Appian Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Appian sells a low-code process automation platform, primarily through subscriptions, with related professional services. Figures below are in U.S. dollars.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $468.0 million | $369.3 million |
| Subscriptions revenue | $340.2 million | $263.7 million |
| Cloud subscriptions revenue | $236.9 million | $179.4 million |
| Professional services revenue | $127.8 million | $105.5 million |
| Gross margin | 71.5% | 71.8% |
| Operating loss | $(145.0) million | $(83.9) million |
| Net loss | $(150.9) million | $(88.6) million |
| Cash used in operating activities | $(106.6) million | $(53.9) million |
| Cash and cash equivalents | $148.1 million | $100.8 million |
| Short-term investments and marketable securities | $47.9 million | $55.2 million |
| Debt outstanding | $119.4 million | None reported |
| Working capital | $150.0 million | $121.8 million |
Revenue increased 26.7% year over year. Subscription revenue rose 29.0%, including cloud subscription growth of $57.5 million. Growth came mainly from existing customers expanding deployments: $63.2 million of subscription revenue growth was attributed to existing customers versus $13.2 million from new customers. Subscription revenue represented 72.7% of total revenue, up from 71.4%.
Operating expenses rose to $479.7 million from $349.1 million, exceeding gross profit and widening the operating loss. Sales and marketing, research and development, and general and administrative expenses increased 31.3%, 42.8%, and 43.5%, respectively. Professional services gross margin declined to 23.9% from 27.3%; subscription gross margin was 89.4% versus 89.6%.
Cash and short-term investments totaled about $196.0 million at year-end. The company said these resources, operating cash flows and available credit should support working capital and capital expenditure needs for at least 12 months. However, operating cash use nearly doubled year over year. The $120.0 million term loan matures in November 2027, is secured by substantially all assets, and had $119.4 million outstanding at year-end; no revolving-facility borrowings were outstanding.
Material changes and operating indicators
- Net loss increased to $150.9 million from $88.6 million; adjusted EBITDA was a loss of $76.0 million, compared with a loss of $37.9 million.
- Customer count rose to 925 from 816; customers spending over $1 million in annual recurring revenue increased to 94 from 75.
- Cloud subscription revenue retention was 115%, down from 116% in 2021 and 119% in 2020. The company also reported an average cloud subscription gross revenue renewal rate of 99% over the last three completed fiscal years.
- Backlog increased to $376.5 million from $285.5 million; approximately 35% of year-end 2022 backlog was not expected to be recognized in 2023.
- Headcount increased to 2,307 from 1,798. Management said hiring would continue at a more measured pace.
Outlook, risks and unusual items
- Management expects operating expenses to continue rising in absolute dollars as it invests in sales, product development and growth. It expected 2023 professional services gross margin to be consistent with 2022 and general and administrative expense to decrease, largely due to anticipated lower legal costs. No specific company revenue or earnings guidance is stated in the provided filing text.
- The company identifies macroeconomic uncertainty, inflation, higher interest rates and customer spending decisions as risks. Other key exposures include intense competition, dependence on a single platform and customer renewals, cybersecurity and privacy, reliance on AWS, partner execution, and governmental and regulated-customer concentration. Government agencies generated 19.2% of 2022 revenue; no individual end customer exceeded 10%.
- Pegasystems litigation: A Virginia jury awarded Appian $2.036 billion in damages, and the final judgment added $23.6 million in attorney fees plus statutory interest of 6% annually. Pegasystems appealed. Payment is not due until appeals are exhausted, collection is uncertain, and Appian stated it would not record the award until contingencies are resolved and it collects. Accordingly, the award is not included in reported results or liquidity.
- Appian committed to at least $131.0 million of AWS hosting purchases over five years; reported AWS spending was $33.1 million in 2022. A hypothetical 100-basis-point interest-rate increase would raise annual interest expense by about $1.2 million. A 10% foreign-exchange-rate movement would affect revenue by approximately 3% and operating loss by approximately 2%, under the company’s stated assumptions.
- The company maintained a full valuation allowance against U.S. deferred tax assets. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded internal controls were effective.
Important facts for investors to verify
- Subscription growth, renewal and retention trends, and the extent to which expansion from existing customers continues to offset slower new-customer growth.
- Whether expense growth moderates and the path toward lower operating and cash-flow losses.
- Cash burn, available liquidity, variable-rate debt costs, loan covenants and secured-credit terms.
- The progress and final outcome of Pegasystems’ appeal, potential collection and timing; the judgment is not recognized as an asset or income.
- Backlog conversion, including the timing of the portion expected after 2023, and the AWS minimum-purchase commitments.
- The effects of customer concentration, macroeconomic conditions, security and privacy obligations, and dependence on AWS and strategic partners.