Release Date: June 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue for Q3 2024 came in at $73.4 million, exceeding the expected $72.2 million.
- Adjusted EBITDA for Q3 2024 was $13.9 million, surpassing the expected range of $12 million to $13 million.
- Free cash flow through the third quarter was $30.6 million, significantly higher than the $15.6 million from the same period last year.
- The balance of billed and unbilled deferred revenue increased by 9% to $153.2 million, indicating strong future revenue potential.
- The education division saw a 16% increase in invoiced amounts in Q3 2024, reflecting strong growth and retention in new and existing schools.
Negative Points
- Revenue from international direct operations decreased by 7% in Q3 2024, primarily due to geopolitical issues in China.
- International licensee partner revenue also saw a decline of 5% in Q3 2024.
- The company faced restructuring costs amounting to $3 million year-to-date, impacting overall profitability.
- Deferred subscription revenue on the balance sheet showed a 16% decline from $95 million to $80 million year-to-date.
- The geopolitical and economic challenges in China continue to pose uncertainties for future growth in that market.
Q & A Highlights
Q: How do you feel about the hurdle for fiscal 2024 in the education division given last year's record of 791 new schools?
A: We feel good about it. We are ahead on new schools substantially and believe we will beat last year's record. Retention is solid and ahead of last year. We have the best pipeline we've ever seen, with many decisions made in July and August due to budget renewals. Our focus on selling to districts is going better than ever, with about 170 new district partnerships expected this year.
Q: What impact do you think the ending of ESSER funds in September will have on your business?
A: We think ESSER will have some impact, but we feel good about growing through it. Many schools have already used their ESSER funds and are renewing without them. We have other funding sources like Title 1 grants and a big foundation supporting hundreds of schools, which will help us navigate through the end of ESSER funds.
Q: Are there any further restructuring charges expected in the fourth quarter?
A: No, the impact reported in Q2 and Q3 were from the same initiative, and we do not anticipate any additional restructuring charges in Q4.
Q: Can you explain the difference between the deferred revenue growth and the balance sheet deferred subscription revenue?
A: The balance sheet deferred subscription revenue is compared year-to-date versus the prior year, while the deferred revenue growth is compared year-over-year. This difference in periods explains the discrepancy.
Q: How do you explain the 15% growth in deferred revenue compared to the 2% growth in unbilled deferred revenue?
A: Deferred revenue growth is a better indicator of short-term billings, while unbilled deferred revenue comes from multi-year agreements and is more lumpy quarter-to-quarter. The deferred revenue is normally billed one year at a time, reflecting annual billing of multi-year contracts.
Q: What are your thoughts on free cash flow for the fiscal fourth quarter?
A: We expect to end the year with a very good cash flow number, although we haven't given specific guidance for Q4. Year-to-date, we've had an abnormally high free cash flow due to favorable working capital changes and prepayments on contracts.
Q: How are closing times trending between renewals and new logos?
A: Generally, there is no elongation in closing times. Renewals are strong, and new opportunities take a few months to close. The environment is neutral to slightly better, with no material worsening.
Q: What is driving the growth in the North American market for the enterprise division?
A: Strong retention and an increase in services booking are driving growth. Retention percentages have been strengthening quarter-by-quarter, and services attach rate and booking have meaningfully accelerated.
Q: What is the outlook for the Chinese market given the geopolitical challenges?
A: We hope for better growth in China, but there are headwinds due to geopolitical challenges and China's economic issues. Our Chinese citizen teams are working hard, but the environment remains challenging.
Q: Are you seeing any revenue uplift from new content and content refreshes this year?
A: Yes, early indicators are positive, and we expect more growth in fiscal '25. New products take time to integrate into clients' impact journeys, so the full impact will be felt next fiscal year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
