Appian Corporation (APPN) Earnings

Management highlights

### Strategic Progress & Market Position - Go-to-market productivity ratio reached 3.3 in Q2, marking the eighth sequential quarterly increase, demonstrating progress toward efficient growth goals - Weighted rule of 40 (weighting cloud subscription growth twice as heavily as adjusted EBITDA margin) rose slightly to 31 - The upmarket strategy is delivering results, with strong execution driving a higher share of large, high-value transactions - Appian AI delivers tangible financial impact: the company applies a 25% AI upcharge for AI-inclusive licenses, and most seven-figure deals signed in Q2 were for AI-inclusive tiers - U.S. federal public sector business outperformed Appian's global business in cloud revenue growth, new bookings, and pipeline expansion in H1 2025; the company's reputation for efficiency aligns with the sector's current top priority, and a major U.S. national healthcare agency signed a seven-figure deal to use Appian as the backbone for all virtual care operations, expecting $38 million in annual savings ### AI & App Modernization Market Opportunity - AI improves the Appian value proposition far more than it has already impacted pipeline or revenue, creating a strong long-term growth driver - AI has drastically lowered the cost of legacy application modernization, transforming what was already a 10-year market for Appian into a fast-growing large-scale opportunity. Appian holds three key competitive advantages in this market: 1. The Appian platform is a secure, enterprise-grade destination with extensive pre-built functionality for migrated applications 2. Appian combines AI assistance with human designer control: AI generates initial proposals for interfaces and data structures, which designers can modify before AI builds the final application, which remains fully modifiable post-deployment 3. Appian enables consolidation of multiple legacy applications into a single unified platform, rather than creating the same number of siloed new applications - Recent large modernization wins include a leading Spanish bank that purchased thousands of licenses to migrate all back-office workflows to Appian, and a prominent U.S. health insurer that signed a seven-figure expansion deal to roll Appian out across its enterprise ### Leadership Updates - David Crozier joined Appian as the new Chief Marketing Officer in Q2, bringing deep enterprise software and AI expertise and decades of global marketing and scaling experience - Srdjan Tanjga joined as the new Chief Financial Officer ahead of this earnings call, citing alignment with Appian's strong customer satisfaction, differentiated AI value proposition, focus on profitable efficient growth, and performance-driven culture as his core reasons for joining

Guidance

- For Q3 2025: Cloud subscription revenue is guided to $109–$111 million, representing 16–18% YoY growth; total revenue is guided to $172–$176 million, representing 12–14% YoY growth; adjusted EBITDA is guided to $9–$12 million; non-GAAP EPS is guided to $0.03–$0.07 - For full year 2025, Appian has upwardly revised guidance for all key metrics from prior ranges: * Cloud subscription revenue is now guided to $429–$433 million, representing 17–18% YoY growth * Total revenue is now guided to $695–$703 million, representing 13–14% YoY growth * Adjusted EBITDA is now guided to $49–$55 million, up from prior lower ranges * Non-GAAP EPS is guided to $0.28–$0.36 - Guidance assumes modest YoY growth for professional services, flat YoY term license revenue in Q3 with modest full year growth, $3.5 million in total other income/interest expense in Q3 and $15 million for the full year, and FX rates as of August 1, 2025. FX provided a marginal benefit to the upward guidance revision, with the vast majority of the increase driven by underlying fundamental business strength

Segment performance

Appian reports three core revenue segments: 1) Cloud Subscription Revenue: $106.9 million, 21% year-over-year (YoY) growth, accounting for 62.7% of total revenue; 2) Total Subscription Revenue: $132.7 million, 17% YoY growth (14% YoY on constant currency basis), accounting for 78% of total revenue (up from 77% in the year-ago period); 3) Professional Services Revenue: $38 million, 13% YoY growth, accounting for 22% of total revenue. International operations contributed 38% of total revenue, unchanged from the year-ago period. Gross margin overall was 75% unchanged YoY, down 300 basis points from the prior quarter. Subscription gross margin was 87%, down 200 basis points YoY and from the prior quarter. Professional services gross margin was 33%, up 300 basis points YoY and from the prior quarter. Cloud subscription net revenue retention (NRR) was 111% as of June 30, 2025, down from 118% YoY and 112% in the prior quarter. Total revenue for Q2 2025 was $170.6 million, 17% YoY growth (14% YoY on constant currency basis). Adjusted EBITDA was $8.1 million, compared to a $10.5 million adjusted EBITDA loss in the year-ago quarter. Net income was $0.3 million (break even per diluted share), compared to a net loss of $18.2 million ($0.25 per diluted share) YoY. Cash, cash equivalents and investments totaled $184.8 million at the end of Q2, up from $159.9 million at the end of 2024.

Risks & headwinds

- Forward-looking statements (including all guidance) are subject to material risks and uncertainties that could cause actual results to differ materially from expectations, as detailed in Appian's SEC filings - Cloud NRR has declined sequentially YoY, due to lingering impacts of prior downsells working through the backward-looking calculation; while management remains confident in existing customer growth, NRR is no longer targeted as a core operational metric - There is broad investor concern that generative and agentic AI could displace existing low-code/application development platform vendors, though management believes Appian's moat will hold against this disruption - The U.S. federal public sector market continues to face ongoing volatility from the DOGE initiative, though results to date have validated Appian's cautious optimistic outlook - Seat-based pricing models face structural pressure from AI, which reduces the number of users required for a given application, requiring a gradual migration to alternative pricing models

Analyst Q&A

• Q: How mature is the AI-enabled app modernization market, and will it be dominated by single vendors or multiple best-of-breed tools? Also, what is driving the slight downtick in cloud NRR, and has the metric bottomed out? /

  A: App modernization will split into two core parts: AI-assisted extraction of legacy application code, which is more services-intensive, and instantiation of the new modernized application, which is more software-intensive. Appian has been a leader in this market for years and is well positioned to lead across both segments as AI transforms the market. The NRR downtick is primarily due to lingering impacts of past downsells working through the backward-looking metric. A higher share of current new business is coming from new logos, which is a sign of business strength. Appian no longer publishes an expected NRR range, because NRR is an output of the business, not a target the company manages toward; the company focuses on total new business growth regardless of whether it comes from new or existing customers.

• Q: Investors are concerned that generative/agentic AI from large AI labs will displace existing platform vendors like Appian. What durable moats does Appian have that cannot be replicated by standalone AI? /

  A: AI is an engine, but it needs a fully featured enterprise platform (the "car") to deliver production-ready value. AI cannot build in built-in enterprise capabilities like high availability failover, enterprise data fabric integration across siloed sources, built-in security and scalability, or support for consolidating hundreds of legacy applications into a single unified system. Large incumbent competitors have inferior platforms that lock migrated code into rigid languages that are hard to modify, while startups lack the enterprise credibility required for large-scale modernization projects at major global organizations, leaving Appian with a unique, defensible position.

• Q: What impact is Appian AI having on customer conversations and demand? What drove the upward full-year guidance revision, and is it due to a change in guidance philosophy or FX movements? /

  A: Appian AI has meaningfully strengthened Appian's value proposition, which has driven higher pipeline, increased bookings, and shifted how customers perceive Appian as a partner. The company can now clearly demonstrate tangible productivity gains from AI, and has accumulated enough case studies to outline clear efficiency expectations for common use cases. There has been no change to Appian's guidance philosophy. FX provided a marginal benefit to the upward revision, but almost all of the increase is driven by stronger-than-expected fundamental business performance, consistent with management's prior cautious optimism, particularly around DOGE-related volatility in the public sector market.

• Q: What is the update on migrating existing customers to the new AI-inclusive pricing structure, and how are you addressing the risk that AI reduces seat count and thus revenue under seat-based pricing? /

  A: Appian already uses multiple pricing models (seat-based, flat application, all-you-can-eat, consumption) that vary by region, so there is no need for sudden changes. The company is executing a deliberate, gradual migration away from reliance on seat-based pricing toward consumption-based models to account for AI-driven user count reduction. Regardless of pricing model, Appian has consistently increased prices for years due to its strong value proposition, and management remains confident it can capture fair value for the value Appian AI creates.