that this is all an intentional sort of disassociation that we're trying to make between our approach, which is results centric and customer focused, and using AI to practical effect versus the sky high hyperbole that we're hearing from some vendors. I keep figuring that now is the moment when the hyperbole is going to melt away and people are going to care about actual results. And I think that we stand to benefit when that change happens. When people start allocating, sorry, people start paying attention to agents for their impact. Agents are actors. They're the actors of the AI world. AI should be taking action. We believe in AI the worker. This is exactly what we're here for, is to use AI to do work. But that work has to be regulated and audited and guardrailed and provisioned with information and tracked. And so you need all that structure. You need all the structure around AI. You can't just make an AI agent and let it loop loose in the enterprise. And therefore I view the process infrastructure that we provide as a prerequisite for productive application of AI agents. Simply a prerequisite. And to the degree that anyone else is going to make value with their agents, it's going to be because they approximate the functionality, even if they don't achieve the functionality that we're providing with our process infrastructure.

Okay, perfect. And then one quick one from Mark. Was there anything on the, you know, like, I know billings is not really a measure that you focus on, but, like, some of the investors are still kind of paying attention here. Was there anything in Q1 that kind of impacted billings in terms of timing, et cetera? Thank you.

Nothing really to call out.

That's clear. Thank you.

The next question comes from Steve Enders with Citi. Please go ahead.

Okay, great. Thanks for taking the questions this morning. I guess to start, I mean, good to hear the - on the AI side, good to hear the solid usage expansion year-over-year. And I think it was pretty clear coming from the conference what that was looking like. But I guess I just want to ask on, how you're feeling about incremental kind of monetization. I think you called out $9 million or so in the quarter coming from the AI tiers that you have available, but just how do you feel about that usage that you're seeing driving incremental revenue opportunities and adoption of those plans moving forward?

Yes, I am pleased with the willingness of customers to spend on AI. I think there's a recognition that this is creating great value, and so that's moving along nicely. Partly you could make a case for not even trying to monetize at this point in the life cycle of a feature as powerful as AI. I think we're moving toward monetization a little sooner than I might otherwise planned, just to try to create a demonstration of the tangibility of the results we're creating, because I feel like we need that contrast with the market. We want to show that this is real and that our customers appreciate it. So while I could understand not trying to monetize it, I also think that it's a good idea for us to demonstrate that in order to just make a statement. And yes, the value is there for sure. It's wonderful value. As I estimated last quarter, I feel like our TAM has doubled in the wake of AI, which is the best thing that's ever happened to the process automation industry.

Right. No, that's very clear. Great to hear. And then just on new, with Serge coming on board and new CFO starting later this month, I guess what's kind of the mandate or the key area of focus for him as he starts to get ramped up in the role? And I guess it's kind of a piece of that? How are you kind of viewing the ability to drive margin or kind of the levers to drive margin moving forward here?

Yeah, let me say I'm really excited to have Serge coming on board. He's an exceptional addition to our team. I don't want to preempt our strategy by talking about it right now. I think there's a lot of great opportunities where we're going to make substantial progress and I see him as a contributor across the board. Yes, let me just stop at that.

Okay, perfect. Thanks for taking the questions here.

Our next question comes from Jake Roberge with William Blair. Please go ahead.

Yes, thanks for taking the questions, and yes, great to hear that those AI SKUs hit $9 million in the quarter. Can you talk about the use cases or areas of the platform that are driving the most demand on that front? And then is there any sense of how large of a pricing uplift you can see for those solutions on just a per customer basis?

Yes, that's right. Well, we've got it priced at 25% uplift and that may fluctuate, but right now that's our easy. We're just asking 25% to add AI. As for the primary use cases, well, they're, as I said in the comments, they're regular work. They're regular work that otherwise could be done in a rote manner. But AI is just so terrifically good at it. It's processing documents and gathering information and making simple decisions that you might have otherwise tried to delegate to a person or a business rule set intake, it's just terrific at document intake, it can read anything at this point. It can read ripped receipts or handwritten notes or emails or faxes or whatever you've got coming into your organization. It can respond, it can sort, it can extract data. The theme here is that these are route jobs, these are straightforward, simple jobs done at high volumes with exceptional efficiency. As opposed to a lot of the stories you hear about how AI is supposedly supposed to be used towards out thinking people. I couldn't disagree more with that. Right now. AI is a fantastic worker to place in the middle of the heaviest work and the most important work that your organization does. That's where we want to put it.

Okay, that's helpful. And then data fabric queries, I think we're up 166%. I think you start monetizing that solution when customers connect it to multiple data sources. So can you talk about how that's progressing? And then there's also some other players in the market that are obviously talking about other data fabric solutions. So can you help us understand how your data fabric compares and contrasts to those?

It is so important to emphasize how our data fabric is different, because the need for a data fabric has become so important. Now, everyone is using the term, but what they have is not in general what I would have called a data fabric. We are talking about a semantic layer, similar to a virtual database that allows you to interact with data objects across the enterprise as if they were local objects. The semantic layer makes them local effectively. They can be viewed and queried and manipulated and combined in a local manner. It's not just a layer of integration, it is far more than that. It's a semantic layer that makes everything you integrate into a local addressable object. Secondly, it's read and write. Third, it's performance tuned. Fourth, there's a security layer, so you're running queries under variable credentials depending on who's answering the question. This is probably our best feature, along with process itself and the integration of AI with process. Let's put this in some kind of a hall of fame top three features. It's an extraordinary piece of functionality and it is strictly differentiated from anything on the market today that goes by the name of data fabric that I'm aware of.

That's helpful. Thanks for taking the questions.

Our next question comes from Nick Altmann with Scotiabank. Please go ahead.

Awesome. Thank you, guys. I wanted to circle back to the $9 million of AI revenue. How are you guys thinking about contribution from AI in 2025? And can you just maybe talk about the net new ACV that's being driven by AI just to kind of help us think about where that can shake out in 2025?

Yes, that's right. Well, we're going to continue our push to bring customers to the higher tiers, the AI-laden tiers. We've done that mostly focusing on new customers over the past year. We're broadening that into a campaign to bring existing customers to higher tiers as well. Though, as you saw from my notes, a few have already made that jump. We are also going to transition and our whole industry is going to transition away from per seat pricing. That's my prediction. Because per seat pricing is going to move in the opposite direction with AI success. So we're going to need to price by something else. It could be nodes, it could be cases, it could be consumption of some sort. And within a solution or a highly understood context, it could be value or value correlates. So we're all going to be adopting different pricing mechanisms in order to capture AI as an upside instead of effectively having it as a downside as it removes necessary seats. So there's going to be a little bit of a pricing transition across this industry this year. And we're thinking a lot and carefully and we're on the way to making that careful transition.

Okay, great. That's helpful. And then the net new bookings per sales rep up more than 30%. That's encouraging. And we're starting to see some of those efficiencies show up in the margins. I guess my question is like, how durable do you think some of those productivity gains are through the rest of the year? Because on one side they're very encouraging and can help out that weighted rule of 40 target you outlined. On the flip side, you guys are relatively early in kind of running a leaner go-to-market motion. Maybe some of that pipeline was generated when you had a larger sales force. So any color you can provide on kind of how durable those sales productivity gains are as we get through the rest of the year, I think that'd be really interesting. Thanks.

Great. Well, I don't wish to quote any targets on the metrics that we've recently revealed, including the ones that we will be reporting on next quarter as designated. I would sooner classify them as durable than nondurable according to your terms. I don't believe that they are dependent upon a larger pipeline gathering force. I believe that they instead stem from recent innovations. Superior efficiency, better account targeting, larger accounts, selling higher conveying value first. I think that they're the new habits and the new seriousness and tension that we have brought to the sales organization, the terrific professionalism that we are bringing, these are the real factors and these are enduring factors.

Great, thank you.

We have our next question from Derrick Wood with TD Cowen. Please go ahead.

Great. Thanks guys. This is Cole on for Derrick. I just want to start off on the go-to-market. I mean, it sounds like you've made some good progress in efficiencies. I'm just wondering how much of that is coming from this renewed channel focus and narrowing the scope of channel partners versus direct reps. Thanks.

Okay. The narrowing of partners is an example of something that was very successful. Demonstrably, measurably successful last year. We motivated a small group of our most trusted partners to seek business with us and it dramatically expanded the partner generated pipeline in 2024. We continue that because it has worked so well. I saw more evidence of how well it was working last week at Appian World. Our partners are enthusiastic. Those that are focus partners are working hard to maintain that designation. Those that are not are working hard to gain it. We also have another category called champion partners that lead us into a new market. And I see a boom of interest for partners, especially if they're not focused partners on becoming champion partners so that they can receive our attention in at least one market. This has been a great motivational tool, a great alignment tool with our partners. We will certainly keep it up.

Great, thanks. And then just to follow-up on the GAM Suite, could you just remind us, is there any sort of an ACV uplift that comes with that and if so, what would that be? Thanks.

Yes, well, the GAM Suite has a price. It isn't so much an uplift, it's a separate product and the GAM Suite has a price. I don't know if it's published, it might be on GSA, but it's substantial. If you want the GAM Suite, it's going to be a seven figure for sure, a seven figure a year proposition, no matter how small your organization. So it's a meaningful sale when we place it.

Appreciate it. Thanks.

The next question comes from Devin Au with KeyBanc Capital Markets. Please go ahead.

Great. Good morning, Matt. Good morning, Mark. Thanks for taking my questions here. I want to first off, maybe just start with some of the exciting product announcements that came out of Appian World this year. When I talked to the customers at the conference, seems like Intelligent Document Processing and Extraction, that has been a really widely adopted product among your customers. Could you maybe share more on what's been driving success in adoption there? Any learnings you can kind of port over to some of the new AI agent offerings that you can maybe replicate the success you've seen at IDP?

I'm glad to hear you enjoyed the product announcements at Appian World. I was incredibly excited. I felt like all four of the major features that I announced could have been the headline feature at a typical annual conference. Of course, they were all AI related, most of them were agent related. But there was also the one composer that allows you to create a new application through the use of AI, having AI be the author of the application. And that was exceptionally well received and I can tell you that early users absolutely love that. That's been receiving some of the best feedback I've ever seen with regards to IDP or Intelligent Document Processing. This has long been our number one AI use case. Like literally for years this has been number one and we made it sharply better in this latest round of advancements. IDP used to be a feature that you trained per document. So if you had a certain format of document coming in, you would train the AI to recognize it and know where to extract different pieces of information. The new version, you don't have to train on any format of document. It just figures it out so you can give it something in handwriting or in a novel format or an email or whatever it is. It could be in the wrong language and AI is just going to, going to figure it out. And the level of accuracy with which it does that is astonishing. It's both more adaptive and more accurate than anything we've been able to offer in the past. And customers really love it. I build it in the conference as Read Anything I said. You call it IDP, but you could also just call it read anything.

I appreciate the context. They're really helpful. And then just a quick follow-up. I – do you want to dive a little bit deeper into your comments around public sector? It seems like things are still going well and you were cautiously optimistic and you mentioned bookings growth of 59% in the quarter. I mean how did kind of that bookings performance compare to your internal expectations in the quarter? And any color on how that figure kind of compared last quarter, maybe last year's. Anything you can share would be helpful. Thank you.

Yes, well it is a year-over-year comparison of course, and I would say that that exceeded my expectations. But I'm sticking with cautious optimism. That's what we said word for word last quarter and I think it's the right position to take right now and I'm glad that the numbers are bearing us out. But I don't want to get out ahead of them. I want to just let this story tell itself.

Another factoid out there is that the federal revenue, Federal Government revenue grew year-over-year 21% versus the total revenue for Appian during the quarter was 11%. So that strong revenue growth as well.

Got it. Really appreciate the color. Thank you.

Thank you. We have no further questions at this time. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.