Core Viewpoint - Morgan Stanley expresses optimism about Appian's strategic transformation under new leadership, despite the potential delay in reaching a growth inflection point, believing the company's actual positioning is better than market expectations [1][2]. Company Overview - Appian is a low-code enterprise platform as a service company focused on business process management, offering an integrated automation platform for designing, automating, and optimizing end-to-end processes and complex business operations [1]. Technological Differentiation - Appian's differentiation lies in its "process-first" platform centered around Data Fabric, unifying enterprise data under a semantic layer, allowing applications and AI agents to process dispersed data sources efficiently [4]. Market Strategy - The company has restructured its go-to-market (GTM) strategy to prioritize larger, higher-quality enterprise deals, moving away from smaller transactions, with a focus on seven- and eight-figure deals for better scalability and unit economics [5]. Federal Market Opportunities - Appian sees significant growth potential in the U.S. federal market, which constitutes about 25% of its business, driven by policy changes favoring direct procurement from suppliers rather than through third-party contractors [7].

Company Overview - Appian is a platform that enables customers to automate and orchestrate their critical enterprise processes [1] - The platform is utilized by a global pharmaceutical company as an enterprise standard workflow tool for managing processes like clinical trials and logistics, deployed to 50,000 employees [1] - The U.S. military is consolidating several legacy systems related to finance, procurement, and supply chain management onto the Appian platform, which will be deployed to hundreds of thousands of users and save tens of millions of dollars [1] Client Applications - One of the largest asset managers in the world uses Appian to onboard and manage their customers [2]

Summary of Appian's Conference Call Company Overview - **Company**: Appian - **Industry**: Software and Automation - **Core Function**: Appian provides a platform for automating and orchestrating enterprise processes, enhancing agility, performance, and flexibility for customers [3][5][4]. Key Points and Arguments Product and Market Position - Appian's platform is utilized by various sectors, including pharmaceuticals, military, and asset management, to streamline processes and reduce costs [4][5]. - The company emphasizes its strong product quality, evidenced by high customer retention rates and satisfaction [7][8]. - Appian's AI capabilities are positioned as a significant value proposition, addressing customer needs for accuracy, security, and auditability in AI deployment [8][21]. Growth Opportunities - Appian is focusing on moving upmarket, improving sales execution, and enhancing operational efficiencies [11][12]. - The company sees potential in the federal government sector due to a push for efficiency and modernization of legacy systems [13][64]. - Appian aims to leverage its AI capabilities to drive new business and improve existing customer relationships [25][37]. Efficiency Improvements - The company has streamlined its salesforce to focus on high-performing segments, leading to improved productivity [18][19]. - Appian is applying its own technology to enhance internal processes, aiming for better operational leverage [15][16]. AI Strategy - Appian's AI strategy is centered around three main opportunities: increasing automation processes, modernizing legacy tech stacks, and facilitating easier application building [24][26][39]. - The company is developing tools like the AI agent studio and Composer to enhance customer engagement and streamline application development [39][40]. Customer Engagement and Market Readiness - Customers are generally more inclined to buy solutions rather than build them, indicating a preference for established platforms like Appian [32][33]. - The readiness of customers to deploy AI applications is still evolving, with many in the early stages of adoption [46][49]. Financial Metrics and Guidance - Appian is guiding towards an 8% EBITDA margin for the year, reflecting a significant improvement in profitability over the past two years [71]. - The company emphasizes the importance of balancing growth and profitability, aiming for continued margin expansion alongside revenue growth [72][73]. Additional Important Insights - The federal government is shifting towards direct engagement with software vendors, which could benefit Appian by allowing better communication of product benefits and implementation [66]. - Appian's focus on professional services is seen as a competitive advantage, particularly in implementing complex AI solutions [48][49]. - The company is optimistic about its growth trajectory, particularly in the context of AI adoption and federal government opportunities, despite current uncertainties in the market [64][67].

Financial Data and Key Metrics Changes - Appian's cloud subscriptions revenue grew 21% to $106.9 million, while subscriptions revenue increased 17% to $132.7 million, and total revenue rose 17% to $170.6 million [5][21][24] - Adjusted EBITDA was $8.1 million, significantly better than the guidance of a loss between $5 million and $2 million, and compared to a loss of $10.5 million in the previous year [24][25] - Net income was $300,000 or breakeven per diluted share, compared to a net loss of $18.2 million or $0.25 per share for the previous year [25] Business Line Data and Key Metrics Changes - Professional services revenue was $38 million, up 13% year-over-year, while subscription revenue represented 78% of total revenue, compared to 77% in the previous year [21][24] - The cloud subscription revenue retention rate was 111%, down from 118% a year ago [21] Market Data and Key Metrics Changes - International operations contributed 38% of total revenue, unchanged from the previous year [21] - The U.S. public sector outperformed the global business in cloud revenue, new bookings, and software pipeline [11] Company Strategy and Development Direction - Appian's upmarket strategy is yielding results, with a focus on high-value transactions and leveraging AI to enhance its platform [6][7] - The company is optimistic about the modernization of legacy applications, driven by AI, which is expected to create significant market opportunities [13][14][18] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the federal business, noting a shift towards direct engagement with software providers [13][64] - The company anticipates continued growth in cloud subscription revenue and total revenue for the full year 2025, with adjusted EBITDA expected to range between $49 million and $55 million [26] Other Important Information - David Crozier was appointed as the new Chief Marketing Officer, bringing extensive experience in enterprise software and AI [20] - The company is transitioning to a consumption-based pricing model, moving away from user-based pricing [67][69] Q&A Session Summary Question: App modernization journey and vendor contributions - Management acknowledged that app modernization is complex and emphasized their leadership in the market, with AI playing a crucial role in both extraction and instantiation processes [29][30] Question: NRR rate and its implications - Management explained that the NRR rate's decline to 111% is due to past downsells and highlighted the strength in acquiring new customers [34][36] Question: Competitive advantages against AI and other vendors - Management detailed that Appian's built-in functionalities and robust platform provide advantages that AI alone cannot replicate, emphasizing the importance of a comprehensive application environment [40][41][42] Question: Federal pipeline dynamics and AI's role - Management noted a positive shift in government purchasing behavior, with increased interest in efficiency and direct engagement with Appian [64][65] Question: Guidance changes and FX impact - Management clarified that the guidance increase is primarily due to fundamental business strength rather than changes in guidance philosophy or FX rates [60][61] Question: New sales leaders and go-to-market strategy - Management indicated that new hires are aligned with ongoing transformation efforts to enhance discipline and best practices across the organization [72] Question: Efficiency improvements and AI's impact - Management highlighted ongoing efforts to improve sales productivity and the potential for AI to drive further efficiencies across various functions [49][80]

Financial Data and Key Metrics Changes - In Q2 2025, Appian's cloud subscriptions revenue grew 21% to $106.9 million, total subscriptions revenue increased 17% to $132.7 million, and total revenue rose 17% to $170.6 million [5][24] - Adjusted EBITDA was $8.1 million, a significant improvement from a loss of $10.5 million in the previous year [24] - The cloud subscription revenue retention rate was 111%, down from 118% a year ago [24] Business Line Data and Key Metrics Changes - Professional services revenue was $38 million, up 13% compared to the previous year [24] - Subscription revenue represented 78% of total revenue, compared to 77% in the year-ago period [24] Market Data and Key Metrics Changes - International operations contributed 38% of total revenue, unchanged from the previous year [24] - The company noted strong performance in the U.S. public sector, with federal business outpacing global business in cloud revenue and new bookings [11] Company Strategy and Development Direction - Appian's upmarket strategy is proving effective, with a focus on high-value transactions [6] - The company is leveraging AI to enhance its platform, allowing for higher pricing and new industry opportunities [7][8] - Appian is positioned to capitalize on the modernization of legacy applications, which is expected to grow significantly as AI reduces costs [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the federal business, validating their expectations with strong results [13] - The company anticipates continued growth driven by AI and modernization trends, with a focus on efficiency and customer satisfaction [22][66] Other Important Information - A new Chief Marketing Officer, David Crozier, has joined the company, bringing extensive experience in enterprise software and AI [20] - The company is shifting towards a consumption-based pricing model while maintaining flexibility in its pricing strategies [68] Q&A Session Summary Question: Status of app modernization journey and vendor reliance - Management indicated that app modernization is complex and will require both services and software solutions, with confidence in their leadership position in this market [29][30] Question: Explanation of the NRR decline - The decline to 111% was attributed to previous downsells and a higher percentage of new business coming from new customers, indicating strength in acquiring new logos [32][33] Question: Competitive advantages against AI and other vendors - Appian's platform offers built-in functionality that AI cannot replicate, such as security and scalability, providing a durable competitive advantage [40][41] Question: Impact of AI on customer conversations and pipeline - AI has significantly enhanced the value proposition, changing customer perceptions and driving pipeline growth [56][58] Question: Guidance changes and FX impact - The increase in guidance is primarily due to fundamental business strength rather than changes in guidance philosophy or FX rates [60][61] Question: Federal pipeline dynamics and AI's role - The federal market is shifting towards direct relationships with software providers, which is favorable for Appian, and AI is expected to enhance efficiency in government operations [65][66] Question: New sales leaders' impact on go-to-market strategy - New leadership appointments are aimed at enhancing alignment and best practices across the organization, continuing the ongoing transformation [73] Question: Details on expense shifts affecting EBITDA - The outperformance in EBITDA was due to the tactical movement of marketing and consulting expenses to the second half of the year [75]