APPEN LIMITED — Investor Presentation 2021

Feb 23, 2021

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Appen Limited Level 6, 9 Help Street Chatswood NSW 2067

Tel : 02 9468 6300 www.appen.com

ASX ANNOUNCEMENT

24 February 2021

INVESTOR PRESENTATION

Further to the Company’s announcement to the market today on its results for the year ended 31 December 2020, please find attached the presentation to be delivered to investors and analysts this morning.

Authorised for release by the Board of Appen Limited.

Please contact for more information:

Linda Carroll Investor Relations +61 2 9468 6300 investorrelations@appen.com www.appen.com/investors

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24 February 2021

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Disclaimer

The forward looking statements included in these materials involve subjective judgement and analysis and are subject to significant uncertainties, risks, contingencies, many of which are outside the control of, and are unknown to Appen Limited. In particular, they speak only as of the date of these materials, they are based on particular events, conditions or circumstances stated in the materials, they assume the success of Appen Limited’s business strategies, and they are subject to significant regulatory, business, competitive, currency and economic uncertainties and risks.

Appen Limited disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statements in these materials to reflect any change in expectations in relation to any forward looking statements or any change in events, conditions or circumstances on which any such statement is based. Nothing in these materials shall under any circumstances create an implication that there has been no change in the affairs of Appen Limited since the date of these materials.

No representation, warranty or assurance (express or implied) is given or made in relation to any forward looking statement by any person (including Appen Limited). In particular, no representation, warranty or assurance (express or implied) is given in relation to any underlying assumption or that any forward looking statement will be achieved. Actual future events and conditions may vary materially from the forward looking statements and the assumptions on which the forward looking statements are based. Given these uncertainties, readers are cautioned to not place undue reliance on such forward looking statements.

Any additional financial information in this presentation which is not included in the Financial Report of Appen’s 2020 Annual Report was not subject to independent audit or review by KPMG. The material contained in this presentation may include information derived from publicly available sources that have not been independently verified. Numbers are subject to rounding and may not fully reconcile. Unless otherwise specified, all information is for the year ended 31 December 2020 and comparisons are to the year ended 31 December 2019. All amounts are in Australian dollars unless otherwise stated.

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2

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Artificial intelligence...

Appen makes AI work in the real world by delivering high-quality training data at scale.

Our clients include the world’s largest technology companies, global leaders in automotive, financial services, retail, healthcare, and government agencies. ...informed by Appen.

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3

Making AI work in the real world

Search

3.5bn+

online searches per day

Chat

30[%]

annual growth in the chatbot market

Drive

40 terabytes

of data for every eight hours of autonomous driving

Interact 128m

people in the US will use a voice assistant at least monthly

Immerse

1 in 5

US consumers used virtual reality (VR) in 2020

Shop 21[%+]

of total retail sales in the US are online

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Sources: Internet Live Stats 2020, Auto Tech Review 2020, ARtillery Intelligence 2020, Markets and Markets 2019, eMarketer 2020, Digital Commerce 360 2021.

4

Solid growth maintained in FY20

A$	FY2020	vs FY2019
Group revenue	$599.9M	+12%
Relevance	$538.2M	+15%
Speech & Image	$61.2M	-10%
Underlying EBITDA1	$108.6M	+8%
Underlying EBITDA margin	18.1%	vs 18.8%
Dividend per share	10.0c	+11%

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

High growth and performance in 1H20

Moderated in 2H20 due to strong Australian dollar and COVID-19 impacts including:

• impact of lower digital ad revenue and uncertain outlook on customer spend

• deferral and reprioritisation of projects

• restricted face-to-face sales and customer engagement

Strong balance sheet - $78M in cash and no debt as at 31 December 2020

Final dividend of 5.5cps and interim dividend of 4.5cps, both 50% franked

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5

New customer and project wins strengthen our position

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Customer wins
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46
36
30
24
Q1 Q2 Q3 Q4
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Project wins China revenue
A$M
2.8
+60%
QoQ
1.9
+34 [%]
1.3
in 2020
0.7
Q1 Q2 Q3 Q4
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Project wins
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• 136 new customers in 2020

• Multiple industries, geographies, data modalities and use cases

• Growth enabled by sales and marketing investment and annotation platform capabilities

• 34% increase in projects with existing major customers

• Customer use of our annotation platform is growing, enabling more data types and use cases, tighter integration and greater retention

• Capabilities aligned with customers’ new product development priorities

• China revenue growth 60% quarter on quarter

 Customers include major Chinese technology players plus autonomous vehicle, health and education companies

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6

Ongoing growth in committed revenue

Annual contract value (ACV)

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At end of period
US$M
124.4
103.0
98.7
25.0
2H 2019 1H 2020 2H 2020 1 Feb 2021
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Revenue by type
A$M
100% 97% 93% 88% 69%
Project
Committed
31%
3%
12%
7%
2H 2018 1H 2019 2H 2019 1H 2020 2H 2020
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• 399% increase in ACV to US$124.4M (1 Feb 21 v 2H19)

• 343% increase in committed revenue (2H20 v 2H19)

• Increase underpinned by expansion of enterprisewide platform agreement with existing major customer

• $92.0M of committed revenue in 2H20, 31% of total – up from $36.3M in 1H20, 12% of total

• Some smaller customers continued to be impacted by COVID-19 in 2H20

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Growth from new and long-standing customers

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Revenue [1]
A$M 599.4
535.5
364.2
166.6
110.9
82.6
FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Speech & Image [2]
Relevance [2]
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• Major programs are highly retentive

• Continued growth in major customers

• Adding new customers each year to diversify the customer base

• Excludes interest and other income.

• Chart shows revenue by cohort in year of origination and each successive year thereafter.

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Relevance growth continues

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Relevance
A$M
538.2
467.8
104.2 112.7
Revenue
EBITDA
FY2019 FY2020
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• Revenue $538.2M, up 15%

• EBITDA up 8% to $112.7M, including growth investments

• 2H20 growth impacted by COVID-19 re-shaping customers’ activities and priorities

• Continued to deliver high-quality data during pandemic due to resilience and strength of remote work crowd model (1 million+ crowd, 170+ countries)

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Relevance growth
A$M 538.2
467.8
312.9
126.2
73.2
50.7
2015 2016 2017 2018 2019 2020
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• 60% CAGR FY15-FY20

• Core projects ongoing, significant wins in new markets and sectors

• Relevance continues to demand skilled, diverse human annotators at-scale and ongoing data refresh

• Less amenable to automation, insourcing

• No material change in competitive landscape

• Investing in crowd management technology and processes to increase productivity

9

Speech & Image impacted by project timing

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Speech & Image
A$M
67.7
61.2
21.4
12.4
Revenue
EBITDA
FY2019 FY2020
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Speech & Image
A$M
67.7
61.2
51.4
40.3
37.7
31.9
2015 2016 2017 2018 2019 2020
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• Revenue $61.2M, down 10%

• 14% CAGR FY15-20

• Revenue cyclicality due to product life cycle, timing of customer investment

• New business activity hampered by COVID-19

• Multiple new customer wins in 2020

• Increased projects in AR/VR and chatbot growth markets

• EBITDA down 42% due to lower revenue and impact of growth investments

• Operating structure maintained and well-positioned for next wave of investment and product development

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10

Maintaining investments for future growth

Underlying EBITDA growth of 13%

ex. FX gains and incremental growth investments A$M

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+13%
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• FY20 includes significant growth investments totalling $12.7M

• Sales and marketing - to add new customers to improve diversification

• China – to open a growth market

• Engineering investment is normalising

• FX gain of $6.8M due to US$ debt restatement of $4.7M (1H20: ~$3.6M) and hedge book $2.1M

Incremental growth investment in 2020

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China revenue
A$M
2.8
+60%
QoQ
1.9
1.3
0.7
Q1 Q2 Q3 Q4
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Growth investments - China

• China revenue growth of 60% quarter on quarter

• Customers include the major Chinese technology players

• Growing position in autonomous vehicles

• Working in all major data modalities

• Gross margins improving quarter on quarter, positive for the year

• Air-gapped operations and technology stack for privacy and IP protection

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Growth investments – Sales and marketing

• 136 new customers

• 34% increase in number of projects with major customers

• New customers, projects and use cases in all geographies

• Underpinned by annotation platform

New customers

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Payments tech Medical technology Financial/banking
company company institute
Labelling documents to train Classifying images of Natural language processing
OCR models completed testing devices for customer support
Writing assistant Robotics system Aviation company
Sentiment analysis in integrator Language processing for air
messages Training robotic material traffic control
handling equipment
Autonomous Vehicle safety Auto manufacturer
trucking company system provider Natural Language
Processing for map data
Image annotation to support Road positioning and
autonomous driving collision avoidance
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Growth investments - Technology

Crowd management

• Appen Connect platform for crowd recruitment, onboarding, management

• AI-driven smart matching connects crowd to projects based on experience and performance

• Speeds project ramp-up and time to value

• Improves recruiter and project manager productivity

Platform and tools

• Appen annotation platform and tools for at-scale data

• collection and annotation across data modalities

• AI-assisted annotation for text, speech, image, video and LiDAR, up to 6 times faster

• 3D point cloud annotation for autonomous vehicles

• AI workflow automates and streamlines processes to improve throughput and productivity

Mobile app

• New mobile app to improve crowd utility and productivity

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Growth investments - Government

Government set up complete

• Prime contractor eligibility

• Experienced team in place

• Washington DC office open

• Air-gapped technology and operations

2020 progress

• Hampered by COVID-19 and U.S. presidential election

Business development ongoing

• Growing pipeline of platform and service opportunities

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1515

Revenue and EBITDA growth

A$M	FY2020	FY2019 % change % change constant currency
Relevance Speech & Image Other	538.2 61.2 0.5	467.8 15% 14% 67.7 -10% -11% 0.5
Total revenue	599.9	536.0 12% 11%
Statutory EBITDA	107.9	87.9 23% 23%
Underlying EBITDA1	108.6	101.0 8% 8%
Underlying EBITDA margin	18.1%	18.8%
Statutory NPAT	50.5	41.6 21% 23%
Underlying NPAT 2	64.4	64.7 -1% 1%

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

2. Underlying NPAT excludes after tax impact of items relating to acquisitions, including amortisation of identifiable assets, share based payment expenses, transaction costs and fair value adjustments (interest unwind and consideration adjustments) for the Figure Eight acquisition

Revenue up 12%

• Growth largely driven by increase in existing and new Relevance projects with existing customers

• Growth impacted by major customers’ response to COVID-19 and the strong AUD in H2 FY20

• Speech & Image revenue mainly impacted by cyclicality and pandemic

Underlying EBITDA[1] up 8%

• EBITDA margins reduced to 18.1% from 18.8% due to growth investment of $12.7M mainly in sales and marketing and China

• Includes FX gain of $6.8M

• Excluding FX gain and investment, underlying EBITDA is $114.5m up 13% with margin of 19.1%

Underlying NPAT[2] down 1%

• Impacted by growth investment (net of tax) and increased amortisation

• Effective tax rate reduced to 20.5% from 24.4% mainly due to tax effect relating to share based payments and overseas tax rate differential. Normalised tax rate (excluding share-based payment related items) ~28%

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16

FX - minimal full year impact, half-on-half swings

Revenue

A$M

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+$57.9M full year +$6.0M full year
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Underlying EBITDA
A$M
+$8.2M full year -$0.6M full year
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• Almost all revenue and earnings are derived offshore, mainly in US$

• The full year FX impact was not meaningful, however the swings between H1 and H2 were significant:

• H1 FY20 Impact - revenue: +$21.8M or +7.1%; underlying EBITDA: +$3.6M or +7.3%

• H2 FY20 Impact - revenue: -$15.8M or -5.4%; underlying EBITDA: -$4.2M or -7.1%

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17

Balance sheet continues to strengthen

A$M	Dec 2020	Dec 2019
Cash Receivables Contract assets Other current assets Non-current Assets	78.4 65.7 40.9 15.8 399.6	75.3 116.3 7.9 3.1 431.5
Total assets	600.4	634.1
Current liabilities Non-current liabilities	77.8 36.7	128.8 23.5
Total liabilities	114.5	152.3
Net assets	485.9	481.8
Total equity	485.9	481.8

• Strong balance sheet, impacted by year end translation at high AUD rate

• $78.4M in cash at 31 December 2020

• Decrease in receivables relates to year end timing related to billing milestones (see increase in Contract assets)[1] and 2019 receipt timing (refer Cash flow slide)

• Non-current assets include Goodwill of $262.8M and identifiable intangible assets (IIA) of $96.6M. Reviewed for impairment, with significant headroom

• Borrowings repaid in August 2020 from cash reserves

• Final dividend of 5.5 cps, 50% franked, up 10% from 2019 final dividend

• Invoices have since been raised for the majority of contract assets outstanding at 31 December 2020. As at 16 February 2021, 80% of these invoices had been paid.

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Cash flow generation and conversion was strong

A$M	FY2020	FY2019
Receipts	597.8	488.6
Payments and other	(485.1)	(405.8)
Cash flow from operations before interest and tax	112.7	82.8
Net interest	(1.6)	(2.0)
Taxes	(17.5)	(13.5)
Net cash from operations	93.6	67.3
Cash flows - investing activities	(67.5)	(256.0)
Cash flows - financing activities	(12.8)	221.9
Net cash flow for the period	13.3	33.2
Opening cash balance	75.3	40.0
FX impact	(10.2)	2.1
Closing cash balance	78.4	75.3

• Cash balance increased by $3.1M, negatively impacted by translation at high AUD rate

• Positive impact from receipt timing (expected Dec 19 receipts received in Jan 20)

• Cash flow from operations increased by 39% and remains strong

• Cash used to repay debt and pay tax, dividends, capex, opex and growth investments

• Cash conversion from EBITDA was 104%

 Cash conversion from EBITDA was	104%
Cash flow reconciliation (A$M)	FY2020	FY2019
Underlying EBITDA	108.6	101.0
Working capital	(4.1)	(18.2)
Cash flow from operations before interest and tax	112.7	82.8
Underlying EBITDA cash conversion	104%	82%

Numbers are subject to rounding

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19

Creating value for our stakeholders

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Global crowd

Appen employees

Our goal: Have a happy, Our goal: Make Appen a great engaged and diverse crowd place to work

Crowd Code of Ethics

Crowd Code of Ethics Our values   Fair pay Performance  Inclusion  Honesty  Crowd voice  Humility  Privacy and confidentiality  Grit  Communication 1,125 employees, up 44%  Wellbeing

58% of workforce is female, 30% target for senior leaders 29,380 hours of employee training Employee engagement 82%, up 6 percentage points on 2019

1 million+ crowd in 170+ countries, expertise in 235 languages New Crowd Care Team Crowd NPS 48, up 1 on 2019

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Social and environment

Our goal: Manage our impacts and make a positive contribution

Responsible AI Standards partnership with the World Economic Forum

COVID-19 translation initiative with Translators without Borders - datasets for 70,000 key COVID terms and phrases for 38 languages

Member of the Global Impact Sourcing Coalition New Environment Position Statement

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20

Capturing

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Outlook

Near-term challenges

• While providing guidance is challenging given near-term uncertainty, we remain committed to transparency

• Year-to-date revenue plus orders in hand of ~A$240M at February 2021, consistent with prior year methodology and timing

• 1H21 earnings growth will be impacted by the near-term challenges, a greater skew in timing of project delivery to 2H21, and the lower pcp cost base

• Underlying EBITDA for FY21 is expected to be in the range of A$120M - A$130M at constant currency[1 ] representing growth of 18-28% on FY20 underlying EBITDA (ex. FX gain) of $101.8M

• This is equivalent to an underlying EBITDA range for FY21 of US$83M - US$90M representing growth of 17-27% on FY20 underlying EBITDA (ex. FX gain) of US$70.7M

• Full year EBITDA margins at high teen percentages

• Strong Australian dollar

• Impact on major customers’ priorities and resource allocation due to:

• uncertainty re post COVID-19 economic trends

• evolving regulatory environment

  • new product development

Strongly positioned for the long-term

• AI-industry tailwinds – growing adoption, use cases

• Largest global player – crowd, technology, expertise

• Growth investments delivering new customers, more projects, growth in China, higher ACV

• AI-enabled technology platform opening new markets and delivering automation and scalability

• Adapting in sync with our major customers - capabilities aligned with their evolving needs

• FY20 constant currency A$1 = US$0.6904.

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22

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appen.com/investors

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