Appian (NASDAQ:APPN) Posts Better-Than-Expected Sales In Q1 But Stock Drops

Jabin Bastian /
2022/05/05 4:12 pm EDT
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Low code software development platform provider Appian (Nasdaq: APPN) reported Q1 FY2022 results beating Wall St's expectations, with revenue up 28.5% year on year to $114.2 million. Guidance for next quarter's revenue was $103.8 million at the midpoint, 2.79% above the average of analyst estimates. Appian made a GAAP loss of $23.1 million, down on its loss of $13.5 million, in the same quarter last year.

Is now the time to buy Appian? Access our full analysis of the earnings results here, it's free.

Appian (APPN) Q1 FY2022 Highlights:

  • Revenue: $114.2 million vs analyst estimates of $107.1 million (6.6% beat)
  • EPS (non-GAAP): -$0.06 vs analyst estimates of -$0.13
  • Revenue guidance for Q2 2022 is $103.8 million at the midpoint, above analyst estimates of $100.9 million
  • The company lifted revenue guidance for the full year, from $445 million to $455 million at the midpoint, a 2.24% increase
  • Free cash flow was negative $23.9 million, compared to negative free cash flow of $23 million in previous quarter
  • Net Revenue Retention Rate: 117%, in line with previous quarter
  • Gross Margin (GAAP): 72.9%, in line with same quarter last year

“We exceeded guidance and grew cloud subscription revenue by 37% in Q1. Our annual conference was well-attended and full of energy. We feel fortunate to have such a strong community around our low-code platform,” said Matt Calkins, CEO & Founder.

Founded by Matt Calkins and his three friends out of an apartment in Northern Virginia, Appian (NASDAQ:APPN) sells a software platform that lets its users build applications without using much code, allowing them to create new software more quickly.

The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.

Sales Growth

As you can see below, Appian's revenue growth has been strong over the last year, growing from quarterly revenue of $88.8 million, to $114.2 million.

Appian Total Revenue

This quarter, Appian's quarterly revenue was once again up a very solid 28.5% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $9.27 million in Q1, compared to $12.5 million in Q4 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Appian is expecting revenue to grow 25% year on year to $103.8 million, in line with the 24.2% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 18.7% over the next twelve months.

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Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

Appian Net Revenue Retention Rate

Appian's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 117% in Q1. That means even if they didn't win any new customers, Appian would have grown its revenue 17% year on year. That is a good retention rate and a proof that Appian's customers are satisfied with their software and are getting more value from it over time. That is good to see.

Key Takeaways from Appian's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Appian’s balance sheet, but we note that with a market capitalization of $3.7 billion and more than $160.2 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We liked to see that Appian beat analysts’ revenue expectations pretty strongly this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. Overall, we think this was still a really good quarter, that should leave shareholders feeling positive. But the market was likely expecting more and the company is down 9.33% on the results and currently trades at $42.82 per share.

Should you invest in Appian right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.