Appian (APPN +1.79%), a software-as-a-service business focused on low-code software, reported its second-quarter results on Thursday. On the surface, Appian's results only look so-so. Total revenue growth was just 12%, which represents a sequential deceleration, and its adjusted net loss was $6.6 million. These aren't the numbers that you'd expected to see from a high-growth software-as-a-service business.
However, a closer look shows that Appian's subscription revenue -- which is both high margin and recurring -- grew 41% to $38 million during the period. That represents a significant sequential acceleration. Professional services revenue, which can be lumpy and is low-margin, only grew 3%. The combination explains why overall revenue growth looks so muted.
Appian's second-quarter results: The raw numbers
|
Metric |
Q2 2019 |
Q2 2018 |
Change |
|---|---|---|---|
|
Revenue |
$66.9 million |
$59.9 million |
12% |
|
Non-GAAP operating loss |
($6.6 million) |
($6.1 million) |
N/A |
|
Non-GAAP net loss |
($6.6 million) |
($8.8 million) |
N/A |
|
Non-GAAP EPS |
($0.10) |
($0.14) |
N/A |
Data source: Appian. GAAP = generally accepted accounting principles. Non-GAAP = adjusted. EPS = earnings per share.
What happened with Appian this quarter?
- Subscription revenue exceeded the high end of guidance.
- Total subscription software and support revenue grew 19% to $39.3 million. However, the year-ago period featured an unusual $4.4 million "perpetual" deal with the U.S. Air Force, which is why the overall growth rate looks muted.
- Professional services revenue grew 3% $27.7 million.
- Total revenue of $66.9 million exceeded guidance.
- The subscription revenue-retention rate was 117%, which was 100 basis points higher than the previous quarter.
- International sales comprised 31% of total revenue.
- Non-GAAP gross margin expanded 200 basis points to 66% thanks to the strong growth in subscription revenue.
- Cash from operations was $16.1 million.
- Appian's cash balance at quarter-end was $81.1 million.
Image source: Getty Images.
What management had to say
CEO and founder Matt Calkins was pleased with Appian's performance, stating in a press release: "The growing interest from partners, prospects, and customers in our platform and the Appian Guarantee demonstrates that low-code has arrived."
On the company's conference call with Wall Street analysts, Calkins shared some color about how Appian's decision to partner with consulting companies is helping it to win new business. "Partners ... brought us 67% of our new low-code deals, and these deals closed more than a third faster than the new low-code deals we sold without partner assistance," he said.
Check out a transcript of Appian's earnings call.
Looking forward
Management offered investors the following guidance for the current quarter:
| Metric | Q3 2019 Guidance Range | Implied Change* |
|---|---|---|
| Subscription revenue | $38.8 million to $39 million | 32% to 33% |
| Total revenue | $65 million to $65.5 million | 18% to 19% |
| Non-GAAP operating loss | ($10 million) to ($9.5 million) | N/A |
| Non-GAAP EPS | ($0.16) to ($0.15) | N/A |
*At midpoint. DATA SOURCE: APPIAN.
Management also boosted full-year guidance for the second time in a row:
| Metric | Updated Guidance Range | Previous Guidance Range |
|---|---|---|
| Subscription revenue | $153 million to $154 million | $150.5 million to $152 million |
| Total revenue | $260.5 million to $262.5 million | $255 million to $258 million |
| Non-GAAP operating loss | ($35 million) to ($33 million) | ($35.5 million) to ($32.5 million) |
| Non-GAAP EPS | ($0.55) to ($0.51) | ($0.55) to ($0.50) |
DATA SOURCE: APPIAN.
