Appian Corporation (APPN)
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Earnings Call: Q3 2024

Nov 7, 2024

Operator

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 speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vice President of Investor Relations, Jack Andrews.

Jack Andrews
VP of Investor Relations, Appian

Good morning, and thank you for joining us. Today, we'll 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'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 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. 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.

Matt Calkins
Chairman and CEO, Appian

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, an 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, etc. 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 on processes for a long time. A process is anything an organization does thousands of times. It typically involves multiple steps, multiple participants, organization-specific customization, and evolution over time. Every organization is full of processes. Many of them are unique and require customization. Those processes do some of the most important things, like spending money, handling customers, and creating products or services. These behaviors are the signature of their firms. They're outward and inward expressions shaping reputation and identity. When we say we're the process company, we mean that we sell a software platform for processes, but also that we have the expertise, solutions, executive partnership, and organizational commitment to provide great process outcomes. As I like to say, Appian isn't a product. It's an experience. We're very proud of our 99% gross renewal rate.

Here's where I'm going with this. Commentators today, with all their various names for the same thing and trend chasing, are underestimating the value of process. My example is the recent trend around agentic AI. Agentic AI means using AI to respond to stimuli and take actions autonomously. For a complex action, that means AI must inform itself, collaborate with other actors, and take actions independently. Process is a better way to do all three of those things. AI is more effective working within the structure of a process where Data Fabric provides enterprise-wide data access, where human and digital collaborators are available, and where powerful actions are predefined and launchable. This is especially true when the job is complex and the tolerance for error is low. It's also true if you need to audit AI's actions and tune them for future accuracy or efficiency.

You could think of process as a frame for AI. Process gives it the support and structure AI needs to be effective. Appian uses AI in a process to create a superior version of agentic AI. I say all this to rebut the theory that AI will obsolete process because AI can do everything by itself. You know, you've heard this one: AI can write the code, AI can take the actions, etc. As I hope I've explained, the opposite is true, at least at our high end of this market. Process is the perfect home for AI, and the two are highly complementary. I'll return to this theme in future earnings calls. This quarter, Appian saw the highest yet quarter-on-quarter increase in AI usage. For example, a top Latin American bank is modernizing its enterprise to increase operational agility and optimize margins.

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