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Sydney-headquartered artificial intelligence (AI) annotation company Appen (ASX: APX) has shaken off market pessimism after the loss of a major contract with Google (NASDAQ: GOOG) earlier this year, reporting a $25.5 million improvement to its bottom line in the June half despite a large fall in revenue.
Group operating revenue declined 18.4 per cent to $113.4 million, but when excluding for Google the revenue was down by a modest 1.5 per cent.
Appen's result was still in the red with a statutory loss of $17.8 million, although margins improved following the shuttering of offices and significant traction for multiple generative AI projects, including in China.
Today's news follows a quarterly result in late July that showed revenue excluding Google was up 16 per cent in the June quarter at $55 million - an announcement that kicked off a steep climb in the share price over the last month from $0.44 to the current $1.215 before the market opens.
It is a share price that gives Appen a $270.9 million market capitalisation, which is almost double the $153 million level of a brief takeover proposal that was withdrawn by New Jersey-based Innodata (NASDAQ: INOD) in March.
"H1 FY24 was pleasing given we reacted swiftly to the Google announcement, executed on cost out, and the early positive indicators of LLM-related growth have started to develop into significant opportunities," says Appen CEO and managing director Ryan Kolln, with LLM referring to the large language models, a form of generative AI.
"Appen’s success in generative AI is resulting in a positive revenue trajectory. We saw strong growth in China and Global Product driven by generative AI projects, with China achieving consecutive revenue records across the quarters," says Kolln, who was promoted to the leadership position in the wake of the debacle with Google and former CEO Armughan Ahmad quitting after a year in the role.
"The Enterprise software market remains nascent, and we are yet to see material traction, but market signals remain positive."
Kolln emphasises that profitability is a key focus for Appen.
"Underlying cash EBITDA loss before the impact of FX has improved month-on-month as we continue to manage costs in line with the revenue opportunity," he says.
"Appen continues to target reaching cash EBITDA positive on a run-rate basis in early H2 2024.
"Generative AI development depends on vast amounts of high-quality data. The competitive edge for model builders is largely based on accessing unique and superior data.
"Appen’s expertise, platform, and global crowd workforce are becoming crucial sources of data for many leading model builders."
The company expects FY24, which it reports on a calendar year basis, will be the first full year to benefit from a $60 million cost reduction program in 2023, while the $13.5 million worth of cost cutting initiatives announced in February are now complete.
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