Appian (APPN 0.45%) has had a stellar run in the 18 months since it went public, though that time hasn't been without spills and thrills. After climbing 147%, the stock gave back a fair amount of those gains in the recent stock market rout that hit tech issues particularly hard. Investors were hoping that the company's results would be sufficient to overcome the market's recent pessimism. Unfortunately, revenue didn't grow as much as investors had hoped, leading to a less than enthusiastic reception of the results.

For the third quarter, Appian reported revenue of $54.9 million, up 23% year over year, exceeding both analysts' consensus estimates of $49.78 million, and at the high end of management's forecast range, which topped out at $49.8 million. An adjusted net loss of $8.2 million resulted in an adjusted loss per share of $0.13, much better than the $0.18 loss at the midpoint of management's guidance, which also happened to be what analysts predicted as well.

A man looking at a computer screen showing mobile app development.

Image source: Getty Images.

What caused the slowing growth?


Q3 2018

Q3 2017

Change (YOY)


$54.9 million

$44.6 million


Operating income (loss)

($14.9 million)

($6.5 million)


Net income (loss)

($15.0 million)

($6.3 million)


Earnings (loss) per share




Data source: Appian Third-Quarter Financial Release. YOY = year over year.

Subscription revenue of $29.4 million grew 42% year over year, soaring past the high end of management's guidance of $27.9 million. Recurring revenue is the lifeblood of any subscription-based business, so this solid showing is important. The subscription revenue retention rate was 117%, and it has consistently topped 100%, meaning existing customers continue to expand their use of Appian's products and services.

Total subscriptions, software, and support revenue climbed 36% year over year to $30.9 million, while professional services revenue hit $24.0 million, up just 9% compared to the prior-year quarter. The slowing revenue growth was largely the result of this deceleration in professional services, which tends to be lumpy and unpredictable. While this was the basis for investors' lukewarm reception, it isn't a reliable indicator of the company's otherwise strong performance.

"In the third quarter, our subscription revenue grew 42% year over year and our subscription revenue retention rate remained high at 117%. We continue to demonstrate that our platform is the most accessible in the market," said Matt Calkins, Appian's CEO and founder.

What the future holds

On the strength of the company's recent results, Appian has raised its full-year financial guidance for the third time in as many quarters. The company now expects full-year revenue of $222.1 million at the midpoint of its guidance, 11.3% higher than its forecast at the end of 2017.

For the upcoming fourth quarter, Appian is expecting revenue in the range of $55.1 million to $56.1 million, representing year-over-year growth of between 9% and 11%. The company is anticipating subscription revenue in a range of $31.4 million and $31.6 million, representing year-over-year growth of between 34% and 35%. The company is forecasting an adjusted operating loss of between $10.4 million and $9.4 million, leading to an adjusted loss per share of between $0.15 and $0.17.

Just to get a feel for the broader expectations of those on Wall Street, analysts' consensus estimates are calling for revenue of $53.28 million, a year-over-year increase of 5.3% -- lower than Appian's estimate, and an adjusted loss per share of $0.17, at the bottom end of management's guidance.

Shareholders were caught off-guard, having become accustomed to much more impressive revenue growth. Digging a little deeper into the numbers shows things weren't necessarily as bad as they seemed. This was something of a short-term speed bump, and investors should treat it as such.