Appian Corporation (APPN) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents strong financial performance with significant net income growth, improved cash flow, and operational efficiency. Despite a decline in retention rate, the optimistic guidance and strategic focus on AI and government sectors are promising. The Q&A reveals management's confidence in sustainable growth and margin expansion, with positive feedback on AI initiatives. The market cap suggests moderate volatility, leading to a positive stock price prediction of 2% to 8% over the next two weeks.
Key Financial Performance
Cloud subscriptions revenue $113.6 million, grew 21% year-over-year. Reasons for growth include traction with AI and momentum in focusing on the high end of the market.
Subscriptions revenue $147.2 million, grew 20% year-over-year. Reasons for growth include traction with AI and momentum in focusing on the high end of the market.
Total revenue $187.0 million, grew 21% year-over-year. Reasons for growth include traction with AI and momentum in focusing on the high end of the market.
Adjusted EBITDA $32.2 million, compared to $10.8 million in the year-ago period. Reasons for growth include greater-than-expected revenue and timing of expenses.
Professional services revenue $39.8 million, grew 29% year-over-year. Reasons for growth include traction with AI and momentum in focusing on the high end of the market.
Cloud subscription revenue retention rate 111%, compared to 117% a year ago. The decline is not explained in the transcript.
Net income $24.4 million or $0.32 per diluted share, compared to $1.8 million or $0.02 per diluted share in the year-ago period. Reasons for growth include greater-than-expected revenue and timing of expenses.
Cash and cash equivalents and investments $191.6 million as of September 30, 2025, compared to $159.9 million at the end of last year. Reasons for growth include cash provided by operations.
Cash provided by operations $18.7 million, compared to $8.2 million cash used by operations for the same period last year. Reasons for growth include improved operational efficiency.
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Operating Highlights
AI-powered intelligent document processing (IDP): Appian IDP agents can ingest a wide range of complex documents with 95%-99% accuracy, significantly better than traditional document recognition technology. For example, an international insurer uses Appian IDP to optimize underwriting processes, saving millions annually.
Agent Studio: A new feature launching in 10 days, enabling powerful agents with code-free natural language configuration. It is anticipated to be widely used for tasks like triaging customer complaints and conducting background reviews.
ProcureSight: An AI product for improving government procurement, adopted by 96 U.S. government agencies and sub-agencies. Customers are purchasing advanced levels to embed AI into procurement workflows.
Upmarket strategy: Appian focuses on the high end of the market, with over 50% more new 7-figure software deals compared to last year. Federal sector performance grew faster than the overall business.
Global expansion: A major restaurant franchise operator became a new customer, planning to open 1,000 new locations next year using Appian to reduce opening timelines by 40%.
Go-to-market productivity ratio: Increased to 3.5, marking the ninth consecutive quarterly rise, reflecting improved sales and marketing efficiency.
Weighted Rule of 40 score: Improved to 39 from 31 last quarter, emphasizing a balance between revenue growth and profitability.
AI integration in workflows: Appian emphasizes embedding AI into workflows for meaningful work, aligning with industry trends and customer needs.
Focus on large enterprises: Continued focus on executive buyers, large enterprises, and mission-critical use cases, driving growth and expanding margins.
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Risk or Challenges
U.S. Government Shutdown: The ongoing U.S. government shutdown poses a risk to revenue and EBITDA guidance. If the shutdown continues through year-end, it could result in up to a $10 million impact, primarily affecting term license revenue and renewals.
Cloud Subscription Revenue Retention Rate: The retention rate has decreased from 117% a year ago to 111%, indicating potential challenges in maintaining customer loyalty or upselling existing customers.
Dependence on U.S. Public Sector: The company's growth strategy heavily relies on the U.S. public sector, which is currently impacted by the government shutdown, creating uncertainty in revenue generation.
Currency Exchange Rates: Revenue growth is partially dependent on favorable FX rates, which could pose a risk if currency fluctuations turn unfavorable.
Marketing and Operational Expenses: Approximately $6 million in marketing, training, and consulting expenses were deferred to Q4, potentially impacting profitability metrics in the next quarter.
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Guidance & Outlook
Cloud Subscription Revenue (Q4 2025): Expected to be between $115 million and $117 million, representing year-over-year growth between 16% and 18%.
Total Revenue (Q4 2025): Expected to be between $187 million and $191 million, representing year-over-year growth between 12% and 15%.
Adjusted EBITDA (Q4 2025): Expected to be between $10 million and $13 million.
Non-GAAP Earnings Per Share (Q4 2025): Expected to be between $0.04 and $0.08.
Cloud Subscription Revenue (Full Year 2025): Expected to be between $435 million and $437 million, representing year-over-year growth of between 18% and 19%.
Total Revenue (Full Year 2025): Expected to be between $711 million and $715 million, representing year-over-year growth of 15% to 16%.
Adjusted EBITDA (Full Year 2025): Expected to range between $67 million and $70 million, with an approximately 10% margin at the midpoint of the range.
Non-GAAP Earnings Per Share (Full Year 2025): Expected to be between $0.50 and $0.54.
Term License Revenue (Q4 2025): Anticipated to be flat on a year-over-year basis.
Term License Revenue (Full Year 2025): Expected to grow in the mid-single digits.
Professional Services Revenue (Q4 2025): Expected to grow in the teens.
Professional Services Revenue (Full Year 2025): Expected to grow in the teens.
Impact of U.S. Government Shutdown: Guidance assumes a modest amount of disruption but anticipates the government will reopen in the coming weeks. If the shutdown continues through year-end, there could be up to a $10 million impact on revenue and EBITDA guidance, primarily affecting term license revenue.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What was the source of the strong cloud ACV bookings this quarter?
A:Matthew Calkins attributed the strong cloud ACV bookings to a broad strengthening, continuation of the upmarket strategy, and traction with AI, without attributing it to any specific sector.
Q:Where does the company stand in terms of go-to-market transformation?
A:Srdjan Tanjga stated that the company is in the fourth or fifth inning of its go-to-market transformation. They have seen improvements in sales productivity and plan to grow the sales organization while maintaining productivity to create a sustainable growth engine.
Q:What impact has the government's efficiency focus had on the business?
A:Matthew Calkins expressed optimism about the government's efficiency focus, noting positive changes in purchasing patterns, openness to AI, and willingness to work with midsized software firms like Appian. He acknowledged the temporary negative impact of the government shutdown but remained bullish on government business overall.
Q:What feedback has been received on AI Studio, and how will it be monetized?
A:Matthew Calkins highlighted the positive feedback and high anticipation for AI Studio, which pioneers AI agent capabilities. Srdjan Tanjga explained that monetization will occur through the AI advanced tier and consumption-based elements, with incremental features driving growth.
Q:What differentiates Appian in the AI market?
A:Matthew Calkins emphasized Appian's focus on complementing AI with process software, providing connection, coordination, and governance. He noted Appian's head start in process and data fabric, which are essential complements to AI.
Q:What is the company's approach to profitability and margin expansion?
A:Srdjan Tanjga stated that the company focuses on sustainable revenue growth and margin expansion. They achieved a 10% EBITDA margin this year and expect more modest margin expansion next year, balancing growth and profitability.
Q:What is driving the strong international performance?
A:Matthew Calkins attributed the strong international performance to AI adoption, higher-level conversations, and larger projects. Srdjan Tanjga added that currency exchange rates also contributed to the growth.
Q:What is driving the high professional services gross margin, and is it sustainable?
A:Srdjan Tanjga explained that high professional services gross margin is due to high-quality implementation, ARR growth, and AI adoption. However, the current 34% margin is likely unsustainable due to high team utilization.
Q:How does Appian view the forward deployed engineer model for AI deployments?
A:Matthew Calkins stated that Appian has always emphasized customer success (CS) as a differentiator, helping to deploy new technologies and build strong customer relationships. He views the services model as a key strength for Appian.
Q:What explains the relationship between cloud net revenue retention rate and cloud growth?
A:Srdjan Tanjga explained that net revenue retention (NRR) is backward-looking and does not fully capture new customer growth. The discrepancy between NRR and cloud growth is not due to migrations but reflects healthy growth in both cloud and on-premise segments.
Q:How will the company balance sales headcount growth with margin expansion?
A:Srdjan Tanjga stated that the company plans moderate sales headcount growth after improving productivity. They aim to balance coverage expansion with sustainable growth and modest margin expansion.
Q:How is Appian addressing the legacy app transformation opportunity?
A:Matthew Calkins highlighted Appian's decade-long experience in modernization and its collaborative approach using AI to recreate legacy applications. He emphasized the importance of creating flexible, scalable platforms for modern needs.
Q:Review of Unclear Management Responses
A:Management avoided directly attributing the strong cloud ACV bookings to any specific sector, using broad terms like 'broad strengthening' and 'traction with AI.' Additionally, while discussing the legacy app transformation opportunity, Matthew Calkins provided a general overview without specific details on execution or measurable outcomes.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI agent
AI value
AI work
Appian AI
Calkins
ICR
IDP agent
MIT
Rule
agent document
automation
case Appian
combination
deployment
distribution
example insurer
feature
figure cloud
figure deal
form
franchise
fulfillment
government procurement
hundred thousand
mail
offering
opening
orchestration
people
practice
process technology
process workflow
processing
restaurant
review
status
summer
task
technology example
underwriting process
upmarket
value AI
warehouse
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The earnings call summary presents strong financial performance with significant net income growth, improved cash flow, and operational efficiency. Despite a decline in retention rate, the optimistic guidance and strategic focus on AI and government sectors are promising. The Q&A reveals management's confidence in sustainable growth and margin expansion, with positive feedback on AI initiatives. The market cap suggests moderate volatility, leading to a positive stock price prediction of 2% to 8% over the next two weeks.
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APPN Slides
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Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
