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

Thank you for standing by, and welcome to the 3P Learning Limited FY '25 Full Year Investor and Analyst Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Matthew Sandblom, Executive Chairman. Please go ahead.

Welcome to 3P Learning's full year results presentation for the financial year '24, '25. My name is Matthew Sandblom, Executive Chair of 3PL. And joining me today are CEO, Jose Palmero; and CFO, Adam McArthur. I'm pleased to report that we have increased underlying EBITDA to $15.5 million, which is 30% higher than in financial year '23, '24. We also finished the year with $11.6 million in net cash balances, $6.5 million higher than last year. Revenue in the financial year '24, '25 was fractionally lower than last year at $109.1 million. After a period of significant investment in product development and acquisitions, 3P Learning has made good progress this year in executing the sales and marketing and business process improvements that we believe will deliver consistent top and bottom line growth for years to come. While there is still work to be done, I'm also pleased to report that in the financial year '24, '25, we launched and began selling the 3 Essentials to schools across APAC and EMEA. Further, we completed the first renewal cycle for the Reading Eggs U.S. school customers we acquired from Edmentum last year and in January 2025, finalized the acquisition of LiteracyPlanet for a purchase price of less than 1x revenue. For B2C, we have maintained our year-on-year sales levels, which is a reasonable result, given the economic headwinds parents and families have faced in all our key markets. We also recently released the first version of Homeschool Max, a project to cater to the home school market in the U.S. I'm particularly excited about this project as the home school market has seen huge growth in recent years, both in student numbers and government funding. Early results are encouraging and support our view that a more complete offering of Reading Eggs with added teacher functionality will help us get significant growth in this multibillion-dollar market. As I outlined in my previous market update, the overall story for the financial year '24, '25 has been about keeping profitability up and sales steady while we continue our business transformation to make our programs a leading source for learners and educators in pre-K-6 reading, writing and maths, the 3Rs across the main English-speaking markets. We are also beginning to see productivity gains from the introduction of AI across most areas of the business. This is a key part of our plans to grow the business while keeping the cost base flat, leading to increased margins over the next several years. The key goals for 3PL over the next 12 months are to greatly increase in schools adoptions of the 3 Essentials package in APAC and EMEA and to drive strong billings growth in AMER in both the school districts and home school markets. If we can achieve these goals, then we will be confident the significant investments we have made over the past 4 years will have provided the base for long-term above-trend growth. I will now hand you over to Jose for his CEO update.

Thank you, Matthew, and good morning, everyone. We will begin with the highlights for the year. But in today's presentation, I will also cover in more detail our plans for 3 Essentials in APAC and EMEA, and our initiatives for B2B and B2C in the U.S. I will then pass on to Adam for the financials and cash flow section before inviting questions from those attending. The main highlights this year included a good uplift in profitability with underlying EBITDA of $15.5 million, which was 30% higher than last year's $12 million, and underlying cash flow from operations before tax of $14.2 million, which was $3 million higher than last year's $11 million. Revenue was 1% lower than last year at $109.1 million, mainly due to the initial retention of Reading Eggs U.S. school customers acquired from Edmentum being lower than expected. This also affected annual recurring revenue for B2B, which was 1% lower at $61.6 million, offset by the acquisition of LiteracyPlanet in January '25, which contributed $2.2 million to annual recurring revenue. B2C billings also decreased 1% to $42.9 million, which was a reasonable result, given the tougher economic conditions in the consumer market. During the year, we invested $27 million in product development, of which $4.1 million was capitalized on new products like Writing Legends and 3 Essentials, plus $1.5 million for the acquisition of LiteracyPlanet. It is important to note that we have funded all product development and the U.S. investments entirely from cash generated by the business that we have expensed most of that already and that in financial year '25, we moved from product build to sales and marketing execution. So we expect product development costs to be lower next year. We finished the year with net cash balances of $11.6 million, including $3.1 million in restricted cash and no debt. Looking at segment performance in more detail, B2C billings decreased 1% in FY '25, but revenue was up 1% to $43.4 million. In the regions, we saw marginal billings increase in AMER, offset by a small decline in EMEA and steady in APAC, but managed to improve our overall contribution margin to 53%, which was a good result. We launched Reading Eggs Homeschool Max in the U.S. in June 2025 and had a positive initial response, which is encouraging, given the size and potential of this market in the U.S. Homeschool Max is an upgraded version of Reading Eggs with more teacher-like functionality, including reports, assigning tasks and downloadables from the schools version of the program. It is priced at about 3x the basic home package and aimed at parents and educators who home school their children. This is a growing market segment, particularly in the U.S., where it is also supported by government funding with programs such as the Education Savings Account, or ESA. Our products already qualified for funding under the ESA program in 8 U.S. states, and we have applied to qualify for an additional 8 states. As I mentioned earlier, in the schools market, annual recurring revenue was 1% lower than last year at $61.6 million, with 4.7 million subscribed licenses and slightly higher exit ARPU. In APAC and EMEA, we launched 3 Essentials and acquired LiteracyPlanet, while in the U.S., we are now in the second year of direct distribution of Reading Eggs to U.S. schools with substantially improved sales pipeline and contribution margin. I will now talk about 3 Essentials and U.S. performance in a bit more detail. 3 Essentials combines our reading, writing and math programs into an integrated solution with single sign-on, simpler navigation, easy class management and consolidated reporting. As a package, it represents our best value of offer to schools. Since launching in Q1 of financial year '25, 450 schools have subscribed to 3 Essentials in APAC for about $2.1 million in billings, which represents an average increase of 60% on what those schools were paying previously for individual programs. In EMEA, we launched in Q4 with 50 paid subscribed schools so far. Feedback on the product and value proposition has been consistently good, so we expect greater impact in financial year '26. In the U.S., we reacquired the Reading Eggs schools distribution rights from Edmentum in April 2024 for AUD 20 million. In the first renewal season, we retained 76% by value of the 4,300 schools we transitioned, which was lower than the 80% we expected as we unbundled the previous customer relationships with Edmentum. Now that we're in the second renewal season, we are seeing improved retention rates and contribution margin. We are also seeing more sales opportunities as we can now sell Reading Eggs directly to U.S. schools but also upsell and cross-sell Mathletics and Mathseeds to them. Other than the addition of LiteracyPlanet, which complements the strengths and early reader focus of Reading Eggs for the schools market and the introduction of 3 Essentials and Homeschool Max, our overall corporate strategy remains the same and continues to focus on the 3Rs of learning, complemented by our assessment solution, Brightpath Progress. In terms of focus areas for B2C, although we expect similar consumer market dynamics in FY '26, we will continue to explore ways of growing the home schooler market in the U.S. with Homeschool Max, expand approvals for ESA funding and explore partnerships with relevant associations and online schools where possible. Our focus areas for B2B in FY '26 are to increase billings and the number of schools upgrading and adopting 3 Essentials in APAC and EMEA, expanding our Reading Eggs user base and billings in the U.S. and improving B2B customer retention and profitability. For product, the upcoming releases support our B2B strategy for the 3 Essentials and U.S. market requirements for B2B and B2C, but with more incremental improvements, now that we have passed the peak of our investment in new products and significant upgrades. This concludes my presentation on the key themes and priorities. So I will now hand over to Adam for the financial and statutory report update.

Thanks, Jose. I'll be taking you through the P&L, our 2 operating segments and cash flow for FY '25. On Slide 21, this shows the P&L for the year. Our B2B revenue decreased by $1.4 million against the prior comparison period due to declining license numbers. This was primarily impacted by the transition for Edmentum in the U.S.A. However, our B2C revenue increased by $0.3 million due to growth in Reading Eggs and Mathseeds billings on the Google platforms. Our underlying EBITDA was $15.5 million, up 30% on the prior comparison period, reflecting the impact of our cost management initiatives and efficiencies gained by direct selling to U.S. schools. Pro forma adjustments after tax include $1 million of unwinding of legacy Edmentum distributor costs as deferred [ contract ] costs and the buyback of our distributor rights, $6 million of D&A of acquired products for Blake & Brightpath and LiteracyPlanet and other pro forma expenses. On Slide 22, we look at our B2C performance metrics. Gross billings in the B2C segment were $42.9 million, which is flat on FY '24 as we saw the impact of cost-of-living pressures and tougher economic conditions in our target markets. Our B2C ARPU grew by 4% on the prior comparison period as we focus more on 12-month subscriptions and the introduction of our Homeschool Max product. B2C revenue grew by $0.3 million, and our contribution margin remained strong at 42% as we continue to balance growth with profitability in this segment. On Slide 23, you can see our B2B performance metrics. In the B2B segment, revenue was $65.5 million, a decline of 2% on the prior comparison period, mainly due to the transition from Edmentum in the U.S.A. However, our contribution margin improved by 7% to 53% due to cost efficiencies gained by direct selling to U.S. schools and further operational improvements. Our exit ARPU increased to $13.20, up 2% from the prior comparison period. On Slide 24, you can see the details of our cash bridge. Our underlying cash flow from operations before tax was $14.2 million. This is up $3.2 million on last year. We had net PPP and intangible additions of $4.8 million and acquired LiteracyPlanet for a net cash payment of $0.9 million. Our closing net cash was $11.6 million at 30th of June. This is up $6.5 million from the prior year. We're pleased to announce we ended this year with a strong cash balance and no external borrowings. Now I'll hand back to Jose for the outlook and closing comments.

Thank you, Adam. So to wrap up, we have reached significant milestones in FY '25, despite tough economic and competitive conditions across B2B and B2C. But we look forward to what we can achieve in FY '26 and beyond. For FY '26 and the medium term, we will continue to focus on profitable growth through expanding the 3 Essentials in APAC and EMEA and driving initiatives to increase billings in the U.S. school districts and home school markets. We will continue to be disciplined with our cost management and expect a stronger cash position in FY '26, which will allow us to review our dividend policy in the context of our capital management strategy. It's been a busy year at 3PL. So thank you to our team, our Board, shareholders, customers and everyone joining us today for our FY '25 results presentation. We will now invite questions from those attending. Thank you.

[Operator Instructions] We are showing no questions. That does conclude our conference for today. Thank you for participating. You may now disconnect.