Appian Q2 2023 Earnings Call Transcript

There are 11 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Appian Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Shri Anandha, Senior Director, Finance and Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, and thank you for joining us to review Appian's Q2 2023 financial results. With me today are Matt Calkins, Chairman and Chief Executive Officer and Mark Mathias, Chief Financial Officer. After prepared remarks, we will open the call for questions. Today, you will want to follow along with our earnings presentation.

Speaker 1

You can download it from the main page of our Investors site at investors. Appian.com. During this call, we may make statements related to our business that are forward looking under federal securities laws and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These include comments related to our financial results, trends and guidance for the Q3 and full year 2023, 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 up sell existing customers and our ability to acquire new customers. The words anticipate, continue, estimate, expect, intent, will and similar expressions identify Forward looking statements are similar indications of future expectations.

Speaker 1

These statements reflect our views only as of today. They do not represent our views as of any subsequent date. They are subject to a variety of risks and uncertainties that could cause Actual results do differ materially than expectations. For a discussion of the material risks and other important factors that could affect our actual results, Refer to our 2022 10 ks, our 2023 10 Q filings and other periodic filings with the SEC. These documents are also available on our Investors section of our website.

Speaker 1

Additionally, non GAAP financial measures will be discussed on the earnings call. Refer to the tables in our earnings release and the Investors section of our website for a reconciliation of these measures to their most directly comparable GAAP financial measures. With that, I would like to turn the call to our CEO, Matt Calkins. Matt?

Speaker 2

Thanks, Sri. In the Q2 of 2023, Appian's cloud subscriptions revenue grew 30% year over year to $74,400,000 Subscriptions revenue grew by 22 percent to $93,800,000 Total revenue grew 16% year over year to 127,700,000 Our cloud subscription revenue retention rate was 115% as of June 30. Our adjusted EBITDA was a loss of $24,700,000 These results exceeded our guidance. Best thing about this year so far has been the rise of AI into public consciousness and general interest. It is a pleasure to take customer questions, to speak about it in every forum and to write about it in The Wall Street Journal And also of course to have this reason to initiate new selling conversations.

Speaker 2

Appian has been an AI leader for years. We have developed, shipped and deployed AI for years. We use it throughout our product, but now it's getting the attention it deserves. Customers now recognize the potential, but they still need guidance to achieve practical value. Appian sees the AI market a little differently from other firms.

Speaker 2

I'll summarize the difference with 2 quick statements. First, AI is a partner and not a substitute for human labor. We need to work together. Businesses can expect to be routing tasks to and from AI as we collaborate. Appian's leadership and workflow is advantageous here.

Speaker 2

2nd, data is everything. AI could make your data more valuable, but it's also a threat to data privacy. The top priority now should be to protect and defend an organization's own data. Appian facilitates a private form of AI that will keep us AI allows data to be real time actionable. It is in a sense the natural culmination of the data warehousing movement from the 90s.

Speaker 2

AI provides a new data structure that can make vast amounts of information instantly accessible. By reducing the excess costs, it increases the value of data. Common imagination suggests that companies will be happy to send their data and their prompts to public AI firms. And any lingering concerns about that can easily be fixed with a few contractual terms about not retaining the data We're a promise to redact the sensitive bits before sending it across the Internet. I'm skeptical of this belief And the conversations I've had with CIOs suggest I'm not alone.

Speaker 2

The more sensitive your data And the more regulated your industry, the more you're going to need private AI. Every firm will set their own AI privacy standards, but I know what I'd be looking for. 1, no third party access to my data. 2, My data shouldn't be kept or used by anyone else. And 3, I'd want to own every AI algorithm I trained, not rent it.

Speaker 2

From what I see, no vendors in our market are seriously pursuing such a customer first, pro privacy position. No vendors other than Appian that is. Appian has 2 big advantages in the emerging AI battleground. We have a leading data fabric, which can gather data sets for training an AI algorithm. Our data fabric is like a virtual database, A great way to address and unify data that's physically separated.

Speaker 2

And we also have a great process modeler To route work to and from AI, we plan to lean on these two factors to create practical AI value for our customers. We're creating Practical AI value today with pre built models. Our most popular models automate the extraction of data And classification of documents and emails. Building more models now, including one we just released to summarize request for quote responses. Here's a customer story about how one of our prebuilt models is used.

Speaker 2

A U. S. Fire safety company is under executive mandate to standardize its financial processes and reduce payment errors by the end of this year. In Q2, the group selected Appian to automate its accounts payable process and became It will train an Appian AI model, classify unique documents, Identify vendor invoices and extract payment information. Employees will review AI outputs and tune the algorithm all within a single app.

Speaker 2

They anticipate a 5 fold increase in efficiency using our product. Their first project will be delivered in 8 weeks under the Appian Guarantee. This story is also a good example of our belief that AI and humans will work in collaboration on most processes. AI will become a more prominent member of process work, but not a substitute for the process itself. That belief matches our skill set.

Speaker 2

Appian has been a leader in process automation for decades. Our platform orchestrates work across different agents like Humans Business Rules, RPA and AI. Late last year, with economic clouds looming, I began sharing a series of metrics to provide additional transparency on how macroeconomic factors might impact our business. You can see them starting on slide 4 of our earnings presentation. They don't say a lot this quarter.

Speaker 2

The bottom line is that there is some macro effect, but not enough to knock us off the plan we set for 2023. I'll close by sharing a few large customer examples from Q2. A global insurance provider and existing Appian customer has grown By acquisition, it needs to unify global operations. The group is running a digital transformation initiative to automate core processes like claims management. It selected Appian as its enterprise platform standard.

Speaker 2

In Q2, it purchased a 7 figure software deal To license users in its largest geographic region, Appian's data fabric will integrate dozens of different systems into a comprehensive customer management application for tens of thousands of agents. Next, A top Canadian pension fund manages 1,000,000,000 of dollars in investments. It's aiming to double its portfolio size. The group bought Appian 2 years ago to digitize its investment management processes. Its first app reduced the time it takes to assess potential investments by 90%.

Speaker 2

The customer is starting its next phase of projects and signed a 7 figure software deal in Q2. Now over half the organization We'll use Appian. My last example is a top U. S. Health insurance provider and new logo.

Speaker 2

In Q2, it selected our platform to replace an inflexible call center system by the end of the year. It purchased a 7 figure software deal And we'll build a customer management tool for 1600 call center agents. We won this deal after proving our platform's speed and flexibility with a custom proof of concept built in 2 weeks. The customer expects to save 1,000,000 of dollars every year using Appian. Now, I'll hand the call to Mark for a deeper look at our financials.

Speaker 2

Mark?

Speaker 3

Thanks, Matt. I'll review the financial highlights for the quarter then we'll provide guidance for Q3 and the full year 2023. Total revenue, cloud subscription revenue, adjusted EBITDA and non GAAP EPS were above guidance. We saw continued healthy contribution from existing customers and strong growth from key industry verticals, especially the U. S.

Speaker 3

Public Sector and Life Sciences. Let's go into the details. Cloud subscription revenue was 74,400,000 An increase of 30% year over year and above guidance. On a constant currency basis, cloud subscription revenue grew 27% year over year. Subscriptions revenue was $93,800,000 an increase of 22% year over year.

Speaker 3

On a constant currency basis, subscriptions revenue grew 19% year over year. Consistent with the prior quarter, subscriptions revenue growth was impacted in part by some customers in building their cloud and from a higher mix of new cloud bookings during the quarter. Professional services revenue was $33,900,000 an increase of 2% year over year. On a constant currency basis, professional services revenue declined 2% year over year. As previously noted, our ability to predict Services revenue is limited and a few large projects can influence growth in any given quarter.

Speaker 3

Long term, we believe partners will drive the majority of our implementations. Our professional services will continue to be a strategic offering focused on enabling partners and driving customer success. However, we expect professional services revenue to continue to decline as a percentage of total revenue. Total revenue was $127,700,000 an increase of 16% year over year and above our guidance. On a constant currency basis, Total revenue grew 13% year over year.

Speaker 3

Subscriptions revenue was 73% of total revenue consistent with the prior quarter 70% in the year ago period. Our cloud subscription revenue retention rate was 115% as of June 30, 2023 consistent with the prior quarter. As a reminder, we continue to target the cloud subscription revenue retention rate of 110% to 120% on a quarterly basis. Our international operations contributed 38% of total revenue compared to 35% in the year ago period. On a year over year basis, international growth was broad based and saw healthy contributions from both APAC and EMEA regions.

Speaker 3

Our cloud software net new ACV bookings were approximately 85% of the total net new software bookings in the first half of twenty twenty three, an increase from 80% in 2022. Now I'll turn to profitability metrics. Non GAAP gross margin was 73% compared to 75% in the prior quarter and 71% in the year ago period. Subscriptions non GAAP gross margin was 89% consistent with the year ago period and 90% in the prior quarter. Professional services non GAAP gross margin was 28% to decline to the mid-twenty percent range in 2023 and low 20% range beyond 2023 as we continue to invest in non billable resources To help our customers maximize the value of their Appian investment.

Speaker 3

Total non GAAP operating expenses were 119,700,000 an increase of 14% from $105,100,000 in the year ago period. Adjusted EBITDA loss was 24,700,000 versus our guidance of a loss between $30,000,000 $26,000,000 and compared to an adjusted EBITDA loss of $25,000,000 in the year ago period. In the Q2, we had approximately $1,200,000 of foreign exchange gains compared to foreign exchange losses of $6,500,000 in the same period a year We don't forecast movements in FX rates, therefore they aren't considered in our guidance. Non GAAP net loss was 28,500,000 or $0.39 per basic and diluted share compared to non GAAP net loss of $33,400,000 or $0.46 per basic and diluted share for the quarter for the Q2 of 2022. This is based on 73,000,000 basic and diluted shares outstanding for the Q2 of 2023 72,400,000 basic and diluted shares outstanding for the Q2 of 2022.

Speaker 3

Turning to our balance sheet. As of June 30, 2023, cash and cash equivalents and investments were $237,000,000 compared with $196,000,000 as of December 31, 20 For the Q2, cash used by operations was $11,900,000 versus $29,700,000 in the same period last year. Total deferred revenue was $195,400,000 as of June 30, 2023, an increase of 28% for the year ago period.

Speaker 4

As we

Speaker 3

have stated on past calls, the majority of our customers are invoiced on an annual upfront basis, but we also have some customers that are billed quarterly or monthly. Due to the variability of our billing terms, changes in our deferred revenue are generally not indicative of the momentum in our business. We continue to believe cloud subscription revenue is a better indicator of our business momentum in billings or remaining performance obligations. The latter metrics fluctuate based on timing of invoicing, seasonality of on prem license and the duration of customer contracts. The true scale of the business is represented by subscriptions revenue, which includes support and all software subscription revenue Regardless of whether the customer deploys to the Appian Cloud, their private cloud or on prem.

Speaker 3

Now I'll turn to guidance. For the Q3 of 2023, cloud subscription revenue is expected to be between $75,500,000 $76,500,000 representing year over year growth of 25% 26%. Total revenue is expected to be between $134,000,000 and 136,000,000 representing year over year growth of 14% to 15%. Adjusted EBITDA loss for the Q3 of 2023 is expected to be between $16,000,000 $12,000,000 Non GAAP net loss per share is expected to be between $0.28 and 0 point 2 $3 This assumes 73,300,000 basic and diluted weighted average common shares outstanding. For the full year 2023, We are increasing cloud subscription revenue to between $299,000,000 $301,000,000 representing year over year growth of 26% 27%.

Speaker 3

This is an increase from prior guidance of between $296,000,000 $298,000,000 representing year over year growth of 25% 26%. For the full year of 2023, we are increasing total revenue to between $538,000,000 $543,000,000 representing year over year growth of 15% to 16%. This is an increase from prior guidance of between $533,000,000 $538,000,000 representing year over year growth of 14% 15%. Adjusted EBITDA loss is expected to be between $67,000,000 $63,000,000 an improvement from prior guidance of between $70,000,000 $65,000,000 Non GAAP net loss per share is expected to be between $1.16 and $1.10 This assumes 73,200,000 basis and diluted weighted average common shares outstanding. Our guidance assumes the following.

Speaker 3

1st, Q3 and full year 2023 professional services revenue will grow at a mid single digit rate compared to the year ago period. 2nd, on prem license revenue Will be up on a sequential basis consistent with seasonality. Year over year growth will continue to be impacted in part by some customers converting their contracts to cloud subscription. 3rd, Q3 adjusted EBITDA loss should improve both sequentially and year over year. We continue to expect non GAAP adjusted EBITDA margins coming better than 10% for the second half in the second half of twenty twenty three.

Speaker 3

4th, total other non operating expenses of approximately $2,000,000 in Q3 $5,400,000 in 2023 5th, capital expenditures of approximately $2,000,000 in Q3 And between $12,000,000 $13,000,000 in 2020. This is primarily related to the build out of additional office space. Finally, our guidance In summary, we're excited about the growth opportunities ahead of us. We remain focused on investing in areas that will drive growth and generate superior returns long term. With that, let's turn it over to questions.

Speaker 5

Hi. Thanks for taking my questions today. It really seemed like a very clean quarter, strong cloud beat. So I just wanted to just generally talk about first some of the buying trends you saw in the quarter, any differences versus last quarter? And then secondly, We're expecting that CoPilot announcement next week.

Speaker 5

It seems like every vendor is announcing some type of AI assistant or feature now. So do you think this is really table stakes now? And secondly, how are you kind of differentiating your solution? What's going to be the Appian Difference is a data fabric, is it something else? Any color on that would be appreciated.

Speaker 2

Yes, sure. I'll speak to that. AI is a wonderful opportunity, but a lot of firms have much the same vision and are pursuing the same endpoint. And I Our advantage is that our vision is different. Ours is a very customer centric, data centric, private privacy centric And collaboration centric vision of AI and that's what we'll be facilitating.

Speaker 2

So I mean, we've already made a lot of AI functional drops, right? So We're in the market today with a great deal of AI related functionality, large language model related and otherwise. So just in terms of volume of AI functionality, I believe we're doing great. But more importantly, We are guiding toward a sensible philosophy of AI use and where AI is going to belong In the enterprise and I think that because we're correct about that we're going to be facilitating a usage model that customers are going to want Also you asked if buying patterns were changing. I would just say simply that they're not We didn't see much change in buying patterns.

Speaker 5

And I appreciate that. Thank you.

Operator

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

Speaker 4

Okay, great. Thanks for taking the question here. I guess I just want to ask on The deal environment currently and I guess how should we be thinking about the stability of budgets and Willingness for customers to be investing in automation and low code and AI initiatives at this point.

Speaker 2

Well, I think there's a tremendous amount of excitement around AI, but I also think it's a little bit early For us to appraise that because the AI boom happened less time ago than the length of our sales cycle. So I think it's just be premature to speak to the way that's opened pocketbooks. I don't know yet. I will say that It appears that customers are applying extra scrutiny to purchases this year that their sales cycles are Slightly extended by that. There's been some delays, more delays than cancellations.

Speaker 2

There's just I think just extra consideration Around investment to be made and the counterpoint to that is an extreme amount of excitement about the way technology could create better efficiency Specifically around AI.

Speaker 4

I guess on the deal cycle point, I mean, I think you remember back to the past couple of quarters that There might have been some slight impact, but not a real, I guess, not an overarching Challenge there, I guess is that continued or has it gotten maybe a little bit more strenuous

Speaker 6

in the past quarter or so?

Speaker 2

I would say that it's somewhat consistent with last quarter. We see deals taking longer, But not disappearing, just taking longer. The interest is there. And I don't deny you could See it in the numbers, right? If you were to see a side by side of regular year versus what we're seeing now, there would be an evident difference, there would be a delay.

Speaker 2

But I also don't want to make it sound like that's an enormous difference because it's not. This is a quantifiable, but small factor.

Speaker 4

All right. That's helpful. And then I want to ask on Data Fabric And I guess maybe kind of the extent that's penetrated throughout the base at this point. And I guess, kind of secondarily, as you think about Data Fabric and that differentiation is I think about the AI initiatives that you're undertaking. I guess how much is that helping those conversations and maybe pushing towards a Purchase decision, with the Data Fabric element in there?

Speaker 2

Yes. Data Fabric is going to help us Make a specific form of AI argument. So let me clarify this before I address your question. Data Fabric allows you It's like a common semantic layer for addressing all that data as if maybe we'd put it all into the same database except we didn't. We just came up with a common way of grouping it and addressing it even though it's really scattered across the enterprise.

Speaker 2

Well, that's super useful. If what you want to do is train or fine tune an AI algorithm, if you bring in an AI model, You want to use it behind the firewall so that you keep the data, it's always yours. You keep the algorithm, it's always yours. It's a very Private customer centric, data centric vision of how to use AI, then Data Fabric is fantastic. Data Fabric will grab you that data set, allow you to customize, select the information you want to train your algorithm with, Bring it together neatly and serve it up to the AI algorithm so you can train it.

Speaker 2

It's very good for that kind of a vision. It's also very good for that matter for our typical use, which is to inform the actions in a process. And remember that now AI is one of the primary actors in a process. And so the more data connectivity you have, the more you can inform you to send the right Questions to AI, be sure that they're better informed to give you the answer. So Data Fabric is a key supporting player in an AI future.

Speaker 2

As for how that's playing out in terms of winning deals, closing deals, it's going to be too early to say. So I can't speak to that. But I have strong belief that we are facilitating a form of AI usage that's going to appeal to large organizations in regulated industries with important datasets and mission critical Intentions.

Speaker 4

Okay, perfect. I appreciate the answers there.

Speaker 7

Our next question comes from

Operator

the line of Sanjit Singh from Morgan Stanley.

Speaker 8

Excellent. Thank you. This is Teo on for Sanjit. I just have maybe 2 quick questions on the go to market. The first one, Last quarter, you spoke a lot about public sector strength.

Speaker 8

I would be curious to hear kind of where the strength was this quarter and then maybe contrast that with where you also see the most excitement around AI that could materialize later on? And then the second one, on the new partner program that you announced, Anything that you can share in terms of what you're seeing in terms of early momentum or when what we should think about in terms of timing of some of those new leads Materializing. That would be very helpful.

Speaker 2

Okay. Okay, great. With regards to the industry that did the best This quarter, I'm going to public sector again. It's just a really strong sequence here in the U. S.

Speaker 2

Public sector specifically, which isn't to say that that's where there's the most excitement around AI. The public sector is a cautious segment and I don't think it's going to be the AI pioneer. I think we're going to see AI pioneering in places like pharmaceutical, financial services. I think it's going to make sense, insurance, Healthcare, I'd actually put Public Sector as a likely AI Late adopter relatively. So we're succeeding for other reasons in public sector.

Speaker 2

And then your other question was about Partners, we are adopting a new methodology of working with partners. I think it's dynamic. It's exciting. It's premature to cite anything, of course, totally, Because it's not even rolled out. So I can't say what it has done, but I believe that we're on to

Speaker 9

Great. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Kevin Kumar from Goldman Sachs.

Speaker 5

Hi, thanks for taking my question. Matt, Appian has an expanded set of AI related features and capabilities that It's going to be released, I think, later this year. Are these features being released across all on premise and cloud customers? And do you think AI could

Speaker 2

I think AI will catalyze more customers to move to cloud. We are focusing on cloud as the primary AI environment. We will deliver more AI functionality faster In the cloud and yes, I do believe that that will be an incentive for customers to choose it. I want to be careful not to say that it will be an incentive for customers to migrate to it because I'm not convinced that the customers who Arndt who have not yet migrated by cloud will be motivated by any new feature set.

Speaker 5

Okay, that's helpful. And then maybe one on margins. Operating expenses, I think excluding certain one time items has been relatively Flat the last three quarters. Obviously, I know there's a focus on expanding margins, particularly in the second half of the year. So Curious, Mark, how you're thinking about resource allocation and how much is maybe new headcount in international regions such as India helping with some of that operating

Speaker 2

leverage? Thanks.

Speaker 3

Yes, sure. Thanks for that question. I mean there's definitely a focus on extracting operating leverage from our R and D center in India, But it's also just making sure we're investing in growth where it counts, right? And so we're not looking to make any Operating expense reductions in areas that might impact our growth rate or our expansion and it's really just some OpEx Initiatives around scrutiny items that have led to some Tightening of the ship, if you will, and then some operating expense moderation in all areas across the board. But we definitely have A goal in mind that we shared in the past and that I've spoken to in my prepared remarks with operating Expenses and I think we're continuing to see through that plan.

Speaker 5

Thank you, both.

Speaker 7

Our next question comes from

Operator

the line of Terry Tillman from Truist Securities.

Speaker 10

Hey guys, this is Joe Mears on for Terry. I'm just curious, CloudSlub NRR is remaining steady at 115%. I'm just curious, are there any Moving pieces under the hood as far as better than expected results from upsells or new logos.

Speaker 3

I mean, it's pretty consistent to be honest. If anything, expansion is Slightly healthier. I mean our GRR is so strong that it's hard for it to go any stronger. And but overall, I would say it's been more the same than different.

Speaker 10

Cool. That's helpful. Just on the margin question. I understand that you're investing where accounts and maybe Doing some moderation in other areas, but I think you had said that you expect to be EBITDA breakeven next year. Are there Are there going to have to be like larger cuts to operating expenses in order to get there In the medium term or is it just going to be a factor of revenue leverage?

Speaker 10

Thank you very much.

Speaker 2

You want to take that?

Speaker 3

Yes, I'll take it. You can It's the latter. It's really we're not going to cut our way to an EBITDA breakeven point. And just to clarify, we're saying we're going to reach a breakeven point next year. It's not that at least the fully Thank you, Vin.

Speaker 3

But yes, that is going to come through the growth and the natural growth Of our revenue streams and not through some concerted effort to cut out costs.

Speaker 10

Thank you.

Speaker 7

Our next question comes from the

Operator

line of Derrick Wood from TD Cowen.

Speaker 9

Great. Thanks. It's Andrew on for Derek. Matt, just wanted to come back to the federal business. How did federal bookings compare to last Software bookings compared to last quarter and heading into the big September quarter, can you give us a sense for how pipelines are tracking, How they compare versus last year this time?

Speaker 9

And can that new, the GAM solution, are you expecting pretty good upsell this year?

Speaker 2

All right. First of all, let me just second what Mark said a moment ago about growing our way to breakeven. That's the plan for next We're not going to cut our way there. We're going to grow our way there. Secondly, with regards to the performance of public sector and Pipeline specifically heading into the big Q3, we feel good about the pipeline.

Speaker 2

It shows real strength. I'm pleased with Public Sector's progress so far this year. And I think we have momentum and reason to believe that we can do well in quarters ahead.

Speaker 9

Right. And I think last quarter you talked about Appian World prospects Sure. Leads being up 2x year over year. Maybe just talk about how those leads are moving through the pipeline and your ability to convert and close some of those deals In the second

Speaker 4

half. All

Speaker 2

right. Now, I'm going to speak based on what I know of this, which is not everything. I understand us to be doing well with regards to new opportunities, stage 1 leads and a lot of that comes from events Like Appian World, but not exclusively Appian World. We're seeing strength In that broad category and Appian World is just one of the sources. It's true that Appian World is well attended.

Speaker 2

It's true we got Prospects than we typically get. Those are great signs. Appian was like a showcase for what people can do with our software and the strength of the community and the enthusiasm around our users. I mean 98% gross renewal rate is a number until you show up at Appian World and then it's an experience. And those people are It's contagious, right, the excitement.

Speaker 2

So I think it's great to get our prospects there. I believe that that led to A set of quantifiable leads, but I don't have the numbers that show that that's where the leads came from. So I don't want to be too definitive about it. I just expect that that was a great experience and we exposed a lot of prospects to it. So good things are going to happen.

Speaker 9

Great. Thanks guys.

Speaker 7

Our next question comes from

Operator

the line of Jake Roberge from William Blair.

Speaker 6

Hey, thanks for taking my questions. Data Fabric Vision definitely sounds very interesting. I'm just I'm curious, when we think about your core products within low code, RPA and process mining, do you think any of these products will see outsized benefits or headwinds from generative AI? And then how do you think AI impacts existing productized solutions within maybe your KYC or the GAM suite and could it impact Kind of the future solutions roadmap from here?

Speaker 2

It can definitely impact the future solutions roadmap. It's a terrific way to enhance The value of our application in all contexts, it enhances it in a solution, it enhances it as a platform build. AI is 1 is like a star addition to the team. The AI is more powerful than it's ever been. It's Popular than it's ever been.

Speaker 2

It's more likely to be adopted than ever. And it's part of a great suite of automation tools that can do work. So this is an efficiency boost for all of our applications and all of our clients as soon as we can get them to make Proper use of it. Yes, so I see it as a lift across the board. I invite you also asking for anything obsolete.

Speaker 2

No, no, we're the disruptor here. We use AI to create the value that we create. When customers buy Appian platform or solutions, they're counting on efficiency gains. We deliver some of that With AI, we're going to make the most effective use of AI technology toward efficiency gains. That's exactly what we're focused is finding a way to get practical value out of this terrific new area of technology.

Speaker 2

We will be the vehicle Whereby our customers achieve their AI efficiency gains.

Speaker 6

Very helpful. And then Mark, when we think about the numbers, when do you think AI could start showing up on the revenue side of the house? Is that Do you think that's more of a Q4 story or more of a 2024 dynamic? And then on the margin side, are there any AI investments that we should be cognizant of?

Speaker 3

Yes. On the first part, AI in my view is a pretty big sea change in a long term Opportunity for us and it's not necessarily something that we would expect in the short term on a revenue basis. But certainly To dovetail into the second part of your question, we are making appropriate investments as part of our R and D strategy. We have had investments in the past for years. It's not like we're waking up and say, oh, we should look at AI.

Speaker 3

It's been part of Our blueprint for a long time and we're certainly going to keep that investment in view as we move forward. 2, 3 years out, I think we'll still be talking about AI.

Speaker 2

Yes. Look, there's definitely a reallocation of resources Internally, with the takeoff of large language models, we definitely want to put a lot of focus behind the proper utilization of that form Of AI. And so we're shuffling investments internally, but what we're not doing is bolting on a big new investment. We already have expertise. We're just reallocating internally in order To match the explosion in customer interest and the power of these products.

Speaker 2

I Like Mark, I don't want to make a prediction for when it will show up in revenue though.

Speaker 6

Great. Thanks for taking my questions.

Operator

Thank you. At this time, I would now like to turn the conference back over to Sri Ananshan for closing remarks.

Speaker 1

Great. Thank you very much, Kihei, and thank you all for joining us tonight. We look forward to catching up with you on our next earnings call. Talk to you soon.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Earnings Conference Call
Appian Q2 2023
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