Here's a review of the headline numbers from Appian's fourth quarter:
- Revenue jumped 19% to $60.2 million. This was driven by a 44% jump in subscription revenue and flat professional services sales. This was much better than the $55.8 million that Wall Street was expecting and also beat management's guidance.
- The subscription revenue retention rate was 117%.
- Non-GAAP net loss was $9.1 million, or $0.14 per share. This was also better than the consensus analyst estimate of $0.16.
So what can explain the sell-off if Appian beat expectations? The most likely answer is the guidance that is being shared for the upcoming quarter:
|Metric||Q1 2019 Guidance Range||Implied Change|
|Subscription revenue||$33.3 million to $33.6 million||31% to 32%|
|Total revenue||$59.5 million to $59.8 million||15% to 16%|
|Non-GAAP operating loss||($10.5 million) to ($10.0 million)||N/A|
|Non-GAAP EPS||($0.17) to ($0.16)||N/A|
Wall Street was expecting $59 million in revenue, so the guidance looks good on that metric. However, the implied subscription revenue growth rate of 32% would represent a substantial slowdown from the 40% growth rate that was produced in all of 2019. That forecast likely isn't sitting well with traders.
Another sticking point is that the current estimate calls for a non-GAAP net loss of $0.12 per share. That's quite a bit lower than the company's estimate of about $0.17.
It's a similar story for the full-year 2019 guidance, too:
|Subscription revenue||$148 million to $150 million||28% to 30%|
|Total revenue||$258.5 million to $262.5 million||14% to 16%|
|Non-GAAP operating loss||($29.5 million) to ($27.5 million)||N/A|
|Non-GAAP EPS||($0.46) to ($0.42)||N/A|
These numbers look quite good when compared to Wall Street's revenue and non-GAAP EPS estimate of $255.3 million and negative $0.44, respectively. However, the subscription revenue growth rate of about 29% represents a substantial deceleration from the 40% growth rate in 2019.
Appian has established a history of setting moderate expectations and then raising guidance after it crushes them, so it is probably appropriate to take this guidance with a big grain of sugar.
For example, in February of 2018, Appian told investors that it expected full-year subscription revenue to grow about 29% and that total revenue growth would be about 13%. The actual numbers came in at 40% and 28%, respectively. I think it is reasonable to believe that it will be a similar story for 2019.
This Fool thinks that the modest guidance shows that Appian's management team knows how to play the beat-and-raise game that Wall Street loves so much. That's just one of many reasons why I plan on hanging on to my Appian shares for the long term.