Appian Corporation (APPN) Earnings Call Transcript & Summary

Mark, thanks for being here with us. And it's almost like welcome back in a way.

The like -- to level set it a little bit, like let's just think about -- talk a little bit about Appian because like you've been there for quite a while. We did the IPO together you stepped out, back now. Like if you think about that Appian journey, like can you just kind of to get everyone back on the same page, like so where are we in terms of the starting point of being having a tool and a BPM vendor local to like what Appian stands for today?

Okay. So, 3 of the 4 founders I knew when we worked together at MicroStrategy, and they left in '99, started Appian and they bootstrapped the company. So the first 10 years of the company's existence, they basically didn't raise any money at all. And they came out with a personalized portal and they came out with a couple of other things and then typical start-ups, pivots. And I think their big success was they built out Army Knowledge Online, AKO, which is a huge portal that allowed the U.S. military families to communicate with each other back in the day in the early 2000s. And what they ended up doing is so basically, with that portal, they had to deal with scale, they had to deal with security, they had to deal with some really meaty complex things. And so they were able to take a lot of that IP and layered into a platform, and we originally started out with a business process management platform, BPM. That was at scale, that was very powerful. And then you can build things quickly with it. And then we kind of migrated over time into low-code. So when we IPO-ed, we coined the term low-code. I don't think any software vendors out there were talking about low-code at the time. And then since then, we're -- and we've always been processed. Workflow and process is kind of our sweet spot. And so right now, we're calling ourselves with process automation. But at its core, we've been doing similar things throughout the entire history of the company.

Yes. And since you were like kind of the main player on the low-code side, like when you sit in the Board meetings, how do you find the market in terms of like size? And also what do you think about growth there?

Yes. I mean I think the space itself is huge. Like I think at our last Investor Day, we put together our TAM, and basically, it was a $60 billion TAM. And so if we end up doing about $600 million in revenues this year, we're barely tapping into that TAM. So it's a huge opportunity. And the good thing is we've got -- it's a biased opinion, but we feel like we have the best technology to solve these problems than anyone else out there. And so we -- it's a huge opportunity with a great product. Gross retention rate of 99%, it's best-in-class. So we're just trying to take advantage of this opportunity.

And then the -- I mean, since you started, like everyone jumps on. So there's -- other guys that and say, like, "Oh, yes, we do low-code" and then there's guys that kind of say, "Oh, we have a platform". How do you see that competitive field playing out? Or how -- what do you see there? And who's kind of real competitor that you actually see in deals? And who is yes, yes, we can do this?

So a couple of our key differentiators, right, is that we allow people to build processes or applications very quickly. So Forrester came out and said that it's a 90% reduction in the time to develop applications using Appian versus doing -- versus coding. The payback with that being is less than 6 months. And you're allowed -- basically, once we've automated that process, it's 95% faster and more efficient than it was before. So there's a lot of value, a lot of ROI that we deliver. From a competitive perspective, some of our key differentiators we said are the fact that we had this thing called Data Fabric, which is a patented technology that allows you to access any of your data throughout the enterprise. So a lot of our customers are large companies that have legacy systems that they don't want to rip out. It's just too expensive. So we allow them with Data Fabric to access this as a virtual database. And so you can go and access the data and bring it to bear within the database. And then if you act upon it, it can write the data -- write the information back into these databases themselves. I don't think any other technology or any other company out there has the ability to read and write data in that manner. So that's a huge differentiator that we've got. And it basically essentially allows people to modernize their systems without a lot of pain and expense. We're in the cloud. We're on-prem. In the federal government, we're IL-5 certified. We're going to probably ultimately work towards IL-6 certification. We've got all the security HIPAA-compliant, SOC 1, SOC 2, all of the compliance that you need. Our SLAs are 99.99%. So it's best in class competitor.

And the...

The competitors. Okay, so the biggest competitor candidly still is build it yourself, right? So yes, I got a team of computer guys, I am going to go build this project. And so -- and they realized they can't do it. It's too expensive or it's too complicated, and so they bring us in. The biggest competitor aside from that is Pegasystems. It's been that way for a long time, and it still is that way. Pegasystems is great at building complex applications, but it's very hard to do it in Pega. So it takes a long time. So we have the speed versus the power. After that, it drops off considerably. You'll see ServiceNow. You mentioned the fact that they're talking about Workflow, Data Fabric and stuff like that, formidable competitor, but we don't see that often. Salesforce, we see from time to time and even Microsoft. But candidly, if we see Microsoft, one of us probably should be there. So...

Yes, yes. So like that to think like if you look at the terms, they're all using the term -- like Data Fabric -- it's like Microsoft Data Fabric, U.S. Data Fabric. So it's -- but it's real -- it's Pega and custom.

Exactly. Like if you look under the hood at ServiceNow's Data Fabric, it doesn't do all the things that ours does. But I mean, they're -- it's a great company, right? So it's in...

Yes. And then talk about like we're talking about this big market, like how do you kind of square that big market opportunity with kind of your customer count? And how should we think about that?

What you mean?

Like in terms of like you have like some of the biggest customers, but like your customer number is not crazy like -- so how do I square that?

Yes. So we've always focused on selling into the existing customer base as well as getting new logos. Part of it is just brand awareness out there. So the reason why we went public and as you know this well is we wanted a brand awareness, we wanted that recognition of being a public company, and we felt that, that would be -- are coming out and to a certain extent, it's worked. Our logo acquisition could always be better. And I think our strategy with partners is going to be acquiring more logos. So that's what we're leaning on our partners for is to get the new logos. And then the beauty of that relationship with partners is there's lots of services tied to like when you build an application, your service is effectively business. And so partners are allowed to eat what they kill. So they bring us in. They identified some applications or some projects to work on. They actually do that work for the customer and we get the software sales. So...

And how has that extent focus on new customers versus kind of selling more in the installed base? How has that evolved over the last few years?

It's been consistent. Candidly, it's always easier to sell in the existing customer base than to get new logos. So it's been a consistent focus of ours. I think we kind of retrenched a little bit when we went through some downsizing this earlier this year and said, we're going to focus more on the existing customer base on new logos. We have a new CRO in place now, and he's going to be focusing on both.

And then, I mean, like you have some large customers like including Barclays -- like some large guys there. Like if you think of the one question I get from a lot of people, and maybe because you're based out of Washington, D.C. or like Virginia, like how much of like corporate versus kind of government kind of mix do you have? Like is that something that helped you initially, but you've moved out of it, like how should we think about that?

I mean, initially, it was almost 100% for a government like AKO was a federal -- right now, about 30% of our revenue is our federal government.

So while the mic dropped, you said 30%...

So about 30% of the business is federal government, and that's been consistent over the past several years.

And then the -- if you think about the -- on the government side, like you obviously have like the new kind of department to kind of save cost, et cetera. Like how do -- it's more a bigger picture question, like how do you think about that kind of efficiencies within the government? And you guys actually as a technology provider should probably help there.

Yes, yes. One of our biggest solutions, successful solutions is the [AM] suite. So it's a contract writing with lots of different modules for government agencies. And so for example, U.S. Air Force brought us in to do CON-IT, which is a contract writing solution. And they were able to save upfront initially $83 million in costs. So the ROI is huge within the federal government. So like a lot of -- we were kind of joking -- half joking earlier about you get [indiscernible] walking the hallways of these agencies, what does that mean for Appian? And we're actually a good story to tell just because of the compelling ROI that we give these agencies. And so we're not too worried about it. We think maybe there could be a little bit of a tailwind in effect.

Yes. So in theory, I would see that as well, yes. And then you mentioned partners a little bit like -- and we've been on a journey. I remember like when we started out post-IPO, there was a lot of services in you. Now a lot of partners, like where are you on that journey in terms of where you ultimately want to end in terms of the partner mix?

We want to continue investing in the partner relationship, right? So I've been a huge fan of partners because if you want to grow exponentially, the only way you can do it in software is through partner relationships, right.

[indiscernible]

Exactly because you can only you can hire a sales rep, you got to train him up, it takes you 6 to 9 months to be productive. It's a slug. So the partners are -- gives you the ability to go in. They have a trusted relationship with the customer. They know what problems they're trying to solve. They know which technologies can solve those. And so the sales cycles when partners are involved are much shorter as well. So it's a tremendous opportunity for us. So we're -- it will always be a focus of ours.

And then we -- when you see partners, like how should we think -- is that like the Accentures, Ernst & Young? or Is it more smaller companies like...

No, no. It's like [indiscernible]

Big [indiscernible].

Yes, the big guys. We also have like a former Appian folks. There's a couple of firms out there that do -- simply do services work for us that are certified as well. But the big strategic relationships are with the big guys.

Yes. Okay. And then I wanted to shift gear a little bit on the platform side. So if you think you kind of have this out-of-the-box solution versus like offering a platform to do something, like how has your thinking evolved there?

We've always felt that solution sales are easier, right? So it's -- you have a problem, we have the solution, let solve it and move on versus selling a horizontal platform is harder, right? It takes more creativity. We have to look for the right applications to solve the right problems to solve within the enterprise. That's best suited for the platform. So it's just -- it's a harder sale. So we've tried to augment it with the solutions. So at the end of the day, we want people to standardize on Appian. So the beauty of Appian is you can build mission-critical applications and you can build them quickly. And so -- but you can also build lightweight applications as well. So over time, if you can solve lots of problems for that company, they'll just standardize. Aon is the perfect example. Aon has been a customer of ours for almost 10 years. We originally went in there to help with their claims processing. And so they basically went in and they were processing about 75,000 claims on a monthly basis globally, and they wanted to centralize it, they wanted to streamline it, they wanted to automate it. And so they brought in Appian. We went in and basically redid the entire workflow. And they were able to accelerate the processing of the claims by 80%, they were able to accelerate the invoicing processing by 70%. And as a result, they started building out other workflows from the success of that, and they've been able to reduce their spend rate in technology by 70%. So it's been a huge success story for us.

Yes. And then on that solution -- I mean, like look, in a way if you want to offer it as a full solution, you need to have the domain knowledge like to be able to kind of create something that kind of is readily adaptable, like we're -- I mean, like where are you on kind of identifying this is where I want to sell out of the Box, our solution versus like I'm probably better as a platform?

We're continuing to evolve. We have a senior executive in charge of Solutions, and his job is to look for which solutions are best suited for Appian. So GAM is by far our biggest success to the government contracting solution. But we've got other solutions and other verticals. So our big 4 verticals are federal government, financial services is the largest, insurance and life sciences. With insurance, we've got a couple of solutions, ones for claims processing and then one for underwriting as well. And so we're looking at strategically and those -- in particular, those 4 verticals as far as what solutions are best suited for our platform.

Yes. Okay. And then on the expansion, the other part of the expansion that you could think about is, is you have low-code, but then you have like RPA and process mining, et cetera. Like how do you -- how does that fit in, like having low-code -- having a starting point of low-code? How do you think about like RPA, for example?

Yes. So we look at -- we have a workflow. We allow people to build and automate process, an entire process from end to end. And as you're going through a particular process, you may need certain types of technology to automate that process. And so we look at, for example, RPA is a piece of the process. Like if you're going in and you need to access information out of a legacy system, you can probably had that bot go get that information for you and that's a process that the RPA is doing for you. AI, everybody is talking about AI, Agentic AI. These are all types of technologies that can make that process or that workflow better, more efficient, more effective. And we feel that AI, in particular, within the confines of a process will be best suited there. It will be more powerful there because you've got guardrails around the AI. And more importantly, I think you have the ability to audit the processes that the AI completes. For example, you guys came up with a report on Agentic AI, which is actually really good because you dumbed down the Agentic AI...

It's actually out, yes, yes.

You dumbed down for me. So I now understand it. But in that case, like the you have the ability to have this agent reason, get additional information and then take an action, right? And that action -- sometimes that action may not be what you wanted it to do. And if you had the ability to audit what's happened -- what has happened, you won't be able to retrain the agent accordingly. So keeping them within the process itself and having the ability to audit that technology is really powerful.

I mean you mentioned that GenAI -- Agentic part, like, is that like in a way -- is that where loyalty investments are going now back as the CFO, was like to try to kind of nail that part down?

No. I mean we're leveraging other folks AI, right? So we're using Bedrock with AWS. We're using cloud their LLMs with Anthropic. So we're leveraging best-in-class technologies and plugging -- allowing our customers to plug that into our platform. So for example, UiPath is coming up after us. We have customers that -- we do RPA as well, but we have customers that have UiPath, they like it. So we allow them to utilize their bots within our process. And so that's how we look at it.

Okay. So you're the bigger umbrella compared...

We're -- yes, and I think that's from a competitive moat perspective, you'd rather be there because the hardest thing is that process workflow engine, right? And to have that -- the point technology throughout it, it's a different thing. Like even LLMs are going to commoditize over time. They're getting -- the reasoning is becoming close to each other. And at some time -- at some point, they're going to be about the same.

Yes, yes. Okay. Yes, makes sense. And then the -- you touched a little bit on the vertical strategy, like you mentioned your 4 big pillars of where you want to go. How do you think about this in terms of -- obviously, it looks -- you did it because your opportunity is very big there. But how do you think about it also as you evolve as a company in terms of resource allocation? So is that -- could we see you at kind of being more deeper in those 4? Or how do you kind of...

Yes, we are already deep in those 4. We've kind of verticalized our sales force for those 4. And then we have broad markets for the other verticals. And having said that, in the other verticals, we've got some great quals in like education, manufacturing and so forth. And so we're not ignoring those others, but these are kind of our sweet spot. The -- if you think about organizations that are very large, highly regulated, complex processes, and it's just right down our sweet spot for opportunity for Appian.

Yes. Okay, perfect. The -- if you think about it like now, let's think about like there have been changes in terms of the organization over -- I think it was just more just before you started. If you think about it, like where Matt kind of talked to us about like having a little bit more focus, can you think about that evolution of that thinking process because it's something that we kind of discussed with you for a while, like where do you want to go as a company, like what was Matt's thinking there? Or what are you trying to achieve there?

And focus mean [indiscernible] is...

Like where you want to compete like you had done a change in like how the resource allocation to kind of sell, et cetera?

Yes. I think we -- like I mentioned earlier, we were a bootstrap. We had never raised any money -- the only money we raised part of the IPO was $10 million from the local VC firm. So we're like an anomaly compared to Silicon Valley companies. And then we decided to spend after the IPO to see if we could get spend use dollars to get growth, right? And so we tried that for a while, and we realized we weren't very good at doing that. And so we wanted to get -- basically get back in control of our own destiny. And so we made some tough decisions this past summer. And as you saw in Q3, we posted a positive adjusted EBITDA of $10.8 million. And we're committed to continued margin expansion going into 2025 and so forth. So we had made a promise to Wall Street that we would be breakeven at the end of 2025, and we accelerated that promise by over a year. So we're focused on doing more with less. And I feel confident that we can do that.

With that -- like, I mean, you were part of that journey, like if you look now, like what you can -- what you wanted to achieve it, as you said, like you want to do more with less, like how do we have to think about it? Because like a lot of time like when other companies do that, then it's just like growth gets cut because you've been growing through kind of just hiring more sales guys and stuff like that. How do you have to think about what you guys are doing?

Yes. So we sat down and we wanted to make sure that we had sufficient capacity and the right types of capacity for our 2025 plan, right? So as you know, you need to have the sales force in place before the year to actually execute in that year. So we feel confident that we have the capacity necessary to achieve our goals for 2025 based on what we've done. So I don't see a trade-off between margin and growth at all. We still look at ourselves first and foremost, we want to grow, but we also want to start expanding our margin as well. So...

Yes, yes. Okay. The -- and last few minutes, because I know I'm going to get some questions now that you're back in the CSOC, like how do we have to think about like quarterly performance? Like if you -- maybe if we go back to last quarter, like EMEA was very strong. Like what are you seeing out there in the field in terms of end demand, like how you're selling?

Yes, it's consistent, it's good. It's -- there's a lot of excitement. People are still trying to figure out, like there's tons of buzz around AI and Agentic AI and all that. So I think there's a lot of opportunities out there for us. And we know where we play within that arena, and we just got to focus and execute. I think the key for us is we've got the best mousetrap, right? We have a great technology, 99% gross retention. We just need to execute, which is a much better place than having some crappy technology and you're just trying to sell it. So...

Yes, yes. And on that note, like when you said execute like Q4, there was like indications that maybe there's a bit more lumpiness in terms of deals where you need to be careful. Like what do you see like...

It's -- no, I think it's -- we're just trying to -- we're trying to get in the cadence of kind of the beat and raise, beat and raise cadence. So that's all that is.

Yes, yes. Okay. And the -- if you then think on that note that we like if you -- how do you guys think about like or what signals are you guys thinking about like recovery, it looks like that's kind of going to be a big theme here at the conference. You mentioned earlier, like it's going to be like, yes, we're kind of in a steady state scenario, and that's kind of what we're operating in. For you as a CFO, what are you looking out for -- do you think like, okay, maybe it's better or need to change something here and be more dynamic is that reading the wall Street Journal like we just read -- how does it go for you like when you're in the business?

I mean for me, it's all about the bookings and then the pipeline, right? So those -- pipeline is a leading indicator, the quality of the pipeline and the bookings, the success of the bookings, the linearity of the quarters. Everything is at the back end of the quarter, or is it coming in throughout the quarter, et cetera? So those are the things I look at pretty closely. And then just qualitative things, talking to the sales force, talking to the folks and getting a sense of what it's like out there, right? So what is -- is there an increased appetite now for Appian and why is that and so forth?

Yes. Okay. And then the -- as you think about it and as you -- I'm sure you just kind of -- I guess, you finished your budgeting for next year, I would think like at this point of the year. How do you think about the growth framework? And it's like actually don't take it as like for next year, but like how do you think about Appian as a company on forward terms of growth rates like this in the cloud subscription part. Is that kind of for you guys still like a 30% grower in the long term without giving guidance? Like how do you think about like -- how do you see Appian?

I see this as a grower. I'm not going to put numbers to it quite yet. We'll put numbers to in a couple of months when we give our guidance. But I see us growing, right? So we're focused on growing. We know that software companies are slowly, there better just be significant cash flow at the bottom line. So we still see ourselves as a grower, but we see ourselves as a grower in a profitable manner.

Yes. And then you mentioned kind of breakeven profitable. Like, is there also a change in the organization now that if you commit to kind of cash flow and profitability, is there a different focus within the organization if you start running it? Or if you start new projects or budgeting like that, okay, well, [be more] disciplined, show me the returns if you want to do -- make an investment, like you as a CFO must be in a very different seat now?

Yes. I think it was interesting because when I came back in it was -- I felt like it was me versus the entire team as far as me saying no to things and then the entire team wanted all these things. And so it was like it was -- it's very difficult in hiring. Now it's -- the entire team is supporting the concept that we need to grow profitably. And so they're -- it's a unified team. And as far as we're going to be very strategic in the additional investments that we want to do, and we're going to say no to a bunch of things. And so it's been something that I've enjoyed actually.

Yes. I can imagine that.

I didn't have to be exact [indiscernible] all the time.

Is it -- and then so from the practicalities like, do the people that want to spend the money, do they need to prove the ROI better? Is it just less you have less debts in a given year? Or how do you think about the process?

It's a process. It's -- they were requiring them to write up what they want, what additional things they need, why they need them, what's the payback going to be and then we decide whether or not we want to do it or we say, if certain things happen better than planned, then we'll release those projects, et cetera. So it has been like -- I think they spent the past 2 years coming up with a really good process. So it's great. It's good to see.

Yes, yes. And then so like how is it -- like last question from me is like, how is it back for you, like were you kind of out golfing and now how does it feel, yes.

Yes. The big shock for me was the 5 days a week coming back to the office and like, I don't know if I can do that. But after -- it was funny, after a couple of weeks, I just talked on my wife and I said it's weird -- it seems like I'd never left, like it's like was I retired for a while? So it's been good. Like I enjoyed the people there. I hired most of the people on my team. I enjoyed working with the executives and the founders. So it's been better than expected.

Yes, yes, yes. But what's the setup? So you're interim? Or like -- so you're still looking in a way?

Yes. Yes.

I don't want to apply, no, no, but yes, yes.

Matt knows for sure, it's interim. So my CEO. No, it's -- I went in -- you asked us a personal favor and you can't say no to Matt. So no, but there's a search that's ongoing right now. They started it, in fact, before it even started. And so there's a lot of candidates out there. So it's good. Like when I retired, it seemed like there weren't as many quality candidates out there, but it seems like for whatever reason, there's more out there. So...

Yes, yes. Okay. Perfect. I really enjoyed our conversation, Mark. Great to have you back.

That's great.

I didn't sneak the question on the Commander.

I was waiting for that.

I know. Yes, we do it [operate].

Exactly.

Thanks for joining us again. Thank you. Good to talk to you. Thank you.

Thank you.