Shares in Appen slumped nearly 30% yesterday after a very weak trading update revenue for 2023 and added news that it had started another round of cost cuts on top of those outlined in late February when it first warned of a soft start to 2023.
Wednesday’s announcement revealed that February’s soft start had turned out to be much softer than expected with the company reporting an underlying EBITDA loss for the four months to the end of April of more than $12 million.
That news saw the shares down more than 18% in early trading and they kept on falling to close at $2.29, down 28% on the day and just off the low for the session of $2.28.
It’s not the first time this year the shares have been at this level – they last visited the sub-$2.30 range in early March in the wake of the first warning.
Yesterday Appen blamed what it called ‘headwinds’ for this year’s revenue being much lower than 2022’s.
“The challenging external operating and macroeconomic conditions that were noted at the FY22 result have persisted into FY23,” Appen said on Wednesday.
It said that in late February with the 2022 results, it stated that it expected a soft start to FY23 carrying over from 2022.
“At that time, Appen also stated that it expects first half 23022 underlying EBITDA to be materially lower than first half of 2022.
“As a result, Appen provides the following unaudited FY23 financial update for the four months ending 30 April 2023:
The company said that revenue year to date to the end of April of $95.7 million was 21.4% below previous corresponding period; gross profit for the same period of $35.8 million was 24.7% below the previous corresponding period and underlying EBITDA (excluding FX or foreign exchange) four the four months was a $12 million loss compared with a profit of $7.9 million for the same period of 2022.
Appen said that it had therefore started “a significant cost reduction program commenced to return to profitability” and a “strategy refresh to deliver long term growth and revenue diversification with a focus on generative AI.”
“In keeping with a renewed focus on operational rigour, these previously announced cost savings will now be implemented over the course of FY23.
“Appen also today announces a series of significant measures to achieve further annualised cost savings to those announced in February. These measures, which will be delivered over the course of FY23, are expected to deliver further annualised cost savings of approximately $36 million.
“The first full year impact of these measures is expected to be achieved in FY24.”
“The one-off costs associated with implementing the cost reduction program are expected to be approximately $4 – $5 million and will be reported as a non-recurring expense and excluded from underlying EBITDA for FY23.
“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. Appen continues to review options to maximise its balance sheet flexibility.
“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. Appen’s cash balance at the end of April was $27 million,” the company said on Wednesday.
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And Appen’s bad news was repeated at the once high-flying e-tailer Redbubble with news yesterday of the second round of job cuts in four months.
Returning chief executive Martin Hosking said Redbubble will cut a further 23 per cent of its workforce, building on earlier job cuts made in January of around 20% of the workforce.
With yesterday’s cut around 125 jobs, or around a third of the work force have been axed.
There are 75 jobs going this time in an effort to re-size the company to a cash flow positive position.
Redbubble is an online arts and craft marketplace and the cuts equate to around 23% of its start of 2023 workforce.
The cuts are aimed at between saving between $13 million to $15 million a year.
“Since being appointed CEO, my primary focus has been returning the group to profitability as soon as possible,” said Hosking, the company’s founder who returned to lead the company after Michael Ilczynski’s resignation as CEO on March 27 this year.
He had previously stepped aside to be a non-executive director in 2018, only to return on an interim basis for a year in early 2020 before Ilczynski was recruited.
“It has become clear that to achieve this, we need to further reduce our cost base. As a result, we have made the difficult decision to remove a number of roles from the group,” he explained.
“As part of this process, we have restructured our business to more clearly define the group function and two operating companies, Redbubble and TeePublic. We expect this new structure will allow each marketplace to operate more efficiently and effectively, with a greater focus on their individual strengths and unique value propositions.”
“We believe that the steps we are taking today will best position us to bring forward our return to cash flow positive,” Hosking says.
“Once achieved, we will be on a strong footing to explore future growth opportunities to unlock the group’s tremendous potential.”
Redbubble shares ended the day unchanged at 42 cents – just above the 52-week low of 38 cents hit earlier in late April.
The shares hit a high of $1.56 in August last year — ahhh, those were the days.
