Release Date: August 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Achieved significant product releases, positioning for future growth.
- Maintained tight cost control, resulting in increased gross margins.
- Modest growth in the direct-to-consumer (B2C) segment despite economic challenges.
- Successful acquisition of Reading Eggs US distribution rights, with positive early customer feedback.
- Implemented cost-saving measures, achieving annualized savings of $5 million.
Negative Points
- Sales growth in the schools market, particularly in North America, was challenging.
- Revenue and EBITDA were slightly below the lower end of previous guidance.
- Annual recurring revenue for B2B declined by 5%, driven by higher churn rates.
- Significant non-cash goodwill impairment expense of $44.5 million related to the B2C segment.
- High expenditure on product development and reacquisition of distribution rights, impacting cash flow.
Q & A Highlights
Q: Hi, guys. I'd just like to understand a bit more about the change in sales trajectory that you saw in the second half versus expectations?
A: So the main thing, James, is the churn was a bit higher than we expected, mostly from Mathletics in the UK, specifically and in Canada. In Australia, we also saw a bit of a drop in Mathletics retention, which was higher than expected overall. The other bit was the Edmentum performance in the US for Reading Eggs. So about 55% of the drop that we saw in the second half was in the US, and the remainder was mostly in Mathletics, UK, Canada, and Australia.
Q: Can you talk to us about what you're seeing and what gives you confidence that you will see improvement in FY25?
A: Generally, when you launch a bad product, you know immediately because the feedback is pretty bad and people don't buy the product. For all the releases we've done since July '23 until now, we've had very positive responses. Usage data has increased substantially, showing strong double-digit growth on all the usage data we're seeing from Mathletics, Writing Legends, and BrightPath. This positive response usually indicates that people will respond well when it comes to paying for their subscription.
Q: I think you called out a $5 million improvement expected for FY25. Has the improvement already been made reflected in that second half result or partially?
A: We implemented most of the changes in March 2024, so you will get a partial improvement in the second half of FY24. The full impact should be on FY25. Our general expectation is to keep total expenses at very close to where we are and always grow revenue higher than expenditure.
Q: Could you please provide an update on the U.S. distribution strategy? What is the momentum since acquiring rights?
A: The main challenge was the transition, which happened on February 2. Within six weeks, we had the handover from close to 4,500 customers. The feedback from customers has been very positive, and we've seen a good retention rate so far. We will have a better update at the end of Q1 when all the invoicing gets done.
Q: Why is there only a $200,000 difference between EBITDA and PAT when you have around EUR10 million in D&A?
A: The delta is between underlying EBITDA of $12 million and underlying net profit after tax of $11.8 million. We do have some pro forma costs, which sit below underlying net profit after tax, including the historical purchase price accounting, depreciation, and amortization of $7.4 million. The statutory loss for the period was $57 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
