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Appen plunges 29% following bleak interim results

Appen’s (ASX:APX) shares experienced a significant 29% drop until 1pm yesterday as the company unveiled a set of interim results marked by substantial losses and declining growth, triggering investor concern.

Facing an impending six-month period of challenges and limited gains, the company foresees further cost reductions and potential job cuts to counteract the ongoing revenue downturn.

The company communicated to the ASX that its first-half performance “reflects challenging external operating and macroeconomic conditions that were previously highlighted in the company’s trading update on May 10, 2023.”

The shares initially saw a more than 10% decrease, which accelerated as investors absorbed the severity of the report’s findings.

Group revenue plummeted by 24% to $138.9 million, primarily attributed to a 27.4% decline in revenue from Global Services, which amounted to $100.1 million.

New Markets revenue also experienced a downturn of 13.7%, settling at $38.9 million, with the primary impact stemming from reduced contributions from Global Product.

This led to a substantial decline in underlying earnings before interest, tax, depreciation, and amortization, resulting in a loss of $15.7 million (compared to $9.6 million in the first half of 2022). Consequently, an underlying net loss after tax of $24.2 million was reported (as opposed to $3.8 million the previous year), along with a statutory net loss after tax of $43.3 million (in comparison to a net loss of $9.4 million for the same period the previous year).

Given this significant financial setback, the company will not be distributing any dividends. Appen disclosed having $55.2 million in cash as of June 30, with no debt.

Appen’s CEO, Armughan Ahmad, conveyed in the ASX release, “The first half result reflects a challenging external environment. Against this backdrop, we remain focused on resetting Appen. This includes instilling operational rigour across the business, releasing new generative AI-focused products, refreshing our go-to-market and sales strategies, establishing ecosystem partnerships, and continuing our AI for Good initiatives.”

Amid the broader technology slowdown, the company aims to exert control over its circumstances. Ahmad noted, “We remain focused on exiting FY23 as an underlying EBITDA and cash EBITDA positive business. To achieve this, we are exploring further actions to prioritize investments into a more focused set of higher potential areas, anticipating a further reduction in our cost base by year-end.”

The explanation for the weak first half presented a discouraging picture, with no signs of improvement on the horizon. “Total revenue of $138.9 million decreased 24.0% due to a lower contribution from the Global Services and New Markets businesses as our customers optimize their spending, cut costs, and evaluate their AI strategies in response to external headwinds.”

The outlook for the rest of 2023 remains bleak, with Appen stating it continues “to face headwinds from the broader technology market slowdown and as customers evaluate their AI strategies.” The company expects second-half FY23 revenue to mirror that of the first half due to ongoing uncertainty.

As the company strives to reestablish profitability, it plans to prioritize growth investments in select high-potential areas, streamlining operations and achieving cost savings. However, this strategic shift may adversely affect revenue in 2024. The company anticipates exiting FY23 with an annualized run-rate operating cost base below $113 million.

With a string of falling sales and losses anticipated in the next 12 months, Appen’s shareholders have little to anticipate on a positive note.

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