What happened

Shares of Appian (NASDAQ:APPN) rose 24.7% in value last month, according to data provided by S&P Global Market Intelligence. The low-code software automation provider delivered a better-than-expected first-quarter earnings report in early May. 

Appian saw existing customers expand the use of services on the platform, as well as the addition of new clients who are looking to save time and money for mission-critical business applications. 

A white outline of a cloud diagraming how subscription as a service works.

Image source: Getty Images.

So what

Total revenue increased 31% year over year to reach $78.9 million, driven by strong growth in subscription revenue, which increased by 46% to $50.4 million. 

What's more, Appian achieved its highest gross margin in history for the first quarter, reaching 70%. This was driven by a year-over-year improvement in professional services gross margin that benefited from less services performed by subcontractors as opposed to internal resources. Adjusted EBITDA narrowed to a loss of $3.6 million compared to $7.3 million in the year-ago quarter. 

Appian also continued to maintain a healthy cloud-subscription retention rate of 115%. This shows that organizations are continuing to use additional services after joining the platform. Appian is also seeing demand for new applications aimed meeting challenges during COVID-19.

Now what

Management warned that the near term will be difficult, as it navigates the economic slowdown caused by the COVID-19 pandemic. While cloud-subscription revenue is expected to increase between 25% to 26% year over year in the second quarter, Appian expects total revenue to decrease between 8% and 7%. That is expected to translate to a non-GAAP (adjusted) net loss on the bottom line of $0.26 to $0.23 per share. 

However, given the wide range of potential outcomes, management is not giving full-year guidance. During the conference call, CEO Matt Calkins said, "It's likely that some sales cycles will lengthen and also likely that services revenue will be lower than we previously expected." 

Specifically, management expects to experience headwinds in the professional services business and the ability to close deals with new customers. For perspective, one-third of Appian's growth in software annual contract value is driven by new customers. 

With those obstacles ahead, CFO Mark Lynch left investors with encouraging words, stating: "We've been through several difficult economic cycles. We're confident that we'll arrive as a stronger company on the other side of this crisis." 

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