Release Date: August 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue growth of 16% in Q2 compared to the same period in FY23, and 22% up on Q1 this year.
- Significant improvement in underlying EBITDA, with a $7.8 million improvement in Q2 compared to the same period last year.
- Operating expenses decreased by 33% compared to H1 2023 due to cost reduction programs.
- Strong growth in generative AI-related projects, with 28% of group revenue in June 2024 coming from these projects.
- China business achieved consecutive quarterly revenue records, with a 66% increase in revenue compared to H1 2023.
Negative Points
- Total revenue decreased by 18% to $113.4 million, reflecting the termination of the Google contract.
- Global Services revenue decreased by 36% to $63.6 million, also due to the Google contract loss.
- Underlying EBITDA before FX still resulted in a $2.3 million loss despite improvements.
- Inconsistency in project volumes for Global Product, leading to potential volatility in H2 2024.
- Employee expenses and other costs have been significantly reduced, which may impact future growth and innovation.
Q & A Highlights
Highlights of Appen Ltd (ASX:APX, Financial) Earnings Call
Q: Can you give us more detail on the margin structure of generative AI projects compared to previous projects with big global technology companies?
A: The margins for generative AI projects are quite similar to our previous projects. Some domain-specific work may have higher dollar margins due to specialized expertise, but overall, the margins are consistent. The rapid nature of generative AI projects means some may have higher or lower margins, but they balance out in the long term. - Ryan Kolln, CEO
Q: How does the project structure for generative AI compare to previous service agreements with large tech companies?
A: The structure is relatively similar, with quality and time metrics to meet. The key difference is the speed and quality of data delivery required by generative AI customers, which aligns well with our capabilities. - Ryan Kolln, CEO
Q: Who are your main competitors in the generative AI space, and how have competitive dynamics changed?
A: The competitive set is largely the same as in the traditional data annotation market, but there is an increase in domain-specific providers. These specialized competitors do well in their niches but don't typically branch out into broader capabilities. - Ryan Kolln, CEO
Q: How should we think about the cost base into the second half and beyond?
A: Most of the cost reductions were completed by March, with the balance in the second quarter. We need to carefully manage resources to support growth, so while H1 is a good starting point, there may be some flexibility in costs as needed. - Justin Miles, CFO
Q: Should we expect a similar quarter-on-quarter revenue build in the second half of the year?
A: There has been volatility in the past, and while we have seen seasonality, we are not providing specific details on revenue shape. Our focus remains on customer needs and how the second half plays out. - Ryan Kolln, CEO
Q: Have you changed the contract structure with customers to mitigate volume risks?
A: The contract structure remains largely the same, but we are seeing stabilization in customer spend, particularly with generative AI focus. Our main focus is staying close to customers and being responsive to their needs. - Ryan Kolln, CEO
Q: How is Google going about training their models now that they are no longer a customer?
A: We don't have specific details, but human-annotated data remains crucial for AI model development, so it's likely they continue sourcing such data. - Ryan Kolln, CEO
Q: Can you elaborate on the inconsistency in Global Product volumes in H2 '24?
A: The inconsistency is due to the exploratory nature of new projects, which may have varying data needs and pauses for evaluation. This is typical as projects ramp up before stabilizing. - Justin Miles, CFO
Q: How much of the strong China revenue is coming from Mainland China versus Japan and Korea?
A: The bulk of the revenue is coming from China-based customers. - Ryan Kolln, CEO
Q: Will the trend of deconcentration away from big tech customers continue to accelerate?
A: We are focused on revenue diversification and expanding our customer base. While revenue growth and profitability are key focuses, the increasing investment in generative AI presents opportunities for a more diversified revenue base. - Ryan Kolln, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
