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Greetings and welcome to the Appian Second Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded.
It is now my pleasure to introduce your host Staci Mortenson, Investor Relations for Appian. Thank you, Ms. Martinson. You may begin.
Thank you. Good afternoon and thank you for joining us today to review Appian's second quarter 2018 financial results. With me on the call today are Matt Calkins, Chairman and Chief Executive Officer; and Mark Lynch, Chief Financial Officer.
After prepared remarks, we will open up the call to a question-and-answer session. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Including statements related to our financial results, trends, and the guidance for the third and full year 2018, the benefits of our platform, industry, and market trends, our go-to-market and growth strategy, our market opportunity and ability to expand our leadership position, our ability to maintain and up-sell existing customers, and our ability to acquire new customers.
The words anticipate, continue, estimate, expect, intend, will, and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date.
These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our 2017 10-K filing and our other periodic filings with the SEC.
These documents and the earnings call presentation are available in the Investors Relations section of our Web site at www.appian.com.
Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release and the Investor Relations portion of our Web site for a reconciliation of these measures to their most directly comparable GAAP financial measure.
With that, I'd like to turn the call over to our CEO, Matt Calkins. Matt?
Thanks Staci and thank you all for joining us today.
In the second quarter of 2018 Appian subscription revenue grew 36% year-over-year to $27 million. Our non-GAAP loss from operations was $6.1 million. Our subscription revenue retention remained high at 119%. These results exceeded our guidance.
In Q2, we closed nine deals each worth more than $1 million in total contract value. Of those seven were multimillion dollar deals. For several of them and many of our other Q2 wins, speed of implementation was an important factor.
Rapid deployment differentiates us from our competition and creates happy customers. You see this in our NRR which has been on the high-end of our guidance range of 110% to 120% for the past four quarters.
One of these large Q2 deals was with a top 10 global pharmaceutical company that has used Appian to manage compliance risks, accounts payable and interdepartmental collaboration for more than five years. They've built 15 applications to-date including most recently and here's where the speed factor comes in. A mission critical recovery application built in just two weeks in response to an emergency.
Based on their past success, they made $1 million purchase to double their Appian user population including expanding into new divisions. Earlier this year, you might recall we mentioned a large U.S. bank that first purchased our software in September 2017 and expanded their investment with a multimillion dollar purchase just three months later. We deployed their first project supporting their compliance team in only five weeks in Q4. Following that success, this quarter they purchased additional users doubling their multimillion dollar investment within 10 months of their first buy.
Another Appian customer is one of the five largest utilities providers in the United States. In Q4, they purchased licenses to help automate mission critical procedures at nuclear power plants. They built the first iteration of that application in just six weeks. Six months later they made a new multimillion dollar purchase to support digital transformation for their largest division.
Here's another story. Top 10 global asset management firms has been using Appian for risk mitigation since 2015, expanded its use of Appian with a multimillion dollar purchase this quarter. Since their purchase three months ago they've already rolled out two important applications.
There's a slogan we like to use to express Appian's competitive advantage and we say run anywhere, post anywhere, data anywhere. By saying this, we mean that Appian runs natively on all major mobile devices and also that we're portable to any major cloud or on-premises. And finally, you can keep your data wherever you want including wherever it was before you installed Appian. This flexibility differentiates us from every competitor we have. It was a deciding factor for several large customers this quarter.
For example, one of the world's most famous investment banks expanded their use of Appian with $1 million purchase this quarter. Traditionally this company has not used cloud services. They deploy their systems on-premises including their first Appian applications, but with this quarter's purchase they're placing new projects into Appian cloud, while continuing to host their existing applications on-premises. We were one of their first cloud providers.
This quarter a leading global asset management firm took advantage of our flexibility and will move to the Appian cloud as part of their $1 million renewal. This firm bought Appian software in 2013 and has on-premises applications to support cash management, securities pricing and corporate activity monitoring. Their move to the cloud will be simple and we will keep all their functionality.
Customers appreciate the flexibility to choose either cloud or on-premises knowing that they can change their minds later. However, they're choosing cloud more than ever before. Over 80% -- eight zero percent of our license bookings this year were with Appian cloud.
In addition to our successes with existing customers. We continue to add large new customers this quarter. We won a top 10 Australian university with $1 million deal. They'll use Appian to integrate three systems onboard and manage their 13,000 staff and faculty members. The university chose us over a large competitor due to our strong platform and previous success with other universities.
Partners are increasingly helping us add new customers. So far this year they've influenced 68% of our new logos compared to 50% in the year ago period. This quarter a longtime partner referred $1 million deal to us with an employment services contractor for the British government. They've purchased Appian to replace a home run system that administers occupational health assessments. We won this deal thanks to the strength of our partnership.
Our intelligent contact center offering is too new to have had an impact on bookings, but our platform continues to have success in the contact center market. For example, our top five global asset management firm termed Appian to modernize their customer engagements and improve the efficiency of their call center.
Currently agents work in a 20-year-old legacy application. To win this deal to Appian sales engineers just to develop the demo in three days that our competitors couldn't complete, happiness winning on flexibility and on deployment speed. In many cases an initial quick customer success is leading to larger deals a few quarters later.
After an exceptionally successful tenure as Appian's SVP of Sales, Edward Hughes would like to transition out of that role at the end of this year. Edward plans to remain with Appian in a new executive position and as an adviser to our sales leadership. He has held his position for nearly 10 years and as I said done an outstanding job.
After Edward's transition, David Mitchell will lead global sales for Appian. David has over 30 years of experience in the software industry. He has been COO, CEO and Board Member for multiple public software companies including webMethods, Global 360 and Software AG. Since coming on-board almost a year ago as VP of Sales Strategy, David has worked closely with Edward and the sales team and our Chief of Marketing and Professional Services. During the third and fourth quarters, David will continue to work with Edward to run sales operations. On January 1, the handoff will be official. It's rare to have multiple quarters to make a change like this and we are using the time to best advantage. I anticipate a clean deliberate and successful transition.
With that, I'll turn the call over to Mark for a deeper discussion of our financials. Mark?
Thanks Matt.
This was another strong quarter for Appian. I will review the financial highlights for the quarter and then provide details on our Q3 and full year 2018 guidance.
Subscription revenue was $27 million an increase of 36% year-over-year and above our expectations. Our total software subscription, software and support revenue was $33 million, an increase of 50% year-over-year. This included a $4.4 million perpetual deal with the U.S. Air Force for the previously announced CON-IT program. We no longer offer perpetual licenses on our price list and it's rare for us to execute a perpetual transaction.
Professional services revenue was $26.8 million up from $21.2 million in the prior year period and up from $24.7 million in the prior quarter. Our professional services revenue is driven by the strength of our new business wins, the last several quarters and the kickoff of many services projects. As partners become a larger part of our business, we expect our services growth to moderate.
Total revenue in the second quarter was $59.9 million up 39% year-over-year and ahead of our expectations. Our subscription revenue retention rate was 119% as of June 30, 2018, which was at the high-end of the 110% to 120% range that we target on a quarterly basis. We're pleased with our customers expanded use of our platform.
Our international operations contributed 28% of total revenue for Q2 compared with 25% in the prior year period reflecting the investments that we are making to grow our business globally. We're pleased with the traction that we're gaining internationally.
Now turn to our profitability metrics. Our non-GAAP gross profit margin was 64% compared to 65% margin in the same period last year and an increase from 60% in the prior quarter. Subscription software and support non-GAAP gross profit margin was 92% in the second quarter compared to 91% in the second quarter of 2017.
Our non-GAAP professional services gross profit margin was 31% in the second quarter compared to 38% in the second quarter of 2017 and 26% in the prior quarter. We expect our services gross margins to remain near prior quarters levels for the remainder of 2018 as we continue to deploy top resources as unbilled customer success managers.
Total non-GAAP operating expenses were $44.7 million, an increase of 34% from $33.4 million in the year ago period. This is in line with our stated strategy to invest for growth to capture the long-term opportunity and build on our momentum.
Given our high gross margins on subscription revenue along with our powerful LTV to CAC metrics, we think it makes sense to continue to invest in the business to capture new customers and capitalize on the big up sell opportunity.
Sales and marketing was 45% of revenue in the second quarter compared with 47% of revenue in the prior year period, an increase of 32% on a dollar basis. It is important to remember that in Q2, we hosted our Appian World Conference, an increase in sales and marketing both sequentially and year-over-year is reflective of our investments in this key event. We would expect sales and marketing expenses to decline slightly in Q3.
R&D was 17% of revenue in the second quarter compared with 18% in the prior year period. R&D remains a key area of investment further differentiating the platform and adding vertical specific functionality.
G&A as a percentage of revenue was 12% in the second quarter compared to 12% in the prior period reflective of the investments in our infrastructure to operate as a public company. Non-GAAP loss from operations was $6.1 million in the second quarter ahead of our guidance and compared to a non-GAAP loss from operations of $5.5 million in the year ago period.
As you know foreign exchange gains and losses can fluctuate. During the quarter we had $2.7 million of foreign exchange losses compared to $1.4 million of foreign exchange gains in Q2 of 2017. Our guidance does not consider any additional potential impact to financial and other income and expenses associated with foreign exchange gains or losses as we do not estimate movements in foreign currency exchange rates.
Turning to our balance sheet, as of June 30, we had cash and cash equivalents of $50.4 million compared with $60.9 million as of March 31, 2018. Total deferred revenue was $87.4 million up 20.1% year-over-year. With respect to our billing terms, the majority of our customers are invoiced on an annual upfront basis. However, we also have some large customers that are billed quarterly and others that are billed monthly as such we will continue to remind investors that changes in our deferred revenue are not always indicative of the momentum in the business.
During the second quarter of 2018, we use $9.8 million in cash flow from operations as compared with $9.5 million used in the prior year period. The decrease in cash during the quarter was due in large part, the delay of a few large payments which were collected in July plus an ERP system migration that delayed invoicing by a few weeks. The new system is now online and all invoices have been issued. We expect minimum negative cash flow in the back half of the year.
Now turning to guidance, from the third quarter 2018, subscription revenue is expected to be in the range of $27.7 million and $27.9 million representing year-over-year growth of 34% to 35%.
Total revenue is expected to be in the range of $49.6 million and $49.8 million. Non-GAAP loss from operations is expected to be in the range of $11.2 million and $10.2 million with a non-GAAP net loss per share of $0.19 and $0.17. This assumes 61.8 basic and diluted common shares outstanding.
For the full year 2018, we are raising our guidance subscription revenue is now expected to be in the range of $110.5 million and $110.9 million representing year-over-year growth of 34%. Total revenue is now expected to be in the range of $213.8 million and $215.3 million. Non-GAAP loss from operations is now expected to be in the range of $36.4 million and $34.4 million with a non-GAAP net loss per share of $0.63 and $0.60. This assumes 61.6 million basic and diluted common shares outstanding.
We'll now turn it over to questions.
Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Raimo Lenschow with Barclays. Please proceed with your question.
Thanks guys. This is Mohit Gogia on for Raimo. A question, you mentioned about the intelligent contact center platforms, so we're recognizing that it's a recent launch, but I'm just wondering, if you can talk about the traction or the sort of the feedback you have gotten so far. And how do you see this ramping up in terms of the sort of like contribution to the pipeline? Thanks.
Sure. Thank you. This is Matt. Hey. It's going to be difficult to differentiate between the platform we have which is already a leading competitor in-process management for contact centers and our new offering which does the same thing but pre-built some of the functionality and some of the integrations that you otherwise would have had to do if you'd been using our platform in a raw state.
The appeal of the two is so similar and so overlapping that that it's going to be hard to differentiate as the quarters go on. However, I will say that all of the interest we've gotten this quarter, all the deals that we closed this quarter that had to do with the contact center were not dependent upon the new functionality foreclosure and that's why I did not classify them as ICC or intelligent contact center deals.
However, I do want to make it clear that we're not entering a market that we weren't already in. We're entering a market that we already had a good presence in and we had already sold some of the best names and automated some of the biggest call centers. We were a meaningful competitor without the ICC. So it may be less of an entry event than we're thinking -- than you're thinking.
Thanks.
Our next question comes from the line of Sanjit Singh with Morgan Stanley. Please proceed with your question.
Hi. This is Josh Baer on for Sanjit. I know you don't talk about customer as in the quarter, so wanted to go back to the big jump in customer as from last year. I was hoping you could sort of generalize as far as an update where these customers are at this point, are most of them deployed already, have they started expanding? Thank you.
All right. Now, while I can't speak specifically to customer adds because as you know that's not something we're going to disclose on a quarterly basis. I will say that there was an emphasis during the prepared remarks today on up sells and I think it has been a notable trend that we tend to do well following an initial deal a quick installation, a quick success, we tend to get a good upside, you see that in our 119% NRR, you see that in the fact that seven of the nine million or multimillion dollar TCV deals from Q2 had to do with the customer who had bought from us in the past. So I believe these statistics show some degree of momentum but I can't speak specifically to the Q4 cohort.
And one more on cash flow. So with some of the large payments pushed out of Q2 and collected in July, how should we think about the seasonality of cash flow into Q3? Thanks.
As I stated in my prepared remarks we expect for the second half of the year to have a minimum negative cash flow. So anyway not really seasonal adjustment.
Our next question comes from the line of Gregg Moskowitz with Cowen and Company. Please proceed with your question.
Thanks. This is Matt Broome on for Gregg. So, you just -- again it's a very balanced act, we of course on -- in which territory that you think the most success?
International has been impressive and I think that we're at a place in our corporate life cycle where we can almost expect international to be impressive because it has a certain amount of investment goes into building a credible software value proposition in one place. And then, once that's complete it's relatively easy and a rather less investment to port that to another location and to do well and to catch up with the investments you've made in the first place or the success you've achieved in the first location.
So I think that -- those laws of physics are on our side with regards to growth, but I'm also pleased with how we're operating in several locations internationally. The list is long. Well, I try to answer this question, I'm pleased with what we've done. Last year was spectacular in Germany. This year looks really good in Spain. We're regularly solid in Australia, the UK is a good operation. We've got a lot of highlights and then I could go on actually. I think it's the strength of the organization right now, also continuing.
Okay, great. And has that been any sort of change the competitive environment over the last few months?
Well, I guess you could say there was one yesterday with Mendix's acquisition by Siemens. That was interesting. Mendix was a small competitor to us and we work frequently in competition. But if you were to look at the Forrester, the current Forrester low code analysis, you would see that Mendix, Outsystems and Appian were listed as the three top firms. So in the eyes of some, this was a close competitor to us and their absence may be important going forward of course it's too early to speculate just how that would be important but I imagine it would be beneficial to us.
Okay, cool. I just keep [indiscernible] one in and I guess now that we're halfway through the year, where do you stand on sales capacity increases as well as other headcount as well as, it's of a target these days as of -- past this year?
That's right. Well, we feel good about our plans and we are executing according to our plan and have not changed the plan during the course of the year. But that's as far as I can go with regards to the exact hiring state.
Okay. Thanks very much.
Our next question comes from the line of Terry Tillman with SunTrust. Please proceed with your question.
Hey, good afternoon, gentlemen. Hi, Matt and Mark. I guess the first question Matt just relates to you emphasizing the idea of add-on sales and large add-on sales. And just the speed at those follow-on deals? Aside from just the ongoing evolution of your platform in helping customers get up and running fast with your own or partners professional services, is there anything you've done organizationally or go-to-market wise or with your sales teams or account management teams to also just help with the speed of add-on sale or there hasn't really been much in the way of kind of evolution of that.
This is somewhat, something we think about all the time. We realize we've got an edge in deployment speed. We also by the way have a similar edge in speed to knowledge which is to say how long it would take a developer who didn't know our platform to become a developer who did know our platform. I think we're faster on the rollout on the uptake right, we just say the actual used by users, they are learning of the new platform and then the readiness of new developers.
So all these should be emphasized and since we see it as such a differentiator right now between our offering and those of our competitors, we do emphasize in competitive situations through demonstrations through bringing training to bear, through preparing our partners to have expertise quickly and any other way that we can emphasize, there will be new institutions coming up as well that focus further on the advantage that we've got in deployment and learning speed.
We think we've got a winning edge here. And so, we're not going to let go of it. We're going to institutionally emphasize it with new behaviors that bring it home to our customers and the contrast with our partner -- with our competitors.
Matt maybe just a follow-up question or a different question, different train of thought here, but still transition when investors or analysts see that they wonder, will there be notable changes, could there be a philosophical change, potentially regime change, in this case it sounds like, he was on board for a period of time and doing sales strategies, so and plus there's multiple quarters. So it doesn't seem like something changing overnight. But, what kind of confidence can you give us in terms of any notable changes or realignments or what can we see that might change or evolve given that you will have a different sales leader in place?
Great. Okay. First of all, I want to say that it's hard to imagine a transfer of power that is more smooth, more planned, more incremental, more low risk than this. I think we're doing a really good job and they're working well together. And I know David and we all got to know David and I feel very good about how this transition is being handled.
On the other hand, with regards to your assumption that there wouldn't be change. I want to say that we're always changing. Appian is an institution built to change and we expect to be honing our processes and our doctrines all the time. In fact, one of the ways that David has helped us since he came onboard in Q4 of last year is by implementing the changes that Edward and I wanted to make. He's a terrific operator and he's got right in, built the relationships and won some trust and proceeded with some reforms that have already made a substantial difference and improvement on the way our sales operation runs, which went a long way of course toward making us all realize that David is the guy.
So we will change. You can count on us changing actually, but we won't have the kind of negative chaotic change that you might get from just simply a turnover in power. We'll have the directed and an incremental improvement change that you would expect from a company that is built to gain on its competitors through improvement.
Okay. And just a final question, it might actually be a two part, or [indiscernible] kind of hard to wind here, but still the license revenue that's a big pickup there and obviously caught it out Mark. Should we see that taper off in the second half of the year? And related to that though I think that's for contract writing or is that another way procurement. Are there broader opportunities in DoD based on the success you had with the Air Force to expand beyond that? Thank you.
As far as future of perpetual deals of this magnitude I wouldn't expect it in the second half of the year. And you can see in our guidance nothing is baked in there. But as far as additional opportunities within due deal, let Matt speak to that.
Well, I think Appian has long benefited from successful demonstrations of our capabilities. When we entered the pharmaceutical industry it was with one powerful example of what we could do and then we rapidly got a lot more opportunities and new clients, new logo's. The same thing happened to us years ago in the Department of Defense and I can tell you that whether it's government or private sector you always see that this pattern with Appian, we get a big opportunity, we do well with that opportunity and then a set of follow-on business presents itself.
So we view this one as an opportunity not just to cash a nice check, but to make a statement to this organization -- an organization similar to it that we are better than they might have imagined. And that we opened up a new possibility, happiness, value proposition is and always has been novel which is to say we're not part of a category that others expected to spend money on. And we approach the good that we offer in a way somewhat different from what other firms do which means we have to prove it and the way we prove it generally is with an example.
So I'm delighted to get an opportunity like this not so much even for the revenue, but for the opportunity to prove what Appian can do with a spotlight on us.
Great. Thanks a lot.
Our next question comes from the line of Richard Davis with Canaccord Genuity. Please proceed with your question.
Thanks. Most of my questions have been asked. Question for you, did you expect to sign the $4 million perpetual license deal when you set guidance 90 days ago?
No. No. We've been working this deal for the past year and a half and so we weren't really sure when this deal was going to close.
And then a product question robotic process automation is kind of a big deal in fact there is a -- say on Silicon Valley just did around like this only do that and they did it, I don't know 10, 12 times revenues, I guess with just new cheap these days in Silicon Valley, but to what extent can you guys use kind of the VPN functionality that you have to kind of help people with RPA process? Thanks.
Well, first of all, they're extremely complimentary. VPN or process or low code and how ever you want to call it, is very complimentary with the RPA because RPA is essentially a new entity to which you can delegate tasks and process management the way we convey. This is essentially the routing of tasks and the delegation of the same. And so being able to delegate now to a bot or for that matter to an AI or machine learning process. These just enhance the value of our orchestration, so I'm very pleased with the synergy.
You're right a lot of popularity and money are flowing into RPA and it will be interesting to see how that pans out. RPA is a new exciting technology and also relatively limited one as it stands today. And so I'm sure that it's going to evolve. I'm sure it's going to bring new interest to the idea of automation. And I think some of that is going to -- some of that shine is going to fall into our side of the market as well. So I'm excited about it. These are generally positive development was also a source of change. We'll be watching it closely. So far our partnership has helped.
Great. Thank you.
Our next question comes from the line Jesse Hulsing with Goldman Sachs. Please proceed with your question.
Hi, guys. This is [Stuart McLaren] [ph] for Jesse. My question is on the partner program obviously, strong results on partner influenced deals, but there are any additional color you can provide on the program. And when do you expect to see that show up in terms of revenue and gross margin?
Okay. Well, I do want to emphasize that if partners are influencing 68% of our new deals that it is showing up, partner impact matters for us today or in Q2 that is. So this is mattering right now. We're not going to break it out. The partner operation is part of our sales process and we focus on it and we have great meetings, we have great leads, we have great momentum. I don't think the partner operation has ever been in better shape than it is today. And I think it's having a profound impact on the reach of the business and the credibility and the capability to deliver well beyond the relatively limited resources that have been in place directly.
Thank you.
Our next question comes from the line of Alex Kurtz with KeyBanc. Please proceed with your question.
Hi. This is Steve Enders on for Alex. Thanks for taking my question. I think as mentioned Mendix being taken out earlier, I was wondering what else are you seeing in the competitive environment specifically around Outsystems and them raising round recently.
Okay. Yes. I noticed that round -- substantial round with Outsystems. I want to emphasize that Outsystems may be positioned next to Appian as the leaders in low code according to the most recent Forrester analysis. But Outsystems product is exceptionally much different from ours. It targets really different market. To the point we're lately -- we're trying to say that low code is really two markets. And we and Out systems are not in the same one.
Outsystems is doing a fine business and we compete with them sometimes, but often if we compete with them too long, it means one of us is probably in the wrong place. So I don't want to overemphasize this clash between Appian and Outsystems insofar as that clash happens, it's probably happening in a place where the customer is already pretty satisfied with doing their own development. And they see this as Appian and Outsystems as to ways that they could use their own developers to do more development and that isn't exactly our sweet spot as you know. Appian would like to be positioned as a way that you could assemble an application through dragging, dropping, right clicking, configuring and reusing existing objects not as a means to empower coding.
So again, I think the best response to your question would be to illustrate the difference between the approach that Appian and Outsystems are taking to low code.
All right. Thanks. It's helpful. And then a follow-up on what you're seeing out of Asia. They just opened a new regional office there. So just kind of wondering what led to that expansion and what you think the opportunity could be there and how big that could be?
Yes. I think my favorite thing to say about that is that we were very careful about when we entered Asia. At our size, in fact, it's somewhat interesting that we hadn't already and we are more covetous of our reputation than we are of the revenue that we would get by sprinkling a bunch of new offices in places around Asia and other continents that we have yet to address directly.
I think that we're taking a slow and steady approach with regards to new international offices. We thought deeply about a doctrine whereby we can enforce Appian culture and standards wherever we go. I think we're being deliberate about it and I believe that in the long run will be the best strategy, we are going to be delivered also about our new Singapore office, which is being guided out of Australia by a very experienced leadership and I think it is going to be a real Appian office not merely an office that sells Appian, but an Appian office in Singapore.
All right. Great. Thank you.
[Operator Instructions] Our next question comes from the line of Bhavan Suri with William Blair. Please proceed with your question.
Hey guys. Thanks for taking my question. I just want to touch on something maybe a little more strategic and then I had a product question to you to follow-up on Richard Davis question. But Europe has done really well, and Matt, I guess when you think about it, there's great technology towns in Europe, but the volume isn't there, right? So it's not India or China, who are churning out tons of engineers. I guess when you think about that dynamic that tailwind to what Appian actually does, it give us a local environment where a great software engineer is worth a thousand average software engineers whatever the number is, can take advantage of it?
Do you see that as being a big driver of growth out there? And I guess coupled with that is that sort of attractive driver of growth in China and India given sort of the low cost of labor and the number of sort of computer science engineers out there?
Well, that's an interesting observation. And yes, there might be something to that, it might be that we have a more lopsided advantage in a place like Europe than we would in India, you might be right. We don't have an office in India yet so I can't test that for you directly.
I think the efficiency matters everywhere. I believe that the amount of software that the world makes is far, far less than the software the world would make if the costs were lower, which is to say something about the slope of the demand curve really [Multiple Speakers] but there's a lot more potential, a lot more volume waiting to happen. And so even, if you're in a place where there's plenty of software development talent or maybe you sell to a company that's got a lot of developers.
Well, I will one thing I never see is they buy Appian and layoff some developers. Not once in the history of the company has Appian been used as a reason why we don't need these developers anymore. Appian is a multiplier of the power of these engineers that's true, but the amount of work that's wanted from these engineers is never-ending. If they can build right that today's application faster then there's a backlog and if they can build the entire backlog which pretty much never happened they could build the entire backlog, then we can start revisiting these applications and keeping them fresh, which typically applications are not kept fresh in an institution, they launch an app and then they don't have time to go back and revise it and align it with the latest strategies or procedures or data sources.
The applications tend to fade into the past because the way there isn't enough resources and time to update them and in Appian's case they don't fade into the past, so there's so much more that can be done with the software. You could see the worldwide supply crunch in development by the rising salaries -- the wages in the development industry. I think what it shows is that there's just a lot of -- lot of pressure in this industry and Appian can alleviate it. And it may be true that there's more such pressure in Europe and for that matter if you go on one step further is probably certain countries in Europe that have more of such pressure than others like say Switzerland. We do business in Switzerland. It's not easy to move a developer into that country, right? They've got to be a resident. They can only be there a certain amount of time right before they have to move out, if they're not -- if they're not legally a resident of Switzerland. So there are certain restrictions that make labor even more hard to come by.
So I'll agree with you. I think the whole world needs it, but there's probably some that needs more than others.
Fair. Just given your growth in Europe, it just felt like there was some trend there, but anyway I guess, then I'm following up on -- onto the product question here for a second. You and I both on this public call, and then also separately you talked about AI and sort of [indiscernible] below where many people think about it, you obviously embedded AI sentiment in some of the offerings which is really cool.
But I guess when you think about that roadmap, I'd love to get a lot more color on how you thing that [indiscernible], I know you're not going to close kind of what's next, but love in terms of, what kind of used cases outside of sort of that sort of sentiment stuff that we've discussed in the past, you could see being integrated as part of the Appian platforms and not necessary SKU per se, but just something that will add value to the product some of my development with Appian and how you are thinking about that and sort of what could we see potentially come out of that?
Yes. Well, you will see what we can do with AI. Every time we do an update on software we are investing strongly in it. We believe that it's going to give us a major edge. We think we have an advantage today relative to our competitors and the philosophy that we take toward AI and to be precise that philosophy is that the most important revolution in this industry is not going to be the moment that AI is invented, but rather the moment to which it is made practical. And that AI is practical today at the bottom of the stack and not the top of the stack. So we're not asking AI to write the new version of your software or make any important decisions. We're asking it to identify, quantify and advise. So simple, nuts and bolts behaviors that can be improved through AI.
So that's the approach we're taking, we want to make it straightforward as possible as you know AI is a connected system. Three primary AIs are all connected systems, we have internal AI functionality built into Appian at this point. So we feel we have a powerful advantage from the investments we've made into machine learning today.
Great. Thanks guys. Appreciate taking my questions and nice job.
Thanks.
There are no further questions in queue. I'd like to hand the call back to Mr. Calkins for closing comments.
Oh sure. Well, I want to thank you all for your time and for your interest in Appian. And that's it for this call.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.