Appian Corp (APPN) Q3 2026 Earnings Call Transcript

DATE

Nov. 5, 2026

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Matthew W. Calkins
• Chief Financial Officer - Srdjan Tanjga

TAKEAWAYS

• Cloud Subscription Revenue -- $136.4 million, representing 20% growth driven by increased AI traction and new business performance.
• Total Subscription Revenue -- $187.8 million, growing 28% year over year and reflecting strong demand for self-managed software.
• Total Revenue -- $234.6 million, an increase of 25% due to momentum across major regions and industry verticals.
• Cloud Net ARR Expansion -- 120%, compared to 112% a year ago and 115% in the prior quarter.
• Adjusted EBITDA -- $43.4 million, exceeding the guidance range of $30 million to $33 million because of higher-than-expected revenue.
• Non-GAAP EPS -- $0.51, an increase from $0.32 in the year-ago period based on 73 million diluted shares.
• Professional Services Revenue -- $46.9 million, up 18% compared to the third quarter of 2025.
• GAAP Net Income -- $12.3 million, representing $0.17 per diluted share compared to $0.10 in the prior-year period.
• Stock Repurchases -- $17 million, involving approximately 500,000 shares and bringing the total buyback under the current authorization to $83 million.
• Cash and Investments -- $89 million as of Sept. 30, 2026, compared to $187 million at the end of last year.
• Non-GAAP Operating Expenses -- $132.8 million, an increase from $108.4 million in the year-ago period.
• Subscription Gross Margin -- 86%, remaining flat compared to the third quarter of 2025.
• Q4 Revenue Guidance -- $233.0 million to $237.0 million, representing 16% growth at the midpoint of the range.
• Full-Year Cloud Subscription Revenue Guidance -- $536.0 million to $538.0 million, representing 23% growth at the midpoint.
• Full-Year Adjusted EBITDA Guidance -- $116.0 million to $119.0 million, representing a 13% margin and 53% growth at the midpoint.
• Full-Year Non-GAAP EPS Guidance -- $1.20 to $1.24, representing approximately 100% growth at the midpoint.
• AI Usage Growth -- 50% increase over the prior quarter as customers deployed AI for audits, underwriting, and investment processes.
• AI Performance Metrics -- Management indicated that customer implementations resulted in underwriting reviews that were 75% faster and investment processes with 34% greater efficiency.
• Vertical Revenue Mix -- 80% of annualized recurring revenue was derived from financial services, life sciences, and the public sector.
• Operating Cash Flow -- $15.4 million in cash used by operations, representing a decrease from $18.7 million provided by operations in the third quarter of 2025 due to the timing of collections.
• FX and Interest Guidance -- Management expects a 2 to 3 percentage point headwind from foreign exchange in the fourth quarter and full-year net interest expense of $10 million.

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RISKS

• Tanjga noted that collections can vary significantly based on the timing of large strategic deals, resulting in $15.4 million in cash used by operations during the quarter.
• Tanjga warned that "continued strengthening of the US dollar" since the last call is expected to create a headwind of 2 to 3 percentage points for reported revenue growth in the fourth quarter.

SUMMARY

Appian Corporation (NASDAQ:APPN) reported accelerated revenue growth and improved profitability for the third quarter, driven by a surge in AI adoption and expanded federal government contracts. Management highlighted that the company is winning large-scale modernization deals as organizations seek to replace legacy applications that are increasingly viewed as security liabilities. The company reported that its data fabric and deterministic orchestration layers are essential for deploying AI in high-performance, regulated environments. Based on strong business momentum and execution in the first nine months, management raised its full-year guidance for cloud subscription revenue, total revenue, and adjusted EBITDA.

• CEO Calkins stated, "We connect the world's most important technology to the world's most important work."
• Management reported that demand for self-managed software is increasing as European customers prioritize data sovereignty and independence from non-U.S. technology providers.
• CFO Tanjga noted that the 120% net ARR expansion "is the strongest net ARR expansion in over 5 years and it is another great indicator of new business momentum we had in Q3."
• The company is shifting its go-to-market strategy toward Enterprise Growth Plans that pre-negotiate pricing for multiyear modernization efforts, expanding the addressable market within existing accounts.
• Management indicated that two-thirds of the world's largest pharmaceutical companies and insurers use the platform, including 20 major governments and all 15 U.S. cabinet-level agencies.
• The company increased its sales headcount during the third quarter to prepare for continued demand and durable growth in 2027.

INDUSTRY GLOSSARY

• ARR: Annualized Recurring Revenue, a metric representing the value of the recurring revenue components of a company's term subscriptions.
• BOAT: Business Orchestration and Automation Technologies, a category that coordinates AI, digital workers, and human workflows.
• Data Fabric: An architecture that provides a unified view of data from multiple sources without requiring physical data migration.
• EGP: Enterprise Growth Plan, a licensing structure that provides pre-negotiated pricing for enterprise-wide software usage over time.
• LLM: Large Language Model, a type of AI trained on vast amounts of data to understand and generate human-like text.
• Net ARR Expansion: A metric measuring the year-over-year growth of recurring revenue from an existing customer base.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Appian Third Quarter 26 Earnings Conference Call. At this time, participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. To ask a question, please press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. I would now like to hand the conference over to your speaker today, Brian Denyeau from ICR.

Brian Denyeau: Thank you. Good morning, and thank you for joining us. Today, we will review Appian's third quarter 26 financial results. With me are Matthew W. Calkins, Chairman and Chief Executive Officer and Srdjan Tanjga, chief financial officer. After prepared remarks, we will 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 fourth quarter and full year 2026, the benefits of our platform, industry and market trends, 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, do not represent our views as of any subsequent date. We will not 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 on this conference call. Reconciliations of GAAP to non GAAP financial measures are provided in our earnings release. With that, I would like to turn the call over to our CEO, Matthew W. Calkins. Matthew?

Matthew W. Calkins: Thanks, Brian. Appian had an excellent Q3. Our cloud subscriptions revenue grew 20% to $136 million. 120% plus 5 percentage points above last quarter. Subscriptions revenue grew 28% to 188 million plus 9 percentage points above last quarter. Total revenue grew 25% to $235 million plus 6 percentage points up, and adjusted EBITDA was 43 million. If you have been watching Appian, you know how we positioned ourselves to win in the AI era. You have seen this growth coming. And you understand why it is happening. For those new to our story, I will take a few minutes to explain. This month, the LLM revolution is 4 years old. it is transformative, but also nontypical.

Unlike every other tech revolution I can think of, it did not start with the highest value use cases. As you know, the first people who bought mobile devices were the ones who most needed mobile devices. And when they first lit a street with electric light, it was a big street. But AI is different It is not used for the biggest work. it is used for personal productivity, but not the mission critical core work of the largest organizations. Repeated studies have shown this. And if anyone still argues today against the profound effects of the AI revolution, this is their best argument. That it is not moving the needle, on critical work. So the rev.

AI revolution exists, but it is haunted. This is Halloween season after all. The AI revolution is haunted by a question. How can AI be used on the most valuable work? that is where Appian comes in. Appian provides the specific capabilities AI requires to work in high performance situations. Appian Connect, the world's most important technology, to the world's most important work. Here are the capabilities I am talking about Bear with me, please. it is a simple list. First, AI is probabilistic and needs a deterministic orchestration layer. Our orchestration layer is ranked number 1 in the world. Second, AI is only as smart as the data you give it.

Especially agents that wanna roam the enterprise for information. Our data fabric is the ideal connectivity layer. Providing access to distant data sources that is lightweight, performant, and secure. Third, AI needs governance. By which I mean tracking, validation, escalations, and guardrails. Governance means safer operation, and continuous improvement. Fourth and last, tokens are expensive. Appian can allocate jobs to whichever LLM or digital worker can do the most efficiently. This saves a lot of money. Versus sending everything to a frontier model and it also prevents lock in. 1, 2, 3, 4. that is my quick overview. With these capabilities, AI can participate in the most important work.

We make AI reliable enough efficient and more powerful The revolution will not be complete until we can deploy AI into the highest value processes and that is what Appian is doing for our customers. And our customers are responding. With great enthusiasm. Their Appian AI usage is up more than 50% over the prior quarter. We succeed by bringing AI deeply into the enterprise at scale. For example, our customers have deployed Appian AI to conduct audits 3x faster, perform underwriting reviews, 75% faster, to run investment processes with 34% greater efficiency. Appian provides the most value to the high end of the market. And especially highly regulated industries.

As you know, 80% of our ARR comes from our key verticals, financial life sciences, and the public sector. Our platform is used by leading institutions, including 2/3 of the world's largest pharmas, insurers, and non Chinese banks. Plus 20 major governments around the world. In The US, Appian is used by all 15 Cabinet-level federal agencies. And all military branches. These top organizations have 1 thing in common, They cannot afford to make mistakes. Many are under mandate to adopt AI, and they need the reliability that Appian provides. I will share 2 recent examples. First, a large European bank manages its internal audits on Appian. This quarter, it upgraded its licenses to embed our AI into its workflow.

Appian agents will identify compliance risks recommend actions. Downstream, agents will analyze the business to ensure controls are properly implemented for regulatory compliance. The bank chose our AI. For our data fabric, which will supply agents with the necessary data to reduce review times from 10 days to 30 minutes. Second, a North American insurer and long time Appian customer deployed Doc Center, our document processing AI. Into its claims appeal operations earlier this year. Our AI automatically classifies and extracts data from 100 thousand files annually. It shows to deploy Doc Center, to more areas of its business and increased its Appian spend by 86%.

This quarter, Gartner named Appian a leader in its recent Magic Quadrant, for business orchestration and automation technologies BOAT for short. The report praises our ability to orchestrate AI. Alongside humans and digital workers. Gartner ranked us the number 1 vendor for deterministic workflow automation. And also for platform consolidation. Having spoken already about deterministic automation, I would like spend a few minutes now on platform consolidation. There is more interest today in writing new apps with AI than I have ever seen. The reasons are simple. AI is exceptionally good at writing applications quickly and accurately. And post-Mythos, every old application is likely hackable. A security vulnerability.

So AI lowers the cost of creating a new app and raises the cost of not doing so. When you write an application, have a choice. Whether to build it on a platform like Appian or to write it from scratch. Homegrown applications have always been the top alternative to using Appian. In the era of AI, you still have that choice. Sometimes, companies will choose to write an app on a platform. Other times, they will write it in code. They should choose a platform when the benefits of the support exceed the cost of the platform. The support, of course, includes consultants and experts tech support, upgrades, patches, and a corporation that stands behind the application.

Platforms also help unify applications across the enterprise. And provide advanced capabilities consistently and out of the box. For many applications AI builds, a platform is worth the cost. Appian offers a compelling combination. The speed of AI development plus the reliability and power of a platform. AI is our preferred development method; it saves a lot of time. it is even possible now to develop sophisticated Appian applications without ever opening an Appian interface. You can build directly through Claude, Kiro, or others. The newly created app can leverage existing Appian objects and can be fine tuned later in an Appian design interface. Once built, the AI written app will stay modern. Through Appian upgrades. It will be secure.

Through Appian certifications, and it will be supported by our community of experts and employees. For example, a leading insurance provider and 7-figure ARR customer upgraded its Appian licenses this quarter to access our AI, and expedite its multiyear modernization effort. The group will replace its incomplete systems with enhanced Appian apps. Our AI will automatically extract requirements from company artifacts. Draft new design plans, execute the builds, and iterate on user feedback. Our platform will facilitate a dialogue between developer and AI, to validate the apps are secure and reliable and designed as intended. The group chose Appian to modernize its enterprise 3x faster than originally planned.

This Q3, we exceeded our plans in all major regions, especially in The US public sector. The federal government is more focused on efficiency than ever it is more willing to contract directly with vendors. Appian is acting on this opportunity by connecting with critical mission areas. We are doing more prime, and large deals than ever before. For example, a U.S. cabinet-level agency and longtime customer expanded its use of Appian this quarter into a new mission area. The acquisitions group decided to automate its procurement process and signed a 7-figure license deal. It directly contracted with Appian to accelerate the purchase cycle. Now Appian will help facilitate the awarding of over $100 billion. In annual budget.

My final example is with the U.S. with a U.S. military branch. That expanded its use of Appian with a 7-figure software deal. This armed service awarded Appian a prime contract to modernize its fleet management operations after a system integrator's multiyear implementation failed. The branch will unify dozens of disjointed systems Service members will schedule maintenance, manage repairs, and procure new parts. Our AI. Our AI will expedite process by recommending replacement parts and providing repair documentation. In closing, Appian has claimed a distinctive and valuable place in the AI stack. We connect the world's most important technology to the world's most important work. We provide an ideal platform for AI written apps.

And we are modernizing legacy applications at scale. This latest quarter, by far, the strongest in Appian history, is the best validation yet of our essential role in the AI revolution over to you, Srdjan.

Srdjan Tanjga: Thanks, Matthew. I will begin with a detailed review of our third quarter results and then finish with our outlook for the fourth quarter and full fiscal year 2026. Starting with our results, we had an excellent 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 136 million, an increase of 20% year over year. A constant currency basis, cloud subscription revenue increased 21% year over year. Total subscription revenue was 188 million, an increase of 28% year over year.

On a constant currency basis, total subscription revenue grew 29% year over year. In Q3, we saw very strong demand for our self managed software. Our customers who as you know are in heavily regulated industries, continue to value deployment flexibility and data sovereignty that self managed software provides. Providing customers that flexibility to deploy Appian in the cloud or on-prem is a strategic differentiator for us. Professional services revenue was 47 million, up 18% compared to the third quarter of 25. Total revenue was 235 million, an increase of 25% year over year. On a constant currency basis, total revenue grew 26% year over year.

Our cloud net ARR expansion was 120% in Q3. compared to 112% a year ago and 115% in the prior quarter. As a reminder, we present net ARR expansion on a constant currency basis. This is the strongest net ARR expansion in over 5 years and it is another great indicator of new business momentum we had in Q3. Now let's turn to profitability. I will be discussing our results on a non GAAP basis unless otherwise noted. Gross margin was 74%. Flat year over year and up from 72% in the prior quarter. Our subscription gross margin was 86%, also flat year over year and up from 84% in the prior quarter.

Professional services gross margin was 24%, compared to 31% in the year ago period and in the prior quarter. Total operating expenses were 133 million, up from $108 million in the year-ago period. Adjusted EBITDA was $43 million ahead of our guidance range between 30 million and 33 million and compared to adjusted EBITDA of 32 million in the year-ago period. This outperformance relative to our guide was driven by greater than expected revenue? Net income was 37 million or $0.51 per diluted share. Compared to 24 million or $0.32 per diluted share for the third quarter of 25.

This is based on 73 million diluted shares outstanding for the third quarter of 26 and 75 million diluted shares outstanding for third quarter of 25. Our stock based compensation expense was 13 million in Q3, or $0.17 per diluted share. In the third quarter, we purchased approximately 500 thousand shares for 17 million bringing our total buyback to 83 million under our current 100 million authorization. Turning to our balance sheet. As of September 30, 2026, cash and cash equivalents and investments were 89 million, compared to 187 million at the end of last year.

For the third quarter, cash used by operations was 15 million compared to cash provided by operations of 19 million for the same period last year. Our cash flow in the quarter was impacted by timing of collections which can naturally vary quarter to quarter. Turning to guidance. Based on our strong underlying business momentum and our success year to date, we are meaningfully increasing our outlook for the fourth quarter and the full year. Starting with the fourth quarter of 26, cloud subscription revenue is expected to be between $143 million to $145 million. Representing year over year growth of 23% at the midpoint of the range.

Total revenue is expected to be between 233 million and 237 million representing year over year growth of 16% at the midpoint. Adjusted EBITDA for the fourth quarter of 26 is expected to be between 30 million and 33 million. Non GAAP earnings per share is expected to be between $0.30 and $0.34. This assumes 73 million fully diluted weighted average shares outstanding. For the full year 2026, our cloud subscription revenue is expected to be between 536 million and 538 million, representing year over year growth of 23% at the midpoint of the range. Total revenue is expected to be between 873 million and 877 million. Representing year over year growth of 20% at the midpoint.

Adjusted EBITDA is expected to range between $116 million to $119 million for an approximately 13% margin and 53% year over year growth at the midpoint. Non GAAP earnings per share is expected to be between $1.20 and $1.24, or approximately 100% growth at the midpoint. This assumes 74 million fully diluted weighted average shares outstanding. Our guidance assumes the following. First, we anticipate our non cloud subscription revenue to be down slightly in Q4. And up in the high single digits for the full year. Second, we expect professional services revenue to grow in the mid teens in Q4 and in the high teens for the full year.

Third, our net interest expense will be approximately 3 million in Q4, and 10 million for the full year. Fourth, our guidance assumes FX rates as of early November. Due to continued strengthening of the US dollar since our last call, we now expect FX to represent a 2 to 3 percentage points headwind our reported revenue growth in Q4 of 26. Finally, we are now forecasting nearly 3 percentage points of EBITDA margin improvement in 2026 compared to 1 percentage point we expected at the start of the year. In closing, we see our Q3 results in excellent new business performance as clear indications of our AI value proposition.

We are excited about the opportunity ahead, and we will continue to invest responsibly to maximize our long term value. Now we will turn the call over for questions. Operator?

Operator: Thank you. As a reminder, to ask a question, please press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. 1 moment for questions. Our first question from Steven Enders with Citi. You may proceed.

Steven Enders: All right. Great. Thanks for taking the questions this morning. Maybe just start. It seems like there is a lot of good momentum out there. Maybe we can just talk a little bit about, what you are seeing in the forward pipeline and maybe some of the, I guess, factors that are driving new opportunities here. And maybe as a piece of that, how much are you kind of seeing agent conversations, coming into the forefront at this point in our enterprise is ready at this time to start on that agentic journey?

Matthew W. Calkins: Yeah. Thanks for the question. First of all, demand is robust. And continuing to be so. Secondly, I feel that the demand we are addressing is high level demand and opens opportunities to have conversations at the top of organizations on a larger scale than we might have been able to achieve in the past. The agentic conversation is 1 that reaches the top of the organization. it is a priority The effects are expected to be profound, and we can be part of that. there is definitely interest, and we are supplying with regards to Agentic deployment provided we can make it reliable and performant and we can.

So they typically wanna take short steps, but as we build confidence, we go further. So absolutely, yes, that is happening. I feel like in this environment, we have a an advantage, like a head start in the way that we have been thinking about the combination of AI and process for a long time. We have been shipping process models with AI embedded within for a decade or so. And over that time, we have gotten to see how they interact and how it was necessary to add functionality to AI in order to round out its capabilities keep it in line, monitor it, improve it. We are familiar with these problems.

So when the LLM revolution comes along, already had a lot of time to think about what it means to put AI into a process, to regulate it, to inform it, to secure it. These. So we had this head start. And it is allowed us, I think, to see some of problems in advance and to position ourselves for what the AI revolution would require before the revolution itself was really conscious of what it would require. That answers your question.

Steven Enders: Yeah. No. that is that is great to great to hear. And appreciate the other thoughts there. Maybe on the guidance, I mean, the Q4 growth for the continued acceleration on the cloud side, It looks pretty impressive. And I guess just trying to understand a little bit better how you are thinking about I guess, the ability to sustain that acceleration as we start thinking about 2027 and you know, how you are how you are thinking about you know, just the forward demand environment and how that maybe supports growth further in the future?

Srdjan Tanjga: Thanks for the question, Steven. So I guess I will say 3 things. First, the Q4 guidance for mid-20s constant currency cloud growth is a function of a series of good quarters of new business, but particularly Q3 which as we said was excellent. And sort of the easiest way to see that is the 120% net ARR expansion for existing customers. Which reflects the, you know, the exit run rate for ARR for that business, and that sets us up for the guidance in Q4. So it is a. Obviously, a function of our team doing a great job creating and capturing demand all year round. But especially, especially when it comes to Q3.

So, when it comes to next year, guess I will say it is first 2 things. First, we have a big quarter ahead of us. We have to get Q4 done. 4 q represents the starting point for next year. So, you know, some level, it is a little premature to talk about how we think about quantitatively the demand for the year. What I will tell you, though, if I take a step back, what has 2026 taught us? It taught us 2 things. 1 is that the demand is there.

That the enterprises understand that they need help with deploying AI at scale, that they need capabilities that Appian provides, and we have both the technology and the credibility to provide it. Then secondly, that we can capture that demand. Go to market execution has been strong. Our productivity has been improving. So the combination of demand and ability to capture it gives us confidence, not so much for any particular number in 2027, but that we can build durable growth here at Appian.

You know, we all show up here for work knowing that we should be a much bigger company in a few years, that is how we are investing. that is why we are growing our sales org. that is why we are investing in R&D and everywhere else. it is really that durability of growth that we are preparing ourselves for.

Steven Enders: Okay. Great to hear, and thanks for taking the questions.

Operator: Thank you. Our next question comes from Sanjit Singh with Morgan Stanley. You may proceed.

Sanjit Singh: Congrats on the strong quarter. I had a question just sort of on the self managed performance, the other subscription revenue really, but a pretty material uptick in growth there. And I just wanted to get a sense, sir, to what extent is that structural and this self managed demand, is there particular industries or verticals or customer profile types that is driving the self managed revenue?

Matthew W. Calkins: Yeah. There is. that is a great question, Sanjit. There is. First of all, the public sector has always leaned a little more towards self managed than other sectors, and Q3 is naturally a quarter where the spotlight falls on the public sector. But secondly, this is the year of sovereignty. In European business. We hear it frequently when we talk around the continent. 1 of their top priorities is independence from, American technology. They are looking for ways that they can have more control than dependency.

And 1 of the ways they achieve that 1 of the ways that we uniquely provide that because many of our competitors cannot do this, is to allow them to run our software on their own premises under their own control. So it is a nice selling point. And it is also more in vogue than ever before. And it has led to an uptick in interest in consuming our software that way.

Srdjan Tanjga: Yeah. And, Sanjit, let me just jump in, as a. With an accounting reminder. Due to ASC 606, we need to recognize roughly 70% of those bookings upfront. So, obviously, that explains generally the variability of this line. But also explains partially why the number was so strong and ahead of our ahead of our guidance. However, there is nothing else sort of funky, if you will, in there. there is no multiyear pull forward. This is a. You know, all of our on-prem contracts are 1 year in nature. it is a good representation of the demand that we saw. And then, of course, the accounting needs to be taken into account.

Sanjit Singh: Yeah. No. I appreciate that color, Srdjan. My follow-up question Matthew, you sort of detailed the Appian AI strategy, and, certainly, the message seems to be resonating in terms of embedding AI with deterministic processes. I just wanna get a sense, and then you sort of mentioned the, you know, the sovereign AI theme. You know, how are open weight models being adopted into the platform? Do you guys. Are you guys pursuing a post training strategy given all the processes that you guys have a lot of familiarity with? And what could be the potential financial benefit from a growth perspective and even from a margin perspective if open weight models become a more prominent role in the platform.

Matthew W. Calkins: Yeah. Hey. I expect that over time, there is gonna be less dependency on certain models and more willingness to take into account many models. And I do not wanna predict which ones they may be or whether they are open-weight. But I do think that we are gonna head toward a spectrum of different cost models because we are gonna be seeking a more efficient way to get work done. So you will send a job to the latest frontier model. Sometimes, you will send it to a less expensive model. Sometimes that job will go to a digital worker, even a human being.

So the cost and the efficiency of job resolution is gonna be a critical driving factor to the adoption of new models, and we are here to facilitate that. We believe that an organization should have multiple cost points to which they can refer work, and we are built to facilitate it to save them money to get the job done with an equal amount of accuracy. But not to initiate unnecessary power. So I. I am not at all surprised to see this trend continue. it is an appeal for us, and we believe that customers do not want lock in. And so we are designing in advance to give them the key to avoid it.

Sanjit Singh: Appreciate the thoughts. Thanks.

Operator: Thank you. Our next question comes from Raimo Lenschow with Barclays. You may proceed.

Raimo Lenschow: Hey, thank you. 2 questions. 1, a more accounting question so I apologize for that. Srdjan, cash flow if I look at the quarter, everything was. It looked pretty amazing. Can you talk to the cash flow performance, though? And it seems like timing, but, like, maybe you can give us more detail.

Srdjan Tanjga: Yeah. So I mentioned that it is timing, but let me give you a little bit of color. So generally speaking, collections are seasonal. Q4 and Q1 tend to be stronger than Q2 and Q3. So that is kind of the first thing to keep in mind. Secondly, as we do more large strategic deals, as we do more multimillion dollar deals, and with them come multimillion dollar collections, where those land on either side of a quarter end can impact timing. So in this particular case, October was 1 of our strongest collections months. Ever. And so it is just a timing issue, and we are. Obviously, we continue to focus on it.

But, we are generally happy with the trend.

Raimo Lenschow: Yeah. Okay. Perfect. And then the, Matthew, the really great performance across the board. It looks like it is all coming together. Can you speak to the role of the improved go-to-market. You know, you have been. You guys have been working on this for, you know, a couple of years now. so it is industry positioning, and, you know, you spoke to that in detail. but also, can you speak to where we are on the go to market function and how much that is kind of benefiting the good trends here?

Matthew W. Calkins: Thank you. I think we are really connecting with our customers, and I love that we are doing it at a higher level than we ever did before. We are speaking to the top of the organization about strategic things. Take for an example, the EGP structure, the enterprise growth plan structure of deals, we have been favoring more than we ever have before, where we pre negotiate a price on an annual basis that will stair step into the future and then allow the customer to have an essentially unlimited amount of usage, under that figure. Well, EGP plans are facilitated by our modernization story.

Because when we talk about replacing old applications, the customer can understand why the value of our software will be exceptionally high. And so while they may have only had a couple of projects in mind that were new to create, they have got all these old applications that need updating. And so suddenly, the addressable market within 1 customer is far larger than it would have appeared before and justifies a larger EGP. So I think that we are approaching the market correctly.

Today to get the, the most impact and the highest level of access and strategic consideration for the value that we are providing, and we are getting into the right kinds of dialogues about things like big dollar commitments and unlimited amounts of usage and modernization of vast amounts of old applications. So we are going to market the right way. For our product and for this moment.

Srdjan Tanjga: I would just add that the discipline of our go to market org has been impressive. Productivity is improving. They are on top with their forecast. Deals are not slipping. Like our win rates, so it is been really great to see come together, and kudos to the team.

Matthew W. Calkins: Yep. I agree.

Raimo Lenschow: Okay. Thank you.

Operator: Thank you. Our next question comes from Devin Au with KeyBanc Capital Markets. You may proceed.

Devin Au: Good morning. Thanks for taking my questions. I know you have seen really strong momentum in public sector and it is still really early following the midterm elections. But maybe given Appian's sizable exposure there, how do perhaps changes in political environment typically impact customer priorities or spending patterns. And as we may look into 2027, is there anything you are watching that could meaningfully change the opportunity set in that sector?

Matthew W. Calkins: Yeah. First of all, I wanna say that the election is going to have no impact at all on the way we do business. We are focused on fundamentals, not politics. Always have been. We focus on efficiency, and the government cares about efficiency more than it ever did. We focus on solving problems with technology, and the government is more willing to see technology as a way to solve a problem and a proactive instrument of improvement than it ever has been. We sell to impulses like that. We have-- yeah, we are not affected by the politics.

Devin Au: Understood. Thank you for that. And Srdjan, sorry if I missed it, but did you say that EBITDA margin expansion next year to be at a greater rate than the 1 point expansion entering 2026? And maybe just perhaps speak to kind of your confidence in driving further expansion and what areas you are looking to invest as we look into next year?

Srdjan Tanjga: Thank you. I actually did not say anything about EBITDA margin for next year, but let me kind of zoom out for a second. So we are committed, and we continue to be committed to balancing our revenue growth and margin expansion that is true for this year and for the future. And look, we believe that is a good thing to do, not just for external reasons, but also as a driver of internal discipline and, and efficiency and return on investment.

As you think about the magnitude, obviously, premature to talk about it, but the magnitude this year, the surprise to the upside, is really a function of doing so much better on the revenue side than we expected and sort of the timeline of how you can reinvest those investments. So we are happy We are really happy with how we did this year. We are committed to continued margin expansion into next year. But I will give you the actuals when we get together in February.

Devin Au: Got it. Sorry. Thanks for the clarification here.

Operator: Thank you. Our next question comes from Patrick McIlwee with William Blair. You may proceed.

Patrick McIlwee: Hi, Matthew. Srdjan, on another really strong quarter here. And thanks for taking the questions. So first, you previously talked about the opportunity to monetize some AI consumption beyond the usage included in your subscription tiers. So as we think about some really great results here, I just wanted to ask if that usage based monetization has begun to contribute to cloud growth or NRR or if most of the AI related uplift is still coming from customers upgrading to higher tiers.

Srdjan Tanjga: it is a great question, Patrick. Let me just kind of step back for a second to make sure everybody's on the same page. You are right. We have a 2 step process to monetize AI. First is in order for a customer to even have access to our AI features in production, they have to be at a certain tier of subscription. By far, the most popular is our advanced tier, which is a 25 to 35% premium to our standard tier and we see. We continue to see, and we have talked to you guys about this over the last year, more customers and greater percentage of their ARR moving to the advanced tier.

And as you said, the advanced tier and other tiers include what I would describe as a moderate amount of AI usage, enough for maybe 1 medium sized use case But if you would have multiple use cases, which we are starting to see, or very large use cases, like 1 that Matthew has talked about in his prepared remarks, then you actually have to come and buy more AI usage from us. And we see more and more customers being in that situation every month where they exceed the allotted amount, if you will, And then they either pay overages or they negotiate with us to buy more AI bundles as we call them. Consumption grows over time.

So it will be building. I would not call it materially. Right now, but, it is definitely an added, sort of vector of growth in the future.

Patrick McIlwee: Okay. Great. Thanks, Srdjan. And last quarter, you mentioned that legacy modernization was increasing, but were not yet a material contributor to growth. As we think about this acceleration in the business, has anything changed over the past few months And at this point, are you seeing more customers move beyond initial modernization projects towards broader multi app transformation programs?

Matthew W. Calkins: Modernization is absolutely driving some of the largest transactions we are doing today in the form of EGPs, We discuss with customers the vast amounts of applications that they are modernizing or will soon wish to modernize, and it justifies the largest enterprise transaction. So it is part of the conversation. We just had our conference, our government conference last week here in Washington. A lot of enthusiasm, great energy, but the thing that struck me most about it is in every presentation I watched and every conversation I had, modernization was the ever present topic. Everybody's thinking about this. They are concerned about old applications not just being expensive, but now liabilities.

They are excited about the ability to reinvent the enterprise, This topic has come on quickly. In the past year or 2, and we knew that it would. We were ready for it. And it. it is now ubiquitous in major conversations.

Patrick McIlwee: Okay. Thank you both. Great results here.

Operator: Thank you. Our next question comes from Lucky Schreiner with D.A. Davidson. You may proceed.

Lucky Schreiner: Great. Congrats on the quarter. Really good results here. I wanted to ask on the fourth quarter profitability outlook, implied margin looks a touch lighter than we were anticipating. Does that specifically reflect the increased sales hiring that you discussed last quarter? Ahead of demand, and how's the ramp of new salespeople trended so far? Thanks.

Srdjan Tanjga: Yeah. So let me let me come at it from a couple of different ways, Lucky. So first, I would say, yes. Definitely part of the equation is what we announced last quarter, which is a head start, if you will, to hiring, to growing our sales org so that more of our people are in seats enabled and ready to go in early 2027. So that. that is definitely a major investment part as you think about the back half of the year and as you think about it for Q4. Just maybe a couple of other points as a reminder. We have sequentially higher expenses in Q4 than we do in Q3.

So Matt just mentioned Appian Government. that is 1 of our largest events. Appian Europe is in a few weeks here in London. So it is a very busy event quarter. Large and small events, internal and external, and that obviously drives expenses. And also by Q4, remember, this is the quarter where bonuses and commissions, tend to be larger than they are in another quarter. So you gotta think about it on a sequential basis.

And then finally, because of the revenue outperformance, and the accelerating cloud growth in Q4, we took the opportunity to make a few smaller tactical investments that will further help us into 2027, and those sort of add up to the EBITDA expectation that we have. Also, I would just kind of zoom out and remind again that we are delivering you know, 300-basis-point of margin expansion, 3% EBITDA growth for the year. So we are happy with our ability to both grow the business and expand the bottom line.

Lucky Schreiner: Great. Makes a lot of sense. And then just with the retrial against Pega coming up, I wanted to ask, can you provide any additional color or reminders around how your $500 million insurance policy works that you purchased in relation to the case.

Srdjan Tanjga: Yeah. So we cannot talk tremendously about the insurance publicly. We are excited about the case and our ability to go to trial again and argue for our situation. What I will just say, the assurance is there for what it is, insurance, and it will play in at the end of the legal process after all the appeals have been exhausted and so forth. So, we are glad that we have it, and it is sort of out there in the future. If you want any information on it, the best way to go is to look at our web page.

Lucky Schreiner: Appreciate it. Thanks for taking my question.

Operator: Thank you. Our next question comes from Derrick Wood with TD Cowen. You may proceed.

Cole Erskine: Great. Thank you. This is Cole Erskine on for Derrick. Matthew, I just wanted to come back to some of the conversation around open weight models and model choice. Could you just talk about how, on the Appian platform, you guys go about model routing? Is this something that is the customer's choice? Do you guys automatically route based on the task and the requirements needed for that workflow? Then how do you think that, over time, this could impact usage? Yeah.

Matthew W. Calkins: Hey. The key is that it is completely the customer's choice. We offer them scores of models. From which to choose from. And they can route the work entirely at their discretion. So, yeah, I do think it is gonna help us get more adoption because it can contain AI bills. And by making the AI experience 1 that is less daunting, more flexible, less expensive, I do think it will encourage adoption. And at the same time, for us to make it less expensive and much more reliable, safer, able to improve, able to be better informed. I think we have given people the fast lane to AI facility.

And so, yeah, I think all that we are trying to do here is just help the customer with the things they are naturally concerned about, the trepidations they have, the restrictions they have, the red lines they have. We are just gonna help them across all of that in the name of making AI a useful participant in the world's most important work.

Srdjan Tanjga: And I would just add, Cole, that we noticed that the customers are becoming more sophisticated in the choice that they have. And whereas, you know, a few months ago, it would just be kinda click to default across the board. Now there is much more conversations about the nature of the model, and the specific need it is to be used for. And we welcome those conversations because to Matthew's point, it will help adoption. It will help accuracy. It will contain cost. And we stand to benefit along with the customer.

Cole Erskine: Super helpful. Thanks. And then, Serge, just 1 on the, you know, net expansion rate. Impressive step up Going forward, you know, is this kind of a new level that we can think about this trending at?

Srdjan Tanjga: Through the end of the year or maybe in the next so we do not guide to this metric, so I will refrain from speculating as to where it can go. What I will say is ultimately is 1 of the best ways to look at our quarter and realize just how good a new business quarter we had. And, yes, it is unusual, you know, and certainly in my career, to see this kind of jump from 1 quarter to another. And that speaks to continued building of the demand and continued improvements in the ability to capture that demand. And, again, as I said, we are obviously very happy with Q3.

It comes after a series of otherwise good quarters, but it was this 1, particularly good. And it tells us that we can continue building a durable business and gives us confidence to continue investing, and that is what we are going to do. Great.

Cole Erskine: Appreciate it.

Operator: Thank you. This concludes the conference. Thank you for your participation. May now disconnect.

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