Apptio is settling in after completing its first quarter as a public company.
Though the company is still not profitable, losses are slowing, and Apptio reported better quarterly results than Wall Street expected. Apptio’s stock has cooled after surging more than 40 percent on its first day as a publicly-traded company but is still above its IPO price.
Apptio today has 709 employees worldwide, and about two-thirds of them working out of the company’s headquarters in Bellevue, Wash. The company just added another 10,000 square feet of office space to its Bellevue headquarters to help manage its growth in the Pacific Northwest.
Apptio, which makes software to help CIOs better understand spending in IT departments, today has 325 customers, but its executives are looking well beyond doubling that number, eying the company’s next 1,000 customers.
GeekWire spoke with Apptio CEO Sunny Gupta and CFO Kurt Shintaffer to chat about the growing company, how it will hit the break-even point and its expansion into other markets and industries, such as working with federal agencies. The conversation has been edited for style, clarity and length.
GeekWire: Can you describe the company’s path to profitability, and how long you expect that to take?
Sunny Gupta: Really it’s remarkable as we look at the last eight-plus years of history. We’ve gone from zero to a big category leader. There’s meaningful progress towards continuously shifting our business and getting more operating leverage in our business. That’s all reflected in our financial results and what we’ve stated publicly, and that hasn’t changed. In fact, we have even more conviction on that, as we end the third quarter, our desire is to get to cash flow break-even in the near term. We’re going to continue balancing that with continued sustained growth. Those are the two vectors we are continuing to talk about.
As of end of June, we have reported 325 customers. We believe there are thousands and thousands of customers who will need Apptio, and really they cannot manage their technology spend on spreadsheets. We are continuously balancing the two vectors of growth and cash flow break-even in the near term, and those are very important guiding principles for how Kurt and I and the rest of the board are running and operating Apptio. There’s meaningful progress as you’ve seen in our financial results.
GW: What does Apptio have to do to get to that break even point?
Gupta: We reported 325 customers at the end of June, and we are targeting the global 10,000 customer base, any IT budgets greater than $30 million. There are around 10,000 companies-plus who are potential customers for us. Job number one is to continue acquiring new customers in our enterprise segment and our strategic segment, and we are seeing meaningful progress around that, because just like what happened with Concur in the travel and expense space, people used to manage this on spreadsheets. You cannot manage $30 million, $40 million, $50 million dollars worth of technology expense on spreadsheets. We all as individuals don’t manage our personal expenses on spreadsheets, and $30 million is a lot of money.
Number two, we have a very strong innovation muscle within Apptio, where we are continuing to make our products much easier to deploy, easier to adopt, easier to get value, based on what we’ve learned from our customers, and we are using technology to drive that. The easier we make it to deploy, the easier it becomes for the next set of customers to come on board. On the product innovation, we are also continuing to expand our product portfolio drastically. We are always coming out with new modules. We announced the vendor insights yesterday. That’s one of the largest budget items in every IT shop. That’s really important.
Thirdly, we are continuing to grow our sales and distribution angle as well. We are in North America, Europe, and have an early presence in Asia Pacific. Federal and state government is very early for us, and those are the primary things.
The fourth thing I would say is really our TBM Council, which is a nonprofit organization. Some of the world’s leading leaders from a CIO perspective are really helping evangelize the category, and also helping create standards, which Apptio incorporates into software. That’s making easier for the next thousand customers to come on our platform.
When you combine and look at all those, that’s going to continue to drive growth, and our philosophy on the expense side is that every dollar we invest in the business has to demand return on that investment. We are continuously looking at what areas we’re going to invest in and what areas we’re not going to invest in. When we combine those factors, we feel confident about our ability to continue to grow and get to near term cash flow break even.
GW: Why did Apptio decide to start working with government organizations?
Gupta: If you look at just the U.S. government alone, there’s approximately $80 billion worth of spending on technology. That is gigantic. That’s hundreds of Fortune 100 companies’ budgets that comprise that federal spend. The federal government CIOs approached us with that idea that what Apptio is doing for the private sector is exactly what the federal government wants to embark on for the public sector, because frankly there’s very little transparency in business management discipline around technology spending.
Through a nonprofit organization, we created a commission, the Federal IT Cost Commission, to create a federal version of the cost model. They needed an extension to the Apptio technology business management unified model, that’s the industry’s first standard cost model. Even President Obama’s federal government CIO, Tony Scott, they take that into account, and agencies are looking at that. That’s a good catalyst.
Then secondly, we started investing in our sales and distribution capability along with certifications, which you need for security if you serve the federal government. Those investments, we started making approximately eighteen months ago. I’m pleased to say that we are starting to get some good early results from those investments. This year is a little unusual, as you would expect, because of the election, but whether it’s a Republican government or a Democratic government, getting transparent business management we believe is a very, very important discipline. It’s very early days for us. We have a handful of agencies who are getting a lot of value from Apptio software. We believe that will serve as a catalyst to drive additional growth for Apptio in the coming years.
GW: Where do you see Apptio’s future growth coming from?
Gupta: Strategy number one is to continue acquiring new customers in our core geographies of North America, Europe, which is primarily Western Europe, as well as Australia, Singapore. Continuing expanding into new customers into the global 10,000 footprint. Number two, we are continuing to grow our distribution capability. We expanded into the federal government, we opened up presence in Singapore, southern Europe, France and a very early presence serving the Middle East. Those are things that are on the distribution capability, which we’ll continue to add resources in the company.
Third is the product, where we are continuing to add new modules so we can continue to sell to new customers, existing customers, additional capability, because once customers really start using Apptio, we become the business system of record for them. We become very sticky and embedded, and customers want to get more value from our offerings. We are continuing to innovate. We have a rich pipeline of applications and we’re going to continue to deliver that, as demonstrated by vendor insights we announced yesterday. As demonstrated by IT planning, which we released last year. We can even get to the mid-market, which is another 50,000 to 100,000 additional companies with smaller IT budgets. We also have a handful of customers who leverage Apptio’s platform to model cost and value metrics outside IT, like HR, legal.
We’ll look back at this conversation and say, “this is the early days of Apptio” because there’s just so much growth opportunity in front of us, and we are the clear market leaders. We feel very confident about our ability to continue growing.
GW: Who are your top competitors?
SG: We are the pioneers and leaders of this category. We invented this space and we are leading it. Our primary competitor tends to be Excel or homegrown business intelligence, where people try to do it on spreadsheets. Those are not adequate to solve this type of complex problem. From that perspective, we continue to maintain very high competitive win rates in the market. Some companies have tried to morph some of their offerings or copy some of our offerings, but frankly it’s quite apples and oranges from our perspective. We do welcome competition because we think that’s a great validation. We feel good about the market opportunity, and ultimately customers choose us because of the breadth and depth of our applications, our purpose-built platform, our standard cost model, our TBM Council, as well as very, very loyal customer base.
GW: What has changed for Apptio since going public?
Gupta: We have been preparing for this moment for some time. We’ve been adding some great talent on the board, with folks like John McAdam, CEO of F5 Networks, Peter Klein, former CFO of Microsoft, as our audit committee chair. We also have had added some key talent from an executive perspective to continue adding growth, and Kurt has continued to invest around the finance and the operations elements to get ready to be a public company. In a lot of ways, we looked at this as another financing event giving us the ability to have a broader set of investors into Apptio.
From that perspective, nothing has really changed. I would say we take our commitment to our new investors pretty seriously. On the personal front, rather than waking up at 6, 6:30, I’m waking up at 5 a.m. We are using this opportunity to create more intensity in our operations and execution because there’s a big agenda. There’s a massive market opportunity and the world is watching us at this stage. We believe we have to execute and deliver results. From that perspective, there’s more intensity, but from a day-to-day perspective, we’re still building products. We are selling products. We are continuing to grow the careers of our employees.
Kurt Shintaffer: We’re trying to make being a public company feel like there is as little difference as possible. We try to limit to public company-related activities to a really small group. The rest of the company can stay focused on doing what we’ve always been committed to, which is building this category, building a great and growing company, and serving our customers. We try to keep that consistent, regardless of if we have a new or different set of investors.
GW: What do you see as your company’s biggest challenge over the next couple years, and how will you overcome that?
Gupta: Continuing to accelerate, getting to the next thousand customers, and doing it in a fast way, because we know the category is inevitable. It’s happening right in front of our eyes. How do we acquire the next thousand customers in much less time in our core geography, while we continue to maintain our hiring standards and culture? That is really the biggest challenge, which I see in front of the business, but we are fired up to deal with that challenge. It’s a new road for us.
We have to continue to be grounded in understanding what the customers want; continue to simplify the product offerings; continue to measure our investments and make sure every we get a return on every dollar we are investing; continue to make sure we don’t lower our hiring standards as we bring more people into the organization and we can continue maintaining our cultural values, which has gotten Apptio to this place. Those are pretty significant challenges, but we are fired up for that.