Appian's (NASDAQ:APPN) Q3 Sales Top Estimates But Stock Drops 15.8%

Kayode Omotosho /
2022/11/03 4:44 pm EDT

Low code software development platform provider Appian (Nasdaq: APPN) announced better-than-expected results in the Q3 FY2022 quarter, with revenue up 27.5% year on year to $117.8 million. However, guidance for the next quarter was less impressive, coming in at $122.5 million at the midpoint, being 3.8% below analyst estimates. Appian made a GAAP loss of $43.9 million, down on its loss of $25.3 million, in the same quarter last year.

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Appian (APPN) Q3 FY2022 Highlights:

  • Revenue: $117.8 million vs analyst estimates of $116.1 million (1.52% beat)
  • EPS (non-GAAP): -$0.43 vs analyst estimates of -$0.23
  • Revenue guidance for Q4 2022 is $122.5 million at the midpoint, below analyst estimates of $127.3 million
  • Free cash flow was negative $44.8 million, compared to negative free cash flow of $30.9 million in previous quarter
  • Net Revenue Retention Rate: 115%, in line with previous quarter
  • Gross Margin (GAAP): 71.3%, in line with same quarter last year

“In Q3, total revenue exceeded guidance. On a constant currency basis, both cloud subscription revenue and total revenue grew more than 30% year-over-year. Adjusted EBITDA loss was higher due to pull forward hiring and a sharp drop in attrition. We have a plan to reduce losses to 10% of revenue by the second half of 2023,” 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.

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Sales Growth

As you can see below, Appian's revenue growth has been strong over the last two years, growing from quarterly revenue of $77.3 million in Q3 FY2020, to $117.8 million.

Appian Total Revenue

This quarter, Appian's quarterly revenue was once again up a very solid 27.5% year on year. On top of that, revenue increased $7.81 million quarter on quarter, a strong improvement on the $4.2 million decrease in Q2 2022, and a sign of acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates Appian is expecting revenue to grow 16.6% year on year to $122.5 million, slowing down from the 28.6% 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 17.2% 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 115% in Q3. That means even if they didn't win any new customers, Appian would have grown its revenue 15% 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 Q3 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 $3.43 billion and more than $92.6 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see Appian improve their gross margin this quarter. And we were also glad to see good revenue growth. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and that cash burn increased. Overall, this quarter's results were not the best we've seen from Appian. The company is down 15.8% on the results and currently trades at $39.75 per share.

Appian may have had a tough quarter, but does that actually create an opportunity to invest 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.