Appen Limited

Good morning everyone and welcome to Athens' full year FY25 results call. I'm Sam Wells from NWR and I'm pleased to have joining me today from the company CEO and Managing Director, Ryan Cole, as well as Chief Financial Officer, Justin Miles. Following a brief summary of the results released to the ASX this morning, we will have some time for Q&A with the management team. There'll be a choice of two options. First, research analysts will be able to raise your hand via Zoom should you wish to ask a verbal question of the management team, and we'll also take written submitted questions via the Q&A function at the bottom of your screen from all investors. We will endeavour to get to the majority of questions asked, in some cases combining questions on the same or similar topic. And thank you. Over to you, Ryan.

Thanks, Sam, and hi, everyone. Thank you all for joining Appen's FY25 Full Year Results presentation. I'll start on page three of the presentation, where I'll walk through some highlights before passing to Justin. FY25 was a year of meaningful progress for Appen. At the group level, we delivered $230.8 million in revenue, up 4.5% on FY24 when you exclude the impact of Google. Growth was driven predominantly by new project wins and expansions in generative AI. Generative AI is a clear growth driver for the market and a positive signal that we are executing well against our strategy. On profitability, we delivered $12.2 million in underlying EBITDA, excluding FX. The full year margin was 5.3%, with a strong end to the year with Q4 coming in at 18.2% EBITDA margin. Gross margins are moving in the right direction, driven by wins in higher value generative AI work. We also continue to capture operational efficiencies through technology, innovation, and automation. Now looking at our two segments. On App and Global, the full year revenue was $127.9 million, which was down year on year. However, we ended the year on a high note with Q4 revenue of $41.4 million, up 56% on Q3, and EBITDA of $10.2 million at a 24.6% margin. The Q4 growth was predominantly driven by new project wins, including a $10 million generative AI opportunity that grew faster than we anticipated and has carried into FY26. We continue to focus on the operational turnaround, and talent is a major part of the shift we are making across Appen Global. In the last 12 months, we have added over 20 experts to the team, coming from either customers or direct competitors. Appen China had an exceptional year, delivering $102.9 million in revenue, up 75% year-on-year, with EBITDA up 640% to $10.6 million. Growth was driven by both new and expanding generative AI-related projects, and the momentum heading into FY26 is strong. Across the group, 44.1% of Q4 revenue came from generative AI, up from 34.8% a year ago. Finally, we closed the year with US $59.8 million in cash on hand. We continue to drive operational efficiencies across the business. In FY25, we realized $10 million in annualized cost efficiencies through technology and automation. In summary, FY25 was a year that demonstrated real progress. Revenue growth, improving margins, exceptional performance from App in China, and strong momentum as we head into FY26. We've built a stronger team and we're winning in the right parts of the market. And we have the balance sheet to continue executing on our strategy. I'm proud of what the team has delivered and I'm confident in our trajectory. With that, I'll hand over to Justin, who will take you through our financials in more detail.

Thank you, Ryan. Good morning, everyone. A reminder that we report in US dollars and that all comparisons are to the year ended 31 December 2024 unless stated otherwise. starting with the FY25 profit and loss snapshot on slide five. As Ryan has already mentioned, revenue increased 4.5% to $230.8 million. This excludes the impact of Google. Within our operating segments, Appen China revenue grew by 74.8% to $102.9 million, with Appen Global down 21.1% to $127.9 million. Appen Global delivered a strong finish to the year, which was up 50% to 6% quarter on quarter. Growth in both segments is predominantly driven by new and expanding generative AI projects. Gross margin improved by 100 basis points to 40.3%, with the improvement driven by a greater mix of generative AI projects. Underlying EBITDA before FX grew 251% to $12.2 million. The increase was driven by gross margin improvement as well as the $10 million cost efficiencies achieved by technology and automation. The cost out is net of talent upgrades. I won't talk to slide six as we've covered this data, so over to App and Global Revenue and EBITDA on slide seven. The chart on the left shows quarterly revenue and on the right hand side it is underlying EBITDA. The charts show strong momentum in Q4 for Appen Global. The Q4 growth was driven by new project wins and includes the $10 million plus GenAI opportunity we previously announced. Gross margin improvement was achieved due to high priority GenAI projects. In addition to the improved gross margins, the $10 million annualized cost efficiencies were achieved within the app and global segment. And as I just mentioned, the $10 million is net of talent upgrades, who along with the continued focus on data quality, were a vital factor in winning and delivering new projects. It was a strong finish to the year, with good momentum going into FY26, however the full year was impacted by lower volumes than expected in Q1 to Q3. Full year revenue was $127.9 million, down 21% excluding the impact of Google, and underlying EBITDA was $5.8 million, down from $9.2 million in FY24. Over to slide 8, which shows quarterly revenue and underlying EBITDA for Appen China and reflects the strong market position Appen China continues to hold. Revenue grew each quarter, with Appen China achieving $102.9 million in revenue for FY25, which was 75% growth on FY24. Growth was driven by new and expanding LLM-related projects. Appen China exited the year with annualized revenue exceeding 135 million. Pleasingly, in addition to revenue growth, profitability improved throughout the year, with improved gross margins due to a greater mix of Gen AI projects and increased revenue from high-margin pre-built datasets. Appen China is also capturing scaling efficiencies due to tight OPEX controls as revenue expands. Turning to slide nine for the profit and loss summary. I won't talk to all the light items. However, there are a few additional points to highlight. The decrease in employee expenses reflects the benefit of cost-out efficiencies achieved in the Appen global segment. It was partially offset by some incremental effects in Appen China to enable China's delivery of the strong revenue growth. Underlying NPAT improvement was minimal despite the EBITDA improvement due to an increase in non-cash amortization. Statutory NPAT was impacted by an additional $5 million acceleration of non-cash amortization in relation to acquired platforms. I'll finish up with the cash flow summary on slide 10. The cash balance at the end of the period was $59.8 million, up $5 million from December 2024. The Australian dollar equivalent of the cash balance is $89.5 million. Cash flow from operations improved by $23.4 million to $22.4 million. The year was positively impacted by the receipt of a payment from a major customer in the first week of January versus December 2024 as scheduled. However, adjusting for this still results in approximately 100% conversion of EBITDA to cash flow from operations. Cash flow used in investing activities was $3.5 million higher compared to FY24 due to a slightly higher investment in product development and new facilities for the Appen China business. Cash used in finance activities of $4.9 million reflects lease payments. Cash was used to fund operations and CapEx. That concludes the financial performance slides. I'll now hand back to Ryan.