Q4 2023 Appian Corp Earnings Call

Operator: Thank you for standing by, and welcome to Appian's fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Okay.

Speaker Change: Thank you for standing by and welcome to <unk> fourth quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. If your question has been answered and you'd like to.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again.

Speaker Change: Move yourself from the queue simply press Star one again as a reminder, today's program is being recorded.

Operator: As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Sri Anantha, Vice President, Finance, and Investor Relations. Please go ahead.

Tree Nuts: Now I'd like to introduce your host for today's program tree nuts.

Tree Nuts: Vice President Finance and Investor Relations. Please go ahead.

Srinivas Anantha: Thank you, operator. Good morning, and thank you for joining us to review Appian's fourth quarter and full year 2023 financial results. With me today are Matt Calkins, Chairman and Chief Executive Officer, and Mark Matheos, Chief Financial Officer. After prepared remarks, we will open the call for questions.

Thank you operator, good morning, and thank you for joining us to review <unk> fourth quarter and full year 2023 financial results with me today are Matt Caulking, Chairman and Chief Executive Officer, and Mark <unk>, Chief Financial Officer. After prepared remarks, we will open the call for questions.

Srinivas Anantha: You can follow along with our earnings presentation by downloading it from the main page of our investor site at investors.appian.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 2024, the benefits of the 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 are intended to identify forward-looking statements These statements reflect our views only as of today, and they do not represent our views as of any subsequent date.

Tree Nuts: You can follow along with our earnings presentation by downloading it from the main page of our Investor site at Investor start Appian Dot com.

Tree Nuts: During this call we may make.

Tree Nuts: <unk> 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.

Tree Nuts: These include comments related to our financial results trends and guidance for the first quarter and full year 2020 for 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 are able to.

Tree Nuts: To acquire new customers. The 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.

Srinivas Anantha: They are subjected to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of material risks and other important factors that could affect our actual results, please refer to our most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and other filings with the SEC. These documents are also available on our investor section of our website.

Tree Nuts: Any subsequent date they are subjected to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

Tree Nuts: For a discussion of the material risks and other important factors that could affect our actual results. Please refer to our most recent annual report on Form 10-K quarterly reports on Form 10-Q, and other filings with the SEC. These documents are also available on our investors section of our website. Additionally, non-GAAP financial measures.

Matthew W. Calkins: Additionally, non-GAAP financial measures will be discussed on this conference call. Refer to the tables in our earnings release and the investor 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 over to Matt.

Tree Nuts: It 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 over to Matt.

Matthew W. Calkins: Thanks, Sri, and thanks, everyone, for joining us today. In the fourth quarter of 2023, Appian's cloud subscription revenue grew 26% to $81.3 billion. Subscription revenue grew by 24% to $115.8 million, and total revenue grew 16% to $145.3 million.

Matt: Thanks, Sherry and thanks, everyone for joining us today.

Matt: In the fourth quarter of 2023, Appian cloud subscription revenue grew 26% to $81 3 million subscribe.

Matt: Subscriptions revenue grew by 24% to $115 8 million.

Speaker Change: Total revenue grew 16% to $145 3 million.

Matthew W. Calkins: Our cloud subscriptions revenue retention rate was 119%, and our adjusted EBITDA was a gain of $1.0 million. For the full year, Appian's cloud subscriptions revenue grew 29% to $304.5 million. Subscription revenue grew 21% to $412.3 million. Total revenue grew 17% to $545.4 million. Our adjusted EBITDA was a loss of $44.8 million.

Matt: Cloud subscription revenue retention rate was 119% and our adjusted EBITDA was a gain of 1.0 million.

Matt: For the full year Appian cloud subscriptions revenue grew 29% to $304 5 million subscriptions revenue grew 21% to $412 3 million.

Matt: Total revenue grew 17% to $545 4 million.

Matt: Our adjusted EBITDA was a loss of $44 8 million.

Matthew W. Calkins: I want to mention two milestones at the start of this call. Last year, for the first time, our revenue exceeded half a billion dollars. Second, and an interesting complement to the first observation, we achieved the highest non-gap gross margin in our public history last quarter at 78%. In our presentation deck, we've included, one last time, the special bonus metrics we tracked quarterly in 2023. We didn't get the recession I expected, but there were some macro complications, and you can see it all starting on page 5.

Speaker Change: I want to mention two milestones at the top of this call.

Speaker Change: Last year for the first time, our revenue exceeded $1 billion.

Speaker Change: Second an interesting couple of into the first observation, we achieved the highest non-GAAP gross margin in our public history last quarter at 78%.

Speaker Change: In our presentation deck. We've included one last time the special bonus metrics, we track quarterly in 2023, we didn't get the recession I expected, but there were some macro complications and you can see it all starting on page five.

Matthew W. Calkins: Last year was the year of AI talk. Now the conversation will shift to more tangible things, such as new features, successful deployments, and practical value. That change will be good for Appian.

Speaker Change: Last year was a year of AI talk now the conversation will shift more tangible things shipped features successful deployments practical value that change as we go trapping.

Matthew W. Calkins: We have a distinctive approach to the AI market based on years of leadership and existing technology. We are focused specifically on the application of AI to data. We're leaders in data fabric, which is like a virtual database uniting the customer's enterprise. And we are leaders in AI, and now we will be leaders in the combination of these two things. I think everyone understands by now that AI is only as good as the data behind it.

Speaker Change: We have a distinctive approach to the AI market based on years of leadership and existing technology.

Speaker Change: We are focused specifically on the application of AI to data.

Speaker Change: We are leaders in data fabric, which is like a virtual database uniting the customer's enterprise.

Speaker Change: And we are leaders in AI and now we will be leaders in the combination of these two things.

Speaker Change: I think everyone understands by now that AI is only as good as the data behind it.

Matthew W. Calkins: More data, better AI. Appian has an open data strategy that allows AI to benefit from information scattered across the internet. Ask a question, and your response will be informed by everything known to the business, not just the contents of one silo. Same for generating new content.

Speaker Change: More data better AI.

Speaker Change: Appian has an open data strategy that allows AI to benefit from information scattered across the enterprise.

Speaker Change: Ask your question and your response will be informed by everything is known to the business not just the contents of one silo.

Speaker Change: Same for generating new content the more data that supports the AI. The more sources you bring to bear the better the output.

Matthew W. Calkins: The more data that supports the AI, the more sources you bring to bear, the better the output. Let's explore this with an example. The purpose of this example is to show you the advantage of having AI draw from multiple data sources, that AI is better that way. We work with a large U.S. state government entity that awards hundreds of millions of dollars in contracts every year using Appian. Its procurement processes are highly regulated and must comply with federal and local laws.

Speaker Change: Let's explore this with an example.

Speaker Change: <unk> of this examples to show you the advantage of having AI draw from multiple data sources that AI is better that way.

Speaker Change: We worked with a large U S state government entity.

Speaker Change: Awards hundreds of millions of dollars in contracts every year using appian.

Speaker Change: Its procurement processes are highly regulated must comply with federal and local laws and Q4. This organization deployed Appian AI to optimize its awards management process.

Matthew W. Calkins: In Q4, this organization deployed Appian AI to optimize its awards management process. As you know, contracting usually involves many data objects of different types, in different formats, typically in many different locations. Now, AI will understand thousands of regulatory and procedural policies from various sources, so employees don't have to manually search for information. Appian AI is embedded in the customer's workflow, doing work, and making the customer's data more usable than before. Procurement officers and supporting staff can ask AI questions in real time and get great answers. This allows them to advance their procurement with speed and accuracy. Our second advantage is simplicity.

Speaker Change: As you know contracting usually involves many data objects of different types.

Speaker Change: And different formats typically in many different locations.

Speaker Change: Now AI will understand thousands of regulatory procedural policies from various sources. So please don't have to manually search for information.

Speaker Change: AI is embedded in the customer's workflow doing work.

Speaker Change: And making the customers' data and more usable than before.

Speaker Change: Officers and supporting staff can ask AI questions in real time and get great answers. This allows them to advance their procurements with speed and accuracy.

Speaker Change: Our second advantage is simplicity.

Matthew W. Calkins: Appian takes a practical view of technology. Our goal isn't just to make extraordinary software but to make it accessible. Programming in Appian is done with a mouse, not a keyboard. We take the same approach to AI. For example, one of the nation's largest universities uses Appian to improve graduation rates and recently deployed Appian AI to its student device.

Speaker Change: Happy and takes a practical view towards technology, our goal isn't just to make extraordinary software.

Speaker Change: But to make it accessible.

Speaker Change: Programming and Appian has done to the mouse or keyboard.

Speaker Change: We take the same approach to AI.

Speaker Change: One of the nation's largest universities uses appian to improve graduation rates.

Speaker Change: Recently deployed Appian AI to its students advisors.

Matthew W. Calkins: AI will recommend actions to take on student cases and propose meeting agendas to advisors before they meet with students. First, I want to emphasize how important it is that such a system draws on all the data in the enterprise. If you're trying to help a student complete a four-year degree, you need to know about all the threats to their progress. You need to know if they're failing any courses.

Speaker Change: AI will recommend actions to take on student cases, and proposed the meeting agenda to advisors before they meet with students.

Speaker Change: First I want to emphasize how important it is that such a system draw on all of the data.

Speaker Change: In the enterprise.

Speaker Change: If you are trying to help students.

Speaker Change: Complete a four year degree.

Speaker Change: Need to know about all the threats to their progress you need to know if they are failing any courses that's in one system.

Matthew W. Calkins: That's in one... You need to know if they're late on tuition payments. That's in another city. You need to know if they're missing classes; that's in the attendance logs. You need to know if they have friends who recently dropped out. That's someplace else.

Speaker Change: You need to know if they are late on tuition payments that's another system.

Speaker Change: You need to know if they are missing classes. That's in the attendance locks you need to know if they are friends, who recently dropped out that someplace else you get the idea that these are different data sources.

Matthew W. Calkins: You get the idea. These are different data sources, and AI Needs Them All to identify risks and make a good recommendation. My other point is that such a system must be easy to set up and use. Counselors just want to ask a chatbot some questions about their students, not become AI technologists themselves. So, we made it.

Speaker Change: And AI needs them, all to identify risks and make a good recommendation.

Speaker Change: My other point is that such a system must be easy to set up and use.

Speaker Change: Councillors, just wanted to ask a chatbot some questions about the students not become AI technologists themselves.

Speaker Change: We made it easy.

Matthew W. Calkins: And it was easy to deploy as well, going live in under two months. All this talk about drawing on the full enterprise of data sounds great until you consider the implications: merging data sets within the enterprise, bloating massive amounts of data, and training AI algorithms you don't control. Appian requires none of that.

Speaker Change: And it was easy to deploy as well.

Speaker Change: Life and other two months.

All this talk about drawing on a full enterprise of data sounds great until you consider the implications emerging datasets within the enterprise bloating massive amounts of data and training AI algorithms you don't control.

Speaker Change: Appian requires none of that.

Matthew W. Calkins: We offer insights across the widest amount of data, but we do it while disclosing the least. We specialize in privacy. We use our data fabric to provide just the information that's pertinent for every question, rather than pre-training an algorithm on everything an organization knows. It's more cost-effective and much more respectful of our client's architecture and privacy. Another example to make this point.

Speaker Change: We offer insights across the widest amount of data, but we do it while disclosing the least of it.

Speaker Change: Specialize in private AI.

Speaker Change: We use our data fabric to provide just the information thats pertinent for every question rather than pre training and algorithm on everything and organization knows it's more cost effective and much more respectful of our clients' architecture and privacy.

Speaker Change: Okay.

Speaker Change: Another example to make this point.

Matthew W. Calkins: A top pharmaceutical company manages several core processes with our platform, including ones related to clinical trials and manufacturing. In Q4, the company named Appian its standard enterprise workflow. It will now deploy our platform to over 50,000 employees. The company aims to bring new products to market fast. Our AI is privy to their confidential documents, their lab results, etc.

Speaker Change: A top pharmaceutical company manages several core processes with our platform, including ones related to credit clinical trials and manufacturing logistics.

In Q4, the company names Appian, it's standard enterprise workflow tool.

Speaker Change: It will now deploy our platform to over 50000 employees.

Speaker Change: The company aims to bring new products to market faster, our AI is privy to their confidential documents their lab results et cetera.

Matthew W. Calkins: This is sensitive work, and needless to say, they take the privacy of their data very seriously. This global firm has decided to trust our technology to make the most of what they know while keeping the highest commitment to protect it. Appian landed some of our largest seven-figure deals this quarter. The total contract value of our top 10 net new software deals increased by 70%. Q4 2023 compared to the same period last year. Here are some notable stories.

This is sensitive work and needless to say they take the privacy of their data very seriously.

Speaker Change: Global firm has decided to trust our technology to make the most of what they know while keeping the highest commitment to protecting it.

Speaker Change: <unk> been landed some of our largest seven figure deals this quarter. The total contract value of our top 10 net new software deals increased by 70% in Q4 2023 compared to the same period last year.

Speaker Change: Here are some notable stories.

Matthew W. Calkins: A U.S. military branch wants to unify its operational systems so it can better mobilize its forces. Appian will integrate data from 14 legacy systems into a single modern platform. In Q4, Q4 purchased a seven-figure software deal. 100,000 analysts will use Appian to help train, manage, and equip personnel globally. In another example, a financial services company managing hundreds of billions of dollars in assets became a new customer in Q4 with a seven-figure sum....companies that are growing quickly and want to modernize legacy systems that are too costly to maintain. Appian's Data Fabric will unify data from over a dozen core systems into a single view, so it can run end-to-end workflows like customer onboarding... Appian will help the customer scale and process more than 4 million transactions annually.

Speaker Change: Our U S military branch wants to unify its operational systems. So it can better mobilize its forces Appian will integrate data from 2014 legacy systems into a single modern platform.

Speaker Change: In Q4, it purchased a seven figure software deal 100000 analysts will use appian to help train manage and equip personnel globally.

Speaker Change: And another example, a financial services company managing hundreds of billions of dollars in assets became a new customer in Q4 with a seven figure software deal.

Speaker Change: The company is growing quickly and wants to modernize legacy systems that are too costly to maintain.

Speaker Change: <unk> state a fabric with unified data from over a dozen core systems into a single view. So it can run end to end workflows like customer Onboarding and wire transfer.

Speaker Change: Tapping will help the customers scale and process more than 4 million transactions annually.

Matthew W. Calkins: Next, a national police force recently adopted new strategic priorities to optimize operations and improve public safety. In Q4, it selected Appian as an enterprise-wide platform to improve productivity and unify the group's disparate systems, starting with an incident management app, desk workers will triage inbound requests, open cases, and route them to field officers for investigation. This process had always been manual.

Speaker Change: Next our National Police force recently adopted a new strategic priorities to optimize operations and improve public safety in Q4 at selected Appian as an enterprise wide platform to improve productivity and unify the group's disparate systems, starting with an incident management app.

Speaker Change: Desk workers will triage inbound requests open cases and route them to field officers for investigation. This process had always been Daniel now.

Matthew W. Calkins: Now, thousands of officers will be able to respond to incidents faster using Appian. Another example now, a top health insurance provider is running a company-wide initiative to modernize systems and save $1 billion. It selected our platform to aid this effort, starting with its enrollment process. The provider made a seven-figure software deal in Q4 and became a new customer. Appian State of Fabric will consolidate Medicare and Medicaid requests into a single application so employees can do eligibility checks, fix discrepancies, approve applications, and initiate the billing process.

Speaker Change: Thousands of offers officers will be able to respond to incidents faster using appian last.

Speaker Change: Last example, now a top health insurance providers running companywide initiative to modernize systems and saved $1 billion.

Speaker Change: <unk> selected our platform to aid this effort starting with its enrollment process to provider made a seven figure software deal in Q4 and became a new customer.

Speaker Change: Happy to state a fabric will consolidate Medicare and Medicaid request into a single application. So employees can do eligibility checks fixed discrepancies approve applications and initiate the billing process. The organization expects to process millions of requests annually on Appian.

Matthew W. Calkins: The organization expects to process millions of requests annually on Appian. Now, a few final ones. Appian expanded its credit facility this quarter with participation from existing and new lenders. The aggregate principal amount of the term loan facility is now $200 million, up from $150 million, and the revolving credit facility is $100 million, up from $75 million. We welcome the additional financial support. Appian has made progress in our intention to aim high in this market and sell more large deals. We've held to our financial discipline and done so without taking anything from growth. You'll hear more about our plans at our investor meeting on April 16th at Appian World in Washington, D.C. We'll talk about strategy, results, technology, and A.I. and more. I hope to see you there. With that, I'll hand out the call.

Speaker Change: Now a few final notes.

Speaker Change: Happy and expanded our credit facility this quarter and we participation from existing and new lenders. The aggregate principal amount of the term loan facility is now $200 million up from $150 million and the revolving credit facility is $100 million up from $75 million, we welcome the additional financial strength.

Appian has made progress in our intention to aim high in this market and sell more large deals.

Speaker Change: We've held to our financial discipline and done so without taking anything from growth Youll hear more about our plans at our Investor meeting on April 16th at Appian World In Washington D. C. We will talk strategy results technology, AI and more I hope to see you there with that I'll hand, the call to Mark.

Mark Matheos: Thanks, Matt. I'll review the financial highlights for the quarter and then we'll provide guidance for Q1 and the full year 2024. We close 2023 on a strong note with revenue and adjusted EBITDA coming in above the high end of our guidance range. We saw continued healthy contribution from existing customers and strong growth from key industry verticals. Now, let's go into the details.

Mark: Thanks, Matt I'll review the financial highlights for the quarter and then we will provide guidance for Q1 and the full year 2024.

Mark: We closed 2023 on a strong note with revenue and adjusted EBITDA coming in above the high end of our guidance range. We saw continued healthy contribution from our existing customers and strong growth from key industry verticals, let's go into the details.

Mark Matheos: Cloud subscription revenue was $83.1 million, an increase of 26% year-over-year and above guidance. On a constant currency basis, cloud subscription revenue grew 23% year over year. Total subscription revenue was $115.8 million, an increase of 24% year-over-year. On a constant currency basis, total subscription revenue grew 21% year-over-year. Professional services revenue was $29.5 million, down 9% year-over-year.

Mark: Cloud subscription revenue was $83 1 million.

Mark: An increase of 26% year over year and above guidance.

Mark: On a constant currency basis cloud subscription revenue grew 23% year over year.

Mark: Total subscriptions revenue was $115 8 million, an increase of 24% year over year on a constant currency basis total subscriptions revenue grew 21% year over year.

Mark: Professional services revenue was $29 5 million down 9% year over year.

Mark Matheos: As previously noted, services revenue can be volatile from quarter to quarter, and a few large projects can influence performance. Our professional services will continue to be a strategic offering focused on enabling partners and driving customer success. However, long term, we expect professional services revenue to continue to decline as a percentage of total revenue.

Mark: As previously noted services revenue can be volatile from quarter to quarter and a few large projects can influence performance. Our professional services will continue to be a strategic offering focused on enabling partners and driving customer success.

Mark: Long term, we expect professional services revenue continues to decline as a percentage of total revenue.

Mark Matheos: Subscription revenue was 80% of total revenue, compared to 74% in the year-ago period and 76% in the prior quarter. Total revenue was $145.3 million, an increase of 16% year-over-year and above our guidance range. On a constant currency basis, total revenue grew 13% year over year.

Mark: Subscriptions revenue was 80% of total revenue compared to 74% in the year ago period, and 76% in the prior quarter.

Mark: Total revenue was $145 3 million, an increase of 16% year over year and above our guidance range.

Mark: On a constant currency basis total revenue grew 13% year over year.

Mark Matheos: Cloud subscription revenue retention was 119% as of December 31, 2023, up from 115% a year ago and 117% in 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 36% of total revenue, compared to 34% in the year-over-period.

Mark: Cloud subscription revenue retention rate was 119% as of December 31, 2023 up from 115% a year ago and 117% in the prior quarter. As a reminder, we continue to target a cloud subscription revenue retention rate of 110% to 120% on a quarterly basis.

Mark: Our international operations contributed 36% of total revenue compared to 34% in a year ago period.

Mark Matheos: Our cloud software net new ACB bookings were approximately 80% of the total net new software bookings in 2023, consistent with last year's mix. Now I'll turn to our profitability metrics. Non-GAAP gross margin was 78% compared to 73% in the year of the period and 75% in the prior quarter.

Mark: Our cloud software, our net new ACD bookings were approximately 80% of the total new software bookings in 2023, consistent with last year's mix.

Mark: Now I'll turn to our profitability metrics non-GAAP gross margin was 78% compared to 73% in the year ago period, and 75% in the prior quarter.

Mark Matheos: Subscriptions non-GAAP gross profit margin was 91%, compared to 90% in the year-ago period and 89% in the prior quarter. Professional services non-GAAP gross margin was 26%, compared to 27% in the year-end period and 30% in the prior quarter. As noted on prior earnings calls, we continue to invest in customer success management. These advisors help our customers get the most from our technology and increase adoption of our platform. As a result, professional services non-GAAP gross margins should decline to the low 20% range in 2024 and beyond. Total non-GAAP operating expenses were $114.1 million, down 4% from 119.1 million in a year at that period.

Mark: Subscription non-GAAP gross profit margin was 91% compared to 90% in a year that period and 89% in the prior quarter.

Mark: Professional services non-GAAP gross margin was 26% compared to 27% in the year ago period, and 30% in the prior quarter.

Mark: As noted on prior earnings calls, we continue to invest in customer success management. These.

Mark: These advisers to help our customers achieve the most from our technology and increase adoption of our platform as a result professional services non-GAAP gross margin should decline to the low 20% range in 2024 and beyond.

Mark: Total non-GAAP operating expenses were $114 $1 million down.

Mark: Down 4% from $119 1 million in the year ago period.

Mark Matheos: Adjusted EBITDA was a gain of $1 million, versus our guidance of a loss between $16.1 million and $12.1 million, compared to an adjusted EBITDA loss of $24.8 million in the year-end period. In the fourth quarter, we had approximately $11.1 million of foreign exchange gains compared to $8.5 million of foreign exchange gains in the same period a year ago. We don't forecast movements in FFS rates, so they aren't considered in our guidance. Non-GAAP net income was $4.9 million, or $0.06 per diluted share, compared to a non-GAAP net loss of $20.6 million, or $0.28 per diluted share, for the fourth quarter of 2022. This is based on 75.3 million diluted shares outstanding for the fourth quarter of 2023 and 72.7 million diluted shares outstanding for the fourth quarter of 2022. As noted above, the fourth quarter 2022 non-GAAP net loss was aided by 11.1 million in foreign exchange gains, or a gain of 15 cents per share, which was not included in our original guidance.

Adjusted EBITDA was a gain of $1 million versus our guidance of a loss between $16 1 million and $12 1 million compared to an adjusted EBITDA loss of $24 8 million in the year ago period.

Mark: In the fourth quarter, we had approximately $11 1 million of foreign exchange gains compared to $8 5 million of foreign exchange gains in the same period a year ago.

Speaker Change: We don't forecast movements in FX rates, therefore, they arent considered in our guidance.

Speaker Change: non-GAAP net income was $4 9 million or <unk> <unk> per diluted share compared to non-GAAP net loss of $20 6 million or <unk> 28 per diluted share for the fourth quarter of 2022.

Speaker Change: This is based on $75 3 million diluted shares outstanding for the fourth quarter of 2023, and $72 7 million diluted shares outstanding for the fourth quarter of 2022.

Speaker Change: Noted above fourth quarter 2022, non-GAAP net loss was aided by $11 1 million in foreign exchange gains or a gain of <unk> 15 per share which was not included in our original guidance.

Speaker Change: Now before I turn to the balance sheet I wanted to briefly update on the recent amendment to our credit agreement.

Speaker Change: <unk> 12, 2024, we increased the aggregate principal amount of the term loan facility by $50 million and the limit of our revolving credit facility by $25 million.

Mark Matheos: Now, before I turn to the balance sheet, I wanted to briefly update you on the recent amendment to our credit agreement. On February 12, 2024, we increased the aggregate principal amount of the term loan facility by $50 million, and the limit of the revolving credit facility by $25 million. The total aggregate term loan facility is now $200 million, and the revolving credit facility is $100 million. Additional details on the terms of the financing will be in the 10-K filing. Turning to our balance sheet, as of December 31, 2023, cash and cash equivalents in investments were $159 million, compared with $196 million as of December 31, 2022. For the fourth quarter, cash used by operations was $8.2 million versus $12.6 million for the same period last year.

Speaker Change: That's total aggregate term loan facility is now $200 million and a revolving credit facility, it's $100 million.

Speaker Change: Additional details on the terms of the financing will be in the 10-K filing.

Speaker Change: Turning to our balance sheet as of December 31, 2023, cash and cash equivalents and investments were $159 million.

Speaker Change: Paired with $196 million as of December 31, 2022.

Speaker Change: For the fourth quarter cash used by operations was $8 2 million versus $12 6 million for the same period last year.

Speaker Change: Total deferred revenue was $240 7 million as of December 31, 2023 and <unk>.

Speaker Change: It's a 20% familiar at that period as.

Speaker Change: 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.

Speaker Change: Due to the variability of our billing terms changes in our deferred revenue are generally not indicative of the momentum in our business.

Mark Matheos: Total deferred revenue was $240.7 million as of December 31, 2023, an increase of 20% from the year of the 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 2023 results. Cloud subscription revenue was $304.5 million, representing 29% growth year-over-year. On a constant currency basis, cloud subscription revenue grew 26% year-over-year. Total subscription revenue for the year was $412.3 million, an increase of 21% compared to 2022. On a constant currency basis, total subscription revenue grew 19% year-over-year.

Speaker Change: I'll now recap our full year 2023 results.

Speaker Change: Cloud subscription revenue was $304 5 million, representing 29% growth year over year on a constant currency basis cloud subscription revenue grew 26% year over year.

Speaker Change: Total subscriptions revenue for the year was $412 3 million, an increase of 21% compared to 2022.

Speaker Change: On a constant currency basis total subscriptions revenue grew 19% year over year.

Speaker Change: Professional services revenue was $133 million, an increase of 4% compared to 2022.

Speaker Change: Total revenue was $545 4 million up 17% compared to 2022.

Speaker Change: On a constant currency basis total revenue grew 15% year over year.

Speaker Change: Adjusted EBITDA loss was $44 8 million.

Speaker Change: Compared to 76 million loss in 2022.

Speaker Change: non-GAAP net loss was $59 2 million and 23 in 2023 or a loss of <unk> 81 per diluted share compared to non-GAAP net loss of $89 2 million or a loss of $1 23 per diluted share for 2022. This is based on $73 1 million and $72 5 million diluted shares outstanding.

Mark Matheos: Professional services revenue was $133 million, an increase of 4% compared to 2022. Total revenue was $545.4 million, up 17% compared to 2022. On a constant currency basis, total revenue grew 15% year-over-year. Adjusted EBITDA loss was $44.8 million, compared to 76 million loss in 2022. Non-GAAP net loss was $59.2 million in 2023, or a loss of $0.81 per diluted share, compared to a non-GAAP net loss of $89.2 million, or a loss of $1.23 per diluted share, for 2022. This is based on $73.1 million and $72.5 million diluted shares outstanding for 2023 and 2022, respectively. For the year ended December 31, 2023, cash used in operations was $110.4 million versus $106.6 million for the same period last year.

Speaker Change: For 2023 and 2022, respectively.

Speaker Change: For the year ended December 31, 2023 cash used in operations was $110 4 million versus $106 6 million for the same period last year adjust.

Speaker Change: Adjusting for the onetime payment of $57 3 million in the third quarter of 2023 for the adjustment preservation insurance policy 2023 cash usage showed a substantial improvement versus 2022.

As a reminder, we continue to believe cloud subscription revenue is a better indicator of our business momentum than billings or remaining performance obligations or <unk>. The latter metrics can fluctuate based on the timing of invoicing seasonality of on Prem license revenue and the duration of customer contracts.

Speaker Change: 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.

Mark Matheos: Adjusting for the one-time payment of $57.3 million in the third quarter of 2023 for the Judgment Preservation Insurance Policy, 2023 cash usage showed a substantial improvement versus 2022. As a reminder, we continue to believe cloud subscription revenue is a better indicator of our business momentum than billings or remaining performance obligations or RPO. 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 a business is represented by subscription revenue, which includes support and all software subscription revenue, regardless of whether the customer deploys to the Appian cloud, their private cloud, or on-premises. Now I'll turn to guidance. For the first quarter of 2024, cloud subscription revenue is expected to be between 84 and 86 million, representing year-over-year growth of 21 and 23 percent. Total revenue is expected to be between $148 million and $150 million, representing year-over-year growth of 9 and 11 percent. Adjusted EBITDA loss for the first quarter of 2024 is expected to be between $9 and $5 million. The non-GAAP net loss per share is expected to be between $0.21 and $0.16.

Speaker Change: Now I'll turn to guidance.

Speaker Change: For the first quarter of 2020 for cloud subscription revenue is expected to be between 80 $486 million.

Speaker Change: Representing year over year growth of 21% and 23%.

Speaker Change: Total revenue is expected to be between 148 and $150 million representing year over year growth of 9% 11%.

Speaker Change: Adjusted EBITDA loss for the first quarter of 2024 is expected to be between nine and $5 million.

Speaker Change: non-GAAP net loss per share is expected to be between 21 16.

Speaker Change: This assumes $73 5 million diluted weighted average common shares outstanding.

Speaker Change: For the full year 2020 for cloud subscription revenue is expected to be between 364 and $366 million representing year over year growth of 20%.

Speaker Change: Total revenue is expected to be between 615 of $617 million representing year over year growth of 13%.

Speaker Change: Adjusted EBITDA loss is expected to be between 25 and $20 million.

Speaker Change: non-GAAP net loss per share is expected to be between 73 and <unk> 66.

Speaker Change: This assumes $73 8 million diluted weighted average common shares outstanding.

Speaker Change: Our guidance assumes the following.

Speaker Change: First Q1 professional services revenue will decline by a low double digit rate year over year.

For the year, we expect professional services revenue will be flat or will decline by a low single digit rate compared to a year ago.

Speaker Change: Second on Prem license revenue will grow year over year by a mid single digit rate and will attract a seasonality that is consistent with prior periods.

Speaker Change: Third our Q2, adjusted EBITDA loss will be bigger than Q1, adjusted EBITDA loss.

Mark Matheos: This assumes 73.5 million diluted weighted average common shares outstanding. For the full year 2024, cloud subscription revenue is expected to be between $364 million and $366 million, representing year-over-year growth of 20 percent. Total revenue is expected to be between $615 million and $617 million, representing year-over-year growth of 13 percent. Just to leave it at a loss, it's expected to be between $25 and $20 million. The non-GAAP net loss per share is expected to be between $0.73 and $0.66.

Speaker Change: This is due to the combination of on Prem license seasonality and the cost of running our global user conference Appian World.

Speaker Change: Fourth total other income and interest expense will be approximately $3 million in Q1 and $15 million for the full year 2024.

Speaker Change: With capital expenditures will be between two and $3 million in Q1 and between 10 and $12 million for the full year 2024.

Speaker Change: Finally, our guidance assumes FX rates as of February 13, 2024.

Speaker Change: In conclusion, we are pleased with the performance. This quarter, we are investing in growth opportunities that drive long term value and optimizing costs to drive profitability. We continue to balance our cost profile to prioritize investments in R&D innovation CSM coverage and strategic go to market areas, such as global partnerships demand.

Mark Matheos: This assumes 73.8 million diluted weighted average common shares outstanding. Our guidance assumes the following. First, Q1 professional services revenue will decline by a low double-digit rate year-over-year.

Speaker Change: Generation activities and targeted sales capacity.

Speaker Change: And with that we will open up the line for questions operator.

Mark Matheos: For the year, we expect, professional services revenue will be flat, or will decline by a low single-digit rate compared to a year ago. Second, on-prem license revenue will grow year-over-year by a mid-single-digit rate and will track to seasonality that is consistent with prior periods. Third, our Q2 adjusted EBITDA loss will be bigger than Q1. This is due to the combination of on-prem license seasonality and the cost of running our global user conference, Appian World. Fourth, total other income and interest expense will be approximately $3 million in Q1 and $15 million for the full year 2024. Fifth, capital expenditures will be between $2 million and $3 million in Q1 and between $10 million and $12 million for the full year 2024.

Speaker Change: Certainly and as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star 111 moment for our first question.

Sanjit K. Singh: And our first question comes from the line of <unk> Singh from Morgan Stanley. Your question. Please.

Sanjit K. Singh: Thank you for taking the questions and congrats on a solid.

Sanjit K. Singh: Enter the year Matt.

Sanjit K. Singh: As you think about 2024 and coming out of 2023.

Sanjit K. Singh: What are you seeing in your demand environment in your pipeline.

Speaker Change: As it relates to this momentum around automation and.

Speaker Change: Getting practical value of AI, what are some of the use cases that our customers are starting to.

Speaker Change: Pursue without being versus maybe some of the other initiatives out in the space.

Speaker Change: Right now AI is a fantastic door opener, but it's best done with a very simple proposition. So we're equipping our team to be able to approach that.

Mark Matheos: Finally, our guidance assumes FX rates as of February 13, 2024. In conclusion, we are pleased with the performance this quarter. We are investing in growth opportunities that drive long-term value and optimizing costs to drive profitability. We continue to balance our cost profile to prioritize investments in R&D, innovation, CSM coverage, and strategic go-to-market areas such as global partnerships, demand generation activities, and targeted sales capacity. And with that, we will open up the line for questions. Operator.

Speaker Change: The customer base.

Speaker Change: And easy to understand easy to implement way to get in on AI and show rapid benefits I believe that keeping it simple and having a a short period of investment.

Speaker Change: Before you get the payoff is essential to capitalizing there.

Speaker Change: They are large interest in the topic today. So that's helpful. I also feel good about where the pipeline stands and and.

Operator: Certainly. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 111 for our first question. And our first question comes from the line of Sanjit Singh from Morgan Stanley. Your question, please. Thank you for taking the questions and congratulations on a solid end to the year.

And particularly the large end of the pipeline as you know we're focused a little bit more on those larger opportunities now.

Speaker Change: No that makes total sense and that for you I mean, the adjusted positive adjusted EBITDA.

Speaker Change: In Q4 that was really nice to see.

Speaker Change: When we think about the balance between expense.

Matthew W. Calkins: Matt, as you think about 2024 and coming out of 2023, what are you seeing in your demand environment, in your pipeline as it relates to this momentum around automation and, you know, getting practical value out of AI? What are some of the use cases that customers are starting to pursue with Appian versus maybe some of the other initiatives out in the space? Right now, AI is a fantastic door opener, but it's best done with a very simple proposition.

Speaker Change: Managing margins versus versus growth.

Speaker Change: What's the potential for that to continue from what we saw in Q4 is there any where are sending another way with the Q4 sort of been the benefit from any sort of shifting and inexpensive to get to that.

Speaker Change: Positive adjusted EBITDA in Q4.

Speaker Change: Sure Yes no.

Speaker Change: We really didn't do anything out of the ordinary to get to a positive adjusted EBITDA in Q in Q4 that was an artifact of our strong revenue performance.

Speaker Change: We had a really good level of linearity.

Matthew W. Calkins: So we're equipping our team to be able to approach the customer with a kind of easy-to-understand, easy-to-implement way to get in on AI and show rapid benefits. I believe that keeping it simple and having a short period of investment before you get the payoff is essential to catalyzing their large interest in the topic today, so that's helpful. I also feel good about where the pipeline stands, and particularly the large end of the pipeline. As you know, we're focused a little bit more on those larger opportunities now. Yeah, that makes total sense.

Speaker Change: On the top line.

Speaker Change: We're just on our plan here on the expense side that we used to.

Speaker Change: Discussed in the past and we're steady as she goes on that in terms of operational discipline.

Speaker Change: But the name of the game is still growth for US. We're just doing so with a lot of scrutiny on our expenses to make sure.

Speaker Change: Getting ROI, we need in running a tight ship, but there was nothing out of the ordinary for Q4 in that regard.

Speaker Change: Okay. That's helpful. Thank you Matt.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Steve Enders from Citi. Your question. Please.

Matthew W. Calkins: And Matt, for you, I mean, the adjusted EBITDA, positive adjusted EBITDA in Q4, that was really nice to see. When we think about, you know, the balance between expense or managing margins versus versus growth, what's the potential for that to continue from what we saw in Q4? Or said in another way, did Q4 sort of bend the benefit from any sort of shifting in expenses to get to that positive adjusted EBITDA in Q4?

Steven Enders: Okay, great. Thanks for thanks for taking the question.

Steven Enders: Sure.

Steven Enders: I guess, maybe this is just the start.

Steven Enders: Maybe thinking more broadly about the kind of asset.

Steven Enders: Okay, great demand environment.

Steven Enders: Kind of what youre, assuming kind of or 24.

Steven Enders: <unk>.

Steven Enders: Extra conservatism baked in or government shutdown and some others.

Matthew W. Calkins: Sure, yeah. No, we really didn't do anything out of the ordinary to get to a positive adjusted EBITDA in Q4. That was an artifact of our strong revenue performance. You know, we had a really good level of linearity on the top line.

Steven Enders: What are you seeing today and kind of.

Steven Enders: The deal environment, and what kind of being assumed in the outlook here for 24.

Speaker Change: Okay. So broadly the deal environment I still think that there is some macro disruption.

Matthew W. Calkins: And, you know, we're just on our plan here on the expense side that we've discussed in the past, and we're steady as she goes on in terms of operational discipline. But the name of the game is still growth for us. We're just doing so with a lot of scrutiny on our expenses to make sure we're getting the ROI we need and running a tight ship. But there was nothing out of the ordinary for Q4 in that regard.

Speaker Change: But it never rose to the level of a recession I think that there is genuine interest across the board and what we can do for them with AI I.

Speaker Change: Think that there is recognition that we're creating real value and that that sparks expansion opportunities and.

Operator: Okay, that's helpful. Thank you, Matt. Thank you. One moment for our next question. And our next question comes from the line of Steve Enders from Citi. Your question, please. Okay, great.

Speaker Change: Propels demand for our industry not just for our organization I think this is a workable demand environment. I think this is a demand environment that we can succeed in.

Matthew W. Calkins: Thanks for taking the questions here. I guess maybe just start, you know, maybe thinking more broadly about kind of the bigger demand environment and kind of what you're assuming kind of for 24. I know that for 4Q, there's some extra conservatism kind of baked in for, you know, government shutdown and some other things.

Speaker Change: Okay.

Speaker Change: That's helpful and then maybe just on the.

Speaker Change: I guess, what kind of a net.

Speaker Change: Universities versus customer expansion I guess for one is really going to see the net retention number pick up pick up here.

Speaker Change: I guess, maybe what drove the strength of the expansion here.

Matthew W. Calkins: But I guess, what are you seeing today and what kind of deal environment is it, and what kind of assumptions are being made in the outlook here for 24? Okay, so broadly, the deal environment, I still think that there's some macro disruption, but it never rose to the level of a recession. I think that there's genuine interest across the board in what we can do for them with AI. I think that there's recognition that we're creating real value and that that sparks expansion opportunities. And it propels demand for our industry, not just for our organization. I think this is a workable demand environment.

Speaker Change: In the quarter and how do you view that.

And the ability of that moving forward, what's been embedded into the guidance.

Speaker Change: Guidance for 2004.

Speaker Change: Alright, now we don't make any guide on NR.

Speaker Change: Also pleased to see it tick up.

Speaker Change: However, it hasn't ticked up is that substantially it has a couple of points and I don't want to.

Speaker Change: I want to dwell on that.

Speaker Change: That's a blip for now maybe we can make it a trend, but it's a blip for now I do think that it's something we want to excel in.

Speaker Change: We want our we want to see more expansion.

Matthew W. Calkins: I think this is a demand environment that we can succeed in. Okay, that's, um, that's helpful, and then maybe just on the kind of net new versus versus customer expansion. I guess, for one, really good to see the net retention number pick up, pick up here. I guess maybe what drove the strength of the expansion here in the quarter?

Speaker Change: And we are focusing more on the techniques that lead to expansion deepening the relationship that we have with our clients.

Speaker Change: Having more touch points, having more exposure emphasizing our humanity in contrast with the.

Matthew W. Calkins: And how do you view the sustainability of that moving forward? And what's being embedded into the guidance for 24? All right. Now, we don't make any guidelines on NRR.

Speaker Change: The big Tech substitute source of what they might can seem to be a substitute for IP and technology I think we want to shine in the ways that we are naturally advantaged against our larger competition and we do that by having this sort of pervasive human connection and that's the sort of thing that will lead to more expansion. If it works. So this is an important.

Matthew W. Calkins: I am also pleased to see it pick up. However, it hasn't picked up that substantially yet. It's a couple of points, and I don't want to dwell on that. That's just a blip for now.

Matthew W. Calkins: Maybe we can make it a trend, but it's a blip for now. I do think that it's something we want to excel at. We want to see more expansion, and we are focusing more on the techniques that lead to expansion, deepening the relationship that we have with our clients, having more touch points, having more exposure, emphasizing our humanity in contrast with the big tech substitutes or what they might conceive of as a substitute for Appian technology. I think we want to shine in the ways that we are naturally advantaged against our larger competition, and we do that by having this sort of pervasive human connection.

Speaker Change: Number to me, but I don't want to make any implications about where it's going.

Speaker Change: Thank you Andrew.

Andrew: Thanks for taking the questions here.

Speaker Change: Yeah.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Jacob Berridge from William Blair. Your question. Please.

Jacob Berridge: Hey, Thanks for taking the questions and congrats on the solid results Matt.

Jacob Berridge: Matt I know, it's early but can you talk about how you see monetization shaping up for some of the new Gen AI solutions and data fabric those initiatives start to drive any growth heading into 2024 or is it still too early for that.

Matthew W. Calkins: And that's the sort of thing that will lead to more expansion if it works. So this is an important number to me, but I don't want to make any assumptions about where it's going. Thank you again for taking the questions here. Thank you. One moment for our next question. And our next question comes from the line of Jake Roberge from William Blair.

Jacob Berridge: We have a monetization strategy for both of those features we have a stratified pricing system.

Operator: Your question, please. Hey, thanks for taking the questions and congrats on the solid results. Matt, I know it's early, but can you talk about how you see monetization shaping up for some of the new-gen AI solutions and data fabric? Could those initiatives start to drive any growth heading into 2024? Or is it still too early for that?

Jacob Berridge: Goodbye you pay more for data fabric, if it's accessing multiple data sources and more for for AI or specifically for private AI. So we are absolutely expecting that these features will drive a revenue differentiation.

Jacob Berridge: Not just volume not just attention not just a competitive advantage, but but also tagging them with revenue.

Matthew W. Calkins: We have a monetization strategy for both of those features. We have a stratified pricing system, whereby you pay more for data fabric, if it's accessing multiple data sources, and more for AI, or specifically for private AI. So we are absolutely expecting that these features will drive revenue differentiation. Not just volume, not just attention, not just a competitive advantage, but also tagging them with revenue.

Speaker Change: Okay helpful and then.

Speaker Change: You've made some changes to your go to market organization over the past year or so between leadership changes and a small restructuring and then also just deeper focus on the partner organization. How do you feel like the go to market motion is positioned as you head into this year.

Matthew W. Calkins: Okay, helpful. And then you've made some changes to your go-to-market organization over the past year or so, between leadership changes, a small restructuring, and then also just the deeper focus on the partner organization. How do you feel about the go-to-market movement is positioned as you head into this year? I feel like we're a lot stronger than we were a year ago.

I feel like we're a lot stronger than we were a year ago.

Speaker Change: That's how I would read it.

Speaker Change: Hi.

Speaker Change: I think that.

Speaker Change: Yes.

Speaker Change: We've been careful with the changes that we made last year.

Matthew W. Calkins: That's how I'd read it. I think that... We've been careful with the changes that we made last year, but they've been changes for the better. Great. Thanks for taking my questions and congrats on the great results.

Speaker Change: But they've been changes for the better.

Speaker Change: Great. Thanks for taking my questions and congrats on the great results.

Speaker Change: Thank you.

Speaker Change: Thank you one moment for our next question.

Operator: Thank you. One moment for our next question, and our next question comes from the line of Derrick Wood from TD Cowen.

Speaker Change: And our next question comes from the line of Derrick Wood from TD Cowen Your question. Please.

Operator: Your question, please. Hey guys, thanks. This is Cole on behalf of Derrick.

Derrick Wood: Hey, guys. Thanks. This is call on for Derek.

Matthew W. Calkins: You flagged good strength in the TCV for the top 10 net new customers. Can you just unpack that a little bit and talk about what drove that strength? Yeah, all right. Well, first of all, I think part of it is driven by our strategic focus; we believe we belong in the big organizations doing mission-critical things at relatively higher price points. And that strategy, I think, has something to do with the fact that we're seeing higher TCBs on our top 10 deals and, for that matter, higher on our median deal, right? We're just trying to raise the target sites a little bit, and we're seeing that that's happening. So, Yeah, I'll just say it's strategically aligned, right? It's not, it's not unintended.

Derrick Wood: You flagged good strength.

Derrick Wood: <unk> for top 10, net new customers can.

Derrick Wood: Can you just unpack that a little bit and talk about what drove that strength.

Derrick Wood: Thanks.

Speaker Change: Yeah, Alright, well first of all I think part of it is driven by our strategic focus we believe we belong in the big organizations doing mission critical things at relatively higher price points and that strategy I think has something to do.

Speaker Change: With the fact that we are seeing higher <unk> on our top 10 deals and for that matter higher on our median deal right. We're just we're just trying to raise.

Speaker Change: The target sites, a little bit and we're seeing that that's happening.

Speaker Change: So.

Speaker Change: Yes, I'll just say it strategically aligns right, it's not it's not unintended.

Matthew W. Calkins: And I don't want to make any promises about where it's going, just to say that it was gratifying to see it come in where it did. Because that's what we intended. Helpful, thanks. Thank you. One moment for our next question, and our next question comes from the line of Kevin Kumar from Goldman Sachs. Your question, please. Hi, thanks for taking the time to answer my question. I wanted to ask you about the international public sector and the traction you're seeing there.

Speaker Change: And I don't want to make any promises about where it's going just just to say that.

Speaker Change: It was gratifying to see it come in where it did because that's what we intended.

Helpful. Thanks.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Kevin Kumar from Goldman Sachs. Your question. Please.

Kevin Kumar: Alright, Thanks for taking the question I wanted to ask about the international public sector and the traction Youre seeing there, let me talk a little bit about that.

Matthew W. Calkins: Maybe talk a little bit about the go-to-market investments you're making there. And at a higher level, I guess, how early are these public sector organizations in terms of thinking about AI and kind of implementing more intelligence into their workflows? As you know, we're a Washington company, and I'm looking at the Beltway out my window right now as I take this call, and we've done a lot of business here in Washington, D.C. with the federal government. And the international public sector has always represented a big opportunity for us, and for that matter, so has state government in the U.S., and it is a largely untapped opportunity.

Kevin Kumar: Go to market investments Youre, making there and higher level I guess, how early are these.

Kevin Kumar: Sector organizations in terms of thinking about AI and kind of implementing more intelligence into their workflows.

Speaker Change: As you know, we're Washington company and I'm looking at the Beltway out my window right now as I take this call and we've done a lot of business here in Washington D C with the federal U S Federal government.

Speaker Change: And the international public sector has always represented a big opportunity for us and for that matter. So as state government in the U S.

Speaker Change: And it is a largely untapped opportunity.

Matthew W. Calkins: I did mention in the prepared remarks one substantial organization at the state government level that works with us and does hundreds of millions of dollars of procurement every year on the Appian platform. That's great, but that's just the beginning. This is just the tip of the iceberg stuff. Even though we have notable wins in other international or non-federal areas, public sector opportunities, I still feel like the penetration is so minimal.

Speaker Change: I did mentioned in the prepared remarks, one substantial organization and the state government level that works with US. It does hundreds of millions of dollars of procurement every year on the Appian platform, that's great but that's.

Speaker Change: That's the beginning this was tip of the iceberg stuff and even though we have notable wins in other international or Nonfederal.

Speaker Change: Public sector opportunities I still feel like the penetration is so minimal we've done just enough to prove we can do it and not enough too to show what we can do like how much we can do that.

Matthew W. Calkins: We've done just enough to prove we can do it, and not enough to show what we can do, like how much we can do. So that's an opportunity we look forward to moving into; we're making an effort to move into it, and it's largely unsaturated right now. Great. Thanks for taking the question. Thank you.

Speaker Change: That's an opportunity we look forward to moving into we're making effort to move into it and it's largely unsaturated right now.

Speaker Change: Great. Thanks for taking the question.

Speaker Change: Thank you.

Operator: And just as a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one one moment for our next question. Our next question comes from the line of Frederick Heppenmeyer from Macquarie Capital. Your question, please. Thank you, and good morning.

Speaker Change: And just as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star 111 moment for our next question.

Speaker Change: Our next question comes from the line of Frederic <unk> from Macquarie Capital. Your question. Please.

Frederic: Okay. Thank you and good morning, I wanted to ask about data fabric and a little bit more depth here about generally speaking it seems like being in the enterprise data space and data integration space right now.

Matthew W. Calkins: I wanted to ask about Data Fabric in a little bit more depth here about, generally speaking, it seems like being in the enterprise data space and data integration space right now is a fantastic bit of positioning considering what enterprises are trying to do with their data and trying to make it useful. And, of course, everyone's trying to have a generation AI strategy. So I'm curious, with Data Fabric, when you're helping customers implement this, what have been the most significant challenges that you're helping them to address? And also around that, what are the most significant challenges that you or your partners face when implementing and onboarding customers to Data Fabric? Yeah, all right. First of all, you have to open up their imaginations.

Frederic: Fantastic bid positioning considering what enterprises are trying to do with their data.

Frederic: <unk> of course that we're trying to have a journey our strategy.

Frederic: I'm curious with data fabric. When you are helping customers implement this what has been the most significant challenges that you are helping them to address and also around that what are the most significant challenges that your partner space, when implementing and onboarding customers to data fabric.

Speaker Change: Yeah, Alright first of all you have to open up their imaginations. The typical organization does not imagine that it would be possible to merge data silos and to have synthesis or combined benefit from them. We're so used to an enterprise software landscape that is dominated by the walls right that is cut into silos you have.

Matthew W. Calkins: The typical organization does not imagine that it would be possible to merge data silos and to have synthesis or combined benefit from them. We're so used to an enterprise software landscape that is dominated by the walls, right, that is cut into silos. You have to first just tell them that it's possible.

Speaker Change: First just tell them that it's possible.

Matthew W. Calkins: And then secondly, the integration, sometimes it's easy, sometimes it works with APIs, and it's very intuitive. And in some cases, the entities could have been custom built or very out of date, and then integration is a bit more of a challenge. But once it's not, it's not so difficult to overcome once you convey the benefit.

Speaker Change: And then secondly, the integration, sometimes it's easy sometimes it works with API and it's very intuitive and in some cases the entities could have been custom built are very out of date and then integration is a bit more of a challenge.

Speaker Change: But.

Speaker Change: Yes.

Speaker Change: Once it's not it's not so difficult to overcome once you conveyed the benefit.

Matthew W. Calkins: We can easily stitch these data silos together. It's simpler than one might imagine, and it's very fully featured. You can read and write. You can filter by individual permission access.

Speaker Change: We can easily steps. These are these data silos together, it's simpler than one might imagine and it's very fully featured do you can you can read and write you can filter by by individual permission access.

Matthew W. Calkins: It's actually a really powerful layer. By the way, the strength of the data fabric is such that I expect that this year more organizations will start saying these words, data fabric. They'll claim that they've got something like it.

It's actually a really powerful.

Speaker Change: Layer by the way the strength of the data fabric is such that I expect that this year more organizations will start saying these words data fabric belt claim that they've got something like it and and I suspect that what they have is not going to be fully featured the way the way what we've built and have had for years is it's an.

Matthew W. Calkins: And I suspect that what they have is not going to be fully featured the way what we've built and have had for years is. It's an artifact of our divergent data strategy. Many of our competitors have a data strategy whereby they seek to claim, to unify, and to own the data in an enterprise. And they are big enough, in some cases, to pull that off, to use their size, their leverage against their customers, and to force a kind of aggregation under their own flag. We do not attempt to do that.

Speaker Change: Fact of.

Speaker Change: Our divergent data strategy many of our competitors have a data strategy whereby they seek to claim to unify and own the data in an enterprise and they are big enough in some cases to pull that off to use their size their leverage against their customers and to force a kind of an aggregation.

Speaker Change: Under their own flagged, we do not attempt to that.

Matthew W. Calkins: Instead, we have always had an, call it pro-customer if you like, an open data strategy that respects, empowers, and enables the customer's existing data architecture. That's why we got into this data fabric concept in the first place because we wanted to be the vendor that would enable the customer to have the data the way they wanted to have it instead of trying to force it all into our database. So we have taken this, we've built this technology because we first took this decision to be the sort of company that would enable the dispersed data strategy. And because our rivals have largely not taken that decision, they've also not developed that technology.

Instead, we have always had a you call. It pro customer if you like a open data strategy that respects and empowers and enables the customers existing data architecture and that's why we got into this data fabric concept in the first place because we wanted to be.

Speaker Change: Vendor that would enable the customer to have the data the way they wanted to have it instead of trying to force it all into our database. So we.

Speaker Change: We have taken this we built this technology because we first took this decision to be the sort of company that would enable the disbursed data strategy and because our rivals have largely not taken that decision. They are also not developed that technology I think thats. Because this is the result of different belief.

Matthew W. Calkins: I think that because this is the result of different beliefs about how the market works, it might be a more persistent technological division than it might initially appear. Thank you for that, Matt. I wanted to ask also about both renewal rates and net retention rates, understanding also, like you said earlier, that a couple of data points is not yet a trend to make, but I wanted to ask, it looks like your total gross renewal rate ticked down slightly in 2023 by quarters, while your cloud subscription revenue retention rate ticked up.

Speaker Change: It's about how the market works it might be a more persistent technology division.

Speaker Change: It might initially appear.

Speaker Change: Thank you for that Matt.

Speaker Change: Wanted to ask also on.

Speaker Change: Both renewal rates net retention rates understanding also like you said earlier that a couple of couple of data points, just not yet a trend make but I wanted to ask it looks like your total gross renewal rate ticked down.

Speaker Change: <unk> slightly in 2023 by quarters, while Youre cloud subscription revenue retention rate ticked up so I wanted to ask is there anything happening between the total company business and cloud that would be worth calling out at this point that could.

Matthew W. Calkins: So I wanted to ask, is there anything happening between the total company business and the cloud that would be worth calling out at this point that could be attributable to that? Yeah, first of all, I want to address that downtick. Our gross revenue retention rate did indeed downtick from 99 to 98, bottoming at 97, and it's now risen back to 98. And I just want to clarify that, though that may have been a downtick, it's still best in class. Those are still remarkable numbers,

Speaker Change: That would be attributable to that.

Speaker Change: Yeah first of all I want to address that downtick, our gross revenue retention rate does indeed, downtick from 99% to 98 bottoming at 97 and it has now risen back to 98 and I just wanted to clarify that though that may have been a down.

Speaker Change: Ticket is still best in class is still remarkable numbers.

Matthew W. Calkins: And then secondly, I want to say there has been, I would suggest, a little bit of migration, just a very small amount from on-premise to cloud, at a point when I thought there wouldn't be any more, but there was just a little bit. And so that may be impacting the numbers slightly. Thank you very much for that. Thank you.

Speaker Change: And then secondly, I want to say there has been.

Speaker Change: I would say just a little bit of migration, just a very small amount from on premise to cloud at a point when I thought there wouldn't be any more but there was just a little bit and so that may be impacting the numbers are smaller.

Speaker Change: Super clear, thank you very much for that.

Speaker Change: <unk>.

Operator: One moment for our next question. Our next question comes from the line at Thomas Blakey from KeyBank Capital Markets. Your question, please? Hi, guys. Thanks for taking my question. I have a couple here.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Speaker Change: Our next question comes from the line of Thomas <unk> from Keybanc capital markets. Your question. Please.

Thomas: Hi, guys. Thanks for taking my question.

Thomas: Couple here.

Matthew W. Calkins: Maybe, first, on the heels of Fred's great question on the data fabric, I think he also asked about the actual use cases, so if you could maybe double-click on that, Matt. And then after answering that, what would if the company, as we're hearing an uptick from our calls on Gen AI, especially in the enterprise, if these customers don't use your data fabric, what are these organizations going to do architecturally in terms of breaking down silos slash bringing all their data together? Is it something akin to Appian solutions or compared to a cloud-based data warehouse like Snowflake? Or I just want to understand, like the pros, you know, if they don't use you, what are they going to have to use in terms of launching these Gen-AI enterprise applications? And if you can give any examples,

Thomas: Maybe first on the heels of friends Great question on the data fabric.

Thomas: I think he also asked about the actual.

Thomas: Use cases, if you could maybe double click on that.

Thomas: And then.

Thomas: After answering that.

Thomas: The company is we're hearing an uptick from our calls on Gen AI.

Thomas: Especially if the especially in the enterprise.

Thomas: These customers don't use your data fabric.

Thomas: These organizations going to do architecturally in terms of <unk>.

Thomas: Backing down silos slashed, bringing all their data together is it something I came to wrapping solutions are compared to a cloud based data warehouse like snowflake.

Speaker Change: I just want to understand like the pros if they don't use you what are they going to have to use in terms of launching these Chinese enterprise applications and I'm, giving you examples that'd be great.

Matthew W. Calkins: No, that's a great question. What are they going to do without data fabric? Well, Snowflake is one obvious example.

Speaker Change: Great. That's a great question what are they going to do without data fabric will snowflake is one obvious example, snowflakes.

Matthew W. Calkins: Snowflake is asking you to give us all your data. It's like a modern data warehouse; just pile everything you can into this one data source. And when you do, we've already got a partnership lined up for Gen AI on top of it. That's fine. If you can move all your data there, if you can move all of it, but I talked to a lot of CIOs, and I can't remember any of them saying that they could move all of their data, or even all of their pertinent data, into a central repository, Snowflake or anyone else's. Well, typically, today.

Speaker Change: Snowflake is asking give us all your data it's like a modern data warehouse just pile everything you can into this one data source and when you do we've already got a partnership lined up for us for Gen. AI on top of it that's fine. If you can move all your data there. If you can move all of it but I talked to a lot of CIO.

Speaker Change: I can't remember any of them, saying that they could move all of their data or even all of their purchase that data into a central repository snowflake or anyone else's.

Speaker Change: Typically today.

Matthew W. Calkins: AI either runs on one giant silo, like Snowflake, or all you can train, which I'll address in a moment, or a data fabric. If it's all you can train, then essentially, are you saying that AI isn't going to run on one giant silo? Absolutely. Absolutely. Absolutely. Absolutely. A source, it's just everything you can upload, right?

Speaker Change: AI either runs on one giant silo like snowflake or all of the all you can train, which I'll address in a moment or a data fabric.

Speaker Change: It's all you can train and then essentially you are saying.

Speaker Change: AI isn't going to run on.

Speaker Change: A source, it's just everything you can upload right. So you can upload one source. After another if you want but that you've got data loading costs, you've got data freshness issues you've got.

Matthew W. Calkins: So you can upload one source after another if you want, but you've got data loading costs, you've got data freshness issues, you've got variable levels of personal security access to that data. There are a lot of flaws with that strategy, and I think also just the idea of training at great length an algorithm that the CIO does not own is problematic for a lot of tech decision makers. So I think that even though there is the data lake with the snowflake strategy, and there is the train an external algorithm on everything pertinent strategy, these are not plausible strategies.

Speaker Change: Variable levels of personal security access to that data issues. There's a lot of flaws with that strategy and I think also just the idea of training at great length and algorithm that the CIO does not own is problematic for a lot of tech decision makers. So.

Speaker Change: Even though there is the data lake.

Speaker Change: With Snowflake strategy and there is the <unk>.

Speaker Change: Train a external algorithm on everything pertinent strategy. These are not plausible strategies and what I see happening in the absence of data fabric.

Matthew W. Calkins: And what I see happening in the absence of data fabric most of the time is AI is too limited in the data it knows. AI runs on one silo, and just one. And I think that is unfortunately the typical fallback in the absence of data fabric. That's interesting. Any use cases that you've seen maybe sprout up earlier in the evolution or planning to in 24? Well, do you mean use cases for Data Fabric? Yeah, most of our customers actually use Data Fabric. We've got a terrific usage rate of somewhere 80-90%, which is good, you know, for participation in a feature. Because it's so beneficial, it makes it easy to connect to data sources. Like, even if you're using just one, it makes it intuitive and simple.

Speaker Change: Most of the time is AI is too limited on the data it knows.

Speaker Change: The AI runs on one silo and just one and I think that is unfortunately, the typical fall back in the absence of data fabric.

Speaker Change: That's interesting and any use cases that you've seen maybe.

Speaker Change: Sprout out early in the evolution of our planning to in 'twenty four.

Speaker Change: Well, you mean use cases for data fabric, yes, most of our customers actually use data fabric, we've got a terrific usage rates somewhere 80% 90%.

Speaker Change: Which is which is good for our participation in a feature.

Speaker Change: Does it so beneficial it makes it easy to connect to data sources like even if you're using just one it makes it intuitive and simple, but if you're using multiple it's a huge step forward over what was possible in the past and it also makes it far easier for a user to develop new applications, because we object ties all of the data that's been touched by the data fabric.

Matthew W. Calkins: But if you're using multiple, it's a huge step forward over what was possible in the past. And it also makes it far easier for a user to develop new applications because we objectize all of the data that's been touched by the Data Fabric so that a creator of a new report or process can just grab, drag, and drop that object. All of these objects of data across the enterprise are now sort of draggable objects within the development environment. It just makes the creation of new artifacts really intuitive.

Speaker Change: So that a creator of a new report or process can just grab and drag and drop that object.

Speaker Change: All of these objects of data across the enterprise are now sort.

Speaker Change: Draggle objects within the development environment to just makes creation of new new.

Matthew W. Calkins: And as for use cases, it really, the challenge is more thinking of cases where you don't need more than one data source. I mean, I mentioned one in my prepared remarks about the hypothetical, you know, student in need of rescue, right, and how it would be great to be able to know whether they'd attended their classes or missed a tuition payment or had friends who have dropped out. I've had bad grades or any of that like all of those things are going to exist in different systems So even a simple application like how can we help this student to do?

Speaker Change: New artifacts really intuitive.

Speaker Change: And as for use cases is it really that the challenge is more thinking of cases, where you don't need more than one the data source I mean, I mentioned one in my prepared remarks about the hypothetical.

Speaker Change: Students in need of rescue right and how it would be great to be able to to know whether they have attended their classes or Mr tuition payments or had friends, who have dropped out or.

Speaker Change: <unk>.

Speaker Change: Had bad grades or any of that like all of those things are going to exist in different systems. So even a simple application like how can we help the students to do well.

Matthew W. Calkins: Well, is something that's a natural use case for data fabric. Excellent, thanks for that, Colin. And just to follow up on that, my final question would be, you know, at last year's Appian World, you expanded your partner programs and reached there pretty significantly from what my understanding was. Where is Appian's infrastructure in your mind today in terms of reaching out to enterprises along these lines in terms of a sales motion? Do you have the right point of, you know, go-to-market infrastructure to touch, have these touch points in large enterprises to sell this kind of next-gen AI solution in terms of data?

Speaker Change: Is.

Speaker Change: Its something Thats, a natural use case for data fabric.

Excellent. Thanks for that color just a follow up to that my final question would be.

Speaker Change: At last year's happy and Worldview.

Speaker Change: Standard your partner programs and reach there pretty significantly from what my understanding was.

Speaker Change: There is appian infrastructure in your mind today in terms of reaching to reaching out to enterprises along these lines in terms of the sales motion did you have the right go to market infrastructure that have.

Speaker Change: Had these touch points and large enterprises to.

Speaker Change: To solve this kind of Gen AI solutions in terms of the data fabric can be my last one.

Matthew W. Calkins: Yeah, well, we definitely did a strategic pivot on partners last year. We had 700 registered partners coming into the year. And we still do have a ton of partners, but we decided that we wanted to focus, really focus down, and make big investments in partners that were willing to make big investments in us. And, and that beneficial reciprocity is the pattern that we have set going into 2024. I think it'll be more motivational.

Speaker Change: Definitely do the strategic pivot on partners last year.

Speaker Change: We had 700 registered partners.

Speaker Change: Coming into the year.

And we still do have a ton of partners, but but we decided that we wanted to focus really focused down.

Speaker Change: And make big investments in partners that we're willing to make big investments in us and and that beneficial reciprocity is the pattern that we have set going into 2024.

Speaker Change: I think it will it'll be more motivational.

Matthew W. Calkins: And it will allow for a level of commitment from our partner that leads to greater expansion because it will be a greater implementation quality as well. Thank you. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Srinivasa Anantha for any further remarks. Thank you, Jonathan, and thank you all for joining us today. We look forward to seeing many of you at upcoming investor events and on our next earnings call. Thank you, and I will talk to you soon. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day, www.microsoft.com.ca. Thanks for watching!

Speaker Change: And it will allow for a level of commitment in our partner that leads to greater expansion, because it'll be greater implementation quality as well.

Speaker Change: Thank you Matt.

Matt: Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Sri and not for any further remarks.

Sri: Great. Thank you Jonathan and thank you all for joining US today, we look forward to seeing you. Many of you at upcoming Investor events and on our next earnings call. Thank you and talk to you soon.

Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].