Appian (NASDAQ:APPN) reported its first-quarter results on Thursday, May 3. The leading provider of low-code software reported revenue growth of 35% and a net loss of $7.3 million, both of which were better than management had predicted.

Appian Q1 results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Revenue

$51.7 million 

$38.3 million

35%

Non-GAAP operating loss

($8.0 million)

($3.5 million)

N/A

Non-GAAP net loss

($7.3 million)

($3.4 million)

N/A

Non-GAAP EPS

($0.12)

($0.06)

N/A

Dada source: Appian. GAAP = generally accepted accounting principles. EPS = earnings per share. 

What happened with Appian this quarter?

  • Subscription revenue grew 36% to $25.5 million and came in above the top end of management's guidance range.
  • Professional services revenue increased 46% to $24.7 million.
  • Subscription revenue retention rate, which measures revenue growth from existing users, remained strong at 119% for the quarter.
  • International sales comprised 33% of total revenue.
  • Non-GAAP gross margin declined 700 basis points year over year to 60% during the period. The fall was attributed to faster growth in professional services revenue, which carries a much lower gross margin than subscription revenue.
  • Non-GAAP operating earnings widened year over year to $7.3 million but that was more than $3 million below management's guidance range.
  • Non-GAAP per-share loss of $0.12 also came in lower than guidance.
  • Cash used in operating activities was $13.8 million.
  • Cash balance at quarter's end was $60.9 million.
A person typing on a laptop.

Image source: Getty Images.

Looking beyond the financials, Appian announced that it signed a seven-figure deal with Banco Santander during the quarter to apply its technology to the bank's call center.

The company also recently extended its strategic alliance with VASS, which is an IT consulting company with more than 1,200 employees that is headquartered in Spain. VASS is well established in several international markets including several countries in Europe and Latin America.

What management had to say

Appian CEO Matt Calkins let the company's numbers speak for themselves and kept his commentary focused on new product and service launches:

At our global user conference last week, we announced native artificial intelligence capabilities and an Intelligent Contact Center application. These features help clients offer better service to their customers.

On the conference call with analysts, CFO Mark Lynch said that the company continues to invest heavily in its commercial team in an effort to take advantage of the opportunity that it sees in the marketplace:

Given our high gross margins on subscription revenue along with our powerful LTV (lifetime value of a customer) to CAC (customer acquisition cost) metrics we think it makes sense to continue to invest in the business to capture new customers and capitalize on the big up-sell opportunity.

Looking forward

Appian's management team expects the good times will continue in the upcoming quarter and offered investors the following guidance:

Metric Guidance Range Implied Change
Subscription revenue $25.8 million to $26 million 30% to 31%
Total revenue $50.2 million to $50.4 million 16% to 17%
Non-GAAP operating loss ($10.5 million) to ($10.1 million) N/A
Non-GAAP EPS ($0.18) to ($0.17) N/A

Data source: Appian. 

The strong start to the year also allowed management to raise its guidance for 2018:

Metric Old Guidance Range
Updated Guidance Range
Subscription revenue $106.5 million to $107.5 million $107.6 million to $108.6 million
Total revenue $198.1 million to $201.1 million $202 million to $205 million
Non-GAAP operating loss ($39.9 million) to ($37.9 million) ($38.9 million) to ($36.9 million)
Non-GAAP EPS ($0.65) to ($0.62) ($0.64) to ($0.61)

Data source: Appian.

Overall, Appian's strong revenue growth and high revenue retention rate should give investors confidence that the company's "land and expand" strategy is paying off. With the company investing heavily to build out its product offering and commercial team, shareholders have every reason to believe that the company's fast growth can continue for the foreseeable future.

Brian Feroldi owns shares of Appian. The Motley Fool owns shares of and recommends Appian. The Motley Fool has a disclosure policy.