Investors didn't quite know what to make of Appian's (APPN -1.50%) second-quarter earnings.
The stock rose as much as 11% in morning trading before sinking into the red in the afternoon as tech stocks pulled back broadly. However, the results in the quarter were solid as the low-code software provider breezed past estimates and saw steady growth in its cloud subscription business.
Cloud subscription revenue rose 30% in the quarter to $29.6 million, though overall revenue ticked up just 2% to $66.8 million as professional services sales declined 11% due to logistical challenges and business continued to shift away from on-premise licenses to the cloud. Still, the top-line result beat both the company's own guidance of $60 million-$61 million, and analyst estimates of $61.2 million.
On the bottom line, Appian posted an adjusted loss of $0.12 per share, compared to a loss of $0.11 in the quarter a year ago and estimates of a $0.25 per-share loss.
Though growth slowed from the first quarter due to headwinds from the pandemic, Appian saw traction in the apps it's designed specifically for COVID-related issues -- including its Workforce Safety solution, which was adopted by a top-ten automaker, a top-ten global sports company, and a top-ten global pharmaceuticals company. Management also noted that software bookings nearly tripled in the life sciences industry, which includes companies like pharmaceuticals and therapeutics makers, and has become its third-biggest industry -- more than half of the ten biggest life sciences companies are now Appian customers.
Perhaps the biggest highlight of Appian's quarter was that it nearly doubled customer acquisitions from the quarter a year ago and its sales cycle was shorter than average, which CEO Matt Calkins saw as a reflection of customers' need for speed and agility during the pandemic. He also noted the importance of software to help make those changes, and the advantages of Appian's low-code platform as it enables apps to be quickly designed and deployed, which is crucial during an emergency situation like a pandemic.
Image source: Appian.
A opportunity for low code
It's clear that the pandemic is accelerating a number of trends in the business, such as e-commerce, videoconferencing, cloud computing, and other tools that enable people to seamlessly work from home and carry on their lives without exposing themselves to the virus. According to Calkins, low code is also emerging as a winner from the pandemic, as the simplicity of low-code software gives users an advantage over custom code and traditional design methods. The advantages that low-code software has demonstrated during the pandemic should help accelerate its growth over the years to come. Calkins explained on the earnings call, "There's new emphasis on finding ways to create applications quickly. Naturally, low-code stands to benefit from this trend."
In fact, low-code technology is attracting increased attention among both start-ups -- which are set to raise $500 million in the space this year, according to TechCrunch -- and entrenched tech giants like ServiceNow, Salesforce, Google and Amazon, which have all moved into the industry in recent years.
Appian, however, is the only pure-play provider of low-code software in the market, giving investors the best way to get exposure to this fast-growing cloud software segment. Appian is considered a leader in the category by Gartner as well, which noted the strength of its product and support for business process automation.
According to research firm MarketsandMarkets, spending on low-code software is expected to grow at a compound annual growth rate of 28.1% from 2020 to 2025, or from $13.2 billion to $45.5 billion, and Microsoft anticipates that of the 500 million apps it expects will be created over the next five years, 450 million will be designed on low-code platforms. The technology, which allows apps to be created with little code, appears to be quickly going mainstream.
Appian anticipates continued uncertainty and headwinds from COVID-19, and declined to provide full-year guidance. It projected that third-quarter results will improve modestly from the second quarter, with 7%-8% revenue growth and 28%-30% growth in cloud subscription revenue. Despite the near-term COVID-related challenges, the tailwinds building for low-code software during the pandemic should only expand the company's long-term opportunities. If it can continue to execute well, Appian has a substantial growth path in front of it.
