Subscription Growth Drives Up Appian's Top Line
Appian (NASDAQ: APPN) reported its fourth-quarter and full-year results on Thursday.
At first glance, the company's total reported revenue growth of 19% might not look all that impressive, since Appian is supposed to be a high-growth software company. However, a sizable portion of the company's revenue is earned from low-margin professional services fees, which are lumpy from quarter to quarter. Subscription revenue, which is recurring in nature and produces high margins, is a much better number to watch. In fact, subscription revenue grew 44% last quarter and is much more indicative of Appian's true growth rate.
Appian's fourth-quarter results: The raw numbers
Metric | Q4 2018 | Q4 2017 | Year-Over-Year Change |
|---|---|---|---|
Revenue | $60.2 million | $50.6 million | 19% |
Non-GAAP operating loss | ($8.5 million) | ($4.9 million) | N/A |
Non-GAAP net loss | ($9.1 million) | ($4.8 million) | N/A |
Non-GAAP EPS | ($0.14) | ($0.08) | N/A |
Data source: Appian. GAAP = generally accepted accounting principles. Non-GAAP = adjusted. EPS = earnings per share.
What happened with Appian this quarter?
Subscription revenue growth accelerated sequentially to 44% during the quarter and came in at $33.8 million. This figure beat guidance. However, CFO Mark Lynch noted that this included a one-time accelerated payment and that the underlying growth rate was about 40%.
Professional services revenue was basically flat at $25.1 million.
Total revenue of $60.2 million exceeded the high end of guidance.
International sales were 27% of the total.
The net revenue retention rate held steady at 117%.
Non-GAAP gross margin ticked up 100 basis points to 65% due to higher subscription sales.
Non-GAAP operating loss and non-GAAP EPS both came in ahead of management's forecast.
Appian's cash balance at year-end was $94.9 million.
Here's a look back at the headline numbers from 2018:
Subscription revenue grew by 40% to $115.7 million.
Total revenue rose 28% to $226.7 million.
International sales were 29% of total revenue.
Non-GAAP net loss was $33.4 million, or $0.54 per share.
Cash consumption was $38.3 million in 2018
Image source: Getty Images.
What management had to say
Commenting on the year, founder and CEO Matt Calkins stated, "Appian is the first and only company to go public as a low-code vendor so far. Our growth in 2018 demonstrates our leadership in the low-code industry."
On Appian's earnings conference call, CFO Lynch shed some light on the company's growing customer base:
We ended the year with 378 subscription customers, adding 87 net new customers during the year. We ended 2018 with 436 total customers compared to 356 at the end of 2017. During 2018, the number of customers with [annual recurring revenue] greater than $1 million increased by 58% over 2017, demonstrating the deep value our customers get from Appian.
Looking forward
Management believes that subscription revenue will continue to be the primary factor driving the company's results.
Here's its guidance for the upcoming quarter:
Metric | Q1 2019 Guidance Range | Implied Change |
|---|---|---|
Subscription revenue | $33.3 million to $33.6 million | 31% to 32% |
Total revenue | $59.5 million to $59.8 million | 15% to 16% |
Non-GAAP operating loss | ($10.5 million) to ($10.0 million) | N/A |
Non-GAAP EPS | ($0.17) to ($0.16) | N/A |
Data source: Appian.
The company also provided investors with a peek at what it expects for the full year:
Metric | Guidance Range | Implied Change |
|---|---|---|
Subscription revenue | $148 million to $150 million | 28% to 30% |
Total revenue | $258.5 million to $262.5 million | 14% to 16% |
Non-GAAP operating loss | ($29.5 million) to ($27.5 million) | N/A |
Non-GAAP EPS | ($0.46) to ($0.42) | N/A |
Data source: Appian.
CFO Lynch pointed out that Appian has chosen to delay adoption of the new accounting standard known as ASC 606 until the end of 2019. Once the change is made, it will impact a portion of the company's revenue and expenses. According to management, the company will provide visibility into the financial impact of the changes throughout 2019.
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Brian Feroldi owns shares of Appian. The Motley Fool owns shares of and recommends Appian. The Motley Fool has a disclosure policy.
