Appian (NASDAQ: APPN) has had a rollercoaster ride as a listed company. After soaring in the early stages of the pandemic on high hopes for low-code technology, the stock fell sharply in 2021. It has remained low since then as software stocks were generally under pressure following a ‘tech recession’ in 2022, with slow growth since then.
In that time, Appian has grown into an artificial intelligence (AI)-based process automation company, also known as low-code or process mining. It has streamlined its operations through layoffs and cost cuts, reformulated its strategy to focus on the high end of the market, and now looks as strong as it has in years as it continues strong growth in cloud-based software and becomes profitable.
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The stock rose 2.6% on Thursday as the market reacted to solid results in its third-quarter earnings report. Cloud subscription revenue, the metric the company focuses on, rose 22% to $94.1 million. Total revenue rose just 12% to $154.1 million, which was due to a decline in professional services revenue, in line with Appian’s strategy to direct more of that revenue to partners such as consultants that help sell the product. Total revenue exceeded expectations at $151.9 million.
On the bottom line, Appian also showed significant improvement as adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved from a loss of $5.3 million to a profit of $10.8 million, thanks to cost savings, with the emphasis was on the higher segment of the market. the market. The company reported adjusted earnings per share of $0.15, compared to an adjusted loss of $0.20 per share and well ahead of a loss per share of $0.08.
Appian also raised its full-year EBITDA guidance to $7 million from $5 million, a significant improvement from its year-to-date guidance for a loss of $20 million to $25 million.
Artificial intelligence has quickly become the future of technology and for software companies like Appian, and AI is embedded in the company’s process automation platform.
Companies like Amazon talk about the power of ‘agentic AI’, a tool that works autonomously and makes complex decisions based on real-time data. Claiming that the company’s process automation is a better solution, Appian CEO Matt Calkins said during the earnings call, “Appian uses AI in a process to create a superior version of Agentic AI.”
Appian is a small company, although it competes with much larger software companies, and its focus on one category and only the enterprise market is a strength. After all, the gross renewal rate regularly reaches 99%, and that was again in the third quarter, showing that customers are overwhelmingly satisfied with the product.
AI adoption appears to be at a tipping point in the software industry, as companies are now aware of new possibilities and looking for ways to leverage their power. Appian has a chance to take advantage of that opportunity. In an interview with The Motley Fool, Calkins explained how the market is shifting in Appian’s favor.
“We are now more mature as an economy about what we want with AI, and it is becoming an efficiency proposition,” he said, arguing that Appian was well positioned to deliver value. He added: “So I believe (at) this stage of the national AI conversation, the international business conversation will be better for us.”
Appian’s cloud growth accelerated from the second quarter to the third quarter, and the company is well-positioned to post further gains in the fourth quarter and 2025, especially with the margin improvement. Management called for adjusted EBITDA of $6 million to $8 million for the fourth quarter, and revenue growth of 14% to 17% to a range of $95 million to $97 million, although revenue expectations are generally conservative.
Appian has not yet provided guidance for 2025, but Calkins said he is looking forward to the new year. Based on the quarter’s momentum and the broader rise of AI in the software sector, Appian could have a breakout year in store in 2025.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions at Amazon. The Motley Fool holds and recommends positions in Amazon and Appian. The Motley Fool has a disclosure policy.
Is this artificial intelligence (AI) stock about to breakout? was originally published by The Motley Fool
