Highlights

  • Appen maintained FY26 revenue guidance of US$270 million to US$300 million and an underlying EBITDA margin before foreign exchange of approximately 5% to 10%.
  • FY25 revenue reached US$230.8 million, while underlying EBITDA before foreign exchange improved to US$12.2 million.
  • The company remained statutorily loss-making in FY25, reporting a net loss of US$21.8 million.
  • March-quarter revenue increased 9% to US$54.8 million, but Appen Global revenue declined 37%.
  • Appen China continued to grow rapidly, recording an 88% increase in March-quarter revenue to US$34.9 million.

Appen Limited (ASX:APX) has maintained its FY26 revenue guidance despite a slower-than-required start to the year. Rapid growth in Appen China and increasing demand for generative artificial intelligence services provide a foundation for recovery, but continued weakness in the company’s global business means a substantial acceleration is needed to achieve the guided revenue range.

FY26 Guidance Remains Unchanged

Appen issued formal FY26 guidance alongside its full-year results on 25 February 2026.

The company expects revenue of between US$270 million and US$300 million, together with an underlying EBITDA margin before foreign exchange effects of approximately 5% to 10%.

This guidance was reaffirmed at Appen’s annual general meeting on 22 May 2026.

The unchanged outlook indicates that management continues to expect stronger trading through the remainder of the year. However, guidance represents a forward-looking objective rather than a completed result, and the March-quarter performance increased the level of execution required.

Appen reports its financial results in United States dollars because most of its customer contracts and operating revenue are generated internationally, even though its shares trade on the Australian Securities Exchange.

What Appen Does

Appen provides data services that support the training, testing and evaluation of artificial intelligence systems.

Its services include collecting and labelling text, speech, images and video, as well as providing human feedback, preference rankings, safety assessments and model evaluations.

These services are used by technology companies developing search tools, machine learning systems and large language models.

Appen does not generally build AI models itself. Instead, it operates as part of the data and evaluation infrastructure required to improve the accuracy, relevance and safety of those models.

FY25 Shows Operational Improvement but No Statutory Profit

Appen reported FY25 revenue of US$230.8 million, representing growth of 4.5% compared with the previous financial year.

Underlying EBITDA before foreign exchange rose to US$12.2 million, compared with a much smaller result in FY24. The corresponding margin improved to 5.3%.

Gross margin also increased by 100 basis points to 40.3%.

These figures indicate that cost reductions, revenue growth in China and a larger contribution from generative AI projects improved underlying trading performance.

However, the statutory result remained negative, with Appen reporting a net loss of US$21.8 million.

Underlying EBITDA excludes interest, tax, depreciation, amortisation and certain adjustments. It therefore provides an indication of operating performance but does not represent the final profit attributable to shareholders.

The contrast between positive underlying EBITDA and the statutory loss shows that Appen’s recovery remained incomplete at the end of FY25.

Appen China Drives the Growth Story

The composition of Appen’s revenue has changed substantially.

Appen Global generated FY25 revenue of US$127.9 million, down 21% from the previous year.

By contrast, Appen China generated US$102.9 million, representing growth of 75%.

Appen China’s underlying EBITDA before foreign exchange rose to US$10.6 million, making it an increasingly important contributor to group earnings.

Generative AI-related work accounted for 44.1% of Appen’s fourth-quarter FY25 revenue, up from 34.8% in the corresponding quarter.

The business is therefore becoming increasingly dependent on Chinese customers and generative AI demand to offset continued weakness across its established global customer base.

This shift creates growth potential but also increases concentration, regulatory and geographic risks.

Google Contract Loss Reshaped the Business

Appen’s current recovery follows the loss of a major customer contract in early 2024.

Google terminated its global inbound services agreement with Appen, effective from 19 March 2024.

That contract had contributed US$82.8 million of FY23 revenue at a gross margin of approximately 26%, accounting for a substantial portion of the company’s business.

The loss highlighted Appen’s dependence on a small number of large technology customers and forced the company to reduce costs, rebuild its sales pipeline and focus more heavily on generative AI opportunities.

Appen’s China business has since become the principal source of growth, while the legacy global operation continues to contract.

March Quarter Highlights the Execution Challenge

Appen reported March-quarter revenue of US$54.8 million, an increase of 9% from the prior corresponding period.

Appen China contributed US$34.9 million, up 88%, with management indicating an annualised revenue run rate above US$144 million.

Appen Global revenue declined 37% to US$19.9 million.

The company reported underlying EBITDA of US$1 million, compared with a loss of US$1.5 million in the corresponding quarter.

Gross margin declined to 36.5% from 37.4%.

The quarter therefore showed continued improvement in underlying earnings and strong China growth, but the overall revenue result remained well below the pace required to comfortably achieve full-year guidance.

Annualising the March-quarter revenue would produce approximately US$219 million, below the lower end of Appen’s US$270 million FY26 target.

Seasonality and project timing mean quarterly revenue should not automatically be multiplied by four. Nevertheless, the result demonstrates that Appen needs a meaningful acceleration during the remaining three quarters.

Appen Global Remains the Main Weakness

The 37% decline in Appen Global revenue represents the principal operational challenge.

The division includes much of Appen’s established Western customer base and remains affected by project completions, changing customer demand and the loss of significant historical contracts.

Continued contraction in this business could offset gains generated by Appen China.

The company therefore needs either stabilisation in Appen Global, stronger-than-expected growth in China or a substantial increase in generative AI project volumes to reach the guided range.

The quality and durability of Chinese revenue will also matter. Rapid revenue growth is most valuable when it produces sustainable margins, recurring projects and diversified customer relationships.

Cash Position Has Stabilised

Appen finished FY25 with cash of US$59.8 million.

At the end of the March 2026 quarter, cash remained close to US$59 million, while operating cash inflow for the quarter was US$3.8 million.

This represents an improvement compared with the period following the Google contract loss, when declining revenue and restructuring costs placed pressure on cash reserves.

The broadly stable cash balance reduces near-term liquidity concerns, but the buffer remains limited relative to Appen’s operating scale and ongoing investment requirements.

Sustained positive operating cash flow will be important if the company is to fund product development, sales activity and expansion without raising additional capital.

Governance Issues Add Further Uncertainty

Appen’s 2026 annual general meeting also included a conditional board spill resolution under Australia’s two-strikes rule.

At the previous annual general meeting, more than 25% of votes cast opposed the company’s remuneration report.

Under the two-strikes rule, a second consecutive vote of at least 25% against the remuneration report can trigger a separate vote on whether directors should stand for re-election.

The board recommended that shareholders vote against the spill resolution.

Although governance matters do not directly determine revenue growth, prolonged shareholder dissatisfaction can create management distraction, board instability and uncertainty around the company’s strategic direction.

Key Risks to Consider

The most immediate risk is that Appen may fail to deliver the acceleration required to achieve its FY26 revenue guidance.

March-quarter revenue was materially below the pace implied by the lower end of the full-year target, meaning performance must improve across subsequent quarters.

The continued decline in Appen Global presents another significant risk, particularly if rapid growth in China begins to slow.

Appen also faces intense competition from technology companies, specialised AI data providers and customers developing internal data-labelling capabilities.

The company remains dependent on project-based revenue, which can be irregular and difficult to forecast.

Geographic concentration in China, customer concentration, pricing pressure, currency movements and changes in AI development methods could also affect future revenue and margins.

Outlook

Appen has made measurable progress since losing its major Google contract.

Underlying EBITDA has turned positive, cash has stabilised and Appen China has become a significant growth business. Generative AI projects are also contributing a larger share of revenue.

However, the recovery remains uneven.

Appen Global continues to contract, gross margin softened in the March quarter and statutory profitability has not yet been restored.

The FY26 guidance range remains achievable only if revenue accelerates substantially through the remainder of the year.

Future quarterly updates will need to demonstrate that China’s momentum is continuing, generative AI projects are converting into meaningful revenue and weakness in the global division is beginning to moderate.

Until that evidence emerges, Appen’s recovery should be viewed as progressing but not yet proven.