Appen to cut staff, raise $60m as AI challenges persist

·2-min read
James Gourley/AAP PHOTOS

Struggling tech company company Appen has launched a $60m equity raising at a deep discount to shore up its balance sheet after missing the initial boom in the next phase of the artificial intelligence revolution.

Appen said on Tuesday it would raise funds at $1.85 per share, a 19.6 per cent discount to Monday's closing price, in part to fund one-off costs related to laying off staff to save $46m annually.

The Sydney company expects to spend $4m to $5m on severance payments and $1.5m to $2m on leave provision payments. The rest of the funds will be used for working capital to support its return to profitability, Appen said.

The capital raising will allow Appen to access its undrawn $20m credit facility from Westpac, which it would otherwise likely have been shut out from under financial covenants that were set to be tested on June 30.

Appen produces human-annotated image, audio, video and text datasets that Big Tech companies use for training artificial intelligence algorithms.

But it has been losing business lately. In February Appen said its full-year revenue had dropped 13.1 per cent to $388.5m and declared a statutory net loss of $239.1m.

Last Wednesday the company said "challenging external operating and macroeconomic conditions that were noted in the FY22 have persisted into FY23," with revenue through April of $95.7m, down 21.4 per cent compared to the same time last year.

President and CEO Armughan Ahmad, who joined Appen in January, said an operational review had identified many areas for improvement, including a leadership and company culture refresh, improvements to project delivery and strengthening sales and marketing functions.

There were functions duplicated across business units, investments in enterprise and government business units had not resulted in growth, and product, engineering and transformation investments have not delivered expected efficiencies.

Appen has been focused on deep-learning AI services such as speech and image recognition, but hasn't focused on the "generative AI" services, such as the chatbot ChatGPT and text-to-image creator Midjourney that have exploded in popularity in recent months.

Appen now sees generative AI as a significant opportunity, with the market estimated to grow from $8b in 2021 to more than $110b by 2030.

It is launching a large language model fine-tuning and assurance toolset to help companies train their chatbots to avoid harmful results such as "hallucination, bias and toxicity".

ChatGPT has wowed users with its capabilities but it occasionally "hallucinates", confidentially giving flat-out wrong answers to queries.

Appen shares were in a trading halt on Tuesday for the capital raising, having last traded at $2.30 - down from a peak of over $40 in mid-2020.