Appian Corporation (Nasdaq: APPN) — Q1 2021 Form 10-Q
Business context and period: Appian provides a low-code automation platform for building applications and workflows. This unaudited filing covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Subscription revenue | $63.8 | $50.4 | +26.4% |
| Professional services revenue | $25.1 | $28.4 | -11.7% |
| Total revenue | $88.9 | $78.9 | +12.7% |
| Gross profit / gross margin | $65.3 / 73.5% | $54.7 / 69.4% | Margin +4.1 pts |
| Operating loss | $(10.5) | $(8.6) | Loss widened |
| Net loss / diluted loss per share | $(13.6) / $(0.19) | $(11.7) / $(0.17) | Loss widened |
| Net cash used in operating activities | $(2.8) | $(3.9) | Use decreased |
- Revenue mix: Subscriptions were 71.8% of revenue, versus 64.0% a year earlier. SaaS revenue increased to $39.1 million from $28.4 million; term-license subscriptions were $19.9 million versus $17.8 million.
- Margins and expenses: Subscription gross margin rose to 90.8% from 89.3%, while professional-services gross margin fell to 29.6% from 34.1%. Total operating expenses increased 19.7% to $75.8 million, including R&D growth of 29.0% and G&A growth of 45.7%.
- Cash and investments: At March 31, cash and cash equivalents were $114.8 million, short-term investments $118.0 million, and long-term investments $22.3 million. Working capital was $220.5 million. Cash and cash equivalents increased $2.3 million during the quarter.
- Debt and commitments: No borrowings were outstanding under the $20.0 million revolving credit facility, which matures in November 2022. The company had $11.2 million in letters of credit, principally supporting leased office space, and reported compliance with its covenants. Total operating lease liabilities were $58.2 million.
Material changes and management commentary
- Total revenue growth was driven by a $13.3 million increase in subscriptions, partly offset by a $3.3 million decline in professional services. Subscription growth came from both new customers and expanded deployments at existing customers. Increased use of partners for services also supported subscriptions without increasing Appian’s professional-services revenue.
- Operating loss widened despite higher revenue and gross margin, as operating expenses increased. G&A included $3.3 million of accelerated stock-based compensation after the CEO’s 2019 stock option grant met its vesting condition in February 2021. Total stock-based compensation expense rose to $7.9 million from $3.5 million.
- Other expense, net was $2.9 million, primarily reflecting foreign-exchange losses. Management expects to continue investing in sales and marketing, R&D, customer support, and international growth. It expects subscription revenue to become a larger share of total revenue and professional services to decline as a share over time; short-term gross margins may fluctuate, with subscription margins expected to improve over time.
- Management stated existing cash, investments, operating cash flows, and available credit should support working capital and capital expenditure needs for at least the next 12 months. No specific numerical financial guidance was provided in the filing.
Risks, contingencies, and unusual items
- Appian said it had not seen a meaningful adverse financial impact from COVID-19 through March 31, 2021, but noted potential future effects from reduced demand, longer sales cycles, and broader economic uncertainty; the ultimate impact could not be estimated.
- Foreign-exchange movements contributed to quarterly expense. The company does not currently hedge foreign-currency transactions. A hypothetical 100-basis-point interest-rate change was not expected to materially affect the fair value of its investment portfolio.
- The filing reports no legal proceedings expected to have a material adverse effect and no material changes to the risk factors in the 2020 Form 10-K. Management concluded disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether subscription growth and the 118% cloud subscription revenue retention rate (versus 115% a year earlier) persist, and how much growth comes from new customers versus expansion.
- Whether improving total gross margin can continue as cloud hosting costs rise and professional-services revenue and margins fluctuate.
- How operating expenses, stock-based compensation, and the CEO grant’s accelerated vesting affect progress toward profitability and share dilution.
- Whether deferred revenue and cash flow trends support reported revenue growth: deferred revenue declined to $110.6 million from $120.1 million at year-end, and operating cash flow remained negative.
- How COVID-19, foreign-exchange movements, partner reliance, and lease commitments affect future results and liquidity.