After a stellar beginning to 2018, Appian (APPN 1.88%) ended the year on a low note. The stock climbed as much as 37%, before declining 15% to close out 2018. Why the course change? The market correction took a toll on many companies in the tech sector, and Appian's $2 billion market cap made it even more susceptible to the volatility. Adding insult to injury, the company's slowing growth rate spooked fair-weather investors, sending them packing.

Appian will have another opportunity to impress investors, as the company is scheduled to report the financial results of its fourth quarter after the market closes on Thursday, Feb. 21. Let's recap the company's third-quarter performance to see if it provides any insight into what investors can expect when Appian reports earnings.

Check out the latest Appian earnings call transcript.

A man and woman working on a computer designing a smartphone app.

Image source: Getty Images.

Better-than-expected results

For the third quarter, Appian reported revenue of $54.9 million, up 23% year over year, exceeding the high end of management's forecast as well as analysts' consensus estimates. The company reported an adjusted loss per share of $0.13, which was also far better than expected.

Subscription revenue came in at $29.4 million, up 42% year over year, easily surpassing the $27.9 million management expected. Appian reported a revenue retention rate -- the amount existing customers are spending -- of 117%. This metric has consistently exceeded 100%, showing that as customers try out Appian, they generally expand their use of the company's products and services.

The total of subscriptions, software, and support revenue grew to $30.9 million, up 36% year over year, while professional services revenue grew to $24 million, up 9% from the prior-year quarter, as revenue from this segment tends to be lumpy and unpredictable.

It's not only in the financial arena that Appian is excelling. Earlier this month, the company announced that analyst firm Gartner named it a "Leader" in its 2019 Magic Quadrant for Intelligent Business Process Management Suites, for its low-code app-development platform. This was the ninth year running that Appian has been recognized as a leader in the industry. 

Increased guidance

On the strength of its results, Appian increased its full-year guidance for the third time in as many quarters. The company is now projecting revenue in a range between $221.6 million and $222.6 million, and an adjusted loss per share of $0.55 at the midpoint of its guidance.

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

Investors have been concerned that the year-over-year growth rate of Appian's revenue has declined sequentially in each of the past three quarters. It's important to remember, however, that Appian still gets a large portion of its revenue from professional services. As I mentioned, that can be lumpy and unpredictable. The company's future will be won or lost on the strength of its recurring subscription revenue and its revenue retention rate. As long as Appian can keep those numbers moving in the right direction, the company will prosper for years to come.

We'll have a better glimpse into the future when Appian reports earnings after the market closes on Thursday, Feb. 21.