Appian Corporation (Nasdaq: APPN) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Appian provides a low-code software platform for building business applications and workflows. Results are unaudited and prepared under U.S. GAAP.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $114.3 million | $88.9 million; up 28.6% |
| Subscription revenue | $83.7 million | $63.8 million; up 31.3% |
| Professional services revenue | $30.5 million | $25.1 million; up 21.8% |
| Gross profit / margin | $83.4 million / 72.9% | $65.3 million / 73.5% |
| Operating loss | $23.9 million | $10.5 million |
| Net loss / diluted loss per share | $23.2 million / $0.32 | $13.6 million / $0.19 |
| Cash used in operating activities | $20.6 million | $2.8 million |
- Cloud subscription revenue was $53.4 million, versus $39.1 million. Subscription revenue was 73.3% of total revenue, compared with 71.8%.
- Operating expenses rose 41.4% to $107.2 million, led by increases in research and development (44.2%) and general and administrative expense (64.4%). G&A included higher legal fees related to two lawsuits.
- At March 31, cash and cash equivalents were $106.8 million, with $53.4 million in short-term investments and $8.2 million in long-term investments. Working capital was $131.5 million. Cash, cash equivalents, and restricted cash totaled $109.9 million.
- There were no borrowings under the $20.0 million revolving credit facility; $11.2 million of letters of credit were outstanding. Appian reported covenant compliance.
- Cash from financing was $24.4 million, entirely from stock-option exercises. Investing activities provided $2.1 million, including investment-sale proceeds, and included $3.4 million of property and equipment purchases.
Changes versus the prior comparable period
- Revenue grew 28.6%, including a $14.3 million increase in cloud subscription revenue. Management attributed subscription growth to expanded deployments at existing customers, new customers, and Lana Labs revenue.
- Despite revenue growth, net loss widened by $9.6 million and gross margin decreased 0.6 percentage points. Professional services gross margin fell to 25.7% from 29.6%; subscriptions gross margin was 90.2%, versus 90.8%.
- Operating cash use increased to $20.6 million from $2.8 million. Management cited working-capital uses, including lower accrued compensation and deferred revenue and higher prepayments and deferred commissions; collections and reduced receivables partly offset these uses.
- Cloud subscription revenue retention was 117%, compared with 118% a year earlier.
Outlook, commentary, and risks
- The filing provides no specific quantitative revenue or earnings guidance. Management expects to continue investing in sales and marketing, research and development, and international growth; it expects operating expenses to rise in absolute dollars. It also expects subscription revenue to grow as a share of total revenue over time, partly as partners perform more professional services.
- Management said available cash, investments, potential operating cash flows, and credit availability should be sufficient for working capital and capital expenditures for at least the next 12 months. This is an expectation, not a guarantee.
- Appian has a non-cancellable AWS hosting agreement with $131.0 million of minimum commitments over five years; Q1 spending under it was $7.8 million. The filing notes total payments may exceed the minimum depending on usage.
- Operating lease liabilities were $56.1 million; future minimum lease payments were $90.7 million before imputed interest. The company also disclosed headquarters expansions, including additional space scheduled to commence in 2022 and 2023, with a portion to be subleased.
- Appian’s litigation with Pegasystems remained active: its Virginia case was proceeding toward jury deliberations in early May 2022, and the parties filed summary-judgment motions in a separate Massachusetts case. Management said it did not expect ordinary-course legal matters to have a material adverse financial-statement impact, but litigation may entail costs and management distraction.
- COVID-19 had not materially affected financial position, results, or liquidity through March 31, 2022, according to management; future effects, including possible reduced demand or longer sales cycles, were uncertain. Other exposures include foreign-currency fluctuations and interest-rate effects on investments.
- After quarter-end, the Compensation Committee approved an increase in CEO Matthew Calkins’s annual base salary to $1.0 million, effective immediately. Management concluded disclosure controls were effective at a reasonable assurance level.
Key facts for investors to verify
- Whether subscription growth and 117% retention continue, and how much growth comes from existing-customer expansion, new customers, and Lana Labs.
- Whether expense growth—especially legal, R&D, and G&A spending—moderates and whether gross margins stabilize.
- Whether operating cash burn improves, including the effects of deferred revenue, collections, compensation payments, and AWS prepayments.
- The scale and timing of AWS and lease commitments, and whether actual hosting costs or lease needs exceed current expectations.
- Developments, potential exposure, and expenses in the Pegasystems litigation; the filing does not provide a clear estimate of any possible outcome or financial effect.