On Monday, an announcement delivered either good or bad news for Appen (ASX:APX), the struggling tech AI group.
The final payment for Appen's 2021 acquisition of Quadrant Global Pte Ltd is now expected to be lower than initially forecasted, impacting Appen's working capital facility.
Since this final payment is referred to as an 'earn-out' payment, its amount depends on the performance of the acquisition since its completion.
"Appen completed the acquisition of Quadrant and made a cash payment of US$25.3 million on 13 September 2021," Appen reminded investors in a statement to the ASX on Monday.
"A further potential payment of up to US$20.0 million was due in February 2024, either in cash or shares, contingent on Quadrant achieving specific revenue milestones in 2022 and 2023.
"As of 30 June 2023, Quadrant's earn-out liability was recorded in the balance sheet as US$19.4 million.
"Appen now anticipates the earn-out liability to be no greater than US$5.0 million, representing the lower end of any payable earn-out. The earn-out liability can still be settled in either cash or shares, and our current intention is to issue shares to meet the liability," stated Appen.
Appen also mentioned that its working capital facility has been reduced from A$20 million to A$10 million.
"The facility remains untouched, and Appen has no current intention to draw from it before its expiry on 3 January 2024," added Appen.
In summary, Appen's statement indicates that the "certain revenue milestones" set for Quadrant Global were not met, causing the earn-out payment to decrease from US$20 million to just US$5 million.
This development is positive as Appen can pay using shares instead of cash, reducing its debt and interest expenses. However, it is negative because Appen expected higher revenue from Quadrant than it received, raising questions about the initial US$25 million payment.
Investors view this as a slight positive, with shares up 0.81% at 11.30 am on Monday, despite a year-to-date decline of 47%.
