Appian Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Appian sells a low-code business-process automation platform through subscriptions and professional services. Figures below are in millions of dollars, except per-share data and percentages.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Subscriptions revenue | $99.0 | $83.7 | +18.2% |
| Cloud subscription revenue | $69.7 | $53.4 | +30.6% |
| Professional services revenue | $36.3 | $30.5 | +18.8% |
| Total revenue | $135.2 | $114.3 | +18.4% |
| Gross profit / margin | $99.1 / 73.3% | $83.4 / 72.9% | Margin +0.4 pts |
| Operating loss | $(35.3) | $(23.9) | Loss widened |
| Net loss / diluted loss per share | $(36.8) / $(0.51) | $(23.2) / $(0.32) | Loss widened |
| Operating cash flow | $(25.3) | $(20.6) | Cash use increased |
| Adjusted EBITDA, non-GAAP | $(15.8) | $(3.4) | Loss widened |
Subscription gross margin was 89.4% versus 90.2%, primarily reflecting higher cloud-hosting costs. Professional services gross margin improved to 29.3% from 25.7%. Sales and marketing expense rose 37.4% to $63.1 million and research and development expense rose 39.5% to $41.6 million, driven mainly by higher personnel costs and headcount. General and administrative expense fell 5.6% to $29.7 million, largely because legal fees were lower. Stock-based compensation was $11.1 million, up from $6.9 million.
Cloud subscription revenue retention was 115%, compared with 117%. Management attributed subscription growth to both new customers and expansion within existing customers. Subscriptions represented 73.2% of revenue, approximately unchanged from 73.3%.
Financial position and liquidity
- Cash and cash equivalents were $198.7 million and short-term investments were $55.8 million at March 31, 2023. Cash, cash equivalents, and restricted cash totaled $201.0 million.
- Working capital was $145.5 million, down from $150.0 million at December 31, 2022.
- Debt was approximately $210.6 million in principal, or $209.2 million net of issuance costs on the balance sheet. Appian drew $92.0 million in borrowings during the quarter, including $62.0 million on its revolving facility.
- Operating cash use was $25.3 million; investing cash use was $12.3 million; financing provided $88.1 million. Cash and restricted cash increased by $50.6 million during the quarter, principally reflecting borrowing proceeds.
- Management said available cash, investments, expected operating cash flows, and borrowing availability should fund working capital and capital expenditures for at least 12 months. Appian reported compliance with credit covenants and expected continued compliance based on current forecasts.
Outlook, risks, and unusual items
- The filing provides no numerical quarterly or annual revenue or earnings guidance. Management expects operating expenses to continue rising in absolute dollars, but at a more measured pace than in prior years; it expects 2023 professional services gross margin to be consistent with 2022. It expects subscriptions to grow as a share of revenue over time as partner-delivered services expand.
- Appian has a non-cancellable AWS hosting commitment totaling $131.0 million over five years, including minimum spending requirements of $25.0 million in year two and $28.0 million in each of years three through five. Q1 spending was $9.4 million; management expects to meet the remaining minimum commitments.
- The Pegasystems litigation judgment awarded Appian $2.036 billion in damages, plus $23.6 million in attorney fees and statutory post-judgment interest. The case remained on appeal; payment is not due until appeals are exhausted, collection is uncertain, and Appian has not recorded the award in its financial statements.
- Following Silicon Valley Bank’s receivership, Appian said it retained access to cash and investments held there and did not expect a material operating impact. It drew $62.0 million on its revolver amid banking-market volatility. The SVB-related risk remains relevant because Appian maintains some cash above insured limits.
- Other disclosed exposures include possible effects of U.S. government debt-ceiling or shutdown disruptions, inflation in personnel and vendor costs, foreign-exchange movements, and variable-rate debt. A one-percentage-point rate increase was estimated to raise annual interest expense by approximately $2.1 million.
Most important facts to verify
- Whether cloud subscription growth and 115% retention persist, and whether hosting costs affect subscription margins.
- Whether operating-expense growth moderates and losses and operating cash use improve; distinguish GAAP results from non-GAAP measures, which exclude stock compensation, litigation expenses, and severance.
- Debt terms, interest-rate exposure, revolver availability after letters of credit, covenant compliance, and liquidity runway.
- Progress and collectability of the Pegasystems judgment; the award is not recognized as an asset in the reported financial statements.
- Execution against AWS minimum commitments and the potential effects of government spending, inflation, foreign exchange, and financial-institution disruptions.