And good day, and welcome to Appian Corporation's Fourth 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 session. Instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Jack Andrews, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us. Today, we will review Appian Corporation's fourth quarter 2024 financial results. With me are Matt Calkins, Chairman and Chief Executive Officer, and Mark Lynch, Interim 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 considered forward-looking. These include comments related to our financial results, trends, and guidance for the first quarter and full year 2025, 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. These statements reflect our views only as of today and do not represent our views as of any subsequent date. We will not update these statements as a result of new information unless required by law. Actual results may differ materially from expectations due to the risks and uncertainties described in our SEC filings. Additionally, non-GAAP financial measures will be discussed on this conference call. Reconciliations of GAAP to non-GAAP financial measures are provided in our earnings release. With that, I would like to turn the call over to our CEO, Matt Calkins. Matt?

Thanks, Jack, and thanks everyone for joining us today. In the fourth quarter of 2024, Appian Corporation's cloud subscription revenue grew 19% to $98.9 million. Subscriptions revenue grew by 18% to $136.8 million. Total revenue grew 15% to $166.7 million. Our adjusted EBITDA was positive $21.2 million, and our cloud subscription revenue retention rate was 116%. Our non-GAAP gross margin was 80% in Q4, our best performance since the IPO. For the full year, Appian Corporation's cloud subscription revenue grew 21% to $368 million. Subscriptions revenue grew 19% to $490.6 million. Total revenue grew 13% to $617 million. Our adjusted EBITDA was positive $20.3 million. The world of AI is very exciting, but it contains an unsustainable imbalance, and all of you know what it is. There's a monstrous amount of investment in AI. The largest American tech firms spent nearly a quarter of a trillion dollars of CapEx last year without a proportional return. AI does not generate enough revenue because AI does not generate enough value. And this is where Appian Corporation can help. Appian Corporation creates real value with AI, like putting it where it can do the most good. While other firms bring work to AI, we bring AI to work. I mean, we go where work happens, and that's where we deploy AI. We equip AI to make an impact directly in the places where the heaviest and most valuable work already occurs. Work happens inside of a process. A process is a high-volume flow of tasks handled individually and procedurally inside a corporation. These tasks are carefully orchestrated to serve an important goal. Process is how an insurer manages claims, and a bank validates money. It's how the government operates procurement cycles and pharma companies run clinical trials. Process is how organizations spend their…

Thanks, Matt. And thank you to everyone joining us today. I'll review the financial highlights for the quarter and then provide guidance for Q1 and the full year 2025. We finished 2024 on a high note with our key metrics of cloud subscription revenue and adjusted EBITDA coming in above the high end of our guidance ranges. Strength was broad-based across our key industry verticals with contributions from both new and existing customers. Cloud subscription revenue was $98.9 million, an increase of 19% year over year. Total subscriptions revenue was $136.8 million, an increase of 18%. On a constant currency basis, total subscriptions revenue grew a similar 18% year over year. Professional services revenue was $29.9 million, an increase of 1% year over year. As previously noted, services revenue can be volatile from quarter to quarter; a few large projects can influence performance. Our professional services continue to be a strategic offering focusing on driving customer success and enabling partners. Over the long term, we expect professional services revenue to continue to decline as a percentage of total revenue. Subscriptions revenue represented 82% of total revenue compared to 80% in the year-ago period and also 80% in the prior quarter. Total revenue was $166.7 million, an increase of 15% year over year. On a constant currency basis, total revenue grew 14% year over year. Our cloud subscription revenue retention rate was 116% as of year-end compared with 119% a year ago and 117% in the prior quarter. We continue to target a cloud subscription revenue retention rate of 110% to 120% on a quarterly basis. International operations contributed 35% of total revenue, compared to 36% in the year-ago period. Cloud software net new ACV bookings were approximately 65% of total net new software bookings in Q4 compared to 80% in…

Thank you. If you'd like to ask a question, please press star one one. If your question hasn't been answered and you'd like to remove yourself from the queue, our first question comes from Sanjit Singh with Morgan Stanley. Your line is open.

Yes. Thanks for taking the questions. And congrats on a strong 2024. On the Q4 performance, there did seem to be a lot of strength in sort of the on-premise business. You called out strength in the public sector vertical, specifically, which sort of begs the question. Just given all the uncertainty with the Doge and US federal spending, what sort of the underlying assumption in terms of the guidance about public sector overall, the US federal going into next year? How do you feel about Appian Corporation's positioning in an uncertain US federal budget environment?

Well, we feel cautious about it. And that's our nature. In a state of uncertainty, we want to be careful. I cannot forecast the outcome of Doge, the impact that those rearrangements are going to have. I love the principles of efficiency and modernization, but how those principles will translate into the buying environment, I cannot yet predict.

And I think it's important, Sanjit, for modeling purposes that the 65% cloud, 35% on-prem was an anomaly. We expect that the ratio to go back to be consistently about 80% cloud, 20% on-prem for next year. We just had a couple of large deals in the public sector that skewed.

Yep. Right. And then just to follow-up, Matt, on some of the case studies that you highlighted in your broader agent strategy. As we look into 2025, from a product roadmap perspective, what can we expect in terms of more skills? You announced the skills package in the last couple of years, but broadly on the agent strategy. What can we expect the customer base to be seeing from an innovation standpoint on the agent front?

Yeah. I pointed out that in the world of AI, there's an imbalance between excitement and results. And I think that as severe as that imbalance might be, it gets even stronger when you talk about agents. Our goal is to teach people that agents can be valuable when they're structured, when you've got guardrails, when their actions are far-reaching, when you narrow the chances that improvisation will occur and fail. We can make practical value, and I want to elevate that. I want to expose people to the value we're creating, the real value with agents. And so our goal is to show this practicality. Some of us like to say that our goal is to be boring with AI because real productive AI is less of a flight of fancy and instead just going to where the work already is and improving how we handle it with AI. It's kind of boring. Right? It doesn't really change the way your business runs. It just makes it run a lot stronger. So our intention is to be practical and even boring in the way we solve real problems with these new technologies.

Okay. The thoughts, Matt. Thank you.

Thank you. Our next question comes from Steve Enders with Citi. Your line is open.

Okay. Great. Thanks for taking the questions this morning. And Mark, good to hear you back on the call here. I guess I want to start on the AI point and follow-up on the prior question. But how do you kind of see this dynamic playing out of customers, I guess, kind of understanding the Appian Corporation approach to AI and understanding, you know, kind of embedding this embedding the agent experience into the process pipeline versus, I guess, other approaches that are out there in the market?

Yeah. I think we've got, first of all, everybody thinks about AI in a different way. Some people are thinking Copilot. Some people are thinking chatbots. Some people are talking about Agentforce. We're thinking about AI in a distinctive way, and I believe that the way we approach it stacks up very well value-wise, results-wise against any other vision around the way AI should be used. Ours allows you to deploy AI to where work is happening and therefore to put it right in the midst of things. AI shouldn't stand to the side and be your butler and help out when there's something anomalous happens or it deserves to be in the absolute center of work. If as an economy, we're going to spend as much money as we're spending on AI, this should be an absolute centerpiece to the way we address big flows of work. And so I think our approach is intuitive and even obvious when you think about it. Well, where does AI belong? Well, of course, it belongs exactly where the greatest amount of work is done and value is created. So that's our philosophy. And we're going to make our case through demonstrations. We're going to make our case through publicized success stories and word-of-mouth. That's how we'll win this argument.

Okay. I guess maybe that dovetails into the next question just on the changes in the go-to-market that have taken place over the past year or so and the new CRO coming in. I guess, how are you kind of feeling about productivity rates from the changes that have been made, and how are you kind of thinking about further evolution of the go-to-market moving forward?

Yeah. Well, first of all, I feel great about the progress we're making. And we are getting back to first principles. Right? We're bringing focus and discipline and leadership, and we're getting the right people doing the right things. And I'm very encouraged by the movements that we've made. And then I think that higher productivity can only result from building good foundations.

Okay. Great. Thanks for taking the questions.

Thank you. Our next question comes from Derek Wood with TD Cowen.

Great. Thank you. Matt, I guess my first question. When it comes to data fabric and tapping into various data sources to bring more intelligence into the Appian Corporation platform, can you talk about what the common data sources customers are looking to get access to and what vendors or systems you're working closely with when it comes to building connectors and APIs and trying to bring more different data sources into the Appian Corporation platform?

Yeah. First of all, we see this as a major advantage for our technology over other firms. Our ability to access the distributed data that exists in every major enterprise differentiates us from our competitors who typically wish to assemble the data to aggregate it in one place or under their control before they can properly learn from it or interact with it. So we're reaching across the enterprise, relational databases, systems, important software, textual repositories, especially with AI tech has become a really important source of information. We're a universal connector, and we're broadly integrated with all these systems. And I think that tolerance for data diversity gives us an edge.

Got it. Thank you. Maybe one for Mark. Just hoping to get a little more color on demand trends across core verticals, financial services, government, life sciences, how the quarter went, how you're feeling about pipelines, and even underneath some of those verticals, areas like insurance and pharma, I think are newer focuses. Just checking in on traction there as well.

Well, I'd say that the four key verticals, financial services, public sector, insurance, and life sciences, I'd say that the performance for Q4 and the pipeline were equally distributed amongst those top four. We also have success in other verticals like energy or manufacturing and education, etcetera. But those are the top four. So pipeline looks pretty good, and the performance speaks for itself.

Okay. Thank you.

Thank you. Our next question comes from Raimo Lenschow with Barclays. Your line is open.

Hey. Thank you. Congrats from me as well. Great Q4. Two questions. One for Matt, one for Mark. Matt, if you think about AI and your offering, you know, I saw your presentation is really kind of thorough. Give us a good idea, but the question I have is, like, how do you think about pricing your agents and how is pricing evolving around AI? So with these agents, is this kind of outcome-based? Is it I don't think it's perceived, etcetera. You think about your talk about your thinking there, please. And then one for Mark. Your NRR on cloud, it ticked down a touch again. I know it's a lagging indicator. You think that number settles down, or was there anything in Q4 that might have affected that number? Thank you.

Alright. I'll go first. With regards to how do you price agents, so you price them by usage. That seems to be where the industry is coming down also. It's, you know, just request flow to agents. However, I'll add that we're going to subsidize use of agents for the time being. So we're going to encourage customers to make more use of them so that the value can be demonstrated so we can have a higher volume of adoption. So what our eventual price may be and what our price is right now may not be the same.

And as for the NRR, it bounces around a little bit, Raimo, you know that. It's well within the range that we've stated, 110 to 120. And I think more importantly is the gross renewal rate's 99%, which is best in class. Right?

Yep. Okay.

Thank you. Our next question comes from Nick Altman with Scotiabank. Your line is open.

Awesome. Thank you. Matt, you mentioned half of net new customers bought in above the base tier for the new tiered pricing structure. And so can you maybe just talk about the installed base and how those customers are resonating with the new tiered pricing structure and is there any way to think about what percentage of the installed base is on the new tiered pricing structure today and where that could head in 2025?

Yeah. Let me comment on this. We did not go after our installed base very hard with the new pricing structure. We did not disrupt the contracts commercial relationships that we had in place in order to impose that structure. I feel like the best opportunity to bring our install base higher is when there's a feature they feel that they need. And if we can make a good enough case around certain AI functionality, that might be the inflection point we need to bring them willingly onto the new price structure. And then there's some other possibilities as well. But I'd love to see us do more with the install base. We absolutely have our eye on that. I think that they've honestly got a nice consumer surplus that I'd like to split with them. And we're looking for ways to craft a new and share with them a pricing system that will allow us to benefit from their success.

Okay. Great. And then just going back to Steve's question around the go-to-market, but can you just maybe talk about the messaging to the go-to-market function coming out of sales kickoff? Are there any new incentives or tweaks in place that you know, this year versus 2024 that you'd be willing to share?

Yeah. Hey. That was the best sales kickoff we've had in five years, the one we just had. And it was the best because it was focused on the fundamentals. As I say, straightforward things, but things you've got to get right. Right people doing the right things. Basics of who we are, what we stand for, what our customers benefit, how to find leverage and monetize it, those core things. And I came away from that very encouraged about where we can go. And the funny thing is we're asserting these fundamentals in the midst of a moment when there's so much opportunity. The change, the greater value that we're creating right now, the need for clarity in a marketplace that's echoing with messages about AI. It's essential that our identity, like the process company, and our message, right, focused on putting AI in a process, be extremely intuitive and clear. And so that's the kind of thing that we're getting across to the team. You asked about the incentives. Yeah. The incentives have been tweaked, definitely. Right? So we've got more incentive for the most important is larger deals. Right? We're shifting incentives in order to motivate larger transactions and more strategic adoptions. That's the most essential thing that came out of our new incentive structure. But, yeah, I feel that all of it's pointing in the right direction.

Great. Thank you.

Thank you. As a reminder, if you'd like to ask a question, and our next question comes from Devin Ah with KeyBanc Capital Markets. Your line is open.

Great. Thanks for taking my question. Maybe just one for me. Kinda wanted to get an update on solutions, particularly around the GAM suite. I mean, you mentioned you saw particular strength from federal in Q4. Curious how the adoption of GAMSuite has been trending, but also kinda what are expectations around contribution from that in 2025. Seems like that product would be really well positioned under increasing efficiency focus from the federal government. Thank you.

I feel the same way about the potential for GAM, and I can back it up somewhat by saying that we had a substantial pipeline. We don't get to specifics about pipeline, but we had a strong and historically strong for any solution ever that we've ever done pipeline in GAM coming into the year. And, of course, that's before the DOGE activities and the intense focus on efficiency that we're seeing now. So I like where we stood at the top of the year. We've got a lot of adoption. We have credibility of successful deployments, and we have a best-in-class product.

Thank you. There are no further questions at this time. This does conclude the program, and you may now disconnect. Everyone, have a great day.