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Appen share price falls after positive update fails to impress

The Appen Ltd (ASX: APX) share price has edged lower so far today, down by 2.12% at the time of writing. This downward slide is despite the company providing a very positive update on its financial and operational performance.

Minimal coronavirus impact on business operations

In its AGM CEO’s presentation released to the market this morning, Appen revealed its earnings base remains resilient in the face of the coronavirus pandemic. Use of its products and services remains high among its major customers.

Despite a global slowdown in digital ad spending, Appen reported this has had minimal impact on its major customers to date. The tech company did acknowledge that the continued global economic downturn may have some impact on its smaller customer base moving forward.

Appen confirmed most of its staff continue to work efficiently and successfully in remote locations, supported by its at-home ‘crowd’ base of employees spread across the globe.

Strong balance sheet and healthy cash flow in place

In Appen’s market update in April, the company reported it had a strong balance sheet with cash in excess of $100 million. Today it confirmed its cash balance continues to be in this range. It also has an undrawn working capital facility available. Appen also confirmed that it is in a healthy cash flow position, which is underpinned by low overall capital requirements.

Outlook for FY 2020

Appen emphasised that despite current market challenges, it is continuing to strengthen its market position though continued investments in technology in the appropriate areas in order to achieve its long-term growth trajectory.

Based on Appen’s currently available market information, it expects negligible overall impact on its business performance due to the coronavirus pandemic in the months ahead.

It noted, however, that its current investment pipeline is likely to soften margins for 1H FY2020 to the mid teens, although margins for the full year to December 2020 are likely to be in the high teens.

Appen revealed that year-to-date revenue as at May 2020, including any orders in hand for delivery to customers, amounted to around $350 million. This compares favourably with overall revenues of $536 million for the 12 months to December 2019, and previous guidance.

Appen reaffirmed its full year earnings before interest, tax, depreciation and amortisation guidance of $125–$130 million.

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Motley Fool contributor Phil Harpur owns shares of Appen Ltd. The Motley Fool Australia owns shares of Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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