Q1 2023 Appian Corp Earnings Call
Yeah.
Good day, and thank you for standing by.
Welcome to the Abbvie in first quarter 2023 earnings conference call. At this time, all participants are in a listen only mode.
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I would now like to hand, the conference over to your speaker today, Sri and Naphtha Senior director of Finance and Investor Relations. Please go ahead.
Thank you operator, good afternoon, and thank you for joining us to review <unk> first quarter 2023 financial results with me today are <unk>, Chairman and Chief Executive Officer, and Mark <unk> Chief Financial Officer.
After prepared remarks, we'll open the call for questions to date, you will want to follow along with our earnings presentation. You can download it from the main page of our Investor site at investors Dot <unk> 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 $19 95. These include comments related to our financial results.
Trends and guidance for the second quarter and full year 2023, the benefits of our platform industry and market trends, our go to market and growth strategy, our market opportunity and ability to expand our leadership position, our ability to maintain and upsell existing customers and our ability.
To acquire new customers. The words anticipate continue estimate expect intend will and similar expect expressions are intended to identify forward looking statements or similar indications of future expectations. These statements reflect our views only as of today they do not represent.
Our views as of any subsequent date they are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.
For a discussion of the material risks and other important factors that could affect our actual results referred to our 2022 10-K or 10-Q filing for Q1 2023, and other periodic filings with the SEC.
These documents are also available on our investors section of our website.
Additionally, non-GAAP financial measures will be discussed on this conference call refer to the tables in our earnings release and the investors section of our website for a reconciliation of these measures to their most directly comparable GAAP financial results with that I would like to turn the call to our CEO , Matt Calkins, Matt.
Thanks, Sri and thank you everyone for joining us today.
In the first quarter of 2023, Appian cloud subscriptions revenue grew 31% year over year to $69 $7 million.
Overall subscriptions revenue almost broke the 100 million line with finished at 99.0 million.
Total revenue grew 18% year over year to $135 $2 million, our cloud subscription revenue retention rate was 115% as of March 31.
Our adjusted EBITDA was a loss of $15 8 million.
Our non-GAAP gross margins set a post IPO record at 75%.
These results exceeded our guidance.
We hosted our annual conference Appian World in San Diego last week, I am pleased with the attendance and the enthusiasm.
More than twice as many prospects came daffing world this year as last.
Our conference theme was process automation customers talked about the benefits of running the whole process lifecycle on <unk> platform.
On stage I explained the emerging split between what I call public AI and private AI.
Public AI involves sharing data with a cloud AI provider.
And that is unacceptable to many of our clients.
Companies want to keep control of their data they may have legal restrictions as well and they don't want to help train an algorithm that could then be used by their competitors.
Private AI by contrast means every company cultivates their own AI algorithms, starting with the public model, but training it privately and using it privately.
I predict that in the long run private AI wins, which is to say that it becomes the more popular model for our customers.
I think the customized AI algorithms will someday be as normal as custom applications.
Inside big firms.
Private AI will feature strong accuracy, despite having smaller training datasets because the data is more pertinent and the scope of each AI will be narrower.
These AI as well right Limerick or make images they'll just do the one thing that they were made for.
Appian will facilitate both kinds of AI.
Prefer the private model, we announced some new features which I call low code AI.
That makes it easy for customers to cultivate their own AI on Appian connected datasets.
This public private split set.
Separates appian from its largest competition.
By being a champion of private AI, we appeal to buyers, who prefer not to share their data assets.
Our ability to assemble large datasets to train private AI algorithms comes from a feature called data fabric.
Data fabric is a fancy term for a virtual database and it means that we can address data from across the enterprise like it was together, even though it remains a part of the.
This strategy is preferable for our clients, who dislike having to relocate data.
Data is the hardest part of building and running processes. So this feature constitutes a substantial advantage.
Our data fabric in turn gives us a critical edge of inventing the next generation of process mining.
We call our new vision process HQ and we're starting a beta program for next quarter. It uses appian capabilities to overcome the limitations of process mining as it exists today.
Process mining projects are notorious for taking a lot of time, together, a dataset and not being immediately actionable.
In process HQ data collectors data collection can be quick using appian state of fabric recommendations for delegating work to new types of workers like AI or RPM can be instantly applied using appian <unk> full suite of automation tools.
Process HQ will quantify the efficiency gains made by Appian run processes at the same time as helping owners make further improvements.
Yeah.
All three of these critical advances are data related.
We see lasting advantage over competitors and capability for clients in our data abilities.
For example, a leading European automotive manufacturer uses appian to better leverage its data and boost productivity. The company currently automate supply chain processes with Appian saving tens of millions of dollars annually.
In Q1 that purchased a seven figure software deal to build more apps and further optimize operations. One app will manage warranty claims happening we'll integrate the company's systems to run the end to end claims assessment and review process. Our platform will feed the customers' data into our machine learning model to predict which claims.
Need intervention the customer.
<unk> expects to improve operational efficiency of this process by 20% and save millions of dollars per year.
The U S public sector contributed half of our Q1, new logo ACB, becoming one of our strongest growth areas. We recently announced some new advances for this market first half being cloud is now statecraft certified this is the state level cyber cyber security equivalent of fed ramp it'll enhance our likelihood of winning deals with.
Sensitive workloads.
We also launched two new solutions for government customers contract, writing for federal and constituent case management for state and local.
Contract, writing completes our government acquisition management suite, our Gam suite, so customers can now run the entire acquisition lifecycle on Appian.
Constituent case management as happens first solution for state and local customers. It's a flexible case management solution. The governments can use to serve residents.
I'll share this evening to public sector customer stories first a large U S. State government is under executive mandate to simplify its process for registering new businesses in Q1, the government purchased a seven figure Appian software deal can became a new customer.
<unk> will replace a decades old business registration and ancillary filings system.
Our platform will run the end to end process for establishing llc's and renewing licenses for millions of entrepreneurs and growing businesses. We won this deal after a proof of concept that integrated the customer systems and leveraged our native AI and <unk> capabilities.
Okay.
The U S. International Affairs Agency also became a new Appian customer our platform will replace a series of old logistics management applications that are too costly to maintain.
They will begin with a vehicle fleet management process and plan to follow with others.
These apps are core to the organization's mission and represent one of the largest spends on logistics management in the federal government.
<unk> partners continued to drive growth. This quarter for example, a partner helped US land, a leading financial services and credit card provider as a new logo in Q1, one of the Companys largest business segments managers expenses for corporate clients and must monitor client interactions in accordance with federal regulations.
<unk> will create a single tracking application that monitors relationships across the companys various interaction channels, including voice chat and E mail.
Before wrapping agents manually audited interactions because their systems were siloed.
We won this competitive deal after our partner build a proof of concept just three days.
Forrester the analyst firm is currently completing a commissioned total economic impact study on Appian customers I shared the preliminary results last week and happy and World.
This study finds that a complete a composite organization comprised of Appian customers experienced a 90% reduction in development time realized a positive return on investment in just six months and a full ROI of 257% over three years.
<unk> accelerated their process execution by a factor of 20 times good stuff.
These results explained by Appian prospects and customers purchased our software.
Our quick return on investment appeals to the cautious buyer.
We doubled our new seven figure software deals in Q1 compared to the same period last year.
This growth was split about evenly between new logos and existing customers with a new logo example.
U S. Federal law enforcement agency purchased a seven figure software deal to unify its operations the.
The agency will manage its entire criminal investigation lifecycle on Appian.
16000 agents and contractors will open cases and run investigations using a single tool.
The customer expects to deploy this mission critical apps in just a few months.
A top global bank uses our platform to onboard new clients and manage ongoing relationships. The organization became a new appian customer in 2019, and we delivered its first project in just eight weeks with the Appian guarantee at that time.
<unk> purchased more software every year since in Q1 hit selected our platform to automate credit payment and trade related processes for more than 1000 users globally.
Finally, our global packaging and logistics company is an existing appian customer and uses our platform to onboard clients and manage global supply chain logistics.
In Q1 and expanded with a seven figure software purchase to license new users that oversee consumer recycling programs. They will manage the lifecycle of containers like bottles and milk cartons using appian. They will also deploy an externally facing appian portal to engage over 100000 constituents in the recycling process.
Our plan this year is growth with scrutiny.
That means we will examine all of our investments reducing those we find unproductive and keep growing at the same time.
We are hiring in all offices and all departments. The bar is higher than in other years, but were still willing willing to make major new investments when the upside justifies it or.
Our expanded development of new solutions is a good example.
This year's scrutiny drive has helped us become more efficient, which will ease our path to profitability in a way that does not diminish our growth rate.
Now I'll hand, the call to Mark a deeper look at our financials Mark.
Thanks, Matt.
The financial highlights for the quarter and then we'll provide guidance for Q2 and the full year 2023.
Total revenue cloud subscription revenue and adjusted EBITDA were above guidance, while non-GAAP EPS was at the top end of guidance.
We saw continued healthy contribution from existing customers and strong growth from our key industry verticals, especially the U S public sector, let's.
Let's go into the details.
Cloud subscription revenue was $69 7 million, an increase of 31% year over year and above guidance.
On a constant currency basis cloud subscription revenue grew 32% year over year.
Subscriptions revenue was $99 million, an increase of 18% year over year on a constant currency basis subscriptions revenue grew 19% year over year.
It was impacted by lower on Prem license revenue with some customers converted to the cloud this quarter and from a higher mix of new cloud bookings during the quarter.
Professional services revenue was $36 3 million, an increase of 19% year over year.
This quarter services revenue benefited from new large projects with existing customers and recognition of revenue that was on hold from Q4.
As previously noted we have limited visibility and services and a few large projects can influence professional services revenue in any given quarter long term. We believe partners will drive the majority of our implementations are professional services will continue to be strategic by enabling partners and driving customer success. However, we expect professional services.
Revenue to continue to decline as a percentage of total revenue.
Total revenue was $135 2 million, an increase of 18% year over year and above our guidance on a constant currency basis total revenue grew 19% year over year.
Subscriptions revenue was 73% of total revenue consistent with the year ago period, a 74% in the prior quarter.
Our cloud subscription revenue retention rate was 115% as of March 31, 2023, consistent with the prior quarter.
As a reminder, we continue to target a cloud subscription revenue retention rate of 110% to 120% on a quarterly basis.
Our international operations contributed 33% of total revenue consistent with a year ago period.
Our cloud software net new ACD bookings were approximately 85% of the total net new software bookings in the first quarter of 2023, an increase from 80% in 2022.
Now I will turn to our profitability metrics.
non-GAAP gross margin was a record 75%.
It was 74% in the year ago period, and 73% in the prior quarter.
Subscription non-GAAP gross margin was 90% consistent with the year ago period and prior quarter.
Professional services non-GAAP gross margin was 34% compared to 29% in the year ago period, and 27% in the prior quarter.
Other than expected professional services revenue drove the gross margin upside in the quarter.
We expect professional services non-GAAP gross margin to decline to the mid 20% range in 2023, and low 20% range beyond 2023, as we continue to invest in non billable resources to help our customers maximize the value of their appian investment.
Total non-GAAP operating expenses were $119 3 million, an increase of 33% from $89 7 million in the year ago period.
Adjusted EBITDA loss was $15 8 million versus our guidance of a loss between $21 million and $17 million compared to an adjusted EBITDA loss of $3 4 million in the year ago period.
In the first quarter, we had approximately $600000 of foreign exchange gains compared to foreign exchange losses of $1 9 million in the same period a year ago.
We don't forecast movements in FX rates, therefore, they arent considered in our guidance.
non-GAAP net loss was $19 7 million or 27 per basic and diluted share compared to non-GAAP net loss of $4 4 million or <unk> <unk> per basic and diluted share for the first quarter of 2022.
This was based on $72 9 million basic and diluted shares outstanding for the first quarter of 2023, and $72 2 million basic and diluted shares outstanding for the first quarter of 2022.
Turning to our balance sheet as of March 31, 2023, cash and cash equivalents and investments were $254 5 million.
Compared with 196 billion as of December 31, 2022.
First quarter cash used by operations was $25 3 million versus $20 6 million for the same period last year.
Total deferred revenue was $198 7 million as of March 31, 2023, an increase of 34% from the year ago period as.
As we have stated on past calls the majority of our customers are invoiced on an annual upfront basis, but we also have some customers that are billed quarterly or monthly.
Due to the variability of our billing terms changes or changes in our deferred revenue are generally not indicative of the momentum in our business.
We continue to believe cloud subscription revenue is a better indicator of our business momentum than billings or remaining performance obligations.
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 our software subscription revenue, regardless of whether the customer deploys to the IP and cloud.
Private cloud or on Prem.
Now I'll turn the guidance.
For the second quarter of 2023 cloud subscription revenue is expected to be between 72 and $74 million representing year over year growth of 26% and 30%.
Total revenue is expected to be between $123 $125 million representing year over year growth of 12% 14%.
Adjusted EBITDA loss for the second quarter of 2023 is expected to be between 30% and $26 million.
non-GAAP net loss per share is expected to be between 46%.
40.
This assumes 73 million basic and diluted weighted average common shares outstanding.
For the full year 2023, we are increasing cloud subscription revenue to between 296 and $298 million representing year over year growth of 25 and 26%.
This is an increase from prior guidance of between 294% and $296 million representing year over year growth of 24 and 25%.
For the full year of 2023, we are increasing total revenue to between 533 and $538 million.
Representing year over year growth of 14%, 15%.
This is an increase from prior guidance of between 530 and $535 million.
Representing year over year growth of 13% and 14%.
Adjusted EBITDA loss is expected to be between 70% and 65 million an improvement from prior guidance.
Of between $75 to $70 million.
non-GAAP net loss per share is expected to be between $1 16 and $1 nine.
This assumes $73 2 million basic and diluted weighted average common shares outstanding.
Our guidance assumes the following first Q2 professional services revenue will be down by a low single digit rate on a sequential basis for the full year 2023, and we assume services revenue will grow at a low single digit rate year over year.
Second on Prem license revenue seasonality will make Q2, our weakest quarter of the year.
Hence you should expect on Prem license revenue to decline materially on a sequential basis.
Third Q2, adjusted EBITDA loss excludes severance costs of approximately $1 3 million.
Q2, adjusted EBITDA loss will be higher than Q1 levels due to a combination of on Prem license seasonality and the cost of running our annual conference Appian World.
We will continue to maintain greater scrutiny of any discretionary related expenses.
This is consistent with previous years.
Fourth net interest expense of approximately $1 3 million in Q2, and $4 5 million in 2023.
Capital expenditures will be between three and $4 million in Q2 and between 12 and $14 million in 2023.
This is primarily related to build out of additional office space.
Finally, our guidance assumes FX rates as of May eight 2023.
Before we take your questions I want to briefly touch on severance costs of $4 $2 million related to recent personnel changes as.
As part of our growth with scrutiny strategy with flattened hierarchies optimize some support functions and reduced head count and non strategic areas.
Our increased scrutiny should result in continued slowing of opex growth during the remainder of 2023.
Accordingly, we now expect non-GAAP adjusted EBITDA loss margin to improve to better than 10% in the second half of 2023.
These changes.
Will allow us to invest in areas that will drive growth and generate superior returns long term.
In summary, we're excited about the growth opportunities ahead of us.
With that let's turn it over to questions.
Thank you.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again please.
Please standby will compile the Q&A roster.
Our first question comes from the line of Steve Enders with Citi. Your line is now open.
Okay, great. Thanks, Ron Thanks for taking the question here I guess I just want to start and ask about just what youre seeing out there and the deal environment currently.
And if youre seeing any change in the deal cycles or art.
Automation in.
And low code workflow solutions are becoming a bigger.
Part of the discussion points as maybe the macro begins to loss of a little bit more.
Great I'll get more detail on what Youre seeing out there.
Yeah, Okay great.
We are seeing some.
Deals delays in extra scrutiny, but it's not much more than last quarter. So it's just a gradual progression in that.
And I wouldn't say it was overly disruptive to this quarter as for whether it's shines a brighter spotlight on automation I believe that in the long run having to do more with less than a year.
Not plenty will encourage the kind of creativity that will turn people toward an automation solution and increase the <unk> the popular.
Popularity of this industry I think thats going to take time, so we're definitely not seeing that yet.
Okay Gotcha.
That's helpful and then maybe just on.
And about all of that.
<unk>.
On the severance side and kind of more scrutiny on our cost structure.
I guess I appreciate the commentary about getting above 10% in second half of the year on EBITDA, but I guess, maybe we would've expected a little bit more bolt into the end of the guide there.
So that's kind of what you versus kind of what you showed there. So I guess is there anything we should be thinking about the timing or is there how do we think about incremental investments that are there.
Coming in here as well.
Yeah. So.
To be clear were still in growth mode, right and we're still investing overall I think the.
Point to pay attention to is in certain areas, we will reinvest and backfill.
And I think on a net basis, there's certainly will be savings and we've kind of shown that with our $5 million improvement in our full year adjusted EBITDA.
Adjustment there so.
Yes, I think.
We're definitely.
Continuing kind of a growth with scrutiny path forward.
Okay. Thanks for thanks for taking the question.
Thank you.
Our next question comes from the line of Sandeep Singh with Morgan Stanley . Your line is now open.
Yes. Thank you for taking the question Mark I had a question for you on the.
On premises versus cloud dynamics this quarter. It sounded like anything came out of his script. There was you saw more.
Customer migrations onto cloud any color there on what's driving that motor.
Got that.
On premise customer base, moving more moving more to cloud and what's sort of the impact on on premise revenue.
Because of this migration.
Yes, so we saw.
Some renewals that were slated to be on Prem.
That actually renewed is cloud.
And there are only a couple but they were.
Pretty sizable they werent they werent small so.
That did move the needle and.
In addition, we had.
As I noted in 85% cloud right on on our new deals as opposed to the typical 80%.
But on the former on kind of the renewal base question, we haven't seen much movement in that.
Historically over the past couple of three years, but we did notice that in Q1.
Just for a couple of those customers, we don't necessarily expect.
To kind of emerge here.
So to speak on a renewal basis, we do have.
A good bit.
One of them already on the cloud and it's been pretty stable.
And history.
Alright, great. Thank you.
Yes.
So just a follow up just to follow up there I.
I guess two.
Two questions for the customers that do migrate over is it seems to me that those customers that move from on premise to cloud do you think you have the potential to be higher expanding customers.
Going forward and the second question, Matt is for you just coming off of.
The world.
Whats sort of your assessment of kind of the nonpublic sector pipeline going into the rest of the year. When you look at your health and Lifesciences customers in financial services customers, how is that shaking up post.
Post <unk> world.
Okay, Great first of all with regards to weather.
Additional expansion possibility on cloud.
Promise.
Our opinion.
With that being an appian cloud customers slightly superior to <unk>.
<unk> on premise customer.
And therefore, I would expect those customers to be.
Maybe a little bit faster you expand just a little right to explore.
So I don't want to overplay vials.
We will have a slight positive effect.
And then and then secondly, with regards to the non public sector pipeline. It is strong relative to last year.
<unk>.
Yes, I don't want to break it out by segment I don't have it broken out by sector, but the overall nonpublic is.
Yes.
I appreciate the thoughts thank you.
Thank you.
Our next question comes from the line of Kevin Kumar with Goldman Sachs. Your line is now open.
Okay.
Another question.
I had one on the increased sales capacity that's been added over the last couple of quarters.
I'm, just curious where the incremental capacity is being deployed and are you starting to see that positively impact API pipeline conversion rates or maybe new logo growth. Thanks.
Sorry voices Airlines.
Okay, well I'll answer the question will just be careful about having one voice at a time.
The question.
Hi.
Let me get back to it.
It was about incremental pipeline and.
Sales from the new cohort of account executives that we added late last year I believe.
I would say it's.
Yes to the pipeline and no to this to the bookings.
They've been there has been enough time for that to help us with pipeline.
And later this year, maybe second half or see that start to contribute to bookings.
Okay. That's helpful and then maybe just one on the.
The new public sector solutions.
Jim has been really successful.
Yes.
Government is a meaningful part of our overall revenue base. So just curious kind of on the new solutions and what type of government departments will happy to be targeting and maybe how impactful do you think they are in terms of broadening the overall government Tim. Thank you.
Yes, let me clarify that this new government solution is part of them.
We have six modules and gam and it covers the lifecycle of the acquisitions process. So we are where we are now able to sell all six and they execute them sequentially for the same public sector customer quickly with will.
We'll play we're doubling down on our winter.
We're getting good traction with this solution we have buyers we feel confident that we can sell those buyers an additional module.
To be compatible with the modules they already have.
So we are hitting the same need but more.
With this latest module. So so that's what we're doing and we're also making noted branching into state and local.
I would state ramp.
And with partnerships that target the state and local business with with Gam like functionality. So so that's our primary avenue with the government and as for whether Thats, a major value add absolutely.
These acquisitions.
<unk> is a primary process for for government buyers, it's done very systematically done in great volume.
And.
We've shown a substantial advantage over our competitors. So it's very good business.
Thanks for taking my questions.
Yes.
Thank you.
Two of your process by by using our own data gathering capabilities, we're going to sidestep that that flaw in the in the data mining process mining.
Industry.
So.
We're using as an expansion tool now but going forward.
We we plan to use it as an awareness tool putting a spotlight on <unk> greatest strengths. That's that's our capability of handling data the data fabric boring data from end to end of the enterprise.
Being able to deploy any kind of automation tool in real time to start handling work and comparing it a versus be happy.
<unk> has specific advantages right playing for certain synergies with United factors and now we need to make that pay and whether that set of factors is and and coverage of process or the total suite of automation technology or just access to all the data in an enterprise, we need those synergies to pay off.
And the process H Q product is going to showcase those three synergy.
And add spotlight the value of process mining along the way I know that was a long answer maybe more technical than you wanted but process HQ is very strategic to us in with it.
Polished and displays the the.
Full sweet advantages that afternoon has technologically.
Super helpful with the detail and then just as a follow up in our in our conversation to that being ruled it sounds like a big reason why a lot of customers choose Apple and its products as the security that's embedded and so I'm just curious if you could kind of.
Explain how have an impact level five sets you guys apart from competitors. Thanks, so much.
Alright, well I hope I was going to be necessary to some buyers. So that will set us apart in a big way it'll it makes us eligible to bid.
On specific public sector high security projects, but <unk> impresses, many buyers who do not have that as a formal requirement it re.
Assures them as to the security of their information when they work with that bin.
We intend to be the high end needed in this space and its calls like <unk> five that.
Substantiate.
Our leadership and and encourage our customers be they public sector or not to trust us.
Thank you.
Our next question comes from the lineup Jacob Roberts with William Blair. Your line is now open.
Results and thanks for taking my questions just wanted to touch on January today, I I think one of the more compelling use cases that I've heard on the generative a iPhone has been around increases the developer productivity. So curious how you think that productivity increased flows into the low code and automation spa.
<unk> given that's one of the core value props for the attack.
Yeah. It absolutely is an accelerator in low code, we're using it right now our co pilot feature suggests smart services to enhance and finish the application you are trying to create and so it's already a nice accelerator. We've also shown how some.
Generative AI can literally write the sale codes that underlies appian applications. So we're approaching it from different directions, we were.
We're very excited about the acceleration demonstrated but we also want to caution people against sneaking AI as a magic answer.
<unk> for our customers generally industry leaders doing distinctive may be unique things.
You can't get your answer from AI, if they've never seen an application like this before so AI as an accelerant, it's not a substitute.
Yeah, it's a partner.
Not a replacement.
When we treated that way, we get great benefits out of AI, but it's nowhere near able to to take away the human in the chair.
Some of the demand you're seeing for some of your newer products like processed mining RPI and portals have any of those been more or less prioritize as a result of the macro and then I'm curious what do you think that any of those products could see outside benefits or even headwinds from the <unk>.
Option of generative AI.
Yeah, that's interesting well you could say that AIG is a tool and an automation portfolio and thus a substitute for other tools and and automation portfolio and perhaps if AI were.
Exceptionally much better it might diminish the demand for RPI or business rules or something else, but right now I don't see it that way I see it as being good in its lane and other automation tools being good in their lane.
And so I still think there's plenty of demand for let's say RPI or or these others.
So I don't want to call a distortion on the automation market right now.
And as for which of them is popular I think that we.
With every one of them. The best feature is the synergy is the combination the availability of all of them to serve the client if and when they need it.
Dot.
And therefore, it kind of dodging your question because I don't think that one of them headlines the offering or drives the adoption, it's the convenience and the totality that are the virtue.
Taking my questions.
Okay.
Thank you.
Our next question comes from the lineup Derek would with television Cowan. Your line is now open.
Oh, great. Thanks, guys, it's area rug for Derek.
Financial services is a pretty big vertical for you just wondering if any impact from the banking crisis on customer decision, making there an hour pipelines for a vertical tracking burst three months ago.
Yeah, that's good.
First of all we didn't see any any blow back from the banking industry.
<unk> this quarter.
I don't know what it is but but what it has affected some financial services decision makers to apply extra scrutiny, that's possible, but that would be a second order consequence, I can speak to the absence of first order consequences.
So so that's my answer.
And then last quarter, you mentioned Tiger competition was a factor in some deals as customers are noticing.
What's going on there did you say that again this quarter and is that helping drive up when rates this year at all.
Yeah, well our winter it against Peg is pretty good.
But it's actually pretty good against everybody, we tend to do well once we get into the competition.
Once we're on the shortlist.
So I don't know that it's changed much quarter to quarter in fact, I haven't noticed any change.
Serially versus Q1 with regards to any of these competitors include.
Including Peg a system remains our most common competition and.
Against whom we have a solid record.
Thank you.
Our next question comes from the line of Andrew <unk> with Banbury. Your line is now open.
Thanks for taking my question I relative to your federal customers, which I know I've been pretty meaningful in terms of.
The opportunity for you.
With the state lands certification, how big is the market for state customers in Annapolis.
Yeah, well the.
The challenge with the state side is being able to address them. The reason, we haven't touched that market before is because we didn't have the expertise and the connections and state houses.
And and I fell in the past that that was a good market for a very large firm with a well developed and.
An extensive sales organization, we mean now to approach that market by partnering with a firm that does have those connections and by by at least expanding the resources internally to be sure that our product is well targeted for those buyers needs, which are a little bit different from the.
The federal buyers needs, but but not so terribly that our successes in federal don't qualify us and put us in a favorable light.
We'll have to see how much of this market, we can access and how much state and local buyers are willing to spend.
This technology initial feedback is good I mentioned, one institution of state and local institution that made a purchase this quarter I mentioned another major one last quarter were picking up some wins at the state level, but I believe it early to to state how.
How large this could be for us so I'll just leave it at that.
Thanks Man and then maybe it.
On the partnerships act that you've had quite a few partners that after world. This year I think over 300 and.
I noticed many were from international and market I was just wondering how are we still.
The potential for growth from those.
Celebrate.
Yeah, a lot of activity.
Outside.
B y.
Okay.
First of all yes. The partners attended Appian World very well I gave my first speech of the week close to the the partner gathering and they were overflowing their room that people are standing on the sides and at the back and it was a pretty big room. So we're very pleased with the partner participation I think thats.
Because they see a lot of opportunity.
They're they're doing this because the demand is real and they're they're making good money on <unk> and.
The demand as resilient as well.
So.
As to whether it's international I would say it may be slightly more international than it was before but it hasn't been a big shift it's probably just that we're we're getting more attention in India than we did before that though it was already too.
Pretty pretty good, but maybe it's even more.
Over the past year.
But but I don't think there's been a substantial shift internationally and our partner base.
Great. Thank you.
Thank you.
Our next question comes from the lineup the node shiny that's wrong. So then with Barclays. Your line is now open.
Hi, Thanks for taking my question I, just wanted to ask about happy and protect that you know you really sad about two months ago can you just talk about.
How this product is addition to the market and your overall to ignore it.
Yeah. This this goes back to a theme that we mentioned on one of the earlier questions about how essential it is to be perceived as the high end offering the safe offering and we do a lot to emphasized as protect as part of that play, but it's only the beginning of it we put a lot of work into establishing R. R.
Credibility has the most reliable vendor because we understand the for mission critical processes suppliers betting their career to some degree on the.
On the solidity and security and scalability safety of our platform and for that matter of the expertise that comes with it and the success of the deployment, we believe that in a market.
We're purchases bear substantial risk one of the primary ways that a a best of breed player differentiates itself from its competition is by providing safety you will see the same theme come up repeatedly in our solutions a solution is about safety, it's about knowing what youre going.
Get before you have to pay for it talking to people who've used it the same thing in the past knowing that it's worked at a company you respect so.
What is it safety right. The answer to your question were selling safety were selling reliability and.
Ah lack of risk and this is just one way we substantiate it and of course I love. The idea that we put a brand right on top of our our safety attribute will do that as much as we can.
But but this is a market where people do important things and they ask alot of processes. It's not just that the process has to be easy to create it has to be rock solid after they build it and we understand that to be one of our primary advantages in the market. So we may not be the biggest vendor in this market but.
We mean to be the best.
So that makes sense and just one more from me I think that you're.
Your Investor that you mentioned you were transitioning a lot of your customers over to your Microservices based cloud can you guys give us a sense of how much like kind of that impact on gross margin throughout the year as you transition more customers and once again, you expect that to be completed.
Okay. Well. So are are covered entities initiative is a multi year of large project.
Which will provide us the microservices you're talking about.
And it's not going to affect our margin this year not materially.
It is a it is a long evolutionary thing covering enough modules to handle some customers not to handle others, but I make no financial projections around this.
None.
We've just got to see the technology play out and move carefully and understand that this is.
This is the polls for getting to the future. So we're just going to pay the toll. This is how we want to organize software going forward and we're committed to being in the lead. So we thought about it carefully and this is the way we want to structure our software, but it says.
I want to dial down the expectations that it's a financial player will lead to something tangible.
Understood. Thank you.
Thank you as a reminder to ask a question at this time. Please press star one one orientation telephone.
Our next question comes from the line of Fred have Meyer with Mcquarrie capital. Your line is now open.
Hi, Thank you very much.
That I was interested in here I think you had said in your prepared remarks that 70 figure deals doubled year over year in the quarter.
Would love to get a little more contacts around that in addition to what you're describing in terms of specific clients there because it sounded like despite some of the screwed.
Scrutiny and perhaps.
Macro headwinds that are out there that you're seeing the significant growth. So we'd love to just understand better what's going on there.
Yeah, all right well, we did get twice as many new crossings of the seven figures threshold during the first quarter of 2023 as we achieved in the first quarter of 2022.
[noise] worrying that carefully if you'd like more detail. It is in the packet of reports, which we have distributed and you can say I think it's in the lower right Quadrant report.
That that shows the increase in <unk>.
Customers of certain threshold sizes. So.
Pleased with that movement for sure I don't believe that all of those went from zero to 1 million you understand some of those probably with half a million dollars and crossed $1 million thresholds. So what we're really doing is tracking how many have gone over the million dollars threshold.
But it's great to see them do it no matter, where they came from.
And.
And so it is a sign of confidence is just a question of whether it's a confidence in our product or in our marketing.
It depends on whether they come from nothing or come from something either way we are.
Very pleased to see that it's still possible to sign big deals in 2023.
The macro environment has not turned off our clients from one thing to to take happier up a notch, that's what I read in it and I'm.
Grateful for their confidence.
That is definitely encouraging and I wanted to ask with respect to the growth with scrutiny strategy understand what you're saying.
And that you'll have a higher bar for any new investments that you're making but could you just described perhaps where you're continuing to hire and how you were thinking about that hiring strategy under this president grocery scrutiny strategy, yes.
The intention here is to keep up a very robust hiring pattern at the same time as internally, we're finding investments that we do not wish to continue.
I don't want to have a cautious year in which we simply slow things down I believe that would be counterproductive. Our intention here is to remain dynamic while also dynamically detecting inefficiency. So that's the the act of strenuous counter position that I am attempting to have.
Execute and 23.
So it's exciting growth at the same time as.
Meaningful consideration of what investments should continue.
Thank you for that context.
Thank you.
Our next question comes from the lineup Frat Lee with Credit Suisse. Your line is now open.
Hi, This is Tammy I'm <unk>. Thank you for taking my questions first.
Given the mix shift to the cloud in the quarter. It is somewhat hard to keep apart how much of the cloud outperformance is coming from a higher than unexpected shift to cloud versus an acceleration in the underlying business dynamics could you provide any metrics that would help us better understand the underlying business growth trends you saw in the quarter.
Yeah, So it's actually.
Almost zero is related to that shift if you if you're looking at our relative strength and Grace that's all kind of.
Organic progress without any reference to the shift and that's just because.
Ah bookings kind of end up <unk>.
Landing towards the end of the quarter and so we wouldn't have recognized much cloud revenue from those conversions.
Anyway so.
That's super helpful. Thank you and then I wanted to circle back on the thinking behind the transition to Microservices architecture.
And maybe at a high level are you Containerizing. Your current platform functionality in order to take advantage of the scalability offered by Microservices.
Or are you more thinking about writing a new set of features enabled by Microservices that are not currently enabled by your platform.
No it's throughout which means it's the former where containerizing the existing functionality and.
Setting a pattern that we can continue with all further functionality.
Thank you.
Thank you and I'm currently showing no further questions. At this time. This concludes today's conference call. Thank you for participating you may now disconnect.
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