Earnings Call Transcript - APPN Q2 2020

Operator, Operator

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.

Scott Walker, Investor Relations

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 for a question-and-answer session. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 including statements related to our financial results, trends and guidance for the third quarter, the impact of COVID-19 on our business and on the global economy, the benefits of our platform, industry and market trends, our go-to-market and growth strategy, our market opportunity and ability to expand our leadership position, our ability to maintain and upsell existing customers and our ability to acquire new customers. The words anticipate, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For 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 10-Q 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 Investors section of our website at www.appian.com. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release in the Investor Relations portion of our website for a 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?

Matthew Calkins, CEO

Thank you all for joining us today. In the second quarter of 2020, Appian's cloud subscription revenue increased 30% year-over-year to $29.6 million, while our adjusted EBITDA reflected a loss of $7.0 million. Total revenue, which includes a decline in professional services, grew 2% year-over-year to $66.8 million. Our cloud subscription revenue retention reached 113% as of June 30, 2020, with a gross renewal rate of 98%. These results surpassed our expectations. Appian has managed the pandemic relatively well. Although like many companies, we've experienced a decline in services revenue, we have seen strong performance elsewhere. Some businesses faced challenges with new customer acquisitions and extended sales cycles, but Appian experienced the opposite. We nearly doubled our new logo wins compared to Q2 last year, and our sales cycles in Q2 were notably quicker than our historical average. The COVID pandemic has compelled organizations to reevaluate their responses to changing conditions, highlighting the importance of agility. Many of the transformations that organizations seek to implement rely on software, creating a new focus on the rapid development of applications. As such, low-code solutions are positioned to benefit from this trend. Analysts examining the post-COVID landscape predict that low-code software will be among the success stories, and I largely agree. However, it’s essential to note that most low-code technologies are not equipped to develop powerful mission-critical applications. It is in these crucial core applications where change is most urgently required during a crisis. Companies are considering software that is integral to their operations, such as tools to connect with virtual customers, automate new processes like emergency loan applications, boost productivity among remote teams, and safeguard employees returning to the office. The primary value of low-code lies in its application to these essential needs. There was a noticeable surge in interest in low-code, as reflected by high attendance at virtual Appian World, with increased participation from customers, prospects, and partners compared to last year. We received numerous presentations from clients sharing their successful and rapid deployments. For instance, a Northern European health department overseeing COVID contact tracing became a new customer this quarter. They chose our low-code automation platform to coordinate hundreds of field workers making home visits to COVID-positive individuals. We secured this contract because the organization required a mobile application for their dispatch teams to manage contact tracing efficiently. Appian's case management capabilities and swift deployment were underscored when our partner launched the app in less than 2 weeks. Additionally, one of Europe's largest exam boards broadened their use of Appian due to COVID. This board provides educational assessments for over 5 million students internationally and anticipates receiving tens of thousands of additional appeals for exam considerations this year, necessitating an application for fast and accurate processing. Appian will facilitate the integration of the customer’s existing systems and automate the full process, allowing reviewers to assess exam validity and submit their decisions. We won this expansion because the board urgently needed the application before their August deadline for appeals. A recent poll of major enterprises indicated that 53% have started bringing employees back to work, yet only 12% are utilizing software to safeguard employee health on-site. Without software, organizations struggle to respond swiftly to health risks and cannot ensure the security of the health data they collect. In Q2, Appian introduced two new solutions to address this need: Workforce Safety and CampusPass. Large enterprises and higher education institutions are leveraging these solutions via Appian’s HIPAA-compliant cloud to monitor their personnel’s health and safely reopen their facilities amid the pandemic. These solutions have attracted many new customers this year, with 76% of organizations purchasing these solutions being new clients of Appian. For instance, a top 10 global automaker chose Workforce Safety to facilitate the return of thousands of employees to their U.S. locations. Our user-friendly solution, quick adaptability, case management features, and fast configurability enabled the automaker to respond effectively and protect employees from COVID, with deployment completed in just 14 days. Furthermore, a leading global sports brand and retailer adopted Appian's Workforce Safety solution to safely reintegrate thousands of employees across their global stores, warehouses, and offices during the COVID challenges. This new customer selected our solution for its straightforward user experience, ability to adapt to regional regulations, and the capability to deploy organization-wide within weeks. An example from higher education includes a U.S. institution with over 75,000 students and faculty that became a new Appian customer last quarter. This college provides training certificates for hands-on professions such as nursing, mechanics, and electrical work, which require students to take practical exams in person. This need is particularly critical for 2020 graduating seniors. Appian was deployed, allowing thousands of faculty and students to return to campus within 10 days of purchase. Our existing customers are also adopting these solutions for their on-site return, including a top 10 global pharmaceutical company, which expanded its use of Appian by purchasing Workplace Safety in Q2. They will utilize our solution to manage the return of tens of thousands of employees globally, including in manufacturing settings. They chose Appian for our ability to deploy across their global workforce within a month of purchase. Regarding our partners, Appian nearly doubled its new logo deals this quarter in comparison to Q2 last year, with 70% of those new customers acquired through partners. Partner deals also concluded 22% faster last quarter than in 2019. For example, a partner assisted us in securing a Q2 contract with a top 10 U.S. cable company, which will utilize Appian to consolidate its risk management systems into a unified workflow and report on cybersecurity metrics. Appian will offer the customer improved visibility of its security vulnerabilities by integrating data from various systems. We won this deal after our partner executed a complex proof-of-concept in just a few days. Another partner utilized our speed to win a deal with a Middle Eastern utilities company, marking them as a new customer in Q2. They opted for Appian to replace outdated legacy software and develop applications for customer onboarding, contract management, maintenance, and fleet management, with the partner completing a challenging proof-of-concept in just 2 days. Throughout Q2, our key industries continued to perform strongly, with life sciences seeing nearly triple the software bookings compared to the same quarter last year. More than half of the world's 10 largest life sciences companies are now Appian clients, making this sector our third-largest industry. One such top 10 life sciences company operates over a dozen Appian applications across various business segments, including corporate functions, medical devices, pharmaceuticals, and supply chain. In Q2, they acquired new licenses to streamline the review and approval process for custom medical products, ensuring that tens of thousands of employees and independent surgeons collaborate effectively on designs that fit individual patients. This deal was won due to our success in automating their crucial processes. Additionally, we expanded our services to another top 10 life sciences company that uses our platform for automating operations across their pharmaceutical division. They utilize Appian to enhance patient visit preparations in their clinical operations, reducing processing times from hours to minutes. In Q2, they invested over $1 million in Appian software licenses to increase user access for their clinical operations management applications. We also worked with a North American federal health policy department that leverages Appian for compliance applications overseeing international drug requests and shipment supplies. In Q2, they more than doubled their investment in Appian for a medical device management application, which will automate the registration and approval of new market-ready products. We won this deal over a competing provider because our platform is adaptable and enables the organization to respond quickly to regulatory changes. Alongside our software, we continue to enhance our customer success offerings. Our Architect Services offering gives customers access to a team of Appian experts who establish best practices and advise on application selection, design, and deployment. This quarter, we doubled the number of customers utilizing Architect Services compared to the previous quarter. This program also supports our software sales, as participants are more likely to make follow-on license purchases. For example, a top 10 global bank utilizes Appian in their global operations and commercial banking sectors. Earlier this year, the bank abandoned a lengthy two-year effort to build a risk management application with different technology and pivoted to Appian. With the assistance of Architect Services, they deployed the app within just 12 weeks. Following this success, the bank made a multimillion-dollar investment in new Appian licenses. One final example involves a top 10 global asset management firm that uses Architect Services to supplement their partner-led implementation team. In Q2, this firm expanded its Appian investment with a multimillion-dollar purchase to replace its long-standing legacy software in their mutual fund client services division. As companies recover from the pandemic, they will explore various technologies, seeking to implement more automation, cloud solutions, digital transformation, and low-code capabilities. There will be a heightened focus on agility and the capacity to respond swiftly to change. Our low-code automation platform is designed to support businesses as they navigate these evolving challenges. Now I'll hand the call over to Mark for a more detailed discussion on our financial performance.

Mark Lynch, CFO

Thanks, Matt. I'll review the financial highlights of the quarter, and then we'll provide details on our guidance. Cloud subscription revenue for the second quarter was $29.6 million, an increase of 30% year-over-year and above the top end of our guidance. Our total subscriptions revenue was $41.4 million, an increase of 12% year-over-year. As we discussed last quarter, when we provided our initial Q1 guidance, we had approximately $4 million of on-prem revenue that we had originally expected to close in Q2 2020, but instead was closed earlier as part of Q1 2020 deals. Professional service revenue was $25.4 million, down 11% from $28.4 million in both the prior year period and in the first quarter. Partners continue to be a larger part of our ecosystem and are increasingly helping us sell more software. During the quarter, all of our PS engagements, both cloud and on-prem, were performed remotely. Total revenue in the second quarter was $66.8 million, an increase of 2% year-over-year and also above our guidance range. Our cloud subscription revenue retention rate as of June 30 was 113%, within the 110% to 120% range that we target on a quarterly basis. We remain pleased with our customers' expanded use of our platform. Our international operations contributed 37% of total revenue for Q2 compared with 33% in the prior year period, demonstrating the strength of our business, both domestically and internationally. The increase as a percent of revenue was predominantly due to lower professional services revenue in the U.S. Now I'll turn to our profitability metrics. For the second quarter, our non-GAAP gross profit margin was 69%, an increase of 383 basis points compared to the same period last year. Subscriptions non-GAAP gross profit margin was 89% in the second quarter, consistent with the second quarter of 2019. Our non-GAAP professional services gross profit margin was 36% in the second quarter compared to 34% in the second quarter of 2019. The services gross profit margin was positively impacted by a decrease in the amount of services performed by subcontractors as opposed to our internal resources. Prospectively, we expect our non-GAAP professional services gross margins to return to the upper 20s as we onboard our annual cohort of university hires during the third quarter of 2020. Total non-GAAP operating expenses were $54.6 million, an increase of 10% from $49.7 million in the year ago period. Impacts from COVID-19 has naturally decreased certain expenses like travel and entertainment and office-related expenses. However, we continue to aggressively hire mid-level software engineers and quota-carrying sales reps. Adjusted EBITDA loss was $7 million in the second quarter, ahead of our guidance and compared to an adjusted EBITDA loss of $6 million in the year ago period. In the second quarter, we had approximately $600,000 of foreign exchange gains compared to less than $100,000 of FX losses in Q2 2019. Our guidance does not consider any additional potential impact to financial and other income and expenses associated with foreign exchange gains or losses as we don't estimate movements in foreign currency exchange rates. Non-GAAP net loss was $8.2 million for the second quarter of 2020 or loss of $0.12 per basic and diluted share compared to non-GAAP net loss of $7.2 million or a loss of $0.11 per basic and diluted share for the second quarter of 2019. This is based on 68.4 million and 64.8 million basic and diluted shares outstanding for the second quarter of 2020 and the second quarter of 2019, respectively. We ended the second quarter with 69.8 million shares outstanding compared to 67.6 million at the end of the first quarter. The majority of the difference in common shares relative to March 31, 2020, reflects the increase of 1.9 million primary shares issued in our June follow-on equity offering. Turning to our balance sheet. As of June 30, 2020, we had cash and cash equivalents of $256.1 million compared with $159.8 million as of December 31, 2019. The cash increase primarily reflects the completion of our June equity offering, resulting in $107.9 million of proceeds to the company after underwriting discounts, commissions and expenses. With this equity raise, we continue to strengthen our balance sheet. For the second quarter, cash used in operations was $3.1 million. For the 6 months ended June 30, 2020, cash used in operations was $7 million. Total deferred revenue was $92.1 million for the second quarter. With respect to our billing terms, the majority of our customers are invoiced on an annual upfront basis, but we also have large customers that 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 turn to guidance. For the third quarter of 2020, cloud subscription revenue is expected to be in the range of $31.4 million and $31.9 million, representing year-over-year growth of between 28% and 30%. Total revenue is expected to be in the range of $70.5 million and $71.5 million. As a reminder, the total revenue guide reflects some headwinds to our professional services business due to COVID-19. Adjusted EBITDA loss is expected to be in the range of $11 million and $10 million. Non-GAAP net loss per share is expected to be between $0.18 and $0.16. This assumes 70 million basic and diluted common shares outstanding.

Operator, Operator

We will take our first question, which comes from Sanjit Singh.

Sanjit Singh, Analyst

I wanted to dig a little bit into the pipeline you're seeing for the back half of the year. Are these like new low-code digital projects coming back into the pipeline? Or is the outlook still a little subdued? And maybe on top of that, are there any changes to pricing or incentives that you're giving to get customers to restart these projects if you should get them going?

Matthew Calkins, CEO

Yes. Let me address that. First of all, we had some successful solutions launches in the second quarter. However, I want to assure you that this is not the reason for the increase we've seen in new customers and the strength of our pipeline. We are also succeeding in non-solutions opportunities. Regarding your second question about offering a special deal, the answer is no. The pipeline is robust, and we are able to attract new customers even outside of these solutions.

Sanjit Singh, Analyst

Got it. That was very helpful. And then maybe if I can make one quick follow-up. On the CampusPass solution, the Workforce Safety solution, like how should we be thinking about the lifetime value of these solutions in a post-COVID world? Just how should we be thinking about that customer-related time value? That would be very helpful.

Matthew Calkins, CEO

That's right. We think about this a lot. These are solutions that address an emergency situation, and we want to be sure that the relationship that we create with every buyer can be transitioned into a lasting relationship. We don't want to just be there for the emergency, we want to be their partner going into the future. And so we know we've got a window to impress them. And we are focused on that. We realize that from the beginning. We see this as like a dress rehearsal for a real customer relationship. And we're already seeing success with. We've already seen cases where our solutions customer is delighted with what we've done, turnaround across the platform, we bought another application. So we're focused on that conversion, and we're already seeing success with it. The good news is Appian shows well, Appian works well. When people adopt this software, they typically do like it. We've got an extremely high customer satisfaction, often called out by the analysts for that. If only we could get more customers for whatever reason to just give this a serious try and see what they can do with it. I believe that we have an exceptionally strong retention rate on whatever sample would do that. So we know that's a challenge. We do want to convert, and we're working on it succeeding already.

Operator, Operator

Our next question comes from Mohit Gogia.

Mohit Gogia, Analyst

Congrats on the quarter. My first question is around, you highlighted a really good traction in terms of new logo wins and sales cycles shortening this quarter. Seems to be that you were able to leverage the partner ecosystem, which contributed towards this positive. So wondering, has anything changed in terms of the partner ecosystem, maybe the partner incentives or the playbook that basically drove a very healthy performance in that regard this quarter? And also, what are you seeing in terms of these partners' like deals, right? Are there specific verticals? Are they geared towards certain initiatives? You mentioned, obviously, low-code is becoming top of the mind during COVID. But just wondering if you can give us more color around that partner ecosystem and the partners like this? And then I have a follow-up question on the numbers.

Matthew Calkins, CEO

The two keys to our success with partners last quarter were being relevant during the COVID crisis and delivering solutions through low-code, which is crucial because it enables companies to adapt swiftly to changes. Additionally, we have invested in building relationships and outreach to these partners, making us the first option they consider when faced with a challenge. Combining these two factors has made our partnerships stronger than ever before.

Mohit Gogia, Analyst

Understood. My follow-up question is about the professional services business. There are clearly some headwinds there. Can you help us understand those headwinds? You're trying to leverage partners more for professional services, which is one factor. Additionally, there's the impact of COVID. If we consider a normalized run rate and assume COVID subsides, how should we view that business moving forward? That's all from my end.

Matthew Calkins, CEO

Yes. That's right. Okay. So going forward, I expect it still to be a grower. There's just some unique circumstances right now to shape that. I believe that we can grow our professional services at a very modest rate and still have partners enthusiastically growing and taking a good deal of the upside in the additional market space that we're creating with our software. I think there's room for everybody to win here. And our individual services are still valuable because they demonstrate what can be done with our software. Our value proposition comes through very clearly. So I believe there's room for all. We don't mean to shrink our PS into nonexisting. We instead expect it to coexist happily and grow slowly once we're out of the COVID situation.

Mark Lynch, CFO

And I think we talked about the Architect Services as well, coming in at the high end helping customers solve very complex problems. And we worked with several of our customers that were basically partner-led engagements, where the PS engagements were done by the partners, but we came in kind of with the squad team, if you will, the Architect Services and help them out. And so I would expect we're going to be offering and continue to offer these high-level, high-margin offerings. So I think going forward, we'll be a grower, but to Matt's point, it will be slower grind in it.

Operator, Operator

Our next question comes from Arjun Bhatia.

Arjun Bhatia, Analyst

Good job executing in the quarter here, and it's been a tough environment. Matt, for you, on the R&D side, it's been great to see some of the productivity of the product, or you talked about some of the new solutions that you introduced this quarter, and I think you made some enhancements to the core platform as well along with the RPA and process mining integration. Can you just maybe give us an idea as you're thinking forward in your R&D efforts where you're deploying resources? Whether it's on the productization front or further enhancements on the core platform?

Matthew Calkins, CEO

Yes, I'm glad you asked about this because I'm also proud of the results that we had with our R&D side this past quarter. In the face of an emergency, we produced some applications, and we produced them faster than anyone else in the market, to my knowledge, was able to produce them. A digital health strategy is something every business needs right now to protect their returning workers as they come back to the workplace. As I mentioned, only about 10%, 12% of them actually have it. The others are using pen and paper or Excel or something like that, which really isn't responsible. A digital health strategy has 3 core components, and we put all 3 of these together and got to market faster than our competition. First of all, you've got to collect a lot of data about your employees, the facilities, the places they went, the vulnerabilities, all that because the more you know, the more you can protect people. You collect all that. Number two, you bring it to bear at the moment when there's a decision to be made. Let's say an employee has a test or has a symptom or they think they might be sick. At that moment, you got to make a quick decision. So you got to have all that data brought to bear in the moment and accessible to the decision maker. And then that requires a lot of integration, of course. And then number three, whatever decision you make, you've got to act on it immediately. If you want to tell this person not to come to work this morning. Do you want to tell that person that they got to get a quarantine or a test? Do you want to revoke those 10 people's badges, right? It happens immediately. So knowing, deciding, and acting has to happen quickly. And furthermore, it has to happen with the data stored securely, like a HIPAA-certified cloud, like we got. Having that product is going to save lives. It's going to help businesses improve their relationship with their employees. And it's going to give us an edge because it demonstrates what you can do with a low-code platform that's capable of building powerful applications. And we rushed that to market. And we got a whole bunch of business from being first with a complete solution. We didn't have the biggest brand name, right, and then we're not going for the lowest price, but we did get to market really quickly with an ironclad application. And I think that made a big statement. I love challenges like this, moments where we've got to react quickly because it allows our product platform to shine. So we had this opportunity. We demonstrated what the platform could do. Now we'll continue to innovate. We're not done making solutions or adding to the solutions. We've got some exciting new features coming up, which I can't talk about. But we do quarterly releases in our engineering department. We're very proud of the productivity, the innovation that comes out of that. This quarter was not the only quarter that we did something cool, but it's a quarter where the thing we did was particularly high profile. So I'm glad it puts a spotlight on a great group of coders who are coming up with exciting features for us every quarter.

Arjun Bhatia, Analyst

That's helpful color. And then a quick follow-up on the new customer and new logos that you talked about. I'm just curious whether you're seeing kind of an inflection in the awareness, a CEO, CIO awareness of the low-code category? Meaning, were these customers that were in the pipeline? Or was it the pandemic that kind of accelerated their low-code roadmap relative to what they had maybe in January, February this year?

Matthew Calkins, CEO

Yes. I think that if that's happening, it's just beginning to happen. I do believe that low-code is catching on this year. Actually, I think low-code would have caught on this year even without COVID. I think it's an idea whose time had arrived. I was saying at the end of last year and the beginning of this year that in this new decade, I thought the majority of the software written around the world would be written in low-code. And that's sounding a lot less hyperbolic than it was a few months ago because it really seems like, right, the circumstances change, we get addicted to speed. We decide everything should be fast. I think organizations are going to expect this. And you can see it in the way low-code is being used less as a noun and more as an adjective. It's often used now to describe anything the authorship of which should be quick in software as opposed to just one industry that exists in order to facilitate quick authorship.

Operator, Operator

Our next question comes from Chris Merwin.

Kevin Kumar, Analyst

This is Kevin on for Chris. Matt, given the current environment, has there been any shift in the way customers are thinking about cloud versus on-prem deployments?

Matthew Calkins, CEO

All right. Thanks, Kevin. I think that there is a continuing interest. I just see the same natural preference for the cloud that we have continued to see. The same trend toward the cloud has been going on. I suppose there might be a little more urgency around cloud. And I did list cloud as one of the things that I thought would be accentuated in the post-COVID era because it does allow for that remote control, that instant instantiation. It's a change facilitator. I think there are a lot of reasons why cloud will be called out as a positive part of the reaction to COVID. So I expect nothing but goodness for the cloud coming out of this experience. And I suppose we might have seen just a little bit of an additional preference. But remember, we do almost all cloud anyway. So for us, we're already solidly in the cloud corner.

Kevin Kumar, Analyst

Great. That makes sense. And then maybe how is the federal pipeline progressing? Any additional color to call out there?

Matthew Calkins, CEO

Sure. The federal pipeline is impressive right now. It's strong. We've got a solution that's specifically targeting the federal space. It's an acquisition management solution for writing contracts, which is something that every agency needs to do, and they put a lot of focus on it, a lot of money behind it. Efficiency is extremely important. And we have created a leading product in this market as a solution on top of our platform. We've demonstrated a couple of the highest profile cases in the federal government, including the Air Force, to them to show how confident this solution is at handling a procurement, and it comes out on top. It's done great. It's differentiated itself against incumbents, against traditional methods. It's flexible, it's agile, it's quick to deploy, it's user-friendly. It's been doing really well. And both because of that and outside of that, our federal pipeline looks very strong.

Operator, Operator

Our next question comes from Alex Kurtz.

Alexander Kurtz, Analyst

Good quarter, everyone. I understand you're not providing full year guidance, which I appreciate, but could you consider sharing some insights? Given the positive results and guidance, it would be useful for us to manage our expectations for Q4 and its implications for the run rate into 2021. Mark, are there specific factors we should consider across different revenue segments? You've mentioned a few already, but it would be helpful to clarify them as we refine our Q4 numbers, so we don't project too far into 2021 and beyond.

Matthew Calkins, CEO

Yes. Let me say, just talking about the full year guide. We still see that there's plenty of volatility left in COVID. There could be another wave. It's still an area of uncertainty. And we see that most comparable companies are not giving a full year guide, which is why we decided not to. But I want to clarify that I remain optimistic, maybe even very optimistic about the business where it stands now about the second half of this year. And so the lack of a full year guide is not to be taken as an expression of pessimism.

Alexander Kurtz, Analyst

Noted. Mark, you want to add to that?

Mark Lynch, CFO

Yes. I mean, I think if you're looking at kind of the extrapolation, you generally know how we like to give guidance, we like to be conservative. So I would urge you and everybody listening on the call to kind of follow an element of conservatism as it relates to the second half of the year. We kind of mapped out Q3, you can follow that same road map for Q4. And I think you'll be in an appropriate place.

Operator, Operator

Our next question comes from Derrick Wood.

Andrew Sherman, Analyst

It's Andrew on for Derek. Nice quarter. Now, I wanted to touch on sales hiring in the quarter and what are your second plans for the second half versus first half? And any challenges in hiring virtually?

Matthew Calkins, CEO

Sure. We are full speed ahead on sales hiring, have been all year, never turned it off. And yes, it is challenging. You see that our comparable companies are hiring as well. So the market didn't really get easy at any point to hire good AEs. Luckily, we've got a great product. We've got happy customers. We have an edge in the market, but the market itself was never simple. As for hiring at a distance, that's actually not particularly difficult for us. I think virtual is a perfectly good way to do interviews. We're practiced at it. I've done a lot of virtual interviews and so has the whole organization. I don't believe that is a stumbling block. If anything, it's an accelerator because in the past too, it was considered obligatory to meet in person or bring in a candidate to the headquarters. And now it's perfectly understandable why you wouldn't do that and you move forward more rapidly.

Andrew Sherman, Analyst

Great. And then on the 76% on the Workforce solutions for new customers, maybe just talk about how you can upsell them later. And are you seeing any signs of that so far? And Mark, what that might mean for expansion rates in the second half?

Matthew Calkins, CEO

It's definitely happening. We are focused on it and already implementing it. We recognize that this is the business model when acquiring a solutions customer. That's also why we are offering our solutions in groups. Most solutions will connect with others, facilitating a smooth progression for the customer journey. The initial purchases are very encouraging. It's important to establish a pattern of consumption and increase in purchases. We aim to make this process systematic and straightforward. We are certainly monitoring this as we welcome a new wave of solutions customers.

Mark Lynch, CFO

Yes. I mean, as you guys know, the way we generally land and then expand, it takes some time to get that expansion. These are Q2 deals that have happened. So from a modeling perspective, continue to earlier, should probably see significant, especially in the P&L, would be sometime in Q4 potentially from these. These are more going to be great opportunities for us for 2021 and beyond from a momentum perspective.

Operator, Operator

And at this time, we have no additional questions.

Matthew Calkins, CEO

Great. End the call.

Operator, Operator

Ladies and gentlemen, this does conclude our call. We do appreciate your participation. At this time, you may disconnect.