Appian (NASDAQ:APPN) Beats Q3 Sales Targets But Stock Drops
Low code software development platform provider Appian (Nasdaq: APPN) reported Q3 FY2023 results exceeding Wall Street analysts' expectations , with revenue up 16.3% year on year to $137.1 million. However, next quarter's revenue guidance of $140.5 million was less impressive, coming in 1.52% below analysts' estimates. Turning to EPS, Appian made a non-GAAP loss of $0.20 per share, improving from its loss of $0.43 per share in the same quarter last year.
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Appian (APPN) Q3 FY2023 Highlights:
Revenue: $137.1 million vs analyst estimates of $135.3 million (1.31% beat)
EPS (non-GAAP): -$0.20 vs analyst estimates of -$0.25
Revenue Guidance for Q4 2023 is $140.5 million at the midpoint, below analyst estimates of $142.7 million
Free Cash Flow was -$65.5 million compared to -$15.3 million in the previous quarter
Net Revenue Retention Rate: 117%, in line with the previous quarter
Gross Margin (GAAP): 73.7%, up from 71.4% in the same quarter last year
“Our private data-centric approach to AI is getting strong support from buyers,” said Matt Calkins, CEO & Founder.
Founded by Matt Calkins and his three friends out of an apartment in Northern Virginia, Appian (NASDAQ:APPN) sells a software platform that lets its users build applications without using much code, allowing them to create new software more quickly.
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Sales Growth
As you can see below, Appian's revenue growth has been strong over the last two years, growing from $92.4 million in Q3 FY2021 to $137.1 million this quarter.
This quarter, Appian's quarterly revenue was once again up 16.3% year on year. On top of that, its revenue increased $9.38 million quarter on quarter, a strong improvement from the $7.52 million decrease in Q2 2023. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Appian is expecting revenue to grow 11.7% year on year to $140.5 million, slowing down from the 19.8% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 14.3% over the next 12 months before the earnings results announcement.
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Product Success
One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.
Appian's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 117% in Q3. This means that even if Appian didn't win any new customers over the last 12 months, it would've grown its revenue by 17%.
Significantly up from the last quarter, Appian has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.
Key Takeaways from Appian's Q3 Results
Although Appian, which has a market capitalization of $2.86 billion, has been burning cash over the last 12 months, its more than $169.5 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.
Revenue and adjusted EPS both beat, and we enjoyed seeing Appian materially improve its gross margin this quarter. We were also glad its net revenue retention grew. On the other hand, its revenue and adjusted EBITDA guidance for next quarter underwhelmed and its full-year revenue guidance slightly missed Wall Street's estimates as well. This is driving weakness in the stock. Overall, this was a mediocre quarter for Appian. The company is down 6.43% on the results and currently trades at $39 per share.
Appian may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.
