Appian Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Appian provides a low-code application and workflow automation platform, generating revenue from subscriptions and professional services. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $83.0; +24.3% | $66.8 | $171.9; +18.0% | $145.6 |
| Subscriptions revenue | $56.9; +37.5% | $41.4 | $120.7; +31.4% | $91.9 |
| Cloud subscription revenue | $42.5 | $29.6 | $81.5 | $58.0 |
| Professional services revenue | $26.1; +2.7% | $25.4 | $51.1; −4.9% | $53.8 |
| Gross profit / margin | $57.2 / 68.9% | $45.6 / 68.3% | $122.5 / 71.3% | $100.4 / 68.9% |
| Operating loss | $(24.6) | $(12.1) | $(35.1) | $(20.7) |
| Net loss | $(23.8) | $(11.8) | $(37.4) | $(23.5) |
| Diluted loss per share | $(0.34) | $(0.17) | $(0.53) | $(0.35) |
Q2 gross margin improved modestly, but operating and net losses widened as operating expenses rose faster than revenue. Sales and marketing, R&D, and G&A expenses were $40.5 million, $23.9 million, and $17.4 million, respectively, for the quarter. The six-month G&A increase included $3.3 million of accelerated stock-based compensation after the CEO’s 2019 performance-based option grant became fully vested.
Cash flow and liquidity: Operating cash use was $9.4 million in the first half, versus $7.0 million a year earlier. Investing activities provided $26.6 million, primarily from $27.6 million of investment-sale proceeds; financing activities provided $2.1 million, mainly from option exercises. Cash and cash equivalents were $131.3 million and short-term investments were $111.3 million at June 30. Working capital was $213.5 million. Management stated these resources, operating cash flows and available credit were expected to fund requirements for at least 12 months.
Debt and other obligations: No borrowings were outstanding on the $20 million revolving credit facility; $11.2 million of letters of credit secured leased office space. The company reported $58.0 million of operating lease liabilities. It was in compliance with credit-facility covenants.
Material changes and operating indicators
- Subscription growth, particularly cloud subscriptions, drove overall revenue growth. For the first half, subscription revenue rose $28.9 million while professional services revenue declined $2.6 million.
- Revenue from existing-customer subscription expansions increased $9.6 million in Q2 and $17.9 million in the first half; new customers contributed $5.9 million and $11.0 million, respectively.
- Subscriptions represented 68.6% of Q2 revenue and 70.2% of first-half revenue, up from 62.0% and 63.1%. Management expects this mix to rise over time as strategic partners take on more services work.
- Cloud subscription revenue retention was 121%, versus 113% a year earlier, reflecting improved upsell rates. The measure includes renewals, pricing changes, expansion and contraction.
- Q2 subscription gross margin was 88.0%, down from 88.6%; professional services gross margin fell to 27.2% from 35.1%. First-half margins were 89.5% and 28.3%, respectively. Management said prior-year services margins benefited temporarily from fewer in-person engagements.
Outlook, risks and unusual items
- The filing provides no specific numerical financial guidance. Management expects continued investment and increases in absolute operating expenses, and expects subscription revenue to become a larger share of total revenue. Subscription margins may fluctuate in the short term; management expects improvement over time.
- COVID-19 had not meaningfully affected financial position, results or liquidity through June 30, 2021, but management cited uncertainty around demand, sales cycles and the pandemic’s future effects.
- In July, Appian entered a non-cancellable AWS hosting agreement with minimum purchase commitments totaling $131 million over five years. Actual payments may exceed minimums depending on service usage.
- On August 4, after quarter-end, Appian completed its acquisition of Lana Labs, a process-mining software developer, for approximately $31 million net of cash acquired and debt, funded with cash on hand. The preliminary purchase-price allocation was not available in this filing.
- Government agencies generated 19.8% of Q2 revenue; foreign customers generated 35.3%. No single end-customer exceeded 10% of revenue. Foreign exchange movements affected reported results; the company had not hedged foreign currency exposures.
- The company reported no legal proceedings expected to have a material adverse financial impact and no material changes to the risk factors in its 2020 Form 10-K. Its Class B shares carry ten votes per share, versus one vote per Class A share.
Important facts for investors to verify
- Whether cloud subscription growth and the 121% retention rate persist, and how much growth continues to come from existing-customer expansion.
- Whether operating expense growth, cash use and stock-based compensation moderate as revenue scales.
- The impact of the $131 million AWS minimum commitment on future hosting costs, margins and cash flows; actual usage-based payments could be higher.
- Lana Labs’ integration, purchase accounting, contribution to results and any additional acquisition-related costs.
- Liquidity and capital allocation after the acquisition, including lease obligations and the undrawn credit facility.