Appian Corporation

Greetings and welcome to the Appian Corporation second quarter 2019 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Stacey Mortenson, Investor Relations for Appian Corporation. Thank you. You may begin.

Thank you, Operator. Good afternoon, and thank you for joining us today to review Appian's second quarter financial results. With me on the call today are Matt Calkins, Chairman and Chief Executive Officer, and Mark Lynch, Chief Financial Officer. After prepared remarks, we will open up the call to a question and answer session. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. including statements related to our financial results, trends, and guidance for the third quarter and full year 2019, the benefit of our platform, industry, and market trends, our go-to-marketing growth strategy, our market opportunity, and our 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 to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any other subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations. For discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our 2018 10-K filing and our other periodic filings with the SEC. These documents in the earning call presentation are available in the investor relations section of our website at www.appian.com. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release in the investor relations portions of our website for reconciliation of these measures to their most directly comparable GAAP financial measures. With that, I'd like to turn the call over to our CEO, Matt Calkins. Matt?

Thanks, Stacey, and thank you all for joining us today. In the second quarter of 2019, Appian's subscription revenue grew 41% year-over-year to $38.0 million, and our non-GAAP operating loss was $6.6 million. Our subscription revenue retention remained strong at 117% as of June 30, 2019. These results exceeded our guidance. In the second quarter, we held Appian World, our primary user conference. My theme for the conference was that low-code has arrived, and I believe the attention we received bore that out. 75% more reporters attended this year than last. They published 68 articles about us globally, including multiple articles in Forbes and Computer World. Appian is a leader in the low-code market, and we believe our platform is the fastest way to turn ideas into applications. We demonstrate our speed with the Appian Guarantee. To remind you, the guarantee is our assurance that we can finish a customer's first application in just eight weeks for $150,000 and that anyone technical can learn Appian in two weeks. The Appian guarantee is not just for small projects. In fact, our guarantee-related software deals were on average larger than other software deals in Q2. Guarantee projects are no less critical or complex than others. For example, We won a deal at the Canadian brokerage division of a top 10 global asset management firm. They became a new customer by buying a seven-figure software deal and the Appian guarantee. They'll use Appian to build a customer onboarding application for their 3,000 brokers, aiming to reduce new client enrollment from six months to two weeks. They chose us over other vendors because they believe our platform is the only one that can completely automate their complex process within their short timeline. We also want to deal at a top five bank in the Netherlands for a global Know Your Customer application this quarter. They became a new Appian customer by purchasing almost a million dollars of licenses to integrate the bank's existing systems for three internal groups, including their compliance team, their customer account teams, and their executive managers. The customer had attempted to build this application with an existing provider, but the unsuccessful project was abandoned after one year. We proved our speed over three competitors by building a proof of concept in just four days. will deliver this project under the Appian Guarantee. The idea behind the Appian Guarantee is not new. We've been fast and impactful all along. An IDC study, just to clarify that, an IDC study conducted this quarter found that Appian customers break even on their investment in only seven months, and they attain a 509% ROI over five years. These quick returns are key to fast expansion within our customer base. For example, one of the top five global insurance brokers selected Appian to modernize their global reinsurance claims management process in Q1. Our competitor had estimated 6,000 person hours and up to a year to deliver this solution. The customer chose us because of the Appian guarantee. They were pleased with their eight-week deployment, and they returned in Q2 to buy over half a million dollars of additional Appian licenses, increasing their annual spend by 50%. This purchase will deliver a license compliance application for their contractors and a commission tracking system. Another fast expansion was with the Top 5 Clearing Bank in the UK that became an Appian customer just eight months ago. Based on successful deployments in their business banking division, they tripled their annual Appian spend with a seven-figure license deal this quarter. They will deploy these licenses to build a payment screening and sanctions application for their retail and business banking divisions. They'll use Appian to resolve suspicious trade and transaction activities. A second example of a large financial services expansion was with a top five global asset management firm, which made a seven-figure license purchase in the second quarter. Since becoming a customer about a year ago, they've deployed Appian in their customer service, operations, investment management, and retail investment groups. This quarter, their CIO chose Appian to replace a legacy system that runs a variety of back-office applications. We won this project because our platform is fast to deploy, fast to change, and supports mobile capabilities without extra development effort. Top five crude oil refinery operator in the United States currently uses Appian to manage refinery turnarounds. This application was launched in just six weeks and has saved the customer millions of dollars in refinery turnaround efficiency. This quarter, this refinery operator purchased half a million dollars of Appian software to move their product launch process off spreadsheets and email. Soon, they'll manage the ideation, specification, approval, testing, and certification of new projects in Appian. Partners made a strong impact on our business this quarter. They brought us 67% of our new logo deals. And these deals closed more than a third faster than the new logo deals we sold without partner assistance. For example, a partner referred us into a US subsidiary of a top five Japanese bank and helped us gain them as a new customer. The subsidiary purchased a half million dollars of Appian licenses to automate 500 approval processes, When an employee seeks approval for personal time off, securities contracts, or their daily profit and loss statements, they will do it on Appian. Our competitor estimated that it would take five developers and 15 weeks to complete this application. We finished our proof of concept in four days. So the customer expects to complete the project now with just one house developer in only six weeks on Appian. Another partner helped us win a Fortune 500 financial services institution as a new logo this quarter. They purchased over a half million dollars of Appian software to build a lending application. They'll use Appian to unify data from six legacy systems and automate the complex process for their wealth management and commercial lending groups. We plan to deliver their first project under the Appian guarantee. Partners were also instrumental in expansions, including a deal with one of the largest buyers of secondary market mortgages in the United States. We won a seven-figure deal to build an operations command center which will unify 15 work streams for 800 users. Before Appian, processes were highly manual due to their siloed systems. We won this deal over two competitors because of the superior proof of concept delivered by our partners. A partner helped us win another large expansion with a Fortune 500 hospitality and cruise operator this quarter. Two partner practitioners built a proof of concept for a capital planning application to replace the company's email and spreadsheet-driven process. The POC proof of concept was so complete that the customer made only a few tweaks before deploying it. This purchase is worth more than three quarters of a million dollars and quadruples their annual Appian investment. Now that low-code as a platform is established, pre-built solutions are the next logical step for building applications even more quickly. We've been a platform company since our inception, so our solutions approach is distinctive. First, every Appian solution is built on our platform, using only our objects and our institutions. So these solutions are fully standardized, upgradable, and compatible. That's the first difference. The second one is we will go beyond compatibility. Our solutions will be proactively collaborative with each other. They'll have common data definitions, shared reports. built-in calls that talk to each other. This out-of-the-box harmony is far from what you get with competitors' solutions, which are generally built as silos. For these two reasons, both of which are facilitated by our long-standing focus on the platform, our solutions approach is different and very likely superior to what is currently available. In Q2, we deployed a contact center for a Fortune 500 analytics company. Their 20,000 employees worldwide needed help from their human resources team to resolve employment matters such as policy, procedure questions, benefits enrollment, and time off requests. This customer wanted to enhance their employee experience and bring their outsourced service center in-house. Our solution simplifies contact center deployments by packaging the necessary integrations and Appian objects to give contact centers a head start. Our team of just three practitioners configured the Intelligent Contact Center to this customer's unique needs and deployed it in only eight weeks. This timeframe is significantly faster than the nine to 18 months that it takes to deploy contact centers with other providers. This quarter we launched a new solution, a new solution called Robotic Workforce Manager, which is being received with a great deal of enthusiasm. Robotic process automation, you've heard of it, has been popular. Many companies are running droves of RPA bots on automated tasks. There are two problems with these implementations. First, there are too many bots and it isn't easy to make them work efficiently together. Second, the bots cannot handle exceptions. Only humans can do that today. Our solution manages these bots and coordinates their work with that of a human team to optimize for both automated throughput and human exception handling. So you can see why it seems like it might be popular. We also have partners in OnTheAct building their solutions on the Appian platform. KPMG, for example, released a solution to help customers move off LIBOR by scanning contracts for LIBOR references and using artificial intelligence to recommend replacement language. Or here's another one. PwC's healthcare provider engagement solution manages the complex interactions between pharmaceutical companies and healthcare providers. These partner solutions are just the beginning. Since our last call, we've relocated into a new headquarters in Tysons, Virginia. Appian has been emerging as one of the premier technology companies in the Washington, D.C. region. You may remember that we were chosen as the best place to work last year by the Washington Post. and this location allows us to look the part. We're in a central location. We have a block of contiguous floors. Our name is on the building and we did it while lowering our per square foot rent. Now, with that said, I'd like to turn the call to Mark Lynch, our CFO, for a deeper discussion of our financials.