Apptio Announces Results for the Third Quarter 2018

Reported Q3 revenue of $59 million, 26% growth year over year

News provided by

Oct 29, 2018, 16:15 ET

BELLEVUE, Wash., Oct. 29, 2018 /PRNewswire/ -- Apptio, Inc. (NASDAQ:APTI), the business management system of record for hybrid IT, today announced results for the fiscal third quarter ended September 30, 2018.

"Our third quarter highlights include 26% year over year revenue growth and expanding non-GAAP operating income to $4 million," said Sunny Gupta, co-founder and CEO, Apptio. "We had strong contributions from our strategic segment and continued progress with our upsells, further validating our land and expand strategy. The move toward a digital enterprise, enabled by cloud, is fueling the need for CIOs to adopt Apptio. We are excited about our recent acquisition of FittedCloud, which will add capabilities to our offering in the rapidly expanding Hybrid and Multi-cloud market."

Third Quarter Financial Summary

Subscription revenue was $49.6 million, an increase of 26% from the third quarter of 2017, and comprised 84% of total revenue. Services revenue was $9.6 million, an increase of 27% from the third quarter of 2017. Total revenue was $59.2 million, an increase of 26% from the third quarter of 2017.
GAAP gross margin was 69.5%, as compared to the third quarter of 2017 GAAP gross margin of 70.4%. Non-GAAP gross margin of 72.3% improved from non-GAAP gross margin of 71.7% in the third quarter of 2017.
GAAP operating margin was negative 4.9%, an improvement from GAAP operating margin of negative 8.6% in the third quarter of 2017. Non-GAAP operating margin improved to 7.3%, as compared to non-GAAP operating margin of 0.6% in the third quarter of 2017.
GAAP net loss per basic and diluted share was $0.10 based on 44.8 million weighted average shares outstanding, compared to GAAP net loss per basic and diluted share of $0.10 based on 40.1 million weighted average shares outstanding in the third quarter of 2017.
Non-GAAP net income per diluted share was $0.05 based on 49.3 million weighted average shares outstanding, compared to non-GAAP net income per basic and diluted share of $0.01 based on 43.3 million weighted average shares outstanding in the third quarter of 2017.
Cash, cash equivalents and marketable securities were approximately $258.0 million as of September 30, 2018.

Financial Outlook
Apptio provides guidance based on current market conditions and expectations and actual results may differ materially. Please refer to the company's comments below regarding Forward-Looking Statements. Apptio is providing guidance for the fourth quarter ending December 31, 2018 and for the full year 2018 as follows:

Fourth quarter of 2018:

Total revenue is expected to be in the range of $61.0 to $62.0 million
Non-GAAP operating income of approximately $1.0 million

Full year 2018:

Total revenue is expected to be in the range of $233.3 and $234.3 million
Non-GAAP operating income of approximately $7.4 million

All forward-looking non-GAAP financial measures contained in this section titled "Financial Outlook" exclude the effects of stock-based compensation expense, acquisition-related expenses, and amortization of acquisition related intangible assets. Guidance reflects the contribution from Digital Fuel which we acquired on February 2, 2018 and the impact of the full retrospective adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) on January 1, 2018.

Conference Call Information
Apptio plans to host a conference call today to discuss the results. The call is scheduled to begin at 2:00 p.m. PT/ 5:00 p.m. ET and can be accessed by dialing 844-233-0116 (passcode: 6180216), or if outside North America, by dialing 574-990-1011 (passcode: 6180216). Individuals may also access the live teleconference from the investor relations section of the Apptio website at investors.apptio.com. A replay will be available following completion of the live broadcast.

About Apptio
Apptio (NASDAQ: APTI) is the business management system of record for hybrid IT. We transform the way IT runs its business and makes decisions. With our cloud-based applications, IT leaders manage, plan and optimize their technology investments across on-premises and cloud. With Apptio, IT leaders become strategic partners to the business by demonstrating the value of IT investments, accelerate innovation and shift their technology investments from running the business to digital innovation. Hundreds of customers choose Apptio as their business system of record for hybrid IT. For more information, please visit www.Apptio.com.

Forward-Looking Statements
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our strategy, prospects, customer demand, application adoption, potential benefits from acquired companies, and our financial outlook for the fourth quarter of, and full year, 2018. Forward-looking statements are subject to risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, those risks and uncertainties included under the caption "Risk Factors" and elsewhere in our filings with the U.S. Securities and Exchange Commission, including, without limitation, the Form 10-Q filed with the SEC on August 3, 2018. All information provided in this release and in the attachments is as of the date hereof, and we undertake no duty to update this information unless required by law.

Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP), we use the following non-GAAP financial measures: non-GAAP gross margin, non-GAAP operating loss, non-GAAP net loss per basic and diluted share, and free cash flow. In computing these measures, with the exception of free cash flow, we exclude the effects of stock-based compensation expense, acquisition-related expenses, and amortization of acquisition-related intangible assets. We define free cash flow as net cash used in operating activities, less the purchases of property and equipment. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our ongoing core business operating results. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when analyzing historical performance and liquidity and planning, forecasting, and analyzing future periods.

For a reconciliation of these non-GAAP financial measures to GAAP measures, please see the tables captioned "Results of Operations GAAP to Non-GAAP Reconciliation" included at the end of this release. We have not reconciled guidance for non-GAAP metrics to their most directly comparable GAAP measures because such items that impact these measures are not within our control or cannot be reasonably predicted.

Apptio, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2018		2017		2018		2017
			*As Adjusted				*As Adjusted

Revenue
Subscription	$	49,610	$	39,426	$	144,287	$	112,860
Professional services		9,613		7,570		28,051		23,292
Total revenue		59,223		46,996		172,338		136,152
Cost of revenue
Subscription		9,157		7,167		27,777		22,269
Professional services		8,916		6,763		26,925		21,599
Total cost of revenue		18,073		13,930		54,702		43,868
Gross profit		41,150		33,066		117,636		92,284
Operating expenses
Research and development		12,130		10,139		36,204		30,060
Sales and marketing		23,993		19,792		70,695		60,401
General and administrative		7,905		7,188		25,558		20,342
Total operating expenses		44,028		37,119		132,457		110,803
Loss from operations		(2,878)		(4,053)		(14,821)		(18,519)
Other (expense) income
Interest expense		(1,897)		(1)		(4,021)		(21)
Interest income		1,126		326		2,375		859
Other income (expense), net		109		(14)		81		(27)
Foreign exchange (loss) gain		(335)		93		(797)		159
Loss before income taxes		(3,875)		(3,649)		(17,183)		(17,549)
Provision for income taxes		(695)		(463)		(783)		(614)
Net loss	$	(4,570)	$	(4,112)	$	(17,966)	$	(18,163)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.10)	$	(0.10)	$	(0.41)	$	(0.46)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted		44,785		40,120		43,830		39,240

*As adjusted for the three and nine months ended September 30, 2017 to reflect the adoption of Accounting Standards Update, ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606).

Apptio, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)

	September 30,		December 31,
	2018		2017
			*As Adjusted
Assets
Current assets
Cash and cash equivalents	$	177,677	$	55,069
Short-term investments		77,495		93,901
Accounts receivable, net of allowance for doubtful accounts of $839 and $413		66,485		68,782
Deferred costs		14,252		11,898
Prepaid expenses and other current assets		5,078		5,079
Total current assets		340,987		234,729
Long-term assets
Property and equipment, net of accumulated depreciation and amortization of $25,394 and $21,924		10,592		10,437
Long-term investments		2,837		--
Deferred costs, net of current portion		18,779		17,182
Acquisition-related intangible assets, net		18,112		--
Goodwill		31,004		--
Other long-term assets		951		983
Total assets	$	423,262	$	263,331
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	8,492	$	5,598
Accrued payroll and other expenses		19,816		16,481
Deferred revenue		118,242		116,831
Deferred rent		1,000		892
Capital leases		25		21
Total current liabilities		147,575		139,823
Long-term liabilities
Convertible senior notes, net		109,772		--
Deferred revenue, net of current portion		5,919		2,470
Deferred rent, net of current portion		2,996		3,483
Capital leases, net of current portion		103		26
Asset retirement obligation		222		199
Total liabilities		266,587		146,001

Stockholders' equity
Class A and Class B Common stock		5		4
Additional paid-in capital		371,491		314,301
Accumulated other comprehensive income (loss)		10		(110)
Accumulated deficit		(214,831)		(196,865)
Total stockholders' equity		156,675		117,330
Total liabilities and stockholders' equity	$	423,262	$	263,331

*As adjusted for the year ended December 31, 2017 to reflect the adoption of Accounting Standards Update, ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606).

Apptio, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2018		2017		2018		2017
			*As Adjusted				*As Adjusted
Cash flows from operating activities
Net loss	$	(4,570)	$	(4,112)	$	(17,966)	$	(18,163)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization		1,316		1,575		4,000		4,657
(Accretion of discounts)/amortization of premiums on investments		(280)		5		(517)		59
Amortization of acquisition-related intangible assets		896		--		2,388		--
Amortization of deferred costs		4,272		3,477		12,222		10,093
Amortization of debt discount and issuance costs		1,588		--		3,362		18
(Gain) loss on disposal of property and equipment		(38)		11		9		7
Stock-based compensation		6,155		4,357		16,686		11,667
Foreign exchange loss (gain)		335		(93)		797		(159)
Change in operating assets and liabilities, net of impact of business combination
Accounts receivable		(7,522)		4,696		7,986		12,026
Prepaid expenses and other assets		(682)		1,779		(593)		3,260
Deferred costs		(5,448)		(4,529)		(13,611)		(10,648)
Accounts payable		265		(402)		1,104		635
Accrued expenses		3,765		(298)		2,437		(2,025)
Deferred revenue		(197)		2,892		(9,871)		72
Deferred rent		(148)		(198)		(594)		(596)
Net cash (used in) provided by operating activities		(293)		9,160		7,839		10,903
Cash flows from investing activities
Business combination, net of cash acquired		--		--		(39,041)		--
Purchases of property and equipment		(842)		(601)		(2,238)		(2,837)
Proceeds from sale of equipment		38		2		38		11
Proceeds from maturities of investments		34,400		15,375		115,950		35,075
Purchases of investments		(34,567)		(37,298)		(101,785)		(66,196)
Return of (payments for) security deposits		3		6		53		(23)
Net cash used in investing activities		(968)		(22,516)		(27,023)		(33,970)
Cash flows from financing activities
Proceeds from borrowings on convertible notes, net of discounts and issuance costs		--		--		139,438		--
Purchase of capped calls		--		--		(17,092)		--
Proceeds from exercises of common stock options		4,090		3,453		18,032		8,948
Payment of debt issuance fees		(4)		--		(469)		--
Proceeds from purchases of stock under employee stock purchase plan		--		--		2,391		2,251
Payment of initial public offering costs		--		--		--		(243)
Principal payments on capital lease obligations		(7)		(11)		(20)		(32)
Net cash provided by financing activities		4,079		3,442		142,280		10,924
Foreign currency effect on cash, cash equivalents and restricted cash		(135)		(641)		(488)		(585)
Net increase (decrease) in cash, cash equivalents and restricted cash		2,683		(10,555)		122,608		(12,728)
Cash, cash equivalents and restricted cash
Beginning of period		174,994		39,834		55,069		42,007
End of period	$	177,677	$	29,279	$	177,677	$	29,279

*As adjusted for the three and nine months ended September 30, 2017 to reflect the adoption of Accounting Standards Update, ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606).

Apptio, Inc.
Results of Operations GAAP to Non-GAAP Reconciliation
(In thousands, except per share data)
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
				*As Adjusted						*As Adjusted
Revenue
Subscription	$	49,610		$	39,426		$	144,287		$	112,860
Professional services		9,613			7,570			28,051			23,292
Total revenue		59,223			46,996			172,338			136,152

Cost of revenue reconciliation:
GAAP subscription		9,157			7,167			27,777			22,269
Non-GAAP adjustment:
Stock-based compensation		(286)			(330)			(894)			(927)
Amortization of acquisition-related intangible assets		(896)			--			(2,388)			--
Non-GAAP subscription cost of revenue		7,975			6,837			24,495			21,342

GAAP professional services		8,916			6,763			26,925			21,599
Non-GAAP adjustment:
Stock-based compensation		(507)			(294)			(1,314)			(842)
Non-GAAP professional services cost of revenue	$	8,409		$	6,469		$	25,611		$	20,757

Gross profit and gross margin reconciliation:
GAAP subscription gross profit	$	40,453		$	32,259		$	116,510		$	90,591
Non-GAAP adjustment:
Stock-based compensation		286			330			894			927
Amortization of acquisition-related intangible assets		896			--			2,388			--
Non-GAAP subscription gross profit		41,635			32,589			119,792			91,518
GAAP subscription gross margin		81.5	%		81.8	%		80.7	%		80.3	%
Non-GAAP subscription gross margin		83.9	%		82.7	%		83.0	%		81.1	%

GAAP professional services gross profit		697			807			1,126			1,693
Non-GAAP adjustment:
Stock-based compensation		507			294			1,314			842
Non-GAAP professional services gross profit		1,204			1,101			2,440			2,535
GAAP professional services gross margin		7.3	%		10.7	%		4.0	%		7.3	%
Non-GAAP professional services gross margin		12.5	%		14.5	%		8.7	%		10.9	%

GAAP gross profit		41,150			33,066			117,636			92,284
Non-GAAP adjustment:
Stock-based compensation		793			624			2,208			1,769
Amortization of acquisition-related intangible assets		896			--			2,388			--
Non-GAAP gross profit	$	42,839		$	33,690		$	122,232		$	94,053
GAAP gross margin		69.5	%		70.4	%		68.3	%		67.8	%
Non-GAAP gross margin		72.3	%		71.7	%		70.9	%		69.1	%

Operating expenses reconciliation:
GAAP research and development	$	12,130		$	10,139		$	36,204		$	30,060
Non-GAAP adjustment:
Stock-based compensation		(1,516)			(1,179)			(4,308)			(3,332)
Non-GAAP research and development		10,614			8,960			31,896			26,728
As a % of total revenue, non-GAAP		17.9	%		19.1	%		18.5	%		19.6	%

GAAP sales and marketing		23,993			19,792			70,695			60,401
Non-GAAP adjustment:
Stock-based compensation		(2,050)			(1,239)			(5,186)			(3,316)
Non-GAAP sales and marketing		21,943			18,553			65,509			57,085
As a % of total revenue, non-GAAP		37.1	%		39.5	%		38.0	%		41.9	%

GAAP General and administrative		7,905			7,188			25,558			20,342
Non-GAAP adjustment:
Stock-based compensation		(1,796)			(1,315)			(4,984)			(3,250)
Acquisition-related expenses and purchase accounting adjustment		(160)			--			(2,109)			--
Non-GAAP general and administrative		5,949			5,873			18,465			17,092
As a % of total revenue, non-GAAP		10.0	%		12.5	%		10.7	%		12.6	%

Loss from operations reconciliation:
GAAP loss from operations		(2,878)			(4,053)			(14,821)			(18,519)
Non-GAAP adjustment:
Stock-based compensation		6,155			4,357			16,686			11,667
Acquisition-related expenses and purchase accounting adjustment		160			--			2,109			--
Amortization of acquisition-related intangible assets		896			--			2,388			--
Non-GAAP income (loss) from operations	$	4,333		$	304		$	6,362		$	(6,852)

Loss from operations as a percentage of revenue:
GAAP loss from operations		(4.9%)			(8.6%)			(8.6%)			(13.6%)
Non-GAAP income (loss) from operations		7.3	%		0.6	%		3.7	%		(5.0%)

Net income (loss) reconciliation:
GAAP	$	(4,570)		$	(4,112)		$	(17,966)		$	(18,163)
Non-GAAP adjustment:
Stock-based compensation		6,155			4,357			16,686			11,667
Acquisition-related expenses and purchase accounting adjustment		160			--			2,109			--
Amortization of acquisition-related intangible assets		896			--			2,388			--
Non-GAAP Net income (loss)	$	2,641		$	245		$	3,217		$	(6,496)


Weighted-average shares used in Non-GAAP basic net income (loss) per share		44,785			40,120			43,830			39,240
Effect of potentially dilutive shares		4,493			3,161			4,573			--
Weighted-average shares used in Non-GAAP diluted net income (loss) per share		49,278			43,281			48,403			39,240

Non-GAAP net income (loss) per share:
Basic	$	0.06		$	0.01		$	0.07		$	(0.17)
Diluted	$	0.05		$	0.01		$	0.07		$	(0.17)

*As adjusted for the three and nine months ended September 30, 2017 to reflect the adoption of Accounting Standards Update, ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606).

Apptio, Inc.
Free Cash Flow Non-GAAP Reconciliation
(In thousands)
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
			*As Adjusted				*As Adjusted

Net cash (used in) provided by operating activities	$	(293)	$	9,160	$	7,839	$	10,903
Less: purchases of property and equipment		(842)		(601)		(2,238)		(2,837)
Free cash flow	$	(1,135)	$	8,559	$	5,601	$	8,066

*As adjusted for the three and nine months ended September 30, 2017 to reflect the adoption of Accounting Standards Update, ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606).

Investor Contact:
Drew Laxton
(425) 279-6101
[email protected]

Media Contact:
Sarah Vreugdenhil
(425) 279-6097
[email protected]

SOURCE Apptio

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