In its second-quarter earnings, Appian's (APPN -1.25%) cash number shows a company moving close to profitability, and a strong balance sheet with no debt.
In this segment of "Beat & Raise," recorded on Oct. 8, Fool contributors Jeremy Bowman and Nicholas Rossolillo discuss the strengths and weaknesses in Appian's latest round of results.
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Nick Rossolillo: Jeremy, you touched on this currently, business not profitable. You see the operating loss right here, $24.5 million, just in the last quarter alone. Those are three months ended June 2021. Go ahead.
Jeremy Bowman: These are all GAAP figures, just to keep in mind some of that accounts for a share-based compensation, which these companies like to back out in their adjusted earnings. I think it's important to consider both.
Rossolillo: Absolutely, yeah. You can back out that stock-based compensation in a mix on an adjusted basis makes for a little bit better, but even on an adjusted basis, Appian is still losing money, not much, though, if we drop down to the income statement on the 10-Q, we can see cash used in operations so far this year through the first six months. I'm just going to calculate free cash flow here really quick because it gives a better indication of actual cash the business is using in its operations versus some of the noncash items, like stock-based compensation, depreciation, and amortization like a property that they purchased in past, all that noncash stuff backed out is free cash flow. Net cash used in operations is negative $9.4 million. They used an additional $1 million for property and equipment through the first six months of the year. Really, just negative $10 million free cash flow for the first six months of 2021. In the grand scheme of things, not a really big number. Appian has plenty of cash on hand. Jeremy, you were talking about the fact that this company bootstrapped itself until it went public in 2017. That's a really, really big deal because this is what it has done for their balance sheet over that span of time.
Bowman: Yeah.
Rossolillo: Here again, you can see the cash and equivalents on hand at the end of June, over 240 million in cash and equivalents. Long-term investments, those are going to be cash the company doesn't need currently, so they stick in the bank and buy U.S. Treasuries, usually another seven million there. The big one, you're not going to see any debt under liabilities.
Bowman: Yeah, that's a great sign that the company is well capitalized even though they are losing money, you don't have to really worry about. They're not one of these start-ups that will go out of business if a recession hits or something like that.
