Appian (APPN) 2026年第三季財報電話會議：營收成長、AI需求與調升財測指引

重點摘要

• 2026 年第三季雲端訂閱營收年增 20% 至 1.36 億美元，總營收則成長 25% 至 2.35 億美元。
• 雲端淨 ARR 擴張率達 120%，高於第二季的 115% 及去年同期的 112%。管理層表示，這是五年多來的最強水準。
• 調整後 EBITDA 為 4,300 萬美元，高於公司原先預估的 3,000 萬至 3,300 萬美元財測區間。Non-GAAP 淨利為 3,700 萬美元，或稀釋後每股盈餘 0.51 美元。
• Appian AI 使用量較前一季增加超過 50%。管理層將此需求歸功於受監管企業對 AI 編排、治理、資料連線能力及模型彈性的需求。
• Appian 上調全年財測，預估總營收達 8.73 億至 8.77 億美元，調整後 EBITDA 達 1.16 億至 1.19 億美元。
• 儘管預期匯率逆風將使列報營收成長減少 2 至 3 個百分點，該公司仍預期第四季雲端訂閱營收成長率中間值為 23%。

核心財務業績

截至 2026 年 9 月 30 日，Appian 擁有的現金、約當現金及投資為 8,900 萬美元，相較於 2025 年底為 1.87 億美元。該公司在第三季以 1,700 萬美元買回約 50 萬股，使其在 1 億美元授權額度下的總買回金額達到 8,300 萬美元。

業務與營運表現

管理層表示，所有主要地區和垂直產業的新業務表現均十分強勁，其中美國公共部門尤為亮眼。Appian 約 80% 的 ARR 來自金融服務、生命科學與公共部門。

導入 AI 仍是核心成長動能。Appian AI 使用量較前一季增加超過 50%，同時客戶升級了訂閱層級並擴大部署。管理層列舉了客戶的實際應用案例，這些應用縮短了稽核完成時間、加快了核保審查速度，並提升了投資流程效率。

Appian 將其平台定位為 AI 的確定性編排與治理層。其資料網絡 (data fabric) 將代理與企業資訊連結，客戶則可在多個大型語言模型 (LLM)、數位員工與人類之間排程與分派工作。管理層表示，這種彈性可降低成本並減少模型綁定問題。

自託管軟體需求特別強勁。公共部門客戶持續青睞地端部署 (on-premises)，而歐洲機構對資料主權及技術基礎設施控制權的興趣也有所提高。Appian 指出，根據 ASC 606 準則，約 70% 的自託管預訂金額為前期一次性認列，導致了季度波動。合約期限為一年，並無多年期合約提前認列的情況。

傳統應用程式現代化也帶動了更大規模的企業成長計畫交易。這些協議訂定了隨時間推移而遞增的年度定價，同時允許廣泛使用。管理層表示，現代化已成為與策略客戶討論時的常態議題，並為 Appian 部分規模最大的交易提供支撐。

管理層財測

以中間值計算，全年調整後 EBITDA 財測隱含約 13% 的利潤率與 53% 的年成長率。管理層目前預期 2026 年 EBITDA 利潤率將擴張近 3 個百分點，高於最初預期的 1 個百分點。

該展望預設非雲端訂閱營收在第四季小幅下滑，但全年將以高個位數百分比成長。專業服務營收預期第四季將呈現十位數中段成長，2026 年全年則呈現十位數高段成長。淨利息費用預估第四季約為 300 萬美元，全年約為 1,000 萬美元。

財測採用 11 月初的匯率計算。管理層預期美元走強將使第四季列報營收成長減少 2 至 3 個百分點。

風險與關注領域

• 第三季營業現金流出反映了收款時間差。管理層表示，第四季和第一季通常是收款較強勁的時期，並稱 10 月為該公司收款表現最強的月份之一。
• 專業服務毛利率從去年同期及前一季的 31% 降至 24%。
• 自託管軟體營收可能出現波動，因為根據 ASC 606 準則，約 70% 的預訂金額為前期一次性認列。
• 按使用量計費的 AI 營收正在成長，但目前尚不明顯。目前大部分的變現來自客戶升級至更高的訂閱層級，包括比標準層級溢價 25% 至 35% 的進階層級。
• 受銷售人員招募、活動、佣金、獎金以及為 2027 年準備的策略性投資影響，預期第四季費用將較上一季增加。
• 管理層並未提供 2027 年的量化財測，並指出第四季的表現將成為明年的基準起點。

分析師問答重點

AI 代理與企業需求：管理層表示，與高階主管討論代理型 AI（agentic AI）的情況日益增加。客戶通常先從小規模部署開始，隨著對可靠性、治理和效能的信心增強而逐步擴大規模。

雲端成長的持續性：該公司將第四季雲端展望歸功於連續幾季強勁的新業務表現，特別是第三季。管理層表示，銷售生產力、預測紀律與得標率的提升，以及交易延宕的減少，都強化了對持續成長的信心。

AI 變現模式：客戶需要符合資格的訂閱層級才能在實際生產環境中使用 AI 功能。方案中包含適度的使用額度，但具有多個或大型使用案例的客戶必須購買額外組合包或支付超額費用。管理層預期，隨著時間推移，使用量將成為額外的成長動能。

模型選擇與路徑調度：客戶可以從數十種模型中進行選擇，並控制工作的分派路徑。Appian 預期，更廣泛的模型選擇有助於控制成本、提升準確性並促進導入，同時避免客戶被單一供應商綁定。

公共部門展望：管理層表示，政治環境預期不會改變其策略方針。Appian 依然聚焦於政府效率、關鍵任務現代化以及直接合約機會。

投資與利潤率：Appian 正為 2027 年提前招募銷售人員，並持續投資研發及市場拓展能力。管理層重申致力於在營收成長與利潤率持續擴張之間取得平衡，但未量化 2027 年的目標。

完整財報電話會議逐字稿

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完整財報電話會議逐字稿

管理層陳述

Operator

and answer session. To ask a question, please press star one one on your telephone and wait for your and name to be announced. To withdraw your question, please press star 11 again. I would now like to hand the conference over to your speaker today, Brian Denue from ICR.

Brian Denyeau

Thank you. Good morning and thank you for joining us. Today we'll review Appian's third quarter 2026 financial results. With me are Matt Calkins, Chairman and Chief Executive Officer, and Serge Tonga, 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 fourth 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 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. Initially, non-GAAP financial measures will be discussed in this conference call. Reconciliations of GAAP to non-GAAP financial measures are provided at earnings release. With that, I'd like to turn the call over to our CEO, Matt Calkins. Matt Thanks, Brian. Appian had an excellent Q3.

Unknown Speaker

Our cloud subscriptions revenue grew 20% to 136 million. Our cloud net ARR expansion rate was 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've been watching Appian, you know how we positioned ourselves to win in the AI era. You've seen this growth coming, and you understand why it's happening. For those new to our story, I will take a few minutes to explain.

This month, the LLM revolution is four years old. It's transformative, but also non-typical. Unlike every other tech revolution I can think of, it didn't 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. When they first lit a street with electric light, it was a big street. But AI is different. It isn't used for the biggest work. It's 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's not moving the needle on critical work.

So the AI revolution exists, but it's 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's where Appian comes in. Appian provides the specific capabilities AI requires to work in high performance situations. Appian connects the world's most important technology to the world's most important work. Here are the capabilities I'm talking about.

Bear with me please, it's a simple list. First, AI is probabilistic and needs a deterministic orchestration layer. our orchestration layer is ranked number one in the world. Second. AI is only as smart as the data you give it, especially agents that want to roam the enterprise for information. Our data fabric is the ideal connectivity layer, providing access to distant data sources that's 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 them most efficiently. This saves a lot of money versus sending everything to a frontier model, and it also prevents lock-in. That's my quick overview. With these capabilities. AI can participate in the most important work. We make AI reliable enough. and efficient and more powerful. The revolution won't be complete until we can deploy AI into the highest value processes, and that's what Appian is doing for our customers. And our customers are responding with great enthusiasm.

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 three times 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 services, life sciences, and the public sector. Our platform is used by leading institutions, including two-thirds 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 one 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'll share two 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 longtime Appian customer deployed DocCenter, our document processing AI, into its claims appeal operations earlier this year. Our AI automatically classifies and extracts data from 100,000 files annually. It shows to deploy DocCenter 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 one vendor for deterministic workflow automation. also for platform consolidation. Having spoken already about deterministic automation, I'd like to 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. AI lowers the cost of creating a new app and raises the cost of not doing so. When you write an application, you 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. And 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, 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, and it saves a lot of time. It's even possible now to develop sophisticated Appian applications without ever opening an Appian interface. You can build directly through Claude, Codex, 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 seven-figure ARR customer, a upgraded its Appian licenses this quarter to access our AI and expedite its multi-year 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 three times faster than originally planned. This Q3, we exceeded our plans in all major regions, especially in the U.S. public sector. The federal government is more focused on efficiency than ever. It's more willing to contract directly with vendors.

Appian is acting on this opportunity by connecting with critical mission areas. We're doing more prime and large deals than ever before. For example, a US cabinet level agency and long time 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 seven-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 a U.S. military branch that expanded its use of Appian with a seven-figure software deal.

This armed service awarded Appian a prime contract to modernize its fleet management operations after a system integrator's multi-year 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 the process by recommending replacement parts and providing repair documentation. In closing, Appen 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.

Srdjan Tanjga

Over to you, Serge. Thanks, Matt. I'll 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, of 20% year-over-year. On 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. 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 2025. 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 This is the strongest net ARR expansion in over five years, and it's another great indicator of new business momentum we had in Q3. Let's turn to profitability. I'll 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 in the year-ago period. Adjusted EBITDA was 43 million, ahead of our guidance range between 30 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 2025. This is based on 73 million diluted shares outstanding for the third quarter of 2026 and 75 million diluted shares outstanding for the third quarter of 2025. Our stock-based compensation expense was 13 million in Q3, or 0.17 per diluted share.

In the third quarter, we purchased approximately half a million 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 30th, 2026, cash and cash equivalents and investments were 89 million compared to 187 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're meaningfully increasing our outlook for the fourth quarter and the full year. Starting with the fourth quarter of 2026, cloud subscription revenue is expected to be between 143 and 145 million, representing year-over-year growth of 23% at the midpoint of the range. Total revenue is expected to be between 233 and 237 million, representing year-over-year growth of 16% at the point.

Adjusted EBITDA for the fourth quarter of 2026 is expected to be between 30 and 33 million. Non-GAAP earnings per share is expected to be between 30 and 34 cents. This Let's assume 73 million fully diluted weighted average shares outstanding. For the full year 2026, our cloud subscription revenue is expected to be between 536 and 538 million, representing year-over-year growth of 23% at the midpoint of the range. Total revenue is expected to be between 873 and 877 million, representing year-over-year growth of 20% at the midpoint. Adjusted EBITDA is expected to range between 116 and 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 to our reported revenue growth in Q4 of 2026. Finally, we are now forecasting nearly three percentage points of EBITDA margin improvement in 2026, compared to one 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 will continue to invest responsibly to maximize our long-term value. Now, we'll turn the call over for questions. Operator?.

Operator

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions.

分析師問答

Steven Enders

Our first question comes from Steve Enders with Citi. You may proceed. Maybe just talk a little bit about what you're seeing in the forward pipeline and maybe some All right, great. Thanks for taking the questions this morning. Maybe just start, I mean, it seems like there's a lot of good momentum out there some of the, I guess, you know, factors that are driving new opportunities here. And maybe as a piece of that, how much are you kind of seeing, uh, agent conversations coming into the forefront at this point, and are enterprises ready at this time to start on that agentic journey?.

Unknown Speaker

Yes, thanks for the question. First of all, demand is robust and continuing to be so. Secondly, I feel that the demand we're 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 one that reaches the top of the organization. It's a priority. The effects are expected to be profound and we can be part of that. There's definitely interest and we're supplying it with regards to agentic deployment, provided we can make it reliable and performant and we can. So they typically want to take short steps, but as we build confidence, we go further. So absolutely, yes, that's happening. I feel like in this environment, we have a an advantage, like a head start in the way that we've been thinking about the combination of AI and process for a long time.

We've been shipping process models with AI embedded within for a decade or so. And over that time, we've 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're familiar with these problems. So when the LLM revolution comes along, we've 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's allowed us, I think, to see some of the 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. if that answers your question.

Steven Enders

Yes, no, that's great to hear and yes, appreciate the other thoughts there. Maybe on the guidance, I mean, the 4Q growth for the continued acceleration on the cloud side pretty impressive. And I guess just trying to understand a little bit better how you're thinking about, I guess, the to sustain that acceleration as we start thinking about 27 and you know, how you're 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, Steve. So I guess I'll say three 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% growth. net ARR expansion for existing customers, which reflects the exit run rate for ARR for that business, and that sets us up for the guidance in Q4. So it's 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, I guess I'll say two things. First, we have a big quarter ahead of us. We have to get 4Q done. 4Q represents the starting point for next year.

So on some level, it's a little premature to talk about how we think about quantitatively the demand for next year. What I will tell you though, if I take a step back, what has 2026 taught us? It taught us two things. One 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 of technology and the capability and the credibility to provide it. And then secondly, that we can capture that demand. Our 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 numbering 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.

And that's how we're investing. That's why we're growing our sales org. That's why we're investing in R&D and everywhere else. And it's really that durability of growth that we're preparing ourselves for.

Steven Enders

Great to hear and thanks for taking the questions. Thank you.

Operator

Our next question comes from Sanjit Singh with Morgan Stanley. You may proceed.

Sanjit Singh

Yes, thank you for taking the question and congrats on the strong quarter. I had a question just sort of on the self-managed performance the other subscription revenue really saw a pretty material uptick in growth there and I just wanted to get a sense through and to what extent is that structural? And the self-managed demand, is there particular industries or verticals or customer profile types that is, you know, driving the self-managed revenue?.

Unknown Speaker

Yes, there is. That's a great question, Sanjay. 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. It's one of their top priorities is independence from American technology. They're looking for ways that they can have more control than dependency. And one of the ways they achieve that, and one of the ways that we uniquely provide that, because many of our competitors can't do this, is to allow them to run our software on their own premises under their own control.

So it's a nice selling point and It's also more in vogue than ever before, and it has led to an uptick in interest in consuming our software that way.

Srdjan Tanjga

Yes, and Sanjit, let me just jump in with an accounting reminder. Due to ASC 606, we need to recognize roughly 70% of those bookings up front. So obviously, that explains why generally the variability of this line, but also explains partially why the number was so strong and ahead of our guidance. However, there's nothing else sort of funky, if you will, in there. There's no multi-year pull-forwards. This is a, you know, all of our on-prem contracts are one year in nature. So it's a good representation of the demand that we saw. And then of course the accounting needs to be taken into account.

Sanjit Singh

Yes, I appreciate that color, Serge. My follow up question, Matt, 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 sovereign AI theme. How are open weight models being adopted into the platform? Are you guys pursuing a post-training strategy given all the processes that you guys have a lot of familiarity already with? And what could be the potential financial from a growth perspective and even from a margin perspective if open weight models play a more prominent role in the platform.

Unknown Speaker

Yes. Hey, I expect that over time there's going to be less dependency on certain models and more willingness to take into account many models. And I don't want to predict which ones they may be or whether they're open weight, but I do think that we're going to head toward a spectrum of different cost models because we're going to be seeking a more efficient way to get work done. So sometimes you'll send a job to the latest frontier model. Sometimes you'll send it to a less expensive model. Sometimes that job will go to a digital worker, even a human being. So the, but the, cost and the efficiency of job resolution is going to be a critical driving factor to the adoption of new models, and we're 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'm not at all surprised to see this trend continue. It's an appeal for us. And we believe that customers do not want lock-in. And so we're designing in advance to give them the key to avoid it. Appreciate the thoughts, Matt. Thanks. Thank you.

Operator

Our next question comes from Raymond Lenschow with Barclays. You may proceed.

Unknown Speaker

Thank you. Two questions. One more accounting question, so I apologize for that. The search cash flow, if I look at the quarter, everything looked pretty amazing. Can you talk to the cash flow performance, though? It seems like timing, but maybe you can give us more detail.

Srdjan Tanjga

Yes, so I mentioned that it's timing, but let me give you a little bit more color. So generally speaking, collections are seasonal. Q4 and Q1 tend to be stronger than Q2 and Q3, so that's 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 multi-year, million dollar collections, where those land even on either side of quarter end can impact timing. So in this particular case, October was one of our strongest collections months ever. And so it's just a timing issue and we're obviously we continue to focus on it, but um we're generally happy with the trend. Yes.

Raimo Lenschow

Okay, perfect. And then, Matt, the really great performance across the board, it looks like it's all coming together. Can you speak to the role of the improved go-to-market? You know, you guys have been working on this for a couple of years now. So it's industry positioning, and you spoke to that indeed. but also can you speak where we are on the go-to-market function and how much that is kind of benefiting the good trends here thank you.

Unknown Speaker

I think we're really connecting with our customers and I love that we're doing it at a higher level than we ever did before. We're speaking to the top of the organization about strategic things. Take for example For an example, the EGP structure, the enterprise growth plan structure of deals, which we've been favoring more than we ever have before, where we pre-negotiate a price on an annual basis that will stair-step upwards 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've got all these old applications that need updating. And so suddenly the addressable market within one customer is far larger than it would have appeared before and justifies a larger EGP.

So I think that we're approaching the market correctly today to get the most impact and the highest level of access strategic consideration for the value that we're providing, and we're 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're going to market the right way for our product and for this moment.

Srdjan Tanjga

I'll just add that the discipline of our go-to-market org has been impressive. Productivity is improving. They are on top of their forecast. Deals are not slipping. We like our win rate. So it's been really great to see come together, and kudos to the team. Yep. I agree. Okay. Thank you. Thank you.

Operator

Our next question comes from Devin O. with KeyBank Capital Markets. You may proceed.

Unknown Speaker

Good morning, thanks for taking my questions. I know that you've seen really strong momentum in public sector and it's 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 pattern and as we move.

Devin Au

you're looking to 27, is there anything you're watching that could meaningfully change the opportunity set in that sector?.

Unknown Speaker

Yes. First of all, I want to say that the election is expected 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're not affected by the politics.

Devin Au

Understood. Thank you for that. And Serge, sorry if I missed it, but did you say that EBITDA margin expansion next year to be at a greater rate than the one point expansion entering 26? And maybe just perhaps speak to kind of your confidence in driving further expansion and what areas you're looking to invest as we look into next year. Thank you.

Srdjan Tanjga

I actually didn't 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 revenue growth and margin expansion. That's true for this year and for the future. And look, we believe that that's a good thing to do, not just for external reasons. reasons, but also as a driver of internal discipline 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 in. So we're happy, we're really happy with how we did this year. We are committed to continued margin expansion into next year, but we'll give you the actuals when we get together in February.

Devin Au

Got it. Sorry, Adam. I'm sorry. Thanks for the clarification here. Thank you.

Operator

Our next question comes from Pat Walravens with William Blair. You may proceed. Hi, Matt. Serge, congrats on another really strong quarter here.

Unknown Speaker

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

So great question, Pat. Let me just kind of step back for a second to make sure everybody's on the same page. You're right, we have a two-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 continue to see, and we've talked to you guys about this over the last year, more customers and greater percentage of their ARR moving to the advanced tier. As you said, the advanced tier and other tiers include what I would describe as a moderate amount of AI usage, enough for maybe one medium-sized use case. But if you have multiple use cases, which we're starting to see, or very large use cases like one that Matt has talked about in his prepared remarks, then you actually have to come 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 usage bundles, as we call them.

Consumption grows over time, so it will be building, I wouldn't call it materially or material right now, but it's definitely an added sort of vector of growth in the future.

Unknown Speaker

Okay, great. Thanks, Serge. And last quarter, you mentioned that legacy modernization apps were 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.

Unknown Speaker

multi-app transformation programs? Modernization is absolutely driving some of the largest transactions we're 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 transactions. So it's 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're concerned about old applications not just being expensive, but now liabilities. They're excited about the ability to reinvent the enterprise.

This topic has come on quickly in the past year or two, and we knew that it would. We were ready for it. And it's now ubiquitous in major conversations. Okay, thank you both. Great results here. Thank you.

Operator

Our next question comes from Lucky Shriner with DA Davidson. You may proceed.

Unknown Speaker

Great. Congrats on the quarter. Really good results here. I wanted to ask on the fourth quarter profitability outlook, the implied margin looks a touch lighter than we were anticipating. Does that specifically reflect the increased sales hiring that you discussed last quarter?.

Lucky Schreiner

ahead of demand and how the ramp of new salespeople trended so far. Thanks.

Srdjan Tanjga

Yes, so let me come at it from a couple of different ways, Lucky. So first I would say, yes, definitely part of the equation is, well, 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's 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 things. of other points as a reminder. We have sequentially higher expenses in Q4 than we do in Q3. Matt just mentioned Appian Government. That's one of our largest events. Appian Europe is in a few weeks here in London.

So it's 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 other quarters so you got to 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 expectations that we have. Also, I would just kind of zoom out and remind again that we're delivering – 300 basis points of margin expansion, 53% EBITDA growth for the year. So we're very happy with our ability to both grow the business and expand the bottom line.

Lucky Schreiner

Great. It makes a lot of sense. And then just with the retrial against Tega coming up, I wanted to ask, can you provide any additional color reminders around how your 500 million insurance policy works that you purchased in relation to the case?.

Srdjan Tanjga

Yes, so we can talk tremendously about the insurance publicly. We're excited about the case and our ability to go to trial again and argue for our situation. What I will just say, the insurance 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're glad that we have it, and it's sort of out there in the future. If you want any information on it, the best way to go is to look at our webpage. Appreciate it. Thanks for taking my question. Thank you.

Operator

Our next question comes from Derek Wood with TD Cowen. You may proceed.

Cole Erskine

Great, thank you. This is Cole Erskine on for Derek. Matt, I just wanted to come back to some of the conversation around open weight models and model choice. Yes. Can you just talk about how, you know, 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? And then how you think that, you know, over time this could impact usage?.

Unknown Speaker

Yes. Hey, the key is that it's 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 yes, I do think it's going to help us get more adoption because it can contain AI bills. And by making the AI experience one that's 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've given people the fast lane to AI facility. And so yes, I think all what we're trying to do here is just help the customer with the things they're naturally concerned about.

The trepidations they have, the restrictions they have, the red lines they have. We're just going to 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've 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 kind of click the default across the board. Now there's much more conversations about the nature of the model and the specific need as SBUs. And we welcome those conversations because, to Matt's point, it will help adoption. It will help accuracy. It will contain costs, and we stand to benefit along with the customer.

Cole Erskine

Super helpful, thanks. And then Serge, just one on the net expansion rate, impressive step up. Going forward, is this kind of a new level that we can think about this trending at?.

Srdjan Tanjga

the end of the year, maybe in the next? So we don't guide to this metric, so I will refrain from speculating as to where it can go. What I will say is, ultimately, is one of the best ways to look at our quarter and realize just how good a new business quarter we had. And yes, it's unusual, you know, and certainly in my career, to see this kind of jump. from a quarter to a quarter. And that speaks to continued building of the demand and continued improvements in execution to capture that demand. And again, as I said, we're obviously very happy with Q3. It comes after a series of otherwise good quarters, but this one was particularly good. And it tells us that we, can continue building a durable business and gives us confidence to continue investing, and that's what we're going to do.

Operator

Great. Appreciate it. Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

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