Greetings, and welcome to the Appian Corporation First Quarter 2022 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, May 5, 2022. I would now like to turn the conference over to Sri Anantha, Senior Director of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining us to review Appian's first quarter 2022 financial results. With me today are Matt Calkins, Chairman and Chief Executive Officer; Mark Matheos, Chief Financial Officer; and Mark Lynch, former Chief Financial Officer. After prepared remarks, we will open the call for questions. 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 second quarter and full year 2022, the impact of COVID-19, including the emergence of new variant strains of COVID-19 on our business and on the global economy, 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. 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 2021 10-K and other periodic filings with the SEC. These documents are available on our 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 and the Investors section of our website for a reconciliation of these measures to their most recently comparable GAAP financial measures. With that, I would like to turn the call to our CEO, Matt Calkins.

Thanks, Sri, and thanks, everyone, for joining us today. In the first quarter of 2022, Appian's cloud subscription revenue grew 37% year-over-year to $58.4 million. Subscriptions revenue grew by 31% to $83.7 million. Total revenue grew 29% year-over-year to $114.3 million. Our cloud subscription revenue retention rate is 117% as of March 31, and our adjusted EBITDA was a loss of $3.4 million. Last week, we hosted our annual conference in-person for the first time since 2019. It was hybrid really with equal registrants, in-person and remote. It's great to get back to personal meetings. I loved all the customer presentations. The onstage hackathon was exciting, and I got to interview with Malala, Seeing the enthusiasm in the halls reminds us that we have a great product, a market favorite product and happy customers. No complaints all week, at least I didn't hear any. These are the same customers that have just voted us a customer's choice in Gartner's low-code Quadrant again this year. We've been a customer's choice every time since Gartner started doing this quadrant. In fact, we're the only customer’s choice for large companies with more than $1 billion in revenue 2 years in a row. We're also the only customer's choice for medium-sized businesses, more than $50 million, 2 years in a row. This is important because it shows our success in broadening our appeal to the mid-market. We're also the only customer’s choice 2 years in a row for North America, Africa, Middle East and Europe. Happy customers are the foundation of our company. There's another way to bootstrap a fast-growing software company without happy customers. I don't know it. The other reason we're here as a public company and on the phone if you today, as a result of that customer commitment, our gross…

Yes. Thanks, Matt. It's been an amazing run. I'm incredibly appreciative to you, the Board and the founders for giving me the opportunity to join the company over 13 years ago and to help grow it from $25 million in revenues in 2008 to over $450 million based on our updated guidance for 2022. I'm also excited to be nominated to the Appian's Board and look forward to continuing our work in relationship for years to come. I'd also like to take a moment to thank everyone within our finance, HR, facilities, IR and admin functions. It's been an honor to work with such an amazing dedicated group of professionals. I'm very excited with Mark Matheos as well deserved promotion to CFO. He's a very talented professional with qualifications required to take the company to the next level. And with that, I'll turn the call over to Mark for a deeper discussion of our financials.

Thanks, Matt and Mark, and good afternoon, everyone. It's great to be here. I'm looking forward to partnering with Matt, our executive team and all of our employees to support our continued growth. I'll review the financial highlights for the quarter, and then we'll provide guidance for Q2 and full year 2022. We delivered another strong quarter, driven by cloud subscription revenue growth of more than 30% year-over-year. We also saw healthy cloud subscription growth in key industry verticals in each of our geographical regions. Our investments in platform, sales and marketing and go-to-market initiatives are beginning to bear fruit, and this gives us confidence to continue to drive 30%-plus cloud subscription growth going forward. Let's get into the details. Cloud subscription revenue for the first quarter was $53.4 million, an increase of 37% year-over-year and above the top end of our guidance. Our total subscriptions revenue was $83.7 million, an increase of 31% year-over-year. Professional services revenue was $30.5 million, an increase of 22% from $25.1 million in the prior year period. Despite the growth in services revenue this quarter, partners will continue to be a larger part of our growth strategy. As you heard at Appian World, some of our partners are expected to double the number of Appian practitioners at their respective firms over the next 12 months. Appian partners not only help us sell software, but also perform professional services work for new services contracts that they signed. We continue to believe, over time, professional services revenue will decline as a percentage of total revenue. Subscriptions revenue was 73% of total revenue in the first quarter as compared to 72% in the prior price period and in the prior quarter. Total revenue in the first quarter was $114.3 million, an increase of 29% year-over-year and also…

Thank you. [Operator Instructions] Our first question comes from the line of Kevin Kumar with Goldman Sachs. Please go ahead.

Hi. Thanks for taking my question. Matt, can you comment on what you're seeing from an overall demand environment perspective for local solutions, particularly in an inflationary environment? And also, can you comment on what you're hearing from customers in Europe? Thank you.

Yeah. I think I get a question on inflation and that will be the first one. But look, I think that the economy could be in for a rocky ride and Appian has proven resilient in previous economic turmoil. We've been around for 23 years, and we've seen how this business responds. And if there is a disruption, and let me say, I don't see it yet, right? I don't see any disruption. But if it develops into a disruption, if the inflation becomes a problem if we run into a recession, I think Appian may prove to be more resilient because this business is about creating efficiencies, finding efficiencies, pivoting an organization according to circumstance and saving money. And so I believe that we may prove to be resilient.

That's great. And then I wanted to double click on partners. The commentary from the conference has been very positive. A lot of partners are growing their practices fairly rapidly. I guess, has anything changed in terms of partner enablement go-to market that's driving that level of growth across the partner acquisition?

There is. We have focused on making it easier than ever before to learn our platform. We do that partly so that the most demanding customers can have an absolutely no compromises experience and quickly achieve the changes they need in the patterns and processes that they run. But it has the intended side effect of broadening our market and inviting more participants to be Appian practitioners. We have encouraged that by creating free scholarships, by allowing free usage, creating an environment in which people can experiment with our product and build intellectual property that can then be ported into an aid [ph] GA environment. We've done all we can to make it easier to get our community larger. I think that's got a lot to do with the community growth. And one of the biggest takeaways that I had from our user conference last week was the enthusiasm of the partners. We've never made more money out of partner sponsorships, even though this is not our largest in-person conference coming out of COVID, it's not the biggest. We still got more sponsorship money than we've ever gotten. And the plans that the partners have to grow the size of their Appian trained workforce are particularly impressive. Thousands of new practitioners are being trained by partners this year. In some cases, with Appian support, in some cases, not. But they're responding to substantial market demand. I talk about it wherever I go with partners, and they see the demand, and they're reacting to it. That's probably my favorite single takeaway from last week's conference actually was the tangible plans that I saw on our partner's behalf to increase their Appian trained workforce.

That's great. And congrats on the quarter.

Thank you.

Our next question comes from the line of Bob Hain [ph] with Morgan Stanley. Please go ahead.

This is Bob filling in for Sandy. Just a similar line of question as the previous one. Assuming the macro condition remains volatile, can you maybe talk about the potential headwind that could impact your margin, especially in the second half? We do understand the second quarter will have some seasonality. But are there any potential weakness that you see that could potentially impact your margin on the second half? And also, are there any levers that you could pull to sort of offset that, assuming the macro conditions remain the way it is?

All right. Now I will talk about the second half in a second, but I first want to say there's a little bit of macro turmoil right now, and yet we've delivered a typical solid Appian quarter. Our growth is over 30%. The revenue is surprisingly strong at 29%. We got a weak margins, conservative spend, conservative guide, right? This is just typical playbook Appian. And we're doing that even though you're seeing a little bit of macro volatility. So I feel we're steady on even though the wins picked up a little bit. And in the second half of this year, I don't anticipate any disruption to our expectations. And we, as for levers we can pull – we happy we got here as a bootstrapped company. We know what it is to batten down the hatches. We had to grow on our own revenue. We were customer funded, not investor funded. And so we understand what it is like to run lean. And if we need to, we can do that.

Okay. Thanks. That's very helpful. Second question, trying to have a better understanding of your customer base. You - in your prepared remarks, you mentioned about additional customer ads and especially some of the on-premise examples, right? In terms of your new logos, can you give us a sense of what percentage of that are cloud customers? And what percentage of that are on-premise customers? And generally, do you - like do you expect the on-premise customers to eventually shift to the cloud? And if so, what is the pace of that shift?

Got it. Our equilibrium at this point is roughly 4 to 1, which is to say 80% cloud, 20% on-prem. I'm not saying that's last quarter, I'm saying that's a broad consensus over quarters. That pattern has continued in the first quarter of 2022, and I expect that it will continue for all the other quarters in '22 also. We are not seeing a mix shift from on-premise to cloud, and I don't anticipate one. Once in a while, a business has a reason for a preference for on-premise, Appian encourages cloud, but customers have their choice. And if they do have such a preference, they're unlikely to unwind it. Furthermore, the remnant of our legacy customer base that is committed to on-prem, if they were going to switch, they would have switched. And so I don't expect a migration.

Thank you. Congrats on the quarter.

Thank you.

Our next question comes from the line of Jake Roberge with William Blair. Please go ahead.

Hey, guys. Thanks for taking my questions. So just wanted to touch on pricing. So customers are clearly seeing the value of the platform, which can be evidenced by 99% gross retention, which is best-in-class, strong NRR and then also accelerating platform usage that you've disclosed over the last few quarters. So given these dynamics, I'm just curious how you're thinking about the potential pricing lever over the next few years?

Yeah, absolutely. We've got a lot of ways to capture higher prices. But that is our intention. As we add pieces to our suite we raised the sweet price. Now we do that while saying that RPA is free and process mining is free, but only a nominal amount of it is actually free. And if a customer becomes a serious user, one of those functionalities, also IDP also, also portals any one of those trigger cost increases if they use it in a substantial manner. So we have overall price raises. We have triggers on heavy usage for any of those nominally free components. So those will be the primary ways. But we're also using the leverage we get from the other components in the suite to upsize the existing customers that we have sold. So our other lever doesn't have anything to do with raising prices, it has to do with discovering new business and sparking new demand. Process mining, in particular, is great for that. But also just to be able to say, if you've got a system, why don't you add our RPA instead of someone else's. It's more convenient, right? It's already compatible. It will upgrade together. I think we have a footprint expansion plan even as we have a price increase plan. And we continue to see strong pricing power, and we watch for that.

Great. Thanks. And then I'm just curious how initial customer conversations have been tracking for some of those new products you mentioned earlier, like portals and KIC. When we were at Appian World last week, there was so much buzz around portals. So I'd love to hear if you could dive into that a little deeper on how that differentiates your platform versus some of your other competitors?

I'm glad you felt the buzz around portals last week at our conference. I would say portals may be the most anticipated feature we've ever shipped. And which is funny because I don't think it's the most amazing feature we've ever shipped. It's pretty straightforward and yet it's exceptionally popular. It was a simple thing to create. It's a simple thing to deploy and yet customers really want this in order to expose their applications to external users who don't have log-ons and who might all log on in the same 5 minutes one day. And so we put this together when we've got exceptional interest in it, which is why we've put a price on it. And yeah, I think we're going to get a good deal of uptake on that product. It's not the only thing that people are excited about. There's interest around our growing solutions portfolio. There are now 75 solutions written by our partners in addition to the solutions written by Appian. And though those partner-driven solutions are up in revenue, 265% year-over-year. So there's interest in other features, as well as low-code data has seen extreme usage over the past year. We released that a year ago, and it was GA a year ago. But to have more than a third of our customers actually - or third of our customers actually using it, right? 37% of our customers are using loco data. That's an enormous uptake on a deployment feature, not of our customers doing a deployment even, but they love this feature. It makes data integration intuitive, makes it low code, drag and drop with your mouse, the way we make workflow, low code. So we've got a few features that I feel like they're leasing across the user base. There's a great deal of interest for these and, yeah...

Great. Thanks for taking my questions. Thank you, guys on a great quarter.

Thank you.

Our next question comes from the line of Joe Meares with Truist. Please go ahead.

Great. Thanks for taking the questions. Just to go back to the partners topic. It was great to hear at Appian World, how much your partners are growing that practitioner base. Just curious if you have any quantitative numbers behind how many - how partners were involved in the pipeline this quarter? And do you think that can accelerate through the year?

Anecdotally, I could say that I heard multiple partners saying that they plan to double their practitioner base in '22. But I want to emphasize that, that is anecdotal, and I don't have official numbers. I mean these are just promises and plans anyway. So I take that with an asterisk, but I came away very encouraged about the commitments that partners are making. As for the partner contribution to our pipeline, I would say it is in line with the contribution to our pipeline that it has been percentage-wise. I mean that's still roughly equivalent in gate to our total pipeline contribution. I think it's been consistent quarter-on-quarter.

Got it. And then in breakout sessions at Appian World, I was surprised and pleasantly surprised to see how many customers we're talking about adding products that they either didn't know about really yet or just heard about from talk partners. So I'm just curious, if you never added another logo, what's the revenue runway within the current installed base? Like what's the current penetration of revenue you think within the current installed base? Thanks so much.

Yeah. I actually think we have a fantastic runway ahead of us, even if we never added a new logo. But the real beauty of our position is we're going to add new logos. And every one of them will also have that beautiful runway ahead. It's one of my favorite things about this business that we generate so much value with each application that we put down. The customers are delighted. The usage is - grows faster than revenue growth. And that's - our challenge is just to monetize all the value we're creating. I take care not to offer true enterprise licenses for this reason because the value we can create keeps going up with every new application, with every new user, there's always more you can do with this platform. So I'm reluctant to sell the future at today's prices when it comes to usage licenses. So could we grow if we didn't add new logos? Yeah, we could, would probably pretty well, too. But I think we're going to get the best of both worlds. We're going to radiate and we have a lot of logos we haven't touched out there.

Great to hear. Thank you.

Our next question comes from the line of Derrick Wood with Cowen and Company. Please go ahead.

Hey, guys. It's Andrew on for Derrick. Thanks for the question. I'll shift to Mark actually and congrats, Mark Lynch on your retirement and best wishes. And congrats, Mark, on your promotion. Was there any impact to close Sombra [ph] in Q1 from FX? And then secondly, what drove the strength in PS res? Is there anything onetime unusual in that?

So when we talked about the headwinds in our guide, it's really since our initial guidance that we made in Q1 - I'm sorry, in February with our full year results, the movement in the currencies represents that headwind. So that's the only thing we're worth mentioning. I mean, there is no other kind of commentary on that in terms of impact to the guide. On the professional services piece, as you know, we have limited visibility on that, and we're kind of conservative with respect to what we want to forecast with respect to that visibility. And so we don't actually have any specific - we're not necessarily surprised when we see it tick up because of a large project or two that may have spilled over from Q4 to Q1, but it's not something that we necessarily expect to happen as '22 goes on.

If I could say just a little bit to that CS question as well. We note that it was a strong quarter for services. And I believe we can attribute that to our success in creating packaged services, which is to say, a defined behavior set that is packaged to be complementary to our players. We've changed our services from Appian does all the deployment to Appian councils and assists our partners in doing the deployment. And I think we've had some success in nailing that new model. And so I attribute our improved services picture to the fact that we are working hand-in-hand with our partners more successfully than we had in the past, which is also great for our customers because it ensures the best outcomes. That is not to say that we have any predictions. I just want to explain as best I can what the strength is in the first quarter.

Yes. Thanks. And then, Matt, for you, how is your sales rep hiring plan and trend versus that plan? Maybe give us a feel for what sales capacity growth could be this year and what overall productivity was like in the quarter?

That's right. Well, we never comment on our AE hiring, except to say, general things like we're hiring aggressively. And so I'm going to have to settle for that in response to your question about AEs. But with regards to productivity, it has been on the upswing. It was better last year than it had been the year before that. I'm feeling good about productivity, and that's not a mere tweak in the numbers. That's also the fact that we've instituted a new sales methodology last year with more formality and rigor than we ever did before. And I believe that, that is driving the greater productivity.

Great. One more for you, Matt, if I can squeeze one in. How big of a lead generator that is Appian World? And how does this compare with prior years? And can that help accelerate your pipeline growth?

I think Appian World is a good lead generator in terms of expansion within existing accounts and a moderate to not impressive lead generator with regards to prospects. So I think it's great for inspiring our existing customers to meet each other, see what they're doing. But if you've got a prospect that's already so excited about the company that they're willing to travel to go to our conference, then they were pretty much going to buy it anyway. It is my experience.

Great. Thanks, guys.

[Operator Instructions] Our next question comes from the line of Vinod Srinivasaraghavan with Barclays. Please go ahead.

Hi. Thanks for taking my question. I just want to go back to the cloud or on-premise customers you mentioned earlier. What's the typical size of a cloud versus on-premise customer now versus maybe 2 years ago?

Yeah. Okay. You mean the size relative to each other or just the - you see, our average size is not too far down from what it was when we went public. Despite the fact that we have many more logos and we brought on a batch of customers with a COVID health response solution that we're on average smaller than our other customers. So I'd say our price - our average revenue footprint has held up really well in light of the growth that we have been through. But it's the other dimension there if your question was, is there a divergence or a change in trend between the cloud users and the cloud deployments and the on-premise deployments. And there, I would say, no, not to my knowledge.

Got it. And you mentioned package services earlier. Do you plan on introducing more around maybe sales specializations and hiring people to kind of help with that to kind of complement the product changes that you're making?

Well, around solutions, certainly, yes. And of course, our hiring in sales has drifted more towards industry knowledge over the years. So we do feel that, that is effective, understanding the customer's problem, majority to sale. When you sell something as flexible as the Appian platform as capable of adapting to different problems you really need to understand the landscape and listen to the customer. And the more informed the representative is the more capable they are of understanding what they hear and engaging in that conversation. So we have found increasing value in industry expertise and particularly around solutions, it's been completely necessary.

Great. Thank you.

There are no further questions at this time. I'll turn the call back over to the presenters.

We don't have any further comments other than to say, we appreciate your interest and your questions. Thank you, and good evening.

Thank you. That does conclude today's conference call. We thank you all for your participation and ask that you please disconnect your lines.