Appian (NASDAQ:APPN) reported its second-quarter results on Thursday, Aug. 2. The low-code software maker reported revenue growth of 39% thanks to the combination of new customer acquisition, a 119% subscription revenue retention rate among existing customers, and a one-off perpetual software deal. This figure grew much faster than management had previously predicted.

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Appian Q2 results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$59.9 million 

$43.2 million

39%

Non-GAAP operating loss

($6.1 million)

($5.5 million)

NM

Non-GAAP net loss

($8.8 million)

($4.4 million)

NM

Non-GAAP EPS

($0.14)

($0.08)

NM

Dada source: Appian. GAAP = generally accepted accounting principles. NM = not meaningful. EPS = earnings per share. 

What happened with Appian this quarter?

  • Subscription revenue grew 36% to $27 million. This figure came in above the top end of management's guidance range.
  • Professional services revenue jumped 27% to $26.8 million. 
  • Sales were boosted by a $4.4 million perpetual deal with the U.S. Air Force. Management stated that this was a rare event since it no longer offers its customers perpetual license agreements.
  • Subscription revenue retention rate held firm at 119% for the period.
  • International sales comprised 28% of total revenue during the period.
  • Nine deals were closed during the quarter that exceeded $1 million.  
  • Non-GAAP operating loss expanded to $6.1 million. This figure came in several million dollars below guidance.
  • Non-GAAP net loss of $8.8 million, or $0.14 per share, was above guidance.
  • Cash balance at quarter's end was $50.4 million.

What management had to say

As usual, CEO Matt Calkins remained modest with his quarterly commentary, stating that "Appian is winning on flexibility and deployment speed." He also noted that many new customers are ramping up their spending on the platform in a matter of quarters after they experience early success with it. 

CEO Calkins also noted that the company's decision to create strategic alliances with partners such as consulting firms is paying off:

Partners are increasingly helping us add new customers. So far this year they've influenced 68% of our new logos compared to 50% in the year-ago period. This quarter a longtime partner referred $1 million deal to us with an employment services contractor for the British government. They've purchased Appian to replace a home-run system that administers occupational health assessments. We won this deal thanks to the strength of our partnership.

Looking forward

Appian's CFO Mark Lynch projects that subscription growth will remain very strong in the upcoming quarter. However, his guidance predicts that total revenue growth is expected to lag its subscription revenue growth considerably. That indicates that professional services revenue won't grow much in the period ahead:

Metric Guidance Range Implied Change
Subscription revenue $27.7 million to $27.9 million 34% to 35%
Total revenue $49.6 million to $49.8 million 11% to 12%
Non-GAAP operating loss ($11.2 million) to ($10.2 million) N/A
Non-GAAP EPS ($0.19) to ($0.17) N/A

Data source: Appian. 

On the plus side, the better-than-expected second-quarter results allowed management to boost its guidance across the board for the full year:

Metric New Guidance Range
Old Guidance Range
Subscription revenue $110.5 million to $110.9 million $107.6 million to $108.6 million
Total revenue $213.8 million to $215.3 million $202 million to $205 million
Non-GAAP operating loss ($36.4 million) to ($34.4 million) ($38.9 million) to ($36.9 million)
Non-GAAP EPS ($0.63) to ($0.60) ($0.64) to ($0.61)

Data source: Appian.

Appian's stock declined by high single digits on the morning following this earnings release. The fall is likely attributable to the slowing revenue growth projection for the third quarter. However, shareholders shouldn't be too worried about the guidance, because service revenue is low margin and can be lumpy from quarter to quarter. 

Looking further out, Appian's strong quarterly results and the boost to full-year guidance clearly indicate that the platform is a hit with users. With room left for growth, shareholders should be cheering on management's decision to spend aggressively on sales and marketing. 

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