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

Okay. So we'll get started. Ladies and gentlemen, good morning. I'm Matthew Sandblom, Executive Chairman of 3P Learning Limited. On behalf of the Board, I'm pleased to welcome you to the 2022 Annual General Meeting. The company's secretary has advised me there is a forum present, and I formally declare the meeting open. Consistent with prior years, we are recording today's meeting. The audio recording will be available for listening via the company investor website all in the meeting. Introduction of the directors. I'd like to introduce the other officers of the company here with me today, Jose Palmero, the Chief Executive Officer; Anton Clowes, the Chief Financial Officer. The independent nonexecutive directors, Allan Brackin, Belinda Rowe, who's dialing in remotely, Kathy Ostin and Mark Lamont. And the company's secretary, Liz Wang. We also have with us today, Craig Coleman, who has been put forward for the combination as a Director of the substantial shareholder, Viburnum Funds Limited. Renay Robinson, representing the company's auditor, EY, who will be prepared to answer any questions about the conduct of the audit. And representatives of Link Market Services Limited, our Share Registry. As the notice has been circulated to our shareholders, I propose to take the notice of -- convening the meeting and the items on -- of business as read. It is now 18 months since 3P learning and Blake eLearning became one company. During this time, we have made some very good progress in formulating and then implementing our strategy, to be the best-in-class provider of online learning resources in the core academic skills of reading, writing and math of grades pre-K to 10. On the PowerPoint slide is a table which has a simple overview of this strategy. It was also in the August presentation as well. So it supposed to outline both our B2B strategy, which is obviously covering up in all the 4 areas of reading, math and writing. Obviously, writing is still to come. But that's -- and then also math with multiple programs like Mathletics, Mathseeds and soon to be Mathseeds Prime. And reading, which has, obviously, Reading Eggs, Reading Eggspress, Fast Phonics, The Library, Reading Journal, WorkFlyers. So I will also highlight for areas we'll want to move into, which is assessment and reporting and eventually professional development. There's a similar strategy with B2C, with obviously reading and math already out there, with writing still to come. The recent acquisition of Brightpath Assessment forms a key part of our strategy to provide online assessment services across all these core academic skills. Brightpath has -- already has a successful writing assessment program, has almost completed a math assessment program and will work with Reading Eggs team on a reading assessment program. We're also making good progress on our Writing Legends learning program, which is due for release in the first half of financial '24. We think having both the writing skills learning program and our writing skills assessment program will provide schools with a best-in-class writing skill set of resources. 3P Learning is trading well in both school and consumer markets. In the consumer market, we are seeing increased revenue, even as compared to previous periods that were positively affected by COVID lockdown policies. This has mainly been driven by increase in lifetime value as we increase retention rates rather than by higher numbers of new subscribers. In the stores market, we are seeing an increase in average ARPU, although much of the benefit of this will only be recognized as revenue in financial '24. We're also controlling costs well and expect this to have a positive effect on EBITDA. I'm particularly looking forward to the 24 financial year when we will have the full range of programs available across all core academic skills of reading, writing and math, with Brightpath Assessment programs to match each subject. This should be a point where schools really start to see us as a complete solution provider rather than providing individual programs like Mathletics and Reading Eggs. This has the potential to transform the business and provide the platform for a high level of consistent growth across all markets for years to come. I'll now hand over to our CEO, Jose Palmero, to make his address.

Thank you, Matthew, and welcome, everyone. With the integration of Blake eLearning, which was acquired in May 2021, now completed, we have continued making good progress with key initiatives for our people, company culture and product development position. While investing in building capability in these areas, we have also focused on further improving profitability and cash generation for financial year '23 and beyond. In the people and culture front, Tania Black, our Chief People and Culture Officer; Lynda Pendino, Chief Marketing Officer; Katy Pike, Chief Product Officer; and Vivek Prahlad, Chief Technology Officer, continue contributing their considerable experience and talent to our senior leadership team. Anton Clowes joined the team as Chief Financial Officer on April '22, with his predecessor, Dimitri Aroney, assisting with a smooth transition of responsibilities to Anton. As previously announced, Dimitri stepped down in July of this year for family reasons. Chief Sales Officer, Chris Mathews, also stepped down in October '22 to pursue other opportunities, so we have started an executive search with me temporarily acting in the role until we find a new Chief Sales Officer. Our People and Culture program launched in February 2022 to update our company purpose, better ways to learn and company values, along with the first stage of 3 Ps, giving back corporate social responsibility initiatives. These are aimed at creating a positive impact on our society and environment through education to improve their lives of students, teachers, educators, schools and communities. We will include progress reports on these activities with future market updates. On product development and positioning, as Matthew mentioned in the Chairman's address, the acquisitions of Writing Legends in November 2021 and Brightpath Assessment in October 2022, bring forward our strategic plans by several years. They will also start contributing about $1.5 million in annual recurring revenue, with billings of $1.4 million expected in financial year '23. Writing Legends will cover school years 1 to 6, with an initial release in February 2023, followed by the Australian launch in July 2023. Brightpath Assessment is already used by over 800 Australian schools for writing, mainly in Western Australia and South Australia, and we expect to release Math assessments by June 2023. The reading assessment component is currently in ideation and design phase. Work on our hero products, Reading Eggs, Mathletics and Mathseeds continues at pace. Reading Eggs has new features like time and task reporting for parents, more functionality for teachers to manage library books, more resources like worksheets and printable, and a new personalized [indiscernible] section. Next for Reading Eggs, the teams are working on new end-of-lesson skills quizzes and then the new certificates and awards area. We also released Reading Journal, with a new section in Reading Eggs and Reading Eggspress, which allows students to create and build an online journal of books they've read. Since its launch in October 2022, students have created over 450,000 journals or about 15,000 per day, which is an amazing achievement. For Mathletics, we expect to release new courses for school years 3 to 8 fractions, Algebra to years 5 to 7 for Australia, and key engagement improvements in Student Center design, Avatars, motivation and rewards features by the first quarter of financial year '24, with [ first release ] release with Avatar and Student Center coming first. Mathseeds has added a new sales market report for teachers. And we will also launch [indiscernible] Mathseeds Prime [ GR 4 ] as a beta version in March 2023 to add exciting new content for B2B, the new schools math package; and for B2C, the new Mathseeds stand-alone app. In terms of revenue, profitability and cash flow, we have put in place a new B2B sales structure across all regions, aiming to increase lifetime value and ARPU through solution selling to whole schools. Our Math Solutions, for example, launched in August this year is proving popular in office Mathletics and Mathseeds as an annual subscription package when purchased for the whole school. For B2C, we have started implementing separate subscriptions for Reading Eggs and Mathseeds. This is aligned with our B2B product strategy of solution selling for reading, writing and math. The first phase was the release in October 2022 of a stand-alone Mathseeds app for iOS. To build our online presence in math B2C, acquired customers specifically interested in math and cross-promote through solution selling. We will have a second phase in January 2023, with a price increase for the reading and math package. Overall, we are seeing some effects on marketing cost and consumer spending due to inflation and higher energy costs, particularly in EMEA, but we are growing revenue in both market segments and maintaining disciplined spending to deliver our stated revenue and profitability objectives. We will have a more comprehensive update in February 2023. But on current outlook, we reiterate market guidance of between $111 million to $115 million for revenue, and between $15 million and $18 million for underlying EBITDA. Thank you to our shareholders and Board for your continued support, to the 3P team for your focus and commitment and to our customers for whom we strive to deliver better ways to learn. We now move forward to the formal part of the Annual General Meeting, and back to our Chairman, Matthew Sandblom.

Yes. Thanks, Jose. Okay. So turning to the matters formally before the meeting. Before we finalize each vote or do the votes, each shareholders present will be given the opportunity to ask questions in relation to the resolutions that have been put to the meeting before any vote is conducted. For the shareholders there, you will be issued with attendance or voting card. We'll poll for questions, those with a yellow or blue card are able to ask questions. If you would like to ask a question, please raise the yellow card, then please stand and state your name when selected, then you can proceed to ask your questions. If you happen to be holding the red attendance card, this means you are a visitor and not a shareholder. As a result, you do not have the right to ask questions or make comments. As outlined in the notice of the meeting, I declare the resolutions to be voted on by 3PL shareholders at today's AGM will be subject to a poll, which will be conducted by 3PL's share registry, Link Market Services. The result of voting will be announced to the ASX later today. For shareholders and proxies, I will ask you to confine your questions to matters relevant to the particular resolution that is being considered. I will do my best to answer them or direct them to the auditor or a member of the executive team as appropriate. If you are here today, both as a shareholder and a proxy, you will need to use separate voting cards in relation to your own shares and shares you are voting as a proxy. I believe that the non-burning cards, which are issued to shareholders who have already voted by proxy. And to join, holders, you can speak or ask questions at the meeting. If you hold a yellow card, this is voting as a shareholder and as a proxy holder, including as represented by corporate representative, attorney or proxy with the vote at the proxy's discretion. You'll be asked to vote at the appropriate time on the resolutions to consider: the adoption of the remuneration report for the 2022 financial year, the election of Mr. Craig Coleman as a Director and the modification of the company's constitution. Resolutions 2 and 3 are ordinary resolutions. These resolutions will be passed by a simple majority of the members present and voting in person or by proxy. Resolution 4 is a special resolution. This resolution will be passed if approved by at least 75% of the members present and voting in person or by proxy. For those of you holding yellow cards, to fill these out, you will find instructions, and all resolutions are printed on the front of the voting cards. To vote simply place a microphone in 1 of the 4 against or abstain boxes for each resolution. If you mark the abstain box, your votes will not be counted for that resolution. If you need any help, please signal to one of the representatives of Link Market Services. Now moving on to the ordinary business of the meeting. Consideration of reports. First item of business: Reports tabled at the meeting. The first item of business on the agenda is to lay before the meeting the financial report of the company and its controlled entities for the 2022 financial year and the reports of the directors and the auditor of the company. These documents have been made available to shareholders and are also available via the ASX and the company's 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 relating to other resolutions, please wait and ask your question when we consider that resolution. Are there any questions regarding the reports, the company's business performance or management report or the auditor? As there are no further questions, we will move on to the second item of business, the renumeration report. Resolution 2: Adoption of the remuneration report. The next item on the agenda, consider the resolution for the adoption of the remuneration report, which included in the director's report and the annual report. In accordance with the Corporations Act, a vote on this resolution is advisory only and the outcome is not binding on the Board. In the numeration report, we have endeavored to provide shareholders with detailed disclosures regarding the terms of and rationale behind the company's remuneration framework in 2022. We believe that 3P Learning's 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? Directors have recommended a vote in favor and unanimously support that shareholders vote in favor of the adoption of the remuneration report. We note that there are some voting exclusions for this resolution set out in the notice of meeting. The direct votes and proxies, which have been received in relation to this resolution are now shown on the screen. For proxies opened at the Chairman's discretion, I intend to vote in favor of the resolution. We will now pause for a moment to give you the opportunity to complete your yellow voting cards for this resolution. Please retain your voting cards which will be collected by representatives of Link Market Services. Once voting on all resolutions on your yellow voting card has been completed. [Voting]

We'll now move on to Resolution 3: Election of director. The election of -- Mr. Coleman's nomination through the Office of Director of the company has been put forward by the substantial shareholder by Viburnum Funds in accordance with ASX Listing Rule 14.3. And by the way, information about Mr. Coleman is available in the notice of meeting. Whilst the Board has not made a voting recommendation, I, as chairman of the meeting, intend divert all available proxies in favor of item 3. Are there any questions relating to this resolution? The direct votes and proxies received in relation to this resolution are shown on the screen. I now ask you to vote on the resolution with your voting cards. Again, please retain your voting cards, which will be collected by a representative of Link Market Services once voting on all the resolutions on your yellow voting cards has been completed. [Voting]

The next item on the agenda is resolution 4: The modification of the company's constitution. The Board and company's legal advisers have reviewed the company's constitution to consider the development of corporate law and government since the constitution was last amended. As a result of our review, some changes were proposed as follows. Amend clause 8.3 and 8.8 to add the ability to hold virtual general meetings as an additional option to the current provisions for meetings. Amend clause 21 in relation to restricted securities and update to the number in the content pages of the constitution as required. This special resolution, therefore, seeks shareholder approval to modify the constitution as set out in more detail in the notice of meeting. The directors unanimously recommend that shareholders vote in favor of this resolution. Are there any questions relating to this resolution? Proxies received in relation to this resolution are shown on the brand. For proxies open to chairman's discretion, I intend to vote in favor of the resolution. We'll now pause for a moment to give you an opportunity to complete your yellow voting card for this resolution. [Voting]

The yellow voting cards will be collected by a representative of Link Market Services once we have finished filling the end. We will wait a moment while Link completes this process. You may also place your completed voting cards in the ballot box held by registry staff at the table. Okay. Close the polls. Declaration of closing the polls. If all voting cards are collected, then I declare the poll closed. The counting of votes on the poll may take a little time. Rather than keeping you waiting, the results to be announced via the ASX as soon as possible after the meeting. The results of the polls will be announced to the ASX shortly later today. Ladies and gentlemen, I thank you for attendance at today's general meeting. There has been no other business to be discussed at the meeting. I now declare the meeting please. Thank you on behalf of the Board for your attendance and continued support.