Appian Corporation

Good afternoon and thank you for joining us today to review Appian's first quarter financial results. With me on the call today are Matt Calkins, Chairman and Chief Executive Officer, and Mark Wimps, 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 cargo provisions of the Private Securities Litigation and Form Act of 1995, including statements related to our financial results, trends and guidance for the second quarter, the impact of COVID-19 on our business and on the global economy, the benefits of our platform, Industry and Market Trends, our Go-to-Market and Growth Strategy, our Market Opportunity and Ability to Expand our Leadership Position, our Ability to Maintain and Upsell Existing Customers, and our Ability to Acquire New Customers. The words Anticipate, Continue, Estimate, Expect, Intend, Will, and similar expressions are intended 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 subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our Q1 2020 10-key filing, our 2019 10-key filing, and our other periodic filings with the SEC. These documents and the earnings call presentation are available in the investor 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 and the investor relations portion 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, Scott, and thank you all for joining us today. In the first quarter of 2020, Appian's cloud subscription revenue grew 33% year-over-year to $28.4 million, and our adjusted EBITDA was a loss of $3.6 million. Subscription revenue, including on-premises and cloud software, grew 36% year-over-year, to $50.4 million. Total revenue, including professional services, grew 31% year-over-year to $78.9 million. Our crowd subscription revenue retention remained strong at 115% as of March 31, 2020. These results exceeded our guidance. We also set a new high mark to gross profit margin in the first quarter at 70%. This surpasses our previous high of 67% achieved the prior quarter. We are operating in unprecedented times with COVID-19 and I hope you and your families are healthy. COVID is a health crisis first and an economic crisis second. Our consideration begins with the health of our employees, their families, our customers, and everyone else. But let me discuss the crisis from an economic perspective. In a situation like we are going through now, we are inevitably going to face Thank you very much. Thank you. Let me offer five reasons why I believe Appian will emerge from this health and economic crisis stronger than we entered it. First, we stayed relevant. Our crisis is a testing point for any institution. Some stepped forward, others stepped back. Appian asserted itself and stayed relevant throughout. We built a solution to help companies monitor their employees' health. Hundreds of companies downloaded it, and some really large firms launched and relied on it. We also brought solutions for the USHF Protection Program and employee re-entry to substantial customer interest. We garnered plenty of press attention for these applications within the conversation and we showed that when a crisis strikes, Appian has something to offer. For example, a regional affiliate of the UK National Health Service launched a command center using Appian to allow frontline workers to collaborate with each other, coordinate care for discharged patients, and report resource availability Their application was deployed in about a week and protects hundreds of healthcare workers and thousands of patients. Additionally, a multinational company recognized as one of America's best large employers chose Appian to manage its response to the COVID-19 pandemic and the eventual return of its workforce to its facilities. The application is HIPAA compliant, configurable for any health crisis, and centralizes all employee data on health status, recent travel, and recent symptoms and diagnoses. The company's crisis management team will use this application to respond to incidents and coordinate the safe return of thousands of employees when it reopens its facilities. It was built in just two weeks. Secondly, following a crisis, we're likely to see a consolidation of buyer attention around leaders. It's a good time to be a leader, a bad time to be an aspirant. A good time to have quals, a bad time to try to get them. Appian is a leader in low-code and in automation. The events of 2020 will make it harder for others to catch up with us. We advanced the automation industry by acquiring and fully integrating a leading RPA firm in Q1, becoming the only vendor to offer the ability to orchestrate bots, AI, and people in a single workflow on a single platform. Just three months after our acquisition, we already have adoption of Appian RPA. For example, a top labor union and long-time Appian customer will use our bots to onboard new contractors more efficiently. Appian bots will automatically retrieve data from external websites and display it for employees to use as they complete the onboarding process. This new workflow orchestrates bots and people together to reduce the time it takes to verify a contractor's identity from days to less than a minute. Another example is a Q1 expansion with a top five global insurance broker. This customer This is our platform already to automate their reinsurance claims and commissions tracking systems for thousands of users. In Q1, they bought over a million dollars of additional Appian licenses to expand into more business lines. Before Appian, brokers needed to manually enter data from insurance forms into their systems. Now, Appian will use artificial intelligence to automatically ingest millions of insurance documents annually. AI does this tedious work so brokers can spend their valuable time serving customers. We won this expansion because we demonstrated the value of our automation capabilities. Apple has differentiated our automation market because we remain an open platform. We believe customers will continue to integrate best-of-group software with their Appian applications. We're maintaining close partnerships with other leaders in RPA and AI so our customers can build applications that best fit their needs. A Fortune 500 insurance company became a new Appian customer in Q1 by purchasing Appian to orchestrate blue prison bots and employees to onboard insurance policy resellers. Before Appian, the company struggled to manage its bots and their exceptions. We won this deal because our open platform gives them the governance over their bots leading to improved accuracy and processing times. One of the primary lessons that this crisis has taught the business world is that you have to be ready for change. This is the third reason Appian will emerge stronger after the crisis. Businesses have to reorganize their safety practices to retain the trust of their employees. Banks had to be ready to offer a new lending platform at short notice, etc. Businesses now know that they need a platform for change. Appian is such a platform. For example, a subsidiary of a top-ten global bank is using Appian to process Payroll Protection Program loans, a component of the U.S. Coronavirus Aid, Relief, and Economic Security Act. Our platform initiates a case for employees to review before D-PRISM bots submit the request to the Small Business Administration. After the administration banned RPA bots from accessing their website, the bank quickly reconfigured Appian to use recommended API calls instead. Using Appian automation, the bank swiftly responded to the urgent funding needs of their small business customers, adopting quickly to meet the changing environment. This Appian application was built in one week and accepts new loan requests every few seconds. Here's another example. A top-ten healthcare provider in the U.S. built an Appian application for doctors to submit COVID-19 patients to a clinical trial for new drug. This medication has limited availability, so the firm is closely managing its patient intake and approval process using Appian. Its team has teamed up the app in just 24 hours and deployed it to thousands of doctors. In Q1, our platform's speed continues to differentiate us in deals, both with new levels and existing customers. Half International Grocery Retailer became a new Appian customer a year ago. It uses our low-code automation platform to file claims and investigate issues with its supply chain. Its first project was delivered in eight weeks, and the application reduced processing times from hours to just 15 minutes per claim. This quarter, the retailer purchased an additional half a million dollars in Appian licenses to deploy a mobile app. Appian will be used to digitize and manage logistics for fleet drivers delivering supplies to stores. Herb estimates the app will save them over $1 million this year. Our speed also want to deal with the top 10 global pharmaceutical company, making it a new Appian customer. It selected our platform to manage its process for designing clinical trials. Trials are planned based on many factors, such as market size, existing drawings, and potential patients, and geographies. Appian consolidates data about these factors in a single view and allows the firm's employees to quickly specify clinical trial designs based on that data. We won this deal after demonstrating our speed with a complex proof of concept built in just five days and committing to deliver the firm's first project in eight weeks under the Appian guarantee. Another notable win in the first quarter was with the top five global asset management firm. This new customer will manage employee registrations and disclosures in Appian replacing flexible systems that are too costly to update when compliance requirements change. We run this deal because of our platform's ease of use, which was demonstrated when the firm's employees were able to build a proof of concept that met their requirements in just a few weeks and without Appian training. We'll deliver this first project with the 8-week Appian guarantee. Fourth, this crisis offers a natural opportunity for introspection and improvement. The global employment landscape has changed due to COVID-19. Happy we can upscale our company with top talent that might have been locked up otherwise. We made two such hires, Pavel Zamudio to lead customer success and Eric Cross as Chief Revenue Officer to lead our sales division. Pavel started a month ago and is making great improvements. Eric will start on Monday, May 11, transitioning from David Mitchell over the course of the month. We're gearing up a new leadership team. writing new plans, institutionalizing new processes. It's the perfect time to do it. As the world emerges from this crisis, it will demand more digital transformation, more cloud, more SaaS. And this surge of demand for new, quick-moving, quick-changing, customer-responsive software processes is the fifth and final reason why our low-code automation platform is well-positioned. Now I'll turn the call over to Mark for a deeper discussion. Thanks, Matt. Before I review the financial performance for the quarter, I want to briefly discuss the effects of COVID-19 on our business. We've not seen a meaningful impact to our reported financial results. It's very difficult to know how the pandemic will impact us over the next two to three quarters. In short, in many terms, we expect some disruptions. and in the long term we're confident that our business is well positioned to succeed. We're benefiting from our high course remittance rate currently at 98% which reflects the mission critical nature of our platform. Our core verticals such as financial services, U.S. federal government, healthcare and pharma are less affected by the short term impacts of the pandemic and we have very little exposure to small and medium businesses. Our strong and expanded business model will also help us get through this crisis and historically two-thirds of our software ACV growth relates to customer expansion and one-third to new logo acquisition. Having said that, we expect short-term negative impacts to our business, especially as it relates to net new ACV bookings and professional services revenue. With that, I will do the financial highlights of the quarter. Cloud subscription revenue for the first quarter was $28.4 million, an increase of 33% year-over-year and above the top end of our guidance. Our total subscriptions revenue is $50.4 million, an increase of 46% year-over-year, which exceeded our expectations for two reasons. First, we recognized approximately $4 million of non-prem revenue associated with deals that closed in Q1 2020 that we anticipated would not close until Q2 2020 when we provided our initial Q1 guidance. Additionally, we closed a three-year on-prem contract in the quarter where the customer did not want The contract to auto-renewal on an annual basis. As a result, we recognize $2.8 million in revenue up front versus recognizing approximately $1 million each year upon auto-renewal. Professional services revenue is $28.4 million, up 10% from $25.7 million in the prior year period, and 7% from $26.5 million in the fourth quarter. Partners continue to be a larger part of the ecosystem and are increasingly helping us sell more software. Total revenue in the first quarter was $78.9 million, an increase of 31% year-over-year and also above our guidance. Our cloud subscription revenue retention rate as of March 31st was 115% within the 110% to 120% range that we target on a quarterly basis. We continue to be pleased with our customers' expanded use of our platform. Our international operations contributed 33% of total revenue for Q1 Thank you for joining us today. Our non-GAAP professional services gross profit margin was 35% in the first quarter of 2020 compared to 28% in the first quarter of 2019. The services gross profit margin was positively impacted by a decrease in the amount of services performed by subcontractors as opposed to our internal resources. Also, we recognized approximately half a million dollars of services in Q1 2020 that had actually been delivered in 2019. Effectively, we expect a non-GAAP professional services gross margins to return to the mid-to-upper 20s. Total non-GAAP operating expenses were $60.3 million, an increase of 30% from $46.5 million in the year-ago period. We rescheduled our Q1 annual user conference, Appy World, to be a virtual conference. The conference should be held next week on May 12th and 13th. Our Q2 guidance reflects the costs of the virtual conference. Suggested EBITDA was a loss of $2.6 million. in the first quarter. Above our guidance, we compared to an adjusted EBITDA loss of $7.3 million in the year of that period. In the first quarter, we had $3.5 million of foreign exchange losses compared to $0.1 million of FX losses in Q1 2019. Our guidance does not consider any additional potential impact to other income and expenses associated with FX gains or losses as we don't estimate movements in foreign currency exchange rates. Non-GAAP net loss was 8.2 million dollars for the first quarter of 2020 or a loss of 12 cents per basic and diluted share compared to non-GAAP net loss of 8 million dollars or a loss of 12 cents per basic and diluted share for the first quarter of 2019. This is based on 67.5 million and 64.3 million basic and diluted shares outstanding for the first quarter of 2020 and the first quarter of 2019 respectively. Turning to our balance sheet, as of March 31, 2020, we had cash and cash equivalents of $149.2 million compared with $159.8 million as of December 31, 2019. For the first quarter, cash use and operations was $3.9 million. Total deferred revenue is $87 million for the first quarter. With respect to our billing terms, the majority of our customers are invoiced on an annual upfront basis, but we also have large customers that bill quarterly These are the variability of our bearing terms. Changes in our deferred revenue are generally not indicative of the momentum in our business. Now let me turn to guidance. For the second quarter, crowd subscription revenue is expected to be in the range of $28.4 million and $28.7 million, representing year-over-year growth of between 25% and 26%. Total revenue is expected to be in the range of $60 million to $61 million. As a reminder, we recognize approximately $4 million of on-prem revenue in Q1 that we expected to recognize in Q2 when we gave our initial guidance in February. In addition, the total revenue guide reflects a reduction of our professional services business due to COVID-19. Adjusted EBITDA loss is expected to be in the range of $16 and $14 million. Non-GAAP net loss per share is expected to be between 26 and 23 cents This is some 67.7 million basic and evaluated common shares outstanding. For the full year, due to the unprecedented uncertainty surrounding the ongoing impact of COVID-19, we are withdrawing the full year 2020 outlook. Qualitatively, we expect to see headwinds to our professional services business and our ability to close new logos throughout the year. On the cost side, many of the expenses have been naturally adjusted. For example, tuning has been dramatically reduced Virtual marketing events are less costly and efficient, and services and G&A hiring has been downshifted. Being founder-led, we are inherently long-term owners and will continue to hire sales reps and software engineers. Before we take any questions, I want to highlight a few areas of Appium's financial strengths, given the current environment. First of all, our liquidity position is strong. We have $149 million of cash on hand and no debt. We also have an unused credit facility at our disposal. We have a business model that is built to last. We have a corporate culture that is focused on the long term. Our software revenue is 100% subscription based, our gross and net renewal rates are best in class, and our software and services margins are 80. Our LTV to CAC ratio has exceeded seven times throughout the past five years. Finally, we've been in business for over 20 years. We've been through several difficult economic cycles. We're confident that we'll arrive as a stronger company on the other side of this crisis. With that, let's turn it over to questions.