Appian Corporation Class A Common Stock 2026 Q2 Earnings Call

Please go ahead. Great. Good morning, and thank you for joining us.

Today, we'll review Appian's second quarter 2026 financial results. With me are Matt Calkins, Chairman and Chief Executive Officer, and Serge Tanjga, Chief Financial Officer. After prepared remarks, we'll open the call for questions. During this call, we may make statements related to our business that are considered forward-looking. These include comments related to our financial results, trends and guidance for the third quarter and full year 2026, 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. These statements reflect our views only as of today and don't represent our views as of any subsequent date. We won't update these statements as a result of new information unless required by law.

Actual results may differ materially from expectations due to the risks and uncertainties described in our SEC filings. Additionally, non-GAAP financial measures will be discussed in this conference call. Reconciliations of GAAP to non-GAAP financial measures are provided in our earnings release. With that, I'd like to turn the call over to our CEO, Matt Calkins.

Matt? Thanks, Brian. In the second quarter of 2026, Appian's cloud subscriptions revenue grew 23% to $131.7 million.

Subscriptions revenue grew 19% to $157.7 million. Total revenue grew 19% to $203.3 million. Adjusted EBITDA was $16.2 million. For the second consecutive quarter, constant currency cloud revenue accelerated and grew over 20%. Our weighted Rule of 40 was 36, and our go-to-market efficiency metric posted its twelfth straight quarter of improvement. We're increasing full year guidance. We now expect our cloud business to grow 20% for the year, and we're raising EBITDA margin by two percentage points to 13. Those who've heard our earnings calls or our Investor Day last quarter know what's going on here. For others, I'll offer a brief explanation. Appian is part of the AI stack. Before you can deploy AI in enterprise applications, you need certain supporting functionality.

Some call it a harness, a control plane, or an orchestration layer. Appian provides it. Let's quickly review what that supporting functionality is. First, you need a deterministic layer, since AI is probabilistic. This makes AI reliable enough to run in critical applications. Our process technology fits this need. Second, you need to access information from across the enterprise quickly and securely. Agents need broad access so they can roam for data. Our data fabric serves this purpose. Third, you need governance to track AI's actions and outcomes for transparency and for continuous improvement. Fourth, you need to save tokens by allocating work to the right workers. You've got multiple AI models of different costs, plus digital workers and people. AI is expensive, and nobody wants to be locked in. A layer that allocates work is essential. AI in the enterprise needs support.

I've just listed four key things it needs. There's growing awareness of these needs. In this emerging space, Appian's capabilities are being validated by our customers. Customers' Appian AI usage is 20 times greater than last Q2, and 85% of our Q2 new logos bought our AI. Appian's approach to AI is distinct and appeals to the high end of the market. Our customers are big organizations in highly regulated industries. Appian is used by two-thirds of the world's largest pharmas, insurers, and non-Chinese banks, plus 20 major governments. The U.S. government is our single largest customer. These organizations cannot afford to make mistakes. They're not willing to throw AI at mission-critical applications and see what happens. They need a reliable framework for AI, and Appian provides it. We are all about reliability and security and safety.

Next, I'll share a few examples of the value Appian customers are achieving with our AI. First, a leading health insurance provider manages client services and enrollment on our platform. Before Appian, the insurer's template-based document processing system was unable to handle a diverse range of documents. This quarter, it deployed DocCenter, Appian's AI-powered document intake solution, to interpret over 100,000 medical records annually. The organization expects to save more than $10 million in operational costs over the next three years. Next, a top global asset management firm runs dozens of Appian applications, saving hundreds of thousands of labor hours annually. This quarter, it deployed our AI into its existing Appian client services and onboarding processes to optimize them further. Our AI automatically classifies and extracts data from millions of customer forms per month, processing 90% automatically and routing the rest for human review.

With this deployment, they expect to save additional tens of millions of dollars annually. Finally, a top global bank and longtime customer runs more than 100 mission-critical Appian applications. In Q2, it signed a seven-figure net new software deal for additional licenses and to access our latest AI features. The bank intends to build a host of new apps, starting its retail and commercial business. It'll deploy DocCenter to process customer-facing documents, for onboarding new customers, know your customer checks, and closing accounts. It will use our AI-assisted application development features to create new apps at scale. Appian is an essential part of the bank's plan to use AI to generate over EUR 1 billion of business value by 2028. Appian is seeing a rising tide of legacy modernization requests. AI has ignited demand in this market for two reasons.

First, AI-driven application development is faster and more efficient than old ways of modernizing. Second, AI can exploit vulnerabilities in legacy systems, making them a liability. Every application built on Appian automatically inherits the latest features and best-in-class security of our platform. I'll share two stories from Q2 that highlight our customers' growing appetite to modernize. First, a European rail operator signed a seven-figure Appian software deal to modernize core operations. Start by unifying its claims process, including injury, baggage loss, and trip cancellations. Before Appian, workers swiveled between decades-old systems to process each claim. Now, Appian will deliver a modern system to reduce processing times by 75%. The customer expects to save millions of dollars in labor costs. Second, a collection of U.S. federal law enforcement agencies aims to reduce transnational crime. Its legacy custom-coded applications are difficult to maintain and can't handle increased workloads.

This quarter, it signed a seven-figure Appian software deal to replace 10 outdated systems to ingest and advance classified cases. In closing, Appian is accelerating due to our position in the AI stack. We help large organizations make AI reliable enough to use in mission-critical applications. When AI is involved, we are more likely to win new logos, and we enjoy stronger revenue growth rates. With that, I'll hand the call to Serge.

Thanks, Matt. I'll begin with a detailed review of our second quarter results and then finish with our outlook for the third quarter and full fiscal year 2026. Starting with Q2 results, we had a very strong quarter of new business driven by continued AI traction. We saw strength across all major regions and industry verticals. Appian exceeded the guidance ranges we provided on our key metrics of cloud revenue, total revenue, and adjusted EBITDA. Cloud subscription revenue was $131.7 million, an increase of 23% year-over-year. On a constant currency basis, cloud subscription revenue increased 22% year-over-year, our strongest performance in over two years. Total subscription revenue was $157.7 million, an increase of 19% year-over-year. On a constant currency basis, total subscription revenue grew 18% year-over-year. Professional services revenue was $45.6 million, up 20% compared to the second quarter of 2025.

Total revenue was $203.3 million, an increase of 19% year-over-year. On a constant currency basis, total revenue grew 18% year-over-year. Our cloud net ARR expansion was 115% in Q2, compared to 113% a year ago and 115% in the prior quarter. As a reminder, we present net ARR expansion on a constant currency basis. Now let's turn to profitability. I'll be discussing our results on a non-GAAP basis, unless otherwise noted. Gross margin was 72%, flat year-over-year and down from 74% in the prior quarter. Our subscription gross margin was 84%, compared to 85% in the year ago period and down from 86% in the prior quarter. Professional services gross margin was 31%, compared to 29% in the year ago period and in the prior quarter. Total operating expenses were $133.1 million, up from $117.9 million in the year ago period.