Profits climb and shares drop for AI leader Appen

Profits climb and shares drop for AI leader Appen

Machine learning and artificial intelligence (AI) dataset company Appen (ASX: APX) notched a 60 per cent jump in revenue to reach $245.1 million in the first half of 2019.

The Sydney-headquartered company recorded a 33 per cent rise in statutory net profit after tax (NPAT) to hit $18.6 million.

Chief executive officer Mark Brayan (pictured) highlights 85 per cent revenue growth for the speech and image segment and 48 per cent growth for Appen's mainstay relevance data division.

The latter was backed by process upgrades taking effect following the completion of the integration of Leapforce, a Silicon Valley-based search relevance service Appen acquired for $105 million in 2017.

Underlying EBITDA margins have also risen by almost two percentage points to 18.9 per cent.

"Speech and image is gathering speed. We're seeing an increase in use cases and our existing customers are asking for more data to develop new AI products and to improve their existing offerings," says Brayan.

If exchange rates stay constant, Appen is forecasting underlying EBITDA for the year ending 31 December to be at the upper end of its guidance between $85-90 million.

In April the group completed its transaction for an upfront consideration of US$175 million ($260 million) to acquire San Francisco-based Figure Eight Technologies, which also includes earn-out arrangements for up to US$125 million ($189 million).

Figure Eight, with around 107 employees, uses highly automated annotation tools to transform unstructured text, image, audio and video data into customised high quality AI training data.

"Figure Eight is accelerating our technology roadmap, diversifying revenue and expanding markets for us," says Brayan.

"The number and size of joint opportunities is exceeding our expectations, its technology, including its secure SOC 2 accreditation, is better than we first thought, and its government footprint is unique with very high barriers to entry.

"This market is emerging as a new growth pillar for the Company."

He points out Figure Eight's necessary shift to target larger deals plus the distraction of the transaction cost some momentum in the second quarter. In the three months post acquisition, the company recorded an EBITDA loss of $2.6 million.

However, Brayan says synergies with the newly absorbed US company and the path to profitability are on track.

Despite the positive results, APX shares dropped 10.7 per cent today to $2.93 each. Shareholders clearly had their sights set on something better.

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