Appian's Revenue Jumps and Losses Narrow; Management Boosts Guidance

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Appian (NASDAQ: APPN), a software and services company that helps other businesses create custom low-code applications, reported its third-quarter results on Thursday, Nov. 2. Demand for the company's software products and services allowed revenue to grow at a very healthy pace. In turn, the company's bottom line inched closer to breakeven even though management continues to invest heavily in its sales and marketing teams.

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Let's take a closer look at the company's results to get a better idea of what the future may hold for this business.

Appian Q3 results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$44.6 million 

$30.7 million

45%

Non-GAAP operating loss

($4.9 million)

($6.2 million)

N/A

Non-GAAP net loss

($4.7 million)

($4.7 million)

N/A

Non-GAAP EPS

($0.08)

($0.09)

N/A

What happened with Appian this quarter?

Appian's third-quarter results looked solid:

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  • Subscription revenue grew 35% to $20.7 million. This figure came in ahead of management's guidance range. 
  • The subscription revenue retention rate -- which is a measure of renewals and sales to the company's existing customer base -- was 122% during the period. This was the best quarterly result since the company went public in 2016.
  • Professional services revenue -- which is revenue earned by helping its customers create their apps -- grew 68% to $22 million.
  • Non-GAAP operating loss of -$4.9 million was far better than management's guidance range of -$9.6 million to -$9.1 million.
  • Non-GAAP EPS of -$0.08 was about half of the loss management had projected. 
  • Cash usage during the quarter was $10.1 million.
  • Cash balance at quarter's end was $72.3 million.

The company's strong growth rates indicate it is doing well competing against low-code products offered by tech giants such as Microsoft and Alphabet.

What management had to say

Appian founder and CEO Matt Calkins kept his brief commentary in the press release focused on the company's great subscription numbers:

In the third quarter, our subscription revenue grew 35% year-over-year and our subscription revenue retention rate has risen three consecutive quarters from 112% to 122%. Customers and prospects are choosing to differentiate themselves by managing their core business functions on our platform.

On the company's call with analysts, Calkins elaborated on how the company's investments in its sales are marketing teams are driving new types of customers to the platform:

Through the third quarter, healthcare subscription revenue nearly tripled versus the prior year period. Year-to-date, we've closed about as much new-name healthcare business as we did new-name financial services business in all of 2016. Additionally, the average deal size for new healthcare payers rivals new financial services and pharma deal sizes, putting it in line with Appian's strongest sectors.

Looking forward

Here's the guidance that management shared with investors for the current quarter:

Metric Guidance Range Implied Growth Rate
Subscription revenue $22.2 million to $22.4 million 34% to 35%
Total revenue $41.4 million to $41.9 million 23% to 24%
Non-GAAP operating loss ($9.7 million) to ($9.2 million) N/A
Non-GAAP EPS ($0.16) to ($0.15) N/A

Given the guidance-topping results in the third quarter, management boosted its projections for the full year 2017:

Metric Old Guidance Range Update Guidance Range
Subscription revenue $80.4 million to $80.8 million $81.5 million to $81.7 million
Total revenue $162.3 million to $163.5 million $167.6 million to $168.1 million
Non-GAAP operating loss ($28.4 million) to ($27.4 million) ($23.6 million) to ($23.1 million)
Non-GAAP EPS ($0.48) to ($0.46) ($0.16)  to ($0.15)

Despite posting strong growth and raising guidance, Appian's shares fell about 7% on Friday, the day after the report was released.

Short-term price movements aside, Appian's results show that it is successfully attracting new customers to its platform while simultaneously gaining more business from old ones. That's a powerful combination.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Brian Feroldi owns shares of Alphabet (A shares) and Alphabet (C shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Appian. The Motley Fool has a disclosure policy.