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Appian (NASDAQ:APPN)
Q2 2020 Earnings Call
Aug 06, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and welcome to the Appian Corporation second-quarter 2020 earnings conference call. Please note that today's conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Scott Walker, investor relations.

Please go ahead, sir.

Scott Walker -- Investor Relations

Thank you, operator. Good afternoon, and thank you for joining us today to review Appian's second-quarter 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 for 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 guidance for the third quarter, the impact of COVID-19 on our business and on the global economy, the benefits of our platform, industry and market trends, our go-to-market and growth strategy, our market opportunity and ability to expand our leadership position, our ability to maintain and upsell existing customers and our ability to acquire new customers. The words anticipate, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements are 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 Q2 2020 10-Q filing, our 2019 10-K filing and our other periodic filings with the SEC. These documents and the earnings call presentation are available in the Investors section of our website 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 in the Investor Relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measures.

With that, I'd like to turn the call over to our CEO Matt Calkins. Matt?

Matt Calkins -- Chairman and Chief Executive Officer

Thanks, Scott. Thank you all for joining us today. In the second quarter of 2020, Appian's cloud subscription revenue grew 30% year over year to $29.6 million, and our adjusted EBITDA was a loss of $7.0 million. Total revenue, including a decrease in professional services, grew 2% year over year to $66.8 million.

Our cloud subscription revenue retention was 113% as of June 30, 2020, including a gross renewal rate of 98%. These results exceeded our guidance. Appian has navigated the pandemic relatively well. Like a lot of companies, we've seen a dip in services revenue, but we have strong results elsewhere.

Some businesses have seen lower new customer acquisitions and longer sales cycles, but Appian saw the opposite. We nearly doubled our new logo wins compared to Q2 last year, and our sales cycles in Q2 were actually faster than our historical average. COVID has forced every organization to reassess how they react to changing circumstances. Every business now understands the importance of agility.

A lot of the change that organizations want to make is done through software. So there's new emphasis on finding ways to create applications quickly. Naturally, low-code stands to benefit from this trend. Analysts looking at the post-COVID economy have concluded that low-code software will emerge as one of the winners.

I generally agree with that. But I want to point out that most low-code technology is not capable of creating powerful mission-critical applications. And it's in these powerful core applications that change is needed most urgently in a crisis. Companies think software that they can bet their business on.

Software, for example, that reconnects them with now virtual customers or automates new processes like applications for emergency loans or maximizes the productivity of their dispersed workforce or protects the safety of employees returning to the office. The most important use of low-code is on the most important applications. A surge of interest in low-code was evident in the high attendance for virtual Appian World, attendance among customers, prospects and partners versus last year. We heard lots of presentations from our clients about their successful and their fast deployments.

Here's an example. One organization, part of a Northern European health department overseas, COVID contact ration, they became a new acting customer this quarter. And they selected our low-code automation platform to coordinate hundreds of field workers making house calls to COVID-positive constituents. We won this deal because the organization needed to deploy quickly mobile application to their dispatch teams to manage their contact tracing cases.

Appian's case management capabilities and speed were highlighted when our partner deployed the app in less than two weeks. Also one of Europe's largest exam boards expanded their use of Appian due to COVID. The board provides education assessments for over 5 million students globally. This year, the organization expects to receive tens of thousands of additional appeals to exam schools and needs an application to process them quickly and accurately.

Appian will integrate the customer's existing systems and automate the end-to-end process. Reviewers will use Appian to determine the validity of the exam and submit their decision. We won this expansion deal because the board needed to quickly deploy the application before their August appeal due date. Our recent poll of large enterprises show that 53% of businesses ultimately have people back at the workplace, but only 12% are using software to ensure employee health on site.

Without software, organizations cannot respond fast enough to health threats, and they cannot guarantee the security of the employee health data that they're collecting. In Q2, Appian launched two new solutions to meet this need. Workforce Safety and CampusPass. Large enterprises and higher ed edge institutions are using these solutions on Appian's HIPAA compliant cloud to track the health of their people and to safely reopen their facilities during the pending.

These solutions have attracted new customers to Appian in this year. 76% of organizations that bought these solutions are new Appian clients. For example, a top 10 global automaker and new Appian customer chose Workforce Safety -- our new solution, Workforce Safety, to return thousands of employees back to their U.S. locations.

Appian's easy-to-use solution, instant mobility, case management capabilities, quick configurability allowed the automaker to respond to changing circumstances and protect our employees from COVID. This solution was configured and deployed just 14 days. Additionally, a top 10 global sports brand and retailer bought Appian's Workforce Safety solution to bring thousands of employees safely back to their global stores, warehouses and offices during COVID crisis. This new Appian customer chose our solution because of its simple user experience, configurability to comply with regional regulations and ability to deploy to their entire organization in just weeks.

Here's an example in example, in higher ed. A U.S. institution with over 75,000 students and faculty became a new Appian customer last quarter. This college offers training certificates for hands on jobs, such as nursing, mechanics and electricians.

These types of degrees need in-person practical exams. So students need to be on campus to meet their degree requirements. This is especially important for the 2020 graduating seniors. Appian was deployed, and thousands of faculty and students phased back to campus within 10 days of purchase.

Our existing customers are also adopting these solutions to return to on-site work including a top 10 global pharmaceutical company. This longtime customer expanded their use of Appian by purchasing Workplace Safety in Q2. They'll use our solution to manage the return of tens of thousands of employees to worldwide locations, including manufacturing facilities. They selected Appian because we were able to deploy to their global workforce within a month of purchase.

I'll talk about partners next. As I mentioned earlier, Appian nearly doubled its new logo deals this quarter compared to last Q2. 70% of those new customers were brought to us by partners. Also, partner deals closed 22% faster last quarter than they did in 2019.

For example, a partner helped us win a Q2 deal with a top 10 U.S. cable company. This new customer will use Appian to consolidate its risk management systems into a single workflow and report on cybersecurity performance. With Appian, the customer will gain visibility on its security vulnerabilities because we can integrate data across disparate systems.

We won this deal after our partner completed a complex proof-of-concept in just few days. Our speed was also leveraged by another partner to win a deal with a Middle Eastern utilities company, making them a new customer in Q2. They bought Appian in to replace its inflexible legacy software and will build applications for customer onboarding, managing contracts, maintenance and fleet management. We won this deal after the partner conducted a challenging proof-of-concept in two days.

In Q2, our key industries continued to perform well. Life sciences, in particular, almost tripled software bookings versus Q2 last year. More than half of the world's 10 largest life sciences companies are Appian customers, making it our third largest industry. One Top 10 life sciences company runs more than a dozen Appian applications across various business segments including corporate functions, medical devices, pharmaceutical and supply chain.

In Q2, they purchased new licenses to coordinate the review and approval of custom medical products. Tens of thousands of employees and independent surgeons will collaborate using this new app to ensure these designs fit individual patients. We won this deal because of our ability to successfully automate their mission-critical processes. Additionally, we expanded at another top 10 life sciences company that uses our platform to automate all operational areas across the pharmaceutical division.

For example, they use Appian to prepare and conduct patient visits in their clinical operations. And they've reduced processing times from hours to minutes. In Q2, they purchased over $1 million in Appian software licenses to add more users to their clinical operations with planning and contract management applications. A North American federal health policy department is our last example in life sciences today.

This customer uses Appian for compliance applications that oversee international drug requests and supply shipments crossing their board direction of checkpoints. In Q2, it more than doubled its Appian investment for a medical device management application. This app will automate the registration and approval of new products launched into the market. We won this deal over an incumbent because our platform is flexible and enables the organization to quickly adapt to changing regulations.

Complement to our software, we continue to evolve our customer success offerings. Our Architect Services offering provides customers with access to a team of Appian services experts. They establish best practices and they advise on application selection, design and deployment. We doubled the number of Architect Services customers this quarter compared to last quarter.

That helps us on the software side as well because participants in this program are more likely to make follow-on license purchases. For example, a top 10 global bank uses Appian in their global operations and commercial banking groups. Earlier this year, the bank abandoned a two-year-long project to build a risk management app using a different technology. They pivoted to Appian and with the help of Architect Services, the customer deployed the app in just 12 weeks.

Following the success, the bank purchased millions of dollars of new Appian licenses. One last example. A top 10 global asset management firm subscribes to Architect Services to complement their partner-led implementation team. In Q2, the firm increased its Appian investment with a multimillion-dollar purchase to replace the entrenched legacy software in their mutual fund client services group.

As businesses emerge from the pandemic, they will look to different technologies. They'll seek more automation, more cloud, more digital transformation and more low-code. There will be a new emphasis on agility, the ability to react quickly to change. Our low-code automation platform will help businesses adapt to changing times.

Now I'll turn the call over to Mark for a deeper discussion of our financials.

Mark Lynch -- Chief Financial Officer

Thanks, Matt. I'll review the financial highlights of the quarter, and then we'll provide details on our guidance. Cloud subscription revenue for the second quarter was $29.6 million, an increase of 30% year over year and above the top end of our guidance. Our total subscriptions revenue was $41.4 million, an increase of 12% year over year.

As we discussed last quarter, when we provided our initial Q1 guidance, we had approximately $4 million of on-prem revenue that we had originally expected to close in Q2 2020, but instead was closed earlier as part of Q1 2020 deals. Professional service revenue was $25.4 million, down 11% from $28.4 million in both the prior-year period and in the first quarter. Partners continue to be a larger part of our ecosystem and are increasingly helping us sell more software. During the quarter, all of our PS engagements, both cloud and on-prem, were performed remotely.

Total revenue in the second quarter was $66.8 million, an increase of 2% year over year and also above our guidance range. Our cloud subscription revenue retention rate as of June 30 was 113%, within the 110% to 120% range that we target on a quarterly basis. We remain pleased with our customers' expanded use of our platform. Our international operations contributed 37% of total revenue for Q2, compared with 33% in the prior-year period, demonstrating the strength of our business, both domestically and internationally.

The increase as a percent of revenue was predominantly due to lower professional services revenue in the U.S. Now I'll turn to our profitability metrics. For the second quarter, our non-GAAP gross profit margin was 69%, an increase of 383 basis points compared to the same period last year. Subscriptions non-GAAP gross profit margin was 89% in the second quarter, consistent with the second quarter of 2019.

Our non-GAAP professional services gross profit margin was 36% in the second quarter, compared to 34% in the second quarter of 2019. The services gross profit margin was positively impacted by a decrease in the amount of services performed by subcontractors as opposed to our internal resources. Prospectively, we expect our non-GAAP professional services gross margins to return to the upper 20s as we onboard our annual cohort of University hires during the third quarter of 2020. Total non-GAAP operating expenses were $54.6 million, an increase of 10% from $49.7 million in the year-ago period.

Impacts from COVID-19 has naturally decreased certain expenses like travel and entertainment and office-related expenses. However, we continue to aggressively hire mid-level software engineers and quota-carrying sales reps. Adjusted EBITDA loss was $7 million in the second quarter, ahead of our guidance and compared to an adjusted EBITDA loss of $6 million in the year-ago period. In the second quarter, we had approximately $600,000 of foreign exchange gains, compared to less than $100,000 of FX losses in Q2 2019.

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 don't estimate movements in foreign currency exchange rates. Non-GAAP net loss was $8.2 million for the second quarter of 2020 or loss of $0.12 per basic and diluted share, compared to non-GAAP net loss of $7.2 million or a loss of $0.11 per basic and diluted share for the second quarter of 2019. This is based on 68.4 million and 64.8 million basic and diluted shares outstanding for the second quarter of 2020 and the second quarter of 2019, respectively. We ended the second quarter with 69.8 million shares outstanding, compared to 67.6 million at the end of the first quarter.

The majority of the difference in common shares relative to March 31, 2020, reflects the increase of 1.9 million primary shares issued in our June follow-on equity offering. Turning to our balance sheet. As of June 30, 2020, we had cash and cash equivalents of $256.1 million, compared with $159.8 million as of December 31, 2019. The cash increase primarily reflects the completion of our June equity offering, resulting in $107.9 million of proceeds to the company after underwriting discounts, commissions and expenses.

With this equity raise, we continue to strengthen our balance sheet. For the second quarter, cash used in operations was $3.1 million. For the six months ended June 30, 2020, cash used in operations was $7 million. Total deferred revenue was $92.1 million for the second quarter.

With respect to our billing terms, the majority of our customers are invoiced on an annual upfront basis, but we also have large customers that are built quarterly or monthly. Due to the variability of our billings terms, changes in our deferred revenue are generally not indicative of the momentum in our business. Now I'll turn to guidance. For the third quarter of 2020, cloud subscription revenue is expected to be in the range of $31.4 million and $31.9 million, representing year-over-year growth of between 28% and 30%.

Total revenue is expected to be in the range of $70.5 million and $71.5 million. As a reminder, the total revenue guide reflects some headwinds to our professional services business due to COVID-19. Adjusted EBITDA loss is expected to be in the range of $11 million and $10 million. Non-GAAP net loss per share is expected to be between $0.18 and $0.16.

This assumes 70 million basic and dilated common shares outstanding. For the full-year 2020, due to the continued uncertainty surrounding the ongoing impact of COVID-19, we will not provide a full-year outlook. Qualitatively, we expect to see some headwinds to our professional services business and our ability to close new logos through the second half of the year. On the cost side, many of our expenses have been naturally adjusted.

For example, travel and entertainment has been dramatically reduced, and G&A hiring has decreased. With that, let's turn it over to questions.

Questions & Answers:


Operator

[Operator instructions] We will take our first question, and it comes from Sanjit Singh. Please go ahead.

Sanjit Singh -- Morgan Stanley -- Analyst

Thanks for taking my questions. I wanted to dig a little bit into the pipeline you're seeing for the back half of the year. Are these like new low-code digital projects coming back into the pipeline? Or is the outlook still a little subdued? And maybe on top of that, are there any changes to pricing or incentives that you're giving to get customers to restart these projects if you should get them going?

Matt Calkins -- Chairman and Chief Executive Officer

Yeah. Let me take that. OK. First of all, we had some successful solutions launches in the second quarter.

But I want to reassure you that that is not the driver behind the increase that we've seen in logos and the strength of our pipeline. We are also succeeding on nonsolutions opportunities. And so the answer to the second part of your question about whether we're offering a special deal is no. Because, in fact, the pipeline is strong, and we are able to get new logos even outside of these solutions context.

Sanjit Singh -- Morgan Stanley -- Analyst

Got it. That was very helpful. And then maybe if I can make in one quick follow-up. On the CampusPass solution, the Workforce Safety solution, like how should we be thinking about the lifetime value of these solutions in a post-COVID world? Just how should we be thinking about that customer-related time value? That would be very helpful.

Thank you so much.

Matt Calkins -- Chairman and Chief Executive Officer

That's right. We think about this a lot. These are solutions that address an emergency situation, and we want to be sure that the relationship that we create with every buyer can be transitioned into a lasting relationship. We don't want to just be there for the emergency, we want to be their partner going into the future.

And so we know we've got a window to impress them. And we are focused on that. We realize that from the beginning. We see this as like a dress rehearsal, right, for a real customer relationship.

And we're already seeing success with. We've already seen cases where our solutions customer is delighted with what we've done, turnaround across the platform, we bought another application. So we're focused on that conversion, and we're already seeing success with it. The good news is Appian shows well, Appian works well.

When people adopt this software, they typically do like it. We've got an extremely high customer satisfaction, often called out by the analysts for that. If only we could get more customers for whatever reason to just give this a serious try and see what they can do with it. I believe that we have an exceptionally strong retention rate on whatever sample would do that.

So we know that's a challenge. We do want to convert, and we're working on it succeeding already.

Sanjit Singh -- Morgan Stanley -- Analyst

Got it. Thanks so much.

Operator

And our next question comes from Mohit Gogia.

Mohit Gogia -- Barclays -- Analyst

Hey, guys. Thanks for taking my question, and congrats on a solid quarter. My first question is around, you highlighted a really good traction in terms of new logo wins and sales cycles shortening this quarter. Seems to be that you were able to leverage the partner ecosystem, which contributed toward this positive.

So wondering, has anything changed in terms of the partner ecosystem, maybe the partner incentives or the playbook that basically drove a very healthy performance in that regard this quarter. And also, what are you seeing in terms of these partners like deals, right? Are there specific vertical? Are they geared toward certain initiatives? You mentioned, obviously, low-code is becoming top of the mind doing COVID. But just wondering if you can give us more color around that partner ecosystem and the partners like this? And then I have a follow-up question on the numbers.

Matt Calkins -- Chairman and Chief Executive Officer

Great. The two keys to our success with partners last quarter were being relevant in the midst of the COVID crisis, and we were relevant through solutions and through low-code because low-code is just, by its nature, important because it allows people -- companies to react quickly to change. And secondly, to a long process of maturation of relationship building and outreach to these partners that have put us front of mind when they see a problem, they think of us. And that's just part of -- the fruits of a long investment.

Now you put those two factors together and we've been stronger than we've ever been with them.

Mohit Gogia -- Barclays -- Analyst

Understood. My follow-up question, on the professional services business, right? So I mean, if it's -- no surprise, obviously, there is some headwinds there. But can you help us unpack those headwinds? Like, there is -- you're trying to leverage partners more for professional services. So there is one.

And then obviously, there is COVID, right? So if you think about a normalized run rate and COVID subsides, hopefully, how should we think about that business going forward? That's all from my end, guys. Thank you.

Matt Calkins -- Chairman and Chief Executive Officer

Yeah. That's right. OK. So going forward, I expect it still to be a grower.

There's just some unique circumstances right now to shape that. I believe that we can grow our professional services at a very modest rate and still have partners enthusiastically growing and taking a good deal of the upside in the additional market space that we're creating with our software. I think there's room for everybody to win here. And our individual services are still valuable because they demonstrate what can be done with our software.

Our value proposition comes through very clearly. So I believe there's room for all. We don't mean to shrink our PS into nonexisting. We instead expect it to coexist happily and grow slowly once we're out of the COVID situation.

Mark Lynch -- Chief Financial Officer

And I think we talked about the Architect Services as well, coming in at the high end helping customers solve very complex problems. And we worked with several of our customers that were basically partner-led engagements, where the PS engagements were done by the partners, but we came in kind of with the squad team, if you will, the Architect Services and help them out. And so I would expect we're going to be offering and continue to offer these high-level, high-margin offerings. So I think going forward, we'll be a grower, but to Matt's point, it will be slower grind in it.

Operator

And our next question comes from Arjun Bhatia.

Arjun Bhatia -- William Blair & Company -- Analyst

Hey, guys. Good job executing in the quarter here, and it's been a tough environment. Matt, for you, on the R&D side, it's been great to see some of the productivity of the product, or you talked about some of the new solutions that you introduced this quarter, and I think you made some enhancements to the core platform as well along with the RPA and process mining integration. Can you just maybe give us an idea as you're thinking forward in your R&D efforts where you're deploying resources? Whether it's on the productization front or further enhancements on the core platform?

Matt Calkins -- Chairman and Chief Executive Officer

Yeah. I'm glad you asked about this because I'm also proud of the results that we had with our R&D side this past quarter. In the face of an emergency, we produced some applications, and we produced them faster than anyone else in the market, to my knowledge, was able to produce them. A digital health strategy is something every business needs right now to protect their returning workers as they come back to the workplace.

As I mentioned, only about 10%, 12% of them actually have it. The others are using pen and paper or Excel or something like that, which really isn't responsible. A digital health strategy has three core components, and we put all three of these together and got to market faster than our competition. First of all, you got to collect a lot of data about your employees, the facilities, the places they went, the vulnerabilities, all that because the more you know, the more you can protect people.

You collect all that. Number two, you bring it to bear at the moment when there's a decision to be made. Let's say an employee has a test or has a symptom or they think they might be sick. At that moment, you got to make a quick decision.

So you got to have all that data brought to bear in the moment and accessible to the decision maker. And then that requires a lot of integration, of course. And then number three, whatever decision you make, you've got to act on it immediately. If you want to tell this person not to come to work this morning.

Do you want to tell that person that they got to get a quarantine or a test? Do you want to revoke those 10 people's badge, right? It happens immediately. So knowing, deciding and acting has to happen quickly. And furthermore, it has to happen in -- with the data stored securely, like a HIPAA-certified cloud, like we got. Having that product is going to save lives.

It's going to help businesses improve their relationship with their employees. And it's going to give us an edge because it demonstrates what you can do with a low-code platform that's capable of building powerful applications. And we rush that to market. And we got a whole bunch of business from being first with a complete solution.

We didn't have the biggest brand name, right? And then we're not going for the lowest price, but we did get to market really quickly with an ironclad application. And I think that made a big statement. I love challenges like this, moments where we've got to react quickly because it allows our product platform to shine. So we had this opportunity.

We demonstrated what the platform could do. Now we'll continue to innovate. We're not done making solutions or adding to the solutions. We've got some exciting new features coming up, which I can't talk about.

But we do quarterly releases in our engineering department. We're very proud of the productivity, the innovation that comes out of that. This quarter was not the only quarter that we did something cool, but it's a quarter where the thing we did was particularly high profile. So I'm glad it puts a spotlight on a great group of coders who are coming up with exciting features for us every quarter.

Arjun Bhatia -- William Blair & Company -- Analyst

All right. Thanks, Matt. That's helpful color. And then a quick follow-up on the new customer and new logos that you talked about.

I'm just curious whether you're seeing kind of an inflection in the awareness, an CEO, CIO awareness of the low-code category? Meaning, were these customers that were in the pipeline? Or was it the pandemic that kind of accelerated their low-code road map relative to what they had maybe in January, February this year?

Matt Calkins -- Chairman and Chief Executive Officer

Yeah. I think that -- if that's happening, it's just beginning to happen. I do believe that low-code is caught on this year. Actually, I think low-code would have caught on this year even without COVID.

I think it's an idea whose time had arrived. I was saying at the end of last year and the beginning of this year that in this new decade, I thought the majority of the software written around the world be written in low-code. And that's sounding a lot less hyperbolic than it was a few months ago because it really seems like, right, the circumstances change, we get addicted to speed. We decide everything should be fast.

I think organizations are going to expect this. And you can see it in the way the low-code is being used less as a noun and more as an adjective. It's often used now to describe anything the authorship of which should be quick in software as opposed to just one industry that exists in order to facilitate quick authorship.

Arjun Bhatia -- William Blair & Company -- Analyst

Perfect. Thank you, and congrats again on the quarter.

Operator

And our next question comes from Chris Merwin. Please go ahead.

Kevin Kumar -- Goldman Sachs -- Analyst

Hi. This is Kevin on for Chris. Thanks for taking my question. Matt, given the current environment, has there been any shift in the way customers are thinking about cloud versus on-prem deployments?

Matt Calkins -- Chairman and Chief Executive Officer

All right. Thanks, Chris. I think that there is a continuing interest. I just see the same natural preference for the cloud that we have continued to see the same trend toward the cloud that there's been.

I suppose there might be a little more urgency around cloud. And I did list cloud as one of the things that I thought would be accentuated in the post-COVID era because it does allow for that remote control, that instant instantiation. It's a change facilitator. I think there's a lot of reasons why cloud will be called out as a positive part of the reaction to COVID.

So I expect nothing but goodness for the cloud, how do this experience. And I suppose we might have seen just a little bit of an additional preference. But remember, we do almost all cloud anyway. So for us, we're already solidly in the cloud corner.

Kevin Kumar -- Goldman Sachs -- Analyst

Great. That makes sense. And then maybe how is the federal pipeline progressing? Any additional color to call out there?

Matt Calkins -- Chairman and Chief Executive Officer

Sure. The federal pipeline is impressive right now. It's strong. We've got a solution that's specifically targeting the federal space.

It's an acquisition management solution for writing contracts, which is something that every agency needs to do, and they put a lot of focus on it, lot of money behind it. Efficiency is extremely important. And we have created a leading product in this market as a solution on top of our platform. We've demonstrated a couple of the highest profile cases in the federal government, including the Air Force, to them to show how confident this solution is at handling a procurement, and it comes out on top.

It's done great. It's differentiated itself against incumbents, against traditional methods. It's flexible, it's agile, it's quick to deploy, it's user-friendly. It's been doing really well.

And both because of that and outside of that, our federal pipeline looks very strong.

Kevin Kumar -- Goldman Sachs -- Analyst

Great. Thanks for taking my questions.

Operator

And our next question comes from Alex Kurtz. Please go ahead.

Alex Kurtz -- KeyBanc Capital Markets -- Analyst

Yeah. Thanks. Good quarter, guys. Just want to -- I know you're not giving fiscal -- the full-year guide, which I appreciate, but why not go to take a stab at it, obviously, and with the good print here and the guide, just so we don't get maybe too ahead of ourselves on Q4 and what that means for the run rate into '21.

Mark, is there some considerations that we should be making across the different revenue segments? I think you've already hinted at a few of them. But just to clarify, as we really dial in the Q4 numbers, that would be helpful. Just so we don't extrapolate too far into '21 and beyond.

Matt Calkins -- Chairman and Chief Executive Officer

Yeah. Let me say, just talking about the full-year guide. We still see that there's plenty of volatility left in COVID, right? There could be another wave. It's still an area of uncertainty.

And we see that most comparable companies are not giving a full-year guide, which is why we decided not to. But I want to clarify that I remain optimistic, maybe even very optimistic about the business where it stands now about the second half of this year. And so the lack of a full-year guide is not to be taken as an expression of pessimism.

Alex Kurtz -- KeyBanc Capital Markets -- Analyst

Noted. Mark, you want to add to that?

Mark Lynch -- Chief Financial Officer

Yeah. I mean, I think if you're looking at kind of the extrapolation, you generally know how we like to give guidance, we like to be conservative. So I would urge you and everybody listening on the call to kind of follow an element of conservatism as it relates to the second half of the year. We kind of mapped out Q3, you can follow that same road map for Q4.

And I think you'll be in an appropriate place.

Alex Kurtz -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

And our next question comes from Derrick Wood.

Andrew Sherman -- Cowen and Company -- Analyst

Hey, guys. It's Andrew on for Derrick. Nice quarter. Now, I wanted to touch on sales hiring in the quarter and what are your second plans for the second half versus first half? And any challenges in hiring virtually?

Matt Calkins -- Chairman and Chief Executive Officer

Sure. We are full speed ahead on sales hiring, have been all year, never turned it off. And yes, it is challenging. You see that our comparable companies are hiring as well.

So the market didn't really get easy at any point to hire good ADUs. Luckily, we've got a great product. We've got happy customers. We have an edge in the market, but the market itself was never simple.

As for hiring at a distance, that's actually not particularly difficult for us. I think virtual is a perfectly good way to do interviews. We're practiced at it. I've done a lot of virtual interviews and so is the whole organization.

I don't believe that is a stumbling block. If anything, it's an accelerator because in the past too, it was considered obligatory to meet in person or bring in a candidate to the headquarters. And now it's perfectly understandable while you wouldn't do that and you move forward more rapidly.

Andrew Sherman -- Cowen and Company -- Analyst

Great. And then on the 76% on the Workforce solutions for new customers, maybe just talk about how you can upsell them later. And are you seeing any signs of that so far? And Mark, what that might mean for expansion rates in the second half? Thanks.

Matt Calkins -- Chairman and Chief Executive Officer

It's absolutely happening. We're focused on it. We're already doing it. We understand that that's the order business when you get a solutions customer.

And that's also why we're deploying our solutions in families, by the way. Every solution is going to have -- most of them anyway, going to have another solution that connects to us as a natural glide path for the customer journey to take. I think that those first few purchases are very confirming purchases. And you got to get the customer in the habit of consuming and buying and consuming more.

So we're going to make this systematized and easy. We absolutely keep an eye on that as we gather a new wave of solutions customers.

Mark Lynch -- Chief Financial Officer

Yeah. I think -- I mean, as you guys know, the way we generally land and then expand, it takes some time to get that expansion. These are Q2 deals that have happened. So from a modeling perspective, continue to earlier, should probably see significant, especially in the P&L, would be sometime in Q4 potentially from these.

These are more going to be great opportunities for us for 2021 and beyond from a momentum perspective.

Andrew Sherman -- Cowen and Company -- Analyst

Great. Thanks, guys.

Operator

[Operator instructions] And at this time, we have no additional questions.

Matt Calkins -- Chairman and Chief Executive Officer

Great. End the call.

Operator

[Operator signoff]

Duration: 41 minutes

Call participants:

Scott Walker -- Investor Relations

Matt Calkins -- Chairman and Chief Executive Officer

Mark Lynch -- Chief Financial Officer

Sanjit Singh -- Morgan Stanley -- Analyst

Mohit Gogia -- Barclays -- Analyst

Arjun Bhatia -- William Blair & Company -- Analyst

Kevin Kumar -- Goldman Sachs -- Analyst

Alex Kurtz -- KeyBanc Capital Markets -- Analyst

Andrew Sherman -- Cowen and Company -- Analyst

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