Appian Corp (APPN) 2018 Q2 法說會逐字稿

Greetings, and welcome to the Appian Second Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Staci Mortenson, Investor Relations for Appian. Thank you. Ms. Mortenson, you may begin.

Thank you. Good afternoon, and thank you for joining us today to review Appian's Second Quarter 2018 Financial Results. With me on the call today are Matt Calkins, chief -- Chairman and Chief Executive Officer; and Mark Lynch, Chief Financial Officer. After prepared remarks, we will open up the call to a question-and-answer session.

During this call, we may make statements related to our business that are forward-looking statements under federal securities laws and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our financial results, trends and the guidance for our third quarter and full year 2018, the benefits of our platform, industry and market trends, our go-to-market and growth strategy, our market opportunity and ability to expand our leadership position, our ability to maintain and upsell existing customers and our ability to acquire new customers. The words anticipate, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views as of subsequent dates. These statements are subject a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

For a discussion on the material risks and other important factors that could affect our actual results, please refer to those contained in our 2017 10-K filing and our other periodic filings with the SEC. These documents and earnings call presentation are available on the Investor Relations section of our website, www.appian.com.

Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release in the Investor Relations portions of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure.

With that, I'd like to turn the call over to our CEO, Matt Calkins. Matt?

Thank you, Staci, and thank you all for joining us today. In the second quarter of 2018, Appian's subscription revenue grew 36% year-over-year to $27 million. Our non-GAAP loss from operations was $6.1 million. Our subscription revenue retention remained high at 119%. These results exceeded our guidance.

In Q2, we closed 9 deals, each worth more than $1 million in total contract value. Of those, 7 were multimillion-dollar deals. For several of them and many of our other Q2 wins, speed of implementation was an important factor. Rapid deployment differentiates us from our competition and creates happy customers. You see this in our NRR, which has been on the high end of our guidance range of 110% to 120% for the past 4 quarters.

One of these large Q2 deals was with a top 10 global pharmaceutical company that has used Appian to manage compliance risks, accounts payable and interdepartmental collaboration for more than 5 years. They've built 15 applications to date, including most recently, and here's where the speed factor comes in, a mission-critical recovery application built in just 2 weeks in response to an emergency. Based on their past success, they made a million-dollar purchase to double their Appian user population, including expanding into new divisions.

Earlier this year, you might recall, we mentioned a large U.S. bank that first purchased our software in September 2017 and expanded their investment with a multimillion-dollar purchase just 3 months later. We deployed their first project supporting their compliance team in only 5 weeks in Q4. Following that success this quarter, they purchased additional users, doubling their multimillion-dollar investment within 10 months of their first buy.

Another Appian customer is one of the 5 largest utilities providers in the United States. In Q4, they purchased licenses to help automate mission-critical procedures at nuclear power plants. They built the first iteration of that application in just 6 weeks. Six months later, they made a new multimillion-dollar purchase to support digital transformation for their largest division.

Here's another story. A top 10 global asset management firm has been using Appian for risk mitigation since 2015, expanded its use of Appian with a multimillion-dollar purchase this quarter. Since their purchase 3 months ago, they've already rolled out 2 important applications.

There is a slogan we like to use to express Appian's competitive advantage. We say, "Run anywhere, host anywhere, data anywhere." By saying this, we mean that Appian runs natively on all major mobile devices and also that we're portable to any major cloud or on-premises. And finally, you can keep your data wherever you want, including wherever it was before you installed Appian.

This flexibility differentiates us from every competitor we have. It was a deciding factor for several large customers this quarter. For example, one of the world's most famous investment banks expanded their use of Appian with a million-dollar purchase this quarter. Traditionally, this company has not used cloud services. They deploy their systems on-premises, including their first Appian applications. But with this quarter's purchase, they're placing new projects into Appian cloud while continuing to host their existing applications on-premises. We're one of their first cloud providers.

This quarter, a leading global asset management firm took advantage of our flexibility and will move to the Appian cloud as part of their million-dollar renewal. This firm bought Appian software in 2013 and has on-premises applications to support cash management, securities, pricing and corporate activity monitoring. Their move to the cloud will be simple and will keep all their functionality.

Customers appreciate the flexibility to choose either cloud or on-premises, knowing that they can change their mind later. However, they are choosing cloud more than ever before. Over 80%, 8-0 percent, of our licensed bookings this year were with Appian cloud.

In addition to our successes with existing customers, we continue to add large new customers. This quarter, we won a top 10 Australian university with a million-dollar deal. They'll use Appian to integrate 3 systems to onboard and manage their 13,000 staff and faculty members. The university chose us over a large competitor due to our strong platform and previous success with other universities.

Partners are increasingly helping us add new customers. So far this year, they've influenced 68% of our new logos compared to 50% in the year-ago period. This quarter, a long-time partner referred a million-dollar deal with us with an employment services contractor for the British government. They purchased Appian to replace a homegrown system that administers occupational health assessments. We won this deal thanks to the strength of our partnership.

Our Intelligent Contact Center offering is too new to have had an impact on bookings but our platform continues to have success in the contact center market. For example, a top 5 global asset management firm turned to Appian to modernize their customer engagements and improve the efficiency of their call center. Currently, agents work in a 20-year-old legacy application. To win this deal, 2 Appian sales engineers, just 2, developed a demo in 3 days that our competitors couldn't complete.

Appian is winning on flexibility and on deployment speed. In many cases, an initial quick customer success is leading to larger deals a few quarters later.

After an exceptionally successful tenure as Appian's SVP of sales, Edward Hughes would like to transition out of that role at the end of this year. Edward plans to remain with Appian in a new executive position and as an adviser to our sales leadership. He's held his position for nearly 10 years, and as I said, done an outstanding job.

After Edward's transition, David Mitchell will lead global sales for Appian. David has over 30 years of experience in the software industry. He has been COO, CEO and board member for multiple public software companies, including webMethods, Global 360 and Software AG.

Since coming on board almost a year ago as VP of Sales strategy, David has worked closely with Edward and the sales team and our chiefs of marketing and professional services. During the third and fourth quarters, David will continue to work with Edward to run sales operations. On January 1, the hand-off will be official. It's rare to have multiple quarters to make a change like this, and we are using the time to our best advantage. I anticipate a clean, deliberate and successful transition.

With that, I'll turn the call over to Mark for a deeper discussion of our financials. Mark?

Thanks, Matt. This was another strong quarter for Appian. I'll review the financial highlights of the quarter and then provide details on our Q3 and full year 2018 guidance. Subscription revenue was $27 million, an increase of 36% year-over-year and above our expectations. Our total subscription, software and support revenue was $33 million, an increase of 50% year-over-year. This included a $4.4 million perpetual deal with the U.S. Air Force for the previously announced CON-IT program. We no longer offer perpetual licenses on our price list and it's rare for us to execute a perpetual transaction.

Professional services revenue was $26.8 million, up from $21.2 million in the prior year period and up from $24.7 million in the prior quarter. Our professional services revenue was driven by the strength of our new business wins the last several quarters and the kickoff of many services projects. As partners become a larger part of our business, we expect our services' growth to moderate.

Total revenue in the second quarter was $59.9 million, up 39% year-over-year and ahead of our expectations. Our subscription revenue retention rate was 119% as of June 30, 2018, which was at the high end of the 110% to 120% range that we target on a quarterly basis. We were pleased with our customers' expanded use of our platform.

Our international operations contributed 28% of total revenue for Q2 compared with 25% in the prior year period, reflecting the investments that we are making to grow our business globally. We're pleased with the traction that we're gaining internationally.

Now I'll turn to our profitability metrics. Our non-GAAP gross profit margin was 64% compared to 65% margin in the same period last year and an increase from 60% in the prior quarter. Subscription, software and support non-GAAP gross profit margin was 92% in the second quarter compared to 91% in the second quarter of 2017. Our non-GAAP professional services' gross profit margin was 31% in the second quarter compared to 38% in the second quarter of 2017 and 26% in the prior quarter. We expect our services' gross margins to remain near prior quarter's levels for the remainder of 2018 as we continue to deploy top resources as unbilled customer success managers.

Total non-GAAP operating expenses were $44.7 million, an increase of 34% from $33.4 million in the year-ago period. This is in line with our stated strategy to invest for growth, to capture the long-term opportunity and build on our momentum. Given our high gross margins on subscription revenue along with our powerful LTV-to-CAC metrics, we think it makes sense to continue to invest in the business to capture new customers and capitalize on the big upsell opportunity.

Sales and marketing was 45% of revenue in the second quarter compared with 47% of revenue in the prior year period and increased 32% on a dollar basis. It is important to remember that in Q2, we hosted our Appian World conference, and the increase in sales and marketing both sequentially and year-over-year is reflective of our investments in this key event. We would expect sales and marketing expenses to decline slightly in Q3.

R&D was 17% of revenue in the second quarter compared with 18% in the prior year period. R&D remains a key area of investment, further differentiating the platform and adding vertical-specific functionality. G&A as a percentage of revenue was 12% in the second quarter compared to 12% in the prior year period, reflective of the investments in our infrastructure to operate as a public company.

Non-GAAP loss from operations was $6 million -- $6.1 million in the second quarter, ahead of our guidance and compared to a non-GAAP loss from operations of $5.5 million in the year-ago period. As you know, foreign exchange gains and losses can fluctuate. During the quarter, we had $2.7 million of foreign exchange losses compared to $1.4 million of foreign exchange gains in Q2 of 2017. Our guidance does not consider any additional potential impact of financial and other income and expenses associated with foreign exchange gains or losses as we do not estimate movements in foreign currency exchange rates.

Turning to our balance sheet. As of June 30, we had cash and cash equivalents of $50.4 million compared with $60.9 million as of March 31, 2018. Total deferred revenue was $87.4 million, up 20.1% year-over-year.

With respect to our billing terms, the majority of our customers are invoiced on an annual upfront basis. However, we also have some large customers that are billed quarterly and others that are billed monthly. As such, we will continue to remind investors that changes in our deferred revenue are not always indicative of the momentum in the business.

During the second quarter 2018, we used $9.8 million in cash flow from operations as compared with $9.5 million used in the prior year period. The decrease in cash during the quarter was due in large part to the delay of a few large payments, which were collected in July, plus an ERP system migration that delayed invoicing by a few weeks. The new system is now online and all invoices have been issued. We expect minimum negative cash flow in the back half of the year.

Now turning to guidance. From the third quarter of 2018, subscription revenue is expected to be in the range of $27.7 million and $27.9 million, representing year-over-year growth of 34% to 35%. Total revenue is expected to be in the range of $49.6 million and $49.8 million. Non-GAAP loss from operations is expected to be in the range of $11.2 million and $10.2 million with a non-GAAP net loss per share of $0.19 and $0.17. This assumes 61.8 million basic and diluted common shares outstanding.

For the full year 2018, we are raising our guidance. Subscription revenue is now expected to be in the range of $110.5 million and $110.9 million, representing year-over-year growth of 34%. Total revenue is now expected to be in the range of $213.8 million and $215.3 million. Non-GAAP loss from operations is now expected to be in the range of $36.4 million and $34.4 million with a non-GAAP net loss per share of $0.63 and $0.60. This assumes 61.6 million basic and diluted common shares outstanding.

We'll now turn it over to questions.

(Operator Instructions) Our first question comes from the line of Raimo Lenschow with Barclays.

This is Mohit Gogia on for Raimo. A question, so you mentioned about the Intelligent Contact Center platform, so recognizing that it's a recent launch. But I'm just wondering if you can talk about the traction or the sort of the feedback you have gotten so far. And how do you see this ramping up in terms of the sort of like contribution to the top line?

Terrific, yes. This is Matt. It's going to be difficult to differentiate between the platform we have, which is already a leading competitor in process management for contact centers and our new offering, which does the same thing but prebuilds some of the functionality and some of the integrations that you otherwise would have had to do if you've been using our platform in a raw state. The 2 -- the appeal of the 2 is so similar and so overlapping that it's going to be hard to differentiate as the quarters go on. However, I will say that all of the interest we've gotten this quarter, all the deals that we closed this quarter that had to do with contact center were not dependent upon the new functionality for closure, and that's why I did not classify them as ICC, or Intelligent Contact Center deals. However, I do want to make it clear that we're not entering a market that we weren't already in. We're entering a market that we already had a good presence in and we had already sold to some of the best names and automated some of the biggest call centers. We were a meaningful competitor without the ICC. So it may be less of an entry event than we're thinking -- than you're thinking.

Our next question comes from the line of Sanjit Singh with Morgan Stanley.

This is Josh Baer on for Sanjit. I know you don't talk about customer adds in the quarter, so I wanted to go back to the big jump in customer adds from last year. I was hoping you could sort of generalize as far as an update where these customers are at this point. Are most of them deployed already? Have they started expanding?

All right. Now while I can't speak specifically to customer adds because, as you know, that's not something that we're going to disclose on a quarterly basis. I will say that there was an emphasis during the prepared remarks today on upsells. And I think there's been a notable trend that we tend to do well following an initial deal, a quick installation, a quick success. We tend to get a good upside. You see that in our 119% NRR. You see that in the fact that 7 of the 9 million or multimillion-dollar TCV deals from Q2 had to do with a customer who had bought from us in the past. So I believe these statistics show some degree of momentum but I can't speak specifically to the Q4 cohort.

And one more on cash flow. So with some of the large payments pushed out of Q2 and collected in July, how should we think about the seasonality of cash flow into Q3?

As I stated in my prepared remarks, we expect for the second half of the year to have a minimum negative cash flow. So anyway, not really seasonal.

Our next question comes from the line of Gregg Moskowitz with Cowen and Company.

This is Matt Broome on for Gregg. So you did -- you again did very well internationally this quarter. In which territories are you seeing the most success?

International has been impressive. And I think that we're at a place in our corporate life cycle where we can almost expect international to be impressive because a certain amount of investment goes into building a credible software value proposition in one place. And then once that's complete, it's relatively easy and a rather less investment to port that to another location and to do well and to catch up with the investments you've made in the first place or the success you've achieved in the first location. So I think that both the laws of physics are on our side with regards to growth. But I'm also pleased with how we're operating in several locations internationally. I'm -- the list is long. And I'll try to answer this question, I'm pleased with what we've done. Last year was spectacular in Germany. It still looks really good in Spain. We're regularly solid in Australia. The U.K. is a good operation. We've got a lot of highlights. And I could go on, actually. And I think it's the strength of the organization right now. Hopefully, it will continue to be.

Okay, great. And has there been any sort of change to the competitive environment over the last few months?

Well, I guess, you could say there was one yesterday with Mendix's acquisition by Siemens, and that was interesting. Mendix was a small competitor to us and we work frequently in competition. But if you were to look at the Forrester -- the current Forrester Low-Code analysis, you would see that Mendix, OutSystems and Appian were listed as the 3 top firms. So in the eyes of some, this was a close competitor to us, and their absence may be important going forward. Of course, it's too early to speculate just how that would be important but I imagine it would be beneficial to us. Other than that, I don't have anything.

Okay, cool. And if I can just squeeze one last one in. I guess, now that we're halfway through the year, where do you stand on sales capacity increases as well as other headcount adds relative to the targets that you've set as of the start of this year?

That's right. Well, we feel good about our plans, and we are executing according to our plan and have not changed the plan during the course of the year. But I -- that's as far as I can go with regards to the exact hiring state.

Our next question comes from the line of Terry Tillman with SunTrust.

I guess, the first question, Matt, just relates to you emphasizing the idea of add-on sales and large add-on sales and just the speed at those follow-on deals. Aside from just the ongoing evolution of your platform and helping customers get up and running fast with your own or partners' professional services, is there anything you have done organizationally or go-to-market-wise or with your sales teams or account management teams to also just help with the speed of add-on sales? Or there hasn't really been much in the way of kind of evolution of that?

This is somewhat -- something we think about all the time. We realize we've got an edge in deployment speed. We also, by the way, have a similar edge in speed to knowledge, which is to say how long it would take a developer who didn't know our platform to become a developer who did know our platform. I think we're faster on the roll-out, on the uptake, right, we should say the actual use by users. The learning of the new platform and then the readiness of new developers. So all these should be emphasized. And since we see it as such a differentiator right now between our offering and those of our competitors, we do emphasize in competitive situations through demonstrations, through bringing training to bear, through preparing our partners to have expertise quickly and in any other way that we can emphasize. And there'll be new institutions coming up as well that focus further on the advantage that we've got in deployment and learning speed. We think we've got a winning edge here, and so we're not going to let go of it. We're going to institutionally emphasize it with new behaviors that bring it home to our customers and the contrast with our partner -- with our competitors.

Matt, maybe just a follow-up question or a different question, a different train of thought here. But a sales transition, when investors or analysts see that, they wonder whether there'll be notable changes. Could there be philosophical changes or potentially a regime change? In this case, it sounds like he was on board for a period of time and doing sales strategy, so -- and plus, there was multiple quarters, so it doesn't seem like something changing overnight. But what kind of confidence can you give us in terms of any notable changes or realignments? Or what could we see that might change or evolve, given that you will have a different sales leader in place?

Great, okay. First of all, I want to say that it's hard to imagine a transfer of power that is more smooth, more planned, more incremental, more low risk than this. We -- I think we're doing a really good job and are working well together. And I know David. We all got to know David, and I feel very good about how this transition is being handled. On the other hand, with regards to your assumption that there wouldn't be change, I want to say that we're always changing. Appian is an institution built to change, and we expect to be honing our processes and our doctrines all the time. In fact, one of the ways that David has helped us since he came on board in Q4 of last year is by implementing the changes that Edward and I wanted to make. He's a terrific operator, and he's gotten right in, built the relationships and won some trust and proceeded with some reforms that have already made a substantial difference and improvement on the way our sales operation runs, which went a long way, of course, toward making us all realize that David is the guy. So we'll change. You can count on us changing, actually. But we won't have the kind of negative, chaotic change that you might get from just simply a turnover in power. We'll have the directed and incremental improvement change that you would expect from a company that is built to gain on its competitors through improvement.

Okay. And just a final question. It might actually be a two-parter, so sorry that I've kind of hogged the line here. But [several] license revenues, that's a big kind of pick-up there. And obviously, you called it out, Mark. Should we see that taper off in the second half of the year? And related to that though, I think that's for contract writing, or said another way, procurement. Are there broader opportunities in DOD based on the success you had with the Air Force to expand beyond that?

Yes. As far as future perpetual deals of this magnitude, I wouldn't expect it in the second half of the year. And you can see in our guidance, nothing's baked in there. But as far as additional opportunities within DOD, I'll let Matt speak to that.

Well, I think Appian has long benefited from successful demonstrations of our capabilities. When we entered the pharmaceutical industry, it was with one powerful example of what we could do. And then we rapidly got a lot more opportunities and new clients, new logos. The same thing happened to us years ago in the Department of Defense. And I can tell you that whether it's government or private sector, you always see this pattern with Appian. We get a big opportunity. We do well with that opportunity, and then a set of follow-on business presents itself. So we view this one as an opportunity not just to cash a nice check but to make a statement to this organization and organizations similar to it, that we are better than they might have imagined and that we open up a new possibility. Appian's value proposition is and always has been novel, which is to say, we're not part of a category that others expected to spend money on. And we approach the good that we offer in a way somewhat different from what other firms do, which means we have to prove it. And the way we prove it generally is with an example. So I'm delighted to get an opportunity like this, not so much even for the revenue but for the opportunity to prove what Appian can do with the spotlight on us.

Our next question comes from the line of Richard Davis with Canaccord Genuity.

Most of my questions have been asked. A question for you. Did you expect to sign the $4 million perpetual license deal when you set guidance 90 days ago?

No. No, we've been working this deal for the past year and a half, and so we weren't really sure when this deal was going to close.

Got it. And then a product question. Robotic Process Automation is kind of a big deal. In fact, there was a -- [something] on Silicon Valley just did a round, they just only do that and then they did it, I don't know, 10x, 12x revenues, I guess, which is the new cheap these days in Silicon Valley. But to what extent can you guys use kind of the BPM functionality that you have to kind of help people with the RPA process?

I think -- well, first of all, they're extremely complementary. BPM or process or low-code, however you want to call it, is very complementary with the RPA because RPA is essentially a new entity to which you can delegate tasks. And process management, the way we convey it, is essentially the routing of tasks and the delegation of same. And so being able to delegate now to a bot, or for that matter, to an AI or machine-learning process, these just enhance the value of our orchestration. So I'm very pleased with the synergy. You're right, a lot of popularity and money are flowing into RPA, and it will be interesting to see how that pans out. RPA is an exciting technology and also a relatively limited one as it stands today. And so I'm sure that it's going to evolve. I'm sure it's going to bring new interest to the idea of automation. And I think some of that is going to -- some of that shine is going to fall into our side of the market as well. So I'm excited about it. I think it's a generally positive development. But it's also a source of change. We'll be watching it closely. So far, our partnership has helped a lot.

Our next question comes from the line of Jesse Hulsing with Goldman Sachs.

This is Stuart Michler on for Jesse. My question is on the partner program. Obviously, you've had strong results on partner influenced deals. But is there any additional color you can provide on the program? And when do you expect to see that show up in terms of revenue and gross margin?

Okay. Well, I do want to emphasize that if partners are influencing 68% of our new deals, then it is showing up. Partner impact matters for us today or in Q2, that is. So this is mattering right now. We're not going to break it out. The partner operation is part of our sales process, and we focus on it. And we have great meetings, we have great leads, we have great momentum. I don't think the partner operation has ever been in better shape than it is today. And I think it's having a profound impact on the reach of the business and the credibility and the capability to deliver well beyond the relatively limited resources that Appian employs directly.

Our next question comes from the line of Alex Kurtz with KeyBanc.

This is Steve Enders on for Alex. I know you guys mentioned Mendix being taken out earlier. I was wondering what else you've seen in the competitive environment, specifically around OutSystems and them raising a round recently.

Okay. Yes, I noticed that round, substantial round with OutSystems. I want to emphasize that OutSystems may be positioned next to Appian as the leaders in low-code, according to the most recent Forrester analysis. But OutSystems' product is exceptionally much different from ours. It targets, really, a different market to the point where lately, we're trying to say that low-code is really 2 markets. And we and OutSystems are not in the same one. OutSystems is doing a fine business, and we compete with them sometimes but often, if we compete with them too long, it means one of us is probably in the wrong place. So I don't want to overemphasize this clash between Appian and OutSystems. Insofar as that clash happens, it's probably happening in a place where the customer is already pretty satisfied with doing their own development. And they see this as Appian and OutSystems as 2 ways that they could use their own developers to do more development. And that isn't exactly our sweet spot, as you know. Appian would like to be positioned as a way that you could assemble an application through dragging, dropping, right clicking, configuring and reusing existing objects, not as a means to empower coding. So again, I think the best response to your question would be to illustrate the difference between the approach that Appian and OutSystems are taking to low-code.

All right. That's helpful. And then a follow-up on what you're seeing out of Asia. I know you just opened a new regional office there, so just kind of wondering what led to that expansion and what you think the opportunity could be there and how big that could be.

Yes. I think my favorite thing to say about that is that we were very careful about when we entered Asia. At our size, in fact, it's somewhat interesting that we hadn't already. And we are more covetous of our reputation than we are of the revenue that we would get by sprinkling a bunch of new offices in places around Asia and other continents that we have yet to address directly. I think that we are taking a slow and steady approach with regards to new international offices. We thought deeply about a doctrine whereby we can enforce Appian culture and standards wherever we go. I think we're being deliberate about it. And I believe that, in the long run, will be the best strategy. We're going to be deliberate also about our new Singapore office, which is guided out of Australia by very experienced leadership and I think is going to be a real Appian office. Not merely an office that sells Appian but an Appian office in Singapore.

(Operator Instructions) Our next question comes from the line of Bhavan Suri with William Blair.

I just want to touch on something maybe a little more strategic. And then I have a product question, too, to follow-up on Richard Davis' question. But Europe has done really well, Matt. And I guess, when you think about it, there's great technology talent in Europe but the volume isn't there, right? So it's not just India or China [where turning] out tons of engineers. I guess when you think about that dynamic that tailwind to what Appian actually does, which is go to this low-code environment where a great software engineer, which is worth 1,000 average software engineers, whatever the number is, can take advantage of it, do you see that as being a big driver of growth out there? And I guess, coupled with that, is that sort of an attractive driver of growth in China and India, given sort of the low cost of labor and the number of sort of computer science engineers out there?

Well, that's an interesting observation. And yes, there might be something to that. It might be that we have a more lopsided advantage in a place like Europe than we would in India. You might be right, though we don't have an office in India yet, so I can't test that for you directly. I think the efficiency matters everywhere. I believe that the amount of software that the world makes is far, far less than the software the world would make if the cost were lower, which is to say something about the slope of the demand curve, really, for software in general. But there's a lot more potential, a lot more volume waiting to happen. And so even if you're in a place where there's plenty of software development talent or maybe you sell to a company that's got a lot of developers, well I'll tell you, one thing I never see, is they buy Appian and lay off some developers. Not once. Not once in the history of the company has Appian been used as a reason why we don't need these developers anymore. Appian is a multiplier of the power of these engineers. That's true. But the amount of work that's wanted from these engineers is never ending. If they can build today's application faster, then there's a backlog. And if they can build the entire backlog, which pretty much never happens, if they can build the entire backlog, then we can start revisiting these applications and keeping them fresh, which typically applications are not kept fresh in the -- in an institution. They launch an app and then they don't have time to go back and revise it and align it with the latest strategies or procedures or data sources. The applications tend to fade into the past because there isn't enough resources and time to update them. And in Appian's case, they don't fade into the past. So there's so much more that can be done with the software. You can see the worldwide supply crunch in development by the rising salaries, the wages in the development industry. I think what it shows is that there's just a lot of pressure in this industry, and Appian can alleviate it. And it may be true that there is more such pressure in Europe. And for that matter, if you want to go one step further, there's probably certain countries in Europe that have more of such pressure than others like, say, Switzerland. We do business in Switzerland, and it's not easy to move a developer into that country, right? They've got to be a resident, they can only be there a certain amount of time, right, before they have to move out if they are not a -- if they're not legally a resident of Switzerland. So there are certain restrictions that make labor even more hard to come by. So I will agree with you. I think the whole world needs it but there's probably some that needs it more than others.

Just given your growth in Europe, it just felt like there was some trend there. But anyway, I guess, and then following up on sort of product question here for a second. You and I, both on this public call and then also separately, have talked about AI, sort of where system stacks sort of below, sort of where many people think about it and obviously, embedded AI sentiments in some of the offerings, which is really cool. But I guess, when you think about that road map, I'd love to get a little more color on how you think that progresses. And I know you're not going to disclose kind of what's next but I'd love to get a sense of what kind of use cases outside of sort of that sort of sentiment stuff that we've discussed in the past you could see being integrated as part of the Appian platform. So not a mixture of SKU per se, but just something that will add value to the product someone might develop with Appian. How are you guys thinking about that and sort of what could we see potentially come out of that?

Yes, well, you will see what we can do with AI every time we do an update on software. We are investing strongly in it. We believe that it's going to give us some major edge. We think we have an advantage today relative to our competitors in the philosophy that we take toward AI. And to be precise, that philosophy is that the most important revolution in this industry is not going to be the moment that AI is invented but rather the moment at which it is made practical. And that AI is practical today at the bottom of the stack and not the top of the stack. So we're not asking AI to write the new version of your software or make any important decisions. We're asking it to identify, quantify and advise. So simple nuts and bolts behaviors that can be improved through AI. So that's the approach we're taking. We're going to make it as straightforward as possible. As you know, AI is a connected system. Three primary AIs are all connected systems. We have internal AI functionality built into Appian at this point, so we feel we have a powerful advantage from the investments we've made into machine learning to date.

There are no further questions in queue. I'd like to hand the call back to Mr. Calkins for closing comments.

Sure. Well, I want to thank you all for your time and for your interest in Appian. And that's it for this call.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.