Appian (NASDAQ:APPN) Surprises With Q2 Sales, Next Quarter Growth Looks Optimistic

Kayode Omotosho /
2021/08/05 4:09 pm EDT
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Low code software development platform provider Appian (Nasdaq: APPN) reported strong growth in the Q2 FY2021 earnings announcement, with revenue up 24.2% year on year to $82.9 million. Appian made a GAAP loss of $23.8 million, down on its loss of $11.8 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) Q2 FY2021 Highlights:

  • Revenue: $82.9 million vs analyst estimates of $78.1 million (6.24% beat)
  • EPS (non-GAAP): -$0.24 vs analyst estimates of -$0.23
  • Revenue guidance for Q3 2021 is $90.7 million at the midpoint, above analyst estimates of $90 million
  • The company reconfirmed revenue guidance for the full year, at $356 million at the midpoint
  • Free cash flow was negative -$7.13 million, compared to negative free cash flow of -$3.28 million in previous quarter
  • Net Revenue Retention Rate: 121%, up from 118% previous quarter
  • Gross Margin (GAAP): 68.8%, down from 73.5% previous quarter

“In Q2, Appian increased cloud subscription revenue by 44% and announced the acquisition of a leading process mining firm. With this acquisition, we are unifying process mining and low-code automation. Companies can now discover their processes and automate them within the Appian platform,” said Matt Calkins, CEO & Founder.

Founded in 1999, Appian sells a software platform that lets its users build applications without using much code, allowing them to create new software more quickly.

Automation seems to be an inescapable trend, and the more companies compete to automate their processes with new applications, the more they are likely to need low-code platforms to build faster.

Sales Growth

As you can see below, Appian's revenue growth has been decent over the last year, growing from quarterly revenue of $66.7 million, to $82.9 million.

Appian Total Revenue

This quarter, Appian's quarterly revenue was up a very solid 24.2% year on year, which is above average for the company. But the revenue actually decreased by $5.85 million in Q2, compared to $7.22 million increase in Q1 2021. However, the sales also similarly dropped a year ago and management is guiding for revenue to rebound in the coming quarter, which might hint at an emerging seasonal pattern.

Analysts covering the company are expecting the revenues to grow 16.5% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

There are others doing even better. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

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 121% in Q2. That means even if they didn't win any new customers, Appian would have grown its revenue 21% year on year. Significantly up from the last quarter, this 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 Q2 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 market capitalisation of $7.76 billion and more than $242.6 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by how strongly Appian outperformed analysts’ revenue expectations this quarter. And we were also glad to see the improvement in net revenue retention rate. On the other hand, it was less good to see the deterioration in gross margin. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is down -3.83% on the results and currently trades at $108 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 full report which you can read here, it's free.

One way how to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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