Appen Ltd. · ASX:APX
Appen — Merger or Acquisition (March 2019)
51 slides from Appen's merger presentation, Mar 11, 2019
Slide 1: Acquisition of Figure Eight and Capital Raising
For personal use only Appen Limited Acquisition of Figure Eight and Capital Raising 11 March 2019 Not for release or distribution in the United States of America
Slide 2: Important notice and disclaimer
Important notice and disclaimer This investor presentation (Presentation) is dated 11 March 2019 and has been prepared by Appen Limited ACN 138 878 298 (Appen) in connection with the proposed acquisition by Appen of Figure Eight Technologies Inc. (Figure Eight) (Acquisition) and includes information
Slide 3: Important notice and disclaimer (cont.)
Important notice and disclaimer (cont.) Not financial or product advice For personal use only This Presentation does not constitute financial product or investment advice or a recommendation to acquire securities in Appen. It has been prepared without taking into account the objectives, financial si
Slide 4: Important notice and disclaimer (cont.)
Important notice and disclaimer (cont.) Past performance For personal use only Past performance information given in this Presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance. Future performance The Presentation contai
Slide 5: Important notice and disclaimer (cont.)
Important notice and disclaimer (cont.) Disclaimer For personal use only No party other than Appen has authorised or caused the issue, lodgement, submission, dispatch or provision of this Presentation, or takes any responsibility for, or makes or purports to make any statements, representations or u
Slide 6: Transaction overview
For personal use only Transaction overview Not for release or distribution in the United States of America
Slide 7: Transaction overview
Transaction overview Figure Eight represents a highly compelling strategic acquisition of a complementary competitor in the For personal use only machine learning and artificial intelligence market Summary • Appen (“the Company”) has reached an agreement to acquire Figure Eight, a best in class mach
Slide 8: Investor highlights
Investor highlights For personal use only Strategically compelling acquisition of a highly complementary “best in class” machine learning SaaS platform Future-proofs, de-risks and accelerates Appen’s technology strategy Adds high quality, high growth, high margin and recurring SaaS revenue Enhances
Slide 9: Agenda
Agenda For personal use only Topic Page reference 1 Transaction background and rationale 8 2 Figure Eight overview 14 3 Combination benefits 20 4 Transaction terms and funding 25 5 Risks 29 Appendix - Offer jurisdictions 37 7 Not for release or distribution in the United States of America
Slide 10: Transaction background and rationale
For personal use only Transaction background and rationale Section 1 Not for release or distribution in the United States of America
Slide 11: AI and the need for data is booming
AI and the need for data is booming For personal use only The AI market is Investment driven by new Data is up to 10% of booming and existing use cases the AI investment(3) Total AI market by 2025: Data labelling market by 2025: $169B(1) • Chatbots • Search $17B • Assistants • Social media to • Natu
Slide 12: Data volume and refresh are critical
Data volume and refresh are critical For personal use only AI performance improves Applications require regular with data volume data refresh(2) At least monthly refreshes At least At least monthly weekly Less frequent refreshes • Work by Andrew Ng(1), co-founder of • One third of AI applications re
Slide 13: Appen requires leading technology to meet the growing demand for data
Appen requires leading technology to meet the growing demand for data For personal use only Global crowd workforce Client Annotation Crowd workspace tools management Figure Eight platform core capabilities Appen Connect and language tools Figure Eight adds to Appen a client self-service Supports and
Slide 14: Unique opportunity to combine Appen's global crowd with Figure Eight's tech platform
Unique opportunity to combine Appen’s global crowd with Figure Eight’s leading tech platform Data annotation competitive landscape(1) For personal use only Appen’s target Global crowd zone – large global workforce supported by leading tech Annotation capacity BPOs Annotation software providers Local
Slide 15: Transformative acquisition
Transformative acquisition For personal use only Integrated global data Leading global crowd Best in class SaaS platform annotator • Over 1m on-demand global • Unique ‘human-in-the-loop’ • Vertically integrated combination crowd platform capabilities transforming with global crowd solutions unstruct
Slide 16: A track record of shareholder value creation
A track record of shareholder value creation $24.05 +4,710% since IPO 90 For personal use only $25.00 +313% since Appen acquires Leapforce Butler Hill Appen acquires November 2017, US$80m Leapforce Acquisition of an automated, proprietary end-to-end technology platform $5.83 headquartered in Calif
Slide 17: Figure Eight overview
For personal use only Figure Eight overview Section 2 Not for release or distribution in the United States of America
Slide 18: Figure Eight – a unique software solution
Figure Eight – a unique software solution For personal use only Figure Eight’s ‘Human-in-the-Loop’ machine learning platform transforms unstructured text, Est. 2007 image, audio, and video data into customized high-quality training Awards Partnerships Industry governance Scientific Advisory data for
Slide 19: Figure Eight – product offering
Figure Eight – product offering Client workspace Annotation tools For personal use only • Leading data annotation tools • Interface to design, that cover the build, route and major annotation monitor jobs requirements • Enables customers • Customers have to upload data to direct, customisable the pl
Slide 20: Figure Eight – high quality customers and channels
Figure Eight – high quality customers and channels For personal use only Key customers(1) • Annual subscription fee for platform access • Customers typically increase their annual commitments as their usage expands • Minimal cross-over with Appen’s current customer base • Figure Eight has partnershi
Slide 21: Figure Eight – high growth and recurring revenue
Figure Eight – high growth and recurring revenue For personal use only Total revenue (A$m)(1)(2) High growth business with track 42 record of top line delivery 26 15 19 12 13 10 25 5 8 13 5 FY15 FY16 FY17 FY18 Strong growth in annual subscription Platform Crowd Other (3) revenue with low levels
Slide 22: Strong ARR retention from long-term customers cohorts
Strong ARR retention from long-term customers cohorts For personal use only ARR by annual customer cohort (A$m)(1) 30 25 20 • Strong recent ARR growth • Good contribution from long 15 term customers • High ARR retention over time, 10 with customer ARR upgrades typically offsetting churn 5 0 2016 201
Slide 23: Figure Eight – highly experienced and committed leadership team
Figure Eight – highly experienced and committed leadership team Figure Eight’s founder and many of its key management and technical team will receive long term incentives and continue with the business to assist Appen with the integration process For personal use only Lukas Biewald Becky Scott Benja
Slide 24: Combination benefits
For personal use only Combination benefits Section 3 Not for release or distribution in the United States of America
Slide 25: Acquisition rationale
Acquisition rationale For personal use only Complementary SaaS • Best in class machine learning SaaS platform, using automated annotation tools to transform unstructured text technology platform • Appen’s platform, Appen Connect will manage the large-scale crowds that will use Figure Eight’s platfor
Slide 26: Significant commercial opportunity from the integration
Significant commercial opportunity from the integration Estimated upside from Commercial benefits from the integration synergies For personal use only 1 Productivity gains from Appen 2018 pro-forma crowd use of Figure Eight • ~$10.5m EBITDA (based on long- 1 platform term run rate applied to combine
Slide 27: FY18 pro-forma financials
FY18 pro-forma financials 2018 Pro Forma Historical Consolidated Profit and Loss For personal use only Pro forma A$ millions Total consolidated Pro forma Appen (1) Figure Eight(2) Synergies (4) underlying combined (unless otherwise stated) 31 December 2018 adjustments(3) group Revenue 364.3 41.5 405
Slide 28: FY18 pro-forma balance sheet
FY18 pro-forma balance sheet 2018 Pro Forma Historical Consolidated Statement of Financial Position For personal use only Pro forma Total Impact of Offer Impact of Impact of A$ millions (1) (1) Impact of underlying group Appen (1) Figure Eight(2) consolidated 31 and new debt upfront earn-out (unless
Slide 29: Outlook
Outlook Figure Eight management have instigated a pathway to profitability that is expected to see the acquisition For personal use only contribute positive underlying EBITDA by H2 FY20 pre-synergies • FY19 revenue expected to be ~40-50% higher than FY18 2019 Figure Eight standalone • FY19 in-year A
Slide 30: Transaction terms and funding
For personal use only Transaction terms and funding Section 4 Not for release or distribution in the United States of America
Slide 31: Acquisition terms and funding
Acquisition terms and funding For personal use only • Appen has entered into an agreement to acquire Figure Eight for US$175m in upfront payment and an earn-out of up to a maximum of US$125m based on Figure Eight’s achievement of incremental FY19 subscription software revenue targets Purchase price
Slide 32: Acquisition sources and uses
Acquisition sources and uses Sources and uses of funding For personal use only Sources of funds A$ million Uses of funds A$ million Placement(1) 285 Upfront cash payment for Figure Eight 250(2) Repayment of existing debt 22(2)(3) Transaction costs 13 Total 285 Total 285 The Company will also offer
Slide 33: Equity raising details
Equity raising details For personal use only • Appen Limited (“Appen”) is undertaking a fully underwritten Placement to professional and sophisticated investors to raise A$285 million • 13.3 million fully paid ordinary shares (“New Shares”) to be issued, representing 12.4% of current issued capital)
Slide 34: Equity raising timetable
Equity raising timetable For personal use only Event Date(¹) SPP Record Date 7:00pm, Friday, 8 March 2019 Trading halt and announcement of Equity Raising Monday, 11 March 2019 Institutional Placement opens Monday, 11 March 2019 Announcement of results of Placement and trading halt lifted Tuesday, 12
Slide 35: Key risks
For personal use only Key risks Section 5 Not for release or distribution in the United States of America
Slide 36: Key risks
Key risks For personal use only Note: References in this section to Appen Group include, to the extent applicable, references to the Appen Group including Figure Eight following the Acquisition. Appen and its subsidiaries’ existing customer base consists of, amongst others, a number of large global
Slide 37: Key risks (cont.)
Key risks (cont.) For personal use only The Appen Group’s operating model requires an ability to mobilise a large number of independent contractors on a project by project basis to fulfil customer needs and project requirements. If the Appen Group fails to find independent contractors of a suitable
Slide 38: Key risks (cont.)
Key risks (cont.) For personal use only Appen has received debt funding commitments for the payment of the contingent consideration (earn-out) component for the Acquisition in March 2020. The draw down of the debt funding will be subject to certain customary conditions precedent. If certain conditio
Slide 39: Key risks (cont.)
Key risks (cont.) For personal use only The Acquisition triggers change of control clauses in some of the contracts to which Figure Eight is a party. Appen will discuss the Acquisition with each of these customers. The change of control clauses will, in most cases, require Appen to seek the counterp
Slide 40: Key risks (cont.)
Key risks (cont.) For personal use only Governments and regulators may seek to legislate or create regulations which reduce the utilisation or penetration of technologies that the Appen Group helps service in Government and society. Public perception of machine learning and artificial learning may c
Slide 41: Key risks (cont.)
Key risks (cont.) For personal use only Privacy laws around the world continue to develop and impose greater burdens on businesses when dealing with personally identifiable information. The laws are designed Breach of privacy to give greater protections to data owners, improve transparency and requi
Slide 42: Key risks (cont.)
Key risks (cont.) For personal use only The payment of dividends is announced at the time of release of the Appen Group’s half year and full year results as determined by the Board from time to time at its Risk of dividends discretion, dependent on the profitability and cash flow of the Appen Group’
Slide 43: Key risks (cont.)
Key risks (cont.) For personal use only Figure Eight currently complies with US GAAP accounting standards, while Appen and existing members of the Appen Group complies with IFRS accounting standards. Accounting While most standards are the same or similar some differences do exist between US GAAP an
Slide 44: Appendix – Offer jurisdictions
For personal use only Appendix Offer jurisdictions Not for release or distribution in the United States of America
Slide 45: Foreign selling restrictions
Foreign selling restrictions For personal use only UNITED STATES OF AMERICA This Presentation may not be distributed or released in the United States of America or to any person acting for the account or benefit of a person in the United States of America. This presentation does not constitute an of
Slide 46: Foreign selling restrictions (cont.)
Foreign selling restrictions (cont.) For personal use only UNITED KINGDOM Neither this document nor any other document relating to the offer has been delivered for approval or examination to the United Kingdom Financial Conduct Authority, London Stock Exchange plc or the United Kingdom Listing Autho
Slide 47: Foreign selling restrictions (cont.)
Foreign selling restrictions (cont.) For personal use only Where the New Shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold
Slide 48: Foreign selling restrictions (cont.)
Foreign selling restrictions (cont.) For personal use only HONG KONG Notice to prospective investors in Hong Kong WARNING This document must not be issued, circulated or distributed in Hong Kong other than to the recipient of this document. The contents of this document have not been reviewed by any
Slide 49: Foreign selling restrictions (cont.)
Foreign selling restrictions (cont.) For personal use only NEW ZEALAND This document has not been registered, filed with or approved by any New Zealand regulatory authority under the Financial Markets Conduct Act 2013 (FMC Act). The New Shares are not being offered or sold in New Zealand (or allotte
Slide 50: Foreign selling restrictions (cont.)
Foreign selling restrictions (cont.) EUROPEAN ECONOMIC AREA – GERMANY This document has been prepared on the basis that all offers of New Shares will be made pursuant to an exemption under the Directive 2003/71/EC (Prospectus Directive), as amended and implemented in Member States of the European Ec
Slide 51: Thank you
For personal use only Thank you appen.com Not for release or distribution in the United States of America