"Digital transformation" has been one of the biggest buzzwords of 2020 in the business world.
Companies from e-commerce to cloud computing have said that technological adoption has been pulled forward by years in response to the COVID-19 pandemic. Now Appian (APPN 2.98%), the leading of provider of low-code software, appears to be the latest company to get a boost.
Shares of the cloud stock jumped as much as 20% on Friday after its third-quarter earnings report released Thursday after the markets closed smashed through both the company's own guidance and analyst estimates. Cloud subscription revenue, Appian's most important business metric, rose 40% year over year to $34.3 million in the quarter, well ahead of the company's own guidance at $31.4 million to $31.9 million.
That drove an overall year-over-year revenue increase of 17% to $77.3 million, easily outpacing analyst estimates at $70.9 million. Cloud subscription revenue retention was 115%, showing that existing customers are expanding deployments with the company, and Appian's 73% gross margin was a record and shows the company on a path toward profitability as its sales mix shifts from professional services to cloud-based subscriptions.
On the bottom line, the story was similar as its adjusted result rose from a loss of $0.18 per share last year to breakeven in this latest report, ahead of the consensus estimate of a loss of $0.17 per share.
Strong tailwinds in the quarter
A number of factors contributed to the strong performance, including the accelerating emergence of low-code as a key tool for business. In fact, CEO Matt Calkins predicted that most apps would be written in low-code platforms over the next decade.
Appian said on the earnings call that it saw strong tailwinds in the quarter from new business brought in through its partners, which include global consulting giants like KPMG. New customers acquired through partners more than doubled from the quarter a year ago, and partners influenced 77% of new customer sales in the quarter, including helping Appian win most of its seven-figure deals in the quarter. Calkins said he's been really pleased with the partners' strategy as they give Appian an opportunity to tap into an entirely new customer base.
Meanwhile, growth in Europe was strong as well, as subscriptions rose 68% year over year in the quarter, and attendance doubled for the company's virtual Appian Europe conference, showing increasing interest in the company's low-code and automation platforms. The federal government was also a key source of growth in the quarter as software bookings doubled, new customers rose by 33% year over year, and the company launched a new product to automate the first step of the procurement process.
Calkins noted the impact of the company's deployment of a workforce safety app in the early days of the pandemic, which helped the company gain access to new customers by showing them the company can "handle agility," responding quickly with new software as emergency situations like the pandemic demand it.
In addition, the company now counts nine of the 10 biggest life sciences companies as its customers, showing its ability to build momentum in specific industries once it reaches a base-level adoption, and it appears to be experiencing similar momentum with the federal government.
Appian could be reaching a tipping point as the pandemic appears to be accelerating demand for low-code software as more companies seek to digitally transform. Appian is hiring aggressively to expand its sales force, and Calkins said he believes that the total addressable market for low-code, which it once estimated at $30 billion, is expanding and that the company has 50,000 potential customers. "Low-code is the fastest way to change," Calkins said, commenting on the adjustments organizations have had to make to their software during the pandemic, and added that the pandemic "convinced the world that change was imperative."
As the leader in low-code software, Appian stands to be a big winner if the technology becomes the standard in app development. Calkins said that 2020 and its digital transformation has "lit a fuse" on low-code growth, and after the strong third-quarter results, momentum for the company may just be starting to build.