All right, good afternoon. I'm Sanjit Singh. I run the infrastructure software coverage at Morgan Stanley. I'm super pleased to have the returning CFO of Appian, Mark Lynch. Mark, welcome back to the Morgan Stanley TMT Conference. Thanks, thanks. It's great to be here. It's good seeing you, Sanjit. It's really good seeing you as well. Mark and I got to know Mark when we did the IPO back in 2017. 2017, exactly. And then he had a great run and then wanted to retire. And then he came back to step up for the team, it looks like. So really good to see you. Little Al Pacino, so. Exactly. Exactly. Let me quickly get you to disclosures. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Mark, let's just kind of level set 2024 and just sort of from your perspective, when you look at the results and how the year sort of progressed, where do you feel like the team executed well? Where do you still see kind of hesitation in spending from your customers? And where do you think things have improved? Yeah, so I'd say the macroeconomic environment for all software companies in 2024 was a little bit difficult, a little challenging. It didn't really change one way or another, positively or negatively, throughout the entire year, but we did notice that when we led with ROI and demonstrated ROI and value, and we identified the key decision makers early on in the sales process, we were successful in closing a lot of business, and we ended up the year 2024 really solid, so we were really pleased with how we ended up the year. Great. I think what stood out to me in 2024, along with kind of the stability of the top line, particularly in your cloud business, was just greater efficiency. I think margins were up 1,200 basis points last year as you got to 2% profitability. When we think about that kind of leapfrog improvement on sort of the margin side of the equation, what were the initiatives that were put in place to drive that better margin expansion last year? Yeah, so we went through during the summer. Matt, our CEO, did a deep dive into the go-to-market function and identified certain areas that we needed to streamline. We needed to go through and trim up some dead wood. And we went through and made some tough decisions. But I think we made the sales organization better for it. And then we were lucky to have brought in a new CRO this fall, Mark Dorsey, who's starting to really take things up a notch, which is great. He's taking what Matt had initially set off, and he's operationalizing it. And he's also brought in head of North American Sales and head of Sales Ops. And so we like what he's doing so far. And he had his first full quarter in Q4, and he did well. Yeah. No, I definitely want to dive into what sort of the plans the new CRO has in store for the company. Just taking a step back and actually going back to the time of the IPO back in 2017, if I look at the mix of the business, it was essentially 50% software and 50% services. And today, you are north of 80% software and less than 20% of services. With the high gross retention, essentially it's a sort of terminal margin kind of unit economics question. It's like, given the profile of the business that you have now with really good gross margins, 80%+ software, is there any reason why this can't be in a terminal margin, something that looks like 30%+? I mean, it could very well be. So if you look at those unit economics you're talking about, we've got cloud margins of 90%, which are best in class. We've got professional services margins 30%, which are great. You've got a gross renewal rate of 99%, net revenue retention of 116%. So these are great unit economics. Even our LTV to CAC has been in excess of 7 over the past seven years. And so those all are great metrics ultimately when you get to scale. And so we're still in growth mode, but we're also committed to improving our bottom line, our margins. You saw in our initial guide, we're looking to double our adjusted EBITDA from what we did in 2024 to 2025. And so we're looking to grow, but we're also looking to grow our margins as well. So it's something we're committed to doing. Yeah. When we think about the guidance assumptions for 2025, you're targeting total top line growth of about 10%, which is a couple of points lower than in 2024. Underpinning that is about 15% growth in cloud. Can you walk us through the foundational assumptions behind that look, particularly with respect to the federal business, where historically that's represented about 20% of revenue? Where did you discount or embed more conservatism into the outlook for 2025? First and foremost, there's some FX headwinds, which every software company talked about. We called that out as a few million dollars of FX headwinds for 2024 for the full year. Obviously, a portion of that is for the Q1. You also had the leap year dynamic from last year to this year, which was minimal. We also had a certain element of conservatism. As you know, Sanjit, I'm generally a little bit, probably a little bit more conservative than other CFOs. What we wanted to do is set up the new CFO, when and if they start, in a successful situation so they can basically be in a situation where they can beat and raise throughout the entire year. That was what was embedded not only in the Q1 guidance, but also the full year guidance as well. One of the big topics in the sector and probably across tech and the broader economy is just some of the impact of these government efficiency initiatives. In some sense, there's maybe a reason to be cautious near term. But then if we're trying to drive greater efficiency, we may need more software. What's the team's perspective on the federal opportunity going forward in a situation where the Fed needs to get more efficient? Do you think Appian can ultimately become a beneficiary of some of these government efficiency initiatives? We could be. Right now, it's chaotic, though. We've been selling to the federal government the entire existence of the company. We're in Northern Virginia. We basically created, at the time, the world's largest intranet, which is AKO, Army Knowledge Online. We also helped save the Affordable Care Act when the websites crashed and all that stuff. So we've been working with the federal government for a long time. But at the end of the day, we're an ROI play. We're a value-added player. For example, one of our big procurement systems was with, or is with, the U.S. Air Force, where $10 billion worth of federal spending goes through, or of U.S. Air Force spending goes through that procurement system on an annual basis. And it modernized at the time 100 different legacy systems and was able to save $83 million. Are they going to shut that down? Probably not, right? So there are certain projects that we've got that are just critical, very complex, and candidly, they generate massive ROI. Like another story we talked about in our earnings call was the military branch that was a relatively new customer that wanted to modernize three of their ERP systems that they've got, like logistics, finances, and supply chain, and so they used Appian to layer on top of these legacy systems and allowed hundreds of thousands of users to access it, and they're on the record saying that they're going to save tens of millions of dollars, so are we going to be immune to what's happening within the program with DOGE? Probably not, but our CEO has a good analogy. He was like, there's a hurricane going on in the federal government right now, and we're in the basement. So we're kind of protected, but we're still not immune to it. So could there be tailwinds from it? Could there be opportunities? Absolutely. I mean, we've got great, great credible stories that we've proven time and time again. We can save money for the federal government. We just hopefully these guys are rational when they're in there. Yeah. That's a great way to frame the risk and the opportunity on that front. Maybe one more question when it comes to the new administration. They came in with sort of a view of an anti-regulatory posture. Has that sort of translated into greater spending intentions or changes in the spending environment, maybe from your commercial part of the business, your non-large enterprise part of the business? It's too early to tell, right? I think it's too early to tell. I think the markets were excited when we saw that, and then the markets have kind of swung back. So it's too early. And we're optimistic, but. Awesome. Let's talk a little bit about some of the sales and go-to-market dynamics that are happening in the company. I wanted to start with Advanced and Premium adoption. And these are where you're putting kind of your net new capabilities, a lot of your Data Fabric, your AI capabilities in these higher subscription tiers. How is adoption of Advanced and the Premium tier going through the lens of existing customers? And then maybe look at through the lens of your new logo lands. Okay, so we rolled this out about 10 months ago, and through the lens of the existing customers, we're going to basically make a concerted effort to start upselling them in 2025. I think 2024 was, for a lot of businesses, a lot of companies out there, a year of experimentation with AI, and so people were just kind of playing around with it, not really sure what to do with it, but I think in 2025, people are going to start deploying it more and more, and I think that's when we're going to have those conversations with the existing customers. With the net new customers in Q4, we talked about the fact that almost half of the net new customers that signed on with Appian during the quarter signed on at the Advanced pricing tier level, which means they wanted some of those AI capabilities and/or the multi-source for the Data Fabric. So Data Fabric on the standard pricing tier is for one data source. And then for the advanced tier, it's multiple data sources. And most of our customers are candidly using it for multiple data sources. And that's where you get the value of the Data Fabric itself. That's quite impressive for a relatively new set of capabilities to have 50% of new logos coming through advanced. Can you remind me what sort of the deal size uplift when they come online through advanced versus coming online through standard? So the list price is a 25% uplift, right? List price is negotiable, but it's definitely the average sales. The ASPs for those deals were higher than they had been historically, which is great. And we actually had a lot of people were talking about agentic AI and proof of concepts and talking about the capabilities it might have. But we talked about one of our customers, a large mortgage lending company that actually bought software from Appian earlier in the year and then deployed it. And what they wanted to do is they wanted to automate audit processes over the loans that they originated. So it was like about 10,000 loans. And they wanted to make sure that the data, et cetera, within the loans is accurate before they packaged them up and sold them to the market. And so they automated the entire audit process, and they put in agents in there to review hundreds of documents, hundreds of different forms in the original loan origination. And it basically came back with 90% accuracy, which was really good. And then you only needed intervention of 2% human to basically do it. And at the end of the day, it ended up being 4x as efficient than the previous processes. So it's real-life story, real-life ROI during 2024. So we're pretty excited about that. Yeah, that's awesome. Just to follow up on the existing customer side and the plan for 2025, what's sort of the essential hook or the strategy to get these customers and to nudge them to upgrade to the premium or advanced tiers? We've created a renewals team. Well, two things. One is during 2024, create a renewals team so they're going to be focused on doing that. And they're going to be basically compensated for price uplift. So AI is a great conversation for that price uplift. It gives them a reason. Instead of CPI, you've got actually true value they can talk about. We also created a department, a group of people, Value Engineering that are helping the sales force demonstrate ROI, not just within the existing customer base, but the external customer base as well. So we're going to use those two levers to go in there. And are we going to get 100%? No. But I think what's really going to happen is, as other companies adopt AI and they're no longer afraid of what AI can or cannot do, and they also understand the strength and the power of AI versus some of its limitations, I think that will be a pulling factor from our existing customer base as well. Kind of build that referenceable customer base. Yeah, they won't be as afraid. These are very sophisticated clients that are risk averse. So AI sounds a little scary. agentic AI running amok in my enterprise sounds a little scary. So I think once they see real-life use cases and they understand what the ROI is, that'll make those conversations even more interesting. Yeah, definitely looking forward to that. Let's talk about your new Chief Revenue Officer, Mark Dorsey. Mark comes from a background at Oracle, IBM, most recently Alteryx. What are the types of changes Mark plans to implement, and what does he see as the key to unlocking more efficient customer acquisition and ultimately more expansion and overall growth? Yeah. So I think, like I said earlier, Matt, our CEO, had done a deep dive into the go-to-market function. And the good news is when Mark came on board, he looked at what Matt was starting to implement, and he totally agreed with all of it. And what he said is like, my job is now to take this and operationalize it throughout the enterprise. And so he's starting to do that. He's brought in some executives as well, which is really exciting. Matt talked about, on our earnings call, that the Sales Kickoff that we had in January was the best one we've had in five years. And it was really because it was all focusing on blocking and tackling fundamentals, building pipeline. But also you're taking, there's certain areas within the sales organization which have been very successful and other areas that were not as successful. What we're doing is cross-sharing all of the best practices and basically investing in the entire sales force and getting that information and getting them enabled as quickly as possible. I think everybody really appreciated that. I think it's really taking that playbook and then basically spreading it out. Mark has seen kind of the growth path of a $600 million-$2 billion company in the past or a division. So far, so good. Yeah. He's definitely done this before. When we're thinking about the plan for 2025 and the outlook, in terms of the magnitude of change in the sales force, do you foresee any sort of disruption risk versus the prior year in terms of what you guys were doing on that? We were afraid after it happened. And in fact, on the earnings call Q2, we talked about potential disruption and basically brought down the guidance a little bit just in case. And we ended up beating the guidance pretty handily. So we were surprised, candidly, that there wasn't as much disruption. There was hardly any, actually. And so I think that's behind us. And Mark feels like he has the sales force capacity to hit his goals that he needs to hit this year. So our job is just to get out of his way, and hopefully he does well. This year, more evolution than revolution is probably. Yeah, exactly. I don't think there's, he's not making huge changes that would be deemed disruptive. Yeah. One of the themes on the earnings call over the years is sort of the role of partners in helping Appian grow faster and drive more leverage. How has the partner strategy evolved in recent years? And who do you see as the important partners for Appian to get into new verticals, move further up market, and build better relationships with CIOs? Yeah. I mean, we're continuing. What we've noticed is when partners are involved in sales cycles, they're shorter because they have the credibility, they have the contacts, they know what the pain problems are, and they know that our technology is best suited for that particular problem. So we want to empower more partners to bring us in these opportunities. And the way the partners benefit is they get the services business. And you see that mixture from 50/50 to 80/20, partners are getting all that revenue. And I don't have a problem with that at all. So what we wanted is to be more strategic with these partners. Because the way, candidly, you can hire a bunch of salespeople, train them up, and it's just a huge slog, or you could basically enable the partners to go out and sell on your behalf, and you can grow exponentially that way. In terms of market to market, where we are, how much revenue do partners in the channel kind of generate or influence today, and where do you see this heading over the next one to three years? Yeah. It's not a huge number right now, but it's something that could definitely grow over time. So we're focused on it. It's one of those legs in the stool, if you will, for Mark as far as leveraging and getting ramped up and hitting his targets is to leverage that partner channel and new logos, right? Once you see our unit economics and we get a logo, we're sticky, we grow, we expand, we have great NRR. And so we just need more logos. And so partners are a good way to get new logos. Awesome. I was like, maybe we could put our strategy hats on for a couple of minutes and look at the category and how the categories evolved. I remember three, four years ago, if we think about the space where you play is the automation game, right? And you had workflow automation players like Appian, you had RPA players, you had process mining players. And it felt like there was a movement to bring these pieces together, like a sort of point solution market kind of coming into an integrated automation stack. And then you guys did some, I think, very timely acquisitions to build out that portfolio. Some of the other players in the space were doing the same thing. I guess my question is, Mark, when we look back, did customers kind of buy into the consolidation unification team, or did it largely remain a best of breed market? I think the answer is it depended, right? So some customers like to have one throat to choke, right? And so go to Appian, we've got our own RPA, we've got our own process mining, we've got everything you need, and it's fully integrated. But some of the customers had relationships within Automation Anywhere, UiPath, or whomever, and they wanted to plug that RPA into the platform. And we were agnostic as far as it related to those technologies. And we're agnostic as it relates to, for example, AI technologies in the future. We have our own AI skill sets, we have our own AI agents, but we can also accommodate our customers if they wanted to plug in certain other types of AI going forward. And so we look at AI is going to be really powerful within the process itself. Obviously, we're a process company, workflow company. And so having guardrails around the AI, having the data being brought to bear to the AI, and then having the analytics to make sure that the AI is behaving properly, I think are all powerful things that will make the AI even more valuable. That's our vision. That was actually going to be my question just around every software company is talking about agents and their agent strategy. And in terms of the question on what gives Appian the license to win, is there anything you want to expand on that, or is it really about you guys are integrated into processes? What's sort of the reason why customers should choose Appian for some of their agentic automation initiatives versus some of your competitors? Yeah, but I think what they're looking to do is there's the agentic AI, my analogy is like that's almost like RPA on steroids, right? So it's just a much more powerful RPA kind of thing that just does tasks quicker and easier and less human intervention, right? And so it's not going to be a win or lose, or it's my agentic AI is better than your agentic AI. It's basically I've got problems, I've got processes, I've got workflow that I've got to do, and I want to do it the most efficient way possible. And how am I going to do that? And so we feel that by plugging it into a process, you're going to leverage a lot of the benefits of AI. Now, you could have AI agents and agentic AI kind of running amok throughout the enterprise and doing things if you can control it. But I think that's going to take a while before customers want that to happen, right? So really you have to watch that and see what happens. So we're taking the cautious, not even cautious, it's really kind of the measured approach that we've been doing all along. And this is a very sophisticated and powerful technology that we can leverage within our processes. And we're excited about the value that it could bring to our customers. Yeah. I think if Matt was here, he'd be using the word practical or pragmatic. Prudent. That's typically a sticking point. A question on pricing, which I think has also been a favorite Matt topic. I'd love to get your take, Mark. And as you know, historically, Appian's priced on a per user, per app basis. In a future state where agents may be taking on the task of employees or humans, how is Appian evolving its pricing strategy so that the shift to agents in some sense will be accretive to the business and to your growth equation? So right now, our step in that direction is the tiered pricing that we talked about, the 90% basis. So it's an uplift if you use the AI. And then we had actually at the last board meeting, we had a fairly interesting conversation about the pros and cons of consumption-based pricing. Our new board member, Bo Hartman, who's a former CIO of Goldman Sachs, likes purchasing on a consumption basis versus per user. And so there's pros and cons to both of those pricing mechanisms. So I can see us testing pricing models in the future. And so we're not wed one way or another, and we'll see how the market evolves as well. But what we want to do is capture the most value. And if that's through consumption, then we'll figure that out. And if it's through user base, we'll just keep on doing that. Just as a follow-up with the current sort of subscription tiers offering, is there capacity limits in each tier in terms of the amount of entitled usage that they have to some degree? There is. And we haven't even come close to those yet. But there's a token, minimum token threshold on a monthly basis that's baked in so that we give you the benefit or the opportunity to go back and say, "Okay, you guys are using this big time, and we want to basically get some value for it. I guess just as a question on just competition from your perspective, there's a lot of the system of record companies like SAP and others are including process automation capabilities as part of their broader offerings. How does, I guess, competitively, how is Appian sort of standing out versus kind of your traditional competitors, whether it's Pega, ServiceNow, the others? What's sort of the competitive moat, if you will, as we head into the next cycle of compute? Yeah. So I think we've always focused on the high end. So very complex, hardest problems, regulatory compliance, onboarding, offboarding, procurement. And so our moat has always been that we go after that high-end, sophisticated customers. They need the best security, IL5 security in the federal government, HIPAA compliance, SOC 1. So we have all of those. We have guaranteed uptimes of five nines, etc. And so that's our first and foremost moat, right? So some of these competitors just won't go there. And they don't have to because there's plenty of business out there and the TAM is big enough. And so we're focusing on that and we're focusing on serving our customers as it relates to the best leading-edge technology. And that just happens to be kind of the AI wave right now that's going into play. But as far as a competitive perspective, we see the same competition. First and foremost, it's build it yourself still, right? So I got some software guys over here, I got this problem, I'm going to tackle it. But then it's like, it's going to take me two years and I don't have two years to do it. So then it goes down to us and folks like Pega. So we still see them a lot. And then to a lesser degree, we see kind of the Salesforce, ServiceNow, and to even lesser degree, Microsoft. That's a great way to frame it. Let's talk about the international business. I think you contributed about 36% of your revenue in 2024. That's up a couple of points over the last couple of years. Where do you think the international business goes in terms of a mix? And what are some of the growth opportunities that you guys see in the international? Yeah. I mean, there's a lot of opportunity internationally. So we've got a pretty good base in Europe. And our Australia office really crushed it this year. So they outperformed. We've got a foothold in Japan that we're starting to take advantage of. And we're, through partners, kind of going after South America. And we've got a pretty good presence in Canada as well through the financial institutions up there. So there's a lot of opportunity internationally. You feel like from a sales capacity, partner capacity perspective, you feel like you have enough to address those opportunities? Yeah. For this year, I think we do, yeah. And I think the area that Canada underperformed was Commercial North America. And so we have a new head of Commercial North America that's focused on turning that around. And if he's able to turn around, that could be a big driver for us. Yeah. You guys aren't alone in that. I have a number of the companies that I cover where their commercial segments of the business in calendar year 2024, that was kind of the area of underperformance. I saw in general. I'm looking kind of aggregating my data points up. Enterprise was a stronger portion of the business. So definitely that seems like an area of opportunity. That's low hanging fruit right there. Yeah. Awesome. Awesome. Let's just kind of wrap up the questions on the model and some of closing thoughts as we head into next year. Sales and marketing expense, that's declining as a percentage of revenue. We have a new CRO that's going to hopefully drive more efficiency, more productivity. Are you seeing any early signs of sales productivity and how you're balancing quota carrying expansion with more automation and the go-to-market motion? Yeah. So we feel like we, meaning Mark Dorsey and the executives and the sales team, feel that they have the sales capacity to hit their goals for 2025. So we don't have to hire any additional people, and they feel they've got the capacity to do that. And so we're committed to growth first and foremost, but we're also doing it in a way that margins improve. And that's what we're going to do. If we see things inflecting, we may lean into it a little bit, but we're still committed to that margin expansion. Right, so a pretty balanced view of growth and profitability with margins headed higher. Exactly. We We tried spending a lot of money to get growth, and it didn't work out too well. So we're. Part of it's probably the environment changed, frankly, right? Exactly. As we look to 2025, what are the most important themes and milestones investors should be tracking to measure Appian's success? I would basically watch to see if we can get the growth rate growing again. So if you look kind of the growth rate, especially cloud, it's kind of been declining. And so I think if we can stabilize it and get it growing again, that would be a really successful year, so. Longer term, what do you see as if you took that three to five-year view, how would you define success for the company in that time horizon? You know, I think at the time of the IPO, we came up with a long-term model, and we updated it last year. So I'd say the long-term model for us is gross margins of 80%-85%, sales and marketing spend of 38%-40%, R&D of 15%-17%, and then G&A of 6%-7%. So it's like a 20% margin. So that would be something that we're definitely able to achieve. And if you can have a growth rate of 20%, then that's not a bad-looking business. So we'll see if we can get there. So why don't we end it there on that note? Thank you so much, Mark, for coming to the conference again, giving us your latest view on Appian. Really appreciate it. Thanks for the invite. Thank you.