Appian Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2024

There are 10 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Appian Second Quarter 2024 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, Jack Andrews.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Good morning and thank you for joining us. Today, we will review Appian's Q2 2024 Financial Results. With me are Matt Calkins, Chairman and Chief Executive Officer and Mark Mathias, Chief Financial Officer. After prepared remarks, we will open the call for questions.

Speaker 1

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 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. The words anticipate, continue, estimate, expect, intend, will and similar expressions are intended to identify forward looking statements or similar indications of future expectations. These statements reflect our views only as of today. They do not represent our views as of any subsequent date.

Speaker 1

They are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, refer to our 2023 10 ks, our Q2 2024 10 Q filing and other periodic filings with the SEC. These documents are available on the Investors section of our website. Additionally, non GAAP financial measures will be discussed on this conference call. Refer to the tables in our earnings release for a reconciliation of these measures to their most directly comparable GAAP financial measures.

Speaker 1

With that, I'd like to turn the call over to our CEO, Matt Calkins. Matt? Thanks, Jack.

Speaker 2

In the Q2 of 2024 Appian's cloud subscription revenue grew 19 percent year over year to $88,400,000 Subscriptions revenue grew 20 percent to $113,000,000 Total revenue grew 15% year over year to $146,500,000 Our cloud subscriptions revenue retention rate was 100 and 18% as of June 30. Adjusted EBITDA was a loss of $10,500,000 Appian is a growth company. Revenue growth continues to be our top priority. We are not indifferent to efficiency. We've applied more scrutiny to our investments and steadily improved This quarter we took action to reduce non strategic go to market expenditures.

Speaker 2

With these moves we now expect to breakeven on adjusted EBITDA for the full year 2024. Mark will provide more details in his prepared remarks. Recently, I've immersed myself in our sales and marketing functions. I've spoken extensively with hundreds of customers, prospects, partners and Appian staff. Together we've discovered ways we can better allocate resources and align energy behind our business strategy.

Speaker 2

We're leaning into areas where the return on investment is the strongest, specifically large transactions and our best industry verticals. Appian's particular advantage is at the high end of our market to where we've experienced our most success. Appian appeals to the C suite, the large enterprise and the mission critical use case. Here we have some of our highest win rates, highest expansion rates and highest retention rates and for good reason. Our platform delivers the greatest impact to the most discerning customers.

Speaker 2

Our gross retention rate of 99% is best in class in enterprise software. Many of our largest customers save 1,000,000 of dollars and 1,000 of labor hours every year with Appian. Our key verticals continue to be our growth engine. Over 70% of Appian's revenue comes from Financial Services, Life Sciences and Public Sector. Roughly half of the world's largest companies and U.

Speaker 2

S. Agencies in these verticals are Appian customers. We have decades of specialized industry expertise and a proven track record of automating the most complex processes for these organizations. Public sector is one of our most successful verticals. We have momentum with our GAM suite, Government Acquisition Management, GAM suite.

Speaker 2

Agencies use GAM to manage their detailed processes for procuring goods and services. We are broadening our investment in the suite because adoption has been strong. GAM bookings more than doubled in the first half of this year compared to the same period last year. To build on this momentum, we launched a service this spring to complement GAM. ProcureSite is an AI driven website that consolidates major public procurement datasets.

Speaker 2

Government professionals can use it to synthesize past procurements and generate new procurement documents. Dozens of federal agencies use ProcureSight today. For example, one agency that manages emergency responses to natural disasters purchased a 7 figure software deal and became a new Appian customer in Q2. Given the rise in wildfires, the agency needs to respond to incidents faster. It will use our full GAM suite to reduce the time it takes to procure firefighting resources.

Speaker 2

Before Appian, the agency ran procurement operations across a combination of disparate systems and physical paper forms. Now it will manage 1,000,000,000 of dollars of annual procurements on Appian. Another federal agency that supports natural security and defense, National Security and Defense became an Appian customer this quarter. It wants to replace an inflexible procurement system costly to maintain. The agency has strict application hosting requirements because its data is sensitive.

Speaker 2

In Q2, it purchased a 7 figure software deal for GAM and will deploy it onto the Appian Government Cloud. As a reminder, Appian was one of the first dozen or so companies to receive a provisional authorization at Impact Level 5. Now the agency can securely deploy GAM to the cloud and maintain a low total cost of ownership for its Appian applications. Within Life Sciences, we signed a top global clinical research organization as a new customer this quarter. Our platform will manage the organization's process for selecting clinical study sites.

Speaker 2

Appian Data Fabric will bring together data from many systems into a single application, so site investigators and project managers can select locations based on the study's criteria, resourcing capacity and a country's regulations. The company used to manage this complex process manually across systems. Now it aims to make selections 80% faster using Appian. We continue to sign large expansion deals within Appian's Financial Services vertical. Earlier this year, we launched new pricing structure, a new pricing structure to upsell our existing customers and monetize our latest features like Appian AI.

Speaker 2

Here is an example of this upsell strategy. In Q2, an international insurance company increased its annual Appian software spend by more than 50%. The insurer has been a customer for a few years and uses our platform to manage claims disputes. This quarter, it purchased a 7 figure software deal to upgrade to our new pricing and access our latest features. It will add thousands more users to the process and deploy Appian AI to categorize millions of claims.

Speaker 2

We won this deal because AI is a native feature of our platform and easy to adopt. Appian AI enhances worker productivity by among other things generating code based on a prompt, summarizing large amounts of data and recommending user responses. Our AI is powerful because it has the context of the customer's processes and data it has the context. Our AI is also private because we use data fabric and retrieval augmented generation or RAG to avoid training an AI algorithm. We don't train them.

Speaker 2

This quarter usage of Appian AI doubled compared to last quarter. Here's an example. In Q2, a medical transportation and emergency response company automated its claim dispute processes with Appian. Under new government regulations, the company has 20 days to appeal disputes. Now caseworkers respond more efficiently using our automation capabilities.

Speaker 2

First Appian AI classifies and ingests payer disputes, then Appian RPA bots retrieve data for the user from various systems about the medical incident. With Appian, our customer expects to handle disputes faster increasing revenue by tens of 1,000,000 of dollars annually. Appian is a leading process automation platform. The completeness of our platform is appreciated by users and recognized by analysts. Analysts call us leaders in enterprise low code application development, business workflow automation, digital process automation and process orchestration.

Speaker 2

In Q2, Appian was named a leader in the Gartner Magic Quadrant for process mining platforms for the first time. We were included because of Appian Process HQ, which we just released in April. Process HQ is a real time actionable process mining, tracking the health of processes and using AI to recommend improvements. A top medical insurance provider manages claim disputes and payouts on Appian. This quarter it analyzed the process with Process HQ because it wanted to be more efficient.

Speaker 2

The company discovered members were submitting tens of 1,000 of duplicate claims. Now it can work to optimize the process, eliminate unnecessary submissions and save millions of hours annually. Earlier this week, the Court of Appeals of Virginia, the state's intermediate appellate court, rendered an opinion on our trade secrets case against Pegasystems. We look forward to appealing this week's decision and are hopeful that the state's highest court, the Virginia Supreme Court, will reinstate in full the jury's verdict, including its award of over $2,000,000,000 against Pegasystems for willfully and maliciously misappropriating Appian's trade secrets. Nothing in this week's opinion changes the fact that Pegasystems was found to have committed computer fraud in violation of the Virginia Computer Crimes Act.

Speaker 2

That unanimous finding by the jury was not disturbed by this week's decision and Pegasystems did not even attempt to contest its violation of the Virginia Computer Crimes Act on appeal. For Appian's full perspective on this sordid affair, I refer you to a special page on our website, appian.com/pega. I'm optimistic about Appian's future. We deliver our customers a great product and a great experience. Appian's commitment to efficient growth will allow us to continue innovating while delivering value to our stakeholders.

Speaker 2

Now, I'll hand the call over to Mark for a deeper discussion of the financials. Mark?

Speaker 3

Thanks, Matt. Thank you to everyone for joining us today. I'll review the financial highlights for the quarter and then we'll provide guidance for the Q3 and full year 2024. Our key metrics of cloud revenue, total revenue and adjusted EBITDA all came in above the high end of our guidance ranges. Cloud subscription revenue was $88,400,000 an increase of 19% year over year.

Speaker 3

Our cloud subscription gross renewal rate remained stable at 99%, up slightly from 98% a year ago and consistent with the prior quarter. Our cloud subscription revenue retention rate was 118% as of June 30, 2024 compared to 115% a year ago and 120% in the prior quarter. We continue to target a cloud subscription revenue retention rate of 110 percent on a quarterly basis. Approximately 82% of our total net new software bookings in the quarter was for the cloud compared to 84% in the prior year's Q2. Total subscriptions revenue was $113,000,000 an increase of 20% year over year.

Speaker 3

Professional services revenue was $33,500,000 down 1% year over year. As we stated previously, professional services revenue can fluctuate quarter to quarter due to the timing of large projects. We leverage our professional services to enable partners and drive customer success. Over the long term, we expect professional services revenue to continue to decline as a percentage of total revenue. Total revenue was 146,500,000 dollars an increase of 15% year over year.

Speaker 3

Subscription revenue represented 77% of total revenue compared to 73% in the year ago period and 79% in the prior quarter. We continue to see global demand for our platform with our international operations contributing 38% of total revenue consistent with the year ago period. Foreign exchange movements provided a modest revenue headwind of slightly less than 1% this quarter. Turning to profitability metrics. Non GAAP gross margin was 75% compared to 73% in the year ago period and 76% in the prior quarter.

Speaker 3

Subscriptions non GAAP gross profit margin was 89% consistent with the year ago period and 90% in the prior quarter. Professional services non GAAP gross margin was 30% compared to 28% in the year ago period and up from 25% in the prior quarter. Our goal is to enable our customers to achieve positive business outcomes and increase adoption of our technology platform. To help accomplish this goal, we continue to invest in non billable areas of our services organization. As stated previously, we expect professional services non GAAP gross margin to decline to the low 20% range in 2024 and beyond.

Speaker 3

Total non GAAP expenses were $123,200,000 up 3% from $119,700,000 in the year ago period. Adjusted EBITDA loss was $10,500,000 for the quarter, well ahead of our 2nd quarter guidance of a loss between $17,000,000 $13,000,000 and significantly improved from an adjusted EBITDA loss of $24,700,000 in the year ago period. In the second quarter, we had approximately 200,000 of foreign exchange losses compared to $1,200,000 in foreign exchange gains in the same period a year ago. As a reminder, we do not forecast movements in FX rates. Therefore, FX movements are not considered in our guidance.

Speaker 3

Non GAAP net loss was $19,100,000 or $0.26 per share compared to a non GAAP net loss of $28,500,000 or $0.39 per diluted share for the Q2 of 23. Turning to our balance sheet, as of June 30, 2024 cash, cash equivalents and investments were 149,100,000 dollars This provides us with significant liquidity to operate and invest in our business. For the Q2, cash used by operating activities was 17,600,000 dollars versus cash used by operating activities of $11,900,000 for the same period last year. The increase in cash usage was driven primarily by the timing of facilities and vendor payments. Finally, total deferred revenue was $222,900,000 as of the Q2 of 2024, an increase of 14% from the year ago period.

Speaker 3

As a reminder, while the majority of our customers are invoiced on an annual upfront basis, we also have some large customers that are billed quarterly or monthly. Consequently, we continue to believe cloud subscription revenue is a better indicator of our business momentum than deferred revenue, billings or remaining performance obligations. These latter metrics can fluctuate based on the timing of invoicing, seasonality of on prem license revenue and the duration of customer contracts. The true scale of Appian's 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. As Matt mentioned, we have made adjustments to our expenses to align with our strategy.

Speaker 3

These include a reduction in personnel and some consolidation of facilities. Looking ahead to the second half of twenty twenty four, we believe these actions will accelerate our path to profitability. We previously forecasted adjusted EBITDA breakeven in 2025. Now we expect to achieve this milestone for the full year 2024. Let's turn to the specifics of our guidance.

Speaker 3

For the Q3 of 2024, cloud subscription revenue is expected to be between $89,000,000 $91,000,000 representing year over year growth between 15% 18%. Total revenue is expected to be between $149,000,000 $153,000,000 representing year over year growth between 9% 12%. Adjusted EBITDA for the Q3 of 2024 is expected to range between breakeven and positive 3,000,000 dollars Non GAAP net loss per share is expected to range between $0.10 to $0.06 This assumes 72,400,000 diluted weighted average common shares outstanding. For the full year 2024, we're slightly reducing our cloud revenue and total revenue guidance. We believe it is prudent to factor in some potential uncertainty into our near term outlook given the personnel changes we discussed earlier.

Speaker 3

At the same time, we're significantly improving our full year adjusted EBITDA guidance. Cloud subscription revenue is now expected to be between 358 $8,000,000 to $360,000,000 representing year over year growth of 18%. Total revenue is now expected to be between 610,000,000 to 615,000,000 dollars representing year over year growth between 12% 13%. We now expect adjusted EBITDA to range from negative $3,000,000 to positive 3,000,000 dollars This is an improvement of $20,000,000 from the midpoint of our previous guidance range. We are also updating our full year 2024 non GAAP net loss per share to range between $0.61 to $0.52 This assumes 72.6 1,000,000 diluted weighted average common shares outstanding.

Speaker 3

Our guidance assumes the following. 1st, as previously disclosed, the variability in our services revenue can be swung by 1 or 2 large transactions. We expect professional services revenue to be flat to down sequentially in Q3. 2nd, we expect on prem license revenue in Q3 will increase sequentially and track to seasonality that is consistent with prior periods. 3rd, total other income and interest expenses are expected to be between $4,000,000 $5,000,000 in Q3 and between $17,000,000 $18,000,000 for the full year 2024.

Speaker 3

4th, capital expenditures are expected to be between $1,000,000 $2,000,000 in Q3 and between $5,000,000 $7,000,000 for the full year 2024. And 5th, our guidance assumes FX rates as of July 29, 2024. In closing, we're pleased about our commitment to accelerating adjusted EBITDA breakeven on a non GAAP basis from 2025 to this year. We'll continue to focus on growth while driving greater efficiencies in the business. We believe that the unique capabilities of our platform position us well to capture the large market opportunity ahead of us.

Speaker 3

And with that, we will open up the line for questions. Operator?

Operator

Our first question comes from Sanjit Singh with Morgan Stanley. Your line is now open.

Speaker 4

Thank you for taking the questions. Matt, I wanted to start off with the decision to accelerate the path to profitability. I think a few quarters ago you sounded, I would characterize it as still in pre firm investment mode. So I'd just like to get your thoughts behind the decision to accelerate the path to profitability. And then Mark, in terms of the outlook, the outlook does come in the second half, as you said, with the cloud subscription revenue guidance.

Speaker 4

Is that just driven by like, sort of derisking any potential sales execution issues? Or did you see a weaker pipeline? Are you seeing a weaker pipeline or weaker close rates in terms of just the demand environment? Thanks.

Speaker 2

Hey, with regards to that second question, Sanjit, I'd like to jump in even though you directed that to Mark. I insisted on this adjustment. I feel strongly about it. We made a move this quarter, a cost reductive move that could have temporary disruptive effects. I say could have, not will have, but could.

Speaker 2

And I wanted to get out ahead of that. I felt it would be prudent if we were just to adjust for that possibility. As for the overall decision, we saw an opportunity basically. In applying scrutiny to the cost structure of the organization, we saw an opportunity. We didn't feel like we had to make this move, but we saw that we could make this move.

Speaker 2

And in light of the possibility and in light of the fact that we felt that we could grow through it and that any effects, if any, would be short term, we decided to make that move. But we as I mentioned in the remarks, we are focused on growth. This is not a pivot away from growth.

Speaker 4

Understood. That's super helpful context. And one follow-up, if I may, Matt. As it relates to the decision by the court this week, if we could tie the sort of insurance policy that you had written that sort of underwrote the verdict. I think it remind me if I think it was like $60,000,000 to guarantee at least $500,000,000 of the original 2,000,000,000 dollars How does that tie in?

Speaker 4

How does those 2 how does the decision this week impact the insurance policy that you guys signed up for last year?

Speaker 2

Yes. With regards to that insurance policy, I want to be it's very important to us that we get the details and convey them to you exactly correctly, right? And so instead of answering the question verbally, I just want to direct you to the document because it's so important to get it precisely correct. Do you Yes, it was filed in as

Speaker 3

an 8 ks in September of 2023. So you can easily find go to the SEC website and go to September of 2023, our 8 ks. There's 5 scenarios and that's the policy in the quarter.

Speaker 4

All right. Thank you very much.

Operator

Thank you. One moment for our next question. Our next question comes from Raimo Lenschow with Barclays. Your line is now open.

Speaker 5

Perfect. Thank you. Matt, going back to the guidance again, So I get the prudence and well done on that on the guidance because there likely will be kind of implications. But is this just purely just to kind of clarify it one more time, is this purely on the action that you saw? Or is there also other things in the economy that you kind of want to make sure that the second half is covered?

Speaker 5

And then I'm asking because like there's quite a few other companies like Salesforce etcetera that kind of talked about slightly weaker economy. Just a clarifying question here and then I have one follow-up.

Speaker 2

Thanks, Raimo. I am and we are not reacting to macro effects with this move. It is not about macro.

Speaker 5

Okay, perfect. Okay, thank you. And then you discussed the move as an opportunity. Can you talk a little bit about the puts and takes here like historically you've been more a growth focused management team. You probably got kind of pushback from other sides that you maybe we should think about more profitability.

Speaker 5

Like being a profitable company quicker, what does it mean for you as a management team at the company? Thank you.

Speaker 2

Yes. Let me say that the primary thing we're doing here is transferring energy from places that it is not as productive to places where it's more productive. And to do that under a commitment to profitability means to remove some investments in order that we can grow others. So I believe that profitability is just good for management generally. Operating under stricture is just a positive thing.

Speaker 2

It's how Appian's run most of its lifetime. It's how I prefer to run. So that's just a bonus that we could stretch for and we saw the opportunity to stretch for it here. But this is also a moment of reallocation, of reassessment of where energy belongs in this enterprise. And I think that that's the most effective.

Speaker 2

I talk about some things here that we're increasing on, right? I talk about solutions in public sector and large deals and there's others as well. There's places where energy is flowing into and that's of course enabled by the fact that we're willing to flow energy both in and out.

Speaker 5

Makes sense. Thank you. Congrats.

Operator

Thank you. And our next question comes from Steve Enders with Citi. Your line is now open.

Speaker 6

Okay, great. Thanks for taking the questions here. I guess maybe just want to get a better understanding for why is now the right time to go through this initiative on the go to market side? And I guess what's leading to this decision being made this quarter versus down the road or I guess even doing this at all?

Speaker 2

That's a great question. And of course, we plan to do it next year, as you know, as we've been forecasting for years now. We've said that the next year was going to be our year. But we've had an ongoing scrutiny process across the organization for a couple of years. Mark gets big credit for that.

Speaker 2

It's been right at the forefront. And it has revealed some truths about the organization. And you bring some of these truths into focus. And yes, I just felt like why wouldn't we act on it right away. We want to make some strategic moves.

Speaker 2

This is a natural complement to them. Yes, that's it. We just saw clearly the opportunity. That's all.

Speaker 6

Okay. All right. That's helpful. I guess maybe switching gears a little bit just on the success with Appian AI and seeing that double this quarter. I guess, can you maybe provide a little bit more clarity on kind of like what's resonating in the value proposition for Appian specifically in the market?

Speaker 6

And is there kind of any underlying functionality that's helping contribute to the adoption here?

Speaker 2

Yes. Well, we're definitely rolling out new AI functionality all the time. And we're also encouraging its usage. And we're seeding the market with a little bit of free AI usage to tempt them into buying our advanced tier. A little bit of background for you on how that works.

Speaker 2

We priced AI at the advanced tier of license pricing, which is to say that customers will have to pay more to be full AI users. And we feel that's a pretty important incentive that would give them a reason to prefer advanced licenses over standard licenses. But of course, we also want them to understand how powerful it is. So we've been offering a small amount of AI usage at gratis. And then if they want to use it at scale, then they have to pay.

Speaker 2

So I think that between the new features and the emphasis on the advanced tier and the startup allotment, you have in combination the rationale for why that usage jumped.

Speaker 6

Okay, perfect. Thanks for taking the questions.

Operator

Thank you. And our next question comes from Derrick Wood with TD Cowen. Your line is now open.

Speaker 7

Great. Thanks for taking my questions. Hoping to get a little bit more color around the restructuring efforts you're taking. Where are you looking to take costs out? How much headcount reduction is expected and what kind of restructuring charges should we be modeling?

Speaker 2

Shall I start on that? We're not going to talk about headcount. We will I will say that we are analyzing all of our go to market expenditures according to the amount of net new ACV that they drive or that we can infer that they drive. We want to be efficient in the way we spend our go to market dollar. And so that analysis revealed that we had a mixed bag of efficiency and that there were places that we wanted to shift energy towards.

Speaker 2

Do you want to say anything about a charge?

Speaker 3

Yes. So we actually recorded this charge in our Q2, and you can see it in 10 Q that will be filed later today. But we did have in our disclosure that we reduced the workforce by approximately 150 employees and took a charge of around

Speaker 7

$5,000,000 Okay. And I mean, Matt, I'm hearing you talk about efforts with large enterprises. It sounds like perhaps you're shifting some focus away from the mid market and prioritizing up market. I don't know if you can you give us a sense of what that mix of business has been historically and if that's the case, how that may change kind of mix of bookings between cloud and on premise going forward?

Speaker 2

Yes. All right. I think that Appian was spending too much of its energy on small transactions. I'm not against small transactions. I think there's a place for them, but they have to be performed quickly and there has to be upside so that they lead to the kind of transaction where Appian's unique advantages shine and differentiate us most clearly.

Speaker 2

And so I want to do transactions where we have a path to differentiative functionality and an advantaged value proposition. And when those deals are smaller, then I want to execute that deal rapidly. So it's just a change in emphasis. We're not abandoning any markets, but we want to have a different posture in relation to specific markets. And I'd like to see more of our aggregate energy directed at more differentiated opportunities.

Speaker 7

Understood. Great. Thanks for taking my questions.

Operator

Thank you. And our next question comes from Kevin Kumar with Goldman Sachs. Your line is now open.

Speaker 8

Hi, thanks for taking my questions. I wanted to ask about international growth. I know the revenue metrics can be a little noisy, but anything you can share in terms of overall international ARR and maybe how that's growing relative to domestic and maybe what's beyond the strength that you're seeing there? Any differences in the types of sectors where you're gaining traction internationally? That would be helpful.

Speaker 2

Yes. In this regard, not much has changed this quarter or for that matter this year. I see the ratios North America and Europe and Asia about the same as they were 6 months ago, for example. So I don't believe there's anything notable there.

Speaker 8

Got it. And then maybe Matt, you

Speaker 9

talked about GAM and kind of just the

Speaker 8

strength in government. So curious maybe some of your other vertical solutions, especially in like financials and insurance. Can you talk about maybe kind of the trends you're seeing there and the traction, the rate of adoption and just how you think about kind of the broader opportunity for some of those solutions in other verticals? Thank you.

Speaker 2

I feel great about solutions in other verticals. GAM, of course, doubling year over year. I've long loved the solutions opportunity for Appian. I want to invest more in it. It's part of what we're doing right now is freeing up energy so that we can invest more in it.

Speaker 2

It's not exclusively going to be public sector. It's going to be insurance, pharmaceutical. We have great places to put attention. By the way, we don't have to write all those solutions ourselves. We can have motivated partners who write it.

Speaker 2

We market it together. We sell it together. This is a major opportunity for us. This is the future, and we're making those investments in all seriousness now.

Speaker 8

Got it. That's helpful. Thanks,

Operator

Our next question comes from Jake Roberge with William Blair. Your line is open.

Speaker 6

Hey, thanks for taking

Speaker 9

the questions. Just from a timing perspective, how long do you think the go to market changes will take to focus on those customers further upmarket and the key industries like financial services and government? And then I know you've also had a few leadership changes recently for that organization. Do you anticipate hiring a new CRO? Or Matt, will you continue to lead that organization moving forward?

Speaker 2

Yes. Well, I'm staying really close. Let's put it that way. I'm staying very, very close to the sales organization. But we're also empowering Mike Mayer, who many of you met at our Investment Day.

Speaker 2

He's taking more control. And as a team, we're working great. And we will let's just say you won't know how long it's going to take to make changes. Well, we need an agile organization. We need an organization that makes changes quickly.

Speaker 2

And so staying close to it is a good way to be sure that we have that. And just I hesitate to say anything concrete to give out exactly when because you know it's a changed over time. But we're intensively attending these changes in Q3 and surely will also in Q4.

Speaker 9

Okay, helpful. And then great to hear that Appian AI usage doubled in the quarter. You talked about seeding the market with some free usage to get people to adopt that advanced tier over time. But how should we think about the path to get that doubling of usage into true revenue monetization?

Speaker 2

Yes. Well, I think we have a much better revenue monetization or feature monetization story this year because we created the up tier of pricing. And now when we release new functionality, we can place it in the up tier and ask customers to pay more to get it. So we're much more direct about the way we translate feature advantage into revenue. And that's the play also with AI, just establish the value.

Speaker 2

We've got a unique advantage in AI. We have private AI. We are the champions of preserving the sanctity of an organization's private data, not training someone else's AI algorithm with it, not disclosing it, not consolidating it in someone else's database. We are champions for the customers' existing data preserving it and existing architecture allowing it to be the way it is. In this way, we're the anti big tech.

Speaker 2

And I believe that this market has room for an anti big tech for a pure play champion, emphasis on champion because we're championing the priorities and the preferences of the customer against the power of the vendor. So there's room for us. We're excited about offering this functionality that gives our users a better option. And so we will continue to chart a unique course, a course that contrasts with that of our competitors and to explain to customers that not all vendors are going to make the same demands and constrain their enterprise and the privacy of their information in the same way. I think that for a lot of people, it's a foregone conclusion that Big Tech owns the customers' data.

Speaker 2

I feel like valuations have reflected that assumption, But customers don't like that idea. And when I mention it to them, they bristle. They say, look, that's still our data. We don't want to share it. We don't want to train on it.

Speaker 2

We don't want to consolidate it somewhere else. That's ours. That's our primary asset. There's a lot of energy in favor of preserving data and architecture. I know I'm getting a little bit off the center of the question here, but I think it's an important thing to mention that this constitutes an angle for us.

Speaker 2

It constitutes an advantage. Our business play is different and our requests to a customer are different. And that will continue to answer in our favor when the customer worries about their privacy and the disruption there cause on their enterprise. We're going to continue to have a very divergent offering in these regards.

Speaker 9

Very helpful. Thanks for taking the questions.

Operator

Thank you. I'm showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.

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Appian Q2 2024
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