Appian Corporation (Nasdaq: APPN) — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; it does not provide standalone fourth-quarter results.
Business context
Appian sells a low-code automation platform for building enterprise applications and workflows, primarily through subscriptions, with professional services supporting customer deployment. The company reported 693 customers at year-end and operates in 12 countries. Its strategy centers on new customer acquisition, expanding use within existing customers, cloud subscriptions, international growth, and strategic partners.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $304.6 million | $260.4 million |
| Subscriptions revenue | $198.7 million | $151.3 million |
| Cloud subscription revenue | $129.2 million | $95.0 million |
| Professional services revenue | $105.9 million | $109.1 million |
| Gross margin | 70.9% | 64.0% |
| Operating loss | $(37.9) million | $(50.5) million |
| Net loss | $(33.5) million; $(0.48) per share | $(50.7) million; $(0.77) per share |
| Adjusted EBITDA, non-GAAP | $(16.8) million | $(29.3) million |
| Cash used in operating activities | $7.6 million | $8.9 million |
Revenue rose 17.0%; subscriptions increased 31.3%, while cloud subscription revenue grew 36%. Subscriptions represented 65.2% of revenue, up from 58.1%. The filing attributes subscription growth to both customer expansion and new customers; professional services revenue declined 2.9%. Gross margin improved as the revenue mix shifted toward subscriptions and professional-services costs fell. The company remained loss-making, while operating expenses increased 16.9% to $253.7 million.
At year-end, Appian had $112.5 million in cash and cash equivalents, $109.8 million in short-term investments, and $36.1 million in long-term investments; working capital was $209.5 million. Investing activities used $153.4 million, primarily for investment purchases and the Novayre acquisition. Financing activities provided $110.5 million, mainly from a public offering. The company had no revolving-credit borrowings, a $20 million credit facility, and $11.2 million of letters of credit. Management said available cash, investments, expected operating cash flows, and credit availability should cover requirements for at least 12 months.
Backlog was $206.2 million, up from $176.0 million; approximately 32% was not expected to be recognized in 2021. Management cautions backlog may not reliably predict future revenue. The balance sheet also included $58.1 million of operating lease liabilities; future minimum lease payments totaled approximately $99.0 million.
Material changes and unusual items
- Gross margin increased to 70.9% from 64.0%; professional services gross margin rose to 35.8% from 29.6%, partly reflecting lower subcontractor and travel costs during the pandemic.
- Operating loss narrowed by $12.6 million, but sales and marketing, research and development, and general and administrative expenses all increased in dollars.
- Other income included $4.3 million of foreign-exchange gains and $1.0 million from a state-government payment for meeting job-creation and investment goals.
- Appian acquired Novayre, a robotic process automation platform developer, in January 2020 for approximately $6.9 million. Its post-acquisition results were immaterial.
- The company raised approximately $107.9 million in net proceeds from a June 2020 public offering.
- In February 2021, a performance-based CEO stock option became fully vested; Appian expected to accelerate approximately $3.3 million of stock-based compensation expense in Q1 2021.
Outlook, commentary, and risks
No numerical forward guidance is provided in the supplied filing text. Management expects continued investment in sales and marketing, research and development, and general and administrative capacity, with those expenses expected to rise in absolute dollars. It expects subscriptions to increase as a share of revenue and professional services to decline as a share, partly as partners take on more implementation work.
Management reported no meaningful adverse effect from COVID-19 on FY2020 financial position or results through year-end, but warned that 2021 could bring reduced demand and longer sales cycles. The pandemic’s ultimate impact was not estimable. Other key risks include competition and uncertain low-code adoption; dependence on a single platform, customer renewals, and AWS for cloud hosting; exposure to U.S. federal government customers; cybersecurity, privacy, and regulatory compliance; and the costs and execution risks of scaling and international expansion. U.S. federal agencies represented 18.1% of revenue. No individual end customer exceeded 10% of revenue.
Appian reported no legal proceedings expected to have a material adverse effect. The independent auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded internal controls were effective. The auditor identified revenue recognition for contracts with multiple performance obligations as a critical audit matter, involving judgments about distinct obligations and standalone selling prices.
Important facts for investors to verify
- Whether subscription and cloud growth, customer expansion, and the reported 119% cloud subscription revenue retention rate continue; the filing separately reports a 98% average cloud subscription renewal rate over the prior three fiscal years.
- Whether improved gross margin and reduced professional-services costs are sustainable, given their sensitivity to revenue mix, partner use, and pandemic-related expense changes.
- How operating cash flow, accounts receivable, and collections develop; accounts receivable rose to $97.3 million from $70.4 million, and cash used in operations was $7.6 million.
- Whether COVID-19, longer sales cycles, customer budgets, or federal-government concentration affect renewals and new bookings.
- The significance of stock-based compensation, including the expected Q1 2021 CEO-award expense, and the effect of the company’s dual-class voting structure: the CEO and affiliates held approximately 77% of voting power at year-end.