CL Educate Limited (CLEDUCATE) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone, and welcome to the CL Educate Q3 FY '22 Earnings Conference Call. My name is Arjun Wadhwa. I'm the CFO of CL and I'll be your host today. Joining me on this investor conference call today is the senior leadership team of CL. Mr. Satya Narayanan, the Chairman of CL Educate and CEO of our EdTech business; and Mr. Nikhil Mahajan, the Executive Director of Finance and CEO of our MarTech business. This analyst call as always will be recorded and archived and will be available in the investor zone on our website in the next 24 to 48 hours. Today, we're using our Kestone Webinar module for the investor call. This module was launched fairly recently and has two-way audio video facilities, though for today's call, we are just using a one-way AV, and you will be able to send in your questions using the chat box on your screen. We'd like to start today's session by giving you a virtual right through our Kestone Metaverse, which we've branded as VOSMOS. VOSMOS stands for a virtual Cosmos or a virtual universe. Some of the early users of our Kestone VOSMOS from a business perspective include some of our regular Kestone clients like Dell and Redington. And we've also had some early international sign-ups for the use of very interestingly, our virtual world art gallery, which we'll also be showing you when we give you a demo of the Metaverse. [Presentation]

That was really quite something. And honestly, the only limitation to the Kestone Metaverse is our own imagination. -- the world is out there for us to conquer. With that, I'd like to invite Satya to begin with his opening remarks. And Satya and Nikhil will run us throughout our presentation for this call, and then we'll come back and take your questions at the end of it. Over to you, Satya.

Thank you, Arjun. Is my voice coming through clearly. So good afternoon, everybody. Nice thing -- Sorry, Arjun. I put my hand on the screen, and I can see the annotation. Okay. So I'll take first 5 minutes to take a little broad picture and share our management commentary. And then thereon, we'll move into the details of it, which Nikhil will take us through, we'll move to the first slide itself, Arjun. And maybe we could make this full screen Arjun? Is that something... So the place where I wanted to spend a couple of minutes and give a complete zoomed-out summary was -- how is it that I'm seeing or we are seeing and especially by putting ourselves in your pair of shoes and then seeking a little bit of a zoomed-out view of the world from Career Launcher, CL Educate's point of view. This captures the story of the last 18 months or so. And as you are aware, one of the significant things that has happened in the last 4 to 8 quarters is the return of a lot of focus on the core 2 businesses, which currently is only EdTech and MarTech and a lot of other [ exits ] and the various things that we had to do, all of those have happened. And we believe that while some of those good things and reflections are already reflected a lot more perhaps will get reflected over the coming quarters. So in short, if I were to talk about what's the management commentary, I would say that it is looking healthy and positive for the coming few quarters. And the contributing factors to those are: number one, Q-on-Q business performance. This is also particularly true in spite of the turbulence that you have -- you must have noticed or witnessed in various such calls that you would have done owing to COVID. It's not that one doesn't know how to deal with COVID, but the transitioning of in and out at each of the waves that we have witnessed is not that easy to handle on the ground when we have to make sure that we strike a great balance between growth of top line and also profitability. That's number one. But we have tried to keep very strong and close grips on the Q-on-Q business performances. That's number one. Number two is on the corporate side, as in the programmatic way in which we have shared with you that we will get to 0 debt by December 22, that's on track. And that's an important part of the turnaround that we have been planning or executing over the last few quarters. Within the core -- the 2 businesses, first, let me cover a bullet or 2 about Kestone and then I'll go into this EdTech as well. As you saw, Kestone has done, I think, a very, very good job. I would use more of understatements than exaggeration being the position that I'm occupying. But from a team's perspective, I greatly appreciate the frugal innovations that Kestone team has executed over the last 6 quarters, especially in her kind of business, which is not so easily prone to reinvention from being a significantly dependent off-line marketing partnership company, events company, the pivoting has been exceptional. And they have already launched the virtual events platform. As you are aware, they've gotten listed among the top 10 in the world. Now they have launched the virtual webinar platform, which we are witnessing right now. We're using our own platform. And as they say, the proof of the footing is a meeting. So you're saying that let's use our platform. And this is going to be taken by the Kestone team to the corporates to do their conferences, their earnings calls, their board meetings and so on as of the many personas or customers that they're going after. The traction, the conversations with the corporate customers of Kestone are looking fairly encouraging. You will hear more about it when Nikhil gets into the details of it shortly. On the EdTech side, One of the things you might have noticed is that we've also began to put out fairly regular updates, if you go to our investor zone both from the Kestone side and the CL side, you will be seeing a lot of things that I'm reiterating here. One of those is about expanding our footprint through the partner's network program that's underway. Those numbers, et cetera, have been shared at various points in time. It will come today also when we get to that slide. So that's significant thing that we are doing. We've also spent last 2 quarters doing a product expansion. So it is done now. It has begun to be taken to the market, and this has included expanding the offerings in the under 16 segment, which is programs for students in grade 10, 9 -- 9, 10, 11, 12 combination foundation programs and so on. The last important thing within the EdTech thing is -- and this is -- this is the inaugural season for the launch of the Central Universities Common Entrance Test. This is 55-university and 4.5 lakh kind of intake. And our anticipation is that this will be anywhere between 20, 22 lakh exam takers within the first year or 2. But as it progresses over the next 3 to 5 years, this is likely to be a 70 lakh, 80 lakh to 1 crore plus exam taker ecosystem that makes it about 5x to 7x the size of IIT-JEEIT or NEET, which are the 2 largest flagship entrance exams, as you know, and about 50x the size of MBA program, which is our flagship that contributes the largest part of the revenue. That's the summary of the broad view that I wanted to share right up front. And as we go into it, if there are more questions that come along with those that might have come right now, kindly make a note of it, send it to us and we'll pick it up quickly after the quick run-through of the presentation. I'll pause there and hand it back to you, Arjun, to take it to the next stage.

Thanks, Satya. Nikhil, would you like to do a quick run-through of the finance and business updates.

Sure. Arjun, will you be making it full screen? Or...

Okay. Can you just check on your screen if there's an icon for full screen in the top right hand corner.

So good afternoon, everybody. I hope all of you can hear me clearly. If you look at this information and the key financial indicators, which are flashing on your screen. Most of them are self-evident. I'd like to focus on a key -- some of the key upgrades or the updates on this. We have seen roughly a 10% increase in revenues for the 9-month period ending December 21 versus the 9-month period ending December '20. EBITDA has grown by 65% and the total comprehensive income or PAT has grown by over 29x as compared to last year. As a result, all the subsequent parameters and the key financial indicators like the EPS, ROE and ROC have seen a significant shift on the positive side of the pendulum. On the balance sheet side, you'll see a dramatic drop in the days sales outstanding from 164 days to 83 days. And we expect that going forward, we will be more -- the needle will keep moving towards a lower side over the next 2 to 4 quarters. As compared to December '20, you would see decline in gross cash from INR 70 crores to INR 58 crores. However, this is accompanied by a dramatic drop of borrowings by about INR 28 crores. So as Satya had indicated, we reduced our borrowings by roughly around INR 27 crores, INR 28 crores. In the intervening period of last 9 months. And we are well on track to become a 0 debt company by December 22. A very brief summary of the key financial snapshot, which I've already shared -- The total revenue has increased by 11%. EBITDA has increased by 64%. Operating EBITDA has increased by 128%, and PAT has increased by 28x. So all the financial parameters are looking healthy, positive and we'll continue to see a positive trend over the coming quarters. The cash position, as I've already shared, the borrowings have declined dramatically. The gross cash has come down marginally. -- and the net cash position is close to INR 41 crores as on December '21 as compared to INR 26 crores in March '21, and INR 13 crores in March '20. So the business, despite extremely adverse market conditions, the COVID impact, we have been accreting cash at a reasonably good pace. We are reasonably cash positive, and we hope that in the coming quarters as the third wave of the COVID and probably, hopefully, the last wave, the next 4 to 6 quarters, we'll see a steady uptick on the revenues, which have come down dramatically because of COVID impact because for almost 24 months now, almost most of our centers except for very small towns have been shut. And that has impacted the EdTech revenues being down by about 30% to 40% from what peak we have achieved in 2019 and '20. A very brief update on the business performance segment wise. I wanted to focus on Q3 to Q3 FY '22 versus FY '21. I just want to preempt one thing. Ours is a slightly seasonal business and [ only ] quarter is one of our low quarters because this is the quarter where -- some of the key exams happen. The enrollment season is low in this quarter. So historically, Q3 is of the lowest quarters accounting for about 20% to 22% of our total EdTech revenues. So a serious comparison of Q3 versus Q2 is not in line. I think we should focus more of Q3 of the current year versus Q3 of the last year, where we have seen a 13% growth in revenue. If you let the overall picture we are seeing in a 9-month period, we are seeing a 14% growth in revenues in EdTech, and about a 9%, 10% growth in revenues of MarTech. However, if you see the profitability in response to EBIT of both, EdTech and the MarTech business have shown a dramatic improvement. Especially in the MarTech business, as the virtual platform contribution to the revenues keeps increasing, we will see a healthy improvement in the EBIT and the EBITDA margins of the business. At the EBIT level, we are seeing that the margin has increased by roughly 1.5x. Over the years to come, we are expecting to keep adding about 150 to 200 basis points to the EBITDA margin as more and more business towards to the virtual platform. A brief summary of the EdTech business. The student revenues are up 9%, the non-student revenues, which had seen a lot of collapse in business in the last 18 months are now beginning to see an uptick with revenues growing 30% year-on-year business. Colleges and universities are also opening up, and they are now increasingly becoming responsive to the student acquisition business. ARPUs are -- in the student revenue business is showing a positive uptick and have now reached almost at a level close to the pre-COVID level. We hope that in the next 2 quarters, the pricing will be back to COVID plus inflation coverage levels. We have seen MBA billing up 21%, Law billing up 17%, BBA and IPM up 43%, international education up 71%, and we expect these positive trends to continue. As we had informed, we signed up for a strategic partnership with Vidya Mandir Classes, which is a leading brand in JEE and NEET for partnering in 3 specific markets to start with, which is Mumbai, Pune and GCC. This has opened newer avenues of business, and we expect that over the next 4 to 6 quarters, the full impact of this strategic partnership will begin reflecting in the business numbers. The publishing and the book sales business has also bounced back. The revenues -- say, last year, the revenues were severely impacted predominantly because of COVID most of the book shops were shut down for almost a full year, and we've received a lot of book returns. This year, things have stabilized, our book returns continue to happen, but the revenue is now beginning to see an uptick. And we will probably, in the next 2 to 4 quarters reach a business level what we were at pre-COVID levels. Arjun, can we move to the next slide? I've already shared an update on the MarTech business. The revenues have grown about 9% to 10%. Profits have increased by 142% Y-on-Y basis. Virtual business, as you see, has grown from USD 1 million in whole of FY '21 to about USD 2.1 million in the first 9 months. So we are broadly on track for roughly a 3x growth in this line of business, but we are extremely positive of sustainable, fast growth in the virtual events business in the coming year to be sustained. You just went through the VOSMOS webinar and the virtual mall, art gallery film at the beginning of the session. The former -- we have done a very soft launch to a select set of existing customers -- has been really appreciated. We have started working with Dell and Redington for exclusive better showrooms. We are doing a formal launch of this product line towards end of February, somewhere middle or end of February, and that's when we expect the larger world know about it, and that's when we will be hitting the market in a sustained way. On the corporate front, a couple of updates. In the last 9 months, we have been successful in liquidating 3 land parcels, which have released roughly around INR 12 crore of cash. On the merger front, the order has been reserved by NCLT, and we are hopeful and positive that over the next 2 to 3 weeks of final order will be released by NCLT, and we will be able to complete the merger by March 31. And we'll keep you posted as things progress on this in the next coming few weeks. I think that's the end of it. We are happy to take any questions from any of you right now.

Okay. Nikhil, Satya, the first set of questions has come from Amit [ Karavat ]. He is asking, despite your meeting with various investors, while the funding deal has not been materialized. I think generally, the basic criterion they look is scalability and uniqueness of operation. What do you think on this 2 points for our company funding in EdTech and MarTech both? Do we have these 2 features in both of our segments?

Okay. I'll take that, Arjun -- Amit, right. So Amit, as we speak right now, we are looking at external funding only for the MarTech business through various PE conversations. And that's on the agenda that's progressing. As I did cover last time, we almost resumed we had to restart it, resume it after Piyush, the President and Head of Kestone business, he recovered from his COVID long layoff. So that's underway. I think the conversations look healthy, positive. I would refrain from giving any time limit to it's happening whether it happen, you take 2 months or 4 months, I won't know. But the conversations are good. And we look at it as a very important milestone from Kestone accelerating her progress. That's point number one. On the EdTech funding, after the last -- in the last analyst call, I did update, but just to reiterate for those who are joining for the first time, we did reach a stage of term sheet with at least 1 PE player, 2 or 3 of them were very actively in discussions. The valuations that they were offering, though they were at a reasonable premium to the current market cap at that point in time or even the current market cap. However, our own view was that it doesn't capture the value that we see in the EdTech business which is now asset-light, scalable, it has turned around. The big assets -- big cash guzzling business have been shut down. We are releasing cash from the assets and so on. So in short, yes, marketing funding is a project live. EdTech, there are other corporate actions and plans that we are working upon, that doesn't include raising PE at this point in time. Back to you, Arjun.

Thanks, Satya. The next question is from Rahul Bhansali. He is asking what exactly are the services that we are providing in Kestone on a recurring basis? Is there a long-term contract that we have signed with customers for these recurring revenues? And then he has some follow-up questions on the Kestone funding. So maybe I'll just request Nikhil to first answer part one, and then I'll follow up with the questions on Part 2.

Yes. Rahul, see, the revenues in Kestone, they are not on a recurring annual contract basis. They are not long term. They are on an event-to-event basis. But we are an impanel service provider. And whenever the particular need arises, we have reached out and we pick up the contract or the project and execute it. So it's not a long-term project. But some projects are yearly, for example, the virtual Dell store contract, which we are now executing for Redington is a 1-year contract, where we have designed a virtual store. We are maintaining it and running it. So that's a 1-year contract. But other than that, most other projects which we execute are not on a -- so these events keep happening or these projects keep happening, but it's not a long-term contract.

Okay. Nikhil, the second question from Rahul is regarding the fundraising. He says the fundraising memorandum mentions USD 4.2 million ARR with a target of USD 8 million to USD 10 million ARR by FY '22. What is the current ARR rate? And what kind of gross and EBITDA margins do we enjoy for recurring revenues? Is it manpower intensive?

So a couple of clarifications. One, Rahul, the document which we had prepared and shared on the investor zone about 9 months ago, at that stage, we were positive that -- and we were at an ARR rate of around USD 4 million at that stage. However, then COVID wave 3 hit, not in India, but also in other parts of the world. And that did slow down not only just the business sign-ups and execution, but also the fundraising initiative. The scale up from USD 4 million ARR to USD 8 million to USD 10 million ARR was contingent on a successful fund raise happening by end of June, which unfortunately, for reasons beyond our control did not materialize. So as we stand today, we are currently able to maintain almost a similar USD 4 million to USD 5 million ARR. There are variations on when we reported because of monthly business variations. It's a B2B business and not a B2C business. So that's one thing we have to keep in mind. The gross margin of this virtual business is close to about 75%. And the EBITDA margins on that business to generate is roughly around between 30% to 35%. As I shared, we are almost on track to increase virtual revenues from USD 1 million to over USD 3 million by the end of this year. And we are extremely positive of sustainable positive growth rate in the coming year as well. It is not very manpower intensive. But like any service business, it is manpower dependent. The new products of VOSMOS, which is -- one of which is the do-it-yourself, which we expect to be the version, which will probably scale up in users over the next 24 months significantly is as the name goes do-it-yourself version, not at all manpower- intensive. So a company, a small company or an individual or a professional can buy an annual license and do it by himself. So those products are in pipeline and are schedule for launch towards the end of February. And that's what the contribution will show in the next 4 quarters.

Thanks, Nikhil. A couple of more follow-up questions on Kestone, 1 from Samir asking how we plan on monetizing this platform going forward and what our target market is? And another from Rahul asking why companies like Microsoft and Amazon use our platform when they have their own platform? And what is the benefit at our platform?

That's a good question because both Microsoft and Amazon find probably our platform more interactive, more friendly. It is more easily customizable and the experience it provides to customers and the users is far better than what Microsoft teams or Chime provides. So I think even for that matter, Cisco has been using our platform regularly. So they also have their Webex system. So I think what we have come up with is a very good product. It's beginning to make headway slowly but steadily. And we are reasonably positive. The scale up will happen and happen very quickly over the next 4 to 6 quarters as more and more divisions in each of these big companies, whether it is Amazon, Microsoft, Dell, Cisco adopt. So I think that's where I will just take a pause on this point. Yes.

Yes, go ahead, sorry.

There was 1 more part to that question, what is our edge in the virtual platform. I think one of the biggest advantage is our system is a 3D system, whereas most of the other competitive systems are 2D system, the experience and the benefit the customer gets or the customer feels is a far superior quality than any other environment. And that, I think, is a critical advantage, which we enjoy over other platforms. Second, the integrations, which we have done for various kinds of tools, probably enable and the data tracking and the analytics, which gives a significant consumer insight from any of these companies' perspective is far superior as compared to some of the other platforms.

Thanks, Nikhil. There's one more question from Swastik where he's requesting an update on the order book for our MarTech platform?

There is no fixed order book. The projects that keep coming, and we don't book order book for -- it's not like a construction project. It is on a project-to-project basis. So at this time, we are even getting projects which need to be executed at end of February. So we have our order book orders already in for months of February, March and for some executions in April, but nothing beyond that. And nobody gives orders 90 days in advance for a marketing event. So -- but I think we're steadily -- we are getting -- the number of projects getting executed on a monthly basis is increasing. And it's -- the pipeline using from the leading brands is reasonably strong and healthy.

Thanks, Nikhil. There's a question from Deepak Poddar about last 7 to 8 quarters where our revenues have been quite range bound between INR 40 crores and INR 50 crores. When can we expect the growth explosion to happen? Satya, do you want to take this?

Yes. I'll take that Arjun. And simply say that I would refrain from saying anything specific about specific numbers for the coming , whether it is 2 or 4 or 6 or 8 quarters, just as a matter of a approach to not sharing the exact numbers. However, as I have mentioned earlier and Nikhil also mentioned, we are looking at a fairly good, healthy runway with a lot of hurdles that have been there for the last 8 to 10 quarters, those have been dissipated. It looks smooth. We need to be focused on both sides, opportunities are looking at us on both sides, MarTech and EdTech. And I would request you to do your own modeling. We will refrain from putting any numbers. But it will be healthy, and we will stay focused on superior growth and superior EBITDA and superior PAT as our key guiding principles.

Thanks, Satya. There's also a follow-up question from Vikram Mehta about when we can expect to see consistent 15% to 20% growth in the company as a whole?

Hopefully, we are underway.

Great. All right. I think that's it in terms of the questions that we've received so far.

One specific unsolicited offer that I would like to make, Arjun, to all the shareholders, especially since there has been a lot of inbound requests coming for us to understand the Kestone platform over the last few weeks. So what we could do Arjun, and I'm saying -- mentioning this to all the respected analysts here that we will try -- we are happy to organize a specific deep dive demo and sharing, which Nikhil can anchor along with the President and Head of the Kestone business, may be in a week or a couple of weeks' time. And if that more questions, more details, more understanding, more go-to-market strategies, and you could have a direct conversation with the leadership team of Kestone also. That is something that we could do. And Arjun will advise all of us based on your request on when could that be organized?

Sure, Satya. And in fact, for those of you who would be interested in such a session, my contact details are on the screen right now as well as of my team members and colleagues, so feel free to just drop me a WhatsApp at the end of this session or an e-mail at the end of this session that you're interested. And I will get back to you with the date and time that is convenient for everyone. That's how you can reach me. So once again, thank you, everyone, for attending today's earnings call, and we look forward to interacting with you at the end of this financial year. We keep you posted on the dates of that interaction. And wish you an excellent weekend ahead.

Thank you, everyone. Thank you, Arjun.