Appen seeks $60m to recast itself for the ChatGPT era [IMG] Tess...

• Appen seeks $60m to recast itself for the ChatGPT era

Tess BennettTechnology reporter
May 16, 2023 – 12.58pm
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Troubled artificial intelligence data services company Appen is raising $60 million to fund a cost-cutting program, shore up its balance sheet and diversify revenue to return the business to profitability.

Appen entered a trading halt on Tuesday morning to launch a capital raising to retail and institutional investors at $1.85 a share, which represents a 19.6 per cent discount to its last closing price of $2.30 on May 15.
The stock has plunged 66.8 per cent over the past year after a string of earnings downgrades driven by lower use of its services by key clients amid a slowdown in the broader technology market.

Last week Appen reported an underlying EBITDA loss of $US12.4 million ($18.5 million) for the first four months of the year, and told shareholders it would embark on a $US46 million cost-reduction program, while making a play in the hot new field of generative AI. The stock dropped 27 per cent on the news.

The raise is composed of a $38 million one-for-six non-renounceable entitlement offer and a $21 million institutional placement. Appen’s shares on issue will increase by 26 per cent.

RBC Capital Markets analyst Garry Sherriff said the almost 20 per cent discount to the last close and subsequent dilution “will likely be a hard pill to swallow for shareholders”.

“However, in our view, the additional cash is necessary to give Appen time to turn its core business around and support its expansion into generative AI,” Mr Sherriff said.

“We need to see evidence of a definitive turnaround in key metrics for a business which to date has had limited earnings visibility.”

Wilsons Equity Research’s Ross Barrows said it should alleviate short-term concerns investors had about Appen’s funding and balance sheet risk, but “considerable work lies ahead for Appen” after bringing in a new CEO, CFO and CTO in the past six months.

Chief executive Armughan Ahmad, who took over in January, told investors on Tuesday that the executive team’s compensation was closely aligned with improving the share price, noting almost half of their stock would only vest if Appen’s share price rallied by 190 per cent.


As part of its cost-out program, Appen cut 300 of its 1500 jobs and moved “a good chunk” of its engineering team to Hyderabad, India.

“We’re not cutting into the muscle. We’re just cutting into the fat,” Mr Ahmad said. “What I mean by that is that we had invested ahead of revenue in many of the areas and we now need to make sure that we are bringing our opex-to-revenue ratio in check.”

The chief executive has also lit a fire under his sales team, appointing the company’s first chief revenue officer who will start within weeks, as well as a new chief marketing officer.

“I felt that we were a very reactive sales culture and we needed to pivot ourselves to proactive sales culture, especially going after our big five global customers that we have, along with the Fortune 2000 large enterprises.

“We felt that we needed to move away from selling to a data scientist, which is 10 levels below the CEO, to really go and start selling to the C-suite and make sure that they understand what’s required.”

Mr Ahmad said generative AI provided an opportunity for Appen to win a more diverse roster of clients, which is currently heavily concentrated among Google, Apple, Microsoft, Meta and Amazon.

Appen has launched generative AI-related services, such as providing human feedback for large language models, for enterprise customers. For example, Appen’s new assurance products ensure customers’ AI models are accurately measured and monitored to avoid risks such as “hallucination”, bias, and toxicity.