Appian Corporation (APPN) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights a significant improvement in financial metrics, such as breakeven net income and increased cash reserves. The Q&A section reveals strategic strengths in AI and app development, alongside raised guidance due to business performance. Despite some uncertainties in responses, the overall sentiment is positive, with strong revenue growth, improved operational efficiency, and strategic customer acquisitions. The market cap indicates a potential for notable stock movement, suggesting a positive outlook for the stock price over the next two weeks.
Key Financial Performance
Cloud subscriptions revenue $106.9 million, a 21% increase year-over-year. The growth was attributed to strong sales organization and execution, as well as the impact of artificial intelligence (AI) on pricing and new deals.
Subscriptions revenue $132.7 million, a 17% increase year-over-year. Growth was driven by the same factors as cloud subscriptions revenue.
Total revenue $170.6 million, a 17% increase year-over-year. Growth was supported by strong performance in cloud subscriptions and professional services.
Adjusted EBITDA $8.1 million, compared to a loss of $10.5 million in the year-ago period. The improvement was due to greater-than-expected revenue and timing of certain expenses.
Professional services revenue $38 million, a 13% increase year-over-year. This growth was variable and dependent on quarter-to-quarter fluctuations.
Cloud subscription revenue retention rate 111%, compared to 118% a year ago. The decline was not explicitly explained but reflects changes in customer retention dynamics.
Gross margin 75%, unchanged from the year-ago period. Subscription gross margin was 87%, slightly down from 89% in the year-ago period.
Net income $0.3 million (breakeven per diluted share), compared to a net loss of $18.2 million in the year-ago period. This improvement was driven by increased revenue and better cost management.
Cash and cash equivalents and investments $184.8 million, compared to $159.9 million at the end of last year. The increase was due to improved cash flow from operations.
Cash used by operations $1.9 million, compared to $17.6 million in the year-ago period. The improvement reflects better operational efficiency and revenue growth.
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Operating Highlights
AI Integration: Appian's platform now includes AI capabilities, which have been integrated into customer applications to improve efficiency and accuracy. Examples include an international grocery retailer using AI for supply chain logistics and a global asset management firm deploying AI for client investment operations.
Modernization of Legacy Applications: Appian is focusing on modernizing legacy applications, leveraging AI to reduce costs and improve functionality. Examples include Aviva consolidating 22 legacy systems into one and a Spanish bank migrating back-office workflows to Appian's platform.
Federal Sector Growth: Appian's federal business outpaced global business in cloud revenue, new bookings, and software pipeline. A U.S. agency supporting national healthcare signed a 7-figure deal to use Appian for virtual care operations, expecting $38 million in annual savings.
New Customer Acquisition: Appian gained new customers, including a Spanish bank and a U.S. health insurer, both of which signed significant deals to modernize and consolidate their operations using Appian's platform.
Revenue Growth: Cloud subscriptions revenue grew 21% year-over-year to $106.9 million, and total revenue increased 17% to $170.6 million.
Profitability Improvement: Adjusted EBITDA was $8.1 million, a significant improvement from a loss of $10.5 million in the same quarter last year.
AI as a Growth Driver: AI is driving higher prices, new deals, and entry into new industries. Appian's AI-inclusive license tiers are contributing to 7-figure software deals.
Focus on Efficiency: Appian is emphasizing operational efficiency, reflected in improved profitability and a strong go-to-market productivity ratio of 3.3.
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Risk or Challenges
Federal Business Volatility: The federal business faces volatility due to DOGE and other uncertainties, which could impact performance despite recent strong results.
Cloud Subscription Revenue Retention: The cloud subscription revenue retention rate decreased to 111% from 118% a year ago, indicating potential challenges in maintaining customer retention.
Legacy Application Modernization: While modernization of legacy applications presents opportunities, it also poses challenges such as high costs, complexity, and potential resistance from organizations.
International Revenue Contribution: International operations contributed 38% of total revenue, unchanged from the previous year, suggesting limited growth in international markets.
Professional Services Revenue Variability: Professional services revenue is variable quarter-to-quarter, which could lead to unpredictability in financial performance.
Subscription Gross Margin Decline: Subscription gross margin declined to 87% from 89% in the prior year and prior quarter, indicating potential cost pressures or inefficiencies.
Dependence on AI for Growth: The company’s growth strategy heavily relies on AI, which could be risky if AI adoption slows or competitors develop superior AI capabilities.
Term License Revenue Growth: Term license revenue is expected to be flat in Q3 and grow modestly for the full year, indicating limited growth potential in this segment.
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Guidance & Outlook
Cloud subscription revenue (Q3 2025): Expected to be between $109 million and $111 million, representing year-over-year growth between 16% and 18%.
Total revenue (Q3 2025): Expected to be between $172 million and $176 million, representing year-over-year growth between 12% and 14%.
Adjusted EBITDA (Q3 2025): Expected to be between positive $9 million and positive $12 million.
Non-GAAP earnings per share (Q3 2025): Expected to be between $0.03 and $0.07.
Cloud subscription revenue (Full Year 2025): Expected to be between $429 million and $433 million, representing year-over-year growth between 17% and 18%.
Total revenue (Full Year 2025): Expected to be between $695 million and $703 million, representing year-over-year growth between 13% and 14%.
Adjusted EBITDA (Full Year 2025): Expected to range between $49 million and $55 million.
Non-GAAP earnings per share (Full Year 2025): Expected to be between $0.28 and $0.36.
Professional services revenue: Expected to grow modestly on a year-over-year basis for both Q3 and the full year 2025.
Term license revenue: Expected to be flat on a year-over-year basis in Q3 and grow modestly for the full year 2025.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Where are we on the journey of app modernization, and how much will come from one vendor versus multiple tools?
A:App modernization is a complex market with two primary motions: extraction (services-intensive) and instantiation (software-intensive). AI will significantly impact both areas over the next 1-2 years. Appian is confident in its leadership and ability to drive forward in this market.
Q:What are the drivers behind the cloud NRR stepping down to 111%, and is it finding a level?
A:The downtick to 111% is due to ongoing effects of past down-sells reflected in backward-looking metrics. A higher percentage of new business now comes from new customers, showing strength in landing strategic deals. The company no longer references the 110%-120% range as it focuses on total new business rather than achieving a specific NRR level.
Q:What are Appian's advantages in the app development market against generative AI and competitors?
A:Appian offers built-in functionality like scalability, security, and high availability that AI cannot replicate. It also provides a credible platform for large-scale modernization projects, unlike start-ups or competitors with inferior platforms. Appian's platform ensures fully featured, scalable, and reliable applications.
Q:How much more efficiency can Appian achieve using its own technologies, and what are the key drivers of profitability?
A:Appian has made progress but sees more opportunities for efficiency. Key drivers include improving sales productivity, cost-efficient R&D expansion (especially in India), and leveraging its own AI across the company. These efforts aim to balance growth with margin improvement.
Q:What impact is Appian AI having on the pipeline and customer conversations?
A:Appian AI is a strong driver for the pipeline, changing customer perceptions and demonstrating increased value. Case studies and performance records show practical AI efficiency gains, enhancing the value proposition and driving bookings and revenue.
Q:What is the reason for the healthy raise in guidance, and how does FX impact it?
A:The guidance raise reflects fundamental business strength and cautious optimism. FX had a marginal positive impact, but most of the increase is due to business performance. There is no change in guidance philosophy.
Q:What is the update on the federal pipeline and the impact of DOGE initiatives?
A:DOGE initiatives have tapered, but they have created long-term positive trends like direct business with Appian and prioritization of efficiency. These changes structurally benefit Appian, and the federal pipeline remains healthy.
Q:What is the update on pricing models, especially with the impact of AI?
A:Appian is gradually migrating away from seat-based pricing to consumption models. The company has multiple pricing methods and continues to increase prices successfully, reflecting its strong value proposition.
Q:What are the expectations from new sales leaders in EMEA and the new Chief Marketing Officer?
A:The new hires aim to drive alignment, discipline, and best practices across go-to-market operations. There are no sudden changes, just a continuation of the existing strategy.
Q:What caused the outperformance in EBITDA, and what expenses shifted to the second half?
A:The outperformance was partly due to marketing and consulting expenses shifting to the second half. These are minor contributors to the overall results.
Q:What are the key areas for improving go-to-market efficiency and productivity?
A:Key areas include removing unproductive investments, better execution in moving upmarket, and leadership changes. Improved productivity allows for revenue growth while expanding margins.
Q:What is the update on the public sector business and Q3 buying cycle?
A:Conversations with federal customers are healthy, and the government’s changing priorities and buying patterns are positive for Appian.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific impact of AI on pricing models and the exact timeline for achieving further efficiencies. They also provided limited details on the federal pipeline and the specific contributions of new hires in EMEA.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI access
AI app
AI area
AI cost
AI decade
AI designer
AI driver
AI field
AI industry
AI information
AI license
AI modernization
Inc Research
President
Research Division
advantage
application cost
application one
bank
care
core
deal AI
designer AI
dialogue
driver paperwork
experience
factor
health
insurer
interface
legacy
office
one functionality
platform AI
problem
productivity
sale
silo
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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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Appian Corporation (APPN) Q2 2025 Earnings Call Transcript
Positive8-7
The earnings call highlights a significant improvement in financial metrics, such as breakeven net income and increased cash reserves. The Q&A section reveals strategic strengths in AI and app development, alongside raised guidance due to business performance. Despite some uncertainties in responses, the overall sentiment is positive, with strong revenue growth, improved operational efficiency, and strategic customer acquisitions. The market cap indicates a potential for notable stock movement, suggesting a positive outlook for the stock price over the next two weeks.
APPN Slides
APPN Report
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.
