Appen looks to reap benefits from $US60m cost cutting program after Google contract loss

The one-time AI darling expects to see the full benefits of its $US60m cost cutting program this year and says contract losses have stabilised after Google exited.

Artificial intelligence business Appen expects the full benefits of $US60m ($92m) in cost cutting to flow through to the bottom line this year as it looks to target growth in companies that are adopting generative AI models.

The embattled group also told investors on Tuesday that it had seen a stabilisation in the number of companies scaling back work with Appen as they re-evaluated their AI investments following a boom in the technology throughout 2023.

Appen reported a 29.7 per cent decline in revenue to $US273m in the 2023 financial year as a result of customers reviewing plans for AI and optimising costs in response to external market conditions such as higher interest rates.

Appen’s work losses included the abrupt termination of an $US82.8m contract from Google that resulted in the share price plunging by 40 per cent last month.

Appen’s statutory net loss narrowed to $US118.1m in 2023 compared to a $US239.1m net loss in 2022, but was larger than markets had expected.

Freshly installed chief executive Ryan Kolln said that the mainstream availability of generative AI created huge interest from customers, but also resulted in many re-evaluating their AI investments.

Appen's new chief executive Ryan Kolln started in the role earlier this month.

“We experienced a material revenue reduction as customers navigated the rapidly evolving AI market and responded to the general economic slowdown,” he said. “We saw positive momentum in the fourth quarter of 2023 as declines from a major customer stabilised. We benefited from digital advertising seasonality, and China recorded record revenue.”

Mr Kolln assumed the top job earlier this month afterArmughan Ahmad became the second CEO to depart the company in 14 months following a steep fall in its share price. Mr Ahmad’s predecessor Mark Brayan quit Appen in December 2022 after its share price had slumped 74 per cent over 12 months.

Mr Kolln said that in response to customers reviewing their dealings with Appen, it had reset its business model by completing a $US60m cost cutting program, which gave it positive cash earnings before interest, tax, depreciation and amortisation (EBITDA) in December. He added that the full impact of the savings would be on display in the 2024 financial year.

“A key priority in FY23 was gearing Appen to support generative AI. Appen has deep expertise and technology platforms that are highly applicable to generative AI,” he said.

“We are now working with 22 large language model builders globally to support the development of generative AI foundation models and are targeting growth in companies that are adopting generative AI models with software-focused products.”

Further cost reductions totalling $US13.5m to remove direct and indirect costs associated with the delivery of Google projects will be 80 per cent complete by March and finished by June.

Mr Kolln said that achieving cash EBITDA profitability in fiscal year 2024 would largely depend on revenue growth from its non-global customers, and the timing remained uncertain.

“The management team is highly focused on ongoing cash positivity,” he said.

Appen expected costs associated with the development of new products this year to be contained in the current product and engineering spend.

Tight cost control would remain in place to ensure costs were in line with revenue.

Shares in the company rallied 15.5 per cent to close at 48.5c on Tuesday. However, the stock remains 77 per cent down on a year ago and 98 per cent below its 2020 peak above $35 per share.

Meanwhile, Appen announced that Justin Miles will take on the chief financial officer role after doing the job on an interim basis.

He joined Appen in 2016 and was appointed deputy CFO in June 2023.