Appian (APPN -2.89%) has long been a leader in low-code and automation technology, allowing its customers to quickly build powerful apps that automate things like insurance claims processing or customer applications.
In the AI era, Appian's technology has become even more powerful, and those results were on display in its second-quarter earnings report.
Cloud subscription revenue rose 21% to $106.9 million, driving overall revenue to $170.6 million, up 17% from the quarter a year ago and well ahead of estimates of $160.1 million. That was its fastest revenue growth in 10 quarters, and a sign that its AI investments are paying off.
On the bottom line, Appian's recent cost-control efforts and improvements in go-to-market efficiency are also paying off as it gains leverage from its AI technology. The company finished the quarter with an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $8.1 million, up from a loss of $10.5 million.
On an adjusted basis, it broke even on the bottom line, up from a loss of $0.25 per share in the quarter a year ago, ahead of the consensus at a loss of $0.13 per share. The stock was up as much as 20% on the news on Thursday.
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A push toward modernization
One of the big tailwinds driving the acceleration in Appian's revenue growth is the push toward IT modernization across businesses, according to CEO Matt Calkins.
Modernization, by which he means eliminating silos and bringing IT systems up to date, has taken on more importance in the AI era, and Appian's platform fits the job well. In an interview with The Motley Fool, Calkins shared one example of a company, that after a series of acquisitions, had 22 applications that all had to be updated individually when a customer called to make a small change. With Appian's AI platform, it was able to eliminate that redundancy.
Appian's AI platform is delivering clear results. The company charges a 25% fee for its suite of AI features, and the adoption trends are encouraging. Of its new customer cohort, about half are purchasing the AI, and existing customers continue to upgrade. Calkins said, "It's a major contributor to the upside in this quarter."
What's more, Appian competes with tech behemoths like Microsoft and Salesforce, yet Calkins was confident enough to say that his company was "leading the market" with AI for process, adding, "I'm not aware of any technology that can do what ours can do with regards to making an AI application today."
If Appian is truly the leader in the emerging industry, it should be able to unlock a lot more business ahead.
Margins are improving
In addition to the tailwinds from AI, Appian is also delivering significant improvements on the bottom line. Its go-to-market productivity, which the company tracks through a ratio of revenue to sales-and-marketing expense, has improved over eight quarters in a row, rising from 2.39 to 3.3, and is expected to go higher.
The company also reduced generally accepted accounting principles (GAAP) operating expenses from $146.2 million in the quarter a year ago to $137.7 million, thanks in part to the go-to-market efficiency, and its AI rollout has also added leverage.
What's next for Appian?
Appian is only valued at $2.2 billion, meaning the stock is much cheaper than the typical software-as-a-service stock, trading at a price-to-sales ratio of around 3.
Appian's guidance tends to be conservative, and it called for growth to slow slightly in the third quarter to 16%-18% cloud subscription growth and 12%-14% overall revenue growth.
However, the AI era is only just starting, and it's already benefiting Appian both in top-line growth and in margin improvement. If Appian can demonstrate that it's the technological leader in AI application deployment, the future for the cloud stock looks bright.
