Q2 2023 Appian Corp Earnings Call
[music].
Good day and thank you for standing by welcome to the up in second quarter 2023 earnings Conference call.
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I would now like to hand, the conference over to your speaker today, Sri on non song Senior Director Finance and Investor Relations. Please go ahead.
Thank you operator, good afternoon, and thank you for joining us to review <unk> second quarter 2023 financial results with me today are Matt Hawkins, Chairman and Chief Executive Officer, and Mark Matteo <unk> Chief Financial Officer. After prepared remarks, we will open the call.
Four questions today, 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 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 third 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 expressions 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 than expectations for a discussion of the met.
Cereal risks and other important factors that could affect our actual results referred to our 2022 10-K, our 2023 10-Q filings 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 the earnings.
Carl.
So 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.
In the second quarter of 2023, Appian cloud subscriptions revenue grew 30% year over year to $74 $4 million.
Subscriptions revenue grew by 22% to $93 8 million total revenue grew 16% year over year to $127 7 million.
Our cloud subscription revenue retention rate was 115% as of June 30.
Our adjusted EBITDA was a loss of $24 7 million these results exceeded our guidance.
Best thing about this year, so far has been the rise of AI into public consciousness and general interest.
It is a pleasure to take customer questions to speak about it in every forum and write about it in the Wall Street Journal and also of course to have this reason to initiate new selling conversations.
Appian has been an AI leader for years.
We have developed shipped and deployed AI for years.
We use it throughout our product, but now it's getting the attention it deserves.
Customers now recognize the potential.
They still need guidance to achieve practical value.
<unk> sees the AI market, a little differently from other firms.
I'll summarize the difference with two quick statements.
First AI as a partner and not a substitute for human labor.
We need to work together.
<unk> can expect to be routing tasks to and from AI as we collaborate.
<unk> leadership in workflow is advantageous here.
Second.
Data is everything.
A I could make your data more valuable, but it's also a threat to data privacy.
Our priority now should be to protect and defend an organization's own data.
Appian facilitates a private form of AI that will keep us differentiated from the public versions offered by our competitors.
Let's explore for a moment that second point.
AI allows data to be real time actionable.
It is in a sense the natural culmination of the data warehousing movement from the nineties.
Hey, I provides a new data structure.
That can make a vast amounts of information instantly accessible.
By reducing the excess costs it increases the value of data.
Common imagination suggests that companies will be happy to send their data and their crops to public AI firms.
And any lingering concerns about that can easily be fixed with a few contractual terms about not retaining the data or a promise to redact the sensitive bits before sending it across the internet.
I'm skeptical of disbelief.
And the conversations I've had with CIO suggest I'm not alone.
The more sensitive your data.
And the more regulated your industry.
The more you are going to need private AI.
Every firm will set their own AI privacy standards, but I know what I'd be looking for.
One <unk>.
No third party access to my data.
To my data shouldnt be kept or used by anyone else and three.
I would want to own every AI algorithm I trained not rented.
From what I see no vendors in our marketer seriously pursuing such a customer first pro privacy position.
No vendors other than Apple that is.
Appian has two big advantages in the emerging AI battleground.
We have a leading data fabric, which can gather datasets for training and AI algorithm.
Our data fabric is like a virtual database, a great way to address and unify data physically separated.
And we also have a great process modeler.
To route work to and from AI.
We plan to lean on these two factors to create practical AI value for our customers.
We're creating practically I value today with prebuilt models are.
Our most popular models automate the extraction of data and classification of documents and emails.
Building more models now, including one we just released a summarized request for quote responses.
Here's a customer story about how one of our prebuilt models has used our U S fire safety companies under executive mandate to standardize its financial processes and reduce payment areas by the end of this year.
In Q2, the group selected Appian to automate its accounts payable process and became a new customer.
It'll train in Appian AI model.
Sure.
Classify unique documents identify vendor invoices and extract payment information.
Employees will review AI outputs and tune the algorithm all within a single App.
They anticipate a five fold increase in efficiency using.
Using our product there.
Their first project will be delivered in eight weeks under the Appian guarantee.
The story is also a good example of our belief that AI and humans will work in collaboration on most processes.
AI will become a more prominent member of process work, but not a substitute for the process itself.
The leaf matches our skill set.
<unk> has been the leader in process automation for decades.
Platform orchestrates work across different agents like humans business rules RPI and AI.
Late last year with economic clouds looming I began sharing a series of metrics to provide additional transparency on how macroeconomic factors might impact our business.
You can see them starting on slide four of our earnings presentation.
They don't say a lot this quarter.
The bottom line is that there is some macro effect.
But not enough to knock us off the plan, we set for 2003.
I'll close by sharing a few large customer examples from Q2.
A global insurance provider and existing Appian customer has grown by acquisition it needs to unify global operations. The group is running a digital transformation initiative to automate core processes like claims management.
Selected Appian as its enterprise platform standard.
In Q2, it purchased a seven figure software deal to license users in its largest geographic region.
<unk> data fabric will integrate dozens of different systems into a comprehensive customer management application for tens of thousands of agents.
Next a top Canadian pension fund managers billions of dollars in investments.
Aiming to double its portfolio size the group bought Appian two years ago to digitize its investment management processes. Its first step reduce the time it takes to assess potential investments by 90%.
The customers start to get to the next phase of projects and signed a seven figure software deal in Q2 now over half of the organization, we will use appian.
Yes.
Last example is a top U S health insurance provider and new logo in Q2 at selected our platform to replace and then flexible call center system by the end of the year.
It purchased a seven figure software deal and we will build a customer management tool for 1600 call Center agents. We won this deal after proving our platform's speed and flexibility with our custom proof of concept built in two weeks.
The customer expects to save millions of dollars every year using appian.
Now I'll hand, the call to Mark for a deeper look at our financials Mark.
Thanks, Matt I'll review the financial highlights for the quarter and then we'll provide guidance for Q3 and the full year 2023.
Total revenue cloud subscription revenue adjusted EBITDA and non-GAAP EPS were above guidance.
We saw continued healthy contribution from existing customers and strong growth from key industry verticals, especially the U S public sector and life Sciences.
Let's go into the details.
<unk> subscription revenue was $74 4 million, an increase of 30% year over year and above guidance.
On a constant currency basis subscription revenue grew 27% year over year.
Subscriptions revenue was $93 8 million, an increase of 22% year over year on a constant currency basis subscriptions revenue grew 19% year over year.
Assistant with the prior quarter subscriptions revenue was impacted in part by some customers.
And from a higher level of new cloud bookings during the quarter.
Professional services revenue was $33 9 million, an increase of 2% year over year on a constant currency basis professional services revenue declined 2% year over year.
As previously noted our ability to predict services revenue is limited and a few large projects can influence growth in any given quarter.
Long term, we believe partners will drive the majority of our implementations.
Our professional services will continue to be a strategic offering focused on 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 $127 7 million, an increase of 16% year over year and above our guidance.
On a constant currency basis total revenue grew 13% year over year.
Subscriptions revenue was 73% of total revenue consistent with the prior quarter and 70% in the year ago period.
Our cloud subscription revenue retention rate was 115% as of June 32023, consistent with the prior quarter. 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 38% of total revenue compared to 35% in the year ago period.
On a year over year basis International growth was broad based and saw healthy contributions from both APAC and EMEA regions.
Our cloud software net new ACD bookings were approximately 85% of the total net new software bookings in the first half of 2023, an increase from 80% in 2022.
Now I'll turn to profitability metrics.
non-GAAP gross margin was 73% compared to 75% in the prior quarter and 71% in a year ago period.
Subscription non-GAAP gross margin was 89% consistent with the year ago period, and 90% in the prior quarter.
Professional services non-GAAP gross margin was 28%.
<unk> to 30% in the year ago period, and 34% in the prior 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 7 million, an increase of 14% from $105 1 million in the year ago period.
Adjusted EBITDA loss was $24 7 million versus our guidance of a loss between $30 million and $26 million compared to an adjusted EBITDA loss of $25 million in the year ago period.
In the second quarter, we had approximately $1 2 million of foreign exchange gains compared to foreign exchange losses of $6 5 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 $28 5 million or <unk> 39 per basic and diluted share compared to non-GAAP net loss of $33 4 million or <unk> 46 per basic and diluted share for the quarter for the second quarter of 2022.
This is based on 73 million basic and diluted shares outstanding for the second quarter of 2023 at $72 4 million basic and diluted shares outstanding for the second quarter of 2022.
Turning to our balance sheet as of June 32023, cash and cash equivalents and investments were $237 million compared with $196 million as of December 31, 2022.
For the second quarter cash used by operations was $11 9 million versus $29 7 million in the same period last year.
Total deferred revenue was $195 4 million as of June 32023, an increase of 28% for 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 some customers that are billed quarterly or monthly.
Due to the variability of our billing terms changes in our deferred revenue are not are generally not indicative of the momentum in our business.
We.
We continue to believe cloud subscription revenue is a better indicator of our business momentum.
<unk> or remaining performance obligations.
The latter metrics fluctuate based on 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 and all software subscription revenue, regardless of whether the customer deploys to the appian cloud to their private cloud or on Prem.
Now I'll turn to guidance.
For the third quarter of 2023 cloud subscription revenue is expected to be between $75 $576 5 million.
Representing year over year growth of 25 and 26%.
Total revenue is expected to be between 134 and $136 million representing year over year growth of 14% to 15%.
Adjusted EBITDA loss for the third quarter of 2023 is expected to be between 16% and $12 million.
non-GAAP net loss per share is expected to be between 28% to 23.
So assume $73 3 million basic and diluted weighted average common shares outstanding.
For the full year 2023, we are increasing cloud subscription revenue to between 299 and $301 million representing year over year growth of 26%, 27%. This is an increase from prior guidance of between 296 and $298 million representing year over year growth of 25% 26%.
For the full year of 2023, we're increasing total revenue to between 538% and $543 million representing year over year growth of 15% to 16%.
This is an increase from prior guidance of between $533 $538 million representing year over year versus 14%, 15%.
Adjusted EBITDA loss is expected to be between 67% and $63 million an improvement from prior guidance of between 70% and $65 million.
non-GAAP net loss per share is expected to be between <unk>.
16, and $1 10.
This assumes $73 2 million basic and diluted weighted average common shares outstanding.
Our guidance assumes the following.
First Q3, and full year 2023 professional services revenue will grow at a mid single digit rate compared to the year ago period.
Second on Prem license revenue will be up on a sequential basis consistent with seasonality year over year growth will continue to be impacted in part by some customers converting their contracts to cloud subscription.
Third Q3, adjusted EBITDA loss should improve both sequentially and year over year.
We continue to expect non-GAAP adjusted EBITDA margins to come in better than 10% for the second half and the second half of 2023.
Fourth total other non operating expenses of approximately $2 million in Q3, and $5 4 million in 2023.
Fifth capital expenditures of approximately $2 million in Q3, and between 12 and $13 million in 2020.
This was primarily related to the build out of additional office space.
Finally, our guidance assumes FX rates as of August one 2023.
In summary, we're excited about the growth opportunities ahead of US we remain focused on investing in areas that will drive growth and generate superior returns long term.
With that let's turn it over to questions.
Okay.
Thank you as a reminder to ask a question. Please press star one one on your telephone.
<unk> for your name to be announced to withdraw your question. Please press star one one again.
Our first question comes from the line of the node Srinivasan Galvan from Barclays.
Hi.
Thanks for taking my questions today.
Really seemed like a very clean quarter as strong cloud be it.
So I just wanted to just generally talk about some of the buying trend you saw in the quarter any differences versus last quarter and then secondly.
We're expecting that co powered announcement next week. It seems like every vendor is announcing some type of AI assistant or feature and apps. So do you think this is really table Stakes now and secondly, how are you.
Our differentiating.
Your solution.
What's going to be bad.
And differentiated data fabric is it something else any color on that would be appreciated.
Yeah sure I'll speak to that.
AI is a wonderful opportunity, but a lot of firms.
Have much the same vision and are pursuing the same endpoint and I think our advantages that our vision is different ours is a very customer centric and data centric private privacy centric and collaboration centric vision of AI and Thats, what we will be facilitating.
So.
I mean, we've already made a lot of AI.
Functional drops right. So we're we're in the market today with a great deal of AI related functionality.
Large language model related and otherwise.
So just in terms of volume of AI functionality I believe we're doing great.
But more importantly, we are guiding toward a.
A sensible philosophy of AI use and where AI is going to belong in the enterprise.
And I think that because we are correct about that we're going to be facilitating a usage model that customers are going to want to invest in.
Also you asked of buying patterns were changing I would just say simply that they are not that we didn't see much change in buying patterns.
I appreciate that thank you.
Thank you one moment far next question.
Yes.
Our next question comes from the line of Steve Enders from Citi.
Okay, great. Thanks, Rob and thanks for taking the question here.
I guess I just want to ask on the deal environment currently and I guess, how should we be thinking about.
The ability of budget.
Willingness for customers to be investing in automation and low code and AI initiatives.
At this point.
Well I think theres, a tremendous amount of excitement around AI.
But.
I also think it's a little bit early.
To appraise that because the AI boom.
And less time ago, then the length of our sales cycle. So I think it's just premature to speak to the way that's opened pocketbooks I don't know yet.
I will say that it appears that customers are applying extra scrutiny to purchases this year.
Their sales cycles are slightly extended by that there's been some delays more delays than cancellations. Its just I think just extra consideration around investment to be made and the counterpoint to that is an extreme amount of excitement about the way technology could create better efficiency.
Specifically around AI.
I guess on the on the deal cycle upon them and I think you remember back to the past couple of quarters that.
There might have been some slight impact, but not a real.
I guess not an overarching.
From a margin challenge there I guess has that continued or has done maybe a little bit.
More strenuous than in the past quarter or so.
I would say that it's somewhat consistent with last quarter, we see.
Deals taking longer.
But not disappearing just taking longer the interest is there.
And.
I don't deny you could see it in the numbers right. If you were to see.
<unk> bye side of irregular year versus what we're seeing now there will be an evident difference would be a delay.
But I also don't want to make it sound like that's an enormous difference because it's not all.
This is.
Sure.
This is a a quantifiable.
But small factor.
Okay Alright.
Helpful.
I want to ask on data fabric.
And I guess, maybe kind of expand that.
The penetrated throughout the base at this point.
And I guess kind of secondarily as you think about the data fabric in that.
Differentiation is.
Think about the AI initiatives that Youre undertaking I guess, how much is that helping those conversations and maybe pushing towards a purchase decision.
What the data fabric element in there.
Yeah.
Data fabric is going to help us make a specific form of AI arguments. So let me clarify this before I address your question.
Data fabric allows you to gather information in dispersed locations across your enterprise and use it for a common purpose to such a common semantic layer for addressing all that data.
Maybe we'd put it all into the same database, except we didn't we just came up with a common way of grouping it and addressing it even though it's really scattered across the enterprise that's super useful if what you want to do is train or fine tune in AI algorithm, if you bring in.
Our model you want to use it behind the firewall. So that you keep the data always yours you keep the algorithm. It's always yours is a very private customer centric data centric vision of how to use AI and data fabric is fantastic.
Data fabric will grab view that data set allow you to customize select the information you want to train your algorithm with bring it together neatly and serve it up to the AI algorithm. So you can train them.
That's very good for that kind of a vision. It's also very good for that matter for our typical use switches to inform the actions in our process and remember that now AI is one of the primary actors in a process and so the more data connectivity you have the more you can inform you to send the right questions to AI be sure of that.
They are better informed to give you the answers so data fabric as a key supporting player in an AI future.
As for how Thats playing out in terms of winning deals closing deals is going to be too early to say.
So I can't speak to that.
But but.
I have strong belief that we are facilitating a form of AI usage thats going to appeal to large organizations in regulated industries with important datasets and mission critical intentions.
Okay perfect I appreciate the I appreciate the answers are.
Thank you one moment far next question.
Our next question comes from the line of Sanjeev Singh from Morgan Stanley .
Okay.
Excellent. Thank you this is dealing for synergy.
I just have two quick questions on the go to market. The first one last quarter you spoke a lot about public sector strength, but would be curious to hear kind of where the strength was this quarter and then maybe contrast that with where you also see the most excitement around AI records could materialize later on and then the second one on <unk>.
Under our new partner program that you announced anything that you can share in terms of what you're seeing in terms of early momentum or when we should think about in terms of timing of some of those new leads materializing that would be very helpful.
Okay great.
With regards to the industry that did the best this quarter.
Going to the public sector again, it's just a really strong.
Sequence here in the U S public sector specifically.
Isn't to say that that's where there's the most excitement around AI.
Public sector is a cautious segment.
And I don't think it's going to be the AI pioneer.
I think we're going to see AI pioneering in places like pharmaceutical financial services.
I think it is going to make sense.
<unk>.
In health care.
I'd actually put public sector as a likely AI.
Late adopter relatively.
So we are succeeding for other reasons in public sector.
And then your other question was about partners. We are we are.
Adopting a new methodology of working with partners.
I think it's dynamic it's exciting it's premature to say anything of course totally.
Because it's not even rolled out.
So I can't say, what it has done but.
But I believe that we're onto something important having learned what we have about how to motivate partners I think that we're going to take a powerful step in the right direction and that's all I can say about it just to a future expectation kind of a statement.
Great. Thank you.
Thank you.
One moment far next question.
Our next question comes from the line of Kevin Kumar from Goldman Sachs.
Alright, Thanks for taking my question.
<unk> has an expanded set of AI related features and capabilities that is going to be released I think later this year.
Are these features being released across on premise and cloud customers and do you think AIG could potentially catalyze more customers to migrate towards cloud overtime.
I think AI will catalyze more customers to move to cloud.
We are focusing on cloud as the primary AI environment.
And we will deliver more AI functionality faster in the cloud.
And yes, I do believe that that would be an incentive for customers to choose it I want to be careful not to say that it will be an incentive for customers to migrate to it because I am not convinced that the customers, who arent who have not yet migrated by cloud will be motivated.
By any new feature set.
Okay. That's helpful and then maybe one on on margins.
Operating expenses I think excluding certain one time items has been relatively flat the last three quarters, obviously I know, there's a focus on expanding margins, particularly in the second half of the year. So just curious mark how you're thinking about resource allocation and how much is maybe new head count in international regions, such as India.
But some of that operating leverage thanks.
Yes sure. Thanks for that question I mean, there is definitely a focus on extracting operating leverage from our R&D Center in India, but it is also just making sure we're investing in growth where accounts right and so we're.
We're not looking to make any.
Operating expense reductions in areas that might impact our growth rate.
Our expansion and it's really just.
Some opex initiatives around.
Scrutiny items that that has led to some.
Some.
Tightening of the ship if you will and then some operating expense moderation in all areas across the board.
But.
We definitely have a.
Our goal in mind that we've shared in the past and that I've spoken to in my prepared remarks.
With operating expenses and I think we're continuing to see through that plant.
Thank you Bill.
Thank you one moment far next question.
Our next question comes from the line of Terry Tillman from <unk> Securities.
Hey, guys. This is Joe Meares on for Terry.
I'm just curious clouds.
Sure.
Is remaining steady at 115% I'm just curious are there any moving pieces under the hood as far as.
Better than expected results from Upsells are new logos.
I mean, it's pretty consistent to be honest if anything.
Expansion is.
Slightly healthier.
<unk> is so strong that it's hard for it to go any stronger.
And but overall I would say it's been more of the same than different.
That's helpful.
Just from a margin the margin question.
Understand that youre investing where accounts and maybe.
Doing some moderation in other areas, but.
I think you had said that you expect to be EBITDA breakeven next year are there are there going to have to be like larger cuts to operating expenses.
In order to get there.
The medium term or is it just going to be a factor of revenue leverage. Thank you very much.
Yes, I'll take that I'll take it.
And Matt if you want it's the latter it's really we're not going to cut our way to to an EBITDA breakeven point.
And then just to clarify.
Saying, we are going to reach a breakeven point next year.
It's not the least affiliate breakeven but.
But yes that is going to come through.
The growth in the natural growth of our of our revenue streams and not through some concerted effort to cut our costs.
Thank you.
Thank you one moment far next question.
Yeah.
Our next question comes from the line of Derrick Wood from TD Cowen.
Oh, great. Thanks, it's Andrew on for Derrick.
Matt just wanted to come back to the federal business.
Federal bookings comparator wise software bookings compared to last quarter and heading into the Big September quarter can you give us a sense for how pipelines are tracking how they compare versus last year. This time and thank you.
Kevin I knew the Gam solution are you expecting.
Good I'm sorry, Sir.
Alright.
First of all let me just second what Mark said, a moment ago about growing our way to breakeven Thats. The plan for next year, we're not going to cut our way they are going to grow our way. There secondly, with regards to the performance of public sector and the pipeline specifically heading into the big Q3.
We feel good.
About the pipeline.
It shows real strength.
I am pleased with public sector as progress so far this year.
And I think we have momentum and reason to believe.
That we can do well.
In quarters ahead.
Great.
And I think last quarter, you talked about at Appian world prospects or leads being up <unk> year over year maybe.
Maybe just talk about how those leads are moving through the pipeline and your ability to convert and close some of those deals in the second half.
Alright now.
Based on what I know of this which is not everything.
I understand us to be doing well with regards to new opportunities stage. One leads in a lot of that comes from from events like Appian world, but not exclusively Appian world.
We are.
We're seeing strength in that broad category at Appian World is just one of the sources. It is true that Appian World is well attended it's true we got more prospects than we typically get those are great signs that being rules like a showcase for what people can do with our software and the strength of the community and the enthusiasm around our users.
98% gross renewal rate as a number until you show up at Appian World and then it's an experience and those people are.
It's contagious.
The excitement so I think it was great to get our prospects there I believe that that led to.
A set of of quantifiable leads but I don't have the numbers that show that that's where the leads came from so I don't want to be too definitive about it.
I would just expect that that was a great experience and we exposed a lot of prospects to it. So good things are going to happen.
Great. Thanks, guys.
Thank you one moment for our next question.
Okay.
Our next question comes from the line of Jake Roberge from William Blair.
Hi, Thanks for taking my questions data fabric vision definitely some very interesting I'm just I'm curious when we think about your core products within low code RPM process. Marty do you think any of these products will see outsized benefits or headwinds from generative AI and then how do you think AI impacts existing product type solutions within.
And maybe your cable IC or the Gam suite and could it impact kind of the future solutions roadmap from here.
It can definitely impact the future solutions roadmap is going its a terrific way to enhance.
The value of our application in all contexts. It enhances it in a solution and enhances it.
As our platform build.
It is.
One is like a star addition to the team that is more powerful than it's ever been it's more popular than it's ever been it's more likely to be adopted than ever.
And it's.
It's part of a great suite of automation tools that can do work. So this is a efficiency boost for all of our applications and all of our clients as soon as we can get them to make proper use of it.
Yes, so I see it as a lift across the board.
So I hopefully didn't think obsolete.
No no we are the disruptor here.
We use AI to create the value that we create when customers buy app in.
Platform or solutions. They are counting on efficiency gains, we deliver some of that with AI and we're going to make the most effective use of AI technology toward efficiency gains that's exactly what we're focused on is finding a way to get practical value out of this terrific new area of technology we.
Will be the vehicle whereby our customers achieve their AI efficiency gains.
Very helpful and then Mark when we when we think about the numbers.
When do you think AI could start showing up on the revenue side of the house is that do you think that's more of a Q4 story or more of a 2024 dynamic and then on the margin side are there any AI investments that we should be cognizant of.
Yes on the first part.
My view is a pretty big sea change.
The long term.
Opportunity for for Us and it's not necessarily something.
I would expect in the short term.
On a revenue basis, but certainly.
To dovetail into the second part of your question, we are making appropriate investments as part of our.
Our R&D strategy.
We have had investments in the past three years, it's not like we're waking up the sale.
We certainly look at AI to some part of our.
Our blueprint for a long time, and we're certainly going to.
Keep that investment.
And in view as we move forward to two or three years out I think we'll still be talking about AI.
<unk>.
Yes look there is definitely a reallocation of resources internally with the takeoff of large language models, we definitely want to put a lot of focus behind a proper utilization of that form of AI and so we're shuffling investments internally, but what we're not doing is bolting on a big new investment.
Already have expertise we were just were just reallocating internally in order to to match the explosion in customer interest and the power of these these products.
Like Mark I don't want to make a prediction for when they'll show up in revenue.
Great. Thanks for taking my questions.
Thank you at this time I would now like to turn the conference back over to Sri on non song for closing remarks.
Great. Thank you very much.
Thank you all for joining Us Tonight.
We look forward to catching up with you on our next earnings call talk to you soon.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
Yeah.