Q1 2024 Appian Corp Earnings Call
Yeah.
Good day and thank you for standing by welcome Judy Happy in first quarter 'twenty 'twenty four earnings conference call.
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Speaker Change: I would now like to hand, the conference over to your Speaker today Reagan Rudman.
Reagan Rudman: Please go ahead.
Reagan Rudman: Thank you operator, good morning, and thank you for joining US today, we will review <unk> first quarter 2024 financial results.
Reagan Rudman: With me are Mark Hawkins, Chief Chairman, and Chief Executive Officer, and Mark <unk>, Chief Financial Officer. After prepared remarks, we will open the call for questions.
Reagan Rudman: 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 second quarter and full year 2024.
Reagan Rudman: 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.
Reagan Rudman: To maintain and upsell existing customers and our ability to acquire new customers.
Reagan Rudman: Words anticipate continue estimate expect intend will and similar expressions are intended to identify forward looking statements or similar indications of future expectations.
Reagan Rudman: These statements reflect our views only as of today, they do not reflect our views as of any subsequent date, they're subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.
Reagan Rudman: For a discussion of the material risks and other important factors that could affect our actual results refer to our 2023 10-K or Q1 2024 at 10-Q filing and other periodic filings with the SEC.
Reagan Rudman: These documents are available on the investors section of our website.
Reagan Rudman: Additionally, non-GAAP financial measures will be discussed on this conference call refer to the tables in our earnings release for a reconciliation of these measures to their most directly comparable GAAP financial measures.
Reagan Rudman: That I'd like to turn the call over to our CEO Mark Hawkins Matt.
Mark Hawkins: Thanks Reagan.
Matt: In the first quarter of 2020 for Appian cloud subscription revenue grew 24% year over year to $86 $6 million.
Matt: Subscriptions revenue grew 19% to $117 7 million.
Matt: Total revenue grew 11% year over year to $149 8 million.
Mark Hawkins: Our cloud subscription revenue retention rate was 120% as of March 31 adjust.
Mark Hawkins: Adjusted EBITDA was a loss of $1 3 million.
Mark Hawkins: Two weeks ago, we held our annual user conference. Many people on this call. We're there we had 46% more customers and prospects in attendance than a year before.
Mark Hawkins: The show featured a series of major customers discussing the success they've had with our platform.
Mark Hawkins: Attendees heard how novartis reduced risk assessment approval times by over 50% using Appian.
Mark Hawkins: The Navy developed an employee Onboarding app and a fraction of the time other technologies would've required.
Mark Hawkins: We heard how tell us integrated siloed systems into a single Appian App to manage cross functional planning and expects to reduce planning cycles by 55% and save for misallocation up to $42 million.
Mark Hawkins: We also heard speakers from Merck in the U S Army axiom space T Rowe price among others.
Mark Hawkins: Aside from the customers my favorite part of the show was our new feature announcements not all of them were about AI, but I'll start there.
Mark Hawkins: Our unique edge in AI comes from strength and complementary technology, specifically processes data, we're a leader in all three areas.
Mark Hawkins: This year.
Mark Hawkins: Every company is looking for ways to validate AI.
Mark Hawkins: Big budgets will come later for now they need quick proof of ROI.
Mark Hawkins: Our process is the perfect place to start using AI.
Mark Hawkins: He built a framework of activity pointed towards an important goal.
Mark Hawkins: A set of workers human and digital with whom to collaborate and metrics that measure what improvement AI has created.
Mark Hawkins: We're so confident in our ability to show strong ROI by dropping AI into a process that we've launched a 30 day fixed price offering.
Mark Hawkins: We announced at Appian World.
Mark Hawkins: Our other main advantage in AI as our control data <unk> data fabric connect data sources without having to move them.
Mark Hawkins: We can inform AI with the right information from across the enterprise.
Mark Hawkins: We filter that dataset through the data fabric, sending only the most pertinent bits to AI.
Mark Hawkins: There are important implications for privacy.
Mark Hawkins: Cost efficiency audit stability security clearance observance of more.
Mark Hawkins: Our goal is to make AI powerful and easy.
Mark Hawkins: For this purpose, we announced last month, a strategic collaboration agreement between App in an AWS.
Mark Hawkins: We've been working together for a long time ever since I've been lead our industry into the cloud about 15 years ago.
Mark Hawkins: We run an incredible amount of volume on AWS already.
Mark Hawkins: 16 billion transactions per day.
Mark Hawkins: This announcement, we will intensify our long standing partnership as we work together to make enterprise use of AI, both powerful and easy.
Mark Hawkins: When we acquired a process mining company in 2021, we did it because we saw an opportunity to create what I call the future of process mining.
Mark Hawkins: Process mining was cool, but it was missing a few critical features and we can provide them.
Mark Hawkins: Because we are a process leader our process mining could be actionable.
Mark Hawkins: Because we had great data collection capabilities, our process mining could be real time.
Mark Hawkins: That's the revolution, we anticipated.
Mark Hawkins: And two weeks ago at Appian World, we delivered it.
Mark Hawkins: Our new product is called process HQ and it is real time actionable process mining.
Mark Hawkins: But it's also more than that.
Mark Hawkins: It allows the user to navigate the whole enterprise of information.
Mark Hawkins: Reversing happy in this data fabric.
Mark Hawkins: You can drill all the way down to individual Roes and processes you can glide across data sources for more than one end of the enterprise to the other.
Mark Hawkins: Process HQ can give you the heartbeat of your processes at board look boardroom level statistics on your efficiency you can detect even momentary disruptions in efficiencies and take quick action.
Mark Hawkins: And maybe first of all it intelligently recommends what changes you should make to the process. It's now easy to observe in tune your processes with moment to moment feedback.
Speaker Change: Let's pause here to discuss how a multinational life Sciences company used process HQ2.
Mark Hawkins: To improve one of their critical applications. This customer sales in medical devices and pharmaceutical products in over 100 countries.
Mark Hawkins: Every country is unique industry regulations, each product must be reviewed for compliance before it can be sold locally or customer manages the review of hundreds of thousands of products on Appian.
Mark Hawkins: The processes complexity and data volume, making a prime candidate for optimization.
Mark Hawkins: Without months of data prep or teams of data scientists business users analyze the process using process HQ they.
Mark Hawkins: They discovered many ways to reduce cycle times. The company is implementing these changes and expects to save 40000 labor day's annually.
Mark Hawkins: 40000 days.
Mark Hawkins: And a nice validation of our efforts to re imagine this industry ethane was named a leader this week and gardeners process mining platforms Magic quadrant I'm.
Mark Hawkins: I am pleased with the attention process HQ has been receiving from customers and analysts and I hope a lot of people see what we've done with the synergies between process mining process and data.
Mark Hawkins: At Appian World, We also announced our elastic process execution feature FX for sure.
Mark Hawkins: Scales infrastructure on demand some.
Mark Hawkins: Our customers have predictable usage spikes like a weekly or monthly filing time.
Mark Hawkins: <unk> cannot guess when the traffic will rise, but need to be ready like an insurer being prepared for the aftermath of a natural disaster.
Mark Hawkins: FX increases throughput by 10 to 100 times.
Mark Hawkins: This is on top of a process engine that could already run millions of complex processes daily.
Mark Hawkins: This has taken the ground that athene is serious about being the best choice for high end use cases.
Mark Hawkins: FX further cements our leadership in scalability.
Mark Hawkins: At Appian World. We also launched an AI backed website called procure site with technology built on the Appian platform.
Mark Hawkins: Procurement professionals will use it to search and major public datasets glean insights from past government procurements and write new procurement requests.
Mark Hawkins: Suffered for free for now to test the concept with maximum exposure.
Mark Hawkins: This effort aligns with my beliefs about the future of this sector.
Mark Hawkins: There's a lot of public excitement about AI, the content generator, but not enough about AI the data synthesizer pricked.
Mark Hawkins: Procure site will complement our government acquisition management suite, so that users of the letter will get extra benefits from use of the farmer.
Mark Hawkins: Now, let's discuss a few notable deals from Q1.
Mark Hawkins: A major U S city wants to modernize its budget review process, the city's office of management and budget managers billions of dollars of annual funding.
Mark Hawkins: In Q1 at selected our platform to automate these processes and became a new customer before employees receive physical proposals in process manually now would that be in the office expects to reduce approval times by 50%.
Mark Hawkins: Next is a story about a leading European automotive manufacturer and existing customer.
Mark Hawkins: If its employees use appian to manage supply chain operations finance and warranty claims it saves tens of millions of dollars every year with our platform.
Mark Hawkins: In Q1 that purchased a seven figure software deal to automate more warranty and finance workflows to extend its after additional users.
Mark Hawkins: Save millions of dollars more with this next set of projects.
Mark Hawkins: Today's final stories with a top global medical devices company. It uses appian to manage the order to installation process for metal medical devices and one of its three global divisions in Q1, the firm purchased additional software to automate a similar process for a second division before wrapping the customer around these processes on an expensive and unscheduled homegrown system now the.
Mark Hawkins: Company will streamline its installation processes and recognize tens of millions of revenue dollars earlier than expected this fiscal year.
Mark Hawkins: As you can see from our recent announcements have been and will continue to push the technological boundaries in our industry from AI backed services to process mining.
Mark Hawkins: We will deliver to our customers both power and simplicity.
Mark Hawkins: This year promises to be one of rapid technological change and we feel well equipped to thrive that circumstance.
Mark Hawkins: Now I'll hand, the call to Mark for a discussion of our financials.
Mark Hawkins: Matt I'll review the financial highlights for the quarter and then we will provide guidance for the second quarter and full year 2024.
Mark Hawkins: Cloud revenue total revenue and adjusted EBITDA came in at or above the high end of our guidance ranges.
Mark Hawkins: Cloud subscription revenue was $86 6 million, an increase of 24% year over year and above guidance.
Mark Hawkins: Our cloud subscription revenue retention rate was 120% as of March 31, 2024 up from 115% a year ago and 119% in the prior quarter, we continue to target a cloud subscription revenue retention rate of 110% to 120% on a quarterly basis.
Mark Hawkins: Approximately 82% of our total net new software bookings in the quarter was for the cloud.
Mark Hawkins: Prior to 85% in the prior year's first quarter.
Mark Hawkins: Total subscriptions revenue was $117 7 million, an increase of 19% year over year.
Mark Hawkins: Professional services revenue was $32 1 million down 11% year over year.
Mark Hawkins: As we've mentioned previously professional services revenue can fluctuate from quarter to quarter due to the timing of large projects. We continue to leverage professional services to enable partners and to drive customer success. However, long term, we expect professional services revenue to continue to decline as a percentage of total revenue.
Mark Hawkins: Total revenue was $149 8 million, an increase of 11% year over year and at the top of our guidance range.
Mark Hawkins: Assistant with our strategy subscriptions revenue was 79% of total revenue compared to 73% in a year ago period and 80% in the prior quarter.
Mark Hawkins: We continue to see global demand for our platform with our international operations contributing 37% of total revenue compared to 33% in the year ago period.
Mark Hawkins: Note that foreign exchange movements provided a revenue benefit of 1% to 2% this quarter on a constant currency basis.
Speaker Change: Now I'll turn to our profitability metrics.
Mark Hawkins: non-GAAP gross margin was 76% compared to 75% in the year ago period, and 78% in the prior quarter subsea.
Mark Hawkins: Subscription non-GAAP gross profit margin was 90% consistent with the year ago period, and compared to 91% in the prior quarter.
Mark Hawkins: Professional services non-GAAP gross margin was 25% compared to 34% in the year ago period, and 26% in the prior quarter, we continue to invest in non billable areas of our services organization to help our customers achieve the most from our technology and increase adoption of our platform.
Mark Hawkins: As a result, and previously communicated we expect professional services non-GAAP gross margin to decline to the low 20% range in 2024 and beyond.
Mark Hawkins: Total non-GAAP operating expenses were $117 3 million down 2% from $119 3 million in the year ago period.
Mark Hawkins: Adjusted EBITDA loss was $1 3 million for the quarter well ahead of our first quarter guidance of a loss between nine and $5 million and significantly better when compared to an adjusted EBITDA loss of $15 8 million in the year ago period.
Mark Hawkins: In the first quarter, we had approximately $11 5 million foreign exchange losses, compared to $1 6 million of foreign exchange gains in the same period a year ago.
Mark Hawkins: Just to note, we don't forecast movements in FX rates, therefore, they aren't considered in our guidance.
Mark Hawkins: non-GAAP net loss was $17 7 million or 24 per share compared to non-GAAP net loss of $19 7 million or <unk> 27 per diluted share for the first quarter of 2023.
Mark Hawkins: This is based on $73 3 million diluted shares outstanding for the first quarter of 2024, and $72 9 million diluted shares outstanding for the first quarter of 2023.
Mark Hawkins: As noted above first quarter of 2024, and non-GAAP net loss was impacted by $11 5 million in foreign exchange losses, or a loss of <unk> 15 per share which was not included in our original guidance.
Mark Hawkins: Turning to our balance sheet as of March 31, 2024, cash and cash equivalents were $170 1 million, providing us significant liquidity to run and invest in our business. This is an increase of $11 1 million as compared with cash and cash equivalents and investments of $159 million as of December 31.
Mark Hawkins: <unk> thousand 23.
Mark Hawkins: For the first quarter cash provided by operations was $18 9 million versus cash used in operations of $25 3 million in the same period last year.
Mark Hawkins: Our cash provided by operations was bolstered by strong cash collections in the quarter and reflects the milestone on our journey towards profitability.
Mark Hawkins: <unk> completed a $50 million share repurchase program in Q1 during which we bought back a total of $1 32 million shares.
Speaker Change: We're bullish on our long term growth prospects of our company, we see this buyback as an avenue to deliver value to shareholders.
Mark Hawkins: Finally, total deferred revenue was $226 2 million as of the first quarter of 2024, an increase of 14% from the year that period. As a reminder, the majority of our customers are invoiced on an annual upfront basis. Although we have large customers that are billed quarterly or monthly. Consequently, we continue to believe cloud subscription revenue is.
Mark Hawkins: A better indicator of our business momentum deferred revenue billings or remaining performance obligations.
Mark Hawkins: The latter metrics can fluctuate based on the timing of invoicing seasonality of on Prem license revenue and the duration of customer contracts.
Mark Hawkins: To 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 Hawkins: Sure.
Mark Hawkins: Our second quarter 2024 guidance is in line with how we've historically approached guidance setting.
Mark Hawkins: As a reminder, data seasonality Q2 tends to be our weakest quarter, but Q4 tends to be our strongest.
Mark Hawkins: For the second quarter of 2020 for cloud subscription revenue is expected to be between 86 and $88 million representing year over year growth of between 16 and 18%.
Mark Hawkins: Total revenue is expected to be between 140 and $144 million representing year over year growth of 10% to 13%.
Mark Hawkins: Adjusted EBITDA loss for the second quarter of 2024 is expected to be between 17% and $13 million.
Mark Hawkins: non-GAAP net loss per share is expected to be between 34% and 28.
Mark Hawkins: This assumes $72 3 million diluted weighted average common shares outstanding.
Mark Hawkins: The reduction of the share count from a share repurchase during the first quarter.
Mark Hawkins: For the full year 2024, we are reaffirming our previously announced cloud revenue and total revenue guidance, we are improving our full year adjusted EBITDA guidance. We now expect the adjusted EBITDA loss to be between 22, 5% and $17 5 million for the full year 2024.
Mark Hawkins: This is an improvement of $2 5 million or 11% from the previous guidance range midpoint.
Mark Hawkins: We are pleased with the efficiencies we are seeing in our cost structure and we'll continue to look for opportunities to optimize costs on our path towards profitability are.
Mark Hawkins: This new for this new full year range includes the reduction of the share count from our share repurchase during the first quarter.
Mark Hawkins: Our guidance assumes the following.
Mark Hawkins: First as previously disclosed the variability in our services revenue can be swung by one or two large transactions.
Mark Hawkins: For Q2, and the full year, we expect professional services revenue to be flat over the comparison periods.
Mark Hawkins: Second on premise license revenue will grow by a mid single digit growth rate and will attract a seasonality that is consistent with prior periods.
Mark Hawkins: Third our second quarter, adjusted EBITDA loss will be better than the first quarter's adjusted EBITDA loss. This is due to the seasonality in our business and the cost of running a role class user global user conference Appian World.
Mark Hawkins: Fourth total other income and interest expense are expected to be between $4 million in Q2 and $18 million for the full year 2024.
Mark Hawkins: <unk> capital expenditures are expected to be between one and $2 million in Q2 and between 10 and $12 million for the full year of 2024.
Mark Hawkins: Finally, our guidance assumes FX rates as of April 29, 2024.
Mark Hawkins: In conclusion, it's an exciting time to be part of that being as we continue to invest in growth and optimize our cost structure to drive profitability. We are well positioned to continue to demonstrate the value of our world class platform and capitalize on the opportunities ahead of us and with that we'll open the line for questions.
Mark Hawkins: Operator.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from Steve Enders with Citi. Your line is open.
Speaker Change: Yes.
Steven Enders: Okay, great. Thanks for thanks for taking the question.
Steven Enders: Maybe just to start I mean, I guess getting to hear an update on what youre hearing out there in the deal environment.
Steven Enders: Thank you made a comment at the Investor day that you felt like the macro is maybe getting a little bit a little bit.
Steven Enders: So.
Steven Enders: I guess it would be good to get a little bit clarity on exactly how that deal environment has shifted and evolved in.
Steven Enders: Higher <unk> higher.
Steven Enders: You're kind of viewing that today.
Speaker Change: Yeah, Okay, I think that the the macro isn't perfect. There's definitely some some consternation.
Speaker Change: Around around the U S government around international affairs around whether inflation is going where it's going but it's workable.
Speaker Change: And.
Speaker Change: And with regards to AI, which is almost a macro effect for us.
Speaker Change: I don't see big budgets around AI.
Speaker Change: Amongst our customers. So that's not something that we're working with and drawing energy from this curiosity, but there's not big line items.
Speaker Change: Okay.
Speaker Change: That's helpful. There.
Speaker Change: And then I guess it was on the conference and began to get an update on the feedback we heard from from customers on maybe how they're thinking about AI investments how there.
Speaker Change: How they're thinking about some of the new products and the adoption there and I think also on the pricing and packaging changes that were that were announced there.
Speaker Change: We've got to get more clarity on.
Speaker Change: Feedback from the customer side.
Speaker Change: Yeah.
Speaker Change: First of all let me say that conferences went through a bit of a lull with COVID-19 right. When they went remote they lost energy. This in my opinion was the best Conference. We've had since before Covid I Love the energy I love the enthusiasm the attendance was good prospects showing up very pleased with the conference.
Speaker Change: I think that the changes in our pricing approach, which serve to both simplify and raise our prices have been broadly welcomed.
Speaker Change: I think there is.
Speaker Change: There is a willingness to see value in the new features that we have announced two weeks ago.
Speaker Change: And I didn't get any complaints why isn't this free instead, there was theres just depreciation for what we've created.
Speaker Change: And the simplicity I don't I don't get any pushback on that used to be we had so many different ways to price the software and now we've got one.
Speaker Change: It's not drawing.
Speaker Change: Additional friction in fact, it's simplifying and accelerating the process.
Speaker Change: Okay perfect. Thanks for thanks for taking the questions.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Robert <unk> with William Blair. Your line is open.
Robert: Hey, Thanks for taking my questions.
Robert: Mark I guess just to start off can you help us better understand the cloud revenue guidance.
Robert: Solid quarter, but when we look at the sequential increase from Q1 to Q2, it looks a bit softer.
Robert: But then the guidance implies a few points in back half acceleration. So could you just walk us through some of the building blocks.
Robert: But you have in the model for that acceleration, whether it be the pricing increases packaging increases or are some of the new products that give you confidence in that guide.
Speaker Change: Sure Jake I think you've got the right question the right analysis that.
Speaker Change: It is kind of in the background those price increases and things like that but it's really just more about our seasonality in our business.
Speaker Change: We tend to have.
Speaker Change: Yes, Q2, being the lowest revenue quarter for us.
Speaker Change: In terms of what were the weakest in a lot of that is also.
Speaker Change: What happened in Q1 from a bookings and billings perspective, right. So I think it's mostly seasonality and we do expect traction and recovery and Thats why we have reaffirmed our full year guide.
Speaker Change: Okay very helpful. And then can you just talk about the uptake you've seen with your new data fabric solution and just from a competitive positioning perspective, we've heard a few other vendors in the space launch their own fabric solutions over the past few months. So could you walk us through the differentiation.
Speaker Change: Of your product and then just also how the monetization path has been going over the past few quarters.
Speaker Change: Yes, thanks for asking those products are completely different.
Speaker Change: Our data fabric is meant to reach across the enterprise and integrate every data source.
Speaker Change: As our competitors are liable to offer a data fabric that is built just to connect their own data sources to each other because their own data higher internal architecture is so convoluted that there isn't natural compatibility between these products in the first place their own products I'm talking about so their data fabric is to integrate their own products.
Speaker Change: Ours is expansive and the other thing ours is that Theres just not is it creates a semantic layer. So that all of these data sources are not merely integrated but addressable through a common language and you can treat them like objects like they were local objects all through the same no.
Speaker Change: Nomenclature.
Speaker Change: So it's an entirely different product, what we've got except that they would grow with borrowed the data fabric terminology.
Speaker Change: That's a rough guide as the products are quite different.
Speaker Change: As for uptake our data fabric uptake is very high it's one of the best adopted features we've ever launched and and we anticipate having at even more deeply launched in the future as customers reach out to two connected greater share of their enterprise with the data fabric I like to joke around here that it's such a powerful.
Speaker Change: Differentiated feature that we're almost a data fabric company, though.
Speaker Change: Yeah.
Speaker Change: I do mean that as a joke, but it's a very important differentiator for us.
Speaker Change: Very helpful. Thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Derrick Wood with TD Cowen Your line is open.
Speaker Change: Oh, great. Thanks, it's Andrew on for Derrick.
Andrew: Guys how are you doing.
Andrew: Mark.
Speaker Change: The comment you made two questions ago about Q1, Q1 bookings impacting the guide.
Andrew: Was there anything maybe a bit of slowness to start the year. After a strong Q4 from a bookings perspective, and how was linearity and did any deals slip into Q2.
Mark Hawkins: Yes, I think it's more typical for us we do have a seasonal effect to our bookings and it's not abnormal to have the phenomena.
Speaker Change: So far in 2024, which is Q1 is much weaker than Q4.
Speaker Change: I think thats kind of a almost a ubiquitous in the software industry, but.
Andrew: We certainly have that this year and it is.
Andrew: Nothing abnormal.
Speaker Change: Okay. Good.
Speaker Change: And then Matt you made a comment about the new pricing model potentially accelerating things where would you expect that to accelerate.
Speaker Change: Sales cycles potentially this year.
Matt: Absolutely have that in mind, when I roll out the new pricing plan I also have in mind that will shift the basis for our discussions with customers away from price I don't want to be price engineers I want to be feature engineers and I'll talk about the features and the scalability of the reliability of things that make appian actually difference, where I want to spend our time so.
Matt: I am hopeful that it will help us to reduce sales cycles, but I can't put anything on the table I do think that it will guide the conversation in a more productive and pro Appian direction.
Speaker Change: Yes, that's great one last one for you Matt.
Speaker Change: You have reduced the number of partners along with the focus on quality over quantity. It seems like is is that kind of improve the quality of leads and pipeline flow from partners.
Speaker Change: Yes.
Matt: I would say that the we're early days on this shift.
Matt: We've emphasized a few partners you're absolutely right I think thats going to be healthy for the business.
Matt: Right now, we're getting a little bit more than we did in the past from partners. So if you take all of our partners added up even the ones that we dropped right total sum right addition to our pipeline yes. It is up but it's still early to see the long term ramifications of this of this prioritization and all I can say is that the firm.
Matt: First indicator looks like we're probably making the right decision, but I already have more confidence that we're making the right decision based on based on other things based on internal analysis. So this is just one of the smaller confirmations that we've made the right choice.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Kevin Kumar with Goldman Sachs. Your line is open.
Kevin Kumar: Thanks for taking my question I wanted to ask about net revenue retention that's been ticking up.
Kevin Kumar: Last couple of quarters can you just curious kind of the trends youre seeing there and whether kind of the go to market changes that you've been making to focus on your largest customers and maybe some of the pricing.
Kevin Kumar: Changes are impacting that kind of expansion motion.
Speaker Change: Yeah, well first of all I would love to see this in the kind of range, where it is we always talk about 110 to $1 20, but between those I got a preference and and I think that this is this is a kind of net revenue retention rate that is encouraged by the moves we have made just like you pointed out.
Kevin Kumar: I think it's too early to say that these changes which have just happened right. We're just making them now at the top of the year have had any impact on the net revenue retention rate honestly, that's a trailing indicator that it's going to take a long time for the changes we've made to filter into that metric slowly over the course of.
Kevin Kumar: A year or two.
Kevin Kumar: But but they should help.
Kevin Kumar: We focus on large opportunities if we put more of our attention on.
Kevin Kumar: Our top customers in our top partners I believe that'll be a net revenue retention positive.
Kevin Kumar: Im not asking to see it in Q1 or two or even three but I do think in the long run it is going to boost us.
Speaker Change: That's helpful. And then maybe can you talk a bit about procure side and how that expanded its hydro hydro opportunity for <unk>.
Kevin Kumar: It's probably still a bit early but what's been the initial response there.
Speaker Change: No I've been itching to talk about this for quarters. So thank you for bringing it up I'll be happy to address it as you know we've got southern called the government acquisition management suite, which is a series of solutions interlocking solutions that cover the entire acquisitions process for a public sector buyer.
Kevin Kumar: Those can be adopted singly or.
Kevin Kumar: In cereal and all at once or sequentially.
Kevin Kumar: <unk> been really popular it's established itself as an emerging standard in the U S government as the users are very pleased.
Kevin Kumar: And this new offering reinforces it capitalizes on the debt.
Kevin Kumar: The market leadership that we've established in procurement by offering a service and AI back to service that that taps into a number of different datasets very deep very wide datasets that give you the history of <unk>.
Kevin Kumar: Procurements of the past, including awards over the past and felicitations in the past so we're going to.
Kevin Kumar: We're gonna give expert AI based advice on what's happened before in the world of procurement and then also AI.
Kevin Kumar: It will help you to right.
Kevin Kumar: Your new procurements.
Kevin Kumar: This is an extraordinary accelerator I wouldnt recommend using it without a person in charge right. With this is this is that for the procurement professionals not to not a substitute for the procurement professional but it does allow that procurement professional to be far more efficient and if they are already working with Abbvie and then they've got the confidence in <unk>.
Kevin Kumar: <unk> got a framework into which to use the results they get out of procure site. So we've got high hopes for this one I've been excited about it for a while.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone.
Speaker Change: Again star one wanted to ask a question.
Speaker Change: Our next question comes from Tom Blakey with Keybanc capital markets. Your line is open.
Thomas Blakey: Hi, Good morning, guys. Thanks for taking my question here I just I guess my question is.
Thomas Blakey: Riding on a couple of the prior questions one of Andrew's mom bookings, but what the.
Thomas Blakey: The <unk> bookings sounded a little soft and I'm, just wondering looking out there and with the acceleration expected in the second half.
Thomas Blakey: What kind of bookings assumptions were made their mark.
Thomas Blakey: And maybe dovetailing into pricing as well as 25% price lift I think is the number.
Speaker Change: Hi is this just for new processes.
Thomas Blakey: For new work or is this kind of come upon each of our contract renewal for a larger set of customers left a follow up.
Speaker Change: You can take the first part of <unk> and then ill.
Speaker Change: Yes, so Tom it's really not a.
Speaker Change: A global story for US again, it's seasonality one thing I didn't mention which I should is that we did have an FX weakness since our last guidance in February and so we did have.
Speaker Change: A few million dollars leave our backlog.
Speaker Change: For the year and so we've absorbed that and of course, we're not we're able to reaffirm our full year cloud guide despite that.
Speaker Change: But that took a toll on Q2 and the full year and it was an impact as well, but there is no.
Speaker Change: There's nothing about our bookings pattern this year thats different than any other year in our assumptions for guidance or anything like that.
Speaker Change: Great Hey, I'm going to talk about our 25%. This is the higher tier than the new higher tier in our pricing system and all of the new features that we just announced at Appian world. They're all in the advanced tier so customers like this year, we had a lot of momentum I think is probably the best feature drop we've had in a long.
Speaker Change: Time and customers understand that in order to use. These features whether it's process HQ or case management or theyre going to have to think of a by the higher tier is 25% more I think that this is likely to come up in our renewal negotiations. So it's not all at once.
Speaker Change: But when customers talk about renewing that we're going to we're going to discuss why they should renew at the higher rate. It is not a mandatory 25% increase it's optional and we're trying to lure them up with.
Speaker Change: With these new these new features.
Speaker Change: I don't expect a rapid impact from this.
Speaker Change: But I do think that Appian has a large consumer surplus which is to say that our customers get more than they pay for and so by creating a new higher pay rate, we can sort of take some of that back.
Speaker Change: With features which I hope soon will be considered.
Speaker Change: Mandatory de Rivera for any appian customer because there is such good features.
Speaker Change: That's the plan here.
Speaker Change: That's a great answer Matt just as a follow up to that.
Speaker Change: Was the is the surplus being shifted to these higher tiers or is it just all incremental in terms of these higher tiers and a leading question to gauge.
Speaker Change: Consider if you wager.
Speaker Change: Wage or a percentage of.
Speaker Change: Revenue that you would expect to take this higher tier, especially given the fact that you have the power to move some of that surplus.
Speaker Change: To those higher tiers.
Speaker Change: Yes, I'm going to I'm going to hold back on making a prediction.
Speaker Change: I mean look I love. The question I asked this of myself, but I just don't want answers.
Speaker Change: I want to I want to just see if CPA fight this.
Speaker Change: And get back with more and help us.
Speaker Change: With <unk> and other benefits I'm sure if you push that.
Speaker Change: The surplus to the higher tiers and the consideration of continuing to stay at the company and customers' money, maybe we will see you will.
Speaker Change: We'll see a considerable move over now as a follow up to your budget kind of commentary.
Speaker Change: Still continue continues to grow double digits in a kind of flattish to up low single digit budget environment, where do you see the budget is coming I think it was <unk> question in terms of AI budgets, where where do you see.
Speaker Change: Hopkins budgets come in and then the context, if you could answer I saw your million dollar plus <unk> deals that you had that chart has been phenomenal in the last few years kind of flatten out a little bit if you could just kind of combine the two points in terms of an answer that would be helpful. Thank you Barry Yeah, Let me just say.
Barry: I know some people are watching that chart by the quarter I Wouldnt watch it too closely I do think there is some natural volatility in Q1 is Q1 for us so.
Speaker Change: Don't get too absorbed in the <unk>.
Speaker Change: <unk>.
Barry: Counts However, let me say that the the real space for US long term in this market is at that high end, that's where that's where our best of breed player belongs and so for us to focus on larger businesses in bigger deals at higher feature sets and an elevated prices. This is strategically where we belong.
Speaker Change: Yes.
Speaker Change: Ethics fits right into that for example, the.
Speaker Change: New elastic scale feature.
Speaker Change: We what we've done recently.
Speaker Change: And you can see it in our show and in the way we dropped a bunch of great features and they all have price tags.
Speaker Change: Way, we are reorganizing our priorities in the market to focus more on the larger opportunities at all.
Speaker Change: Under the understanding that there is a place that we can live comfortably in this market space and its at the high end.
Speaker Change: Well it makes sense that it could coalesce around maybe.
Speaker Change: Mark model, producing some profits in the future to coalesce around that so thank you very much.
Speaker Change: Yes.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone again to ask a question. Please press star one one.
Speaker Change: Our next question comes from.
Speaker Change: Raimo <unk> with Barclays. Your line is open.
Raimo: Okay. Thank you thanks for squeezing me in.
Speaker Change: Matt.
Raimo: Think about the data.
Raimo: Platform and the AI adoption.
Raimo: The data have to come first so if you think about like how the world is going to volunteer like you mentioned earlier, there's not that much on the AI budgeting side do you think the bigger move and people don't talk about it is actually that they need to clean up the data first and hence you see the property should be or could be and will it be more interesting.
Speaker Change: For the time being thank you.
Speaker Change: I think the data conversation is under pursued in AI generally as a society, we don't give data enough credit as businesses, we're not broadly giving data enough credit for the value. It creates inside AI and I'll, let me take that one step further and say AI will truly be valuable.
Raimo: When it's about you.
Raimo: This is true for you personally if you were to type of question into a public AI.
Raimo: Algorithms you you would get back a generic answer.
Raimo: But if it knew you it would give you an answer that was valuable to you and the way people get around this right now as they try to explain themselves very briefly if I care about this or or if my priority where X Y then what would you recommend for me right. They are basically kind of prompting the AI with a little bit of themselves, but at that level when the AI knows.
Raimo: Little to nothing about <unk>, it's a novelty when AI moves from being a toy to being a tool it's going to be because it knows EU and Thats true right now as you when you as a person interactive public AI and it's also true for businesses when they interact with AI is just a toy until the AI understands the business.
Raimo: <unk>.
Raimo: And thats, the real hurdle because understanding the business <unk> exposure to the data that the business owns the crown jewels of the business and Theres privacy concerns as regulatory concerns there's a lot of fear in that system.
Raimo: For us to get serious as a civilization about AI, we're going to have to figure out how to make AI about EU. In this case, you being the business and thats going to mean getting across this this.
Raimo: How do we share question, how will we share our information and I propose one answer to that question and that is that the data fabric will allow you to filter select and share only a tiny slice of your data, but the right slice with AI in order that you can get a valuable.
Raimo: Answer in reply without triggering any privacy of regulatory concerns. That's one answer to a critical question that that constitutes the frontier of real business value in AI. We're.
Raimo: We're going to have to have an answer to that question. We have one proposal Appian has got a proposal to how we're going to do it and and data fabric is utterly central to our ability to offer that proposal. So.
Raimo: I'm a huge believer in the synergy between data and AI between between the capability at the capability of data fabric to facilitate a certain sort of personalization around AI. That's what we're going for and we've positioned ourselves to be the leader in a specific kind of valuable and yet private.
Raimo: Hi.
Raimo: Going on a little long here, but I wanted to make a point, it's really important to us strategically what we're trying to do and since you asked about it I figure I just just lay it out that's our intention with the data fabric.
Speaker Change: Yes, no it makes total sense.
Raimo: Really valuable.
Speaker Change: And then one follow up Mark could you like.
Mark Hawkins: The Big question you got it.
Mark Hawkins: If you look at the bookings.
Mark Hawkins: This year, you said look it's all fine can.
Mark Hawkins: Can you maybe talk a little bit about the shape of the pipeline.
Mark Hawkins: That kind of always kind of all you are with.
Mark Hawkins: Was that always the plan for the year. So can you give us a little bit more handholding here.
Speaker Change: Where I get the most pushback. Thank you.
Speaker Change: Yes, I mean, the pipeline is kind of shown exactly heavier we expected. So there's no there's no change.
Speaker Change: The linearity has been typical for us which is back end loaded quarters.
Speaker Change: And as we've said for years Q1 is our weakest quarter and that was.
Speaker Change: Just the seasonal pattern buying patterns of our of our customers.
Speaker Change: So there'll be other missing pieces, what I'll reiterate which is the FX piece.
Speaker Change: Which did did cause the departure of our cloud revenue backlog.
Speaker Change: So about $2 $5 million for the full year.
Speaker Change: So that's yeah. That's one thing that you can see obviously in Q2 as well.
Speaker Change: But I would.
Speaker Change: I would caution anyone to read into anything abnormal.
Speaker Change: More the rule versus the exception for us.
Speaker Change: Okay perfect. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Steve <unk> with Citi. Your line is open.
Speaker Change: Yes.
Steven Enders: Okay, great. Thanks for thanks for taking my questions again, and what I mean back in the queue here I guess I just want to clarify the FX impact that you are seeing and I guess, maybe either framing.
Steven Enders: What was embedded in the guide before for the year I guess whats now kind of being embedded in the guide or for.
Steven Enders: For the year now and maybe also kind of the impact for the <unk> guide would be helpful.
Speaker Change: Sure Yeah. So we don't we don't forecast changes in FX.
Speaker Change: What I'm pointing out is that when we set our guidance for the year after.
Steven Enders: Our Q4 results were presented in February.
Steven Enders: The.
Steven Enders: Foreign currency rates.
Steven Enders: Yielded a certain amount of.
Steven Enders: Revenue rate.
Steven Enders: And since that time and the passage of three months.
Steven Enders: Those.
Steven Enders: Essentially the European exchange rates have weakened to the point that we saw $2 $5 million of cloud subscription revenue leaves.
Steven Enders: That forecast or that guidance or that backlog. However, you want to put it.
Speaker Change: And so if I may.
Speaker Change: <unk> our full year.
Steven Enders: Guide right, we've absorbed that too.
Steven Enders: $2 $5 million impact for the second quarter that impact was around $1 million.
Speaker Change: Is that helpful.
Steven Enders: Yes.
Speaker Change: Yes, that's clear so you are saying.
Speaker Change: FX constant currency basis, you would have raised the guidance by two 5 million for the year, but because youre encouraged by that.
Speaker Change: Yes, I was hoping you could use the word constant currency because that prior year's rates, but just using the rates as of February.
Speaker Change: If we use those rates certainly would have had those numbers $2 5 million increase for the full year, and then $1 million for the second quarter.
Speaker Change: Okay perfect I appreciate the clarification there.
Speaker Change: Yes.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced again Thats star one to ask a question.
Speaker Change: Our next question comes from.
Speaker Change: Oscar Saavedra with Morgan Stanley Your line is open.
Unknown Attendee: Hi, Thank you for taking my question and answers, so Nigeria onshore side, you're saying.
Unknown Attendee: I wanted to ask a question on just the macro demand environment and the <unk>.
Unknown Attendee: Health of your core verticals financial services government and healthcare.
Unknown Attendee: Nice to see like your net retention rate uptick in over the past several quarters. So.
Speaker Change: Your view on the general demand environment, and what Youre seeing that is allowing you to see that.
Speaker Change: Consistent uptake while others are.
Speaker Change: On copper.
Speaker Change: Seen that deteriorate. Thank you.
Speaker Change: Yes, I would say that our customers are getting a lot of value out of Appian software you can see in all of these new features the innovation, we're doing that we're very.
Speaker Change: Attendant.
Speaker Change: Delivering benefit being reliable.
Speaker Change: Satisfying them with with outcomes of their technology investment I think that shows in the retention and the support that they give us gross revenue retention is high as well.
Speaker Change: At 98% and and they also turn up for us on industry satisfaction survey so like.
Speaker Change: I cant speculate on whats happening for other firms, but I will say that our customers are enthusiastic and loyal audience because.
Speaker Change: Because we make sure that their experience is great.
Speaker Change: Got it so in terms of just like the broader demand environment are you seeing any any particular like.
Speaker Change: Phil.
Speaker Change: Budget constrained or just anything around that.
Speaker Change: On a principle.
Speaker Change: No.
Speaker Change: Okay, and just one more.
Speaker Change: On your AWS partnership driving deals like any like any additional details on what what's driving that.
Speaker Change: Too early deals.
Speaker Change: We announced that part of it but I wanted to announce so I don't want to get into anything more.
Speaker Change: Other than to say that we're enthusiastic about our <unk>.
Speaker Change: A long standing relationship with AWS.
Speaker Change: Got it thank you very much.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone again that is star one to ask a question.
Speaker Change: I'm showing no further questions at this time.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
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