Q4 2022 Appian Corp Earnings Call
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Good day, and thank you for standing by and welcome to the Op, Inc. Fourth quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will then hear an automated message advise in your hands.
Raise to withdraw your question. Please press star one again.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Sri Anantha Senior director of Finance Investor Relations. Please go ahead.
Thank you operator, good afternoon, and thank you for joining us to review <unk> fourth quarter and full year 2022 financial results with me today are Matt Calkins, Chairman and Chief Executive Officer, and Mark Matteo <unk> Chief Financial Officer. After prepared remarks, we will open the call for questions today, you'll want to follow along.
The earnings presentation, you can download it from the main page of our Investor site at investors Dot Appian Dot com. During this call. We may make statements related to our business that are forward looking under federal Securities laws and are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act.
Of 1995. These include comments related to our financial results trends and guidance for the first quarter and full year 2023, the benefits of our platform industry and market trends and 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.
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 <unk>.
Asks 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 referred to our 2022 10-K and other periodic filings with the SEC. These documents are also available on our investor.
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 directly comparable GAAP financial measures with that I would like to turn the call to our CEO , Matt Calkins Matt.
Thanks, Jerry and thanks, everyone for joining us today.
In the fourth quarter of 2022, Appian cloud subscription revenue grew 29% to $65 $8 million.
In constant currency the growth would've been 32%.
Subscriptions revenue grew by 23% to $93 $2 million total revenue grew 20% to $125 8 million our cloud subscription revenue retention rate was 115% and our adjusted EBITDA was a loss of $24 $8 million.
For the full year Appian cloud subscriptions revenue grew 32% to $236 9 million subscriptions revenue grew 29% to $342 million.
Total revenue grew 27% to 468.0 million our adjusted EBITA was a loss of 76.0 million these results met or exceeded our guidance.
Yeah.
We continue to expect a recession in 2023, and we believe that ethane will be less affected by it and other comparable firms.
<unk> value proposition emphasizes efficiency productivity.
Im to value and ROI, the very things buyers seek in a down economy.
Speaking of productivity I think there may be a revolution on the horizon.
Last year's productivity growth in the U S was negative one 3% the worst results since 1974.
This reflects changing post COVID-19 labor patterns, but also a certain corporate indifference to the topic.
For years now businesses haven't had to focus on productivity since money was cheap and labor was plentiful.
Now that money is expensive and labor is tight they'll return to the topic in earnest and there was a surprise waiting for them to sell.
<unk> is a productivity enhancement has come a long way in the past few years.
Software is ready to be more than a tool to help people do work.
Software is ready to do the work for us.
That's the Revolution. That's also the next shoe to drop on AI right now the narrative on AI is that it makes a good search engine and maybe students we use it to cheat on their tests in six months scenario. It will be that AI is affecting margins is affecting jobs.
As affecting customer satisfaction after decades of development AI is still hardly moved to the corporate efficiency needle.
But it's about two.
And so will the other types of software that do the work like rules and RPI.
And so, particularly with the technology that coordinates all these digital workers, namely process automation in which Appian is a leader.
Our market will continue to evolve toward a larger mission.
At the time of our IPO in 2017, we sold workflow.
Now, we sell process automation and end to end platform covering every stage in the lifecycle process.
We handle everything you ever need to do with our process discovery design it.
Execute it automate it evaluate it.
Optimize it over time.
Not just the workflow that routes to work, but now also the technologies that do the work like RPI and AI plus.
The process mining technology that evaluates process efficiency plus the data fabric that connects your process to information across the enterprise.
Here's an example of a modern products process automation customer. This is a top life Sciences company.
The largest customer for about a decade.
Our platform automates, its corporate function medical devices pharmaceutical and supply chain processes.
It deployed and mission critical Appian App in 2018 to manage regulatory practices globally that app has grown over time and now manages tens of thousands of cases annually in 100 countries. In Q4 of 2022 of the four firm deployed Appian process mining to identify ways to simplify operations and in just eight weeks.
Discovered insights that can save hundreds of thousands of labor hours annually.
Last quarter last quarter, I mentioned, I keep sharing a set of metrics attract business health during a recession, you'll see these charts in our earnings presentation, starting on slide four.
I'll go through them, all again, but I will pause to note just a couple of things first our cloud gross renewal rate, which held constant at 99%.
Each of the four quarters of the year.
This is a best in class rate, it's a spectacular rate.
Also note our steady growth in customer cohorts, especially large ones.
Most existing customers bought more software last year, including two thirds of our seven figure customers.
Our big customers are getting bigger.
I'll share two examples.
First the global analytics provider in seven figure <unk> customer uses our platform to automate its market research processes. One of its critical apps consolidates the work streams of RPI AI and researchers into a single workflow. So the company can publish content.
This app boost employee productivity by 50% five zero.
Last quarter it purchased thousands of additional licenses to add more users and automate new workflows for market intelligence and commodity insights groups.
Second a top international grocery retailer has been an appian customer since 2019. It manages supply chain logistics on our platform in Q4, we expanded it to one of its subsidiary groups a retail pharmacy chain. This new client purchased nearly $1 million and have been softer for software licenses to manage inventory.
Before wrapping it lacked a way to track prescription drug expiration dates losing tens of millions of dollars annually unexpired products now.
Now the customer can identify and move short term goods to stores with lower stock.
It expects to reduce its cost of wasted products by 30%.
Appian, new logos continued to be high quality.
Large software purchases for important use cases for example, a top international specialty insurer and a new logo in Q4, it purchased over $1 million in software licenses to automate two distinct use cases first it will deploy the appian connected claims solution to manage tens of thousands of claims annually.
Second it will build a customer operating hub with the help of an appian partner.
Before Appian the group worked through disjointed channels, because it lacks the tools to coordinate work across teams now have been will integrate with our customer's existing CRM system and consolidate tasks into a single workflow.
We also landed a luxury packaging manufacturer and distributor as a new logo. This quarter. This customer is launching a new business line and purchased nearly $1 million and have been licenses to automate orders and manage client relationships climb.
Clients will make purchase requests subtract the ongoing status of their orders through an appian portal.
Back office employees will use appian to fulfill requests initiate revenue recognition our platform will secure the companys profit margin as it scales operations by 30%.
Happiness key verticals continued to be growth drivers year over year Q4 subscriptions revenue for the U S. Federal government life Sciences grew 38% and 39% respectively.
I'll share a customer story from each vertical.
First a U S. Federal Health agency that supports National security became a new appian customer this quarter it procures over $1 billion in medical supplies annually it needs to replace an inflexible and expensive procurement system.
In Q4, the agency purchased several solutions in our government acquisition management or Gam suite.
It will use appian to automate various workflows like requirements gathering and drafting request for proposals.
The agency became a seven figure are customer with this first deal.
Top global pharmaceutical company has automated a number of core processes with our platform in Q4. It purchased an additional seven figure deal to deploy an app that tracks manufacturing deviations globally.
This is a highly regulated process the customers required to report these cases to a third party governing body. We won this competitive deal because our platform helps the customer and meet our strict deadline and improve operational efficiency by 65%.
Next I'd like to announce the addition of Shirley Edwards to the <unk> Board of directors.
Surely has been a partner at Ernst <unk> young for two decades, and most recently the firm's global client service partner.
She has deep experience advising corporate boards and management teams of large multinational companies. We are very pleased to welcome Shirley to our team.
That's almost everything before I conclude though I want to briefly discuss appian stance on investment in the business. In 2023, we are once again planning negative EBITDA, albeit with a narrower margin than last year.
We understand that today's high interest rates make near term profits more valuable and future growth less valuable investors are right to question companies about the merits of continued investments for further growth.
We've considered this deeply and we believe that continued investment for growth is the right decision for our shareholders.
At Appian, we pride ourselves on our long term outlook and we believe the most important time to lengthen our time horizon is when our competitors.
Okay.
We note.
The large and growing size of our market.
Technological advantage of our platform.
The positive traction were seeing from customers partners and.
And the very attractive nature of our historical subscription revenue stream.
90% gross margin 19, 9% cloud gross renewal rate.
We believe continuing to invest remains the right decision for our business and shareholders and will ultimately lead to much higher returns.
That said, we understand the importance of disciplined growth and we'd like to assure our investors that we are committed to growth scrutiny.
We aim to steadily improve our margins through 2023 and beyond.
Now I'll hand, the call to Mark for a deeper look at our financials.
Thanks, Matt I'll review the financial highlights for the quarter and then we'll provide guidance for Q1.
Great.
Total revenue for cloud subscription revenue and non-GAAP EPS were above guidance, while adjusted EBITDA was at the top end of our guidance range, but you also saw a continued healthy contribution from existing customers and strong growth from key industry verticals.
Let's go into the details.
Cloud subscription revenue was $65 8 million, an increase of 29% year over year and above guidance on a constant currency basis cloud subscription revenue grew 32% year over year.
Total subscriptions revenue was $93 2 million, an increase of 23% year over year.
On a constant currency basis total subscriptions revenue grew 26% year over year.
Professional services revenue was $32 5 million an increase of <unk> <unk>.
Increase of 11% year over year as previously noted Appian. It's professional services are complementary to partner offerings in certain cases Appian supports large programs that are primarily run by our partners.
Long term, we continue to believe partners will drive most of our growth.
As a result, we expect professional services revenue to continue to decline as a percentage of total revenue.
Subscriptions revenue was 74% of total revenue compared to 72% in the year ago period, and 73% in the prior quarter.
Total revenue was $125 8 million, an increase of 20% year over year and above and above our guidance range.
On a constant currency basis total revenue, 23% year over year.
Our cloud subscription revenue retention rate as of December 31, 2000.
It was 115%.
So I'll start with the rate in the prior quarter.
Yeah.
As a reminder, we continue to target the cloud subscription revenue retention rate of 110% to 120% on a quarterly basis.
Our international operations contributed 34% of total revenue compared to 36% in a year ago period.
Our cloud software net new ACD bookings were approximately 80% of the total net new software bookings in 2022, consistent with last year's mix.
Now I'll turn to our profitability metrics.
GAAP gross margin was 73% compared to 74% in the year ago period, and 73% in the prior quarter.
Subscription non-GAAP gross profit margin was 90% consistent with the year ago period and prior quarter.
Professional services non-GAAP gross margin was 27% compared to 32% in the year ago period, and 27% in the prior quarter.
As noted on prior earnings calls, we continue to invest in customer success management.
As advisors to help our customers achieve the most from our technology and increased adoption of our platform.
As a result professional services non-GAAP gross margin should decline to the low 20% range in 2023 and beyond.
Total non-GAAP operating expenses were $119 1 million, an increase of 33% from $89 5 million in the year ago period.
Adjusted EBITDA loss was $24 8 million versus our guidance of a loss between $29 million and $24 million compared to an adjusted EBITDA loss of 10 million in the year ago period.
In the fourth quarter, we had approximately $8 5 million of foreign exchange gains compared to 500000 of foreign exchange gains in the same period a year ago.
We don't forecast movements in FX rates therefore.
Okay.
non-GAAP net loss was $20 6 million or 28 cents per basic and diluted share compared to non-GAAP net loss of $11 6 million or <unk> 16 per basic and diluted share for the fourth quarter of 2021. This is based on $72 7 million basic and diluted shares outstanding for the fourth quarter of 2022.
And $71 3 million basic and diluted shares outstanding for the fourth quarter of 2021.
No they were above fourth quarter 2022, non-GAAP net loss was aided by $8 5 million in foreign exchange gains or a gain of <unk> 12 per share which was not included in our original guidance.
Turning to our balance sheet as of December 31, 2022, cash and cash equivalents and investments were $196 million compared with 168 million as of December 31 2021.
For the fourth quarter, our cash used by operations was $12 6 million versus $19 4 million for the same period last year.
Total deferred revenue was $200 3 million as of December 31, 2022, an increase of 31% from the year ago period.
As we have stated on past calls the majority of our customers are invoiced on an annual upfront basis, but we also have large customers that are billed quarterly or monthly due to the variability of our billing terms changes in our deferred revenue are generally not indicative of the momentum in our business.
I'll now recap our full year 2022 results call.
Subscription revenue was $236 9 million, representing 32% growth year over year.
On a constant currency basis cloud subscription revenue grew 35% year over year.
Total subscriptions revenue for the year was $342 million an increase of 29%.
On a constant currency basis total subscriptions revenue grew 32% year over year.
Professional services revenue was $127 8 million, an increase of 21% compared to 2021.
Total revenue was 468 million up 27% compared to 2020.
On a constant currency basis total revenue grew 30% year over year.
Adjusted EBITDA loss was $76 million compared to $37 $9 million loss in 2021.
non-GAAP net loss was $89 2 million in 2022 or a loss of $1 23 per basic and diluted share compared to non-GAAP net loss of $48 3 million or a loss of <unk> 68 per basic and diluted share for 2021.
This is based on $72 5 million and 71 million basic and diluted shares outstanding for 2022 and 2021, respectively.
For the year ended December 31, 2022 cash used in operations was $106 6 million versus $53 9 million for the same period last year.
In 2022 litigation expenses were $22 9 million compared to $16 4 million in 2021, we expect litigation expenses to come down materially in 2023.
We continue to believe cloud subscription revenue is a better indicator of our business momentum than billings or remaining performance obligations or RPM.
The 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 the business is represented by subscriptions revenue, which includes support in all software subscription revenue, regardless of whether the customer deploys to the Appian cloud their private cloud or on Prem.
Now I'll turn to guidance.
For the first quarter of 2023 cloud subscription revenue is expected to be between 67% and $60 million.
Representing year over year over year growth of 26% and 29%.
Total revenue is expected to be between 130 and $132 million representing year over year growth of 14% to 16% adjusted.
Adjusted EBITDA loss for the first quarter of 2023 is expected to be between 21 and $17 million.
non-GAAP net loss per share is expected to be between <unk> 33. In 2007. This assumes $72 8 million basic and diluted weighted average common shares outstanding.
For the full year 2023 cloud subscription revenue is expected to be between 294 and $296 million representing.
Representing a year over year growth of 24, 5%.
Yes.
For the full year 2023 total revenue is expected to be between 530, and 535 million representing year over year growth of 13 and 14%.
Adjusted EBITDA loss is expected to be between $75 and $70 million.
non-GAAP net loss per share is expected to be between $1 14 and $1 seven.
This assumes $73 2 million basic and diluted weighted average common shares outstanding.
Yes.
Our guidance assumes the following first Q1 professional services revenue will be relatively flat on a sequential basis, we assume services revenue will decline at a single digit rate year over year and 2023.
We continue to expect partners to perform more services work in situations, where they help us close the new other partners generally lead the projects.
Second on Prem license revenue seasonality will make Q1, our strongest quarter in Q2, our weakest quarter of the year. Hence you should expect the on Prem license revenue to be up sequentially in Q1 and down sequentially in Q2.
Third Q2, adjusted EBITDA loss will be higher than Q1, adjusted EBITDA loss. This is due to the combination of on Prem license seasonality and the cost of running our global user conference Appian World. We continue to maintain greater scrutiny of any discretionary related expenses.
Fourth capital expenditures will be between three and $4 million in Q1 and between 12 and $14 million in 2023.
This was primarily related to build out of additional office space.
Finally, our guidance assumes FX rates as of February 15, 2023.
In summary, we are excited about the growth opportunities ahead of us our outlook incorporates an uncertain macro environment in the year ahead.
We're keeping a close watch our key forward looking business indicators, such as new bookings growth pipeline conversion sales rep productivity and sales cycle time.
We believe we can quickly calibrate the model should the need arise.
Before we wrap up I'd like to let you know that we are planning to hold an investor day in conjunction with Appian World being held from May one to May 3rd will provide additional details soon I look forward to seeing you all in person.
With that let's turn it over to questions.
And thank you.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
Draw. Your question. Please press star one again, please standby, while we compile the Q&A roster and one moment for our first question.
And our first question comes from Sandra Zhang from Morgan Stanley . Your line is now open.
Thank you for taking my question and congrats on a solid end to 2022.
But I was wondering if you can give us a sense.
Around the sort of factors that drive your confidence for relative resiliency versus your peers. It seems like a lot of companies that have exposure to.
Tack or consumer discretionary companies are seeing.
Gross being impacted could you walk us through kind of the demand trends you're seeing.
Across your major verticals healthcare financial services government any others, you want to call out.
Speak to someone.
Some of the demand and pipeline trends that youre seeing I think that'd be really helpful. In terms of.
Contextualize that your guidance.
Yeah, well, thank you first of all and.
I think the quarter speaks.
To the steadiness that we're observing in the business.
It doesn't seem like we've got a rocky ride and I can tell you that from our insight into the pipeline and other contributory factors that we see a steady situation.
Now you'd like details there and so let me.
Let me say that our.
Value proposition.
As easy to pivot.
Towards the interests of the CIO tells us that they wished cut costs consolidate vendors reduce risk and accelerate time to impact we speak exactly to that person.
That person is looking for safety.
They are looking for an industry leader.
In in an industry that they know can make a difference for them.
They look to great reviews, they look too.
Successful customer experiences they want a solution because it's proven to work in the past and we're relying more on solutions than we used to they want to they.
They want to see the team and whether it's our partners or our own deployment team or even better the two of them together, we can present, a reliable team speaks their language there industry language and has done very similar work in the past and Thats the benefit of our legacy in this market space and the experience that we've accumulated.
For all of these reasons.
Because we're having these conversations successfully.
I think that the stability that this quarter represents is.
What I see for the near future as well.
Understood.
Helpful and then if I could sort of.
This is a topic around investments versus.
Near term margins and profitability you square that gives me the side of of.
On the side of continuing to invest.
As the sort of way to drive value.
The longer term.
The sort of financial profile of the company I think the guidance and sort of calling for mid teens overall revenue growth. The losses are narrowing but in terms of anchoring to a longer term model is there anything you can share in terms of that when you get to profitability and ultimately.
What type of margins, Ken this business generate.
Over the longer term, so that investors can sort of anchor there there are major sort of valuation assessments on where does the system scaling over the longer term.
Yeah, that's right.
Well I think it would be premature to put out an estimate for margins or free cash flow right in the long term I think that.
Even the short term is highly variable we.
We have gone out of our way in the estimates.
Projections, we've made for this year to accommodate higher variability and economic factors.
The macro variation that are that we see.
And so I don't want to get ahead of ourselves. They are forecasting I believe that we have structural advantages and I.
That's our north star here, it's not a specific figure it is not a projection for what the economy is going to look like in Q4, it's structural advantages ways in which we think we have an edge on the competition and a belief that this is an emerging market and if we have that edge in a valuable market, we want to develop our position.
Even if we don't.
Have a perfect prediction for where the economy or the margins are going to be a year hence.
And we do.
And our last.
In our Investor Day, we did talk about our long term margins.
Refer back to that presentation, we updated those.
But it wasn't with any more specificity I think Matt said, but we do have some penciled in a long term view of course for your efforts.
I appreciate that thank you.
Yes.
And thank you and one moment for our next question.
And our next question comes from Kevin Kumar from Goldman Sachs. Your line is now open.
Alright, Thanks for taking my question I, just wanted to double click on guidance.
You've given some cautious commentary on macro and and I believe you've also added I think over 100 sales reps last quarter. So just kind of thinking through kind of the different variables there and how are you thinking about ramping.
Sales productivity in the midst of maybe kind of weaker macro kind of how are you thinking of these variables in the guide. Thank you.
Yeah.
First of all we have been saying for a while that we believed a recession was on the way I think it was important to say that to put our investment plans into context.
These are not.
Sunny day plans, we're cognizant of the economic situation that we're wrestling with this year and under that realistic slash pessimistic outlook. We feel that these are the right investment plans. So that's the point that I mean to make when I talk about our bearish outlook on the macro situation it's too.
Put our investment plans into context you understood.
And then.
And then as for the growth in reps I can't comment on the size can't.
I can't speak to or confirm Youre your assumption there.
We have grown overall reps in.
In the last few quarters and we grow we are growing also right now we have open positions and we are hiring.
But.
I don't want to endorse that figure specifically.
Got it and then maybe one on kind of your vertical strategy, you recently talked about connected underwriting.
Felicia you came out with and I believe you also announced a partnership with Guidewire. So maybe help frame the opportunity in this in the insurance vertical and kind of the traction you're seeing there. Thanks.
Yes, I did I mentioned that that solution and I also mentioned the government acquisition management solution.
And I believe that in a time in which buyers seek safety our solution as a safer offering than a platform.
And so this is part of the pivot that you're observing in our business.
Toward a reassuring sale are reliable.
High probability.
A short time to value kind of a sale and our solution is reassuring in these regards and I think it actually addresses a much broader market than a platform does so I'm really excited about our ability to go to market with a package solution, where with a known entity like guidewire highly credible known entity.
Think that it's it's the next natural evolution of our business and accelerated under these economic conditions, we should be playing that card and we are playing.
Great. Thank you.
And thank you.
And one moment our next question.
And our next question comes from Derrick Wood from Cowen <unk> Company. Your line is now open.
Oh, Hi, Thanks, guys, it's Andrew on for Derrick.
Mark just wondering what the FX impact to the cloud sub guide is for the quarter and the year.
Yes, it was 3%.
Are you talking about the impact that we had for <unk>.
Alts or.
In Q1 and full year guidance.
Okay.
No we don't actually factor in any more movement, we're using FX rates as of February 15th So.
Okay.
No more headwinds yes.
Okay. Thanks, and then.
Matt Andrew or Marc last quarter, you said sales cycles were pretty much unchanged from prior quarters.
How did those track this quarter and what are you expecting for the next couple of quarters.
Yeah.
We see no change in sales cycles that we can observe so nothing material.
And therefore, we don't forecast anything for future quarters, and I don't mean to say that nothing slipped out of the quarter, because something always slips right you always get a few deals that extend but but we're seeing a typical amount and it's not enough for us to presume that there is any movement overall on our pipeline.
Great and one last one I can sneak in the Appian government summit in November how much of a lead generation event is that and any interesting takeaways you got from that and how that helps build pipeline for this year. Thanks.
Okay. Most of our events are for cultivating existing customers and expanding within logos that we've already got and so that's typically the outcome. It will help us build pipeline, but generally radiation pipeline.
Maybe we do a little bit better on the government because a lot of our prospects are local because appian is based near Washington, but for the most part that new logos not the purpose, where we're just trying to strengthen our relationships with the customers we've got.
Alright, thanks, guys congrats.
And thank you.
And one moment our next question.
And our next question comes from Jacob <unk> from William Blair. Your line is now open.
Hey, guys. Thanks for taking my questions and congrats on solid results, Matt you referenced earlier factoring in a higher variability in our guidance for the next year.
Could you put a finer point about what you've baked in the guidance from a macro perspective are you assuming that demand stays the same as what happened in Q4 are you expecting it to get slightly worse throughout 2023.
We are allowing for the possibility that there will be a macro downturn.
The effects of which are felt here.
I think that everyone is allowing for that possibility.
And I think it is prudent that we do so as well.
Great. Thanks, and then could you give us an update on the lawsuit with <unk> I know, there's been some back and forth between you two in the news, but would love to get some more color on how that process has been tracking over the last month or two.
Well the process continues there've been dueling web pages.
Yes.
Probably everyone on this call has seen the.
Opposing statements on each other's webpage.
And soon there is going to be dueling statements for the next round of appeal.
Other than that I can't comment on it.
I do believe it is a factor in some sales let me say that I do believe that customers are beginning to notice.
And the word is getting out and customers are reaching their own judgment.
Which of course, they should do.
Based on all facts available.
But.
This is this is an ongoing process.
Okay. That's really helpful well, thanks for taking my questions and congrats again on the results.
Thank you.
Thank you.
And one moment our next question.
And our next question comes from Joe <unk> from Truest. Your line is now open.
Hey, guys. Thanks, so much for taking the question.
The questions in the fourth quarter, the sequential growth in sales and marketing is pretty much in line with the last three years I think we grew about 16%, but the G&A was flat versus typically being up in the low teens percentage. So I'm. Just wondering if we should expect this type of spending pattern and sales and marketing leverage in G&A as we move through 2023.
We are proceeding in 2023 with a pattern of growth with scrutiny as I.
Noted in my opening remarks, which is to say we are growing we are hiring we are investing but we are also applying a high level of expectations to all expenditures that we make.
Continuing only those investments that.
Meet our high threshold.
And so youll, probably see some G&A or marketing or other expenses.
Falling off of the expense sheet.
We didn't get the returns we wanted out of them and we're going to be tough about that this year.
Thanks, That's super helpful and then.
Just from a customer standpoint.
So that accounted for new seven figure deals in the prepared remarks I'm just curious if there were any others did.
Did that number was that number up or down sequentially and then if you could I think you for Columbia, you, usually give us like a total number of seven figure customer just curious if you can share that thanks. So much yes. It's in the slides, let me tell you rich slide in the packet I should Q2 in order to see the customer counts it is slide.
Six.
Right.
It's titled annualized recurring revenue and we have four charts, we're dealing with.
Slide.
My favorite is the count of customers in the lower right, which are $1 million or larger on an annual basis in that one kicked up nicely.
We didn't get as much growth in the smaller customers.
It shows us where we need to put additional focus we're doing well in getting our big customers to grow and we're going to put a little more emphasis on bringing in more entry level.
Sure.
Awesome. Thanks again.
Thank you.
And thank you.
Yeah.
And one moment our next question.
And our next question comes from George <unk> from Citi. Your line is now open.
George on for Steve Enders, Thanks for taking the questions.
First one Matt you talked a little bit about <unk>.
Hi.
Kind of.
And some level of hype cycle right now.
Love to hear just how youre thinking about that technology are you thinking about it.
Kind of new leg of a stool for the company along with RPM process mining.
Process automation or is there some sense and which kind of this new generative AI is.
New and different and May even come to replace some of these other technologies over time.
Yes.
Well.
AI and its emergence over the past 12 months is something popularly understood to add value to work.
Is going to continue to shape process automation as a market.
After all process automation is about harnessing the software that does the work for US in addition to delegating work to people.
And AI is going to be one of the primary types of technologies that does work for us.
So.
There's there's a lot to explore about this and AI has broken through and a big popular way lately and I think theres still vast misunderstanding about where it can really add value.
And.
I'll repeat my belief long standing belief that AI belongs lower in the stack than most people believe.
And I suppose people are even further afield from my view after the last few months of hype.
AI is is a good advisory detective.
Texting quantifying technology is not fit for making decisions.
And shouldnt be put in a position like that I think AI is going to be at its greatest value who would be clear about this is going to be at its greatest value. When it is coordinated to other decision makers, which is to say when work is routed in balanced amongst a portfolio of decision makers.
Of which AI is only one and not the final decision maker.
If you believe that.
Then you believed that process automation is a really essential part of leveraging AI as a valuable part of work because you can't stand alone you can't just delegate your decisions to AI you need to balance it checketts work review it approve it that sort of thing which means that AI is is part of the orchestra and the orchestra needs.
Conductor, so I think that in the end AI adds a lot of momentum to the process automation industry and I think that it's going to elevate us but in the meantime people have to shake out their understanding of what AI can really do and we will have to teach people that it's part of the portfolio.
And not a.
A final answer.
Got it got it.
Very interesting stuff.
One just quick follow up.
<unk>.
The revenue retention rate came in pretty solid at 115% I'm. Just wondering how you guys are thinking about that mix of growth from from new logos versus expansion.
Is there any sort of change to the strategy now that.
Chris Jones has been in place for a couple of quarters now thank you.
Yes.
Yes, we were happy to see that that steady of course, we're all watching these renewal metrics net renewal gross renewal to see if there's some kind of a evidence of macro effects.
And so far we are pleased to see.
The degree of solid Miss that we're observing.
Always want more I'm always asking sales and Chris and anybody else, who I can.
A few moments with it that we'd love to see additional selling into our existing base and for that matter more logo acquisitions. So we will advance on all fronts to the best of our ability. This year, we're not writing anything off.
We're not giving up on new customers, we're not we're not deep prioritizing growth now.
We're assigning our full attention to each of these priorities.
But in the meantime, the main result, we have to look at is relatively satisfying steadiness.
Great. Thanks for taking the questions.
And thank you.
Yeah.
And one moment our next question.
And our next question comes from Andrew de Gasperi.
From the Ehrenburg Your line is now open.
Thanks for taking my questions maybe on the first one it's like a high level question as you've been transitioning partners for implementing Appian.
Have you noticed the timeline to implement.
And growing lives shortened during this time are you seeing evidence of that.
I would say, it's steady or grow lifetime's have been consistent.
Great and then.
Maybe on the in terms of the AI commentary you just made it sounds like you kind of believe its more type right now, but in terms of what it will do for App yet in terms of the potential for revenue expansion and things like that where do you think that's a reasonable timeline is.
That you would see to materialize that.
Yeah.
Well.
Yes.
Revenue follows hyped, so actually you don't need to have.
You don't need to wait until people will figure out where AI belongs in the stack before they start writing checks.
I think that we're going through a year or two now where people will imagine that AI belongs making decisions.
And so there'll be talk about how maybe AI should write your next process or that sort of thing.
I think our position is going to be AI can show real value as an adviser an appraiser contributor, but not the author and not the decider I think we're going to have to educate people on that Fortunately, we're going to be able to show a lot of value add a lot of this is what is missing for all of these hype stories. These days with AI, it's incredible what they can do.
What the drawings that can make papers taken right, but what they're not doing is lowering your electricity bill right. What you're not hearing is AI helps our economics and so we can actually show that right. That's what AI does it.
It helps the economics, so we're going to be coming up with tangible stories and I think that they will carry the day, even in the face of some hyperbole.
Great. Thank you.
And thank you.
And one moment our next question.
And our next question comes from Fred <unk> from <unk>. Your line is now open.
Hey, Thank you.
Don't work at Appian I'll just cover it.
Laurie.
Yeah.
Haven't shot my resume to you guys yet.
Firstly actually speaking of resumes last quarter, we were talking about your cadence of hiring and hiring ahead of plan I just wanted to check in on the hires that have been made throughout the year and as Youre thinking also about.
Cautious rather.
The terminology, just really prioritizing prudent growth and investment at the same time, but.
Really how have the ramping reps and those that were hired last quarter have been ramping since that.
Extended hiring period.
It's early to say because we can't expect an account executive to have made any quantifiable results in that period. So while I can say that I believe that our talent actualization and our training system and our coaching and so on models are better.
Before I can't point, you to any result, so.
I believe that will turn out to have been a good investment I cannot quantify my reasons for that today.
Okay, and then stepping back rather than I suppose the typical financial analyst questions, Matt I really wanted to ask so we're thinking about investment into Appian, we're thinking about next year being another investment year.
Just ask really bigger picture here.
As you've heard sounds like assemble this entire platform. It's a full stack automation platform, our low code platform.
What is your longer term vision goal and dream for Appian as Youre investing into it.
Could you just walk us through that at the highest level and where you would really like to do is taking the company.
Loved the question by the way.
<unk> is supposed to empower people and their relationships with software and technology.
Also supposed to empower organizations it should empower people by allowing us to control and direct and collaborate with technology more efficiently and it should empower organizations to be able to express their personality and their behavior by pivoting quickly from one process to another by changing their process essentially.
To keep up with times and move a human speed.
So.
That's our bigger mission of the kind of economic impact we'd like to have with this organization and we see ourselves as the pioneer in this space inventing the means by which those goals can be achieved so.
Even if.
Some of the implementation is done by others, we're still proud to be innovating.
The state of the art.
Okay. Thank you.
And thank you <unk>.
And again, if you would like to ask a question that is star one one again, if you'd like to ask a question that is star 111 moment. Our next question.
And our next question comes from Steve <unk> from S. MDC Nikko Securities. Your line is now open.
Thanks for taking my question Steve.
And congrats on the steady performance and also since this is my first time getting to speak on your call I've just mentioned that F&B.
Alright, happy happy to end customer.
I want to ask you. So your position regarding investing for growth is clear.
And we understand there is a tradeoff between growth and profitability. If we think about that trade off in terms of your rule of 40 score I'm wondering.
How can that be and improve the overall trade off or is that even possible. Thanks for taking my question.
Yes, it's absolutely possible. It's a great question, we think about it a lot it's absolutely possible.
<unk>.
We.
We invest.
In some of the things, which will not manifest in our 40 score for some time.
We have a substantial investment in R&D for example.
<unk>.
We are.
We're innovating the space, we we make acquisitions and technology that turn up in our product.
Years later.
I don't guide to the organization using rule of 40.
<unk>.
Centrally.
That said I believe that there are some parts of our efficiency, which are correctly diagnosed and improvable by a rule of 40 perspective.
For example, looking at the organization I would like to see a higher efficiency in the way we convert investments in.
Say go to market.
Into into successful new.
Yes.
New revenue.
I believe we can improve our efficiency and we're we're very cognizant of where efficiency is great and where it is not great and so we introspect and we have list of things that we want to get better.
We're growing organization.
We are pioneering a new trail, we're inventing technology that.
Going to be the spear tip of our leading market and at the same time, we're inventing this organization and how you make this case and how you get it to customers.
We can always get better.
Yes, and I'll, just add a little bit to that I think.
One thing that we're doing is looking at the cost side.
As Matt said trying to find efficiencies everywhere, even in R&D with the Tech development Center in Chennai, India as part of that strategy and at the end of the day, when we have a healthy consistent growth rate, which we've been able to demonstrate.
Combined with that efficiency on the cost side.
The result will be.
Towards that rule of 40, even though we're not centrally forcing that as a matter of practice.
Alright, well. Thank you very much for your answers appreciate it.
And thank you.
I am showing no further questions I would not this concludes today's conference call. Thank you for participating you may disconnect.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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Okay.
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Okay.
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