Key Points

Appian delivered better-than-expected results on the top and bottom lines. The first quarter marked its third straight period of positive adjusted EBITDA. Its AI-driven revenue is ramping quickly, which bodes well for future growth. 10 stocks we like better than Appian ›

Appian (NASDAQ: APPN) has evolved over the years from a low-code software company to a process-automation company, and it's now making another transition to an artificial intelligence (AI) company.

Along the way, Appian has provided the same service for its customers. It automates workflows, dramatically accelerating the time it takes to handle such activities as processing an insurance claim, intaking a new customer, or streamlining procurement.

In the era of AI, Appian seems to have found the ideal technology to pair with the process-automation objectives that are at the heart of the Appian Platform.

In the first quarter, management noted on the earnings call that AI usage among its customers grew by 7.9 times year over year, and that revenue from its AI-inclusive tiers more than doubled from Q4 to Q1, reaching $9 million, which is still a small percentage of its overall business. However, it should continue to drive outsize growth in the business.

CEO Matt Calkins sees the company's strength in "boring" AI, which can save its customers millions of dollars without the hype that many of its competitors are promoting.Image source: Getty Images.

Among the recent AI-driven accomplishments Appian touted was an Australian insurer who replaced the work of hundreds of underwriting agents with an app that takes in documents and automates underwriting processes. Both accuracy and speed improved through Appian's technology.

In another example, Acclaim Autism cut its time for patient intake by 83% from 180 days down to 30 days. The emergence of AI at Appian comes as the company is making some other key improvements.

Is Appian hitting an inflection point?

Appian delivered strong results in its Q1 earnings report, sending the stock up 5.3% this past Thursday as the cloud software company topped estimates on the top and bottom lines. Cloud subscription revenue rose 15% to $99.8 million, driving overall revenue up 11% to $166.4 million, which topped the consensus at $163.3 million.

The company also showed off another quarter of a significantly improved cost structure and bottom line as it reported its third straight quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which came in at $16.8 million, up from a loss of $1.3 million in the quarter a year ago. Adjusted earnings per share (EPS) improved from a loss of $0.09 to a profit of $0.13, well ahead of estimates at $0.03 per share.

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In an interview with The Motley Fool, CEO Matt Calkins said he was "very pleased" with the adjusted EBITDA and that it showed "exceptional earnings potential."

Calkins was also pleased with the improvement in the company's go-to-market performance as bookings per sales rep rose 30%, and its customer acquisition costs are also going down as sales and marketing expenses fell by 6% in the quarter even as the company achieved steady growth.

Can Appian keep climbing?

With its revamped AI platform, a streamlined go-to-market strategy, and profit margins rapidly improving, the company looks poised for future growth.

Calkins said, "AI is the best thing that's ever happened to the process automation industry." He also noted 166% growth in its data-fabric offering, which describes an architecture layer that connects data across disparate systems.

Additionally, the company is doing some work with the Department of Government Efficiency (DOGE), showing its utility for cost savings and efficiency.

For the full year, Appian's guidance called for a similar pace of growth to what the company displayed in Q1 at 14% to 15% to $680 million to $688 million. Keep your eye on Appian's growth from AI, as that could drive an inflection point in the overall growth of the business.

Considering Appian's modest valuation, that should be enough to ensure the stock outperforms over the next few years.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Appian. The Motley Fool has a disclosure policy.

1 Boring AI Stock That Could Be a Surprise Winner was originally published by The Motley Fool

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