All right, why don't we get started here? Welcome everybody for joining us today to day one of T Bank's Technology Leadership Conference. My name is Devan Now. I am part of the software research team here at T Bank. We are very pleased to have Appian's CFO, Serge Tanjga. Hope I didn't mess that up.
Excellent.
Awesome.
Excellent work.
you for joining us for a 25-minute fireside chat today. Really pleased to have you and welcome.
Thank you. Thank you for having us.
Maybe just like level set here, Serge, maybe for the investors who are maybe a little bit unfamiliar or not fully understand the Appian story, can we just give like a big, a quick overview of the company as well as maybe kind of walk through how a customer would use a platform today?
Yeah, yeah. Appian is a software platform that allows customers to design, automate, and optimize its various processes across the organization. We're best suited for complex mission-critical processes that span across various portions of the organization or even the organization at the outside world. To make that kind of more real-life, maybe I'll share a few examples.
Yeah.
For example, one of the largest asset managers in the world is using us in the process to onboard and manage their customers. This was a fragmented process that was partially manual before, and they've aggregated a number of those pieces to build a new application on top of Appian and digitized and modernized the process as well. We're also being used by one of the largest financial institutions in their credit card division. They need to monitor their corporate customers and monitor for regulatory reasons all the communications they have with them regarding spend, whether it is email or telephone or any other means. Those used to be separate systems that were, again, consolidated and brought onto a single application in Appian that makes the process far more efficient but also more accurate.
Medical devices companies are using us for a lifecycle from order to install of the medical equipment. That was replacing an internal application that was just struggling to scale. A final example, we are big in the public sector. One of the largest U.S. cities is using us to run their budgeting process. It used to be manual and paper. You would submit your proposal in paper and you'd wait for a response. Now that's through an online application from Appian that reduces the wait to hear your answer by more than 50%. Hopefully that gives you some sense of some of the unifying characteristics here, which is around replacing manual processes, consolidating into a single platform, allowing better visibility, tracking, and performance of things that were previously done in a siloed manner. Frankly, there's plenty of that still in the outside world and plenty of opportunities for us to go after.
Okay.
The other thing I would say is, I know we'll get into AI, or I'm sure we'll get into AI.
We should have to, yes.
Kind of impossible not to. AI only further increases what's possible in terms of automating and improving processes, and that's a significant opportunity, incremental opportunity for us.
Okay. Maybe just staying on the recap of the company really quick, can you just quickly touch on like the pricing model of some of your products? I know just given how pervasive AI is, are you guys seat-based, consumption-based? How do you guys price your products?
We have a number of pricing models. The biggest one is per seat, but we also have per app. We also have varieties of consumption models that are in various stages of its development. I think the pricing models are important, and we're going to continue being flexible and responsive to however customers want to interact with us. What's more important than pricing is actually how you determine value. Our customers get significant value from our platform, and we believe we have no problem pricing to get that value. We've been raising prices over the last couple of years just on an apples-to-apples basis. We continue to believe that no matter how the world of pricing models evolves, we'll be able to get the value, and that value only goes up in the world of AI.
Okay. I know we'll get into this a little bit more, just pricing and packaging a little bit more so. Serge, it's your first conference with us, but also you've been in the CFO role for Appian for a few months here. Maybe a quick background of yourself, but also what drove you to join Appian?
Yes. I actually was on the other side of the fence for a long time. I was an investment analyst for a variety of buy-side firms for 15 years. Then I joined MongoDB as VP of Finance and ran the entire finance function outside of the accounting team for a period of about six years. I joined Appian earlier this year. There are really a few things that attracted me to Appian. The first one is just the quality of the product. Our product really spans the breadth of use cases in terms of processes that we can cover. Ease of use is great. Flexibility is great. Our customers really like us. They see us as a partner, somebody they want to invest more in. That's a strong, that's an amazing asset.
If you get that right, you can get a lot of other things wrong but still build a great company. The second thing is the AI value proposition. We are a company that can deliver value with AI today, tangible value in ways that enterprises are prepared to consume it. I think that that's a very powerful sort of medium and long-term driver for incremental growth at Appian. Finally, there is the sort of improved efficiency and execution. The company has done a lot over the last couple of years to position itself for more efficient growth. I look forward to being a part of that journey going forward.
Okay. Yeah, I mean a lot of goodness that you just mentioned. We'll dive into it a little bit more here. Maybe just recap the second quarter results that you guys printed last week. Really strong results there. Probably one of the largest beats and raises in the company's recent history. I think cloud subscription revenue, which is kind of the main metric you guys look at, accelerated 21% reported. Really solid. Maybe just briefly talk about where you guys saw the strength in the quarter and what drove the acceleration.
Yeah, so very pleased with the quarter. Cloud revenue growth 21% or 18% on a constant currency basis, acceleration both with and without FX compared to the prior quarter. Total revenue growth of 17% in other acceleration. Margins, even the margin of 5% in our seasonally highest expense quarter because a number of our large sales and marketing events happened in the second quarter and well ahead of guidance. Really across the board, above our expectations. Frankly, the main driver is really the strength in new business. The strength in new business we think comes from two areas, broadly speaking. One is we've pivoted our go-to-market about a year ago to focus more exclusively on the high end of the market, the enterprise segment, the Global 2000. We're seeing evidence of that working. We're seeing larger deal sizes. We're seeing better execution. We're seeing more strategic conversations with customers.
Outside of the largest numbers, I would say, if you kind of look under the hood at some of the deals that Matt was talking about in his script, just really impressive deals in terms of their size, their duration. Some of them are ramping deals with significant incremental commitments over the years from our customers. That's just really very good to see and encouraging from where we might be going in the future. The second, of course, is AI. We're seeing steady building of AI demand. We are seeing customers who agree with us in terms of how AI should be deployed, meaning in process with very specific tasks, delivering tangible value, but within a security parameter and compliance terms that enterprises are comfortable with.
We see that from existing customers who are upgrading to our advanced pricing tier, where they have access to AI features, as well as from new customers with 50% of our new logos over the last few quarters coming on this advanced tier, meaning they're interested in just off the street showing up and using AI. Just one quarter does not a trend make, but we're encouraging what we're seeing with Q2, and I believe that's a sign of more good things to come.
Yeah, no, it's definitely encouraging. I want to maybe peer under the hood a little bit on some of the go-to-market changes you guys made. You guys finding success up market. I know previously you guys have done something around kind of make that conversation around value a little bit more clear, right? As you guys go to market, can you just explain that a little bit more about that motion? I know that's been probably one of the benefits you guys saw that drove the results.
Yeah, I would say a year ago, we decided to sharpen the focus by spending less time and less resources in the mid-market and focusing exclusively on the enterprise segment. The reason why we're focusing on the enterprise segment is because when you are a mission-critical platform for complex applications, that's sort of where you belong. That's not to say that we don't have a value proposition for the mid-market or that we won't invest more over time there as well. As we think about where we're seeing the best returns right now, that's certainly an area to double down on. It is about value. It's about communicating that value clearly to the customer. It's about negotiating that value, keeping its fair share of it.
We have a new Chief Revenue Officer who joined us in November, who's instituting, frankly, a higher level of discipline and focus and rigor in our process all the way through pipeline and forecasting, but also fundamentally believing in the value that you're delivering and negotiating until you get that value. These things take time to kind of fully manifest themselves, and we are excited about the early steps, but it's positive so far.
Okay, that's great to hear. Maybe switching gears a little bit to the AI upturning efforts. Great to hear the results you guys are having. You mentioned 50% of the new logos have attached or attached the advanced tier with AI capabilities embedded. Could you maybe just step back and kind of talk about what uplift are you guys kind of seeing from these upturning efforts? Are you guys mainly rolling it out to new customers? Could we see more concerted efforts to target the existing base, which is the bigger opportunity here?
Yeah, so the advanced tier, we effectively have three tiers of selling licenses going forward. The standard tier, which has the regular, if you will, functionality of our platform. Advanced tier that is list price 35% uplift, but we sell it. We allow some discounts, so it can be no less than 25% uplift. That includes our advanced AI features, our Data Fabric functionality, as well as a number of other more recent and more sort of incremental features. We rolled that out 18 months ago, and we're selling it to new and existing customers. It's actually really good to see that both are picking up. On the existing customer side, it's frequently a part of the upgrade cycle. It comes up when a customer comes up for renewal, and that's when we have conversations with them.
The other governor isn't just, you know, when the customer talks to us, but it's also when they have use cases, AI use cases that they want to bring into production. If you don't have that, you know, there's really no, you're not going to derive value from the advanced tier. Some customers are ready sooner than others. That's why we see 50% of new logos coming in because those are customers that have a production-ready AI use case and are looking for us, even though they don't have prior experience with us and have decided that we're the best platform to build this use case. It's a strong sign of our value proposition in the market. We'll see it keep coming from both directions, both from continued effort to upgrade existing customers as well as new logos that come in in advanced tier.
Okay. Maybe just double-clicking on the customers that have adopted the AI tiers, is there a commonality of industries and customers that have been adopting AI? Is there industries that are more matured or maybe more educated around AI? I think also on the call, your CEO, Matt Calkins, talked about AI pulling you guys into new industries that you guys haven't seen before. Can you talk about that as well?
Yeah, I think we're seeing it across the board. I don't think there's a single industry that we can call out as being a particular leader when it comes to it. It's more company-specific.
Okay.
We're seeing it across financial services. We're seeing it across life sciences. We're seeing it in some of the sectors that, as Matt was speaking about, some of the sectors where maybe we've been less represented in the past. The key is the customer's willingness to move to production with AI. The use cases that we're seeing are related in particular to our product that's called AI Document Center, which allows customers to insert AI into the existing processes and more quickly derive value from their documents, whether that's from extraction of information, summarization, or actioning based on what that information says. Frankly, we're seeing very solid adoption in those use cases because it's a logical extension of what we already do for customers, a significant value in a way that's tangible and recognizable by customers while still adhering to the constraints that the enterprise processes need to adhere to.
Got it. Sounds like, yeah, a lot of strength coming from a broad base of customers and markets. Maybe just kind of tying back to the financials, right? I mean, a lot of things are happening. Good things happening. Go to market, upmarket, success, AI upturning, seeing success. When I look at the second half guide for cloud subscription revenue, I think you're getting to a slight deceleration, especially in the fourth quarter. Maybe just for the audience, you know, how to reconcile the momentum you're seeing, go to market, AI, and then the deceleration that you're kind of projecting in the second half here.
Yeah, we exceeded our guidance in the second quarter. It was an exceptionally strong quarter across the board. We expect continued strength, but maybe not to the same level that we've seen in Q2. Of course, if we deliver it, that would be great. As we look at our pipeline and opportunities, we think that the current guidance is prudent.
Okay. I'm just going to pause you and see if there's any questions in the audience before I move on here. All right. Maybe just stepping back and kind of ask you about macro, specifically federal and public sector. I know you guys have some exposure in that regard, public sector and U.S. Fed. I'm curious, how has your conversations been with the customers in that sector lately, just given a lot of disruptions happening, and kind of what your expectations are for the rest of the year for that particular sector?
Yeah, so why don't we take macro more generally and then DOGE specifically as kind of two individual topics. When it comes to macro, obviously, there's been a lot of excitement in the headlines in terms of tariffs and changes and what that means for the U.S. economy and for the global economy. We obviously don't have a macro crystal ball, but what we can tell you is that, let's say, macro volatility that we've experienced so far, or at least headline volatility, hasn't really impacted our business. Not in terms of customers' willingness to buy, length of the cycles. Maybe it's because we don't see it. Others may see it. Maybe we're not large enough to be affected. Maybe our value proposition stands more strongly. Purely from our perspective, we have not seen an overall macro negative impact. Of course, that's the rearview mirror.
It may be different going forward. So far, we've been able to execute without really, I would call it business as usual. On the federal side, I would maybe divide the story in three pieces. When the new administration came in and we started with the DOGE efforts kicked into gear, there was a lot of confusion within the various sort of spending centers within the government in terms of what's allowed, what's not allowed, and maybe a bit of a vacuum. We've executed really well through that. If you look at the first half of the year, our federal business grew faster than our total business in most relevant metrics. We feel very good about that. It does feel that it's a more normalized state of affairs when it comes to doing business with the government now compared to, say, February or March.
That said, as we look immediately ahead of us and think about the third quarter, that's the big federal quarter. That's the end of the fiscal year. We were obviously pursuing deals, a number of renewals as well as new opportunities that we feel confident about. As with every large deal, and particularly in this environment, there's an element of, let's see how it plays out. Obviously, we've taken a view in the context of our guide, but we'll give you more context when we report the quarter and see how we play out. We do look at it with cautious optimism.
What I'm most excited about, though, in the context of our federal space is really if we take a step back and think about it beyond kind of a quarter or two and think about the changes that have been now put into place and what they mean for Appian. I think there's two things to keep in mind. First, the federal government has made it very clear that they want to modernize, that they want to eliminate legacy systems, consolidate on more modern solutions, and get out of business or managing legacy technologies that are 30, 40, or even older, 30 years old or even older. That's an opportunity for us as the net beneficiary of sort of getting out of those old technologies and getting onto a new platform like ours. We think that's a tailwind that's going to benefit us for years to come.
The second thing that the government has made it very clear is that they don't want to operate through intermediaries. They don't want to have companies that are serving as contractors and people like us being as subcontractors because the contractors primarily sell consulting and their incentives may not be aligned with that of the government. They're aligned with ongoing projects, incremental purchase orders, incremental hours on site, as opposed to delivering the value and moving on to the next project. As I think about what that means for us, that likely means us working more directly with the government, which will give us not just the opportunity to pick up some professional services revenue as we go along, but also more clearly communicate the value of our platform, which we think we just do a better job than an intermediary.
That will mean, going back to the first point, our ability to win more software revenue over time. Whatever happens in this quarter, a good batter in the middle, those trends seem to be firmly in place and will benefit us going forward.
Okay, that's super helpful context. Maybe just sort of adjacent in the market conversation we're having, maybe on a competitive landscape side of things, I think some of the large software players are getting a little bit more emphasis on getting into automation. I think one of your peers in the industry is getting a little bit more aggressive on pricing, kind of expanding on their partnership channel a little bit just to expand their target market. Can you just speak to the competitive side of things? Have you seen win rates kind of change materially at all? Just give us an update on that.
Yeah, I would say we generally divide our competitors into two buckets, what I would call the tech conglomerates that do a bunch of other things, including dabbling in automation, and then the pure plays, if you will, that play exclusively in our space. What we see on the conglomerate side is that obviously they are bigger companies than us, better name recognition, and they each have their own foothold inside the enterprise depending on where they started. From there, they try to expand into the automation space, but there's only so much complexity they can handle. They can handle simpler tasks, simpler processes, and beyond that, you need to customize, you need to build custom code, you need to basically do things that are antithetical to the actual process of automation.
We find that as they kind of get out of their comfort zone, A, we do better competing against them, or B, if they win the deal, occasionally they fail to deliver it, and then we get the customer, just, we get them a little bit later. We don't see that competition changing. We don't see the fundamental difference in product quality really impacting us anytime soon. It's interesting that you're talking about pricing. We haven't seen or heard anything, and our win rates are holding steady, so we feel good about that. On the other side, when it comes to pure plays, those are actually the opposite. They are over-engineered, overly complex. The tech stack is too many layers in that layer cake.
You can build something, and it can be very helpful on day one, but then it's A, it's expensive to get there, and B, it's expensive to change it. One of the things that's super powered to Appian is the breadth of the offering, and then the second one is time to value. You can relatively quickly see value from Appian, and that's how we get into customers, and that's kind of how we continue winning new business.
Got it. I just want to quickly touch on your strategy around partners expanding that ecosystem. I think that has been a theme in the past few years. I'm just curious, how has that ecosystem evolved over the years, and where are we in that investment cadence or cycle, I guess?
Yeah, so we have, the breadth of our partnership program is significant. What we've actually been working over the last couple of years is more on the depth of it. What that means is identifying partners who are willing to bet on us and betting on them in turn as well. Increasing investments from both sides to deliver greater go-to-market success, we call them focus partners. We give them better access to our professional services deals that we source. We expect them to promote Appian as their front, you know, top-of-the-list solution when they go talk to customers. We're seeing that work. We're seeing that work in terms of benefits of the pipeline and just general strength of our go-to-market presence. We're going to continue pushing that while, of course, continuing to invest in our own direct go-to-market efforts at the same time.
Do you have any numbers around how much partners and channel kind of influenced deals today?
We do, but we haven't seen it.
Okay, got it. Pause you again. Question?
Have you seen any changes in terms of sales cycles? Like, are you seeing shortened because people are excited about, you know, time to value that you guys are delivering, or is it kind of constant? Also, on budgets, do you see customers reallocating budget from sort of OpEx, or are they creating new budget for, say, ideal ships?
We have not seen any change in the sales cycles. Our sales cycles tend to be long. It's a complicated sale, technically involved, and usually involves a number of parties that need to sign off. We haven't seen it getting any worse. I don't think that we're necessarily expecting it to get better, nor do we need to. Regarding budgets, what we've generally seen is that AI funding hasn't come at the expense of operational initiatives. AI experimentation funding has not come at the expense of core operational initiatives, which is where we compete for capital. It hasn't impacted our ability to win business.
Thanks for the questions. I'm just going to move back into financials since we have you here, Serge. Maybe on margins a little bit. I know you mentioned Appian has done a really good job getting efficient with their operations as such. I think also you guys just recently raised the EBITDA guidance, kind of implying four points of year-over-year expansion. Nice to see. Can you just speak to the initiatives you guys have put in place to drive this level of expansion?
Yeah, so there's been a concerted effort for the last two years at the company to improve profitability. When it's all said and done, we will have gained close to 20 percentage points of margin, EBITDA margin over the last couple of years. Frankly, we've done that by eliminating low productivity areas of effort, whether that's on the go-to-market side or the R&D side. We've done that with a significant amount of rigor and, frankly, doing things that at times can be unpopular, right? That's how we've gotten to the point where we are right now, where we're guiding to something like mid to high single-digit EBITDA margin for the year.
Also, if you look at our financials, our OpEx has been basically flat for much of the last two years because, again, we've been reducing areas of investment that have low returns and use that money to fund what's been working. As I look forward, there's a few things that give me comfort and excitement. The first one is our unit economics are very strong. We have a strong gross retention rate. As a result, our LTV to CAC is very strong. What that means is that we ought to be able to continue growing while at the same time expanding margins. It's not an either-or. We need to be able to do both, and I believe that we can. The three areas that I think that we're going to focus on are continued go-to-market efficiencies.
We can improve payback on our go-to-market investments, both by continued improvement in our processes and execution, as well as incremental investments that will have disproportionate return on the total spend. The R&D side, we're going to continue investing in ways to make our R&D effort more productive, whether that's AI or hiring in low-cost centers. Of course, we are an AI company, one that promises benefits of AI on process efficiency across the board, and we'll eat our own cooking. That will be both in terms of customer-facing functions and R&D, as well as back office. We can give more efficiency across the board as we deploy in our own tools, as well as other tools, just like our customers do.
What that will all net out is continued margin expansion, but we do see an opportunity to grow the OpEx base because, again, some of the things that we talked about, whether that's the AI opportunity, whether that's the federal opportunity, we haven't talked about the modernization opportunity, but that's also incrementally unlocked in the context of AI. We've seen opportunity to grow and build a much larger company, the one that it is right now. We will be balancing growth and profitability going forward.
Awesome. It seems like we are out of time. Serge, really appreciate the conversation here and everyone for joining today. Thank you so much.
Thank you. Appreciate it.