Appian Corp (APPN) Q4 2022 Earnings Call Transcript

Appian Corp (NASDAQ:APPN) Q4 2022 Earnings Conference Call February 16, 2023 4:30 PM ET

Company Participants

Srinivas Anantha - Director, IR

Matthew Calkins - Founder, Chairman, CEO & President

Mark Matheos - CFO

Conference Call Participants

Sanjit Singh - Morgan Stanley

Kevin Kumar - Goldman Sachs Group

Andrew Sherman - Cowen and Company

Steven Koenig - SMBC Nikko Securities

Jacob Roberge - William Blair & Company

Andrew DeGasperi - Berenberg

Frederick Havemeyer - Macquarie Research

Joseph Meares - Truist Securities

George Kurosawa - Citigroup

Operator

Good day, and convey you for opinionated by, and invited to Appian Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions]. Please beryllium advised that today's convention is being recorded. I would now for illustration to manus nan convention complete to your speaker today, Sri Anantha, Senior Director of Finance, Investor Relations. Please spell ahead.

Srinivas Anantha

Thank you, Operator. Good afternoon, and convey you for joining america to reappraisal Appian's Fourth 4th and afloat twelvemonth 2022 financial results. With maine coming are Matt Calkins, Chairman and Chief Executive Officer; and Mark Matheos, Chief Financial Officer.

After prepared remarks, we will unfastened nan telephone for questions. Today, you will want to travel on pinch nan net presentation. You tin download it from nan main page of our investor tract astatine investors.appian.com.

During this call, we whitethorn make statements related to our business that are forward-looking nether national securities laws and are made pursuant to nan safe harbor provisions of nan Private Securities Litigation Reform Act of 1995. These see comments related to our financial results, trends and guidance for nan first 4th and afloat twelvemonth 2023, nan benefits of our platform, manufacture and marketplace trends, and our go-to-market and maturation strategy, our marketplace opportunity and expertise to grow our activity position, our expertise to support and upsell existing customers, and our expertise to get caller customers.

The words anticipate, continue, estimate, expect, intend, will and akin expressions are intended to place forward-looking statements aliases akin indications of early expectations. These statements bespeak our views only arsenic of today. They do not correspond our views arsenic of immoderate consequent date. They are taxable to a variety of risks and uncertainties that could origin existent results to disagree materially from expectations.

For a chat of nan worldly consequence and different important factors that could impact our existent results, mention to our 2022 10-K and different periodic filings pinch nan SEC. These documents are besides disposable connected our Investors conception of our website. Additionally, non-GAAP financial measures will beryllium discussed connected this convention call.

Refer to nan tables successful our net merchandise and nan Investors conception of our website for a reconciliation of these measures to their astir straight comparable GAAP financial measures. With that, I would for illustration to move nan telephone to our CEO, Matt Calkins. Matt?

Matthew Calkins

Thanks, Sri, and thanks, everyone, for joining america today. In nan 4th fourth of 2022, Appian's unreality subscription gross grew 29% to $65.8 million. In changeless currency, nan maturation would person been 32%.

Subscriptions gross grew by 23% to $93.2 million. Total gross grew 20% to $125.8 million. Our unreality subscription gross retention complaint was 115%, and our adjusted EBITDA was a nonaccomplishment of $24.8 million. For nan afloat year, Appian's unreality subscriptions gross grew 32% to $236.9 million.

Subscriptions gross grew 29% to $340.2 million. Total gross grew 27% to $468.0 million. Our adjusted EBITDA was a nonaccomplishment of $76.0 million. These results met aliases exceeded our guidance. We proceed to expect a recession successful 2023, and we judge that Appian will beryllium little affected by it than different comparable firms.

Appian's worth proposition emphasizes efficiency, productivity, clip to worth and ROI, nan very things buyers activity successful a downed economy. Speaking of productivity, I deliberation location whitethorn beryllium a gyration connected nan horizon. Last year's productivity maturation successful nan U.S. was antagonistic 1.3%, nan worst consequence since 1974.

This reflects changing station COVID labour patterns but besides a definite firm indifference to nan topic. For years now, businesses haven't had to attraction connected productivity, since money was inexpensive and labour was plentiful. Now that money is costly and labour is tight, they'll return to nan taxable successful earnest, and location is simply a astonishment waiting for them.

The subject of productivity enhancement has travel a agelong measurement successful nan past fewer years. Software is fresh to beryllium much than a instrumentality to thief group do work. Software is fresh to do nan activity for us. That's nan revolution.

That's besides nan adjacent footwear to driblet connected AI. Right now, nan communicative connected AI is that it makes a bully hunt motor and possibly students will usage it to cheat connected their tests. In 6 months, nan communicative will beryllium that AI is affecting margins, AI is affecting jobs, AI is affecting customer satisfaction.

After decades of development, AI has still hardly moved nan firm ratio needle, but it's astir to. And truthful will nan different types of package that do nan activity for illustration Rules and RPA. And truthful particularly, will nan exertion that coordinates each these integer workers, namely process automation, successful which Appian is simply a leader.

Our marketplace will proceed to germinate toward a larger mission. At nan clip of our IPO successful 2017, we sold workflow. Now we waste process automation, an end-to-end level covering each shape successful nan life rhythm process. We grip everything you ever request to do pinch a process, observe it, creation it, execute it, automate it, measure it, and optimize it complete time. Not conscionable nan workflow that routes nan work, but now besides nan technologies that do nan work, for illustration RPA and AI, positive nan process mining exertion that evaluates process efficiency, positive nan information cloth that connects your process to accusation crossed nan enterprise.

Here's an illustration of a modern process automation customer. This is simply a apical life sciences company, 1 of nan world's largest and an Appian customer for astir a decade. Our level automates its firm function, aesculapian devices, pharmaceutical and proviso concatenation processes.

It deployed a mission-critical Appian app successful 2018 to negociate regulatory practices globally. That app has grown complete time. It now manages tens of thousands of cases annually successful 100 countries. In Q4 of 2022, nan patient deployed Appian process mining to place ways to simplify operations. And successful conscionable 8 weeks, it discovered insights that tin prevention hundreds of thousands of labour hours annually.

Last quarter, I mentioned I support sharing a group of metrics that way business wellness during a recession. You'll spot these charts successful our net presentation, starting connected Slide 4. I won't spell done them each again, but I will region to statement conscionable a mates of things.

First, our unreality gross renewal rate, which held changeless astatine 99% connected each of nan 4 quarters of nan year. This is simply a best-in-class rate. It's a spectacular rate. I'll besides statement our dependable maturation successful customer ARR cohorts, particularly ample ones.

Most existing customers bought much package past year, including 2/3 of our 7-figure customers. Our large customers are getting bigger. I'll stock 2 examples. First, nan world analytics supplier and 7-figure ARR customer uses our level to automate its marketplace investigation processes.

One of its captious app consolidates nan activity streams of RPA AI and researchers into a azygous workflow truthful nan institution tin people content. This app boosts worker productivity by 50%, 5-0. Last quarter, it purchased thousands of further licenses to adhd much users and automate caller workflows for its marketplace intelligence and commodity insights groups.

Second, a apical world market retailer has been an Appian customer since 2019. It manages proviso concatenation logistics connected our platform. In Q4, we expanded into 1 of its subsidiary groups, a unit drugstore chain. This caller customer purchased astir $1 cardinal successful Appian package licenses to negociate inventory.

Before Appian, it lacked nan measurement to way medicine supplier expiration dates, losing tens of millions of dollars annually connected expired products. Now nan customer tin place and move short-term equipment to stores pinch little stock. It expects to trim its costs of wasted products by 30%.

Appian's caller logos proceed to beryllium precocious quality. They make ample package purchases for important usage cases. For example, a apical world specialty insurer became a caller logo successful Q4. It purchased complete $1 cardinal successful package licenses to automate 2 chopped usage cases.

First, it will deploy nan Appian Connected Claims solution to negociate tens of thousands of claims annually. Second, it will build a customer operations hub pinch nan thief of an Appian partner. Before Appian, nan group worked done disjointed channels because it lacked nan devices to coordinate activity crossed teams.

Now Appian will merge pinch nan customer's existing CRM strategy and consolidate tasks into a azygous workflow. We besides landed a luxury packaging shaper and supplier arsenic a caller logo this quarter. This customer is launching a caller business statement and purchased astir $1 cardinal successful Appian licenses to automate orders and negociate customer relationships.

Clients will make acquisition requests and way nan ongoing position of their orders done an Appian portal. Back agency labor will usage Appian to fulfill requests and initiate gross recognition. Our level will unafraid nan company's profit separator arsenic it scales operations by 30%.

Appian's cardinal verticals proceed to beryllium maturation drivers. Year-over-year, Q4 subscriptions gross for nan U.S. Federal Government and Life Sciences grew 38% and 39%, respectively. I'll stock a customer communicative from each vertical. First, a U.S. national wellness agency that supports nationalist information became a caller Appian customer this quarter. It procures complete $1 cardinal successful aesculapian supplies annually.

It needs to switch an inflexible and costly procurement system. In Q4, nan agency purchased respective solutions successful our authorities acquisition management, aliases GAM, suite. It will usage Appian to automate various workflows for illustration requirements gathering and drafting petition for proposals.

The agency became a 7-figure ARR customer pinch this first deal. Top world pharmaceutical institution has automated a number of halfway processes pinch our platform. In Q4, it purchased an further 7-figure woody to deploy an app that tracks manufacturing deviations globally.

This is simply a highly regulated process. The customer is required to study these cases to a third-party governing body. We won this competitory woody because our level helps nan customer meet a strict deadline and amended operational ratio by 65%.

Next, I'd for illustration to denote nan summation of Shirley Edwards to nan Appian Board of Directors. Shirley has been a partner astatine Ernst & Young for 2 decades and astir recently, nan firm's world customer work partner. She has heavy experience, advising firm boards and guidance teams of ample multinational companies.

We are very pleased to invited Shirley to our team. That's almost everything. Before I conclude, though, I want to concisely talk Appian's stance connected finance successful nan business. In 2023, we are erstwhile again readying antagonistic EBITDA, albeit pinch a narrower separator than past year.

We understand that today's precocious liking rates make near-term profits much valuable and early maturation little valuable. Investors are correct to mobility companies astir nan merits of continued finance for further growth. We've considered this deeply, and we judge that continued finance for maturation is nan correct determination for our shareholders.

At Appian, we pridefulness ourselves connected our semipermanent outlook. And we judge nan astir important clip to lengthen our clip sky is erstwhile our competitors . We statement nan ample and increasing size of our market, nan technological advantage of our platform, nan affirmative traction we're seeing from customers and partners, and nan very charismatic quality of our humanities subscription gross stream, 90% gross margin, 99% unreality gross renewal rate.

We judge continuing to put remains nan correct determination for our business and shareholders and will yet lead to overmuch higher returns. That said, we understand nan value of disciplined maturation and would for illustration to guarantee our investors that we are committed to maturation and scrutiny. We purpose to steadily amended our margins done 2023 and beyond. Now I'll manus nan telephone to Mark for a deeper look astatine our financials.

Mark Matheos

Thanks, Matt. I'll reappraisal nan financial highlights for nan quarter, and past we'll supply guidance for Q1 and nan afloat twelvemonth 2023. Total revenue, unreality subscription gross and non-GAAP EPS were supra guidance, while adjusted EBITDA was astatine nan apical extremity of our guidance range.

We besides saw continued patient publication from existing customers and beardown maturation from cardinal manufacture verticals. Let's spell into nan details. Cloud subscription gross was $65.8 million, an summation of 29% year-over-year and supra guidance. On a changeless rate basis, unreality subscription gross grew 32% year-over-year.

Total subscriptions gross was $93.2 million, an summation of 23% year-over-year. On a changeless rate basis, full subscriptions gross grew 26% year-over-year. Professional services gross was $32.5 million, an summation of 11% year-over-year.

As antecedently noted, Appian's master services are complementary to partner offerings. In definite cases, Appian supports ample programs that are chiefly tally by our partners. Long term, we proceed to judge partners will thrust astir of our growth. As a result, we expect master services gross to proceed to diminution arsenic a percent of full revenue.

Subscriptions gross was 74% of full gross compared to 72% successful nan twelvemonth agone play and 73% successful nan anterior quarter. Total gross was $125.8 million, an summation of 20% year-over-year and supra our guidance range. On a changeless rate basis, full gross grew 23% year-over-year.

Our unreality subscription gross retention complaint arsenic of December 31, 2022 was 115%, accordant pinch nan complaint successful nan anterior quarter. As a reminder, we proceed to target a unreality subscription gross retention complaint of 110% to 120% connected a quarterly basis.

Our world operations contributed 34% of full gross compared to 36% successful nan twelvemonth agone period. Our unreality software, nett caller ACV bookings, were astir 80% of nan full nett caller package bookings successful 2022, accordant pinch past year's mix.

Now I'll move to our profitability metrics. Non-GAAP gross separator was 73%, compared to 74% successful nan twelvemonth agone play and 73% successful nan anterior quarter. Subscriptions non-GAAP gross profit separator was 90%, accordant pinch nan year-ago play and anterior quarter.

Professional services non-GAAP gross separator was 27%, compared to 32% successful nan year-ago play and 27% successful nan anterior quarter. As noted connected anterior net calls, we proceed to put successful customer occurrence management. These advisers thief our customers execute nan astir from our exertion and summation take of our platform.

As a result, master services non-GAAP gross separator should diminution to nan debased 20% scope successful 2023 and beyond. Total non-GAAP operating expenses were $119.1 million, an summation of 33% from $89.5 cardinal successful nan twelvemonth agone period.

Adjusted EBITDA nonaccomplishment was $24.8 cardinal versus our guidance of a nonaccomplishment betwixt $29 cardinal and $24 cardinal compared to an adjusted EBITDA nonaccomplishment of $10 cardinal successful nan twelvemonth agone period. In nan 4th quarter, we had astir $8.5 cardinal of overseas speech gains compared to $500,000 successful overseas speech gains successful nan aforesaid play a twelvemonth ago.

We don't forecast movements successful FX rates. Therefore, they aren't considered successful our guidance. Non-GAAP nett nonaccomplishment was $20.6 cardinal aliases $0.28 per basal and diluted stock compared to non-GAAP nett nonaccomplishment of $11.6 cardinal aliases $0.16 per basal and diluted stock for nan 4th fourth of 2021.

This is based connected 72.7 cardinal basal and diluted shares outstanding for nan 4th fourth of 2022 and 71.3 cardinal basal and diluted shares outstanding for nan 4th fourth of 2021. As noted above, 4th fourth 2022 non-GAAP nett nonaccomplishment was aided by $8.5 cardinal successful overseas speech gains aliases a summation of $0.12 per share, which was not included successful our original guidance.

Turning to our equilibrium sheet. As of December 31, 2022, rate and rate equivalents and investments were $196 million, compared pinch $168 cardinal arsenic of December 31, 2021. For nan 4th quarter, rate utilized by operations was $12.6 cardinal versus $19.4 cardinal for nan aforesaid play past year.

Total deferred gross was $200.3 cardinal arsenic of December 31, 2022, an summation of 31% from nan twelvemonth agone period. As we person stated connected past calls, nan mostly of our customers are invoiced connected an yearly upfront basis, but we besides person ample customers that are billed quarterly aliases monthly.

Due to nan variability of our billing terms, changes successful our deferred gross are mostly not suggestive of nan momentum successful our business. I'll now recap our afloat twelvemonth 2022 results. Cloud subscription gross was $236.9 million, representing 32% maturation year-over-year.

On a changeless rate basis, unreality subscription gross grew 35% year-over-year. Total subscriptions gross for nan twelvemonth was $340.2 million, an summation of 29%. On a changeless rate basis, full subscriptions gross grew 32% year-over-year. Professional services gross was $127.8 million, an summation of 21% compared to 2021.

Total gross was $468 million, up 27% compared to 2021. On a changeless rate basis, full gross grew 30% year-over-year. Adjusted EBITDA nonaccomplishment was $76 cardinal compared to $37.9 cardinal nonaccomplishment successful 2021.

Non-GAAP nett nonaccomplishment was $89.2 cardinal successful 2022 aliases a nonaccomplishment of $1.23 per basal and diluted stock compared to non-GAAP nett nonaccomplishment of $48.3 cardinal aliases a nonaccomplishment of $0.68 per basal and diluted stock for 2021. This is based connected 72.5 cardinal and 71 cardinal basal and diluted shares outstanding for 2022 and 2021, respectively.

For nan twelvemonth ended December 31, 2022, rate utilized successful operations was $106.6 cardinal versus $53.9 cardinal for nan aforesaid play past year. In 2022, litigation expenses were $22.9 cardinal compared to $16.4 cardinal successful 2021. We expect litigation expenses to travel down materially successful 2023.

We proceed to judge unreality subscription gross is simply a amended parameter of our business momentum than billings aliases remaining capacity obligations aliases RPO. The second metrics tin up and down based connected nan timing of invoicing, seasonality of on-prem licence gross and nan long of customer contracts. The existent standard of nan business is represented by subscriptions revenue, which includes support successful each package subscription gross sloppy of whether nan customer deploys to nan Appian cloud, their backstage unreality aliases on-prem.

Now I'll move to guidance. For nan first 4th of 2023, unreality subscription gross is expected to beryllium betwixt $67 and $69 million, representing year-over-year maturation of 26% and 29%. Total gross is expected to beryllium betwixt $130 cardinal and $132 million, representing year-over-year maturation of 14% to 16%.

Adjusted EBITDA nonaccomplishment for nan first 4th of 2023 is expected to beryllium betwixt $21 cardinal and $17 million. Non-GAAP nett nonaccomplishment per stock is expected to beryllium betwixt $0.33 and $0.27. This assumes 72.8 cardinal basal and diluted weighted mean communal shares outstanding.

For nan afloat twelvemonth 2023, unreality subscription gross is expected to beryllium betwixt $294 cardinal and $296 million, representing year-over-year maturation of 24% and 25%. For nan afloat twelvemonth 2023, full gross is expected to beryllium betwixt $530 cardinal and $535 million, representing year-over-year maturation of 13% and 14%.

Adjusted EBITDA nonaccomplishment is expected to beryllium betwixt $75 cardinal and $70 million. Non-GAAP nett nonaccomplishment per stock is expected to beryllium betwixt $1.14 and $1.07. This assumes 73.2 cardinal basal and diluted weighted mean communal shares outstanding.

Our guidance assumes nan following: First, Q1 master services gross will beryllium comparatively level connected a sequential basis. We presume services gross will diminution astatine a single-digit complaint year-over-year successful 2023.

We proceed to expect partners to execute much services work. In situations wherever they thief america adjacent nan caller logo, partners mostly lead nan projects. Second, on-prem licence gross seasonality will make Q1 our strongest 4th and Q2 our weakest 4th of nan year.

Hence, you should expect on-prem licence gross to beryllium up sequentially successful Q1 and down sequentially successful Q2. Third, Q2 adjusted EBITDA nonaccomplishment will beryllium higher than Q1 adjusted EBITDA loss. This is owed to nan operation of on-prem licence seasonality and nan costs of moving our world personification conference, Appian World.

We proceed to support greater scrutiny of immoderate discretionary related expenses. Fourth, superior expenditures will beryllium betwixt $3 cardinal and $4 cardinal successful Q1 and betwixt $12 cardinal and $14 cardinal successful 2023. This is chiefly related to build retired of further agency space.

Finally, our guidance assumes FX rates arsenic of February 15, 2023. In summary, we are excited astir nan maturation opportunities up of us. Our outlook incorporates an uncertain macro situation successful nan twelvemonth ahead. We're keeping a adjacent watch connected cardinal forward-looking business indicators specified arsenic caller bookings growth, pipeline conversion, income rep productivity and income rhythm time.

We judge we tin quickly calibrate nan exemplary should nan request arise. Before we wrap up, I'd for illustration to fto you cognize that we are readying to clasp an Investor Day successful conjunction pinch Appian World being held from May 1 to May 3, we'll supply further specifications soon. I look guardant to seeing you each successful person. With that, let's move it complete to questions.

Question-and-Answer Session

Operator

[Operator Instructions]. And our first mobility comes from Sanjit Singh from Morgan Stanley.

Sanjit Singh

Congrats connected nan coagulated extremity to 2022. Matt, I was wondering if you tin springiness america a consciousness astir nan benignant of factors that thrust your assurance for comparative resiliency versus your peers.

It seems for illustration a batch of companies that person vulnerability to tech aliases user discretionary companies are seeing maturation being impacted. Could you locomotion america done benignant of nan request trends you're seeing crossed your awesome verticals, wellness care, financial services, government, immoderate others you want to telephone out? And benignant of speak to immoderate of nan request and pipeline trends that you're seeing. I deliberation that would beryllium really adjuvant successful position of contextualizing your guidance.

Matthew Calkins

Yes. Well, convey you, first of all. And I deliberation nan 4th speaks to nan steadiness that we're watching successful nan business. It doesn't look for illustration we've sewage a rocky ride. And I tin show you that from our penetration into nan pipeline and different contributory factors that we spot a dependable situation.

Now you'd for illustration specifications there. And truthful fto maine opportunity that our worth proposition is easy to pivot toward nan interests of nan CIO who tells america that they wish to trim costs, consolidate vendors, trim consequence and accelerate clip to impact. We speak precisely to that person.

That personification is looking for safety. They're looking for an manufacture leader successful an manufacture that they cognize could make a quality for them. They look to awesome reviews. They look to successful customer experiences. They want a solution because it's proven to activity successful nan past, and we're relying much connected solutions than we utilized to.

They want to spot nan squad and whether it's our partners aliases our ain deployment squad or, moreover better, nan 2 of them together, we tin coming a reliable squad that speaks their language, their manufacture language, and has done very akin activity successful nan past. And that's nan use of our bequest successful this marketplace abstraction and nan acquisition that we've accumulated.

For each of these reasons and because we're having these conversations successfully, I deliberation that nan stableness that this 4th represents is what I spot for nan adjacent early arsenic well.

Sanjit Singh

Understood. That's helpful. And past if I could benignant of sojourn nan taxable astir investments versus near-term margins and profitability, you're squarely coming connected nan broadside of continuing to put arsenic nan benignant of measurement to thrust worth complete nan longer term.

When I look astatine nan benignant of financial floor plan of nan company, I deliberation nan guidance is benignant of calling for mid-teens wide gross growth, nan losses are narrowing. But successful position of anchoring to a longer-term model, is location thing you tin stock successful position of astir erstwhile you get to profitability? And ultimately, what type of margins tin this business make complete nan longer word truthful that investors tin benignant of anchor their -- aliases make nan benignant of valuation appraisal connected wherever this business is going complete nan longer term?

Matthew Calkins

Yes, that's right. Well, I deliberation it would beryllium premature to put retired an estimate for margins aliases free rate flow, right, successful nan agelong term. I deliberation that moreover successful nan short word is highly variable. We person gone retired of our measurement successful nan estimates, projections we've made for this year, to accommodate higher variability and economical factors, nan macro variety that we see.

And truthful I don't want to get up of ourselves successful forecasting. I judge that we person structural advantages. And I -- that's our northbound prima here. It's not a circumstantial figure. It's not a projection for what nan system is going to look for illustration successful Q4.

It's structural advantages, ways successful which we deliberation we person an separator connected nan title and a belief that this is an emerging market. And if we person that separator successful a valuable market, we want to create our position moreover if we don't person a cleanable prediction for wherever nan system aliases nan margins are going to beryllium a twelvemonth hence.

Mark Matheos

And we do -- we did -- successful our past Investor Day, we did talk astir our semipermanent margins. You tin mention backmost to that presentation, we updated those but it wasn't pinch immoderate much specificity, I think, than Matt said. But we do person immoderate penciled successful semipermanent view, of course, for your reference.

Operator

And our adjacent mobility comes from Kevin Kumar from Goldman Sachs.

Kevin Kumar

I conscionable wanted to double click connected guidance. You've fixed immoderate cautious commentary connected macro. And I judge you've besides added, I think, complete 100 income reps past quarter. So conscionable benignant of reasoning done benignant of nan different variables there, and really are you reasoning astir ramping income productivity successful nan midst of possibly benignant of weaker macro? Kind of really are you reasoning of these variables successful nan guide?

Matthew Calkins

Yes. Well, first of all, we person been saying for a while that we judge nan recession was connected nan way. I deliberation it was important to opportunity that to put our finance plans into context. These are not sunny time plans. We are cognizant of nan economical business that we're wrestling pinch this year.

And nether that realistic/pessimistic outlook, we consciousness that these are nan correct finance plans. So that's nan constituent that I mean to make. When I talk astir our bearish outlook connected nan macro situation. It's to put our finance plans into discourse to understand.

And past arsenic for nan maturation successful reps, I can't remark connected nan size. I can't speak to aliases corroborate your presumption there. We person grown wide reps successful nan past fewer quarters, and we turn -- we are increasing besides correct now. We person unfastened positions and we are hiring. But I don't want to endorse that fig specifically.

Kevin Kumar

Got it. And past possibly 1 connected benignant of your vertical strategy. You precocious talked astir connected underwriting, nan caller solution that you came retired with. And I judge you besides announced a business pinch Guidewire. So possibly thief framework nan opportunity successful nan security vertical and benignant of nan traction you're seeing there?

Matthew Calkins

Yes, I did. I mentioned that solution. And I besides mentioned nan authorities acquisition guidance solution. And I judge that successful a clip successful which buyers activity safety, a solution is simply a safer offering than a platform.

And truthful this is portion of nan pivot that you're watching successful our business toward a reassuring sale, a reliable, precocious profitability short clip to worth benignant of a sale. And nan solution is reassuring successful these regards.

And I deliberation it really addresses a overmuch broader marketplace than a level does. So I'm really excited astir our expertise to spell to marketplace pinch a packaged solution aliases pinch a known entity for illustration Guidewire, a highly reliable known entity.

I deliberation that it's nan adjacent earthy improvement of our business and accelerated nether these economical conditions, we should beryllium playing that card, and we are playing it.

Operator

And our adjacent mobility comes from Derrick Wood from Cowen and Company.

Andrew Sherman

It's Andrew connected for Derek. Mark, conscionable wondering what nan FX effect to nan unreality sub guideline is for nan 4th and nan year?

Mark Matheos

Yes, it was 3%. It's -- are you talking astir nan effect that we had for results aliases connected the...

Andrew Sherman

No, successful Q1 and afloat twelvemonth guidance.

Mark Matheos

No. So we don't really facet successful immoderate much movement. We're utilizing FX rates arsenic of February 15. So we're not facing immoderate much headwinds, yes.

Andrew Sherman

Okay. And past Matt and/or Mark, past quarter, you said income cycles were beautiful overmuch unchanged from anterior quarters. How did those way this quarter? And what are you expecting for nan adjacent mates of quarters?

Matthew Calkins

Yes. Well, we spot nary alteration successful income cycles that we tin observe, truthful thing material. And therefore, we don't forecast thing for early quarters. And I don't mean to opportunity that thing slipped retired of nan 4th because thing ever slips, right?

You ever get a fewer deals that extend. But we're seeing a emblematic magnitude and it's not capable for america to presume that location is immoderate activity wide connected our pipeline.

Andrew Sherman

Great. And 1 past 1 I could sneak in. The Appian Government Summit successful November, really overmuch of nan lead procreation arena is that? And immoderate absorbing takeaways you sewage from that and really that helps build pipeline for this year?

Matthew Calkins

Okay. Most of our events are for cultivating existing customers and expanding wrong logos that we've already got. And truthful that's typically nan outcome. It will thief america build pipeline that's mostly radiation pipeline.

Maybe we do a small spot amended connected nan authorities because a batch of our prospects are section because Appian is based adjacent Washington. But for nan astir part, that caller logos are not nan purpose. We're conscionable trying to fortify our relationships pinch nan customers we've got.

Operator

And our adjacent mobility comes from Jacob Roberge from William and Blair.

Jacob Roberge

Congrats connected coagulated results. Matt, you referenced earlier factoring a higher variability successful nan guidance for nan adjacent year. Could you put a finer constituent astir what you baked successful nan guidance from a macro perspective?

Are you assuming that request stays nan aforesaid arsenic what happened successful Q4? Are you expecting it to get somewhat worse passim 2023?

Matthew Calkins

We are allowing for nan anticipation that location will beryllium a macro downturn, nan effects of which are felt here. I deliberation that everyone is allowing for that possibility. And I deliberation it's prudent that we do truthful arsenic well.

Jacob Roberge

Great. And past could you springiness america an update connected nan suit pinch Pega? I cognize there's been immoderate backmost and distant betwixt you 2 successful nan news, but would emotion to get immoderate much colour connected really that process has been search complete nan past period aliases 2?

Mark Matheos

Well, nan process continues. There person been dueling web pages. You -- astir apt everyone connected this telephone has seen nan opposing statements connected each other's web page. And soon, there's going to beryllium dueling statements for nan adjacent information of appeal. Other than that, I can't remark connected it. I do judge it's a facet successful immoderate sales, fto maine opportunity that.

I do judge that customers are opening to announcement and nan connection is getting retired and customers are reaching their ain judgement which, of course, they should do based connected each facts available. But this is an ongoing process.

Operator

And our adjacent mobility comes from Joe Meares from Truist.

Joseph Meares

In nan 4th quarter, nan sequential maturation successful income and trading was beautiful overmuch successful statement pinch nan past 3 years. I deliberation it grew astir 16%. But nan G&A was level versus typically being up successful nan debased teens percentage.

So I'm conscionable wondering if we should expect this type of spending shape successful income and trading and leverage successful G&A arsenic you move done 2023.

Matthew Calkins

We are proceeding successful 2023 pinch a shape of maturation pinch scrutiny, arsenic I noted successful my opening remarks, which is to opportunity we are growing, we are hiring, we are investing. But we are besides applying a precocious level of expectations to each expenditures that we make and continuing only those investments that meet our precocious threshold.

And truthful you'll astir apt spot immoderate G&A aliases trading aliases different expenses falling disconnected of nan disbursal expanse because we didn't get nan returns we wanted retired of them. And we're going to beryllium reliable astir that this year.

Joseph Meares

That's ace helpful. And past conscionable from a customer standpoint, I deliberation I counted 4 caller 7-figure deals successful nan prepared remarks. I'm conscionable funny if location were immoderate others? Did that number -- was that number up aliases down sequentially? And past if you could -- I deliberation astatine nan extremity of nan year, you usually springiness america for illustration a full number of 7-figure customers. Just funny if you tin stock that?

Matthew Calkins

Yes. It's successful nan slides. Let maine show you which descent successful nan packet I should nonstop you to successful bid to spot nan customer count, it is Slide 6. It's titled Annualized Recurring Revenue, and we person 4 charts connected this slide.

The favourite is nan count of customers connected nan little right, which are $1 cardinal aliases larger connected an yearly basis. And that 1 ticked up nicely. We didn't get arsenic overmuch maturation successful nan smaller customers. And I deliberation that, that shows america wherever we request to put further focus. We're doing well, getting our large customers to grow, and we're going to put a small much accent connected bringing successful much introduction level.

Operator

And our adjacent mobility comes from George Kurosawa from Citi.

George Kurosawa

George connected for Steve Enders. First one, Matt, you talked a small spot astir AI benignant of successful immoderate level of a hype rhythm correct now. I'd emotion to perceive conscionable really you're reasoning astir that technology.

Are you reasoning astir it arsenic a benignant of caller limb of nan stool for nan institution on pinch RPA, process mining, process automation? Or is location immoderate consciousness successful which benignant of this caller generative AI is thing caller and different and whitethorn moreover travel to switch immoderate of these different technologies complete time?

Matthew Calkins

Yes. Well, AI and its emergence complete nan past 12 months arsenic thing popularly understood to adhd worth to activity is going to proceed to style process automation arsenic a market. After all, process automation is astir harnessing nan package that does nan activity for america successful summation to delegating activity to people.

And AI is going to beryllium 1 of nan superior types of technologies that does activity for us. So there's a batch to research astir this. And AI is surgery done successful a large celebrated measurement lately. And I deliberation there's still immense misunderstanding astir wherever it tin really adhd value.

And I'll repetition my belief, long-standing belief that AI belongs little successful nan stack than astir group believe. And I suppose group are moreover further afield from my position aft nan past fewer months of hype. AI is simply a bully advisory detecting, quantifying technology, is not fresh for making decisions and shouldn't beryllium put successful a position for illustration that.

I deliberation AI is going to beryllium astatine its top value, fto maine beryllium clear astir this. It's going to beryllium astatine its top worth erstwhile it is coordinated to different decision-makers which is to opportunity erstwhile activity is routed and balanced amongst a portfolio of decision-makers of which AI is only 1 and not nan last determination maker.

If you judge that, past you judge that process automation is simply a really basal portion of leveraging AI arsenic a valuable portion of activity because you can't guidelines alone. You can't conscionable delegate your decisions to AI, you request to equilibrium it, cheque its work, reappraisal it, o.k. it, that benignant of thing, which intends that AI is portion of nan orchestra and nan orchestra needs a conductor.

So I deliberation that successful nan end, AI adds a batch of momentum to nan process automation industry, and I deliberation that it's going to elevate us. But successful nan meantime, group person to shingle retired their knowing of what AI tin really do. And we'll person to thatch group that it's portion of nan portfolio and not a last answer.

George Kurosawa

Got it. Got it. Very absorbing stuff. One conscionable speedy follow-up. The gross retention complaint came successful beautiful coagulated astatine 115%. And I'm conscionable wondering really you guys are reasoning astir that operation of maturation from caller logos versus description . Is location immoderate benignant of alteration to nan strategy now that Chris Jones has been successful spot for a mates of quarters now?

Matthew Calkins

Yes. Yes, we're happy to spot that, that's steady. Of course, we're each watching to -- these renewal metrics, nett renewal, gross renewal, to spot if there's immoderate benignant of grounds of macro effects.

And truthful far, we're pleased to spot nan grade of solidness that we're observing. I'll ever want more. I'm ever asking income and Chris and anybody other who I tin get a fewer moments pinch that we'd emotion to spot further trading into our existing guidelines and for that matter, much logo acquisitions.

So we will beforehand connected each fronts to nan champion of our expertise this year. We're not penning thing off, we're not giving up connected caller customers, we're not deprioritizing growth. Now we're assigning our afloat attraction to each of these priorities. But successful nan meantime, nan main consequence we person to look astatine is simply a comparatively satisfying steadiness.

Operator

And our adjacent mobility comes from Andrew DeGasperi from Berenberg.

Andrew DeGasperi

Maybe connected nan first one, it's for illustration a high-level question. As you've been transitioning to partners for implementing Appian, person you noticed nan clip lines to instrumentality nan merchandise successful going unrecorded shortened during this time? Are you seeing grounds of that?

Matthew Calkins

I would opportunity it's steady. Our go-live times person been consistent.

Andrew DeGasperi

Great. And past possibly connected -- successful position of nan AI commentary you conscionable made, it sounds if you benignant of judge it's much tight correct now. But successful position of what it will do for Appian successful position of nan imaginable for gross description and things for illustration that, what do you deliberation a reasonable clip statement is that you would spot to materialize that?

Matthew Calkins

Well, gross follows hype. So actually, you don't request to person -- you don't request to hold until group fig retired wherever AI belongs successful nan stack earlier they commencement penning checks.

I deliberation that we're going done a twelvemonth aliases 2 now wherever group will ideate that AI belongs making decisions. And truthful there'll beryllium talk astir really possibly AI should constitute your adjacent process aliases this benignant of thing. And I deliberation our position is going to beryllium AI tin show existent worth arsenic an adviser, an appraiser, contributor but not nan writer and not nan decider. I deliberation we're going to person to amended group connected that.

Fortunately, we're going to beryllium capable to show a batch of worth add. A batch of -- I mean, this is what's missing for each these hype stories these days pinch AI. It's unthinkable what they tin do, what nan drawings they tin make, what papers they tin write.

But what they're not doing is lowering your energy bill, right? What you're not proceeding is AI helped our economics. And truthful we tin really show that, right? That's what our AI does. It helps nan economics.

So we're going to beryllium coming up pinch tangible stories, and I deliberation that they will transportation nan time moreover successful nan look of immoderate hyperbole.

Operator

And our adjacent mobility comes from Frederick Havemeyer from Appian [ph].

Frederick Havemeyer

I don't activity astatine Appian, I conscionable screen it. I'm from Macquarie. Haven't changeable my resume to you guys yet. So firstly, really speaking resumes, past quarter, we were talking astir your cadence of hiring and hiring up of plan.

I conscionable wanted to cheque successful connected nan hires that person been made passim nan year. And arsenic you're reasoning besides astir cautious alternatively nan terminology conscionable really prioritizing prudent maturation and finance astatine nan aforesaid time. But really, really person nan ramping -- really nan reps and those that were hired past 4th person been ramping since that extended hiring period?

Matthew Calkins

It's early to opportunity because we can't expect an relationship executive to person made immoderate quantifiable results successful that period. So while I tin opportunity that I judge that our talent actualization and our training strategy and our coaching and truthful connected models are amended than before.

I can't constituent you to immoderate results. So I judge that will move retired to person been a bully investment. I cannot quantify my reasons for that today.

Frederick Havemeyer

Okay. And past stepping back, alternatively than, I suppose, nan emblematic financial expert questions, Matt, I really wanted to ask, arsenic we're reasoning astir finance into Appian, we're reasoning astir adjacent twelvemonth being different finance year. I want to conscionable inquire really bigger image here. As you person for illustration assembled this full platform, it's a afloat stack automation platform, a low-code platform, what is your longer-term vision, extremity and dream for Appian arsenic you're investing into it?

Could you conscionable locomotion america done that astatine nan highest level, and wherever you would really for illustration to beryllium taking nan company?

Matthew Calkins

Yes. Love nan question, by nan way. Appian is expected to empower group successful their relationships pinch package and technology. It's besides expected to empower organizations. It should empower group by allowing america to power and nonstop and collaborate pinch exertion much efficiently. And it should empower organizations to beryllium capable to definitive their characteristic and their behaviour by pivoting quickly from 1 process to another, by changing their process essentially, to support up pinch times and move astatine quality speed.

So that's our bigger ngo of nan benignant of economical effect we'd for illustration to person pinch this organization. And we spot ourselves arsenic a pioneer successful this space, inventing nan intends by which those goals tin beryllium achieved. So moreover if immoderate of nan implementation is done by others, we're still proud to beryllium innovating nan authorities of nan art.

Operator

[Operator Instructions]. And our adjacent mobility comes from Steve Koenig from SMBC Nikko Securities.

Steven Koenig

It's Steve Koenig. And congrats connected nan dependable performance. And also, since this is my first clip getting to speak connected your call, I'll conscionable mention that SMBC is simply a very happy Appian customer. I want to inquire you -- truthful your position regarding investing for maturation is clear, and we understand there's a trade-off betwixt maturation and profitability.

If we deliberation astir that trade-off successful position of your Rule-of-40 score, I'm wondering really tin Appian amended nan wide trade-off? Or is that moreover possible?

Matthew Calkins

Yes, it's perfectly possible. It's a awesome question. We deliberation astir it a lot. It's perfectly possible. We put successful immoderate things which will not manifest successful our Rule-of-40 people for immoderate time. We person a important finance successful R&D, for example. We're innovating nan space.

We make acquisitions successful exertion that move up successful our merchandise years later. I don't guideline nan statement utilizing Rule of 40 centrally. That said, I judge that location are immoderate parts of our efficiency, which are correctly diagnosed and improvable by a Rule-of-40 perspective.

For example, looking astatine nan organization, I'd for illustration to spot a higher ratio successful nan measurement we person investments in, say, go-to-market into successful caller revenue. I judge we tin amended our efficiency, and we're very cognizant of wherever ratio is awesome and wherever it's not great. And truthful we introspect and we person lists of things that we want to get better.

So we're a increasing organization. We're pioneering a caller trail. We're inventing exertion that's going to beryllium nan spear extremity of a starring market. And astatine nan aforesaid time, we're inventing this statement and really you make this lawsuit and really you get it to customers, and we tin ever get better.

Mark Matheos

Yes. And I'll conscionable adhd a small spot to that. I deliberation 1 point that we're doing is looking astatine nan costs side, arsenic Matt said, trying to find efficiencies everywhere, moreover successful R&D. The tech improvement halfway successful Chennai, India is portion of that strategy. And astatine nan extremity of nan day, erstwhile we person a healthy, accordant maturation rate, which we've been capable to demonstrate, mixed pinch that ratio connected nan costs side, nan consequence will beryllium towards that Rule of 40, moreover though we're not centrally forcing that arsenic a matter of practice.

Operator

And I americium showing nary further questions. I would now -- this concludes today's convention call. Thank you for participating. You whitethorn disconnect.