All right. Thank you, everyone, for joining the Appian session today at William Blair's Growth Stock Conference. I'm Pat McElwee, and I'm a research analyst in the software group here at William Blair, as a part of which I cover automation companies, including Appian. Just quickly, I'm required to inform you that a complete list of disclosures and potential conflicts of interest are available at our website at williamblair.com. And with that, we're very excited to have the Appian team back at our conference this year. and with me today we have Appian CFO Serge Tanja, who just last week celebrated his one-year anniversary at Appian. But that said, it is not Serge's first time at the conference, having attended in prior years at MongoDB. For those not as familiar, Appian provides a low-code automation platform that helps enterprises build secure workflow applications and orchestrate complex business processes across people, systems, and AI agents. The business serves highly regulated industries including financial services, insurance, health care, and a growing federal business, which now represents roughly a third of the company's total revenue. So that's my brief two-liner on the business, but it would be helpful to hear from your perspective, Serge. Can you just start us off by describing Appian's product and service offering as you see it, you know, what that toolkit includes and how the platform has developed and continues to develop over time?

Sure. So first of all, thanks for having me, Pat, and thank you everybody for for joining us here in the room. Let me kind of repeat a little bit of what Pat said and then maybe make it real through a couple of examples. So Appian is a process automation platform. We've been in the business for more than 25 years, and we say that we automate complex, cross-functional, mission-critical processes for regulated industries. So that's a mouthful. So let me kind of break it out into little pieces. So first and foremost, 80% of our ARR comes from four verticals. Those are financial services, insurance, life sciences, and public sector. And then we'll give you a couple of examples of what we mean by complex, cross-functional, and mission critical. One of our seven-figure customers is a financial institution that uses Appian to monitor fraud. Before using Appian, they were relying on six disparate systems and a tremendous amount of manual labor to accomplish the goal, resulting in a long time to investigate fraud and significant financial risk. They implemented Appian to replace those six systems to have a single unified workflow. In the process they reduced their the time to investigate fraud by 98% and reduced the risk of actual fraud happening by three quarters. Or just to use another example but this time from the public space, a branch of the US military is using Appian to manage their supply chain for ammunition, so as mission-critical as it gets. And before using us, there was a legacy platform that just couldn't handle the one million transactions a month that they had to do. They deployed Appian in a highly secure manner. It's called IL-5, which is one of the highest designations that Department of War has, and they now have near real-time visibility into their workflow, which obviously has significant benefits when it comes to performance that they're expecting. So we've actually just had an InvestorLate three weeks ago and on our IR site you can find our presentation where we have a couple dozen of examples that's kind of trying to demonstrate in more detail as much as possible what is it that we do for our customers but hopefully those couple of examples help for now.

Yeah that's great and so with that kind of more than three-quarters of your business that are these highly regulated industries, you touched on it a little bit with you know the reliability and the security of the platform but can you talk about why those customers rely on Appian is it the trust you've built over you know the last 30 years the security is it the services component where you actually help them roll out the solutions what's the secret sauce yeah I would say that it comes to both the product and the trust that we built over the last 25 years the first thing when it comes to the product when you're automating processes you want to have a comprehensive suite of products that allows you to attach the right problem to the right solution so what that means is first and foremost multiple

automation tools so it's not just business rules its integrations its bots and create increasingly AI I'm sure we'll talk about that more data capabilities we have a data fabric that allows customers to to access data in other system outside of Appian without having to move it and create you know complex and expensive processes we provide process mining in order to improve processes over time and just most importantly perhaps everything we do in Appian is highly compliant secure when you operate in these industries very frequently you have to be certified by a number of governing bodies Appian has all those certifications so those are sort of the the requirements to play at the level that we're playing and for the processes that we are automating and then the other piece that you talked about is that we've been at this for a while we've been at this for 25 years 70 plus percent of our business comes from customers who spend over a million dollars with us that's where we're deeply embedded with the core of their platforms they frequently have development teams that are developing on Appian and they are standardizing in terms of bringing incremental workloads on our platform so it's both the platform itself is sort of the longevity that we have with our customer base mm okay that's great and I think it's a good segue into my next question because I think it's still not completely understood in the investment community what Appian does you know providing these reliable deterministic automation workflows what foundational probabilistic models like Claude do what the distinction is you know where there's similarities in overlap where there might be some harmony between the two I think you had a Venn diagram at your investor day can you kind of just talk us through that yes so first thing I would ask you to do is to think about a process a process is a series of steps through which work gets done and Appian has been automating processes with thousands and thousands of nodes and meaning steps in the process for you know 25 years plus and when we started off most of the work in the process at every you know at every branch and every node of the process was done by humans we were automating the flow of information and governing the the accuracy of that process over time other workers other than a human were introduced in a process so those would be rules based engines those would be integrations, those more recently were RPA bots. Again, sort of a number of different workers to accomplish the task more effectively. So now comes AI and when seen from a view of a process, AI is just another type of a worker and it comes with some strengths and some weaknesses. The strengths of AI is that it's very powerful, that it can reason the way that some of the other digital workers cannot. It doesn't of course approach the reasoning of a human but can not a lot of when it comes to extraction of information checking of that information reasoning in face of ambiguity so that's the good part the the negative or the weakness if you will is the accuracy the accuracy is not there at least not in the verticals that we operate and at least not at the level of accuracy that our processes require and you all are users of AI in your daily life so you know that it's frequently wrong so our position to customers has always been figure out how to use AI in processes that actually drive your business as opposed to the side and figure out how to do it in a way that manages or sorry leverages its benefits while managing against its weaknesses and that's how that's how we implemented Appian in our processes and what that means is we implemented as a worker to do a specific task we check its work we frequently have multiple models working to confirm the work if we're still not sure of the outcome we will kick it to human to kind of handle the exceptions and that way we benefit we leverage the benefits of AI which is speed and and cost you know especially if it's you know these are the human labor while at the same time maintaining accuracy and this is resonating with our customers because what our customers have seen over the last couple years and all enterprises have is that AI promises don't obvious don't usually live up to reality when it comes to implementation

at scale and by contrast our message resonates because we're able to show you a proof of concept we're able to demonstrate performance and reliability we're able to deliver business value and then we can actually turn it in production at a much larger scale and still maintain all those features okay that's great and just to continue on the topic I think it's clear that there's somewhat of a fear of disruption associated with this technology but when attending your customer conference your user conference you talk to these customers and and they seem to be leaning more into these trusted platforms like Appian rather than they're trying to move away from them or replace them so can you just talk about what you're seeing at the ground level in those customer conversations what those dynamics look like yeah and by the way

thank you for coming to the conference I think the best way to get to know a company like Appian is to actually talk to our customers or visit one of our events we have a series called Appian around the world the biggest event was a month ago in Orlando but we'll be we'll be in your neighborhood before too long if you will. When you talk to our customers, and it's interesting, so you mentioned that I've just hit my one-year mark at Appian. I went to last year's Appian World, the big conference, and then of course I went this year again. And our message has been actually quite consistent, right? AI is most effective in process. You want to deploy it inside the guardrails of your existing efforts. You want to make sure that you leverage its strengths while controlling for its weaknesses. We've been pretty consistent with that message for a couple of years at this point. A year ago our customers were sitting and listening but still trying to feel like they were absorbing what we're saying and how's that different from some of the other messages in the market particularly sort of kind of the let's call it agents everywhere story that some of the other vendors were selling which is you know I'll have my agents you'll have your agents my agents will manage yours there'll be a control tower all these very you know hyperbolic if you will features as opposed to actual performance in the ground. So customers were trying to resolve, like, what's truth versus fiction. Fast forward to this year, our message is still the same. Obviously, we have more features in the market and more traction in terms of actual references. And it was actually, you were there, so you saw a number of household names on the stage. You know, Pfizer was there presenting about their AI use cases. CIBC Mellon was as well. A number of the other customers. But what we're seeing this year is customers leaning in. What we're seeing is they're nodding their heads as they're looking at you know our story of process plus AI we hear them asking what I would describe as kind of late-stage funnel questions about pricing and packaging about change management about implementation all to which to indicate that our messaging is our market the market and the customers are kind of coming around to seeing our way when it comes to how to best deploy AI. Okay great and then I think another one of the kind of thematic concerns with the software sector right now is pricing models okay Appian's pricing models a little unique can you talk us through just kind of clarify what it is exactly yeah so the first thing that I would say before I kind of break into the pricing models is that ultimately our customer or a persona that we're selling to is the business process owner or a business unit owner inside a large enterprise whether it be a financial institution a government institution or healthcare or manufacturing or whoever and what they're buying from anybody including Appian is first and foremost impact it is either cost savings or revenue acceleration or efficiency some form of fashion and then our job as a vendor is to demonstrate the benefit that you're getting from us and then charge a fair price for the benefit such that the customer is the ROI while we get the revenue of course the pricing model itself is a way to derive that value but once you convince the customer that you have that you're delivering that value the processing conversation is secondary and so at our investor day our chief revenue officer gave a few examples of how that process works with Appian but usually when we get access to the senior decision-makers and our customers and once we demonstrate the product they get the value and the rest is you know if you will a point of negotiation as opposed to whether the sale happens or not but to your question we meet customers where they are in in terms of their preferred way of selling. So whether that's user-based, whether that's per application, which is quite common in the public sector. We have something called enterprise growth plans, which is sort of an unlimited way to buy our licenses in order to accelerate sort of the process of becoming standardizing on our platform. We have consumption both in a hybrid way where we sell AI usage on top of user-based model, as well as pure consumption. And again, customers want value, customers also want budget visibility and clarity and we want obviously to maximize our revenue we've also been raising prices pretty consistently year over year for multiple years now so we think we have the tools that are exposals to to really capture this opportunity ahead of us and I would argue that our performance of the last few quarters demonstrates that absolutely yep and and you touched on this so I'm gonna jump to this question at being hired a new chief revenue officer mid 2024 mark Dorsey I believe and since then you've made a lot of tangible progress in the sales productivity with a stated focus on selling on value can you talk about a little bit about the steps that mark has taken over the last couple of years um and and how it's it's manifested into this level of performance yeah so um mark predates me by roughly six months at appian and he's picked up on a change or champion the change that has begun even before he joined which is the focus on the high in the market focus on large strategic deals and focus with leading on value. So the first thing he needed to do frankly was was upgrade his management team in order to bring people with more experience of doing these large strategic deals, seven and eight figure deals increasingly and he's done that. We have more than 50% of our sales leadership is new, started you know early in middle of last year and we brought the kind of pedigree and the kind of discipline that frankly wasn't there to begin with. Second of was reviewing all the all the basic cycles or motions if you will that come in the sales or whether that's forecasting whether that is deal qualification meeting with the customer in person and developing those relationships pricing as well and sort of the discounting philosophy and so tremendous amount of progress has been made on that front and then finally is just continuous drumbeat of value value value demonstrate value and then charge for that value bring along your your value consultants to demonstrate that value make sure the customer signs on to what you know however many tens of millions of dollars you're saving them because if you're saving them or generating for them tens of millions of dollars then you get to charge seven figures for it and you know we showed some examples a few weeks ago but the

point is there's more and more of that culture and that drive and that's what it's been driving the performances of late mm-hmm okay yeah that's great and kudos to mark and the team for working your whole team for the results that have materialized agreed yeah so we talked about we covered the risks associated with AI pricing, et cetera. As we think about the other side of the equation, the benefits of embedding AI within this platform, can you talk about how you're leveraging it within Appian's platform, using Composer to build applications, how you're plugging agents into those applications, all of that?

Yeah, so for us, we tend to think of AI in two flavors. One is AI as a worker, and then the other one is AI as an author. So far, we've mostly talked about AI as a worker, meaning a node in a process. You assign a task to AI, it does it faster, cheaper, more efficient than alternative workers that we can deploy. And in order to get AI in production, AI in your processes, you need to upgrade your license with Ambien. So we have multiple tiers, but the standard tier is the starting point, and that's where customers don't get access to our AI features in production. So in order to get access in production, you've got to pay us more, so you upgrade to the advanced tier. That's 25% to 35% uplift right there. So that's the first way we monetize AI. Then the second thing that happens is that advanced tier license involves a certain amount of AI usage, what I would describe for a moderate amount for like a medium-sized use case. As we see customers become more effective and more successful with their AI applications, that's where we kick into the next level of sort of consumption benefit where you over exceed what you have there and then you have to come back and contract with us and buy incremental ai usage bundles from us in order to you know to be able to support the use case that you've built and it's early days but we're starting to see some of our most successful customers get to the point where they need to have that incremental spending with us in order to maintain the functioning of their application so that's on the ai as a worker side and by the way 40 of our customers have some amount of um they have access to our ai features they're paying us some amount for for our advanced tier or other ways to buy our ai we said 100 million of arr is at that level so we can keep up selling those 40 percent of customers plus push to 40 more and for all of those customers we still have the consumption upside in the form of ai bundles that will be increasingly selling as we go forward so that's the ai as a worker side now if you think about you know you heard about the concept of vibe coding and ability to use natural language in order to faster develop applications this is where our composer feature or product comes in so composer allows you to use natural language elements to build more quickly and more collaboratively between the developer and the business user and you know most importantly more cheaply applications on Appian so we GA composer in December of last year we just announced meaningful upgrades to it but what Composer does is it lowers the cost to develop an application which further opens the aperture of stuff that can be built on Appy because if you think about it you know you guys are in the investment business so you would you as and I would both require a business case for any new spending and usually that comes with some upfront commitment in the form of professional services followed by the long-term benefit so as you lower the cost of that upfront commitment sorry it drives the the mpv improves the mpv of your of your overall investment which means that more projects are going to clear the hurdle and that's what we're hearing with composer we're hearing that customers and partners are very excited about the possibility of accelerating development on appian the way that's going to benefit over time for us is more ar on our platform whether from new applications or from modernizing legacy applications which obviously is an enormous market that's sort of been out there and elusive for a long time okay and is there any way you can like frame how much faster that implementation is with composer or or how much lower the costs you know that friction so some of the early modernization cases are saying that like for right now we're seeing 25 percent plus upside versus the normal methods but i wouldn't focus on any moment in time right now our goal is to continue lowering that uh that effort uh through continued innovation. So wherever we are right now, we're going to be better by the end of the year and two years from now, of course.

Okay, okay, great. And then if we turn to the kind of existing customer base, so you've always maintained exceptional retention rates, you know, in the high 90% range, but recently you've actually seen an inflection in your net retention and your growth rates. Can you talk about what makes the Appian platform so sticky and then what is helping to drive that inflection on top of that stickiness?

Is it the optimization of your sales motion the adoption of AI kind of all the above yeah so let's break it into two pieces Appian has always been exceptionally sticky and that should not be a surprise honestly because once you deploy us for your mission critical process that ties to the rest of the data in your enterprise that runs things that run your business every day you're gonna have a hard time getting off us now most customers are very happy with us so there's even no impetus to do that but even if you want it to be an exceptionally hard thing to do which is why the the retention rates have been in the high 90s uh the net retention rate so our ability to expand on top of that you know renewing business has in fact improved for the last couple of quarters and that is a combination of two things one our ai story is resonating upgrades to the advanced tier um you know going forward in particular the ability to sell incremental ai bundles on top of it plus our improved sales sales sales execution across the board so if you think about it was 112 percent two quarters ago we just did 115 that's a function of continued improvements to sell to an already very happy and sticky customer base mm-hmm okay and so on this one for those in the audience not as familiar as a KPI Appian discloses the number of customers it has with over a million dollars in ARR last year that number grew 22% to 140 so it was a clear inflection from growth of only 5% in the prior year I think you just said that that that cohort represents roughly three quarters of your overall revenue base 70 percent yep so so on the back of the sales force optimization you just talked through can you talk a little bit about how you've shifted the organizational focus market and if that comes at all at the expense of some of the customers down market if there's any churn as a result of that down market so we were spending too much if you go back three years ago we were spending too much time and too much cycles on small deals and low end of enterprise and mid-market and that was a mistake because it's equally as hard to sell a seven-figure deal as it is a five-figure deal and if you had to pick which one you would do you would of course do the seven-figure deal or a six-figure deal and that's where actually the retention is also better because the customers deploying you to something mission critical when they're writing that kind of check so that means that they like you more and they're more likely to take another meeting and develop another workflow and on and on and on so we made a realization that we needed to pivot at the time we also reduce our sales work so this is two plus years ago at this point uh and we focused on um and the high end the market strategic deals that's when we made the sales transformation and the changes that we we already covered so that's the that's the the the journey that we've been when it comes to go to market execution and still significant upside as we look ahead um where you see it most is what you said is the acceleration that we've seen in the 1 million customer cohort because again once you're selling large and strategic you're more likely to break through the seven-figure panel what's interesting to me is that even though we've expanded the number of customers the average spend per seven-figure customer also grew last year and that sort of shows you that even though we're you know usually when you grow customers rapidly average spend declines because you're usually bringing customers in the low seven figures but that's not the case with us we've actually been able to keep upselling our existing customers and now we have a growing number in the eight figures as well so over time we'll continue to play out that trend and we showed sort of a chart of customer expansion what's really remarkable about appian is that we don't just grow for the first couple years in an account we grow as in growing years five six and seven as well and that again is the function of the size of the market and sort of just how broadly based broadly applicable the platform is okay and and then as we think about large customers roughly a third of the business is now from the government.

It continues to grow as a percentage of the overall revenue base. It sounds like this is deliberate given some of your recent commentary. Can you help investors understand how you're thinking about the opportunity within that segment and how much runway you see to continue growing within the federal space?

I would say there's two things that are incrementally interesting in the public sector compared to the overall opinion story. The first is the changes that happen in the federal government and the focus on efficiency that started you know at the beginning of last year with a new administration has been a clear positive for Appie and the simple reason is the government was deal directly with the software vendors is more focused on the total cost of ownership and getting faster time to value and that obviously benefits us as opposed to working through intermediaries which is how we sort of historically had to approach the market and the second is as you think about our historical go-to-market execution we've generally been always better in the public sector that we have been you know in the commercial and most of the changes that happened over the last years were actually the commercial side of the business but so when you when you have like a solid base of execution in the high productivity which you already had in the government space with the secular change in terms of the focus in terms of how the government wants to do business those two things combined is what brought the acceleration the revenue on that side and we see that as a fundamental structural change as opposed to a temporary change so as we think about the pipeline of the opportunities the ability to deal directly and be the prime prime seller as opposed to subcontractor all of that is still on the table one example I'm sure you know is that we signed a framework deal with the US Army for 500 million dollars over the last over the next 10 years and that's a combination

of a couple of things one the secular change that we're seeing how the government wants to do business plus the strength of our platform and particularly the AI features that allows the army to make that kind of a statement of commitment if you will going forward awesome okay and then one more I want to make sure we head on one of the knocks on Appian for a long time has been the trends and the bottom line so profitability seems to have kind of taken a backseat to to growth over time but but already since you've joined you've made material progress you've seen a dramatic improvement in the operating margins can you help us understand what levers you've pulled to achieve that recent margin expansion and how you plan to balance profitability with growth going forward yes so can take all the credit in fact the journey

began well before I joined so right about the time that Appian decided to focus on the high end of the market and improving sales productivity Appian also focused on company-wide efficiency and the results have been you know remarkable we went from negative eight percent EBITDA margin in 2023 to plus 11 percent in 2025 so almost 20 percentage points improvement over the last two years and this year we're showing a hundred basis points plus improvement in margin at the midpoint as of our last guide we talked a little bit about this at the investor day but we see opportunity for incremental leverage sort of across the board R&D will continue showing operating leverage because of our move to you know hire more in low-cost location and increasingly because of AI efficiencies in the software development process we're going to continue improving our sales and marketing efficiency both as a percent of revenue but to me more importantly in the context of what new revenue we get for the for our sales and marketing investment our GNA spend is already quite lean but we believe especially with AI we can drive continued leverage there as well so if you add all that up we talk about sort of a multi-level growth story at appian and let me just kind of walk you through all the pieces using this year's guidance so we spend much of this time talking about the revenue opportunity as we should have right whether that is growth when existing customers upselling ai new logos federal you name it so we're guiding to 13 revenue growth at the midpoint of the range for this year subscription is growing a little bit faster than that so that's on the revenue side then on the EBITDA side we're guiding to 31% this year at the midpoint that's the revenue growth plus the hundred basis points plus of margin and we'll be doing twelve percent and twelve percent margin this year and plenty of opportunity to keep that growing for years to come then if you look at the EPS line non-GAAP EPS line our guidance is for a dollar a share that's sixty percent growth year over year so that's the thirty one percent EBITDA growth plus faster growth of net income because of the leverage between those two lines and then on top of that we're buying shares and we're shrinking our share count our share buyback that we've just upgraded at their last guidance of a hundred million will mean that this is the first year that we get to consistently shrink our share count and we expect to do that going forward so revenue is sustainable margin expansion is sustainable leverage of net income plus share buybacks and shrinking of the share counts are sustainable so you think about that not in any given period but over a multi-year period which is how we think about it internally that's how we're gonna drive profitability per share mm okay and I think we just have one more minute so if I could tag on to that how do you think about equity compensation I think there's been some more scrutiny around stock based comp recently absolutely and Appian has always been exceptionally careful by dilution you can see this in the numbers we've stock based comp is a percent of revenue is 6% for the last three years versus companies our size 12 percent and even larger software companies one to two billion in revenue the median is 10 percent so we're well above peers well below peers sorry in terms of stock based compensation which is the reason why when you hear our buyback size of x actually a good chunk of that almost half of that is going to shrink the share count as opposed to just offset dilution and that ratio should improve over time as as free cash flow increases okay awesome well thank you so much search for being here thanks everyone for coming appreciate it thank you guys

and the breakout will be upstairs and jenny a jenny a