Today, technology services group Appen [ASX:APX] has disappointed its shareholders in a display of underperformance brought on by continuing external challenges and tough macroeconomic conditions.
As a result, APX investors were down-selling the technology stock at a 23.5% discount, with each share trading for around $2.43 by the afternoon.
APX is trending in the red on all fronts, having slipped by 4% in the month and 63% in the past 12 months. It’s down around the same compared with the ASX 200:
Source: TradingView
Appen’s trading update comes with a harsh reality check
On Wednesday morning, Appen provided an April trading update and outlook for the rest of FY2023.
The group had already flagged such issues in the FY22 report. Despite awareness of these challenges, the group apparently failed to mitigate and manage its measures to the required degree.
Appen’s April quarter turned revenue of $95.7 million, which was a 21.4% decline on the same time last year.
It had also reported that its gross profit of $35.8 million was much lower than the year before, declining by 24.7%, and underlying EBITDA had taken a further loss of $12.4 million.
On February 27, Appen put in place some calculated measures for annualised cost savings, hoping to ‘establish a greater level of operational rigour’ in $10 million of cost savings.
However, these measures had evidently been no match for the environment it found itself in as macro headwinds took a deeper turn.
Due to this, the company decided to implement more budget-buffering methods, slated to come into effect gradually overFY2023. These methods are expected to deliver around $36 million in annualised cost savings.
The one-off costs associated with implementing the cost reduction program are expected to reach approximately $4–$5 million. These costs will be reported as a non-recurring expense and excluded from underlying EBITDA for FY23.
Appen’s cash balance at the end of April was $27 million.
Appen prepares to face tough headwinds
The tech group believes there to be further headwinds facing the broader technology market in the near future. Therefore, Appen anticipates it will result in a slowing of the industry and markets.
Having said that, Appen also spies improvements coming in 2H2023 once revenue is calculated between first and second halves, consolidating results.
The company shared a tenacious outlook and said that even with current conditions continuing in the year, its newly announced initiatives should allow it to finish off the year with underling EBITDA profitability (on an annualised basis).
Appen stated:
‘Appen is committed to its reshaped vision for the business and will continue to take a disciplined approach to capital investment to ensure maximisation of shareholder value.
‘Going forward, costs will be managed in line with the revenue opportunity and market conditions. This dynamic approach will better place Appen to adapt to ongoing changes in market demand.’
Australia’s reset and restructure…where does this leave you?
Have you been thinking much about the state of the world lately?
Signs that the Australian economy is not what it once was, are everywhere…
Jim Rickards, one of the world’s top financial and geopolitical analysts, has joined the dots nobody else has — certainly not the mainstream media.
He says ‘no one is talking about how this could end the Australian economy’ as we know it.
You can learn the patterns and get yourself ready for change, putting you ahead of the curve.
If you want to know more about the biggest geoeconomic shift of our lifetime, click here.
Regards,
Mahlia Stewart
For Money Morning
