)
After pulling itself up by the bootstraps when a major contract fell through with Google earlier this year, Sydney-based artificial intelligence (AI) annotation and services group Appen (ASX: APX) has announced a return to underlying profitability in the September quarter and is now raising $50 million to take advantage of generative AI (GenAI) opportunities.
With its share price sitting well above the $2 mark, in stark contrast to lows of $0.26 in January, Appen is now worth almost half a billion dollars and can get a lot more bang for its buck by issuing new shares.
Amidst this momentum the company plans to roll out 26 million new shares, representing 11.6 per cent of shares on issue, at $1.92 per share.
This signifies an 11.5 per cent discount to the last closing price for Appen, but is still 58 per cent higher than at the end of August when the company revealed it had improved its bottom line by $25.5 million in the June half, although results were still in the red.
The underwritten institutional placement of $50 million is expected to lift Appen's cash position to US$62.4 million ($92.5 million), and will be followed by a $5 million share purchase plan (SPP) at the same price.
In the wake of the collapsed Google contract which was worth more than $125 million annually, then-CEO Armughan Ahmad exited the company and current CEO Ryan Kolln, formerly Appen's chief operating officer (COO), was propelled into the leadership position.
Within a week of his immediate appointment, Kolln and the executive team took action by shuttering two North American offices including the group's US headquarters.
Achieving EBITDA profitability was a key focus at the time, and now that feat has been achieved, at least in underlying terms, which is attributed to the successful implementation of cost initiatives designed to manage Appen’s cost base.
Whilst revenue in the third quarter of the calendar year was down 12.9 per cent year-on-year at $54.1 million, gross margins jumped by 7.6 percentage points to 41.2 per cent and underlying EBITDA stood at more than $1 million, compared to a loss of $7.5 million in the third quarter of 2023.
The company notes its external customer environment continues to show signs of improvement, particularly from generative AI related opportunities, some of which are high volume and of a short duration. This means Appen needs greater working capital as crowd expenses are incurred ahead of customer receipts from these projects.
"Profitability is a key focus for Appen and we are very pleased to have returned to underlying EBITDA and underlying cash EBITDA profitability in Q3 FY24," says Kolln.
"Our external environment continues to display signs of improvement and we are excited by the potential opportunities that this presents.
"We’re continuing to experience LLM-related growth which is contributing to our positive revenue trajectory. China continues to experience significant revenue growth and we remain optimistic about the potential of our Enterprise and Government divisions."
Drawing on a crowd of skilled contractors, Appen provides much of the grunt work that has powered the explosion of AI, utilising contractors around the globe known as search quality raters who cross-check and label data that trains AI systems. The group was founded in 1996 by linguist Dr Julie Vonwiller and her engineer husband, Chris Vonwiller, and listed almost two decades later in January 2015.
)
