Business context and reporting period
Appian Corporation (Nasdaq: APPN) provides a low-code platform for process mining, workflow and automation, alongside professional services. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $110.1 million | $83.0 million | $224.3 million | $171.9 million |
| Subscription revenue | $76.7 million | $56.9 million | $160.4 million | $120.7 million |
| Professional services revenue | $33.4 million | $26.1 million | $63.9 million | $51.1 million |
| Gross profit / gross margin | $76.8 million / 69.8% | $57.2 million / 68.9% | $160.0 million / 71.3% | $122.5 million / 71.3% |
| Operating loss | $(42.7) million | $(24.6) million | $(66.6) million | $(35.1) million |
| Net loss | $(49.4) million | $(23.8) million | $(72.5) million | $(37.4) million |
| Net loss per share, diluted | $(0.68) | $(0.34) | $(1.00) | $(0.53) |
| Cash used in operating activities | Not separately reported for the quarter | $(50.3) million | $(9.4) million |
Q2 revenue grew 32.6% year over year; subscription revenue increased 34.6% and professional services revenue 28.2%. For the first half, revenue grew 30.5%. Cloud subscription revenue was $57.1 million in Q2, up 34%, and $110.5 million for the six months, up 35%. Cloud subscription revenue retention was 116%, down from 121% a year earlier.
Operating expenses rose to $119.5 million in Q2 from $81.7 million, and to $226.6 million for the first half from $157.6 million. First-half expense growth included higher sales and marketing and R&D investment and increased G&A costs, including legal fees. Q2 subscriptions gross margin improved to 88.9% from 88.0%, while professional services gross margin declined to 25.8% from 27.2%. First-half total gross margin was unchanged at 71.3%.
At June 30, 2022, cash and cash equivalents were $76.2 million, short-term investments and marketable securities $59.7 million, and long-term investments $2.0 million. Working capital was $102.3 million, compared with $121.8 million at December 31, 2021. Cash, cash equivalents and restricted cash totaled $79.1 million, down from $104.0 million at year-end. The company reported no outstanding borrowings on its $20 million revolving credit facility, which matures in November 2025; $11.0 million of letters of credit were outstanding. Total operating lease liabilities were $55.2 million.
Material changes, outlook and risks
- First-half operating cash use increased to $50.3 million from $9.4 million, primarily reflecting the larger net loss and weaker working-capital contribution. Financing provided $25.0 million, mainly from stock-option exercises. Investing activities provided $0.6 million.
- Management said available cash, investments, expected operating cash flows and credit availability should fund working capital and capital expenditures for at least 12 months. The company expects expenses to increase in absolute dollars as it invests in sales, R&D and growth; it did not provide numerical earnings or revenue guidance in this filing.
- A jury awarded Appian approximately $2.036 billion in its trade-secret case against Pegasystems, plus $1 under the Virginia Computer Crimes Act. Pegasystems sought post-trial relief; one motion was denied July 28, 2022. Appeals remain possible, collection is uncertain, and Appian will not recognize the award until collected. Legal fees are expensed as incurred. A separate false-advertising case remained unresolved.
- The company has a non-cancellable AWS hosting agreement with $131 million in minimum purchases over five years; spending under it was $15.9 million in the first half. Payments may exceed minimums depending on usage.
- Management cited foreign-exchange losses from a stronger U.S. dollar and warned that persistent inflation could raise costs and pressure margins. The company does not currently hedge foreign-currency transactions. Risk factors were reported as unchanged from the 2021 Form 10-K.
- A 700,000-share CEO option grant has stock-price appreciation vesting thresholds of $175, $200, $225 and $250 per share. Grant-date fair value was $18.8 million; compensation expense is recognized over estimated service periods.
Important facts for investors to verify
- Whether revenue growth and customer expansion continue, particularly given retention-rate decline from 121% to 116%.
- Whether operating losses and cash use moderate as investment spending, personnel costs and legal expenses evolve.
- The status, appeal outcome and collectability of the Pegasystems judgment; the award is not included in reported financial results.
- Cash needs under the AWS minimum-purchase commitment and the effect of hosting costs on margins.
- Exposure to foreign-exchange movements, inflation, and the company’s available liquidity if operating cash outflows persist.