Multibillion-dollar legal awards aren't particularly common for publicly traded companies, so it raised eyebrows when Appian (APPN 4.19%) was awarded a $2.036 billion judgment over rival Pegasystems (PEGA 1.96%) in May.
Appian, the low-code software company, sued Pegasystems for its "unjust enrichment" after the latter company hired a contractor, which it referred to internally as a "spy," to give it trade secrets about Appian; Pegasystems then used those to train its sales force to better compete with Appian.
Though the award will not be paid out until the appeals process is exhausted, which could take years, Appian took a step closer to collecting the $2 billion earlier this month when a judge rejected Pegasystems' motion to overturn the verdict. The court also ordered Pegasystems to pay $23.6 million as reimbursement for Appian's attorney fees. Pegasystems must pay Appian 6% interest on the judgment, equivalent to $122 million a year, as long as the award is outstanding, adding to the amount so long as an appeals court doesn't reverse the verdict.
What it means for Appian
Appian today has a market cap of just $3 billion, meaning the jury award essentially represents two-thirds of the company's market value.
The stock initially surged back in May, gaining 39% in one session after the verdict was announced, but it has since given up all of those gains: Stocks have fallen in recent weeks, amid increasing fears of a recession as the Federal Reserve aggressively raised interest rates.
For Appian, the $2 billion award gives it a level of freedom and confidence to invest in its business, especially during a challenging macroeconomic environment, that it wouldn't ordinarily have.
In an interview with The Motley Fool, CEO Matt Calkins said that the verdict "does allow us a degree of safety and opportunity that wouldn't exist otherwise." He said that although it's very preliminary to talk about, the company is exploring other options to monetize the verdict, including taking out an insurance policy on it. An insurance policy would effectively enable Appian to collect even if the verdict were overturned, and it could even allow it to collect some of the money up front.
Why investors should be paying attention
Though Pegasystems is likely to drag out the appeals process, Appian seems well-positioned to emerge victorious in the legal battle after the latest court decision. And if it chooses to buy insurance on the award, that should help instill confidence in investors.
Appian is not profitable, and the current market environment has been hard on unprofitable growth stocks -- rising interest rates make future profits worth less as the discount rate in financial models goes up. However, the verdict represents the majority of Appian's current market cap of $3 billion, implying that investors believe the business is only worth $1 billion, assuming that the $2 billion award is priced in.
Even the $122 million in interest that Appian is set to collect from Pegasystems is more than Appian brought in as revenue in its most recent quarter, showing how significant the award is.
Appian has been anticipating a recession and has prepared for it accordingly. But the best reason to invest in the stock right now may be the $2 billion Appian stands to collect, which the market is essentially ignoring.
