Appian Corporation

Ladies and gentlemen, please stand by. Good day and welcome to the Appian Corporation second quarter 2020 earnings conference call. Please note that today's conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Scott Walker, Investor Relations. Please go ahead, sir.

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 in guidance for the third 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 and forward-looking statements are 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 a discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our Q2 2020 Thank You filing Our 2019 10-K 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. Thank you all for joining us today. In the second quarter of 2020, Appian's cloud subscription revenue grew 30% year-over-year to $29.6 million, and our adjusted EBITDA is a loss of $7.0 million. Total revenue, including a decrease in professional services, grew 2% year-over-year to $66.8 million. Our cloud subscription revenue retention was 113% as of June 30, 2020, including a gross renewal rate of 98%. These results exceeded our guidance. Appian has navigated the pandemic relatively well. Like a lot of companies, we've seen a dip in services revenue, but we have strong results elsewhere. Some businesses have seen lower new customer acquisition and longer sales cycles, but Appian saw the opposite. We nearly doubled our new logo wins compared to Q2 last year, and our sales cycles in Q2 were actually faster than our historical average. COVID has forced every organization to reassess how they react to changing circumstances. Every business now understands the importance of agility. A lot of the change that organizations want to make is done through software, so there's new emphasis on finding ways to create applications quickly. Naturally, low-code stands to benefit from this trend. Analysts looking at the post-COVID economy have concluded that low-code software will emerge as one of the winners. I generally agree with that, but I want to point out that most low-code technology is not capable of creating powerful, mission-critical applications. And it's in these powerful core applications that change is needed most urgently in a crisis. Companies need software that they can bet their business on. Software, for example, that reconnects them with now virtual customers or automates new processes like applications for emergency loans or maximizes the productivity of their dispersed workforce or protects the safety of employees returning to the office. The most important use of low code is on the most important applications. A surge of interest in low code was evident in the high attendance for virtual app in the world. We tripled attendance among customers, prospects, and partners versus last year. We heard lots of presentations from our clients about their successful and their fast deployments. Here's an example. One organization, part of a northern European health department, oversees COVID contact tracing. They became a new acting customer this quarter when they selected our low-code automation platform to coordinate hundreds of field workers making house calls to COVID-positive constituents. We won this deal because the organization needed to deploy quickly a mobile application to their dispatch teams to manage their contact tracing cases. Appian's case management capabilities and speed were highlighted when our partner deployed the app in less than two weeks. Also, one of Europe's largest exam boards expanded their use of Appian due to COVID. The board provides education assessments for over 5 million students globally. This year the organization expects to receive tens of thousands of additional appeals to exam scores and needs an application to process them quickly and accurately. Appian will integrate the customer's existing systems and automate the end-to-end process. Reviewers will use Appian to determine the validity of the exam and submit their decision. We won this expansion deal because the board needed to quickly deploy the application before their August appeal due date. A recent poll of large enterprises showed that 53% of businesses often have people back at the workplace, but only 12% are using software to ensure employee health on site. Without software, organizations cannot respond fast enough to health threats, and they cannot guarantee the security of the employee health data that they're collecting. In Q2, Appian launched two new solutions to meet this need, Workforce Safety and Campus Pass. Large enterprises and higher ed institutions are using these solutions on Appian's HIPAA-compliant cloud to track the health of their people and to safely reopen their facilities during the pandemic. These solutions have attracted new customers to Appian this year. 76% of organizations that bought these solutions are new Appian clients. For example, a top 10 global automaker and new Appian customer chose Workforce Safety, our new solution, Workforce Safety, to return thousands of employees back to their U.S. locations. Appian's easy-to-use solution, instant mobility, case management capabilities, quick configurability, allowed the automaker to respond to changing circumstances and protect their employees from COVID. The solution was configured and deployed in just 14 days. Additionally, a top 10 global sports brand and retailer bought Appian's workforce safety solution to bring thousands of employees safely back to their global stores, warehouses, and offices during the COVID crisis. This new Appian customer chose our solution because of its simple user experience, configurability to comply with regional regulations, and ability to deploy to their entire organization in just weeks. Here's an example in higher ed. A U.S. institution with over 75,000 students and faculty became a new Appian customer last quarter. This college offers training certificates for hands-on jobs such as nursing, mechanics, and electricians. These types of degrees need in-person practical exams, so students need to be on campus to meet their degree requirements. This was especially important for the 2020 graduating seniors. Hacking was deployed, and thousands of faculty and students phased back to campus within 10 days of purchase. Our existing customers are also adopting these solutions to return to on-site work, including the top 10 global pharmaceutical companies. This long-time customer expanded their use of Appian by purchasing workplace safety in Q2. They used our solution to manage the return of tens of thousands of employees to worldwide locations, including manufacturing facilities. They selected Appian because we were able to deploy to their global workforce within a month of purchase. I want to talk about partners next. As I mentioned earlier, Appian nearly doubled its new logo deals this quarter compared to last Q2. 70% of those new customers were brought to us by partners. Also, partner deals closed 22% faster last quarter than they did in 2019. For example, a partner helped us win a Q2 deal with a top 10 US cable company. This new customer will use Appium to consolidate its risk management systems into a single workflow and report on cybersecurity performance. With Appian, the customer will gain visibility on its security vulnerabilities because it can integrate data across disparate systems. We won this deal after our partner completed a complex proof of concept in just a few days. Our speed was also leveraged by another partner to win a deal with a Middle Eastern utilities company, making them a new customer in Q2. The company bought Appian to replace its inflexible legacy software and will build applications for customer onboarding, managing contracts, maintenance, and fleet management. We won this deal after the partner conducted a challenging proof of concept in two days. In Q2, our key industries continued to perform well. Life Sciences, in particular, almost tripled software bookings versus Q2 last year. More than half of the world's ten largest life sciences companies are happy in customers, making it our third largest industry. One top 10 life sciences company runs more than a dozen Appian applications across various business segments, including corporate functions, medical devices, pharmaceutical, and supply chain. In Q2, they purchased new licenses to coordinate the review and approval of custom medical products. Tens of thousands of employees and independent surgeons will collaborate using this new app to ensure these designs fit individual patients. We won this deal because of our ability to successfully automate their mission-critical processes. Additionally, We expanded at another top 10 life sciences company that uses our platform to automate all operational areas across the pharmaceutical division. For example, they use Appian to prepare and conduct patient visits in their clinical operations, and they've reduced processing times from hours to minutes. In Q2, they purchased over a million dollars in Appian software licenses to add more users to their clinical operations, event planning, and contract management applications. A North American Federal Health Policy Department is our last example in life sciences today. This customer uses Appian for compliance applications that oversee international drug requests and supply shipments crossing their border at hundreds of checkpoints. In Q2, it more than doubled its Appian investment for a medical device management application. This app will automate the registration and approval of new products launched into the market. We won this deal over an incumbent. because our platform is flexible and enables the organization to quickly adapt to changing regulations. Complement to our software, we continue to evolve our customer success offerings. Our architect services offering provides customers with access to a team of Appian services experts. They establish best practices and they advise on application selection, design, and deployment. We doubled the number of architect services customers this quarter compared to last quarter. That helps us on the software side as well because participants in this program are more likely to make follow-on license purchases. For example, a top-ten global bank uses Appian in their global operations and commercial banking groups. Earlier this year, the bank abandoned a two-year-long project to build a risk management app using a different technology. They pivoted to Appian, and with the help of Architect Services, the customer deployed the app in just 12 weeks. Following this success, the bank purchased millions of dollars of new Appian licenses. One last example. A top-ten global asset management firm subscribes to Architect Services to complement their partner-led implementation team. In Q2, the firm increased its Appian investment with a multimillion-dollar purchase to replace the entrenched legacy software in their mutual fund client services group. As businesses emerge from the pandemic, they will look to different technologies. They'll seek more automation or cloud. More digital transformation and more low-code. There will be a new emphasis on agility, the ability to react quickly to change. Our low-code automation platform will help businesses adapt to changing times. Now, I'll turn the call over to Mark for a deeper discussion about financials.