APPEN LIMITED — Capital/Financing Update 2021

May 18, 2021

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ASX ANNOUNCEMENT

19 May 2021

BUSINESS AND TRADING UPDATE

Appen Limited (ASX: APX) (Appen) has today announced a new organisational structure aligned to the company’s product-led and customer-centric strategy, as well as changes to financial reporting that provide greater visibility of the drivers and performance of the business.

The changes reflect Appen’s evolution from being the leading provider of artificial intelligence (AI) data annotation services to the provider of a broad range of AI data annotation products and solutions that unlock growth in new markets.

“Our new structure will drive performance and growth by aligning our business with market opportunities and customer needs”, said Mark Brayan, Chief Executive Officer. “Value will be created by pursuing product-led expansion and by giving our teams end-to-end responsibility and control over delivery for their customers.”

Highlights

• Appen has been restructured to align to our product-led growth strategy and distinct customer propositions.

• Our new organisational structure consists of four customer facing business units - Global, Enterprise, China and Government.

• Global will focus on providing data annotation services and products to our major US technology (Global) customers.

• Enterprise will drive growth outside of Global customers by leveraging our product suite to serve new customers and AI use cases.

• China and Government will continue to focus on capturing share in their highgrowth markets.

• The new leadership structure, together with P&L responsibility, will increase visibility of, and accountability for, performance.

• Organisation alignment and technology-enabled productivity allow resources to be optimised and right sized for future needs.

• New segment reporting according to our product and service offerings will provide greater transparency on performance, growth and market dynamics.

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Appen Limited, 9 Help Street, Chatswood, NSW 2067, Australia. ACN 138 878 298

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• The Global Services segment represents the services we provide to our Global customers using their data annotation tools.

• The New Markets segment comprises our product led businesses, including the work we do for our Global customers using Appen’s annotation products, and our Enterprise, Government and China businesses.

• Reporting in US dollars will enable easier comparison of financial performance between periods.

• Underlying EBITDA for the year ended 31 December 2021 is expected to be in the range of US$83-90M, as per the guidance provided to the market at our FY20 Full Year Results in February.

Becoming an AI-powered provider of AI data products and solutions

Appen has evolved from a language data service provider, to become the leading AI data annotation services provider. Most recently, we have been pursuing a product led strategy to unlock new markets, drive growth and deliver high-quality training data, faster, at larger scale and with improved unit economics.

Traditionally our Global customers have relied on Appen to provide data annotation services via our crowd of more than 1 million contractors, with the work completed using our customers’ annotation tools.

Through recent acquisitions and engineering investment we have developed our own product suite of market leading platforms and tools. This includes our AIenabled Annotation Platform, our Appen Connect workforce management platform, and our Appen Intelligence proprietary machine learning models.

By using our own platforms and adding AI-enabled functionality, we can increase the quality, speed and scale of data annotation and collection. Our products also increase our addressable market and enable us to support the long tail of companies, outside of the US tech giants, that are investing in AI.

Our Global customers are also now using Appen training data products due to rising annotation complexity and new use cases. Increasing the adoption of our products by Global customers is a key priority as it enables project expansion through improved quality and greater productivity benefits.

Our new segment reporting reflects our product led growth strategy. The segments are:

• Global Services where services are provided for our Global customers on their data annotation tools; and

• New Markets which includes Global customer revenue through Appen products and Enterprise, Government and China.

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Appen Limited, 9 Help Street, Chatswood, NSW 2067, Australia. ACN 138 878 298

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New Markets represents our high growth markets and delivered an annualised revenue CAGR of 41% from 1H19 to 2H20.

This strong growth in New Markets revenue shows the value of our product suite and the foundation it provides for further growth and productivity gains, as we add more automation and value-add functionality to our offering.

Historical segment reporting in US dollars is provided in Appendix 1.

New organisational structure

We are aligning our internal structure to drive focus on the needs of different customer groups and markets, and to enable the development of differentiated approaches to sales, customer experience and delivery models.

The new organisational structure will consist of four customer facing business units – Global, Enterprise, China and Government. A new leadership structure together with P&L responsibility will increase visibility of, and accountability for, performance across the four customer-focused business units.

The Global business unit will be responsible for delivering high-quality data annotation services and products to our major US technology customers and will focus on deepening and expanding these long-standing relationships.

Tom Sharkey, currently Senior Vice President of Client Services, will lead the Global business unit. Tom has over 30 years’ experience in technology services, outsourcing, account management, global service delivery, and business transformation and automation.

The Enterprise business unit will leverage our product suite and AI-driven automation to efficiently grow revenue within our 300+ current enterprise customers[1] and to expand our customer base as AI is adopted throughout the economy.

A global search is under way for an executive to head the Enterprise division. Jon Kondo, currently SVP of Sales and Marketing, will act in the role. Jon has more 30 years of sales and marketing experience with global big data companies.

The China and Government businesses will continue to operate separately under their current leadership and will focus on capturing share in their high-growth markets.

1 Active customers that have paid for Appen products and services in the last 12 months.

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Appen Limited, 9 Help Street, Chatswood, NSW 2067, Australia. ACN 138 878 298

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The business units will be supported by four service units – Product, Engineering, Crowd and HR, and Corporate.

A new Head of Product is being recruited to coordinate product development and technical services across the business, and to ensure that we continue to offer the most innovative suite of products in the market. They will report to the CEO and be responsible for driving investments in product that increase the volume, quality, speed, security and value of data provision; and for the deployment of machine learning and other advanced techniques that automate processes to deliver scale and cost efficiencies.

The review and restructure of Appen’s operating model also allows resources to be optimised and right sized for future needs. As technology is becoming a bigger part of what we do and is being used internally to streamline business processes and workflows, it reduces delivery and other resource requirements.

Restructuring costs will be primarily related to redundancies. Partial benefits will be realised in the second half of 2021. We anticipate annualised gross savings (before reinvestment), largely related to lower labour expense, of US$15 million from 2022.

Change to reporting currency

Appen will change its reporting currency from Australian dollars to US dollars, commencing with the 2021 interim result. The change is driven by the fact that more than 90% of Appen’s revenue and assets are in US dollars. Reporting in US dollars will remove the volatility that occurs when US earnings and assets are translated into Australian dollars, which will enable easier comparison of financial performance between periods.

The historical financial information provided in Appendix 2 was previously reported in Australian dollars and has been restated to US dollars based on the following translation methodology:

• The financial performance summary, consolidated statement of profit or loss and consolidated statement of cash flows have been translated into US dollars using average exchange rates for the relevant period.

• Assets and liabilities in the consolidated statement of financial position have been translated into US dollars at the closing exchange rates on the relevant balance sheet dates.[2]

2 The AUD/USD exchange rates used were: 0.7709 as at 31 December 2020; 0.7014 as at 31 December 2019; and 0.6877 as at 30 June 2020.

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Appen Limited, 9 Help Street, Chatswood, NSW 2067, Australia. ACN 138 878 298

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• The equity section of the consolidated statement of financial position has been translated into US dollars using historical rates at transaction date.

The financial information in the appendices has not been audited, however it has been extracted from previously audited Australian dollar financial statements and converted into US dollars.

Trading update

The Company’s year-to-date revenue plus orders in hand for delivery in FY21 is approximately US$260 million at the end of April 2021,[3] consistent with the methodology and timing used for the update provided at the Annual General Meeting in May 2020.[4]

Underlying EBITDA for the year ending 31 December 2021 is expected to be US$83-90 million, as per the guidance provided to the market at our FY20 Full Year Results in February.[5]

Conference call

Appen will host an investor and analyst conference call and an audio webcast at 11am AEST on Wednesday, 19 May 2021. It will be hosted by Mark Brayan, CEO and Kevin Levine, CFO.

- - Register for the conference call: https://s1.c conf.com/diamondpass/10014117 m2nbd4.html

Join the audio webcast: http://www.openbriefing.com/OB/4252.aspx

A replay will be made available after the event on Appen’s Investor Centre.

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The release of this announcement was authorised by the Board.

3 Equivalent to ~A$340 million at AUD/USD FX rate of 0.77 cents.

4 Year-to-date revenue and orders in hand at the same time in 2020 was approximately US$240 million.

5 Underlying EBITDA excludes transaction costs, acquisition related share-based payment expenses and fair value adjustments (consideration adjustments) for the Figure Eight acquisition.

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Appen Limited, 9 Help Street, Chatswood, NSW 2067, Australia. ACN 138 878 298

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For more information, please contact: Linda Carroll Investor Relations +612 9468 6300 investorrelations@appen.com

About Appen

Appen collects and labels images, text, speech, audio, video, and other data used to build and continuously improve the world’s most innovative artificial intelligence systems. Our expertise includes having a global crowd of over 1 million skilled contractors who speak over 235 languages, in over 70,000 locations and 170 countries, and the industry’s most advanced AI-assisted data annotation platform. Our reliable training data gives leaders in technology, automotive, financial services, retail, healthcare, and governments the confidence to deploy world-class AI products. Founded in 1996, Appen has customers and offices globally.

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Appen Limited, 9 Help Street, Chatswood, NSW 2067, Australia. ACN 138 878 298

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Appendix 1

Segment reporting by Offering Presented in US dollars

Year Ended 31 December 2020

	Global Services	New Markets	Corporate (Unallocated)	Total
	US$'000	US$'000	US$'000	US$'000
Revenue	328,143	84,495	-	412,638
Interest	-	2	210	212
Other income	34	26	86	146
Total revenue & other income	328,177	84,523	296	412,996
Segment EBITDA	88,269	(7,484)	90	80,875
Share-based payment – employees				(10,096)
Foreign exchangegain				4,660
Group underlying EBITDA				75,439
Transaction costs				(807)
Depreciation and amortisation				(28,283)
Figure Eight earn out adjustment				2,559
Share-based payment – acq’n related				(2,441)
Deemed interest on earn-out liability				(853)
Finance costs				(1,435)
Profit before income tax				44,179
Income tax expense				(8,907)
Profit after income tax expense				35,272

Half Year Ended 30 June 2020

	Global Services	New Markets	Corporate (Unallocated)	Total
	US$'000	US$'000	US$'000	US$'000
Revenue	163,928	36,316	-	200,244
Interest	-	1	206	207
Other income	(12)	(2)	50	36
Total revenue & other income	163,916	36,315	256	200,487
Segment EBITDA	42,294	(7,880)	18	34,432
Share-based payment – employees				(4,493)
Foreign exchangegain				2,380
Group underlying EBITDA				32,319
Transaction costs				(364)
Depreciation and amortisation				(12,810)
Figure Eight earn out adjustment				2,559
Share-based payment – acq’n related				(1,103)
Deemed interest on earn-out liability				(853)
Finance costs				(607)
Profit before income tax				19,141
Income tax expense				(4,413)
Profit after income tax expense				14,728

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Appen Limited, 9 Help Street, Chatswood, NSW 2067, Australia. ACN 138 878 298

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Appendix 1

Segment revenue reporting by Customer Presented in US dollars

Presented in US dollars
	Year Ended 31	December 2020
	Global		New Markets	Corporate (Unallocated)	Total
	US$'000		US$'000	US$'000	US$'000
Revenue – Services	328,143		-	-	328,143
Revenue - Product	45,368		39,127	-	84,495
Total revenue	373,511		39,127	-	412,638
	Half Year Ended		30 June 2020
	Global		New Markets	Corporate (Unallocated)	Total
	US$'000		US$'000	US$'000	US$'000
Revenue - Services	163,928		-	-	163,928
Revenue - Product	19,360		16,956	-	36,316
Total revenue	183,288		16,956	-	200,244

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Appen Limited, 9 Help Street, Chatswood, NSW 2067, Australia. ACN 138 878 298

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Appendix 2

Financial performance summary Presented in US dollars

Global Services revenue New Markets revenue Other income Total sales revenue and other income from principal activities Underlying net profit after tax (NPAT)1 (Less)/add underlying adjustments (net of tax) Amortisation of acquisition-related identifiable intangible assets Acquisition-related share-based payments Deemed interest on earn-out liability2 Transaction costs Figure Eight earn-out adjustment Statutory NPAT Add: tax Add deemed interest on earn out liability2 Add: net interest expense EBIT3 Add: depreciation and amortisation Statutory EBITDA4 Add/(less): underlying adjustments Acquisition-related share-based payments Figure Eight earn-out adjustment Transaction costs Underlying EBITDA1	Half year ended Year ended 31 Dec 2020 Year ended 31 Dec 2019 Change 30 Jun 2020 US$’000 US$’000 US$’000 328,143 308,754 6% 163,928 84,495 63,076 34% 36,316 358 351 243
	412,996 372,181 11% 200,487 44,916 44,902 <1% 19,077 (7,859) (7,030) (4,213) (2,441) (4,755) (1,103) (615) (1,675) (615) (573) (3,740) (262) 1,844 1,271 1,844
	35,272 28,973 22% 14,728 8,907 9,379 4,413 853 2,325 853 1,435 2,511 607 46,467 43,188 8% 20,601 28,283 17,863 12,810
	74,750 61,051 22% 33,411 2,441 5,634 1,103 (2,559) (1,759) (2,559) 807 5,250 364
	75,439 70,176 8% 32,319
Statutory diluted earnings per share (cents) Underlying diluted earnings per share (cents) % Statutory EBITDA/sales revenue % Underlying EBITDA/sales revenue	28.52 24.09 12.01 36.32 37.33 15.55 18.1% 16.4% 16.7% 18.3% 18.9% 16.1%

1 Underlying results are a non-IFRS measure used by management to assess the performance of the business and have been calculated from statutory measures. Non-IFRS measures have not been subject to audit. 2 Liability was settled during 2020.

3 EBIT is defined as earnings before interest and tax.

4 EBITDA is EBIT before depreciation and amortisation.

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Appen Limited, 9 Help Street, Chatswood, NSW 2067, Australia. ACN 138 878 298

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Appendix 2

Consolidated statement of profit or loss Presented in US dollars

Sales revenue Other income Interest income Recovery of impairment of receivables Net foreign exchange gain Expenses Services purchased - data collection Employee expenses Share-based payments expense Depreciation and amortisation expense Impairment of receivables Travel expense Professional fees Rent and occupancy expense Communications expense Transaction costs Figure Eight earn-out adjustment Deemed interest on earn-out liability Net foreign exchange loss Other expenses Finance costs Profit before income tax expense Income tax expense Profit after income tax expense attributable to the owners of Appen Limited Basic earnings per share (cents) Diluted earnings per share (cents)	Year ended 31 Dec 2020 Year ended 31 Dec 2019 Half year ended 30 Jun 2020 US$'000 US$'000 US$'000 412,638 371,826 200,244 106 5 36 212 350 207 40 - - 4,660 - 2,380 (239,018) (215,781) (118,984) (71,659) (52,345) (32,894) (12,537) (13,282) (5,596) (28,283) (17,863) (12,810) - (545) - (689) (2,065) (582) (8,241) (7,965) (3,964) (63) (485) (81) (837) (745) (397) (807) (5,250) (364) 2,559 1,759 2,559 (853) (2,325) (853) - (38) - (11,402) (14,038) (8,946) (1,647) (2,861) (814)
	44,179 38,352 19,141 (8,907) (9,379) (4,413)
	35,272 28,973 14,728 29.00 24.57 12.26 28.52 24.09 12.01

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Appen Limited, 9 Help Street, Chatswood, NSW 2067, Australia. ACN 138 878 298

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Appendix 2

Consolidated statement of financial position Presented in US dollars

Assets Current assets Cash and cash equivalents Trade and other receivables Contract assets Derivative financial instruments Income tax refund due Prepayments Total current assets Non-current assets Property, plant and equipment Right-of-use assets Intangibles Deferred tax Sundry receivables Total non-current assets Total assets Current liabilities Trade and other payables Contract liabilities Lease liabilities Income tax parable Employee benefits Other liabilities Total current liabilities Non-current liabilities Borrowings Lease liabilities Deferred tax Employee benefits Other liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Accumulated losses Total equity	As at 31 Dec 2020 As at 30 Jun 2020 As at 31 Dec 2019 US$'000 US$'000 US$'000 60,488 86,684 52,799 50,611 42,668 81,600 31,516 21,125 5,531 1,479 16 220 8,289 - - 2,423 2,644 1,984
	154,806 153,137 142,134
	3,973 4,019 3,911 17,993 19,358 15,377 277,055 276,357 279,570 8,240 2,148 2,792 801 146 1,012
	308,062 302,028 302,662
	462,868 455,165 444,796
	44,168 38,195 42,377 7,458 11,793 15,516 5,036 4,391 3,260 - 1,341 999 3,261 2,763 1,438 77 909 26,754
	60,000 59,392 90,344
	- 23,473 - 14,432 16,127 12,656 13,410 4,134 2,814 436 335 302 - 750 750
	28,278 44,819 16,522
	88,278 104,211 106,866
	374,590 350,954 337,930
	262,917 262,917 262,917 115,690 92,054 79,030 (4,017) (4,017) (4,017)
	374,590 350,954 337,930

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Appen Limited, 9 Help Street, Chatswood, NSW 2067, Australia. ACN 138 878 298

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Appendix 2

Consolidated statement of cash flows Presented in US dollars

Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers & employees (inclusive of GST) Interest received Interest paid Income taxes paid Net cash from operating activities Cash flows from investing activities Payment for purchase of subsidiary, net of cash acquired Transaction costs paid for acquisitions Payments for property, plant and equipment Payments for intangibles Net cash from investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings Payment for lease liabilities Dividends paid Net cash from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial year/period	Year ended 31 Dec 2020 Year ended 31 Dec 2019 Half year ended 30 Jun 2020 US$'000 US$'000 US$'000 413,589 339,776 219,279 (335,632) (282,227) (169,833)
	77,957 57,549 49,446 212 350 207 (1,323) (1,678) (497) (12,119) (9,393) (2,229)
	64,727 46,828 46,927 (27,011) (162,616) (25,602) (807) (5,250) (364) (1,684) (2,165) (880) (17,171) (8,623) (6,328)
	(46,673) (178,654) (33,174) - 203,438 - 27,011 - 25,602 (23,473) (39,659) - (4,279) (3,107) (1,877) (7,419) (6,301) (3,560)
	(8,160) 154,371 20,165
	9,894 22,545 33,918 52,799 28,253 52,799 (2,205) 2,001 (33)
	60,488 52,799 86,684

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Appen Limited, 9 Help Street, Chatswood, NSW 2067, Australia. ACN 138 878 298