Appian Corp. (NASDAQ: APPN) filed an S-1/A with the Securities and Exchange Commission for its upcoming initial public offering.

The company plans to offer 6.25 million shares at a marketed price range of $11 to $13. It has an additional 937,500 shares over-allotted for its underwriters. If APPN prices at the midpoint of its proposed range, and underwriters exercise their option to purchase additional shares, APPN will have a market capitalization of $715.5M.

We highlighted this deal on our IPO Insights platform.

The underwriters for the IPO are Morgan Stanley, Goldman Sachs & Co., Barclays, Pacific Crest Securities, Canaccord Genuity and Cowen and Company.

The deal is currently oversubscribed.

Business overview

Appian Corp is a business process software company that was founded in 1999 and is located in Reston, Virginia. The company provides a platform for the low-code development of software. Its software platform allows companies to reimagine their processes, services and products more efficiently and on any device. Appian reports that as of Dec. 31, 2016, it had 280 customers across a broad range of industries, of which 55 were governmental or other non-commercial entities. The company reports that 37 of its customers are Fortune 500 companies and 32 customers are Global 2000 companies.

Executive management team overview

A founder of Appian and the chief executive officer, Matthew Calkins has also served as the chairman of the board and the president of the company since Aug. 1999. From 2004 to April 2014, Calkins also served as a director of MicroStrategy Inc. Calkins holds a Bachelor of Arts in economics from Dartmouth College.

A founder of Appian, a member of the board and the general manager is Robert C. Kramer. He previously served as the company's chief financial officer from the company's founding in 1999 until Oct. 2008. He then served as the company's vice president of technology from Oct. 2008 to Dec. 2012. Kramer holds a Bachelor of Science in economics from the Wharton School of the University of Pennsylvania.

Financial highlights and risks

The company has shown impressive revenue growth. Appian generated total revenues of $132,923,000 for the year that ended on Dec. 31, 2016. By contrast, it had total revenues of $111,204,000 for the year that ended on Dec. 31, 2015, and of $88,986,000 for the year that ended on Dec. 31, 2014. The company posted net losses during each of those years, reporting that it had losses of $13,318,000, $7,848,000 and $17,915,000 in 2016, 2015 and 2014, respectively.

The company identifies several risk factors. It indicates that it has grown substantially in the last few years and may not be able to effectively manage its growth. The company also reports that if it is unable to continue growing its revenue, it may not become profitable. Appian is also dependent on one product, and if its use declines, the company could suffer substantial harm. The company has not determined how it will allocate its net proceeds from the IPO, but it states that it will use them for general corporate purposes and other capital purposes. It also intends to repay some of its debts.

Competitors

Appian identifies numerous competitors, including Salesforce.com (NYSE:CRM), ServiceNow (NYSE:NOW), IBM (NYSE:IBM), SAP (NYSE:SAP) and others. It reports that its competitors include three categories, including other low-code providers, business management and case management providers and custom solution providers.

If APPN prices at the midpoint of its proposed range as described in the introduction, and using sales from the last twelve months, APPN could have a P/S of 5.3x.

Conclusion: Consider a Modest Allocation

Appian has shown revenue growth in the past few years, but the rate appears to be slowing. It has posted successive losses and has not been profitable. The company also has substantial competition from a number of other companies.

Despite these risks, the founding team is very strong, and APPN is Goldman-led; we have observed these deals to be quite popular and hear the deal is already oversubscribed. Key referral partnerships with Deloitte, KPMG and PricewaterhouseCoopers are also encouraging.

We suggest investors consider a modest portion of this IPO.