Things not getting better for poor old Appen. Trading conditions have simply not improved, with YTD revenue (first 1/3 of their financial year) down 21.4% on last year.

Here too the plan is to cut their way to greatness, They had already announced $10m in annual cost savings in Feb, and now they reckon they can cut a further $36m in costs. They expect to exit FY23 (dec 31) with an annualised run-rate of positive underlying EBITDA and operating cash.

There's also a strategy refresh, with the business planning to focus more on generative AI (like ChatGPT), which require large amounts of human feedback.

We'll see, but I doubt shares will return to their 2020 high of $40 anytime soon.. At present, if you pro-rata the first 4 months, shares are on a P/S of 1.4x

Way too hard for me to handicap the odds of a successful turnaround. I wish them well.

Announcement here

"...there has been no improvement in trading conditions in August and September"

Management pointing out lower revenue and lower margins. And now expecting US$13-18m in EBITDA for FY22 (ends Dec31). Last year they did US$79m...

EV/EBITDA of 15x could seem cheap, but there's just way too much uncertainty for me. Potential for their business to be far less relevant due to rapid structural change to the industry. Or not.. it's just waaaay outside of my wheelhouse.

ASX announcement here

Appen has increased guidance for the full year ending 31 December 2019.

The company expects FY EBITDA to come in between $96-$99 million at the exchange rate of 1 AUD = 0.74 USD.  (At the current, lower exchange rate, guidance would be between $1-1.5m higher)

This compares with previous guidance for $85-$90m.

That's a significant increase and is due to an increase in monthy relevance revenues and higher margins from existing clients.

Appen also said it still expected to achieve ARR of $30-$35m from the Figure 8 acquisition.

Full announcement here

31 May 2019

At its AGM, Appen has said it expected to deliver FY19 underlying EBITDA of $85-90m. That’s the same level it forecast after the release of FY18 results back in February.

However, since then, it has aquired Figure 8, a business that was expected to deliver a full year EBITDA loss of ~$10m in FY19. Or about $7m with expected synergy savings in FY19.

So to reiterate guidance suggests somewhat of an upgrade.

Taking FY18 at face value, the FY19 guidance represents ~23% improvement. But on a Pro-forma basis (assuming Figure 8 was part of the business for all of FY18), and assuming the ~$3m in synergies expected for FY19, the gain is an even more impressive ~50%.

Both guidance figures, in February and now at the end of May, assume an AUD/USD FX rate of 74c. When in reality the Aussie dollar is now about 70c -- so the gain in local currency terms should be even stronger.

So it looks like things are still going very well for Appen. 

Nevertheless, Shares are down about 4% at the time of writing.
 

Maybe valuation relatedm but the current forward EV/EBITDA of 37 isnt crazy for a business growing profit at 50%. Anyway, just some initial thoughts..

Appen is raising up to $300m via an institutional and retail share issue at $21.50, a ~12% discount to last traded price. 

The funds will be mainly used to acquire Figure 8, a US based company that has a machine learning platform that help label data sets for AI training. With the earn-out component, this will have a total cost of US$245m -- about 5.7x Figure 8's sales.

That's a hell of a premium for an acquisition, although Figure 8 has been growing at very high double digit rates since inception, and the market opportunity for AI is massive and growing.

It's also a smaller sales multiple than what Appen itself is trading on, so there is some "multiple arbitrage". 

I have no real insights at this stage, and do not hold shares.

Full details here