Good day, and thank you for standing by. Welcome to the Appian Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Brian Denyeau from ICR. Please go ahead.

Good morning, and thank you for joining us. Today, we'll review Appian's fourth quarter 2025 financial results. With me are Matt Calkins, Chairman and Chief Executive Officer; and Serge Tanjga, 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 first quarter and full year 2026, 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, Brian. Thanks, everyone, for joining us today. In the fourth quarter of 2025, Appian's cloud subscriptions revenue grew 18% to $117.0 million. Subscriptions revenue grew 19% to $162.3 million. Total revenue grew 22% to $202.9 million. Adjusted EBITDA was $19.7 million. For the full year, Appian's cloud subscriptions revenue grew 19% to $437.4 million. Subscriptions revenue grew 18% to $576.5 million. Total revenue grew 18% to $726.9 million, adjusted EBITDA was $76.8 million. 2025 was a successful year for Appian for several reasons. First, we executed our strategy to sell big deals to leading organizations. The number of customers that purchased over $1 million of software this year grew 50%, nearly doubling the value of our 7-figure transactions. I'll share 2 quick examples. A European pharmaceutical research organization purchased a 7-figure software deal to digitize its clinical trial site selection. Appian will accelerate its selection process with AI, improving patient selection efficiency and reducing trial costs. Separately, a North American aerospace manufacturer purchased a 7-figure software deal to automate a core manufacturing system and save the company nearly $60 million over the next 3 years. The second reason Appian had a successful 2025 is that our position within the U.S. public sector strengthened partly due to structural changes. We closed big deals as the new administration have emphasized efficiency and changed how it purchases and implements technology. For example, a U.S. military branch named Appian its cornerstone platform to modernize operations and increase efficiency. In Q4, it signed a 7-figure software deal to unify systems and deploy them to over 100,000 users. The federal government has shifted to partner more directly with software vendors and reduce its reliance on intermediaries. Appian stands to benefit as indicated by the enterprise agreement that the U.S. Army awarded us this quarter. The…

Thanks, Matt. Before turning to our fourth quarter results, I want to cover some changes that we are making in our reporting in order to give investors better insights into our financial performance. First, we have reclassified certain IT, cybersecurity and facility expenses from our G&A expense line item into other line items in our P&L. There is no change to our total expenses, just which line item they are shown in. We believe this new presentation of our financial is more comparable to those of other software companies. Second, we are introducing a new metric, cloud net ARR expansion. This metric is calculated by taking the ARR of our cloud customers at the end of the prior year period and measures the ARR of those same customers at the end of the current quarter. We report cloud net ARR expansion in constant currency. We believe this metric gives investors a more timely insight into our business and is more comparable to how other software companies report expansion from existing customers. Going forward, we will no longer report cloud gross renewal rate and net revenue retention. Finally, we refine our definition of a customer. We now aggregate entities based on their ultimate parent company or an equivalent government entity, whereas previously we counted at a more granular level. As with our other changes, we believe this new methodology is more common practice. Please refer to the earnings call supplemental deck for further information on these changes. Now let me turn to our Q4 results. We had a strong quarter of new business driven by continued AI traction and ongoing momentum in our focus on the high end of the market. The standout performer was our commercial North America theater with the fastest new business growth in over 3 years. Cloud…

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

This is Oscar Saavedra on for Sanjit. Yes. Congrats on the great quarter, guys. Nice to see the cloud net expansion uptick quarter-over-quarter. I was thinking maybe on the guide, it looks like Q1 guide is a bit of an acceleration from Q4. I imagine part of that is that expansion ticking up. But maybe can you help us understand a bit more the visibility and the confidence that you have given that acceleration?

Yes. So we're happy with how we wrapped up 2025, and we'll set up well for 2026 as evidenced by the full year growth rate of 16% for the year. Q1, I guess, 2 things I would say about it. Number one, it will benefit from strong new business that we had in Q4, which is why on a sequential basis is a robust guide. And then the other thing that I would call out is just that it is a quarter in which we'll still benefit from a meaningful FX tailwind. And that's clearly the primary difference between the full year guide and the Q1 guide.

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

Perfect. Congrats. That was a great Q4. I have 2 questions, one for Matt, one for Serge. Matt, if you think about -- I'm totally aligned with you with your vision around AI and agentic needed like a control layer. Like how do you think what gives you the right to be that? Because like, obviously, a lot of other people are kind of trying to eye for that because that kind of position will be very strategic as well. So talk a little bit about what Appian brings to the table that you can go to customers and say, like, I should be that layer. And then I have one follow-up for Serge.

Yes. Well, I want to say that we've been that layer for a long time. We've been that layer before large language models exploded onto the scene. We've been embedding AI actors, you call them agents, in our software, in our processes for about a decade doing jobs as digital workers because we've been a platform that enables and governs digital workers. So we're not a Johnny-come-lately to the idea of governing a digital worker or an AI agent. In fact, it's been our business, and we've been leading for a decade. So I think it's a natural for us to inherit this position as well. But I also want to say that because we have such a strong governance layer, such a unique ability to detect and remediate errors, such a monitoring layer and a self-improvement and an optimization layer, I think we're really uniquely equipped for this moment. I think there's some other vendors that went all in on agents and then realized they needed a governing layer, whereas we come into this market with a governing layer and are, therefore, really well equipped to give agents the structure they need in order to succeed.

Okay. Perfect. And then, Serge, if you think about the slight increase in OpEx you talked about on the sales org, et cetera, how do you think about the evolution of sales capacity from here onwards? And I'm asking because it does feel like a whole new world is opening, and there's quite a few players in the software space that are now thinking about like we probably should think about sales capacity increases. Is this just one-off things? Or how do you think about that evolution here?

Thanks, Raimo. So I guess I'll start with a little bit of history. We've done a great job significantly improving our sales productivity and paybacks on our sales and marketing investment, really particularly last year. And that, frankly, gives us the right to grow our sales org because we want to do it in a financially responsible way. So that's point number one. Point number two is kind of like your point, which is the market is large and growing, and we are very underpenetrated versus the opportunity. So to us, this return to growth of the sales org is the beginning of a long-term trend. But it's important to do it consistently over time. What you don't want to do is overextend because it's a difficult operational task. What you want to do is bring in people, make sure they're successful, make sure that they reach their productivity and then do it again year after year. And that's fundamentally how you kind of put yourself in a position for multiyear growth.

Our next question comes from the line of Steve Enders of Citi.

Okay. Great. I guess I just want to start on maybe the opportunity around AI. And I guess, given the purview that you have in some of these larger customers, just what have you seen so far from how their budgets or their purchase decisions are changing as they're looking to incorporate AI? And I guess maybe what does that mean? Or I guess, how do you kind of view the opportunity pipeline and given what that means for '26?

Yes. AI has been an unalloyed positive for us in our relations with our customers, maybe causing some consternation in the investing market. But in our sales situation, it's an entire positive. It gets us into higher-level conversations. It allows us to speak strategically to the top topic that's on executives' minds. We are more likely to win according to internal analyses when AI is a factor in the decision. So it's helped our TAM. It's helped our access. It's helped our win rate. We're benefiting in all dimensions from AI.

And Steve, if I can just add, just to give you a sense of how that's sort of playing out over time. Customers begin with proof of concepts. Then when they are ready for production use case, they need to upgrade to our advanced tier to have access to AI and production. And we talked about in the past about how the percentage of our customers that is on that tier is growing. And -- but plenty more that we can upgrade to advanced tier. Then what we're starting to see is some of those customers have already upgraded coming for the second or the third workload because they're happy with the performance of the first one. And that gives us incremental opportunities to grow revenue there. And then over time, we will have incremental tiers as more functionality comes online. So that's kind of the process of upselling AI and how it fits into a company's budget.

Yes. Let me follow on that. We've got this thesis, and you've heard it because I just talked about it, that AI belongs in a process and that within the deterministic framework of process orchestration, AI can really attach itself to valuable work and create new value. So we've detected that some of our solutions are ideal vehicles for demonstrating that thesis. And I mentioned in my prepared remarks, this solution called Doc Center, which is a pretty straightforward usage of our technology. Just ingest documents, launches workflows, uploads data, rapid turnaround, high accuracy. But it's just such a good demonstration that we are focused on driving this into dozens or scores of accounts as quickly as possible this year as we can because everybody who sees this knows our thesis is correct. And this is what I think we need to do in the market. We need to establish that our philosophy of making value out of AI is accurate. Every organization in the world right now is wondering how they can make use of AI. We're wondering whether AI can have a value proportional to its CapEx, and we have on our hands a demonstration of how to make that value. Just embed it within a process and it goes. And the results are tremendous and it's predictable and we can install it quickly. So where we see that we've got some of these winning demonstrations that establish how you could make value with AI, we're going to put the pedal down.

Okay. That's great to hear, and I appreciate the context there. Maybe on the Army enterprise agreement. I appreciate the color on the 8-figure customer there. But I guess kind of where do you see that spend potentially going? Or how do you kind of view, I guess, what incremental use cases or how you just kind of view that relationship developing moving forward with the enterprise agreement?

Yes. This is a threshold for us. This is an important moment in the growth of this organization. It represents a degree of confidence that an agency has not in the past shown in us. We've done a lot of great work, and we've done some big projects and delivered some wins, but we've never had a $500 million ELA like we do now with the Army. And that speaks volumes inside the Army. It allows us to speak to any part of the organization with great credibility, but it also allows us to go to other departments in the government and say, here's the department that knows us best. Here's evidence that -- of what they see in us. It also allows us to approach our partners and say like this is the kind of -- this is what we could succeed on together, and now we want you to help us somewhere else. So this is just a wonderful badge of seriousness, and we're going to wear it all around Washington. Really pleased with what that says. As for how we got it, I'd say a lot of the conversation is around modernizing legacy applications. And this is something I've spoken about on previous earnings calls, but I didn't get into it much this time. But I do want to mention that this topic is causing a lot of excitement amongst our customers and prospects. If I mentioned or demonstrate even better the technology that we have today to convert a legacy application into a modern Appian application, it typically stops the conversation cold. No matter what it is we were talking about, if there's a customer or prospect executive in the room, they want to stop everything and talk about legacy modernization. And we had conversations on that at the Army, who obviously has a number of legacy applications of their own, and that provided a lot of the momentum behind this award.

Our next question comes from the line of Derrick Wood of TD Cowen.

Matt, I appreciate the thoughts on the landscape of AI versus software, given all the concerns out there. My question is when it comes to building software applications and processes for your customers, how are you guys using AI internally to accelerate that value delivery? And then when it comes to the LLM vendors, like what do you think the challenges they might have in trying to build their own software orchestration and governance layer up the stack?

Yes. Okay. So they are going to have some challenges, and it makes a world of sense for them to partner with us in order to complement the power of their model. Look, the whole industry is under pressure right now. In 2026, it's a time of testing, where AI has to demonstrate that it can create commensurate value to justify the CapEx. And I think it's the question on everybody's lips and every organization is wondering about it and the 56% of CEOs who reported no value in the PwC survey last month are wondering about it. Everyone is wondering where we will find the value. And of course, the answer is actually very simple. You just have to connect AI to the processes where the greatest value takes place. And that's a slightly complicated connection in order to pull off because AI needs role and responsibility and a constrained aperture functioning and checkups and revisions and learning and so on. It's just -- it needs what a process layer could have given it. And so I feel like this top question that looms over the economy in 2026 is a question that I won't say we have the answer to it, but I say we have a lot to say. We have a lot to say about this question. I'm excited about the ability to prove that answer in concert with the large language models. Of course, we're agnostic. We work with all and many of them. And for that matter, with the clients who are all desperate to find an answer to this question. They're all eager for value, but not wanting to take a risk and to move first and to run afoul of the many pitfalls in AI, the unreliability and the dangers that come with that. What was the first part of your question again?

Just how you're using AI internally to maybe help accelerate the value you deliver to customers?

Yes, that's right. Well, we're using it thoroughly, right? We're expecting major increases in all of our development capabilities this year because we're making a prolific use of AI. So I expect that to be excellent for our productivity and engineering. Also, we're using it in every deployment. So when our services teams are on site, creating new applications for our customers. They are invariably using AI, which is terrific for acceleration for optimization, for recommendations on improvements, just a marvelous way to get to the endpoint. And I want to clarify here that the endpoint is not a stack of AI written code. The endpoint is an Appian application, which provides the structure, the guardrails, the safety, the monitoring that AI alone wouldn't have provided. And also that Appian application, once you've used AI as the bridge to an Appian application, that application now has the flexibility, the ability to evolve over time to match new strategic needs or to cultivate greater efficiency or to leverage new technologies. It is a living vehicle instead of what you could call new legacy, right? You don't want to go from old legacy to new legacy. You want to move to a living vehicle that can adapt as your business evolves.

Great. And then for Serge, I mean, you guys had 36% growth in professional services, I think that was the highest in 8 years. Your on-prem business was quite strong as well. It doesn't sound like you expect that to continue in the upcoming year. Could you just give a little more color on what drove that outsized strength that seems to be a little more onetime?

Yes. Let me take them in order because they're different answers. So we've been very pleased with the demand we're seeing in our professional services business for -- especially in the back half of 2025. And it comes down to a couple of things. One is the world of AI because as Matt was just talking about, customers want to get the value but they're sensitive to get it at the levels of accuracy and performance that they are accustomed to. So when they choose our software, they usually also partner with us on implementation. Because we've done it before, we bring that implementation know-how, which is scarce in the market right now. And that helps us kind of sell both software and services when it comes to AI. And then the second piece is federal. Our success there and the change in how the government likes to deal with vendors has helped our professional services business on the federal side as well. And that really drove our business next year. And frankly, we're expecting it to continue driving that business next year with 9% growth rate. We did see an uplift in demand, and we're going to continue seeing growth there, but it's not going to be a step function as we have experienced here in the back half of 2025. And then on the on-prem side, we had a very strong Q4. Frankly, that was all federal. We credit to our teams when the shutdown ended, we were ready to go and we got the deals that we were going to get, frankly, even better than we would have expected had the shutdown not been there. So that's the story of the fourth quarter. But then as you look forward, I can tell you what we see quantitatively and qualitatively. On the quantitative side, we just see a bigger mix of cloud in the pipeline than has been the case historically. And then secondly, when we talk to our customers, even our on-prem customers, they are looking for incremental deployments in the cloud. So for example, one of the largest deals that we have in the pipeline in Q1, we'll see if we get it or not, is for a customer who did one of our largest on-prem deals last year. And that's not them moving their Appian workloads from on-prem to the cloud. That's incremental deployment in line with their own IT strategy and moving to the cloud, which is why the description or the forecast for the on-prem business is what it is.

Great. Congrats.

Our next question comes from the line of Devin Au of KeyBanc Capital Markets.

All right. First one I have, maybe for Serge. Could you maybe speak to the framework of kind of the '26 revenue guidance. I believe last year, given some leadership transition, some uncertainty around pub sec and changes around go-to-market, there could be some more conservatism being embedded in the initial guidance '25. Are you applying kind of similar framework here in '26? Or can you just speak to that a little bit more?

Yes. So how we forecast the business hasn't really changed internally, and there's no incremental conservatism or caution. From a macro environment, I think I can speak for the company, even though I wasn't here a year ago. It feels a lot less uncertain than it did a year ago back when [ DOGE ] was starting, and there was a lot of macro sort of headwinds or potential headwinds related to the international relations. So from that perspective, we feel like we have perhaps a better handle on the world out there than we did a year ago. The thing that I would say specifically, though, is I divide the guide into cloud and the rest of the business. As you can see, the cloud, it's just ratable. It's frankly a little bit easier to forecast, which is why the range there is narrower for the full year as a percent of total business, whereas then we have a broader range as a percent of the business for the rest of it just because as you've even seen last year, for different reasons, both on-prem and professional services can be lumpier. And that's why the range on the full year guide is as wide as it is.

Got it. I appreciate the context there. And then just a quick follow-up on the strength that we're seeing from pub sec. You continue to see momentum there, which is encouraging, and it seems like Appian is really well positioned there. As you guys kind of return to sales capacity growth, could you just speak to like how are you thinking about the deployment of resources towards that vertical specifically and kind of how you guys are going to sustain and amplify the success there?

Yes. We are growing our capacity in the federal vertical, but we're growing it in other verticals as well. At the end of the day, I will just reiterate what I said, the size of our distribution is a limiting factor versus the size of the opportunity. And we don't want to try to address that in a big bang because then you run the risk of deteriorating execution. So we're going to hurry up slowly, and we're going to build sales capacity year in and year out. But certainly, that's the case in the federal space as well.

Congrats on the strong results.

And our next question comes from the line of Lucky Schreiner of D.A. Davidson.

Great. I'll echo my congrats as well. I have a follow-up question on the guidance. Coming off a strong quarter, the cloud growth guide, there's a lot of deceleration baked into that throughout the year. So just I'm wondering, is that all FX related? The pipeline sounds strong. So is there maybe conservatism around deal timing or ramping of sales capacity? Just curious what's driving your outlook on specifically the cloud growth guide.

Yes. So cloud growth is 20% at the midpoint for Q1 and 16% for the year. And the majority of that really isn't anything about the underlying constant currency business. It's really about the fact that we still get one more FX bump in Q1 before it normalizes.

Thank you. I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.