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

Welcome to today's meeting. I'm Matthew Sandblom, Executive Chairman of 3P Learning Limited. On behalf of the Board, I welcome you to the 3P Learning 2024 Annual General Meeting. The Company Secretary has advised me that there is a quorum present. I formally declare the meeting open. For our agenda today, I will present my address, and then our formal business will follow. I propose to take the notice convening the meeting, the agenda and the items of business as read. Similar to prior years, the audio recording of today's meeting will be posted on our website shortly after the meeting. Today, I'm joined by my fellow directors here. We have our Independent Nonexecutive Directors; Allan Brackin, Kathy Ostin, Belinda Rowe, Mark Lamont and Craig, who's video conferencing. We also have our CEO, Jose Palmero; and our incoming CFO, Adam McArthur and our Company Secretary, Joyce Li. Joining us also is [ Dylan ] Robertson from KMPG, our company auditors for the '24 financial year. There will also be an opportunity for shareholders to ask the auditor questions about the conduct of the audit for the '24 financial year during the meeting. We also have representatives from our share register, Link Market Services now part of MUFG to assist us with the shareholder votes. Welcome again. The '23/'24 financial year did not deliver as much growth as we were expecting, which led us to reexamine the way we were approaching the schools market in particular. We decided on a significant strategy reset where instead of just trying to sell each program individually, we would instead focus on selling an integrated suite of programs that help students learn the full range of core academic skills, namely reading, writing and maths. We believe that success in one skill area leads to more success in other skill areas. For example, you need good reading and comprehension skills to understand instructions and many types of questions in maths. And becoming a better writer helps you become a better reader. We also know that the more programs our schools use, the more sticky they become as customers, and this helps us reduce churn rates. To truly deliver an integrated suite of programs, to both teachers and students, does require a significant amount of work, which will take us to the best part of the '24-'25 financial year. We have already started promoting and selling this integrated suite of programs under the name of 3 Essentials, but we are currently building these features and schools won't get access to the key functionality such as single sign-on, combined reporting and integrated work programs until the second quarter of 2025, calendar year. So far, the early results of selling the 3 Essential programs have been promising with over $500,000 in orders taken. However, we don't expect to see significant revenue recognized from 3 Essentials until the '25, '26 financial year. The other significant change in our business over the last 12 months has been buying back from Edmentum in the U.S., our Reading Eggs Distribution Rights. While Edmentum has provided a steady flow of income for us for over 10 years, there has been little growth in recent years. This was a significant transaction for 3PL that cost around AUD 20 million. It delivered to us a book of business worth about $6.5 million annually and a direct relationship with about 4,500 schools. We knew there would be risks in transferring these customers to us as we did not have any direct relationships with them, when Edmentum was a distributor. We put significant resources into securing this business, and we think we'll be able to get renewals from at least 75% of these customers. While this is higher than our normal churn rate of around 15% or 16%, we are satisfied with it given the circumstances. We're also seeing good opportunities to upsell these customers with our maths programs like Mathseeds and Mathletics. We are also developing a good pipeline of new business opportunities for Reading Eggs, especially in states in the U.S. that have -- what we have prioritized as the most promising for us. In the consumer space, our marketing has delivered an increased volume of parents signing up for a free trial, but lower conversion rates for paid subscriptions. Parents, with children are feeling the effects -- the full effects of the increase in cost of living and are being conservative with their spending. The net result of these trends is that revenue in this sector is flat year-on-year. We do see opportunities to make further inroads into the home schooling market, especially in the U.S.A., where this section of the market is growing strongly and getting more government funding. We are working on some product improvements that we think will make our programs even more attractive to this market. These improvements will be released in mid-2025. The level of product investment 3P is making is still significant and the 3 Essentials strategy has meant some development resources were transferred to this project from other product improvement areas. But as we have stated before, we are dedicated to making these investments while at the same time, at least maintaining our EBITDA performance. We also see 2024 as the peak in new product investment that we should -- and then we should see a noticeable decline in these costs in following years. When I rejoined 3P Learning 3.5 years ago, I thought it would take 2 to 3 years to get the company back on to a growth path, but it has taken longer than I expected. The reality is it looks more like 4 to 5 years to do all of the things needed to present the market with a compelling offering that will get them to significantly increase their spending with us. I'm still determined to make 3P Learning into an even more successful company that is delivering great educational outcomes and great returns for shareholders. I would like to finish this by thanking Belinda Rowe for her contribution to 3P Learning over the last 3 years, in particular, the leadership of the People and Culture Committee. Now we move on to formal business of the meeting. During this meeting, shareholders will have the opportunity to ask questions related to each resolution before voting is conducted on the resolution. Your voting and attendance cards indicate whether you can ask questions or vote at this meeting. If you have a yellow card, you are a voting shareholder, proxy holder or corporate representative, you are entitled to speak at this meeting. If you have a blue card, you are a nonvoting shareholder, you are entitled to speak at this meeting. However, you're not entitled to vote. If you have a red card, we welcome you as a visitor. However, as you are not a shareholder or proxy, you are not entitled to speak or vote at this meeting. When I call for any questions, if you hold a yellow or blue card, you can ask questions. At that time, you must raise your hand and let us invite you to say your name and ask your question. Please confine your questions to matters relevant to the particular resolution. During this AGM, shareholders will be asked to vote on the adoption of the 2024 remuneration report, the reelection of Allan Brackin as a director, the reelection of Ms. Katherine Ostin as a director, the reelection of myself, Matthew Sandblom, as a director. These resolutions are ordinary resolutions that will be passed by a simple majority of eligible voters that are cast by shareholders voting in person or by proxy and direct votes. As set out in the notice of meeting, the resolutions at this meeting will be conducted by poll. The poll will be conducted by our share registry. The poll will close 5 minutes after this meeting is closed. If you hold a yellow card, the instructions and resolutions appear on the front of this card. To cast your vote during the meeting, mark whether you vote for, against or abstain for each resolution. If you mark abstain, your votes will not be counted for that resolution. If you need the assistance on voting during the meeting, please signal one of the representatives from the share registry. So moving on to Item 1, receive Company's financial report. The first item of business is to lay before this meeting the company's financial statements, directors' report and the auditor's report on the financial year ending 30th of June 2024. These are set out in the 2024 annual report and available to shareholders on the ASX or on our website. There is no vote required for this item of business. Are there any questions from shareholders to the Board on the company's business or questions for KPMG? As there are no other questions, we will move on to the second item of business, adoption of the remuneration report. Resolution 2 is to adopt the remuneration report, which is included in the directors' report for the 2024 financial year. As set out in the notice of meeting, the vote on this resolution is advisory only and the outcome is not binding on the Board. The remuneration report gives shareholders details and the rationale behind the company's remuneration framework in the 2024 financial year. Noting the interest to close in the report, the Board recommends that shareholders vote in favor of this resolution. Are there any questions or comments relating to the remuneration report? As there are no questions, we will note the voting exclusions that apply to this resolution, and the direct votes and proxies for this resolution are now shown on the screen. With proxies open at the Chairman's discretion, I intend to vote in favor of the resolution. We will pause for a moment to allow any yellow voting cards to be completed for this resolution. [Voting]

Reelection of Director, Mr. Allan Brackin. I now turn to the reelection of Mr. Allan Brackin as a Director of 3P Learning in Resolution 3A. Allan was originally appointed to the Board of 3P Learning in August 2021. To our Board, Allan contributes over 40 years of experience in building revenue growth and market value in private and public companies within the technology sector in Australia and global markets. Allan was previously the Chair of OptiComm Limited, GBST Limited and RPM Global Limited. The directors with Allan abstaining, unanimously recommend that shareholders vote in favor of this resolution. Are there any questions relating to this resolution? The direct votes and proxies for 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. We'll pause for a moment to allow any yellow voting cards to be completed for this resolution. [Voting]

Resolution 3b, the reelection of Director, Ms. Katherine Ostin. I now turn to the reelection of Ms. Kathy Ostin as a Director of 3P Learning in Resolution 3b. Kathy was originally appointed to the Board of 3P Learning in August 2021. Kathy has a diverse commercial experience, including in audit and risk management and a range of strategic roles. That experience extends to the broad sector of industries, including technology, content, communications, media and entertainment. Kathy holds nonexecutive directorships with Capral Limited, Dusk Group Limited, Next Science Limited and Elanor Investors Group. The directors with Kathy abstaining unanimously recommend that shareholders vote in favor of this resolution. Are there any questions relating to this resolution? The direct votes and proxies for 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. We will pause for a moment to give an opportunity for votes to be completed on the yellow voting cards. [Voting]

Resolution 3C is the reelection of myself as a director. I now invite Mark to act as Chair of the meeting in my place to put forward the next resolution.

Thank you, Matthew. So for this next resolution, I put forward the reelection of Mr. Matthew Sandblom as a Director of 3P Learning. Matthew is an education entrepreneur with over 35 years' experience in education and learning businesses. Matthew has founded or cofounded successful companies, including 3P Learning, Blake Education and Clickview, and Matthew brings strong insights into the domestic and international education markets for 3P's award-winning products. The directors with Matthew abstaining, unanimously recommend that shareholders vote in favor of the resolution. Are there any questions relating to the resolution? The direct votes and proxies are shown on the screen. Congratulations. For proxies open at the Chairman's discretion, I intend to vote in favor of the resolution. We'll pause for a moment to give an opportunity for votes to be completed on the yellow voting cards. [Voting]

Matthew, I invite you back to resume your position as Chair of the meeting.

Thanks, Mark. If you have completed the voting on your yellow voting cards, please allow a representative from Link Market Services to collect them. As the voting cards have been collected, I declare the poll closed. The result of the polls will be declared and released to the ASX later today. As there is no other business, I now declare the meeting closed, and please stay around for some refreshments. Thank you.