Appen (APX) H1 2024 earnings summary

Executive summary

• Revenue for H1 FY24 declined 18–18.5% year-over-year to $113.4–$113.7 million, mainly due to the Google contract termination, but excluding Google, revenue was down only 1.5–2%.

• Generative AI projects drove significant growth, with 28% of June revenue from this segment and 42 generative AI customers in H1, up from 28 in H2 last year; China achieved record revenue and consecutive quarterly growth.

• Cost reduction programs totaling $73.5 million AUD (including $60 million in FY23 and $13.5 million in H1 FY24) were completed, resulting in a 33% decrease in operating expenses and improved profitability.

• Underlying EBITDA (before FX) improved by $13.4 million year-over-year to a loss of $2.3–$2.6 million, reflecting cost reductions.

• Statutory net loss after tax improved to $17.8 million from $43.3 million in H1 2023; underlying net loss after tax improved to $11.8 million from $34.2 million.

Financial highlights

• Group revenue: $113.4–$113.7 million, down 18–18.5% year-over-year; excluding Google, revenue was $100.0–$100.3 million, down 1.5–2%.

• Gross margin increased by 0.4 percentage points to 37.7% due to favorable project and customer mix.

• Underlying EBITDA (before FX): ($2.3)–($2.6) million, a significant improvement from ($15.7)–($18.1) million in H1 FY23.

• Statutory diluted EPS: (8.06) cents; underlying diluted EPS: (5.37) cents.

• Cash balance at June 30, 2024, was $34.7 million, up $2.6 million from December 2023.

Outlook and guidance

• Excluding Google, revenue momentum is positive, with ongoing growth in LLM-related projects, especially in Global and China segments.

• Targeting underlying cash EBITDA positivity on a run-rate basis in early H2 FY24.

• FY24 will see the full-year benefit of the $60 million FY23 cost reduction program and completion of an additional $13.5 million in cost outs.

• Cautioned that monthly revenue may be volatile due to the exploratory nature of generative AI projects.

• Strategic focus includes building next-generation platforms, leveraging AI in projects, and tightly managing costs.