Appian (APPN)

Low-code automation software company Appian (NASDAQ:APPN) announced better-than-expected revenue in Q3 CY2025, with sales up 21.4% year on year to $187 million. Guidance for next quarter’s revenue was better than expected at $189 million at the midpoint, 0.9% above analysts’ estimates. Its non-GAAP profit of $0.32 per share was significantly above analysts’ consensus estimates.

Company Overview

Powering billions of transactions daily since its founding in 1999, Appian (NASDAQ:APPN) provides a low-code platform that helps businesses automate complex processes and operationalize artificial intelligence without extensive programming knowledge.

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.

Appian competes with other low-code and business process management platform providers including ServiceNow (NYSE:NOW), Pegasystems (NASDAQ:PEGA), and Microsoft's Power Platform (NASDAQ:MSFT), as well as private companies like OutSystems and Mendix (owned by Siemens).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Appian grew its sales at a decent 18.8% compounded annual growth rate. Its growth was slightly above the average software company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Appian’s recent performance shows its demand has slowed as its annualized revenue growth of 14.6% over the last two years was below its five-year trend.

This quarter, Appian reported robust year-on-year revenue growth of 21.4%, and its $187 million of revenue topped Wall Street estimates by 7.4%. Company management is currently guiding for a 13.4% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 9% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Appian’s billings punched in at $195.1 million in Q3, and over the last four quarters, its growth was impressive as it averaged 19.1% year-on-year increases. This alternate topline metric grew faster than total sales, meaning the company collects cash upfront and then recognizes the revenue over the length of its contracts - a boost for its liquidity and future revenue prospects.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Appian’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between Appian’s products and its peers.

One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.

Appian’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 113% in Q3. This means Appian would’ve grown its revenue by 12.5% even if it didn’t win any new customers over the last 12 months.

Despite falling over the last year, Appian still has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.

For software companies like Appian, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Appian’s gross margin is good for a software business and points to its solid unit economics, competitive products and services, and lack of meaningful pricing pressure. As you can see below, it averaged an impressive 76.3% gross margin over the last year. Said differently, Appian paid its providers $23.72 for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Appian has seen gross margins improve by 3.7 percentage points over the last 2 year, which is very good in the software space.

This quarter, Appian’s gross profit margin was 75.8%, in line with the same quarter last year. On a wider time horizon, Appian’s full-year margin has been trending up over the past 12 months, increasing by 1 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

Appian was roughly breakeven when averaging the last year of quarterly operating profits, decent for a software business.

Analyzing the trend in its profitability, Appian’s operating margin rose by 14.8 percentage points over the last two years, as its sales growth gave it operating leverage.

This quarter, Appian generated an operating margin profit margin of 7%, up 11.7 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Appian has shown weak cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 10.5%, subpar for a software business.

Appian’s free cash flow clocked in at $18.06 million in Q3, equivalent to a 9.7% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

Over the next year, analysts predict Appian’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 10.5% for the last 12 months will decrease to 7.3%.

Appian reported $191.6 million of cash and $306.6 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $78.33 million of EBITDA over the last 12 months, we view Appian’s 1.5× net-debt-to-EBITDA ratio as safe. We also see its $10.99 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Appian blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance trumped Wall Street’s estimates. On the other hand, its EBITDA guidance for next quarter missed. Overall, we think this was still a solid quarter with some key areas of upside. The stock traded up 10.8% to $32.50 immediately after reporting.

Updated: December 4, 2025 at 9:03 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Appian.

Appian isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its customer acquisition is less efficient than many comparable companies. And while the company’s expanding operating margin shows it’s becoming more efficient at building and selling its software, the downside is its low free cash flow margins give it little breathing room.

Appian’s price-to-sales ratio based on the next 12 months is 3.8x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $41.60 on the company (compared to the current share price of $39.46).