Thanks, Amanda, and hello, everybody. Welcome to Appen's first half twenty twenty results conference call. Thanks for your continued interest in and support of Appen, and I trust you're all keeping well in the pandemic. My name is Mark Bryan, and I'm the company's Chief Executive Officer. And I'm joined today by our CFO, Kevin Levine.
We've stepped through the presentation that was provided to the ASX this morning, and we will allow some time for questions later in the call. So to the presentation and to Slide three. We'll start there with a brief overview of Appen for those of you that may be new to the company. We provide training data for artificial intelligence or AI. Training data is an essential building block of AI.
It it's how the AI learns to do things like humans. It learns how to, understand speech, how to see things such as text and signs. An autonomous vehicle, for example, can can read, road signs, providing it's fed with thousands of pictures that have been identified or labeled as road signs. Our customers are the developers of AI products for sale or to improve their business. We collect and label vast datasets of image, video, text, and audio data to help them build those products.
AI in the market for training data is rapidly growing, and AI has typically become more important after the pandemic as companies accelerate their plans to digitize and respond to the new normals of more online shopping and contactless everything. We are a strong performer in this market. We've grown consistently since our foundation in 1996, and we're very well positioned with our million plus multi language crowd, our technology platform, and our uninterruptible at home business model. And we've had another terrific half. To Slide four, to look at the result highlights for the first half of twenty twenty.
We're very pleased to announce that we've maintained high growth in the first half of twenty twenty. Revenue is up 25% on the first half of last year last year to $306,200,000. This is comprised of $273,900,000 of relevance revenue, up a commendable 34%, and £31,900,000 of speech and image revenue. This was down 20% on the prior period for reasons we'll explain shortly. Underlying EBITDA of £49,100,000 was at a margin of 16%, which was per our guidance to the market of margins in the mid teens.
And that underlying EBITDA was up 6% on the first half of last year and included substantial investments into our growth initiatives. I will discuss these initiatives in more detail later in the presentation. Without these investments, underlying EBITDA would have been up 35% to $62,500,000 This highlights the increasing operating leverage of the business. In addition to the strong financial performance this half, we delivered on a number of important strategic initiatives. We've successfully cross sold our annotation platform, and this is the platform that we acquired with Figure eight, and now have four out of our top five major customers using the platform for a mix of pilot and production projects.
This is extremely impactful. It means that we can serve our customers in many more ways as the platform enables us to work in multiple data types. It also means we have greater control over the delivery of the data, which enables us to improve the quality of the delivery of the data and, of course, the margins. Now we've also signed an enterprise wide platform agreement, one of our major customers, that includes an 80,000,000 US dollar annual commitment. And this improves the quality of our earnings and lifts our annual contracted value, or ACV, to $103,000,000 the end of the half.
Our business continues to be in robust health. We are holding the course on our growth strategy with no material change to our investments. We had 126,000,000 in cash in the bank at the end of the half, and we're pleased to announce a dividend of $0.45 per share, and that's 50% franked and up 12.5% on last year. Slide five and an update on relevance. For those that may be new to us, relevance data helps train search and social media platforms to ensure the relevance and currency of search results, online ads, product recommendations, other services that we all rely upon every day.
Relevance revenue was up strongly this half by 34%, $273,900,000. Relevant's EBITDA of £52,200,000 was up 19%, and that was impacted by the inclusion of the growth investments. The Relevant's result has benefited from the strength of our customers. They include the world's largest online platforms that have become essential services during the pandemic for information, socializing and shopping. The result also benefited from the resilience of our at home crowd delivery model.
The chart on the right of the page shows consistent high growth, now at 64% compound annual growth since we listed in 2015. This is due to the ongoing demand for data from our major customers, but also due to new project wins with existing and new customers. To Slide six and an update on Speech and Image. Speech and Image revenue of £31,900,000 for the half was down on a very high first half result in 2019. And this is due to the cyclical nature of speech and image projects, but also due to the pandemic, of which more later.
And despite being down on the first half last year, it was our second strongest half for speech and image in the history of the company. EBITDA was down due to the revenue result and because we've not reduced expenses more than we plan to as we have high conviction on the future of speech and image, and we need our expert resources to deliver that future. Our confidence is bolstered by the fact that four of our five major customers are using our annotation platform now, opening more speech and image opportunities amongst those customers. Also, our sales and marketing investments are yielding through with some new customer wins in the half. More on these later in the presentation.
And the chart on the right hand side shows a positive long term growth trend and also illustrates the cyclicality of the projects. To Page seven in our cohort chart, it shows revenue by customer cohort by year of origination and for each successive year thereafter, and this continues to show a healthy long term growth trend and repeat revenue. The contribution to committed revenue this half and the increase in committed revenue over time will strengthen the quality of our revenue and earnings, as will the addition of new customers through investments in sales and marketing. We've made substantial progress in deriving value from the acquisition of Figure eight. If you turn to Slide eight, you'll see the premise behind the acquisition on the left hand side of the page.
The acquisition combined Figure Eight's market leading platform and Appen's 1,000,000 plus multi country crowd to offer a full suite solution in all data types and over 180 languages. No competitor has an offering this complete and at this scale to our knowledge. The breadth of the offering opens markets. We can now work in image, video, LiDAR, speech and text data, and that can be used to build virtually any AI product. The platform, with enhancements since the acquisition, streamlined and increasingly automates the processes of data collection and labeling that enables scale and margin expansion.
We're seeing productivity gains, for example, of over 100% with improved quality when we use speech recognition to pretranscribe data prior to sending it to our crowd to complete the work and to check the quality. The platform also enables a deeper connection with our customers. It can integrate with their systems and workflows to become a critical part of their AI infrastructure, and this connection is valuable. Our customers are committing to spend with us accordingly, and this improves the quality of our earnings. We've delivered specifically on this thesis this half.
We now have four of our five major customers using the platform. Means we can work with them on more projects and more data types. It also drives committed revenue. We signed an enterprise wide platform deal with one of our major customers that includes an $80,000,000 commitment to the platform and cloud services. This drove a substantial increase in our committed revenue.
Our ACV annual contracted value was up 405% to USD 103,000,000 at the end of the half. We're using ACV now in place because we're including platform and service revenue in ACV. Revenue derived from committed contracts was up 75 percent and is now 12% of our total revenue. We also won a number of new customers in the period across all data modalities. None of these achievements would have made possible without platform and without the acquisition of Figure The integration of Figure eight is now substantially complete.
We have a single org structure of unified teams, unified branding and visual identity, a single integrated back office and a unified go to market offering. We have a few outstanding tasks to fully combine our crowds, we expect that to be completed soon. We finalized the transaction of Figure eight during the period with an earn out payment of $39,000,000 for a total investment of 2 and $86,500,000 Note that we won't be reporting separately on Figure eight henceforth, just as we don't report separately on LEAP four anymore. Slide nine provides more details on our committed revenue. The chart on the left shows substantial increase in annual contracted value, or ACV, to $103,000,000 up 405%.
The increase is underpinned by the $80,000,000 commitment from one of our largest customers. The chart on the right shows the increase in committed revenue. We derived $36,300,000 or 12% of our total revenue from committed contracts in the half, up from $20,800,000 or 7% of total revenue last half. Note that the $80,000,000 US deal was done towards the end of the half and hence not fully represented in the revenue chart. And also that ACD includes platform and crowd services.
We're winning more deals that bundle them together rather than platform platform only, as Figure eight used to, and services only for Appen. The first half of twenty twenty included substantial investments in our growth initiative. Slide 10 shows a breakdown of these investments. In sales and marketing, to add new customers and improve customer diversification in China, to open the second biggest AI market in the world in technology, to add capabilities for opportunities, automation and scalability and opening the government sector. Most of these investments are specific to these areas and incremental to the money we spend on our regular investments, such as additional project managers and recruiters to support our growing business.
The chart on the left hand side of the page provides a bridge from last year's first half underlying EBITDA for this year's. Not only can you see the size of the investments this half, but you can also see that without these investments, EBITDA would have been up 35% to 62,500,000 at a margin of 20.4%. This illustrates our strategy of using scale and technology to improve operations, expand margins and reinvest those margins into the growth of the business. Also, the 35% growth to £62,500,000 outpaces revenue growth and shows the operating leverage of the underlying business. Strengthening the underlying business and a high growth rate of our market gives us the confidence to continue to fund our own growth and press forward with our investments to build further strength into the business.
Let's look at each of these in turn, starting with China on Slide 11. We're very pleased with our progress in China. We are making genuine inroads into the market. The chart on the left shows monthly revenue to July in Australian dollars. You can see that it's growing at quite a clip.
Revenue in July, for example, was 6x revenue in January. The growth is coming mainly from the tech sector and the Chinese tech giants in particular. Unsurprisingly, we're building a strong position providing international data. We're also very pleased to be winning projects in domestic data against local players. We're working in all modes of data, text, speech, image and video, and also on a number of relevance projects.
And we maintain strict separation between our global and China operations and technology to ensure the integrity of our IP and data. We're also in the middle of an internal audit to check that our systems and controls are working as planned. Overall, we're very pleased with our team in China and their terrific progress. Slide 12 provides an update on our technology. Diagram on the left is from our Tech Day in May and lays out our technology strategy.
Our platform, inclusive of crowd management, client workspace, and annotation tool functionality, accelerates scalability through product breadth and crowd and internal productivity. These lead to three important commercial outcomes, including revenue growth and quality, more platform capabilities that allow participation in a broader set of projects, which increases revenue and diversifies our customer base. It also leads to productivity gains due to scale and margin expansion that we get from the automation capabilities. And finally, it builds a strong competitive moat. Some recent updates on technology include our LiDAR functionality that enables us to work in three dimensions.
This is critical for applications, including robotics, manufacturing, and, of course, autonomous vehicles. We've also released pixel level image annotation for highly accurate data for computer vision applications. We're making great progress using AI to accelerate our crowd and internal operations. We now have a purpose built speech recognizer that's improved our transcription productivity by over a 100%, including a lifting quality. This means we can produce more for our customers off the same cost base and improve our scalability and margins in the process.
We've also used AI to automate parts of our crowd worker onboarding process. We've reduced the process that used to be hours per worker to a matter of minutes. Finally, very importantly, we've implemented fair pay functionality into our system to ensure that all of our crowd workers are being paid fairly for the work they do for us. To Slide 13 and sales and marketing. It's early days with our significantly enhanced sales and marketing capability, and we're seeing some very pleasing results.
We now have a truly global sales team with multiple teams in our biggest U. S. Market, and they're organized by a mix of market sector and company size. We also have a growing team of technical experts that support the team and bring the best of our thinking to every customer and opportunity. We won quite a few new customers in the half across a mix of speech and image data.
Some of them are represented on the left hand side of the page, and they span, Europe and The US as well as some in Asia Pacific. At least one of them has come out of the pandemic. The one on the top right hand side, for example, is the contactless ordering and delivery for a global fast food chain. All of our new customer wins are underpinned by the annotation platform. We wouldn't have had them without it, going once again to the importance of the platform and the figure eight acquisition.
These customers are new and small, but given the ongoing data requirements of AI, we expect them all to grow over time. Our final growth initiative is the government market on Slide 14. We're pleased to report that we're now fully set up for this market and can participate as a prime or subcontractor. Our setup includes an experienced team and a fully air gapped technology and operational setup. It is early days for us in this market, but we believe there is substantial potential given the focus on AI by governments around the world.
I'll now hand it over to Kevin, our CFO, to take you through the numbers in more detail.
Thank you, Mark, and hi, everyone. Group revenue is up 25% on the prior corresponding period, driven by continued strong growth in relevance, which is up 34%. This growth was driven by increasing demand for annotated data mainly for existing projects within existing customers requiring ongoing need for daily refresh, delivering new projects in existing and new customers. The major customers have been a source of strength and robustness for the last few months. Speech and image revenue is down 20%.
Speech and image projects are cyclical in nature, heavily dependent on customer timing, investment and product life cycles and require less ongoing data refresh than relevance projects. As a result, this can significantly increase performance on a half on half year on year basis, as evidenced in this half, as a very large transcription project with significant volumes in the prior corresponding period completed. In addition, new business sales and data collection projects have been delayed, impacted by COVID-nineteen. While the project nature of these activities will continue to be a key characteristic for this division, the long term growth trend for speech and image volumes is positive. Underlying EBITDA of 49,100,000 represents a 6% increase over the prior corresponding period.
As Mark mentioned, this result was impacted by the planned investment in sales and marketing, engineering and the Chinese and government verticals in order to drive long term sustainable growth potential and performance. This investment resulted in an underlying EBITDA margin of 16%, down from 18.9% in the prior corresponding period. However, excluding the impact of these investments of $30,400,000 on the first half results, the resulting underlying EBITDA of $62,500,000 is up 35% on the prior year results. In other words, if there is no incremental increase in spend going forward and everything else stays the same, then underlying EBITDA would be £13,400,000 higher. Underlying NPAT of 28,900,000.0 represents a three point zero percent decrease from the prior corresponding period.
This result was impacted by the planned investments as discussed. And excluding the after tax impact of these investments of 10,300,000.0 the resulting underlying impact is up 32.4% from the prior year results. The effective tax rate for the period has reduced to 23.3% from 28.2%. The effective tax rate is subject to fluctuation from the tax effect of movements from expensing and vesting of employee performance shares. Excluding these performance share related movements, the normalized tax rate is circa 28%.
Onto the next slide, 16, let's talk about the balance sheet. Through strong operating performance and effective working capital management, the balance sheet continues to strengthen. This is always important and now more so than ever, and Anthony's priorities have placed strength during these challenging times with an increased cash balance of 126,000,000 Receivables have decreased as a result of positive impacts from timing of receipts. I will go into this in further detail when I talk about cash flow in the next slide. Noncurrent assets comprise mainly goodwill and our enterprise intangible assets, mostly arising through acquisition.
With a high level half year payment review and following from a detailed full year review, we report significant headroom in the current value of these intangibles. Borrowings comprise debt drawn to fund the figure eight earn out payments. Given the strength and confidence in the business, this debt was repaid in August. The debt facility remains available for mutual. And speaking of confidence, initial dividend payments have increased to 4.5¢, up 12.5% from the prior corresponding dividend and is franked to 50%.
Moving on to the next slide on cash flow. The cash balance has increased by 55,000,000 from June 19 and by $51,000,000 from December. The cash balance and cash conversion percentage has been positively impacted by timing of customer receipts. You will recall at year end that we talked about some receipts expected in December that we received in January. In addition to that, some receipts that we expected to receive in July were actually received in June 20.
Cash flow from operations is strong and has benefited from working capital management and has increased by 75%. Cash has been effectively deployed for payments relating to tax, dividends, CapEx, operating expenses and growth investments. Cash conversion remains very strong at 154%. Onto the next slide. We do have a currency impact when we report, and that is because almost all revenue and earnings are generated offshore, mainly in US dollars.
As a result, we've always showed the constant currency impact. For this half year, the currency impact is meaningful. However, it is less than the impact of the prior corresponding period. The revenue impact in this period is $21,800,000 or 8.9%, and the underlying EBITDA impact is $3,600,000 or 7.8% for the prior corresponding period as compared to revenue impact of $19,700,000 or 12.9 percent and an underlying EBITDA impact of $4,700,000 or 18.4% on a relative basis for the prior corresponding period. On to the next slide.
Appen continues to generate and accumulate cash. For now, we are very comfortable with our current level of cash reserves. However, we have provided some high level guidelines as to how we're thinking about capital management into the future. We will continue to redeploy benefits of scale and automation into organic growth areas to support our growth strategy and maintain our competitive position. We will continue to pursue acquisitions, including minority investments that satisfy internal criteria, and we look to fund these with a combination of appropriate levels of equity, debt, and cash.
Our approach to debt funding will be to utilize the balance sheet effectively, while at the same time, work with an established conservative leverage guidelines of up to 2x combined EBITDA. Dividend payout range to be 20% to 40% of underlying intangibles, subject
to board discretion. I'll now
hand you back to Mark. Thank you.
Thanks, Kevin. So on to Slide 20, some highlights from our important ESG initiatives. As professional services business, we we have a small carbon footprint, but we do buy carbon credits to offset the impact of our travel. Although travel is much reduced at present for us as it is for all of you. We do have a bigger role to play on social issues.
So our work continues with the Global Impact Sourcing Coalition. This is a coalition of like minded firms that provide job opportunities to disadvantaged communities around the world. We have a large cohort of healing disabled workers in The Philippines, for example. The work that we do, with them is largely visual, and many job opportunities in The Philippines are in call and they're unable to participate in that. So we're very pleased that we're able to provide them with opportunities.
We recently joined the World Economic Forum's Global AI Council and to contribute to their setting of standards for fair AI. And this included standards for data diversity, so that AI responds to the real world and also for the fair treatment of crowd workers. This is highly aligned with our own crowd code of ethics and an initiative that we're very pleased to have the chance to contribute to. We continue to work with translators without borders on a project with the tech giants that ensures their speech and natural language products are enabled for pandemic terms and words in at risk communities around the world. On governance, we welcome Vanessa Lou to our board during the half.
Vanessa is the vice president of SAP's venture arm and a former McKinsey consultant with many years of experience in The US tech sector. She brings extensive knowledge of that market to our board and the company, and we welcome her. Slide 21 now for some forward looking views. And AI is a hot topic and a high growth market with strong demand tailwinds. Training data is essential for AI and this has served us well and will continue to provide us with growth for many years to come.
The the pandemic is also a hot topic, unfortunately, and that does provide some advantage to some sectors and disadvantage to others. E commerce, for example, saw ten years growth in three months in The US, measured as a percentage of total retail as consumers shifted to online shopping and other contactless retail experiences. So clearly, an advantage from everybody being at home for e commerce. Other advantage sectors include technology of all sorts from video conferencing to social media to to payment networks, pharmaceuticals in the rush to find a vaccine and for other health related items, logistics and delivery services, everything including cardboard boxes and freight forward forwarders to ensure that all of these goods bought online get to us somehow, streaming and gaming services as we seek more entertainment at home, and and pretty much anything that can be done on a contactless basis. Now the good news for us is that these sectors are also heavy users of AI.
Ecommerce relies on search and recommendation engines. Speech and natural language processing is enabled, enabling contactless customer experience, communications, and logistics. Manufacturing and retail are using computer vision to automate processes, build scale, enable more with less human contact. So to Slide 22, this is a great time to be a proven AI performer, and we believe we are very strongly positioned to win. We have a market leading position.
We're unaware of the competitive with our capabilities, customer base, and scale. We're investing in AI enabled technologies to open markets, automate the work we do, build more scalability and margin expansion into our business. We have a peerless on demand crowd of over a million workers covering a 190 language languages in 70,000 locations in a 130 countries. We have a highly skilled and very resilient staff. Their ability and grit to deliver our customers through this pandemic is commendable and to be applauded.
And we have a proven scalable and uninterruptible at home business model. Here, we didn't have to learn how to work from home. We already did it. We have strength through 24 of operations. Our growth investments yielding benefits, dollars 126,000,000 of cash in the bank, net debt positive, and cash conversion of 154%.
We are in terrific shape, but we're not fully into the pandemic. No business is. Slide 23 lays out the impacts of the pandemic on the business. It's important to note that they're all near term, and thus far, their impact has been very low. Some of our smaller customers are doing it tough.
We have customers in the travel sector, for example. We're helping them as much as we can, with the sort of renewals and discounts, but they are finding the pandemic hard. Our new customer our new business, sorry, is going well, but not as fast as we planned due to the pandemic. Our customers and prospects had to adjust to working from home. Some of their projects were understandably reprioritized at the onset of the pandemic.
I heard this morning that even simple things like customers that provide us with desk phone numbers that aren't forwarded to cell phones slow down the sales process. Combined, these these impacts amounted to low single digit percentage points of revenue in the first half. Now those who need to follow us will know that some of our largest customers rely on online ad spend for their revenue. There has been a slowdown in that spend globally, and although it is forecast to rebound strongly next year. Now we've recently seen an impact of this slowdown on our ad related programs, and we expect it to have a small impact on the second half revenue based on what we know and see at the current time.
Slide 24 for a summary and our outlook statements. Company continues on its long term growth trajectory. We're very pleased with the heart and the progress of our growth initiatives. We're strongly positioned to win in a high growth market, and we expect the market to accelerate post pandemic. As such, there are no material changes to our growth investments.
We're taking a long term view, and this is the time for us to put
our foot down. As stated,
we do see a small impact from the pandemic on second half revenue due to the slowdown in ad spend, a slowdown that is forecast to bounce back in 2021. So the impact will be in the near term likely in our view. Consequently, we are maintaining our guidance based on current information. Our order book at August 20 stands at £475,000,000 This includes year to date revenue and orders in hand for delivery this year. Our full year underlying EBITDA for the year ending 12/31/2020 is expected to be in the range of $125,000,000 to $130,000,000 and that's at 1 to AUD $0.07 0 for the month August to December 2020.
And this is per our practice of maintaining the rate we struck at the beginning of the year throughout the year. Finally, we expect full year underlying EBITDA margins to be in the high teen percentages. That concludes the presentation. Before I hand it back to the moderator for questions, I would like to recognize and thank our hardworking global team for their performance and the great they've demonstrated, as always, but especially during the pandemic. This is their result.
I have the privilege of presenting it to you, but I thank them for their hard work. Thank you all once again for your interest in and support of Appen. Please take good care of the pandemic. I'll now hand it back to the moderator to take questions. Back to you, Amanda.
Thank you. If wish to ask a question, please press one on your telephone you. Your first question comes from Quinn Pearson from Credit Suisse. Please go ahead.
Hi, good morning. Thanks for the time for the questions. Maybe just firstly on your guidance of +1 to +1 EBITDA. I guess just kind of firstly, it's a pretty sizable second half SKU, compared to the first half to achieve that. I guess kind of firstly, is that SKU or the split 1H2H as budgeted back in February or has SKU changed at all?
And then secondly, if you could just maybe help talk us through some of the bigger bridging components to get us from the 1H to the 2H, whether it's the new contract, taking off or if it's more fixed cost leverage from the investment that's occurred this half. If you could just help us bridge that a little bit, that would be helpful, please.
Yeah. Hi, Quinn. It's first of all, in terms of the shape versus budgets in February, it's it's not a mile away. We always anticipated a big skew towards the second half, and that's because we were spending disproportionately in the first half compared to the second half. And so we'll see that cost base relatively consistent through the second half and the benefits of those investments coming through to give us the revenue uplift.
So, yes, so effectively just leveraging that first half investment through in the second half.
That's helpful. Thanks. And then maybe secondly, on the contract when the $80,000,000 contract you announced, I guess just a little bit more color on that would be, of use. For instance, are we is that kind of already kicked off and at run rate? Or is it a phased or more of a delayed start?
And just any kind of background you can provide in terms of what, you know, kind of a a little bit more color on what that contract is. For instance, how much of that contract is services, versus a a a a platform fee? Thanks.
Yes. So the the the contract has commenced, and we see no reason that the customer might won't won't meet that commitment. So so that's that's good news. It is a mix of platform and services, but it's bundled. The majority of it is services, but it is a mix of both.
And we're very pleased that the customer has got that confidence in their need for the data and the service we provide them to make that commitment.
That's helpful. Just just to kinda clarify, is the 80,000,000 will we say since it's an existing large customer, is that $80,000,000 incremental to what you had been doing, or is part of that 80,000,000 previous work just now formalized in in contract form?
It's the latter.
It's the latter. Is that correct? Yes. Yes. Okay.
Great. I'll leave it there. Thanks for your time.
Thank you.
Thank you. Your next question comes from Lucy Hund from Bank of America. Please go ahead.
Mark. Hi, Kevin. Thanks for taking questions. I just have three. So firstly, in speech and image, you guys mentioned that the first half was impacted by the pandemic and some cyclicality.
I'm just wondering, on your customer feedback that you're hearing today, when do you think new customer spend will come back into this part of the business? Are we likely to see it return in the second half? Or do you think it's likely to come back in FY 2021? And then secondly, just thoughts on your market share. How do you think Appen's share has tracked through the first half?
And what's your sense around competitive dynamics? Are you seeing any changes to the dynamics, particularly in the speech and image sector? And then just to dig deeper a bit deeper on that $80,000,000 contract that you mentioned before, how much did the customer spend in the prior year? Just wondering if they've spent a similar amount or whether the commitment is actually an increase in terms of the customer spend. And just whether this annual commitment, how long is that locked for?
Is it just for one year, or is it a multi year agreement? Thank you.
Hey, Lucy. Okay. See if I can remember these in order. First of all, on on speech image, we do expect spend to come back in in the second half, but but more definitely in in '21. And the you know, probably the the main thing that impacted it was was just, you know, the the massive shift in everybody working from home.
It was relatively easy for a business like ours to do, but but quite difficult for for many other businesses, and and things were just interrupted and and delayed. Other than small customers directly impacted by the pandemic, such as people in the travel sector, you know, what we're hearing from customers is their projects and budgets are there. They're just being deferred because they've got, you know, more important things to get to get the company right sized from an at home environment. And keep in mind also that the vast majority of our customers are in The US. The US is is not traveling as well as Australia when it comes to managing the pandemic.
That was the first question. Second question on your market share and competitive dynamic.
There there's no no massive change to
the competitive dynamic, which is to say that, you know, we have existing our existing major customer major competitor is still in the market, and we see the smaller competitors from time to time in in various deals. Probably a little less noise from some of those smaller competitors. You know, some of them are, you know, loss making VC funded businesses, and, you know, one would have to think that this is not the ideal environment for them. I don't know anything, but I you know, we get regular reports from our our marketing team, for example, on share of voice, and we we tend to be at the top end of those reports on a consistent basis currently. So, you know, it's hard to put a figure on on market share, but I I think we're we're traveling pretty well.
And I don't see a huge change in the competitive dynamic. To the the large committed order, yes, it's a it's a it's an annual it's a one year arrangement, but there are there are ways that that that contract can be new and grown year on year. A lot of that's contingent on on
the the quality of the the job we
do for the client and the amount of data, and we're confident we'll meet that site. It is, as we said to to Quinn's question, it is within the spend that we expect from that customer. We don't go into individual customers and how much they spend. So I can't answer the second part of your question that believes we will spend from that customer. I hope that that cover all four questions.
That's great. Thank you so much.
Thank you. Your next question comes from Sohad Ahmed from Citi. Please go ahead.
Thanks. It's Suraj, by the way. Mark and Kevin, just have a few questions. Can I first start with the guidance? Just on the revenue side, typically, you're working on at this stage would be 70% of your revenue, I think, for your last year.
This year, given your site is calling out a bit of weakness in ad revenue and speech and image. Think, Mark, you said speech and image won't come back in a in the second half. Just just keen to understand how you're thinking about the second half revenue, if it's alright.
Yeah. So it's it's a little hard to hear you, Suraj. I'm sorry. But with the the the the mathematics, I suppose, around these numbers, you know, move about year on year. Right?
So I think it's a it's a good starting point to use the ratio from the same time last year to see where we'll end up for the full year. And and if you do you you do that math, you you come up with a a a revenue number. And and from there, we derive our our earnings number. So, you know, other than to to recommend that you do that mathematics, that's that's the sort of forward looking guidance we're giving on revenue.
Sure. And so, Mark, just clarifying. I mean, there's no reason why the map shouldn't work out this year, I guess, is the question. Because it sounds like some of the existing work is coming off, but you potentially have new work that could add on to it. Is that is that the way to think about it?
So the and, again, it is it is
a little hard to hear.
Your voice is quite muffled, Suraj. I'm sorry. Yep. The the second half second half will be stronger than the first half. I think we made that clear earlier on.
And and you can draw some conclusions as to where the revenue will end up based on that order book number. However, we caution that the ratio of that order book number at different times in the year to full year, you know, does does move around from year to year. So I just want to fix them out. We'll give you some guidance.
Sure. Thanks. Just moving on to the cost comment. Just clarifying that you're saying you're not reducing costs, which then implies that to meet your guidance, gross margins have to improve. Is that can you give some color on that?
Yes, Suraj. So the way we're thinking about that is we started in a lot of that investment. And so if think about that cost investment, is that essentially have been uniformly through the year. But then to layer in the expected revenue in h two revenue uplift of h one essentially gives us the compounding positive impacts down to EBITDA.
So sorry, Kevin. So you're saying that cost investment, that will go away? Or is that because the cost base can you clarify that, please?
Yeah. And I'm not sure if I heard the question clearly, but I think I think answering in terms of what I think you said in terms of if if the cost base is in uniform, yes. As I said, we we started to enter a lot of that investment. And so the spread spend throughout the year into h two, like, would be not that much different from h one. Like, that obviously, we've got we we we expect an uptick in revenue.
So more revenue with a uniform cost base gets us to high EBITDA levels.
Got it. Thanks. I'll jump off the line. I'll just come back in, given it's unclear. Thanks.
Thank you. Your next question comes from John Josh Kanarakis from UBS. Please go ahead.
Hi, Mark and Kevin. Just following on from that prior question just because, sorry, it wasn't that clear just on the line. So when we're talking about the level of investment in the first half, do you expect that level of investment to be replicated? And apologies if I missed that earlier. And just interested in your views on how we should be looking at that sort of step change investment, you know, medium term in terms of what the sort of steady state of that investment level would be.
So so what we've what we've done is we've we've taken on a lot of a lot of resource sort of late last year and in the first half, you know, to build the sales team and and and so on. Well, it's mainly in the sales team. You can see it in the in the bridge on that that slide. I forget which which number it is. Prior years, for example, we did a lot of investment into the tech team and less going forward.
So a lot of investment in the sales team, so the ramp up in expense was very high in the first half, and and we're gonna hold that through the second half. But that sales team is gonna deliver more from a revenue perspective. So revenue is gonna gonna go up, and costs are gonna be relatively constant, and that's gonna result in an earnings uplift. I mean, the math is pretty simple.
Yeah. No. I got it. That was clear. Sorry.
I just wanted to make sure. Yep. That's very good. Just want to sorry
to to to say as well. To report on that what we're calling out there is the incremental spend. Right? So, certainly, that's in terms of what Mark said, that's essentially the guidance for for this year that will be largely uniform. We expect to see similar levels in h two.
However, then when it comes to 2021, you know, then, obviously, we'll look at the businesses, but if our market is gonna be doing a repeat of sales and marketing investment to this level
from an incremental point of view. Yeah. That's a good point. And and, again, we we didn't provide this bridge last year, but had we provided a bridge like the one on let me just find it quickly. Where was it?
16, I think. Slide 10. Had we done a bridge like that last year, this time last year, we would have seen an uptick in the technology spend. Right? So last year was the year of of building technology.
And and, clearly, there's more work to do on the tech, and hence, we continue to spend on tech. This year is the year of building the sales force. So going into next year, you will have that sales force built on the incremental spend, but not at this level.
Got it. And then just on to the got another question around the guidance. So you obviously called out that first half, second half SKU even pre really pre COVID. And so I guess since then, you've noted the incremental, you know, the lowest sort of ad spend. I'm just also interested if you could give, in light of that, it's just a bit more context on some of the relevant projects that you've been winning, and it looks like there's been a few decent awards of new projects, across the first half, based on some of the online activity.
Interested if you could just give a bit more context on that new projects into the second half?
Yeah. We we have won a number of projects through the year. In fact, I heard just overnight. We we won another, and you're familiar enough, Josh, from the business to know that, you know, if these things grow, they can can steamroll pretty well. But there is you know, we're we're just expressing some caution because some of the ad related programs, which which is not, you know, a massive amount.
But some of those programs, we're seeing the customer tap the brakes a little bit because, you know, if if if their revenue from ad spend goes down, they they need to spend less with us. But the opposite require applies. Right? If it goes back up, they spend more with us. But for the moment, we're just we're just tapping the brakes a little bit on on that ad related spend.
The good news is much of it is being tapered over by some of these new projects, but we don't have as much of a sort of a steamroller. What we can't see is much of a sort of a steamroller at the moment than that we would normally see at this point in the year.
Got it. And then just you mentioned a bit of context around your views around M and A and debt funding and the like around the capital management. Just interested if you talk a little bit about where you see some capability gaps or potential adjacencies to Appen given its expanded client and customer base.
Yes. And and you know, Josh, that, you know, the challenge for us is always finding the opportunities because we're in a a, you know, relatively nascent space. And, you know, many of the many of the players in our space are loss leading VC funded businesses. There's very few at scale. From a a core business perspective, we we don't see any material capability gaps.
We've got we've got the the crowd that we need. We've got the technology we need. We're building out the sales team that we need. We've got tremendous recruiting and and delivery capability. So the core business is is pretty solid.
We do look a little bit to the left and right for from occasions. So for example, you know, other, you know, at scale businesses that could be deployed via a crowd model. So so we're looking for for opportunities to to grow the business and to leverage the capabilities that we've got. And the the point of the the slide on on capital management is just gonna give you some insight into how we think about managing the capital rather than to signal anything specific.
Okay. Great. Thanks, guys.
And, sorry, I just wanna cover something because Josh, you raised it and Quinn had raised it earlier as well, and that is just to clarify. Mark said it, but just just to to totally clarify. So in terms of how we see the half year results relative to our internal budgets, you know, we're very close to budget. We're living, you know, 2% of that. So for us, it's we set the plan at the beginning of the year, waiting for anyone new what COVID will be done, and we haven't taken up to the the payment at all.
So we, you know, we've got the the view on the on the long term, not on the short term. We have those plans. We're speaking to those plans, and they're for us, very much H1 results is lying on with expectation. And so therefore, we're going to close through to our guidance and our expectations around the second half.
Thank you. That does conclude our question and answer session at this time. I will now hand back to Mr. Braden for closing remarks.
Yes. Thanks, Amanda, and thank you, everybody, for attending. We we hope you're safe and well during the pandemic, and we, as always, appreciate your interest and support. And no doubt, we'll see you, or maybe not face to face, maybe over the video conference during the the road show over the next week or two. Thanks once again, and I hope you all have a pleasant day.
Yep. Thanks, everyone.