Is Appian (APPN) Undervalued? Low-Code AI Leader's Potential
Explore why Appian's low-code platform, strong financials, and $2B legal petition make it a compelling investment.
TL;DR
Appian (APPN 0.00%↑) is a growth-oriented software company that provides a sticky, AI-powered process automation platform designed for large enterprises and digital transformation. Despite current unprofitability on a GAAP basis, Appian demonstrates strong revenue growth, high subscription gross margins, and robust customer retention, along with positive expected adjusted EBITDA and free cash flow over the next few years. A significant financial catalyst for Appian is a $2.04 billion trade secret lawsuit judgment against Pegasystems (PEGA 0.00%↑) that was overturned on appeal, which is currently under petition for reinstatement by the Virginia Supreme Court. This petition offers a lot of potential cash and upside to Appian’s current valuation, while a $500 million insurance policy provides a degree of downside protection. With no timetable this is under the Generals category and considered a smaller position.
Table of Contents
Investment Thesis
Appian Corporation (Nasdaq: APPN 0.00%↑) offers a compelling long-term investment opportunity, driven by its leading position in the high-growth enterprise process automation market. The company's sticky, AI-powered low-code platform is a key driver of digital transformation for large, highly regulated organizations and government clients, making AI practical and impactful within their business processes.
Despite current GAAP unprofitability and a competitive landscape, Appian demonstrates consistent strong revenue growth, particularly in its high-margin cloud subscriptions, alongside robust customer retention. Strategic investments in AI and partner ecosystems, combined with expectations for positive adjusted EBITDA and free cash flow in the near future, underscore improving financial health and position the company for substantial future profitability and value creation.
A unique and significant upside catalyst is the ongoing trade secret litigation against Pegasystems Inc. The Supreme Court of Virginia has agreed to hear Appian's petition to reinstate the $2.036 billion judgment against Pegasystems, which includes a jury's finding of willful and malicious trade secret misappropriation. The Supreme Court granted Appian's petition on all four issues it raised and will also hear Pega's cross-appeal. The Virginia jury's finding that Pegasystems violated the Virginia Computer Crimes Act remains confirmed and final. This potential substantial cash infusion not only validates Appian's intellectual property but also de-risks a portion of this upside which is further supported by a judgment preservation insurance policy, as the case now proceeds with further briefing and argument before the Supreme Court of Virginia. More about this later.
Business Overview
Appian Corporation is an American cloud computing and enterprise software company headquartered in McLean, Virginia, founded in 1999. The company operates worldwide and provides a platform as a service (PaaS) for building enterprise software applications. Appian identifies itself as "The Process Company," focusing on helping organizations run better processes to reduce costs, improve customer experiences, and gain a strategic edge.
Key Offerings and Capabilities: Appian's platform is designed for process orchestration, automation, and intelligence, aiming to help organizations design, automate, and optimize end-to-end critical processes. Its core capabilities integrates various technologies:
• Low-code development: Simplifies software implementation, reduces the need for extensive coding expertise.
• Process mining: Integrated into all Appian products since April 2022, helps companies discover work patterns by analyzing system logs for common actions and sequences.
• Business Process Management (BPM) and Case Management: Core markets for Appian.
• Robotic Process Automation (RPA): Acquired Jidoka RPA platform in 2020 and includes RPA capabilities for automating repetitive manual tasks.
• Artificial Intelligence (AI) Integration: Launched Appian AI in May 2019 and continually updates its AI and robotic process automation capabilities. Appian emphasizes embedding AI within business processes, providing structure, data, safety, measurability, and enterprise-grade scalability. This includes intelligent document processing (IDP) and generative AI (generative AI, AI agents).
• Data Fabric: An integrated data layer that unifies data across systems without migration, enabling real-time data exploration, report building, and AI-powered insights, with row-level security.
• API Integration: Connects systems with low-code design tools and prebuilt connections.
Target Customers and Verticals: Appian primarily services large organizations with complex process and high legal and compliance requirements. Its largest verticals include financial services, life sciences, government, and insurance. In 2024, over 77% of its subscriptions revenue came from these key verticals. The company's sales team generally targets organizations with over 2,000 employees and $2.0 billion in annual revenue. Government agencies represented a significant portion of total revenue, accounting for 32.2% in 2024.
Go-to-Market Strategy: Appian employs both direct sales and sales through strategic partners. It sells its software almost exclusively as subscriptions. Revenue growth is achieved by adding new customers, increasing product usage by existing customers, and expanding usage across new business processes and applications. Strategic partners like Accenture, Capgemini, Deloitte, EY, KPMG, PwC, and TCS work on digital transformation projects and introduce Appian to potential customers, often going to market with their own pre-built solutions using the Appian platform.
Growth Strategy:
• Expanding its customer base globally across various industries.
• Growing revenue from key industry verticals by enhancing sales and marketing expertise.
• Continuous innovation and enhancement of its platform, including increasing functionality and reducing developer skill requirements.
• Offering pre-built industry solutions to accelerate customer usage.
• Expanding its international footprint, leveraging multilingual platform design and cloud presence in 16 countries. In 2024, 37% of total revenue was generated from customers outside the U.S..
• Leveraging its partner base for broader customer coverage and solution delivery.
Competitive Landscape and Strengths: Appian faces competition from providers of custom software solutions, other low-code development platforms, and various automation technologies (BPM, case management, process mining, RPA). Key competitive factors include platform features, ease of use, data fabric, AI capabilities, integration, deployment flexibility, professional services, pricing, security, and brand. Appian believes it competes favorably on features, security, performance, ease of integration, and low total cost of ownership, as validated by its recognition as a leader in the Gartner Magic Quadrant for Enterprise Low-Code Application Platforms.
History Highlights:
• 1999: Founded by Michael Beckley, Matt Calkins (CEO), Robert Kramer (GM), and Marc Wilson (Chief Partner Officer).
• 2001: Developed Army Knowledge Online, considered "the world's largest intranet" at the time.
• 2010-2013: Appian Cloud received FISMA low-level security accreditation from the U.S. Education Department (2010) and FISMA Moderate Authorization and Accreditation from GSA (2013).
• 2014: Received $37.5 million in secondary investments from New Enterprise Associates.
• 2017: Became a publicly traded company on NASDAQ (APPN) on May 25.
• 2019: Released Appian AI.
• 2020: Acquired Novayre Solutions SL (Jidoka RPA platform).
• 2021: Acquired process mining company Lana Labs.
• 2022: Awarded $2.04 billion in damages against Pegasystems Inc. for trade secret theft in an operation referred to as "Project Crush". Process mining was fully integrated into all Appian products.
• 2023: Net loss of US$-111 million on US$545 million revenue.
• 2024: Total revenue of $617.0 million, with a net loss of $92.3 million. The Court of Appeals of Virginia reversed the Pegasystems judgment, remanding for a new trial. Appian submitted a petition to the Supreme Court of Virginia to reinstate the full judgment.
• 2025 (Q1): Total revenue of $166.4 million, adjusted EBITDA of $16.8 million.
Financials
Revenue Growth and Composition:
• Appian has demonstrated consistent total revenue growth, reaching $617.0 million in 2024. Total revenue in Q1 2025 was $166.4 million, an 11% increase over Q1 2024. The total revenue for the trailing 12 months as of March 31, 2025, was $634 million.
• A crucial indicator of health is the increasing proportion of high-margin subscriptions revenue. In 2024, subscriptions revenue grew by 19% over 2023 to $490.6 million, comprising 79.5% of total revenue. This trend continued in Q1 2025, with subscriptions revenue growing 14.2% to $134.4 million, representing 80.7% of total revenue.
• Cloud subscriptions revenue is a primary driver, increasing by 15% to $99.8 million in Q1 2025 over Q1 2024. This is indicative of demand for their platform and market growth.
• The company uses a "land and expand" strategy, where customers often start with a single application and then build many more, increasing product usage and revenue. Subscriptions revenue from existing customers accounted for $8.5 million of the increase in Q1 2025.
• The cloud subscriptions revenue retention rate was 112% as of March 31, 2025, and consistently in the high 90s (99% for Q1 2025, 98% average over the last three fiscal years), demonstrating strong customer stickiness and ability to expand within existing accounts.
Profitability and Margins:
• Despite strong revenue growth, Appian reported GAAP net losses of $92.3 million in 2024, improving from a loss of $111.4 million in 2023 and $150.9 million in 2022. The company has an accumulated deficit of $612.2 million as of December 31, 2024. Appian is not projected to achieve profitability within the next three years on a GAAP basis.
• However, Appian achieved positive adjusted EBITDA of $20.3 million in 2024, a significant improvement from a loss of $44.8 million in 2023. In Q1 2025, adjusted EBITDA was $16.8 million. This indicates improving operational efficiency when excluding certain non-cash and non-ordinary items.
• Gross margins are robust, particularly for subscriptions.
◦ Subscriptions gross margin was 89.1% in 2024 and 88.9% in Q1 2025.
◦ Professional services gross margin was 23.5% in 2024 and increased to 25.1% in Q1 2025.
◦ Overall gross margin was 75.7% in 2024 and 76.6% in Q1 2025, driven by the increasing shift towards subscriptions revenue. The company expects this mix shift to continue, steadily rising overall gross margin.
Cash Flow and Liquidity:
• Appian generated positive operating cash flow of $6.9 million in 2024 and a strong $45.0 million in Q1 2025, indicating improved cash generation from core operations.
• Free cash flow was positive at $30.73 million for the trailing 12 months as of March 31, 2025.
• As of March 31, 2025, Appian had $135.0 million in cash and cash equivalents.
• The company has a negative net cash position of approximately -$112.64 million as of March 31, 2025, with $199.70 million in cash and short-term investments and $312.34 million in debt ($64.716 million short-term investments and $134.982 million cash and cash equivalents, compared to $248.024 million total debt). This indicates a reliance on debt to some extent, though they appear to be managing it within covenants.
• Appian operates under a Senior Secured Credit Facilities Credit Agreement with a $200.0 million term loan and a $100.0 million revolving credit facility, maturing in November 2027. As of March 31, 2025, $62.0 million was outstanding under the revolving credit facility. They promptly cured a recent covenant violation by transferring cash and obtained a waiver from lenders, indicating active management of their debt obligations.
Litigation Insurance Policy
Appian secured a judgment preservation insurance policy to mitigate the financial risk associated with the appeal process of its $2.036 billion trade secret judgment against Pegasystems. This type of policy is designed to protect a plaintiff's awarded monetary judgment from being overturned or significantly reduced during the appeals process.
Here are the key details of Appian's policy:
Coverage Amount: The policy guarantees Appian a minimum recovery of $500 million from the judgment. If the final, non-appealable judgment amount is ultimately less than this $500 million, or if Pegasystems is unable to pay up to that amount (excluding the case of Pegasystems' bankruptcy), the insurers are responsible for covering the difference. This effectively sets a financial floor for Appian's recovery from the lawsuit.
Cost: Appian made a one-time payment of $57.3 million for the policy. This amount included a 9.8% premium, taxes, and a brokerage fee.
Insurers: The policy was underwritten by a syndicate of insurers, indicating confidence from the insurance industry in the strength of Appian's original verdict.
What it Covers: It specifically covers financial losses if the final judgment is less than the insured amount.
What it Does Not Cover: The policy does not cover Appian's legal costs or expenses incurred in the litigation, nor does it apply to settlements, stipulations, or if Appian fails to appeal or prosecute the lawsuit. It generally does not protect against non-collectability due to the defendant's bankruptcy.
Strategic Benefits for Appian:
Risk Mitigation: The policy partially de-risks the appeal process by guaranteeing a significant portion of the judgment.
Financial Impact: It had a positive impact on Appian's market capitalization, with some estimates suggesting it added approximately $500 million to the company's valuation.
Financial Flexibility: While some companies use such policies as collateral for loans or to fund operations during litigation, Appian indicated at the time that it was not planning to do so immediately.
Validation: The willingness of insurers to underwrite such a large policy can be seen as a validation of the underlying strength and collectability of the judgment from the perspective of the insurance industry.
This policy provides Appian with a measure of financial certainty regarding the outcome of the protracted legal battle, securing a substantial portion of the original jury award regardless of potential reductions on appeal.
Factors Favoring Appian:
Virginia Supreme Court Granted Review on All Four Issues: This is a significant procedural victory for Appian. The Virginia Supreme Court does not grant review to all petitions. The fact that it agreed to hear all four errors Appian raised suggests that the Court sees merit in reviewing the Court of Appeals' decision and potential issues with its reasoning or application of law.
Jury Verdict of $2.036 Billion: The original unanimous jury verdict for such a substantial amount, based on seven weeks of testimony and extensive evidence, indicates a strong factual finding of willful and malicious trade secret misappropriation by Pega. Appellate courts generally show deference to jury findings of fact, especially when supported by substantial evidence.
Pega's Computer Crimes Act Violation is "Confirmed and Final": Pega did not appeal the Virginia Computer Crimes Act violation, meaning this finding against them stands. While separate from the trade secret misappropriation damages, it strengthens the overall narrative of Pega's misconduct and could indirectly influence the Supreme Court's view of the case.
Court of Appeals Reversed Based on "Errors" Rather Than Insufficient Evidence of Misappropriation: The Court of Appeals found that the trial court committed "a series of errors" (primarily related to jury instructions on damages and evidence exclusion), rather than ruling that there was insufficient evidence of trade secret misappropriation itself. This means the underlying factual finding of misappropriation still largely stands, and the Supreme Court's focus will likely be on whether the legal errors identified by the Court of Appeals warrant a complete reversal or a new trial, or if the original verdict can be reinstated.
Appian's Arguments Focus on Reinstating the Jury's Verdict: Appian's petition seeks to restore the jury's verdict and corresponding damages, arguing that it was the "correct legal outcome." This suggests they believe the errors identified by the Court of Appeals were not fundamental enough to overturn the core findings of the jury.
Factors Favoring Pega (and Challenges for Appian):
Court of Appeals Reversal: The intermediate appellate court (Court of Appeals) did overturn the $2.036 billion award, ruling that the trial court committed errors, particularly regarding jury instructions on damages and the exclusion of Pega's evidence. The Court of Appeals' primary concern was that the trial court's instructions on unjust enrichment damages under the Virginia Uniform Trade Secrets Act (VUTSA) improperly shifted the burden of proof to Pega, allowing Appian to claim all of Pega's sales as damages without sufficiently proving causation.
Burden of Proving Causation for Damages: The Court of Appeals emphasized that VUTSA places the burden on the complainant (Appian) to prove that unjust enrichment damages were "caused by misappropriation." They found that the trial court's instruction removed this "causation nexus." This is a significant legal point that Appian must overcome.
Exclusion of Pega's Evidence: The Court of Appeals also found that the trial court erred in preventing Pega from introducing evidence to show that much of its revenue was not attributable to products utilizing Appian's trade secrets. This evidentiary ruling was deemed consequential, especially given the burden-shifting instruction.
Pega's Cross-Appeal: The Virginia Supreme Court also agreed to hear Pega's cross-appeal issues regarding the sufficiency of evidence of trade secret misappropriation. While these arguments were rejected by both lower courts, the Supreme Court's willingness to hear them means Pega will have another opportunity to challenge the core findings against them.
Deference to Appellate Court on Legal Interpretation: While the Supreme Court can overturn the Court of Appeals, appellate courts generally defer to lower courts on factual findings, but they review legal interpretations de novo (meaning they review the law as if it were being heard for the first time). The Court of Appeals' ruling primarily focused on legal errors in the jury instructions and evidence exclusion, which the Supreme Court will scrutinize closely.
High Bar for Reinstating Large Verdicts: Reinstating such a massive jury verdict after it has been overturned by an intermediate appellate court can be a high bar. The Supreme Court will need to be convinced that the Court of Appeals' identified errors were either not errors, or were harmless errors that did not affect the fairness of the trial or the validity of the jury's core findings.
Conclusion on Probability:
It is impossible to assign a precise probability. However, based on the information provided:
The fact that the Virginia Supreme Court granted Appian's petition on all four issues is a positive indicator for Appian. This suggests the court believes there are substantial legal questions that need to be addressed, and it's not a frivolous appeal.
The case hinges heavily on the Virginia Supreme Court's interpretation of the Virginia Uniform Trade Secrets Act (VUTSA), particularly regarding the burden of proof for damages (unjust enrichment) and whether the trial court's errors in jury instructions and evidence exclusion were indeed prejudicial. If the Supreme Court agrees with the Court of Appeals on these legal errors, Appian faces a significant challenge in reinstating the full $2.036 billion verdict. They might still win on liability but potentially face a new trial on damages.
Pega's confirmed Computer Crimes Act violation is a strong factual underpinning of their misconduct, which may weigh on the justices.
Therefore, Appian has cleared a significant hurdle by having their petition granted on all issues. Their chances of some form of favorable outcome (whether a full reinstatement of the verdict, a partial reinstatement, or a new trial with more favorable instructions) have certainly increased compared to if the petition had been denied. However, the legal complexities surrounding the damages calculation and the Court of Appeals' finding of trial errors mean it's far from a guaranteed win for the full $2.036 billion.
It's a high-stakes case with complex legal arguments!
Valuation
Our valuation of Appian Corporation employs a dual approach, combining an Absolute Valuation through a Discounted Cash Flow (DCF) model and a Relative Valuation using comparable company analysis. This comprehensive methodology allows us to assess Appian's intrinsic value based on its projected cash flows, while also benchmarking its market valuation against key industry peers.
Absolute Valuation (Discounted Cash Flow)
Our 7-year Discounted Cash Flow (DCF) model projects Appian's Free Cash Flow to Firm (FCFF) based on detailed financial assumptions, including an expectation for EBIT margins to reach 20% by year 7. We utilized a Weighted Average Cost of Capital (WACC) of 12.86% to discount these future cash flows back to the present. This WACC was derived from a cost of equity of 13.77% (using a risk-free rate of 4.25%, a market risk premium of 5.5%, and Appian's Beta of 1.73) and a post-tax cost of debt of 5.14%.
Base Case Valuation (Excluding Litigation Impact): Based solely on projected operational cash flows and a terminal growth rate of 2.5%, our DCF model estimates a Base Case Equity Value of $2,035.8 million, translating to an intrinsic value of approximately $27.48 per share. This value is very close to Appian's current trading price, suggesting that core operations at the assumed growth and profitability levels are largely priced in.
Litigation Catalyst Valuation: The significant $2.04 billion trade secret judgment against Pegasystems Inc. represents a material potential cash infusion. Assuming a conservative 50% net after-tax collection of the judgment (approximately $805 million) occurring in Year 3 (2027), its present value is $552.1 million. Incorporating the uncertainty of the ongoing appeal, we've applied a 60% probability of a significant collection and a 40% probability of no significant collection.
Probability-Weighted Equity Value: Applying these probabilities, our model yields a probability-weighted Equity Value of $2,367.06 million, which translates to an intrinsic value of approximately $31.95 per share.
This DCF analysis suggests a potential upside to Appian's current trading price, largely driven by the probabilistic inclusion of the Pegasystems litigation judgment. Achieving the projected EBIT margin targets and sustaining growth are critical assumptions for this valuation.
Relative Valuation
To complement our absolute valuation, we performed a relative comparable company analysis, focusing on revenue multiples given Appian's current unprofitability on a GAAP basis. We benchmarked Appian against key peers in the enterprise software, low-code, and automation sectors: ServiceNow (NOW 0.00%↑), UiPath (PATH 0.00%↑), monday.com (MNDY 0.00%↑), and PagerDuty (PD 0.00%↑).
Key Observations:
Discount to Peers: Appian's current revenue multiples (P/S of 3.42x and EV/Revenue of 3.50x) are significantly lower than the median (8.79x P/S, 8.97x EV/Revenue) and average of its comparable companies.
Alignment with Specific Peers: Appian's multiples are most closely aligned with UiPath (EV/Revenue of 3.55x) and PagerDuty (EV/Revenue of 3.30x). These companies have also experienced periods of market skepticism or are in more specialized niches compared to the broader enterprise software giants.
Drivers of the Discount: The market likely applies a discount to Appian due to its smaller scale, current GAAP unprofitability, and the inherent risks associated with scaling a growth company in a competitive market. Larger, more consistently profitable peers like ServiceNow command a substantial premium.
Implication: If Appian were to trade at the median EV/Revenue multiple of its comps (8.97x), its implied Enterprise Value would be approximately $5.56 billion, leading to an implied per share value of roughly $74.37. This highlights a substantial potential upside if Appian can achieve its profitability targets, expand its market share, and reduce perceived operational risks, leading to a re-rating of its valuation multiples closer to the industry median.
Risk
• Litigation Catalyst: The $2.036 billion trade secret judgment against Pegasystems Inc. is a significant potential financial boost. While the Court of Appeals reversed the judgment, the Virginia Supreme Court has granted Appian's petition to hear the appeal on all four issues, which is a positive procedural development for Appian. Appian has a judgment preservation insurance policy (JPI) that would pay up to $500.0 million if they lose all appeals. This insurance provides a financial backstop, though the full amount and timing of any payout remain uncertain due to the ongoing appeals process. The cost of this policy (amortized at ~$16M/year) has impacted general and administrative expenses.
• Market Volatility and Unprofitability: Appian's stock has a high beta (approximately 1.72-1.73), indicating higher volatility than the broader market. The company's continued GAAP unprofitability is a core risk, impacting earnings-based valuation metrics.
• Altman Z-Score: An Altman Z-Score of 1.92, which is below 3, suggests an increased risk of bankruptcy. This is a red flag, though offset by positive free cash flow and a clear path to adjusted profitability.
• Dependence on AWS: Substantially all of Appian's cloud offering infrastructure is outsourced to Amazon Web Services (AWS). There is a non-cancellable cloud hosting arrangement with AWS totaling $220.0 million over five years, with minimum annual spending requirements of $44.0 million. Any disruption or security compromise at AWS could adversely affect Appian's business and potentially lead to liabilities.
• Customer Concentration: Revenue from U.S. federal government agencies represented 23.9% of total revenue in Q1 2025. While no single end-customer accounts for more than 10% of total revenue, the concentration in government and highly regulated sectors (financial services, life sciences, insurance, which together generated over 77% of subscriptions revenue in 2024) makes them susceptible to changes in public sector budgets or industry-specific regulations.
• Sales Cycle: Appian notes its sales cycle is "long and unpredictable, particularly with respect to large customers," requiring considerable time and expense without guaranteed revenue.