Appian Corporation

Good day and welcome to the Appian Corporation fourth quarter 2021 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Sri Ananta, Director of Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon and thank you for joining us to review Appian's fourth quarter and full year 2021 financial results. With me today are Matt Calkins, Chairman and Chief Executive Officer, and Mark Klein, Chief Financial Officer. After prepared remarks, we will open the call for questions. Today, you will want to follow along with our earnings presentation. You can download it from the main page of our investor site at investors.appian.com. During this call, we may make statements related to our business that are forward-looking under federal securities laws and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These include comments related to our financial results, trends, and guidance for the first quarter and full year 2022. The impact of COVID 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 indication of future expectations. These statements reflect our views only as of today. They do not represent our views as of any subsequent date. They 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, Refer to our 2021 10K and other periodic filings with the SEC. These documents are also available on our investor section of our website. Additionally, non-GAAP financial measures will be discussed on this conference call. Refer to the tables in our earnings release and the investor section of our website for a reconciliation of these measures to their most widely, most directly comparable GAAP financial measures. With that, I'll turn the call to our CEO, Matt Calkins. Matt.

Thanks, Sri, and thanks, everyone, for joining us today. In the fourth quarter of 2021, Appian's cloud subscription revenue grew 39% year over year to $51.2 million. Subscriptions revenue grew by 35% to $75.8 million. Total revenue grew 29% year over year to $105.0 million. $105 million makes Q4 our first $100 million quarter. Our cloud subscription revenue retention rate was 116% as of December 31st, 2021. And our adjusted EBITDA was a loss of $10.0 million. For the full year Appian's cloud subscription revenue also grew 39% year over year to $179.4 million. Subscriptions revenue grew 33% year over year to $263.7 million. Total revenue grew 21% year over year to $369.3 million. Our adjusted EBITDA was a loss of $37.9 million. These results exceeded our guidance. Appian's earnings typically follow a format. We open with a few headline metrics like the ones I just mentioned, and then we present a theme with some customer stories as validation. This time we'll do something completely different. I want to take you behind the curtain for a detailed numerical tour of our business. We will compare Appian today to Appian one year ago. You'll also see some multi-year history stretching back to our IPO in 2017. I'll be sharing some information we've never before disclosed. I encourage you to follow along with the slides in our earnings presentation, though it will not be necessary, as I will speak to all the key numbers. Let's begin on slide five, talking about Appian revenue over the five years since our IPO. There's a slight discontinuity At the 605-606 transition, of course, that's the vertical line down the middle of the chart, but the trend is still clear. Growth is strong and steady, and it's rising. Our total revenue growth is accelerating from a 17% rate in 2020 to a 21% rate in 2021. The subscriptions revenue chart on slide six, if you go forward, please, is very similar, except that the growth rates are steeper because services are excluded. Once again, we see an acceleration, this time from 31% growth in 2020 to 33% growth in 2021. And if we were looking at cloud subscriptions revenue, the growth rates would be even higher at 36% in 2020 and 39% in 2021. SUBS revenue is now above a quarter billion dollars per year versus less than 100 million when we went public. On slide seven, we examined total RPO or remaining performance obligations. Here we showed over three years to give you some perspective on a number that we rarely discuss. We added $79.3 million in new RPO during the year and a record $38.8 million in Q4. Total RPO accelerates to 39% growth in 2021. And on the next slide is another look at RPO. If you go to slide eight, in this case, it's current subscriptions RPO. And once again, it shows an acceleration, albeit a more modest one, from 33% growth in 2020 to 34% growth in 2021. Let's look next at our most substantial customers. See slide nine. Appian added 20 new customers with greater than a million dollars in ARR last year. We grew our total of those customers with more than a million dollars in ARR. Our total grew from 55 to 75. That is both the largest nominal increase and the largest percentage increase since our first full year as a public firm, and a sharp acceleration over the prior year. You'll see a similar pattern in the second chart on this page, which shows customers with greater than a quarter million dollars in ARR. Again, 2021 delivered both the largest nominal increase and the largest percentage increase since our first full year as a public firm. Please follow me to slide 10, where we chart revenue per customer over five years. When we did our IPO, we spoke a lot about our nearly half million dollar revenue per customer ratio. I felt it showed we were delivering a lot of value, and so I brought it up a lot in the investor meetings. This chart shows that we've not quite maintained that ratio, but we haven't fallen too far from it either. We're still at more than $450,000 per customer in 2021. And most importantly, the subscriptions revenue per customer is actually up over these five years. It's only the services revenue component that's declining, and you would expect that in light of our strategy to offer more of our services opportunities to our partners. Let's put a spotlight on that mix shift for a moment. Please flip to slide 11. We're a different company than we were at our IPO. Back then, the mix was nearly even between subscriptions and services, Now it's almost three quarters, one quarter. Our willingness to let services decline has weighed on the revenue growth rate, of course, but this was our strategy. We engage with the partner community to enable better subscriptions growth and deployment capability. Our platform became more powerful in 2021. You can see this on our simplified architecture slide, which is slide number 12. It shows the three major components of our suite, process mining, workflow at the center, and automation. We have evolved from a single offering at IPO to a suite today. We have an end-to-end low-code platform that takes customers from discovering new processes to designing them to automating them. It's done with native technology and a unified feature set purchased as a single item, delivered together, upgraded together, and used together. The final piece of this puzzle came last month when we released our process mining functionality based, of course, on last year's acquisition of Lana Labs. As our platform grows, so grows our customers' use of it. Let's look at slide 13. In 2021, customers ran 4.5 billion workflows on Appian Cloud, an increase of 81% over 2020. and an acceleration on the 77% growth between 2020 and 2019. Customers use Appian workflows to unify people, processes, and data. And the more technologies we integrate into Appian workflows, the more they use them. I think this is an essential slide. And there's an important connection between the prior slide that showed growing functionality and this one that shows growing usage. Since we're looking at usage growth, here's another angle. If you'll flip, please, to slide 14. Slide 14 charts the user logons on our cloud product. We're at 64 million last year, up 45% over the prior year. After two big growth years, we're running at 4x the volume we had in 2019. Changing gears now to customer experience, please go to slide 15 where you'll see we've depicted the growth in our elite support program. Our customers use the elite support services offering with benefits like high availability and 24 by seven by 365 support to ensure the success of their most important deployments. You can read it as a rough proxy for how much our product is being used in a mission critical way. Customers subscribing to this elite support program rose 39% last year. The revenue generated by this program rose even faster by 63%, indicating that elite support was purchased for larger deployments than before. Our cloud SLA uptime was 99.995%, very similar to the year prior, and once again, exceeding our commitments. Overall, our customers have demonstrated a high level of satisfaction with the Appian experience. You can see the stats on slide 16. Buyers rank us highly. The Gartner Pure Insights survey, based on customer reviews, ranked Appian above all of our top competitors. Appian was singled out in that study as the sole customer's choice in the low-code industry. for clients whose annual revenue exceeded $1 billion. Buyers also awarded us top rankings in surveys conducted by TrustRadius and G2. Our cloud subscription renewal rate was 98% in both 2020 and 2021, which ranks us among the elite of SaaS companies. We finished 2021 with 80% more partner practitioners than we started. And our overall community membership, the total Appian ecosystem, including developers and students and prospective customers, it more than doubled. It's not just our customers that are happy. Please look to slide 17 to see the situation amongst Appian employees. For the eighth year in a row, we were recognized as a top workplace by the Washington Post. Again, we were ranked the number one software company in the DC area. 92% of our employees rate us a great place to work, according to the survey by the same name. I'm told a typical U.S.-based company earns this recognition from 59% of their employees. Also, look at our employee retention rate over the past five years on the chart to the right, always unusually high and dipping only slightly to 85% during the great resignation. We put a lot of emphasis on our culture and values, and I believe we've created a workplace that's more than just a place to work. The rest of the deck is our typical quarterly data reporting, so I'm not going to talk through the remainder of the slides. I hope this glimpse behind the curtain has been useful and gives you a better sense of where our business stands relative to last year and relative to where we were at our IPO. I hope it also serves to explain why Appian chooses to make the investments that it makes in our business. We take the decision to invest very seriously. We challenge it on a regular basis. We feel confident, based on the dynamics of our industry and our business, that the investments are well warranted. I want to remind our investors that Appian grew to its IPO as a bootstrap, and we are well familiar with financial discipline and profitability. Now, I'll turn the call over to Mark for a deeper discussion of our financials. Mark?

Thanks, Matt. I'll review the financial highlights for the quarter, and then we'll provide details on our Q1 and full year 2022 guidance. We delivered another solid quarter with subscriptions revenue growth of more than 30% year over year. We also saw strong subscriptions growth in key industry verticals in each of our geographical regions. Our investments in the platform, sales and marketing, and go-to-market initiatives are bearing fruit. Let's go into the details. Claude's subscription revenue for the fourth quarter was $51.2 million, an increase of 39% year-over-year and above the top end of our guidance. Our total subscriptions revenue was $75.8 million, an increase of 35% year-over-year. We are pleased with the continued strength of our revenue growth. Professional services revenue was $29.2 million, an increase of 14% from $25.5 million in the prior year period and up 16% from $25.2 $25.2 million in the prior quarter. We expect our professional services revenue to continue to decline as a percentage of total revenue. Subscriptions revenue was 72% of total revenue in the fourth quarter and 71% for the full year of 2021 as compared to 69% and 65% respectively in the prior year periods. Total revenue in the fourth quarter was $105 million, an increase of 29% year over year and also above our guidance range. Our cloud subscription revenue retention rate as of December 31, 2021 was 116% as compared to 117% last quarter. As a reminder, we continue to target a cloud subscription revenue retention rate of 110 to 120% on a quarterly basis. Our international operations contributed 36% of total revenue for Q4 2021 versus 33% a year ago. The growth in international revenue was driven by continued healthy growth in both APAC and EMEA regions and demonstrates the balance of our business both domestically and internationally. Our cloud software ACV booking was approximately 75% of the total software bookings during 2021 versus 80% for the full year 2020. Total remaining performance obligations or RPO is approximately $286 million at the end of the quarter, an increase of 38% from the year-ago period. The current portion of RPO, which we expect to recognize as revenue over the next four quarters, was $190 million, an increase of 34% year-over-year. We're very pleased with the growth in RPO. However, I would like to note that there is some seasonality with RPO. Consistent with prior periods, RPO is expected to decline in Q1 on a sequential basis. Now I'll turn to our profitability metrics. For the fourth quarter of 2021 and 2020, our non-GAAP gross profit margin was 74% in each respective period. Subscriptions non-GAAP gross profit margin was 90% in the fourth quarter of 2021, consistent with the year-ago period. Our non-GAAP professional services gross profit margin was 32% in the fourth quarter, compared to 38% in the same quarter of 2020. We continue to expect professional services non-GAAP gross margins to decrease to the mid to low 20% range in 2022 and beyond as we dedicate more customer success resources to support partners. Total non-GAAP operating expenses in the fourth quarter were $89.5 million, an increase of 36% from $65.6 million in the year-ago period. Adjusted EBITDA loss was $10 million in the fourth quarter, better than our guidance range, and compared to an adjusted EBITDA loss of $3.7 million in the year-ago period. In the fourth quarter, we had approximately $500,000 of foreign exchange gains compared to $3.9 million in gains in the same period a year ago. We don't forecast movements in FX rates. Therefore, they aren't considered in our guidance. Non-GAAP net loss was $11.6 million for the fourth quarter of 2021, or a loss of 16 cents per basic and diluted share compared to non-GAAP net loss of $1.8 million, or 3 cents per basic and diluted share for the fourth quarter of 2020. This is based on 71.3 million basic and diluted shares outstanding for the fourth quarter of 2021, and 70.4 million basic and diluted shares outstanding for the fourth quarter of 2020. Turning to our balance sheet, as of December 31, 2021, cash and cash equivalents in investments were $168 million, compared with $258.4 million as of December 31, 2020. For the fourth quarter, cash used by operations was $19.4 million versus cash provided by operations of $5.8 million for the same period last year. Compared to the year-ago period, operating cash flow was negatively impacted by higher litigation expenses, higher sales commissions due to quota overachievement, and deferred payroll taxes. Total deferred revenue was $152.6 million as of December 31, 2021, an increase of 22%. from the prior quarter, and 27% from the year-ago period. As we have stated on past calls, the majority of our customers are invoiced on an annual upfront basis, but we also have large customers that are billed quarterly or monthly. Due to the variability of our billing terms, changes in our deferred revenue are generally not indicative of the momentum in our business. Now I'll recap our full-year 2021 results. Collide subscription revenue was $179.4 million, representing growth of 39% year-over-year. Our total subscriptions revenue of the year was $263.7 million, an increase of 33%. Professional services revenue for 2021 was $105 million, down 0.3% compared to 2020. Total revenue for 2021 was $369.3 million, up 21% compared to 2020. Adjusted EBITDA loss was $37.9 million in 2021, compared to $16.8 million in 2020. This is above the top end of our guidance. Non-GAAP net loss was $48.3 million in 2021, or a loss of 68 cents per basic and diluted share, compared to non-GAAP net loss of $18.2 million, or a loss of 26 cents per basic and diluted share for 2020. This is based on 71 million and 69.1 million basic and diluted shares outstanding for 2020. 2021 and 2020 respectively. For the year ended December 31, 2021, cash used in operations was $53.9 million versus $7.6 million for the same period last year. In addition, we paid $30.7 million in cash for the Lana Labs acquisition during Q3 along with an equity component that vests over time. Now turn to guidance. As a reminder, we believe cloud subscription revenue measures the growth of our subscription business The true scale of the business is represented by total subscriptions revenue, which includes support in all subscription revenue, regardless of whether the customer deploys Appian in the cloud or on-prem. For the first quarter of 2022, cloud subscription revenue is expected to be in the range of $52.1 million to $52.6 million, representing year-over-year growth of 33% and 35%. Total revenue is expected to be in the range of $106 million to $108 million, representing year-over-year growth between 19% and 22%. Adjusted EBITDA loss for the first quarter of 2022 is expected to be in the range of $9 to $7 million. Non-GAAP net loss per share is expected to be between 15 to 12 cents. This assumes 72.1 million basic and diluted common shares outstanding. For the full year 2022, collage subscription revenue is expected to be in the range of $234 to $236 million, representing year-over-year growth of approximately 30 and 32%. Total revenue is expected to be in the range of $444 million to $446 million, representing year-over-year growth of approximately 20 and 21%. Adjusted EBITDA loss is expected to be in the range of $53 and $51 million. Nine gap net loss per share is expected to be between 83 and 80 cents, This assumes 72.5 million basic and diluted common shares outstanding. Our guidance assumes the following. Professional services revenue will decline in Q1 2022 from Q4 2021 as our partners continue to perform more of the services work. Term license revenue seasonality will make Q1 our strongest quarter and Q2 our weakest quarter of the year. Hence, you should expect term license revenue to be up sequentially in Q1 and down sequentially in Q2. We expect Q2 adjusted EBITDA loss to be significantly higher than Q1 adjusted EBITDA loss. This is due to the combination of term license seasonality and the cost of running our global user conference, Appian World, which will occur in Q2 this year. There will be greater expenses related to travel and in-person events. As we continue to grow, we will need to build out additional office space. Capital expenditures will be approximately $2 to $3 million in Q1 2022. As Matt mentioned and consistent with our prior comments, we plan to make incremental strategic investments in 2022, given the large market opportunity and our healthy customer unit economics. We plan to invest in R&D, including a full year's worth of expenses from a recent acquisition, go-to-market strategy, and sales and marketing. In addition, we expect some expenses to normalize as we return to the office. When modeling out the quarterly losses, I would assume the first half of the year's adjusted EBITDA losses will be somewhat higher than the second half of the year's losses. We remain confident about the operating leverage in the business model. So in summary, we're excited about the growth opportunities ahead of us. We're making disciplined investments to accelerate go-to-market success and continue to expand our platform to address the large and growing market opportunity. With that, let's turn it over to questions.

Thank you, Mr. Speaker. If you would like to ask a question, please signal by pressing star 1 on your phone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will take the first question from Arjun Bhatia from William Blair. Your line is open. Please go ahead, sir.

Yes, thank you. And congrats, guys, on a great quarter and a great end to the year. I wanted to start with the seven-figure customers that you disclosed in the slide deck. It seemed like you added, I think, 20 new customers in that 1 million-plus cohort, which is more than double the ads that you had last year in this cohort. So I was hoping you could just maybe unwrap for us the expansion drivers that are getting customers to be that large a size? Is it more apps that customers are building on Appian, more modules, more complexity, or is it just the partners that are helping customers scale their Appian deployments?

Yeah, I'd like to say it's all of the above. We're offering more value. We're showing reliability and uptime. We're expanding the industry into what is effectively a larger industry. We exist at the top end of that industry, so we're differentiated from our rivals who serve the lower priced and lower value market. I believe that we are realizing our correct place in the market, fulfilling the expectations of that place, and developing the market, pioneering it, by putting together the architecture that we showed on slide 12, I believe it was. Partners are also helping us, absolutely, as is the experience we have establishing value with existing clients. After all, a client could have been already our client and bought more in order to cross that million-dollar threshold. So it's not merely that we're selling fresh million-dollar deals. It could also just be promoting expanding in existing customers. But I feel like we're realizing our value proposition. That's the most important thing I can tell you on this question.

Perfect. That's very helpful. And I know that we've been talking about this holistic platform that you're building or have built at this point with low-code RPA and process mining. And we've talked about that value proposition quite a bit. I'm just curious, where are customers in understanding what you've built by bringing all of these components together in one place? Are you still educating customers? And for those that have adopted and have deployed all three of these, what's the early feedback you're hearing from them, you know, as opposed to the alternative approach would be to maybe stitch together these parts through several different vendors.

Yeah. An innovator is always doing some degree of education. This market is not entirely knowledgeable about what they could expect or should expect. But I can tell you that when they hear the message, when they see the demo, it makes sense quickly. That's the difference between an innovation that's going to be straightforward and one that's going to be a hard fight is whether it makes sense to people when they hear it. And it does. I also see some noise around the market for other firms putting together something similar to this, perhaps without the same degree of integration and synergy. And I believe that that noise is helping to substantiate, legitimize our message.

Perfect. I will leave it there. Congrats again, guys. We will take the next question from Mr. Sanjit Singh from Morgan Stanley.

Your line is open. Please go ahead.

Thank you for taking the question. And congrats all.

percent plus everywhere 30 description growth cloud growth big customers 30 seem to be like the theme of uh of your presentation matt um so to that end where do you think the company is getting better at if you sort of look at when you sort of grow the narrative since ipo but if you just looked over the last year or two where is the business getting better from your perspective is it sort of on the Landing new customers? Is it expanding new customers? Is it on the pricing side? Where would you say the most improvement has been?

Yeah. Well, the one easier answer would be I think we're advancing on all fronts. But I want to speak to one transformative inflection point that we're going through right now. And the same is true for everybody else in this industry and any software industry that matures. We're transitioning from being a company that's about what it – what it offers to a company that's about what it's for. We're going to be less about the technology and more about the experience of using the technology, less about the features we provide than the effect we convey. I think that's an essential transition. And as you go through that transition, you become a mainstream, a company that customers rely on for a need rather than for a feature. I believe that that has a lot to do with what we're experiencing as well. But we're better at the blocking and tackling. We're better at the operational things. We continue to improve. Not only are we scaling up, but I think that we're just a little more dialed in than we had been before. And I'd say it's partly execution, therefore, and partly realizing the market and maturing it.

How about the next question? We're going to take the next question.

The next question from Steve Anders from Kibang. Your line is open. Please go ahead.

Hi, this is George on for Steve. Thanks for taking the question. Congrats on the quarter and the $100 million revenue quarter. Great to see. My question was about the great resignation and whether that's come up in customer conversations as a potential reason Tailwind to demand as they're sort of grappling with these, are they turning to low code and automation to sort of alleviate some of those pressures?

You know, I actually think there are tailwinds. I don't know that they've manifested themselves or that they're measurable, but in theory, I like to, I like to think that there is going to be tailwinds, maybe not yet, but the great resignation, first of all, it stems from a situation people, which people and assets are extremely dispersed. There's never been a time. business where your employees your customers your data and your facilities have all been so far apart from each other as they are today and when your assets are dispersed and you still want them to work together coherently a workflow would be an ideal way to make them work well together so our technology fits the moment in that regards but also I think a lot of people are switching to new roles because they don't like the maybe the drudgery or the the robotic work they have to do. And if you were to automate some of that work, you would elevate the humanity or the human side of people's tasks and make the work more gratifying. That was spelled out nicely in an Economist article about low-code, about our low-code industry from two to three weeks ago. I thought that was a nice article. They explained how it was both fulfilling for people to work in an automated environment and also empowering for them so they can get better jobs and promotions and add more value and realize their capabilities. So I think that low-code has something to say in terms of elevating human talent at a moment like this.

Great answer. Thank you. One quick follow-up. I wanted to ask about process mining. How's the rollout been going? I know there was a lot of customer excitement following the acquisition. I want to know if there's been any impact on top of funnel. Are you able to get into some of these engagements sort of earlier on in the cycle?

Well, it feels great. I love the initial feedback. It's too soon to declare victory in process mining because it's only been out there for a couple of weeks. But right now, it appears to be getting a lot of applause from the customer base, a lot of understanding, a lot of people are like, well, of course, right? This is the natural thing you should be doing next. And for that matter, everyone in your industry should be doing. And I particularly think that we're going to get good use out of process mining as a means of inspiring new demand. It's just perfect for that. We can use this, an existing customer site, for example, to explore processes that may be too slow, maybe too expensive, maybe keeping your customers waiting for too long, analyze that, and then neatly convert the findings into a workflow. So I'm very excited about both the diagnostic effect of process mining, but also the low-friction convergence from process mining into workflow.

Great. Thank you, and congrats again on the quarter. The next question came from Derek Wood, Cowen & Company.

Your line is open. Please go ahead, sir.

Hey, guys. Thanks for taking my question. Just to follow up, I guess, on that line of thinking, can you just give us a little more color on the strategy of how you're thinking about selling the new process mining offering this year and driving more cross-selling uptake in 2022 and how that may impact net revenue retention rate?

Oh, yeah.

We will sell it to existing customers who don't have a license for it, but the main impact that it's going to have is going to be a demand generator. That's the purpose. Now, you can do other things with it. It's great for monitoring the return on investment for applications you've already deployed. And that might be the ideal way to get the camel's nose under the tent is to use it as an ROI measuring tool or even to give it to partners and let them use it for free anywhere they're doing services deployments, which is also something we're doing. But the main thing that we're going to get out of this is discovery of new demand, which we will easily be able to satisfy. In fact, which we will have a unique advantage in satisfying because of the ease of conversion from the diagnostic findings into the workflow prescription. So that is the primary way in which I expect to use process mining to raise revenue.

Great. Thanks. Mark, you guys are guiding for a little bit higher EBITDA losses this year versus last year. I guess that you're expecting some more T&E and anything else to call out in terms of where there's incremental investments this year versus last year, and how should we be thinking about the growth versus margin leverage framework, you know, medium term over the next few years?

Yeah, I think over time, you can see that if you look at the customer unit economics, they're exceptional. So, over time, we're going to get leveraged in the model. We're just choosing to invest a little bit more this year. And it's not much more than what we did in 2021. It's based on the results that we've achieved. I think we had a great quarter, great finish to the year, and we're pretty excited about where we're headed going into 2022. So we're doing some incremental investments in the sales go-to-market partner folks, as well as the R&D function as well to kind of build up the suite. So it's It's incremental, it's not crazy, and I think it's well warranted right now.

Great.

Thanks. Congrats on a good quarter.

Thanks.

The next question is from Mr. Vinod Srinivasaragavan from Barclays. Your line is open. Please go ahead, sir.

Hi. Thanks for taking my question. I just saw that you guys are, you know, The government cloud got provisional authorization the other day. Can you maybe talk about some of the federal engagements that you could be pulled into now where you couldn't before? And can this be an incremental contributor for you in 2022?

I'm so glad you mentioned the IL-5 certification, which we got two days ago. I'm pretty excited about it, actually, around here at the office. I think it's a big step for us. It is a frequent requirement. In contracts that we feel we're very qualified to bid on, we think that we're going to be able to deliver value in many of the projects that require that threshold. It's too soon, obviously, to speak of any financial impact, but this is something that we have invested in for a long time. I want to note that we are ahead of all of our direct competitors in this regards. And it's similar to the way we were ahead on FedRAMP. We were one of the first two dozen companies in the world to get FedRAMP back when that was a new thing. We're also ahead on IL-5. It demonstrates our commitment to security, to protecting sensitive data, and it's in line with Appian's long-term focus on the top of the market, which is to say the largest organizations with the most critical needs. We have always been focused on providing to that customer the level of reliability that they need.

Great, thanks. And then, you know, at your analyst day, you also mentioned that you were aggressively hiring sales reps for, you know, different verticals and accounts. Are you, you know, happy of your progress over the last year? And does kind of the step-up in OpEx in your guide mostly relate to, you know, hiring more quota-carrying reps? Or would you say it's more equally divided between, you know, sales and product investments? Thank you.

I would say that sales is one of the very central places and reps specifically that that money is going to be placed. And we're doing that out of confidence in the market, confidence in our success in the market, our win rate, our growth rate, our customer satisfaction, our leverage in an account. We see the proposition and we like it. We want to increase our participation in this proposition. And so, yes, to sales. It's not the only place that we'll invest. We're investing in other high-impact areas, and I want to highlight engineering as one of those. But sales, yeah, center of the bullseye for us right now.

Great, and congrats again on the quarter. Thank you. The next question is from Mr. Fred Hefmeyer from Macquarie.

Your line is open. Please go ahead, sir.

Hi, thank you. Firstly, I just wanted to say thank you to the team for the additional disclosures this quarter. I think that the walkthrough of the financials is quite helpful to better understand Appian's model and your business. I wanted to ask about both customer ads and also subscription revenue per customer as well. I feel like I hit on this now every year, but It's nice to see that subscription revenue per customer is rising, although it looks like your total net ads actually declined year over year in comparison with 2020. So when I'm thinking about your growth algorithm and how you consider your go-to-market going into 2022 and beyond, what do you think the interplay is between accelerating net ads consistently versus driving more subscription revenue per customer?

Mr. Fred, please stand by for a while. We're waiting for the speakers to answer your questions. Am I still connected to the line? Yes, sir, you're still connected to the line. I'm still checking with the speakers. Please hold on for a while, sir. Mr. Sri, can you hear me? Yes, I can. All right, Mr. Fred, are you still on the line? Yep, still here. All right, Mr. Fred, can you repeat the question?

Please go ahead.

Okay, yep, I'll run back through that, no problem there. I'm not sure which part began, which part ended, so we'll just cut right to the question here. What I was curious about is I want to understand how I should think about Appian's growth algorithm in 2022 and beyond in terms of the interplay between driving growth and subscription revenue per customer versus driving volume through net new ads. And I'm curious because it was nice to see subscription revenue per customer rising materially year over year in 2021, although it looks like the number of net ads also declined year over year. So I'm just trying to think, I'm hoping to get some additional context about how you and Appian are thinking about this growth algorithm. Thank you.

Thanks, Fred. Our intention is to push on both of those dimensions. We've been successful at increasing the value of our deployments, and I believe that we're doing a lot to increase the value of the product and the usage of the product, and monetizing that usage would lead to more dollars per customer and per deployment. We would also, however, like to empower our partners and solutions to gather many more customers. We've put focus on both of these dimensions, and in 2022, our goal is to pursue both of them.

Thank you. For the sake of time, I'll jump back into the queue. We will take the next question from Mrs. Joe Meares from Truist.

Your line is open. Please go ahead, sir.

Great. Thanks for taking the question. I'd also like to thank you for the increased transparency in the slide deck. I like how simple it was. So I had a question about in lieu of giving the new customer deals you guys had, I was just wondering if you had any deals in the quarter that you were happy with in terms of maybe new Vertical is like last, I know last quarter you had like a franchise deal with a restaurant. I'm just wondering if there are any deals like that that you'd call out as being new or exciting.

There's actually a really strong quarter for new deals and good logos. And we're saving those stories for next quarter. Generally, we talk a lot about our customer success stories. We detail them in the prepared remarks. And this time we decided to break entirely away from it. But if you'll tune in next quarter, we'll be talking about the new customer acquisitions from folks Q4 and Q1. And yeah, there's some good news in there.

All right, cool. I'll be here for that. So as a follow-up, I think in the past you've said that where your customer success teams are involved in projects, the NRR can be as much as 20% higher than without them. So my question is, Can you quantify what percentage of projects are currently being served by customer success reps? And then do you expect that percentage to change over the course of 2022 as you continue to hire throughout the year? Thanks so much.

That statistic is a powerful testament to the quality of our customer success team, and they are terrific. However, it doesn't mean that they've got to do the implementation themselves. It merely means they've got to be involved in some way. And so our goal is to find new means by which they can work alongside our partners as advisors, as strategists, as occasional reference points, and thereby touch as many customers as we possibly can. And so I think I agree with you that it's an important statistic. And I agree with you that it's determinative whether we can do this in more places. And I want to point out that that 20% boost is roughly equivalent, whether we did the deployment ourselves or we did the deployment as an advisor to our partners, equivalent boost. And so we just need to do more of the latter. We're creating packaged offerings and new selling strategies to be sure that we spread to more customers by focusing on that second model, which is more efficient for us.

Yeah, and one of the things we guided is lower professional services margins because we're taking some customer success folks and working side-by-side with the partners in that billing because we see that benefit as it relates to the NRR. And so we want to be there preferably billing from my perspective, but regardless, we want to be involved in some form or fashion.

Great. Thanks, Leo. Yeah.

It appears that there is no further question at this time. Mr. Speaker, I'd like to turn the conference back to you for any additional or closing remarks.

Great. I just want to say thank you for your attention this evening. Appreciate you waiting while there was that heavy difficulty. And we look forward to speaking to you in 90 days. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.