Release Date: February 26, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Appen Ltd (APPEF) achieved a 16% year-on-year revenue growth excluding the impact of Google.
• China's market showed a remarkable 71% year-on-year growth, driven by major LLM model builders and leading technology companies.
• The company returned to profitability with an underlying EBITDA of $3.5 million in FY24, up from a loss of $23.9 million in FY23.
• Appen Ltd (APPEF) reduced operating expenses by 26% compared to FY23, demonstrating effective cost management.
• The AI data annotation platform, ADAP, is gaining traction among large technology companies, particularly for LLM-related projects.

Negative Points

• Total revenue decreased by 14% to $234.3 million due to the termination of the Google contract.
• Global services revenue decreased by 38% to $118.1 million, impacted by the Google contract termination.
• The gross margins in China are generally lower than other divisions, despite the impressive revenue growth.
• Uncertainty persists around enterprise investments in generative AI, affecting revenue visibility.
• The LLM market is evolving rapidly, leading to month-on-month revenue variability and inconsistent project volumes.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with APPEF.

Q: Can you clarify the outlook statement regarding LLM volume growth for 2025, given that volumes are tracking lower than Q4? A: We remain confident in the LLM growth outlook for 2025. The lower volumes compared to Q4 are typical due to seasonality and replanning cycles. We wanted to be transparent about the year-to-date performance, but there's nothing out of the norm. (Respondent: Unidentified_1)

Q: What is the visibility around non-LLM work for 2025? Are there any trends or changes expected? A: All signals point towards stability in non-LLM work. There are no indicators of major changes, but as the market moves quickly, we are not providing specific guidance. (Respondent: Unidentified_1)

Q: Can you provide a breakdown of LLM revenue between post-training and evaluation phases? A: The projects vary based on customer focus, but there is a good mix between post-training and evaluation. Some projects involve both supervised fine-tuning and evaluation simultaneously. (Respondent: Unidentified_1)

Q: How should we think about the cost base and operating leverage for 2025? A: We expect the cost base to remain fairly consistent, allowing us to absorb growth without significant additions, except for crowd payments. (Respondent: Unidentified_1)

Q: What is the status of the Google contract, and are there plans for other big tech collaborations? A: Google ended the contract without providing a rationale. We are focused on growing our customer base among large technology companies, where we have strong capabilities and expertise. (Respondent: Unidentified_1)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.