Appian Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 16, 2023

Key Takeaways

  • In Q4 2022, Appian’s **cloud subscription revenue** grew 29% Y/Y to $65.8 M (32% constant currency), total revenue rose 20% to $125.8 M, and adjusted EBITDA loss was $24.8 M, while full‐year cloud subscriptions grew 32% to $236.9 M with a $76 M adjusted EBITDA loss.
  • Appian achieved a best‐in‐class **115% cloud subscription revenue retention rate**, with two-thirds of its seven-figure customers expanding their contracts in 2022.
  • The company positions itself as a leader in **end-to-end process automation**, arguing that AI and RPA will drive a “productivity revolution” in a down economy and elevate Appian’s value proposition.
  • New logo momentum remained strong, with multiple seven-figure license deals booked in Q4 across insurance, government procurement, retail pharmacy and life sciences verticals.
  • For 2023, Appian guides to 26%–29% Q1 cloud subscription growth ($67 M–$69 M) and 24%–25% full‐year cloud growth ($294 M–$296 M) but expects a negative adjusted EBITDA of $17 M–$21 M in Q1 as it maintains long-term investment in growth.
AI Generated. May Contain Errors.
Earnings Conference Call
Appian Q4 2022
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good day and thank you for standing by and welcome to Optium 4th Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Sri Anantha, Senior Director of Finance, Investor Relations, please go ahead.

Speaker 1

Thank you, operator. Good afternoon and thank you for joining us to review Appian's 4th quarter Full Year 2022 Financial Results. With me today are Matt Calkins, Chairman and Chief Executive Officer and Mark Mateos, Chief Financial Officer. After prepared remarks, we will open the call for questions. Today, you'll want to follow along with the earnings presentation.

Speaker 1

You can download it from the main page of our Investors 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 Q1 and full year 2023, 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.

Speaker 1

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 2022 10 ks and other periodic filings with the SEC. These documents are also available on our Investors section of our website.

Speaker 1

Additionally, non GAAP financial measures will be discussed on this conference call. Refer to the tables in our earnings release and the Investors section of our website for a reconciliation of these measures to their most directly comparable GAAP financial measures. With that, I would like to turn the call to our CEO, Matt Calkins. Matt?

Speaker 2

Thanks, Sri, and thanks everyone for joining us today. In the Q4 2022, Appian's cloud subscription revenue grew 29% to $65,800,000 In constant currency, the growth would have been 32%. Subscriptions revenue grew by 23 percent to $93,200,000 Total revenue grew 20 percent to $125,800,000 Our cloud subscription revenue retention rate was 115% and our adjusted EBITDA was a loss of $24,800,000 For the full year, Appian's cloud subscriptions revenue grew 32% to 236,900,000 Subscriptions revenue grew 29 percent to $340,200,000 Total revenue grew 27 percent to $468,000,000 Adjusted EBITDA was a loss of $76,000,000 These results met or exceeded our guidance. We continue to expect a recession in 2023 and we believe that Appian will be less affected by it than other comparable firms. Appian's value proposition emphasizes efficiency, productivity, time to value and ROI, the very things buyers seek in a down economy.

Speaker 2

Speaking of productivity, I think there may be a revolution on the horizon. Last year's productivity growth in the U. S. Was negative 1.3%, The worst results since 1974. This reflects changing post COVID labor patterns, but also a certain corporate indifference to the topic.

Speaker 2

For years now, businesses haven't had to focus on productivity since money was cheap and labor was plentiful. Now that money is expensive and labor is tight, they'll return to the topic in earnest and there is a surprise waiting for them. The science of productivity enhancement has come a long way in the past few years. Software is ready to be more than a tool to help people do work. Software is ready to do the work for us.

Speaker 2

That's the revolution. That's also the next shoe to drop on AI. Right now, the narrative on AI is that it Makes a good search engine and maybe students will use it to cheat on their tests. In 6 months, the narrative will be that AI is affecting margins, AI is affecting jobs. AI is affecting customer satisfaction.

Speaker 2

After decades of development, AI has still hardly moved the corporate efficiency needle, But it's about to. And so will the other types of software that do the work like rules and RPA. And so particularly will the technology that coordinates all these digital workers, namely process automation, in which Appian is a leader. Our market will continue to evolve toward a larger mission. At the time of our IPO in 2017, we sold workflow.

Speaker 2

Now we sell process automation, an end to end platform covering every stage in the lifecycle process. We handle everything you ever need to do with a process, discover it, design it, execute it, Automate it, evaluate it and optimize it over time. Not just the workflow that routes the work, but now also the technologies that do the work Like RPA and AI, plus the process mining technology that evaluates process efficiency, plus the data fabric that connects your process to information across the enterprise. Here's an example of a modern process automation customer. This is a top life sciences company and the world's largest and an Indian customer for about a decade.

Speaker 2

Our platform automates its Globally, that app has grown over time. It now manages tens of thousands of cases annually in 100 countries. In Q4 of 2020 2, the firm deployed Appian Process Mining to identify ways to simplify operations. And in just 8 weeks, It discovered insights that can save 100 of 1000 of labor hours annually. Last quarter, I mentioned I keep sharing a set of metrics Track business health during a recession.

Speaker 2

You'll see these charts in our earnings presentation starting on Slide 4. I won't go through them all again, but I will pause to note just a couple of things. First, our cloud gross renewal rate, which held constant at 99% for each of the 4 quarters of the year. This is a best in class rate. It's a spectacular rate.

Speaker 2

I'll also note our steady growth in customer ARR cohorts, especially large ones. Most existing customers bought more software last year, including 2 thirds of our 7 figure customers. Our big customers are getting bigger. I'll share two examples. First, the global analytics provider and 7 figure ARR customer uses our platform to automate its market research processes.

Speaker 2

One of its critical app consolidates the work streams of RPA AI and researchers into a single workflow, so the company can publish content. This app Boosts employee productivity by 50%, five-zero. Last quarter, it purchased thousands of additional licenses to add more users and automate new workflows 2nd, a top international grocery retailer has been an Appian customer since 2019. It manages supply chain logistics on our platform. In Q4, we expanded into one of its subsidiary groups, a retail pharmacy chain.

Speaker 2

This new client purchased nearly $1,000,000 in Appian Software Licenses to manage inventory. Before Appian, it lacked a way to track prescription drug expiration dates, Losing tens of 1,000,000 of dollars annually on expired products. Now the customer can identify and move short term goods to stores with lower stock. It expects to reduce its cost of wasted products by 30%. Appian's new logos continue to be high quality.

Speaker 2

They make large software purchases for important use cases. For example, a top international specialty insurer came a new logo in Q4. It purchased over $1,000,000 in software licenses to automate 2 distinct use cases. First, it will deploy the Appian Connected Claims solution to manage tens of thousands of claims annually. 2nd, it will build a customer operations hub with the help of an Appian partner.

Speaker 2

Before Appian, the group worked through disjointed channels because it lacked the tools to coordinate work across teams. Now Appian will integrate with the customer's existing CRM We also landed a luxury packaging manufacturer and distributor as a new logo this quarter. This customer is launching a new business line and purchased nearly $1,000,000 in Appian licenses to automate orders and manage client relationships. Clients will make purchase requests and track the ongoing status of their orders through an Appian portal. Back office employees will use Appian to Bill requests to initiate revenue recognition.

Speaker 2

Our platform will secure the company's profit margin as it scales operations by 30%. Appian's key verticals continue to be growth drivers. Year over year, Q4 subscriptions revenue for the U. S. Federal Government and Life Sciences grew 38% 39%, respectively.

Speaker 2

I'll share a customer story from each vertical. First, A U. S. Federal Health Agency that supports national security became a new Appian customer this quarter. It procures over $1,000,000,000 in medical supplies annually.

Speaker 2

It needs to replace an inflexible and expensive procurement system. In Q4, the agency purchased several solutions in our Government Acquisition Management or GAM suite. It will use Appian to automate various workflows like requirements gathering and drafting request for proposals. The agency became a 7 figure ARR customer with this first deal. Top Global Pharmaceutical Company has automated a number of core processes In Q4, it purchased an additional 7 figure deal to deploy an app that tracks manufacturing deviations globally.

Speaker 2

This is a highly regulated process. The customer is required to report these cases to a third party governing body. We won this competitive deal because our platform Next, I'd like to announce the addition of Shirley Edwards to the Appian Board of Directors. Shirley has been a partner at Ernst and Young for 2 decades and most recently the firm's global client service partner. She has deep experience advising corporate boards and management teams of large multinational companies.

Speaker 2

We are very pleased to welcome Shirley to our team. That's almost everything. Before I conclude though, I want to briefly discuss Appian's stance on investment in the business. In 2023, we are once again planning negative EBITDA, albeit with a narrower margin than last year. We understand that today's high interest rates make near term profits more valuable and future growth Investors are right to question companies about the merits of continued investment for further growth.

Speaker 2

We've considered this deeply and we believe that continued investment for growth is the right decision for our shareholders. At Appian, we pride ourselves on our long term outlook, And we believe the most important time to lengthen our time horizon is when our competitors We note the large and growing size of our market, the technological advantage of our platform, The positive traction we're seeing from customers and partners and the very attractive nature of our historical subscription revenue stream, 90% gross margin, 99% cloud gross renewal rate. We believe continuing to invest remains the right decision for our business and shareholders and will ultimately lead to much higher returns. That said, we understand the importance of disciplined growth and would like to assure our investors that we are committed to growth and scrutiny. We aim to steadily improve our margins through 2023 beyond.

Speaker 2

Now, I'll hand the call to Mark for a deeper look at our financials.

Speaker 3

Thanks, Matt. I'll review the financial highlights for the Board and then we'll provide guidance for Q1 of full year 2023. Total revenue, cloud subscription revenue and non GAAP EPS were above guidance, while adjusted EBITDA was at the top end of our guidance range. We also saw continued healthy contribution from existing customers and strong growth from key industry verticals. Let's go into the details.

Speaker 3

Cloud subscription revenue was $65,800,000 an increase of 29% year over year and above guidance. On a constant currency basis, cloud subscription revenue grew 32% year over year. Total subscriptions revenue was 93,200,000 an increase of 23% year over year. On a constant currency basis, total subscriptions revenue grew 26% year over year. Professional services revenue was $32,500,000 an increase of 11% year over year.

Speaker 3

As previously noted, Appian's professional services are complementary to partner offerings. In certain cases, Appian supports large programs that are primarily run by our partners. Long term, we continue to believe partners will drive most of our growth. As a result, we expect professional services revenue to continue to decline as a percentage of total revenue. Subscriptions revenue was 74% of total revenue compared to 72% in the year ago period and 73% in the prior quarter.

Speaker 3

Total revenue was $125,800,000 an increase of 20% year over year and above our guidance range. On a constant currency basis, total revenue grew 23% year over year. Our cloud subscription revenue retention rate as of December 31, 2023 115% consistent with the rate in the current quarter. As a reminder, we continue to target a cloud subscription revenue retention rate 110% to 120% on a quarterly basis. Our international operations contributed 34% of Total revenue compared to 36% in the year ago period.

Speaker 3

Our cloud software net new ACV bookings were 80% of the total net new software bookings in 2022, consistent with last year's mix. Now I'll turn to our profitability metrics. Non GAAP gross margin was 73% compared to 74% in the year ago period and 73% in the prior quarter. Subscription's non GAAP gross profit margin was 90%, consistent with the year ago period and prior quarter. Professional Services non GAAP gross margin was 27% compared to 32% in the year ago period and 27% in the prior quarter.

Speaker 3

As noted on prior earnings calls, we continue to invest in customer success management. These advisors help our customers achieve the most Our technology and increased adoption of our platform. As a result, professional services non GAAP gross margin should decline to the low 20% range in 2023 and beyond. Total non GAAP operating expenses were $119,100,000 an increase of 33% from $89,500,000 in the year of the period. Adjusted EBITDA loss was $24,800,000 versus our guidance of a loss between $29,000,000 24,000,000 compared to an adjusted EBITDA loss of $10,000,000 in the year ago period.

Speaker 3

In the Q4, we had approximately $8,500,000 of foreign exchange gains compared to 500,000 foreign exchange gains in the same period a year ago. We don't forecast movements in FX earnings, therefore, only 1% in annualized. Non GAAP net loss was $20,600,000 or $0.28 per basic and diluted share compared to non GAAP net loss of 11,600,000 or $0.16 per basic and diluted share for the Q4 of 2021. This is based on 72,700,000 basic and diluted shares standing for the Q4 of 2022 and 71,300,000 basic and diluted shares outstanding for the Q4 of 2021. As noted above, 4th quarter 2022 non GAAP net loss was aided by $8,500,000 in foreign exchange gains or a gain of $0.12 per share, which was not included in our original guidance.

Speaker 3

Turning to our balance sheet. As of December 31, 2022, cash and cash equivalents and investments were 196,000,000 compared with $168,000,000 as of December 31, 2021. For the Q4, cash used by operations was $12,600,000 versus 19,400,000 for the same period last year. Total deferred revenue was $200,300,000 as of December 31, 2022, an increase of 31% 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.

Speaker 3

Due to the variability of our billing terms, changes in our deferred revenue are generally not indicative of the momentum in our business. I'll now recap our full year 2022 results. Cloud subscription revenue was $236,900,000 representing 32% growth year over year. On a constant currency basis, cloud subscription revenue grew 35% year over year. Total subscriptions revenue for the year was $340,200,000 an increase of 29%.

Speaker 3

On a constant currency basis, total subscriptions revenue grew 32 Professional services revenue was $127,800,000 an increase of 21% compared to 2021. Total revenue was $468,000,000 up 27% compared to 2020. On a constant currency basis, total revenue grew 30% year over year. Adjusted EBITDA loss was $76,000,000 compared to $37,900,000 loss in 2021. Non GAAP net loss was $89,200,000 in 20.22 or a loss of $1.23 per basic and diluted share compared to non GAAP net loss of 48,300,000 for a loss of $0.68 per basic and diluted share for 2021.

Speaker 3

This is based on 72,500,000 71,000,000 basic and diluted share For the year ended December 31, 2022, cash used in operations was $106,600,000 versus $53,900,000 for the same period last year. In 2022, litigation expenses were $22,900,000 compared to $16,400,000 in 2021. We expect litigation expenses to come down materially in 2023. We continue to believe cloud subscription revenue is a better indicator of our business momentum than billings or remaining performance obligations or RPO. The latter metrics can fluctuate based on the timing of invoicing, seasonality of on prem license revenue and the duration of customer contracts.

Speaker 3

The true scale of the business is represented by subscriptions revenue, which includes support and all software subscription revenue, regardless of whether the customer deploys to the Appian Cloud, their private cloud or on prem. Now I'll turn to guidance. For the Q1 of 2023, cloud subscription revenue is expected to be between $67,000,000 $69,000,000 representing Year over year growth of 26% 29%. Total revenue is expected to be between $130,000,000 132,000,000 representing year over year growth of 14% to 16%. Adjusted EBITDA loss for the Q1 of 2023 is expected to be between $21,000,000 17,000,000 Non GAAP net loss per share is expected to be between $0.33 and $0.27 This assumes 72,800,000 basic and diluted weighted average common shares For the full year 2023, cloud subscription revenue is expected to be between $294,000,000 $296,000,000 representing a year over year growth of 24% 25%.

Speaker 3

For the full year of 2023, Total revenue is expected to be between $530,000,000 $535,000,000 representing year over year growth of 13% 14%. Adjusted EBITDA loss is expected to be between $75,000,000 $70,000,000 Non GAAP net loss per share is expected to be between 1.14 and $1.07 This assumes 73,200,000 basic and diluted weighted average common shares outstanding. Our guidance assumes the following. 1st, Q1 professional services revenue will be relatively flat on a sequential basis. We assume services revenue will decline at a single digit rate year over year in 2023.

Speaker 3

We continue to expect partners to perform more services work. In situations where they help us close the new logo, partners generally lead the projects. 2nd, on prem license revenue seasonality will make Q1, our strongest quarter and Q2, our weakest quarter of the year. Hence, you should expect on prem license revenue to be up sequentially in Q1 and down sequentially in Q2. 3rd, Q2 adjusted EBITDA loss will be higher than Q1 adjusted EBITDA loss.

Speaker 3

This is due to the combination of on prem license seasonality and the cost of running our global user conference, Appian World. We continue to maintain greater scrutiny of any discretionary related expenses. Fourth, capital expenditures will be between $3,000,000 $4,000,000 in Q1 and between $12,000,000 $14,000,000 in 2023. This is primarily related to build out of additional office space. Finally, our guidance assumes FX rates as of February 15, 2023.

Speaker 3

In summary, we are excited about the growth opportunities ahead of us. Our outlook incorporates an uncertain macro environment in the year ahead. We're keeping a close watch on key forward looking business indicators such as new bookings growth, Pipeline conversion, sales rep productivity and sales cycle time. We believe we can quickly calibrate the model should the need arise. Before we wrap up, I'd like to let you know that we are planning to hold an Investor Day in conjunction with Appian World being held from May 1 to May 3.

Speaker 3

We'll provide additional details soon. I look forward to seeing you all in person. With that, let's turn it over to questions.

Operator

And thank And our first question comes from Sanjit Singh from Morgan Stanley. Your line is now open.

Speaker 4

Thank you for taking the questions and congrats on a solid end to 2022.

Speaker 5

Matt, I was wondering if you

Speaker 4

can give us a sense around the sort of factors that drive your confidence for relative resiliency versus your peers. It seems like a lot of companies that have exposure to tech or consumer discretionary companies are seeing Growth being impacted. Could you walk us through kind of the demand trends you're seeing across your major verticals, Healthcare, Financial Services, Government, any others you want to call out and sort of speak to some of the demand and pipeline trends that you're seeing. I think that would be Really helpful in terms of contextualizing your guidance.

Speaker 2

Yes. Well, thank you, first of all. And I think the quarter speaks to the steadiness that we're observing in the business. It doesn't seem like we've got a rocky ride. And I can tell you that from our insight into the pipeline and other Contributory factors that we see a steady situation.

Speaker 2

Now you'd like details there. And so let me say that our value proposition It is easy to pivot toward the interests of the CIO who tells us That they wish to cut costs, consolidate vendors, reduce risk and accelerate time to impact. We speak exactly to that person. That person is looking for safety. They're looking for an industry leader In an industry that they know could make a difference for them, they look to great reviews, they look to Successful customer experiences, they want a solution because it's proven to work in the past and we're relying more on solutions than we used to.

Speaker 2

They want to see the team and whether it's our partners or our own deployment team or even better the 2 of them together, We can present a reliable team that speaks their language, their industry language and has done very similar work in the past and that's the benefit of our Legacy in this market space and the experience that we've accumulated. For all of these reasons And because we're having these conversations successfully, I think that the stability that this quarter represents is

Speaker 4

Understood. That's helpful. And then if I could sort of visit the topic around Investments versus near term margins and profitability. You're squarely coming on the side of continuing to invest as a sort of way to drive value over the longer term. When I look at the sort of financial profile of the company, I think the guidance is sort of calling For mid teens overall revenue growth, the losses are narrowing.

Speaker 4

But in terms of anchoring to A longer term model, is there anything you can share in terms about when you get to profitability? And then ultimately, what type of margins can this business generate over the longer term, so that investors can sort of anchor their or make this sort of valuation assessment

Speaker 2

Yes, that's right. Well, I think it would be premature to put out an estimate For margins or free cash flow, right, in the long term, I think that even the short term is highly variable. We have gone out of our way in the estimates, projections we've made for this year to accommodate higher variability and economic factors, The macro variation that we see. And so I don't want to get ahead of ourselves in forecasting. I believe that we have structural advantages and that's our North Star here.

Speaker 2

It's not a specific figure. It's not a projection for what the economy is going to look like in Q4. Its structural advantages, ways in which we think we have an edge on the competition and a belief that this is an emerging market. And if we have that edge in a valuable market, We want to develop our position even if we don't have a perfect prediction for where the economy or the margins are going to be the year hence.

Speaker 3

And we do we did in our last Investor Day, we did talk about our long term margins. You can refer back to that presentation. We updated those. But it wasn't with any more specificity, I think than Matt said. But we do have some

Speaker 4

I appreciate the thoughts. Thank you.

Operator

And thank you. And our next question comes from Kevin Kumar from Goldman Sachs. Your line is now open.

Speaker 6

Hi. Thanks for taking my question. I just wanted to double click on guidance. You've given some cautious commentary on macro And I believe you've also added, I think, over 100 sales reps last quarter. So just kind of thinking through kind of the different variables there and Now how are you thinking about ramping sales productivity in the midst of maybe kind of weaker macro?

Speaker 6

Kind of how are you thinking of these variables in the guide? Thank you.

Speaker 2

Yes. Well, first of all, we have been saying for a while that we believed a recession was on the way. I think it was important to say that to put our investment plans into context. These are not sunny day plans. We are cognizant of the economic situation that we're wrestling with this year.

Speaker 2

And under that Realisticpessimistic outlook, we feel that these are the right investment plans. So that's the point that I mean to make when I talk about our Bearish outlook on the macro situation. It's to put our investment plans into context, do

Operator

you understand?

Speaker 2

And then as for the growth in reps, I can't comment on the size. I can't speak to or Confirm your assumption there. We have grown overall reps in the last few quarters and We are growing also right now. We have open positions and we are hiring. But I don't want to endorse that figure specifically.

Speaker 6

Got it. And then maybe one on kind of your vertical strategy. You recently talked about connected underwriting, The new solution that you came out with and I believe you also announced a partnership with Guidewire. So maybe help Brian, the opportunity in the insurance vertical and kind of the traction you're seeing there? Thanks.

Speaker 2

Yes, I did. I mentioned that solution and I also The Government Acquisition Management solution and I believe that in a time in which buyers seek safety, A solution is a safer offering than a platform. And so this is part of the pivot that you're observing in our business toward a reassuring sale, a reliable, high probability, short time to value kind of a And the solution is reassuring in these regards. And I think it actually addresses a much broader market than a platform does. So I am really excited about Our ability to go to market with a packaged solution, with a known entity like Guidewire, a highly credible known entity, I think that It's the next natural evolution of our business and accelerated under these economic conditions.

Speaker 2

We should be playing that card and we are playing it.

Speaker 5

Great. Thank you.

Operator

And thank you. And one moment for our next question. And our next question comes from Derrick Wood from Cowen and Company. Your line is now open.

Speaker 7

Hi. Thanks, guys. It's Andrew on for Derek. Mark, just wondering what the FX impacts of the cloud subguide is for the quarter the year?

Speaker 3

Yes, it was 3%. Are you talking about the impact that we had for results or No,

Speaker 7

in Q1 and full year guidance.

Speaker 3

Yes. We don't actually factor in any more movement. We're using the FX rate as of February 15. So we're not expecting any more headwinds.

Speaker 7

Okay. Thanks. And then, Matt and or Mark, last quarter you said sales cycles were pretty much unchanged from prior quarters. How did those track this quarter and what are you expecting for the next couple of quarters?

Speaker 2

Yes. Well, we see no change In sales cycles that we can observe, so nothing material. And therefore, we don't forecast anything for future quarters. And I don't mean to say that nothing Slipped out of the quarter because something always slips, right? You always get a few deals that extend, but we're seeing a typical amount and it's not enough for us to Presume that there is any movement overall on our pipeline.

Speaker 7

Great. And one last one I can sneak in. The Athene Government Summit in November, how much of the lead generation event is that? And any interesting takeaways you got from that and how that helps build pipeline for this year? Thanks.

Speaker 2

Okay. Most of our events are for cultivating existing customers and expanding within logos that we've already got. And so that's typically the outcome. It will help us build pipeline, but generally radiation pipeline. Maybe we do a little bit better on the government because a lot of our Prospects are local because Appian is based near Washington.

Speaker 2

But for the most part, that new logos are not the purpose. We're just trying to

Speaker 7

All right. Thanks guys. Congrats.

Operator

And thank you. And one moment for our next question. And our next question comes from Jacob Roberge from William Blair. Your line is now open.

Speaker 8

Hey, guys. Thanks for taking my questions and congrats on the solid results. Matt, you referenced earlier factoring in Higher variability in the guidance for the next year. Could you put a finer point about what you've baked in the guidance from a macro perspective? Are you assuming that demand stays the same as what

Speaker 2

We are allowing for the Possibility that there will be a macro downturn, the effects of which are felt here. I think that everyone is allowing for that possibility, and I think it's prudent that we do so as well.

Speaker 8

Great. Thanks. And then could you give us an update on the lawsuit with Pega? I know there's been some back and forth between you 2 in the news, but would love to get some more color on how that process has been

Speaker 2

Well, the process continues. There have been dueling web pages. You probably have wrote on this call and seen the opposing statements on each other's webpage And soon there's going to be dueling statements for the next round of appeal. Other than that, I can't comment on it. I do believe it's a factor in some sales, let me say that.

Speaker 2

I do believe that Customers are beginning to notice and the word is getting out and customers are reaching their own judgment, which of course they should do based on all facts available. But This is an ongoing process. Okay. That's really helpful. Well, thanks

Speaker 8

for taking my questions and congrats again on the results. Thank you.

Operator

Thank you. And one moment for our next question. And our next question comes from Joe Mirez from Truist. Your line is now open.

Speaker 9

Hey, guys. Thanks so much for taking the question. The questions, in the Q4, The sequential growth in sales and marketing was pretty much in line with the last 3 years. I think it grew about 16%. But the G and A was flat versus typically being up in the low teens percentage.

Speaker 9

So I'm just wondering if we should expect this type of spending pattern in sales and marketing and leverage in G and A as we move through 2023?

Speaker 2

We are proceeding in 2023 with a pattern of growth with scrutiny, as I Noted in my opening remarks, which is to say we are growing, we are hiring, we are investing, but we are also applying a high level of expectations to all expenditures that we make and continuing only those investments that meet our high threshold. And so you'll probably see some G and A or marketing or other expenses Falling off of the expense sheet because we didn't get the returns we wanted out of them and we're going to be tough about that this year.

Speaker 9

Thanks. That's super helpful. And then, just from a customer standpoint, I think I counted 4 new 7 figure deals in the prepared remarks. I'm just curious if there were any others. Did that number With that number up or down sequentially?

Speaker 9

And then if you could I think you at the end of the year usually give us like a total number of 7 figure customers. Just curious if you can share that.

Speaker 2

Yes. It's in the slides. Let me tell you which slide in the packet I should direct you to in order to see the customer counts. It is slide 6, are we

Speaker 9

ready to speak?

Speaker 2

It's titled annualized recurring revenue and we have Four charts, we view on the slide. My favorite is the count of customers in the lower right, which are $1,000,000 or larger On an annual basis and that one kicked up nicely. We didn't get as much growth in the smaller customers and I think that that shows us where We need to put additional focus. We're doing well getting our big customers to grow and we're going to put a little more Awesome. Thanks again.

Speaker 2

Thank you.

Operator

And thank you. And one moment for our next question. And our next question comes from George Kiyosawa from Citi. Your line is now open.

Speaker 5

George on for Steve Enders. Thanks for taking the questions. First one, Matt, you talked a little bit about AI kind of In some level of a hype cycle right now, I'd love to hear just how you're thinking about that technology. Are you thinking about it Is there kind of new leg of the stool for the company along with RPA process mining, process automation? Or is there some sense in which kind of this new generative AI is something new and different and may even come to replace some of these other technologies over time?

Speaker 5

Thanks.

Speaker 2

Yes. Well, AI and its emergence over the past 12 months as something popularly Good to add value to work, is going to continue to shape process automation as a market. After all, process automation is about harnessing the software that does the work for us, in addition to delegating work to people. And AI is going to be one of the primary types of technologies that does work for us. So, there There's a lot to explore about this and AI has broken through in a big popular way lately.

Speaker 2

And I think there's still Vast misunderstanding about where it can really add value. And I'll repeat my belief, Longstanding belief that AI belongs lower in the stack than most people believe. And I suppose people are even further afield from my view After the last few months of hype, AI is a good advisory, detective, detecting, Quantifying technology is not fit for making decisions and shouldn't be put in a position like that. I think AI is going to be at its greatest value. Let me be clear about this.

Speaker 2

It's going to be at its greatest value when it is A portfolio of decision makers of which AI is only 1 and not the final decision maker. If you believe that, Then you believe that process automation is a really essential part of leveraging AI as a valuable part of work, because you can't stand alone. You can't just delegate your decisions to AI. You need to balance it, check its work, review it, approve it, that sort of thing, which means that AI is part of the orchestra and the orchestra needs a conductor. So I think that in the end, AI adds a lot of momentum to the process automation industry and I think that it's going to elevate us.

Speaker 2

But in the meantime, people have to shake out their understanding What AI can really do and we'll have to teach people that it's part of the portfolio and not A final answer.

Speaker 5

Got it. Got it. Very interesting stuff. One just quick follow-up. The revenue retention rate came in pretty solid at 115%.

Speaker 5

And I'm just wondering how you guys are thinking about that mix of Growth from new logos versus expansion, is there any sort of change to the strategy now that Chris Jones has been in place for a couple of quarters now? Thank you.

Speaker 2

Yes. We're happy to see that that's steady. Of course, we're all watching These renewal metrics, net renewal, gross renewal to see if there's some kind of evidence of macro effects. And so far, we're pleased to see the degree of solidness that we're observing. Always want more.

Speaker 2

I'm always asking sales and Chris and anybody else who I can get a few moments with that we'd love to see Additional selling into our existing base and for that matter more logo acquisitions. So we will advance on all fronts to the best of our ability this year. We're not writing anything off. We're not giving up on new customers. We're not deprioritizing growth.

Speaker 2

Now we're assigning our full attention to each of these priorities. But in the meantime, the main result we have to look at is a relatively satisfying steadiness.

Speaker 5

Great. Thanks for taking the questions.

Operator

And thank you. And one moment for our next question. And our next question comes from Andrew DeGasperi from Berenberg. Your line is now open.

Speaker 4

Thanks for taking my questions. Maybe on the first one, it's like a high level question. As you've been transitioning to partners for implementing Appian, Have you noticed the timelines to implement the product in going live shortened during this time? Are you seeing evidence of that?

Speaker 2

I would say it's steady. Our go live times have been consistent.

Speaker 4

Great. And then maybe on the In terms of the AI commentary you just made, it sounds like you kind of believe it's more hype right now. But in terms of what it will do for Appian in terms of The potential for revenue expansion and things like that, what do you think that a reasonable timeline is, that you would see to materialize that?

Speaker 2

Well, revenue follows hype. So actually you don't need to have You don't need to wait until people figure out where AI belongs in the stack before they start writing checks. I think that we're going through A year or 2 now where people will imagine that AI belongs making decisions. And so there'll be talk about how maybe AI should write your next Process or this sort of thing. And I think our position is going to be AI can show real value as an advisor, an Praiser, contributor, but not the author and not the decider.

Speaker 2

I think we're going to have to educate people on that. Fortunately, we're going to be able to show a lot of value add. A lot of I I mean, this is what's missing for all these hype stories these days with AI. It's incredible what they can do, what the drawings they can make, what papers they can write, but What they're not doing is lowering your electricity bill, right? What you're not hearing is AI helped our economics.

Speaker 2

And so We can actually show that, right? That's what our AI does. It helps the economics. So we're going to be coming up with tangible stories and I think that they will carry the day even in the face of some hyperbole. Great.

Speaker 2

Thank you.

Operator

And thank you. And one moment for our next question. And our next question comes from Fred Hapmeier from Appian. Your line is now open.

Speaker 5

Thank you. I don't work at Appian, I just cover it. I'm from the quarry. I haven't shot my resume to you guys yet. So, firstly, actually speaking of resumes, last quarter, we were talking about your cadence of hiring and hiring I just wanted to check-in on the hires that have been made throughout the year.

Speaker 5

And as you're thinking also about cautious rather The terminology just really prioritizing prudent growth and investment at the same time. But really, how have the ramping how have the reps and those that were hired last

Speaker 2

It's early to say, because we can't expect an account executive to have made any quantifiable results in that period. So while I can say that I believe that our talent actualization and our training system and our coaching And so our models are better than before. I can't point you to any results. So I believe that will turn out to have been a good investment. I cannot quantify my reasons for that today.

Speaker 5

Okay. And then Stepping back rather than I suppose the typical financial analyst questions, Matt, I really wanted to ask, as we're thinking about investment into Appian, we're thinking about Next year being another investment year, I want to just ask really bigger picture here. As you have like assembled this entire platform, it's Full stack automation platform, a low code platform. What is your longer term vision, goal and dream for Appian as you're investing into it? Could you just walk us through that at the highest level and where you would really like

Speaker 3

to be taking the company?

Speaker 2

Yes. Love the question, by the way. Appian is supposed to empower people in their relationships with software and technology. It's also supposed to empower organizations. It should empower people by allowing us to control and direct and collaborate with technology more efficiently, and it should empower organizations to be able to express their personality and their behavior by pivoting quickly from one process to another by changing their process essentially to keep up with times and move at human speed.

Speaker 2

So that's our bigger mission for the kind of economic impact we'd like to have with this organization. And we see ourselves as the pioneer in this space, inventing the means by which those goals can be achieved. So even if Some of the implementation is done by others. We're still proud to be innovating the state of the art.

Speaker 5

Thank you.

Operator

And thank you. And our next question comes from Steve Koenig from SMBC Nikko Securities, your line is now open.

Speaker 5

Thanks for taking my question. It's Steve Koenig. And congrats on the steady Performance and also since this is my first time getting to speak on your call, I'll just mention that SMBC is a very happy Appian customer. I want to ask you, so your position regarding investing for growth is clear, And we understand there's a trade off between growth and profitability. If we think about that trade off in terms of your rule of 40 score, I'm wondering How can Appian improve the overall trade off or is that even possible?

Speaker 5

Thanks for taking my question.

Speaker 2

Yes, it's absolutely possible. It's a great question. We think about it a lot. It's absolutely possible. We invest in some things, which will not manifest in our Rheal Reporty score for some time.

Speaker 2

We have a substantial investment in R and D, for example. We are innovating the space. We make acquisitions in technology that turn up in our product years later. I don't guide the organization using Rule of 40 centrally. That said, I believe that there are some parts of our efficiency which are correctly diagnosed and improvable by a Rule of 40 perspective.

Speaker 2

For example, looking at the organization, I'd like to see a higher efficiency in the way we convert investments in, Say go to market into successful I believe we can improve our efficiency and we're very cognizant of where efficiency is great and where it's not great. And so we introspect and we have lists of things that we want to get better. So We're a growing organization. We're pioneering a new trail. We're inventing technology that is Going to be the spear tip of a leading market.

Speaker 2

And at the same time, we're inventing this organization and how you make this case and how you get it to customers and we can always get better.

Speaker 3

Yes. And I'll just add a little bit to that. I think one thing that we're doing is looking at the cost side, As Matt said, trying to find efficiencies everywhere, even in R and D, the tech development center in Chennai, India It's part of that strategy. And at the end of the day, when we have a healthy consistent growth rate, which we've been able to demonstrate, Combined with that efficiency on the cost side, the result will be towards That rule of 40 even though we're not centrally forcing that as a matter of practice.

Speaker 5

All right. Well, thank you very much for your answers. I appreciate it.

Operator

And thank you. And I am showing no further questions. I would now this concludes today's conference call. Thank you for participating. You may disconnect.

Powered by Quartr