Good morning. I think it's, it's good morning still. Okay, we got a little bit more time on the East, on the East Coast time. My name is Tom Blakey. I'm the Infrastructure, Technology and Software Analyst here at KeyBanc, and we're great to have with us Mark Matheos, the CFO of Appian, and Sri Anantha, the Head of Investor Relations. Thank you very much, by the way, to both of you coming all the way here.
Please, appreciate. Thanks. Thank you, Tom.
You know, Appian operates in several, you know, different process automation markets, and I, I would qualify it as sometimes a misunderstood name. Why don't we just kind of maybe give it its due in terms of, you know, giving us a brief overview of how you competitively differentiate, who your key competitors are, and what the, you know, the, the, the value prop for the platform is.
Sure, yeah. You know, Appian is really a platform for process automation, and it's all the different things you would need for a fulsome solution for, for all process automation at large enterprises. We have things like our core low-code workflow application building engine, but also RPA and Process Mining. Those, those were acquired through acquisitions in the past few years. You know, we've, we've had AI capabilities for years now. Of course, that's all the rage these days, so I'm sure you'll have some questions about that, Tom.
Yeah.
It's, it's a one-stop shop, right? It's for companies that are dealing with challenges and complexity in their business, and, and maybe they're living with technical debt. Maybe they have, you know, legacy systems that aren't working as efficiently as they'd, they'd like. Maybe they're stuck in email and spreadsheets. You know, Appian can come in and build a, an application that really solves their problem, and not in a short-term, kind of Band-Aid way. We, we don't go come in and just put in a couple bots here and there to try to make things a little faster in, in isolated areas.
We really just do a, a whole view of the, the entire process and provide a much more stable, durable, and responsive solution to that, that problem that's often, you know, in mission-critical areas for these large enterprises.
Well, a perfect segue into the mission criticality of the processes that are being built on your platform. From a macro perspective, a lot of companies have talked about softness, elongated sales cycles, certainly, down sells in the context of the contract size. Your million-dollar ARR cohort has been the fastest-growing cohort, so you're kind of bucking that trend. Just maybe give us an update in terms of what's driving it, outside of the introduction you just kind of gave.
Yeah, you know, it, it's not that surprising to us internally, but it's really kind of the notion that the companies that are using Appian the most are the ones that are most satisfied, the most engaged, the most kind of thriving, right, on the platform, and they're more likely to renew, more likely to expand. You know, we, we are in these kind of verticals with, with, again, large enterprises, but also governments, public sector. Besides the kind of bread-and-butter financial services, healthcare, pharma, we also have a fair amount, about 20% of our business in the government space. All of these folks are, are using Appian by and large, for really important things.
In the government space, it's procurement-related, most recently, but, you know, there's been various use cases in really all aspects of government. You know, how does that help with macro? I think to your, to your question, it certainly allows us to be more resilient, I think.
Stable.
Yeah. I mean, the GRR, it's held pretty strong in the upper 90s, at 98% most recently, which is I think is elite, right? I think that's helping kind of well, well, improve our point around mission criticality, but it helps us kind of be a little bit more insulated from the ups and downs of the macro. Now, you know, we're certainly seeing some macro impact. We've noted that the past couple, 3 quarters in terms of elongated deal cycles. You know, it's, it's a phenomenon that's kind of in the background. It's not really a huge shock. We're not seeing deals disappear or anything like that, but takes a little bit longer to get a deal done, a little bit more approvals.
Okay.
Tom, what I would just add there is, like, the key thing is the verticals that we are focusing on.
Yeah.
When we look at our different customer cohorts, is what we have observed is customers who are really satisfied, who won that first implementation very well. We have seen that second upsell, the third upsell, come more relatively quickly. The broadening of the platform in the past few years, we are also beginning to see more second 7-figure deals, even for the initial deal happening.
Any, any change in the vertical mix or type of application or business process automation in that kind of more 7-figure deals from a new logo perspective?
I think the vertical mix has been pretty steady. You just look at financial services, pharmaceutical, life sciences, then we've seen government has been a very strong grower for the past few years. We're also beginning to see in manufacturing, industrial areas, but those remain small pieces at this time.
Yeah, if there's any stronger vertical this year, so far, it might be public sector.
Yes.
And it's really the, the GAM solution, the Government Acquisition Management suite, that's driving a little bit more success there, so it's great to see that.
Maybe, maybe then we can talk on that, touch on that, from a cross-sell perspective across agencies. You know, your go-to-market strategies were pretty clear, to expand into new channels like Appian World in May. We talked about that. We all talked about that. Just maybe talk us through the go-to-market strategy, how it's changed over time, and where you expect it to go forward as you, as you try to decrease the professional services percentage of your revenue?
Yeah. We've, you know, we've been able to successfully, kind of continue that shift, the mid shift over to software. At the IPO, we were, which was, you know, 2017, we were kind of a 50/50 software services revenue mix, and now we're a lot closer to, you know, 75/25. We're gonna see that expand over time. We're really not trying to grow our services. Certainly, using the partner ecosystem is a priority for us. The way it works with a partner, you know, we have these large SIs, you know, they're out there bringing us new logos, and in return, they get to, to do all the services work.
Once they become a trusted partner, they get like a nice little pipeline of services engagements, which is obviously right up their alley. We get to supply the software to these new customers, and I think that's the ideal motion for us, and it's certainly working. The other, you know, go-to-market shift, if you will, I mean, it's not, the partner thing's kind of been that way for a while, and we're certainly still emphasizing it. The other thing we're doing in go-to-market is around the solution space, and trying to be more respondent to kind of a customer pain point through a prepackaged solution, which helps, you know, speed up the go-to-market.
We're not necessarily sitting around talking about all the wonderful things Appian can do, which might take some time. We're, we're saying, "You guys need this. We've got the perfect solution for it.
Prepackaged applications certainly have reference accounts. It's huge in your business.
Right.
Specifically on those prepackaged solutions, that's unique, I believe, to Appian. Maybe give us an, a broader update in terms of the % of revenue, those types of metrics to have the, to help us here. More importantly, what's the reuse? You talked about an improved go-to-market, but how customizable or how customizable does that application need to be to, to be, you know, input or, you know, installed rather to the next customer, the same vertical?
Yeah. we-- I don't actually think we disclosed the, the solution...
The solutions, yeah.
...%. You know, they're growing quite well, and I, and I think they're an important part of the revenue. They're not, they're not the majority of the revenue or anything like that at this point. Hopefully, we'll get there.
Growing as a percentage.
Yeah, they're, they're definitely. We would like them to one day become a majority of our revenue. The, the point of the reusability is an important one. We, we want to leverage, like, I think, you know, it's, it's best to think about this through the example of the, of the GAM suite. What one federal agency can use, so can every federal agency, right? It's, we're building the, you know, the procurement solutions around vendor management, contract writing, clause automation. By the way, there's some really, really cool use of AI embedded in those. We're, we're getting it, like, 95% done, right? Then going to the agencies and saying: Hey, this department used it. They're pretty much the same use case. Do you guys want it?
Not only that, but the next phase of this is in the state and local, local government, right? You can imagine the, the, the market expanding and expanding. There's huge, massive states and municipalities that would be interested in you know, e-enhancing their procurement processes. I think they call it more likely to call it e-procurement over there than acquisitions management, but it's the same stuff.
95% reuse in some of the, in some of the prepackaged applications across vertical?
Yeah, I think the, the core, the point is to get it so you, you have it in a state where it's plugging into systems, not. You're not having to sit there and invent the process. You're kinda just making sure it works with the landscape that we're getting into, with, with whatever other innovations need to be built. It's largely completed.
The, the way you wanna think about solutions is we are taking some of the common use cases that customers are building today and productizing them. We've talked about this common acquisition management solution, right, in the federal. We've taken elements of that and went into state and local, but keep in mind, the requirements in state and local are different. What we are trying to do is that initial implementation goes very quickly. It doesn't take an elongated period to bring it online. We are trying to ease the buying friction. We're going to do it similarly in the insurance vertical, like policy underwriting. We're gonna do it in similarly in financial services, like customer onboarding. We have some of these already there, we're going to take that same strategy. Having said that, could there be elements that can still be some customized?
Yes, it's not going to take a prolonged period of time for the customers. At the same time, this kind of environment where customers are looking for quick ROI, I think the solution strategy really resonates with those kind of customers.
Can you talk, discuss the, the margin impact, the longer-term margin impact at Appian, related to, you know, selling vertical solutions?
Well, I think it's, you know, we've got elite gross margins on the, on the product, both in the cloud and on-premise. Our overall subscription gross margin is around 89%, I think, most recently. It's, it's hanging there the whole time I've been at Appian, in that range. Solutions is just another way we, we sell that subscription, I don't, I don't see it being any lower in margin or anything like that.
From a human perspective, less, less touch maybe...
Yeah, I mean, it, it's definitely, when we talk about sales efficiency and productivity, sales rep productivity, I think the biggest lever we can pull is getting those sales cycles to shorten. Getting, getting the time to sale to be shorter and shorter. You know, solutions certainly help that. Of course, when you couple that with a partner involvement, I think that's when you really get, some traction in, in shortening that sales cycle. You've got somebody who's trusted with a, with a client, that you can hold hands with, you show them a solution, and you're off to the races. I think that's the blueprint we're trying to, to capitalize on.
It's, it's easier to sit here and talk about it as if it's flipping a switch and, and doing it, but, I think it, it's the, the operational imperative is to get to that point.
Right. May- maybe that's a perfect segue to Gen AI, and I'm not just asking in the general sense this way, I promise. Because, you know, one of the top use cases of, of Gen AI, if you look at most studies, is to increase the efficiency of coding, so that we fall right into your alleyway. Can you maybe just give us an update there in terms of, you know, anything you've seen in the last, you know, 9 months on your end, in terms of increase of efficiencies with your coders or anything else that your customers are working with you with?
You want to go?
The only thing I would add there is, Tom, you know, we've been using AI for quite some time, right? Some there are AI features built into some of our products already. From a developer perspective, our developers are already incorporating AI as a part of their testing or development process. There are some incremental productivity benefits that are gained, but I'm not ready to hear, to say, "Hey, this is the percentage," as some other companies have talked about.
Fair. You, you mentioned at your Appian World, because I think it was part of your CRO's presentation about. You mentioned it earlier, just five minutes ago, about increased usage of a larger global SIs. I know there are already partners today. Is there anything changing fundamentally, in terms of large customer need for automation, hyperautomation? I mean, like, if, if it's, if it's being driven by AI, I don't, I don't, I don't know. Why all of a sudden now, with the GSIs, maybe you'd be wanting to bring in more GSIs in terms of your go-to-market function?
Well, I think the... I mean, the AI thing is pretty huge. Like, the, the, the level of interest and the chatter, if you will, is through the roof, right? People are, I don't know if it's because it's much more, you know, it's a, a sexier thing to see the LLMs at work, and people are activated by it, but we've had a lot of inbound interest. You know, these big CIO, big company CIOs, they're not looking to just bring in this kind of OpenAI public AI Large Language Model to, to help them. Because they know that that's not secure, that it's not gonna meet the, the compliance needs. It's not. There's no privacy.
And you talk about all the different things that these, you know, that, that the Large Language Models in the public AI are trying to address with that, and it's talking about redacting data, and, yeah, we'll hide the SSNs and the PII. That, the, that's kind of like the shallowest of explanations. You're gonna be okay sharing your entire, like, stuff, like all your processes, you're gonna prompt this thing and just gonna black out the SSN and be okay? No, right? That's, that's not in the DNA of, you know, these large enterprises and the way they operate. They want something that's, like everything else they do, extremely secure, extremely reliable, and they're talking to us about how Private AI might work, how you can train your own algorithm.
Our, our Data Fabric is gonna be integral with that. There's a lot of interest, and I think what we're doing is looking at our capabilities, looking at our development roadmap, and we're trying to respond to that in, in the way we do best, which is through our full process automation solution. And we can do the right handoffs to AI to make the processes more efficient and make the applications we build even more powerful for our customers.
Tom, I just want to be clear, like, it's not Gen AI is bringing increased interest from Global SIs, right? We've been working with Global SIs for quite some time, and some of them have actually do quite a, quite amount of business with them. Apart from that, we also have some regional Appian-focused SIs that do very well with us. I think what we talked about the Appian World is because of the broad product portfolio that these SIs are seeing, right? It's just not workflow. We have RPA that's natively built in, Process Mining that's now natively built in. We talked about generative AI product roadmap down the road, down the road, how that is going to be natively built in. That's leading to more conversations, not only from SIs, but also from customers, and that's what we are alluding to.
We have been working with some of these global SIs for quite some time. I think the challenge the SIs is having is just having a large amount of Appian-trained practitioners, and that's where we are putting in our additional resources to help build that capability.
Makes sense. You mentioned Private AI, Mark. This is fundamentally, I, I believe, different in terms of the, the company's approach. The, the, the current approach is public AI, in the context of using public data, public way, mostly shared. The, the idea, I'm trying to summarize it here, but is that you wanna use a company's data and keep it behind basically the firewall, so to speak.
Yep.
have that data be anywhere it wants, so there's no moving it around in a data lake and data warehouse perspective. This is what your Private AI solution is.
Yeah.
In your Data Fabric, which would be basically a virtual database. Walk us through, like, maybe the initial conversations you're having with customers in terms of initially. I know this is new, but this is a big statement by Appian, and wondering what the initial conversations are like.
Yeah, I mean, the customers, they're centrally focused on their data, right? Like, that is the most important thing. Those are the, the, you know, the family, what, what, what's the expression? The family gems or whatever-
Yeah, crown jewels.
The crown jewels of, of the company. Thank you. So, you know, it really, it really does... It's, it's not the first conversation we've had with our customers around data. Like, that's, that's all we talk about with them. One of our differentiators is that unlike some of the big cloud vendors, we don't require the customer's data to be put in our ecosystem, right? We can go get it wherever it is, and that's what the virtual database behind our Data Fabric is. It says to the customer: "You might have an old system in place, but it's working fine. Leave it in place, we'll get to it, and we'll actually be able to write to it." It's not just like an old-school, read-only thing.
You can do all your work in Appian, and leave all your systems in place, modernize your tech stack, have it secure, have it in the cloud. Now, the AI flavor of that says: "We'll let you build your applications," and using this integration layer and this virtual database through this Data Fabric, you can actually train through our low-code AI Skill Designer, how the how you build these applications, how you use the Data Fabric. You know, let's say you've got 100 different repositories to, to integrate with your Appian system. Maybe after you do two or three, it's, it's knowing what you're doing, and then it actually says: "Okay, I could do the next 10," and you can just check the results.
You don't have to actually go in and do it, do each one of them, right? That's, like, the, the concept. When we're talking about AI at Appian, we really talk about process design and process execution, and this is on the process design phase, right? How do you build these applications faster, better, quicker, using AI? By the way, we've been talking a lot about, you know, Private AI and how we think that's the answer for these large enterprises. That doesn't mean there's no space for public AI and LLMs, but we, we see that as more of, like, you know, a textbook approach.
Like, when you need to find the, what, what the, the code is for this typical script that you would need to create a PDF form in Appian, you can use an LLM to do that, right? When you want to tell Appian how to process your insurance claims in a proprietary way, you're not gonna use the LLM. You're gonna use your, your Private AI. It's, it's one of those things where we're not excluding any sort of technology and evolution here, but we're, we're being smarter about how we position the, the use cases in front of the customer so that they can actually use it in their, in their systems in the best way that they can.
Can you bring up the kinda hierarchy, if you will, in terms of how this would work? We have the virtual database part of it. We got the data because that's already there.
Mm-hmm.
Who, who will be responsible for creating the, the, the LLMs or the machine, the models for the company to use? Will that be Appian?
Just to clear up something, right, you know, we will build the Private AI models or the LLMs for the customer, and the customer trains those models using their own proprietary data, and that stays with the customer. By the way, this is no different how our, you know, how we host our Appian platform in the cloud today. Everything is single tenant. The customers have their own, you know, cloud license, and they operate in their own way, and we don't take any of the data, or even we don't take their data and train our models. The training of the models is entirely left to the customers.
What you mentioned just there, that you, you would be respond-- Appian would help create the model?
Yes, absolutely. Yes.
How, just in the context of verticals and the history or heritage of Appian, how replicable and reusable would those models be, and though, not the data, across, you know, your, your Private AI, you know, customers?
I think there are quite a bit of similarities, given that we've all along focused on these large, complex enterprises that have huge amount of regulatory requirements, compliance requirements. There are some commonalities to all of these models, but every company, you know, depending on the vertical that we are focusing on, these are going to be vertical-focused Private AI models that we're going to roll out later this year.
Right. Any questions from you? Oh, yeah, Andrew, please.
A couple questions. 1, how big is the largest dedicated Appian partner from a revenue perspective? 2, are you all sending leads to those partners at all, or are leads kind of what we can see around for professional services group? It kind of, open as I said, new leads. I'm just trying to think through that a little bit.
Yeah. We don't, we don't disclose our, our revenue by partner. I will say that a couple years ago, we, we talked about new logo acquisition, and we said 70% of our new logos are influenced by, by those big partners. When you think about our, our large strategic partners, like KPMG, for example, they've got a massive footprint. I mean, they've got hundreds of thousands of consultants, right? All over the world. They're embedded with their customers, working on all sorts of consulting engagements. When they come up with a digital transformation need, an automation need, we want them to think of us as, as a partner, so they can fulfill their customers', solve their customer's problem and, and conveniently, of course, provide a way for them to do a lot of projects at that partner.
It, it really amplifies our sales footprint, because, you know, they're out there looking at a lot of companies from an under-the-hood perspective and saying: "You know what? This company could use Appian, and if I, if I can get Appian embedded here, I'm gonna look great as KPMG. I'm gonna have solved all these problems. I'm gonna have a lot of pipeline of engagements." It's kind of a win-win.
You know, we use size primarily for new logo generation, right? The leads are actually coming in, but there could be instances where we are responding to an RFP, we're doing a proof of concept, and the customer suddenly says: "Hey, we've worked with this particular partner. Can we bring him in?" In those instances, we'll work with the partner there.
Yeah, and certainly when we're in a, you know, when we have an established customer that wants to build more applications, you know, maybe oftentimes we have a, a customer that has 10 applications, and they're trying to get to 20. We'll actually say: "Go, go work with one of our partners." We're not out there saying, you know, "Come to us for services work." We certainly like to be there, in some capacity, especially up front, when the customer is trying to get Appian rolled out, but it's not one of these where we're trying to feast on customers of the partner.
firms that you brought up, are they just three guys, you know, in an office building, or are they, I don't know, $10 million in space or $5 million? What, what do those dedicated partners look like?
Those are big regional partners, and you'll be surprised if you look at the size of these are multiples of millions.
Some of them are boutique firms with 100 people. Some of them have more than that, yeah.
Definitely not three.
Well, I'm afraid that's all the time we have. Thank you very much, Sri, Mark.
Thank you.
Thank you.
All right.