Contrasting results from tech darlings, Appen and Wisetech on Wednesday.
The former missed its own guidance for earnings, the latter upped its forecast – not because of better revenues but the old standby these days, cost cutting.
While Appen faces a year of standing still, WiseTech sees the 2020 improvement continuing, driven by cost cuts and other changes.
WiseTech lifted its guidance for the year to June after delivering better than expected earnings for the December half.
While WiseTech still expects revenue for the 2021 financial year will be in the range of 9% to 19% or $470 million to $510 million earnings could be $10 million or so above previous guidance.
The new guidance calls for earnings before interest, tax, depreciation and amortisation (EBITDA) in the range of $165 million to $190 million, which is $10 million above previous guidance.
WiseTech said the higher guidance reflects benefits expected to be generated from operational leverage “as the Company continues to implement its organisation-wide efficiency initiatives and to extract acquisition synergies”.
For the half year, WiseTech reported a 16% rise in revenue to $238.7 million, and a 26 per cent decrease in net profit to $44.4 million reflecting changes made to contingent payments on acquisitions as part of its expansion of its software services to the trillion-dollar global logistics industry.
It announced a 2.7c a share fully franked interim dividend payable April 9, the highest so far and up from the 1.7 cents a share paid for the December, 2019 half.
“We are continuing to see evidence of a ‘goods-led’ recovery in global trade, with consumer spending switching from services to physical goods, in response to COVID-19 mobility restrictions,” said WiseTech CEO and major shareholder Richard White said in Wednesday’s statement.
“This has had the effect of boosting demand for manufactured goods and global trade, driving an acceleration in logistics providers looking to replace legacy systems with integrated global technology such as CargoWise.”
WiseTech said it grew its EBITDA margin to 37% for the half year (a long way behind mining giants Rio Tinto and bHP whose gross margins were above 50% or 50 cents in each dollar of revenue).
But that was a solid result – up seven percentage points on the prior first half thanks to revenue growth and cost cuts.
WiseTech shares rose more than 4% to $30.86 but then eased in the afternoon to close up 1% at $29.85.
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In contrast, shares in Appen, another tech fave, fell more than 12% after it missed earnings targets in its full year results on Wednesday.
The company reported an 11% in revenue to $600 million, a 23% rise in net profit to $50.5 million and a 5.5 cents a share dividend that will be paid March 19.
The company reported underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $101.7 million which is below its downgraded guidance last year.
In December, Appen said it expects 2020 underlying EBITDA – including the impact of the stronger Australian dollar – to be in the range $106 million to $109 million at the actual exchange rates to November of 74 US cents.
The original guidance was for EBITDA of $125 million to $130 million at that exchange rate.
The reported figure of just over $101 million was more than 205 lower than the original range, so the impact of the dollar’s rise has been substantial, but it added to the negative impact of the way its big clients were forced to change business because of COVID in the final months of 2020.
The Aussie dollar is now around 78 US cents (and was just over 77 US cents at the end of 2020), so the strengthening currency has been an unwelcome evolution over year to December.
Appen makes most of its money in the US from crowdsourcing a global workforce that does the low-level grunt work for the technology giants.
The workers teach computers to recognise basic images and speech, laying down the basic groundwork for the development of ‘Artificial Intelligence’ solutions.
Some 80% per cent of Appen’s revenue is generated by just five customers which includes Google, Facebook, Amazon and Microsoft.
The December downgrade was triggered by its technology customers forced to deal with more lockdowns in California and defer completion of old projects and shift resources to new ideas in the wake of COVID-19.
Those moves saw Appen’s traditionally strong fourth quarter weaker than expected, with underlying earnings for the period falling around 15% under forecast.
Appen says most of deferred projects are due to restart this year.
The company is forecasting underlying EBITDA of $120 million to $130 million for the 2021 financial year ending December 31. That’s no better than the original forecast for 2020, so the current year will be one where Appen stands still.
CEO Mark Brayan said “2020 was a breakout year for new sales, new projects, committed revenue and our entry into China, but it was not without its challenges” – the latter something of an understatement.
The shares fell 12% to $17.81 (close to the day’s low of $17.80). That’s less than half year high of $43.66 and closing on the year low of $15.70.
