What happened

Shares of Appian (NASDAQ:APPN) were falling today after the low-code cloud software company missed bottom-line estimates in its third-quarter earnings report.

As a result, the stock closed down 12.2%.

A digital image of a cloud

Image source: Getty Images.

So what

Cloud subscription revenue, the company's key metric, was up 36% to $46.7 million, topping the high end of its own guidance range. Overall revenue, which includes on-premise subscriptions and professional services, increased 19% to $92.4 million, which reflect a shift in the services business to its partners. Sales in that segment actually fell slightly, but the overall result still edged out estimates at $91.1 million.

The retention rate for cloud subscription revenue was 117%, showing that existing customers spent 17% more with Appian on average than they did a year ago, and cloud subscription gross margin was 90%, showing why Appian is so focused on growing its cloud business.

On the bottom line, its adjusted loss based on earnings before interest, taxes, depreciation, and amortization (EBITDA) widened from $2.4 million to $12 million as spending on marketing, research and development, and general and administrative expenses grew faster than revenue. After finishing at breakeven in the quarter a year ago, the company reported an adjusted loss per share of $0.22, which was worse than the consensus at $0.19.

Also in the quarter, the company closed on its acquisition of Lana Labs, a process mining company that will help unify its low-code value proposition as process mining helps guide what processes can be automated using Appian's software suite.

Now what

The company's fourth-quarter guidance called for cloud subscription revenue of $48.8 million to $49.3 million, for 32% to 33% growth. And it sees overall revenue increasing 16% to 17% to a range of $95 million to $95.5 million, which is slightly above estimates at $94.2 million. On the bottom line, it expects an adjusted loss per share of $0.21 to $0.24, which was worse than estimates at $0.18.

Appian stock has been highly volatile over the last year, so it's not surprising to see the cloud stock fall on a relatively modest earnings miss. Investors should keep an eye on the Lana Labs integration as the company sees that as an important differentiator for its customers.

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