APPIAN CORP Q2 FY2024 earnings

Appian's June 30, 2024 quarter delivered double-digit top-line growth but a slightly wider GAAP net loss. Total revenue rose 14.7% to $146.5 million from $127.7 million. Gross profit increased 17.8% to $107.0 million, and gross margin improved to 73.1% from 71.2%. Operating loss narrowed to $(39.2) million from $(40.7) million. Net loss widened to $(43.6) million from $(42.4) million, and diluted loss per share widened to $(0.60) from $(0.58). Non-GAAP operating loss was $(13.1) million compared with $(27.1) million, and adjusted EBITDA loss was $(10.5) million compared with $(24.7) million. The cloud subscriptions revenue retention rate was 118% as of June 30, 2024. Management attributes the gap between GAAP and non-GAAP results to stock-based compensation, litigation expense, judgment preservation insurance amortization, severance costs, and lease impairment charges.

Cash generation was uneven. Operating cash flow was $(17.6) million for the quarter, against $(11.9) million of net cash used by operating activities in the same period a year earlier. For the six months, operating cash flow was $1.3 million, compared with $(37.2) million used in the prior-year period. Capital expenditures were $0.7 million in the quarter versus $3.4 million, and $2.9 million for the six months versus $7.8 million. Deferred revenue rose 13.8% to $222.9 million from $195.9 million, and remaining performance obligations rose 22.3% to $469.4 million from $383.8 million. The MD&A credits stronger collections from accounts receivable and a decline in legal fees and other operating expenses for the six-month operating cash flow improvement.

Operational momentum centered on AI and partner activity. The company said AI usage nearly doubled during the quarter after enhanced functionality launched. Appian was named a Leader in the 2024 Gartner Magic Quadrant for Process Mining Platforms. It also announced work with ReleasePoint on life insurance underwriting, with the Victorian Office of Public Prosecutions on criminal case management, and with PwC UK on insurance sector innovation. Revenue from government agencies represented 22.6% of total revenue for the three months ended June 30, 2024, and 38.2% of total revenue came from customers outside the United States. No single end-customer accounted for more than 10% of total revenue. The company keeps leaning on partners such as Accenture, Capgemini, Deloitte, EY, KPMG, PwC, and TCS. Named risks include the length and variability of the sales cycle, competition, AI acting as a disruptive technology, customer concentration, and the ability to sustain revenue growth. General and administrative expense also rose on lease impairment charges and judgment preservation insurance amortization.

Guidance points to continued growth and a tighter loss. For the third quarter of 2024, cloud subscription revenue growth is guided to 15% to 18% year over year and total revenue growth to 9% to 12%. Adjusted EBITDA is expected between breakeven and $3.0 million, and non-GAAP net loss per share between $(0.10) and $(0.06), assuming weighted average common shares outstanding of 72.4 million. For the full year 2024, cloud subscription revenue growth is guided to 18% and total revenue growth to 12% to 13%. Full year adjusted EBITDA is expected between $(3.0) million and $3.0 million, and non-GAAP net loss per share between $(0.61) and $(0.52), assuming weighted average common shares outstanding of 72.6 million. Management now expects adjusted EBITDA breakeven for the full year 2024.

One contractual item to watch is the non-cancellable cloud hosting arrangement with Amazon Web Services, with purchase commitments totaling $131.0 million over five years and minimum spending requirements of $28.0 million in each of the third, fourth, and fifth years. Spending under that agreement was $10.7 million in the quarter and $21.0 million for the six months. That adds fixed cost pressure even as management targets breakeven adjusted EBITDA.