3P Learning Limited (3PL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Matthew Sandblom, Executive Chairman of 3P Learning Limited. On behalf of the Board, I'm pleased to welcome you to the 2021 3PL Annual General Meeting. The company's Secretary has advised me that a quorum is present, and I formally declare the meeting open. Consistent with prior years, we are recording today's meeting and the audio recording will be available for listening via the company's Investor website following the meeting. I would like to introduce the directors and other officers of the company here with me today. Jose Palmero, the company's Chief Executive Officer; Dimitri Aroney, the Chief Financial Officer. The independent nonexecutive directors who are in attendance remotely are Belinda Rowe, Kathy Ostin and Mark Lamont, and the Company Secretary, Liz Wang. We also have with us today attending remotely Renay Robinson, representing the company's auditors, EY, who will be prepared to answer any questions about the conduct of the audit and are representative of Link Market Services, our share registry. Meeting agenda. As the notice has been circulated to our shareholders, I propose to take the notice permitting the meeting and the items of business as read. We will move on to the formal business of the meeting. My address to shareholders. The acquisition of Blake eLearning in May 2021 has been the most significant event for the last 12 months for 3P Learning. Merging these 2 businesses has been discussed several times as a possibility since 3P first listed on the ASX over 7 years ago, and I'm very glad it has now finally happened. In the last 5 months since the deal closed, we have made good progress bringing 3PL's extensive multi-country school sales operation together with Blake's successful product development team as well as Blake's significant direct-to-consumer business. It always made a lot of sense to do this deal, and it will provide a great platform for significant future growth. As part of the integration plans, we have sharpened our strategic focus to concentrate on the 3 Rs, reading, writing and arithmetic in both the school and the direct-to-consumer markets. These are the key skills that all students need as the foundations of future academic success. These are also the areas that schools and parents of pre-K to grade 10 students spend the bulk of their education resource budgets on. Our goal is to be in the top 3 online resource -- online resources that schools use in the 3 areas of Australia, New Zealand, the U.K. and Canada and top 10 in the U.S. market. We have similar goals in the direct-to-consumer space in each of these markets. To deliver on these [Audio Gap] implement some product enhancements over the next 9 to 24 months. To speed up our development of the writing component of the 3 Rs strategy, I'm also pleased to announce that we have acquired the Writing Legends program. Writing Legends is an innovative writing skills program that has been developed by the credit Mathletics, Shane Hill. Shane will also be working with us to further enhance and expand this program for all the key markets we operate in. At the same time, we have discontinued investment in Readiwriter as we did not think it has significant growth potential. As well as the school and consumer markets, we also see bright prospects for growth in the enterprise space made up of Ministry of Education-level deals, corporate social responsibility deals with major corporate brands and distributor deals in largely non-English speaking markets. These deals can range in annual value from a few hundred thousand up to $10 million-plus, and we have multiple deals in the pipeline. These deals can have long lead times and payment cycles. So our intention is only to announce them once we have received at least a significant deposit for a contract. It has not been an easy year for 3PL staff during this time leading up to the Blake acquisition and in the transition period that followed. Some roles were made redundant and others were reassigned to new projects. We still have the challenge of melding the cultures from 2 companies into 1 and this was made harder by head offices being closed to staff for most of this time and the inability to travel and meet staff in other states and countries. COVID restrictions are now being lifted, so now is the time to really focus on taking the best of both companies and make it into an even better company. Management has put in place a plan to do just this and will implement it over the next 6 months. We also plan to amalgamate the current 2 Sydney head offices into 1 in the second half of calendar 2022. We've gone through significant Board renewal with only 1 member, Mark Lamont, from the Board who approved the Blake acquisition back in February this year continuing as an Independent Director, Mark is. We have been fortunate to find 3 people and experienced directors in Allan Brackin, Belinda Rowe and Kathy Ostin joining Mark and me on the Board. Each brings different strengths and experiences in a diverse range of businesses and complement the deep educational technology experience I bring as Chairman. While I have been involved over many years in building multiple successful edtech businesses, including 3PL originally, Blake eLearning and ClickView, I think there's never been a better time to be working in this fast-growing space. The newly merged 3PL and Blake business is a great platform from which to grow a truly internationally significant edtech business. I'll now hand you over to Jose Palmero for his CEO address. Thank you.

Thank you, Matthew, and good morning, everyone. As Matthew mentioned, in the first 6 months since completing the Blake acquisition, we've made good progress with merging the 2 businesses in line with 3PL's strategic objectives. We've put in place a strong experienced senior leadership team by combining the relative strength of the stand-alone businesses to maximize value and speed of integration. That team got to work straight away and achieved $9.1 million in synergy savings in the first 3 months post completion. This was largely as a result of focusing product offering on our 3 hero products, Reading Eggs, Mathletics and Mathseeds, and reducing head count in the U.S. while we work on product improvement for Mathletics. We will continue supporting our existing customers for these products that we've impaired, but we've done already in the FY '21 balance sheet. But those customers will continue to be supported until the product sunsets naturally. We've also successfully simplified business processes and integrated the finance, people and administration functions under 1 roof. On to trading conditions. It has been good for the first 4 months of the financial year with B2B and B2C revenue and EBITDA to October '21 tracking well and within the FY '22 guidance parameters announced in August 2021. These parameters, for your reference, were $92.3 million to $97.2 million in total revenue and $12.1 million to $15.4 million in EBITDA. For enterprise deals, negotiations continue with corporate and Ministries of Education in emerging markets are also progressing so far this year, but we'll provide further details at our midyear update in February 2022 once we have a bit more certainty about the payment terms. As we've talked about before, these deals have contracts put in place, so we will only announce them once we have received payments for them. We'll continue to seek other operational and efficiency improvements going forward, but the main emphasis now will be on company culture. We work together with our Board to put in place a clear change management program to integrate people, processes and systems with a strong communication plan over the next 6 months so that we can start crafting the next chapter in 3PL's always exciting journey for FY '23 and beyond. Our key strategic objectives for FY '22 are to expand our product and marketing investment in B2C, improve Mathletics for the core B2B market and further increase our efforts in emerging markets such as India, Middle East and Latin America for B2B. Currently, these markets are serviced by our hero products, which cover 2 of the 3 fundamental learning skills that Matthew mentioned before. To cover the third one. We've acquired a suite of writing skills programs including Writing Legends, Storyathon, teacher workshop series for writing and the Inspirity platform that helps this program, which was developed by the original creator of Mathletics, Shane Hill. This acquisition helps us to gain speed to market and further develop the program to cover the third fundamental skill, writing, aiming to launch in the first quarter of financial year 2023. We'll also be launching a stand-alone mobile B2C numeracy app in mid-2022. We believe this market offers good opportunities for growth and testing product features that can then be incorporated into our hero products. So to sum up, overall, I think we've delivered important operational milestones for 3P Learning, are on track to deliver FY '22 results within guidance and have started laying the foundations for an even better FY '23. Thanks very much.

Right. I'll move on now to all the matters before this meeting. Firstly, I will -- shareholders will be given the opportunity to ask questions in relation to the resolutions that are being put to the meeting before any vote is conducted. Please note that this is a meeting of 3P shareholders and only 3P shareholders. Their proxies, attorneys and corporate representatives are entitled to vote and ask questions at this meeting. For those entitled to vote, please ensure that you have registered to vote by clicking on the Get a Voting Card button at the bottom of your screen. As outlined in the notice of meeting, I declare the resolutions to be voted on by 3PL shareholders at today's AGM will be subject of a poll, which will be conducted by the 3PL share registry, Link Market Services. The results of voting will be announced to the ASX later today. Some rules around asking questions. We allow each shareholders a reasonable opportunity to ask questions. However, we reserve the right to rule out of order any questions considered to be repetitive or outside of the scope of the meeting for the items of business under consideration. [Operator Instructions] Please note that while you can submit questions online from now, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated, or if we receive multiple questions on the 1 topic, amalgamated together. Persons who have obtained a PIN from the share registry will also be permitted to ask questions by telephone during the questions part of the meeting [Operator Instructions]. In order to ensure that all shareholders have a reasonable opportunity to comment and ask questions [Operator Instructions] I will do my best to answer them or direct them to the auditor or a member of the executive team as appropriate. Shareholders attending the meeting online will be able to cast their votes via the virtual platform. Please refer to the virtual meeting online guide for further details or use the helpline specified if any assistance is required. I note that voting will end 5 minutes after the close of the meeting. After questions, there is a resolution to be put to the meeting for a vote. I direct that a poll will be held and now open the poll on each of the resolutions 2 through to 4. Resolution 2 through to 3 are ordinary resolutions. Resolution 4 is a conditional resolution. This resolution will only be considered if at least 25% of the votes cast on item 2 are cast against the remuneration report. As resolution 3a relates to the election of myself as a director of the company, I will step down from the chair and ask Belinda Rowe of the People and Culture Committee to share the meeting for that resolution. Now moving on to the ordinary business of the meeting. The first item of business on the agenda is to lay the call of meeting the financial report of the company and its controlled entities for the 2021 financial year and the reports of the directors and the auditors of the company. These documents have been made available to shareholders and are also available via the ASX and the company Investor website. There is no vote required on this item of business. I will invite questions in relation to these reports. This is also your opportunity to ask questions about or comment on the company's business performance and management. If you have a question related to other resolutions, please wait and ask your questions when we consider that resolution. Are there any questions regarding the report of the company's business performance or management or for the auditor? [Operator Instructions] Please now ask your questions.

We do have one question, which came through the webcast. And the question is, could you please give us a little more color as to the reduction in offices from 2 to 1 and the resulting spend. And this was by [ Edmund Caroo ].

Thank you, [ Edmund ]. I'll take that one. So basically, we have to look at this in the context of the synergy savings that we've already achieved for the company and that happened in the first 3 months post completion. So as I mentioned before, the synergy savings were about $9.1 million, that's already achieved. And that came from the simplification of the product strategy and streamlining the sales and marketing processes in the U.S. So just to give you an idea, the product and technology reductions were about $4.6 million. Consolidating and streamlining the office and support functions were $1.1 million. And consolidating and simplifying the sales, marketing and business processes was about $3.4 million to give us the $9.1 million. The 2 offices in themselves, at the moment, for North Sydney, we're paying about $600,000 a year. And obviously, if we're going to the 1 place, it will probably cost us a little bit more than the individual offices cost us. So there'll be some savings, I would say, around the $300,000 mark, but we obviously have to move into a new place, fit it out and all that, if that helps, yes.

We just want to say if there's any more questions, we'll wait 1 more minute. If there are no questions, then we'll move on to the next resolution. Thanks.

As there are no further questions, we will move on to the second item of business. The next item of -- on the agenda is the consideration of resolution 2, the adoption of the remuneration report, which is included with -- in the director's report in the annual report. In accordance with the Corporations Act, the vote on this resolution is advisory only and the outcome is not binding on the Board. That is not to say the Board does not take these resolutions very seriously and the Board don't take account of the views of the shareholders on these matters, especially as we received a first strike against the remuneration report for the financial year ended 30th of June 2020 at the company's last AGM. In the remuneration report, we have endeavored to provide shareholders with detailed disclosures regarding the terms of and rationale behind the company's remuneration framework in financial year 2021. For the current '22 financial year and beyond, we are undertaking a review of our incentive framework and we look forward to releasing further details in our next remuneration report. We believe the 3P Learning remuneration approach provides good alignment between the business objective, shareholder value and executive remuneration, which motivates and retains talented executives. Are there any questions or comments related to the remuneration report? The directors unanimously recommend that shareholders vote in favor of the adoption of the remuneration report. You will note that there are some voting exclusions to this resolution set out in the notice of meeting. The director votes and proxies, which have been received in relation to this resolution are now shown on the screen. For proxies open at the Chairman's discretion, I intend to vote in favor of the resolution. I now ask you to vote on resolution 2 by clicking on the for, against or abstain voting buttons. As set out in further detail in the notice of meetings, people entitled to vote on the poll are 3PL shareholders, proxy holders, attorneys and corporate representatives of 3PL shareholders. If you have not already submitted your vote online, please do so now. [Voting]

We will now move on to resolution 3, the election of directors. Because this year, I am a candidate offering myself for reelection, I will hand over to -- over the chair to Belinda Rowe, Chair of the People and Culture Committee, to chair my election for the first part of this resolution.

Thanks, Matthew, and good morning, everyone. The next item on the agenda is the election of Matthew Sandblom as Director of the company. His biographical background is available in the notice of meeting. The election of Matthew Sandblom is unanimously recommended by the Board. Are there any questions relating to this resolution? The direct votes and proxies received in relation to this resolution are shown on the screen. For proxies open at the Chair's discretion, I intend to vote in favor of the resolution. I now ask you to vote on resolution 2 by clicking on the for, against or abstain voting buttons. [Voting]

As set out in further detail in the notice of meeting, people entitled to vote on the poll are 3PL shareholders, proxy holders, attorneys and corporate representatives of 3PL shareholders. I will now hand back to Matthew to chair the remainder of this meeting.

Thank you, Belinda. The next item on the agenda is the reelection of Mark Lamont as a Director of the company. Biographical background information about Mark is available on the notice of meeting. The reelection of Mark is unanimously recommended by the Board. Are there any questions relating to this resolution? The direct votes and proxies received in relation to this resolution are shown on the screen. For proxies open at the Chair's discretion, I intend to vote in favor of the resolution. I now ask you to vote on resolution 3 by clicking on the for, against or abstain voting buttons. [Voting]

The next item on the agenda is the election of Kathy Ostin as a Director of the company. Biographical background information about Kathy is available in the notice of meeting. The election of Kathy is unanimously recommended by the Board. Are there any questions relating to this resolution? The direct votes and proxies received in relation to this resolution are shown on the screen. For proxies open at the Chair's discretion, I intend to vote in favor of the resolution. I now ask you to vote on resolution 3c, by clicking on the for, against or abstain voting buttons. [Voting]

The next item on the agenda is the election of Allan Brackin as a Director of the company. Biographical background information about Allan is available in the notice of meeting. The election of Allan is unanimously recommended by the Board. Are there any questions relating to this resolution? The direct votes and proxies in relation to this resolution are shown on the screen. For proxies open at the Chair's discretion, I intend to vote in favor of the resolution. I now ask you to vote on resolution 3d by clicking on the for, against or abstain voting buttons. [Voting]

The next item on the agenda is the election of Belinda Rowe as a Director of the company. Biographical background information about Belinda is available in the notice of meeting. The reelection of Belinda is unanimously recommended by the Board. Are there any questions relating to this resolution? The direct votes and proxies received in relation to this resolution are shown on the screen. The proxies open at the chair's discretion, I intend to vote in favor of the resolution. I now ask you to vote on resolution 3e by clicking on the for, against or abstained voting buttons. [Voting]

The next item on the agenda is resolution 4, the conditional spill resolution. As the remuneration report was resoundingly adopted and passed with more than 99% of votes in favor of resolution 2, this resolution is not required to be considered at today's meeting. If all voting has been put through, then I declare the poll closed. If you have not submitted your vote and would like to do so, you have 5 minutes to do so from now. The counting of the votes on the poll may take a little time. The results of the poll will be announced to the ASX shortly later today. Ladies and gentlemen, I thank you for your attendance at today's virtual meeting. There being no other business to discuss at this meeting, I now declare the meeting closed. Thank you, on behalf of the Board, for your attendance and participation. We look forward to your continued support.