Cluey Ltd (CLU.AX) Earnings Call Transcript & Summary

Good morning. Welcome, and thank you for joining Cluey's Half 1 FY '24 Results Presentation. I would like to acknowledge the Gadigal people of the Eora Nation, the traditional custodians of the land we are hosting this webinar on and pay my respects to elders, both past and present. Today's presentation will be hosted by Matteo Trinca, joint CEO; and Greg Fordred, CFO; and they are joined today by Mark Rohald, our Deputy Chairman. [Operator Instructions] We will have time for the panelists to respond to the questions at the end of the presentation. Over to you, Greg.

Thank you, Jane. Good morning. It's my pleasure to present the Cluey Group financial results for the first half of FY '24. During this period, we continue to focus on driving to profitability. This has involved the implementation of further cost savings and efficiencies, CAC improvement and margin improvement. I'm happy to say that we are now clearly on the path to cash flow breakeven and profitability. As we approach this point, we are also very mindful of ensuring that the company is best positioned to transition from the drive to profitability stage to the profitable growth stage. Matteo will speak more about this later in this presentation. Let's start with a recap of the first half of FY '24. Included on this slide are the key metrics for the Cluey Group, which includes the Cluey Learning and Code Camp operating divisions. All metrics on this snapshot are consolidated metrics. Starting at the bottom left-hand side of the slide, variable CAC is the customer acquisition cost to acquire a new student. This includes digital media spend, brand spend and the cost of our sales team. In the first half of FY '24, CAC per new student reduced by 16% on the prior corresponding period to $292. The Cluey Group lifetime value to CAC ratio improved by 25% to 3.6x in the first half of FY '24. This was achieved by the 16% improvement in variable CAC just noted and a 4% improvement in lifetime value. This means that on average, for every new customer we acquire at an average cost of $292, we would generate over $1,000 of lifetime value after paying tutor and instructor costs. The number of active Cluey Learning tutors and Code Camp instructors during the first half of the financial year was over 4,000. As mentioned in previous investor webinars, we have not experienced supply side challenges in recruiting the number of tutors and instructors. On a combined basis, Cluey Learning and Code Camp delivered over 276,000 student sessions, a decrease of 13% on the prior corresponding period. This was due to a considered decision to slow down the rate of growth in Cluey Learning new students as we focus on profitability ahead of growth. This resulted in a $2.2 million and 35% reduction in variable CAC spend compared to the prior corresponding period. The 4 metrics on the right-hand side of this slide demonstrate the continuing improvement in unit economics achieved in the first half of FY '24 compared to prior corresponding period. A 13% decrease in sessions delivered an 18% decrease in revenue, noting that the proportion of Code Camp sessions increased from 21% to 34% of total group sessions with Code Camp sessions having a lower average revenue than Cluey Learning sessions. We delivered a 3% improvement in gross profit margin to 58.3%. This combined with benefits from the cost saving initiatives implemented in FY '23 delivered a 48% improvement in underlying EBITDA. As mentioned on the previous slide, variable CAC is the customer acquisition cost to acquire a new student. In the first half of FY '24, the group variable CAC per new student of $292 was an improvement of 16% on the prior corresponding period and an improvement of 17% on FY '23. At this level of CAC, this now represents an average of 8 sessions payback to recover CAC after funding tutor and instructor costs, down from 9 sessions payback in FY '23 and 13 sessions payback in FY '22. As mentioned earlier, given the focus on driving to profitability in the first half of '24, we continued to prioritize investment in Code Camp customer acquisition ahead of Cluey Learning as Code Camp has a shorter payback period. When parents enroll students in Code Camp programs, we typically receive payment for the program upfront, whereas with Cluey, we incur the costs upfront to acquire the student and only receive revenue on a session-by-session basis as the student consumes tutoring. With Code Camp sessions now accounting for 34% of total group sessions in the first half of FY '24, up from 21% in FY '23, the average number of months to recover CAC for the group reduced further to 4 months. It's worth noting that whilst lifetime revenue, lifetime value and CAC is lower for Code Camp compared to Cluey Learning, the group lifetime value to CAC ratio increased from 2.9x in FY '23 to 3.6x in the first half of FY '24. In the first half of FY '24, Cluey delivered a record gross profit margin of 58.3%, a 3% increase on FY '23 gross profit margin of 56.8%. This improvement in margin was due to a reduction in the average tutor/instructor cost per session to $26, driven by improved optimization of tutor matching in Cluey Learning and more efficient instructor utilization in Code Camp. In the first half of FY '24, average revenue per student session decreased by 7% to $62 due to the increasing proportion of Code Camp sessions at an average 32% lower revenue per session than Cluey Learning. In the first half of FY '24, the group benefited from the cost-saving initiatives implemented in FY '23. Total operating expenses of $13.3 million were 27% lower than $18.2 million incurred in the prior corresponding period. Operating costs as a percentage of revenue decreased from 93% of revenue in FY '23 to 78% in the first half of FY '24. Employment costs decreased by 29% to $7.2 million from $9.9 million in the prior corresponding period. This was a direct result of a 17% reduction in full-time equivalent employees from 155 in June 2023 to 128 in December '23. The reduction in full-time equivalent employees was primarily facilitated by product and technology enhancements to the learning environment, self-service automation and operating process improvements and efficiencies. In the first half of FY '24, employment costs represented 42% of revenue, down from 48% in FY '23. Direct marketing costs of $3.7 million were 35% lower than the prior corresponding period and represented 22% of revenue, down from 31% in FY '23. General and administration costs of $2.4 million decreased by 7% on the prior corresponding period and remained flat as a percentage of revenue. In this slide, we summarized the consolidated financial results for the first half of FY '24. As mentioned previously, revenue decreased by 18% to $17 million as we made a considered decision to slow down the rate of growth in Cluey Learning new students as part of our drive to profitability. Gross profit margin increased 3% to 58.3%. Total operating cost for the year decreased 27% to $13.3 million, noting that we are now receiving the full benefit of the cost saving initiatives that were implemented in FY '23, and the partial benefit of initiatives implemented in the first half of FY '24. As mentioned in the ASX results announcement released last Thursday, we have extracted a further $3.6 million in annualized cost savings in the current quarter, which will start to flow in the second half of FY '24. The full impact of these additional cost savings will flow into FY '25. Underlying EBITDA improved by 48% to negative $3.4 million. The waterfall chart illustrates the financial results presented in the table on the previous slide, demonstrating the positive and negative variances compared to the prior corresponding period. The improvement in underlying EBITDA from a $6.4 million loss in the first half of FY '23 to a $3.4 million loss in the first half of FY '24 was primarily the result of cost savings and efficiencies, CAC improvement and margin improvement initiatives implemented last financial year. This amounted to cost savings of just under $7 million for the first half and more than offset the $3.8 million reduction in revenue as the result of the considered slowing of growth in Cluey Learning. At the beginning of FY '23, Cluey shifted focus from rapid growth to profitability. As you can see from this chart, in each quarter of FY '23, the company delivered an improvement in underlying EBITDA compared to the prior corresponding period. In FY '24, which is the yellow line, you can clearly see the impact of these initiatives implemented in FY '23. From the trajectory of underlying EBITDA in FY '24, you can now see that we are approaching profitability and operating cash flow breakeven. As we now plan to transition to the next stage of sustainable growth, the company must balance cash flow breakeven objectives with sustainable growth opportunities. An example of this trade-off is the growth in the Code Camp U.K. business. Over the last 12 months, we have delivered over 200% revenue growth in the U.K. with a very small team that is at capacity. We have now recruited a dedicated sales manager and additional operating staff. This increase in fixed cost is now required to maintain the high revenue growth in the U.K. In Australia, a similar investment has been made in after-school programs. In the last 12 months, we have increased the number of business development managers from 1 to 5. In the current school term, we are now delivering after-school programs at 163 locations, an increase of over 190% over a year ago. I'll now hand over to Matteo, who will provide a business update and speak to our strategy and outlook.

Thank you, Greg, and good morning, everybody. Today, I'll be sharing the highlights of our first half year performance for FY '24. We're going to focus on the execution of the strategic priorities explained in our last presentation in August '23. As you've heard from Greg just now, we are focused on controlling costs and keeping tight financial control over the organization for the last 18 months. We have cut our operating costs by 27% and improved our operating margin. By combining the sales and marketing efforts of Cluey and Code Camp, we continue to lower our CAC, which has now been reduced by 16%. This has improved our lifetime value to CAC ratio, which now stands at 3.6x. We have updated our customer and tutor hub and introduced new chat features for better communication with our customers. Plus, we have introduced new payment plans for more flexibility and released the latest version of our tutor matching algo To ensure we deliver a cost-effective and excellent learning experience. Our expansion into after-school continues with a proven venue acquisition process. And finally, our first GPT-based application has been released and made it possible to further personalize the customer experience. This has allow us to analyze and translate conversations with customers into insights that are made available to tutors before their next sessions. Central to our customer engagement strategy, we have launched a newly updated customer hub. These hub has been redesigned for accessibility, simplifying the rollout of new products and services. Now any user can access our services without the need for credit card registration, starting with a complementary academic assessment. This opens the door to the addition of a range of services within the customer hub, including our popular after-school and holiday programs. On the customer service side, we have upgraded our engagement tools with new chat features and the revamped tutor hub, which now provides enhanced self-support options for all our tutors. We're proud of our customer service achievements with a 96% same-day resolution rate for customer queries and over 80% for tutor queries. This ensures quick and effective help to all our users. These steps are our commitment to making our customers experience smooth and enjoyable. Let's turn our attention to our new pricing plans, which were introduced about 6 months ago in our last presentation. These reflect our efforts to balance loyalty rewards with flexible access. We need to understand that each family budget and schedule is unique, and we have introduced a variety of payment options to accommodate their needs. These new plans are designed not only to accommodate for customers' diverse financial needs, but also to align with our business goals, ensuring we consistently deliver value. Performance metrics since the completion of our migration to new pricing plans in September '23 showed that we are delivering consistent revenue per student across our Flexi, Saver, and Saver Plus options. These underscores the effectiveness of our pricing strategy, optimized to maintain a steady revenue stream while offering options that cater to various usage patterns. Customers are automatically enrolled into the default Saver plan but have the autonomy and flexibility to switch to the option that best fits their needs. This ensures that each family can find a plan that aligns with their expectations and enhances their experience with our services. The feedback so far has been positive, making things clear and straightforward to all our users. As outlined in our previous presentation, we've been working very hard on releasing our first GPT-based application. This innovation represents a first attempt to integrate this new tech into our product offering and upgrade the experience to all our users. At the core of this strategy, we have always emphasized the importance of data in augmenting tutoring and learning. With the integration of GPT Tech, we've now significantly positioned -- well positioned to elevate our ability to provide real-time insights into every student's current state. So this is how the first application works for the student's first learning session. Phone interactions with customers that have -- that are interested in our product are currently and all is happening with the learning advisers. We are taking these phone conversations, and we're transforming them into text, and we're analyzing that text through our automated GPT application. Through that process, we can extract relevant insights from conversations with parents and students. These insights are then made available to our all our tutors that received this information on each individual student needs and learning program figurations in real time, and these ensure that tutors are well prepared before the first session with those same new students. The next release will focus on all subsequent learning sessions. Allowing parents and students to update tutors about specific areas that need attention through our customer hub without any manual intervention and leveraging the thousands of our learning session recordings that we automatically consolidate into insights. They are then fed back into the system, updating the students profile ahead of their next sessions. These closed loop feedback system ensures that we can continuously improve and personalized learning journeys. We do understand student better. We can deliver more effective tutoring sessions. And ultimately, we want to improve, and we want to deliver through this system, improved learning outcomes. We have realized important savings, as you've heard so far in the presentation. Across various expense slides, starting with a $9.1 million reduction in employment expenses since the FY '23 peak. This marks a 41% decrease since then. This has been largely enabled by our investment in product and tech, which has allowed for an extensive self-help, customer and to the platform, thus requiring fewer personnel in the business. In media spend, we have achieved $7.6 million in savings, a 62% decrease from FY '23. This reduction in marketing spend, which reduces the revenue required to breakeven has enabled us to streamline our marketing investment and extract efficiencies. While the reduction is welcome as we achieve our short-term goal of becoming profitable, we view marketing as an important growth lever once we reach that milestone. Finally, we've also seen a $1.8 million savings in admin expenses, which is a 29% reduction from FY '23. The strategic improvements reflect our commitment to operating efficiently with financial discipline, positioning us strongly for sustainable growth and profitability in the future. As we navigate towards profitability, our journey is now marked by strategic pivot. We need to return to growth. This is how we plan to do that. Our commitment to profitability is not going to change. It's evident in our approach to cost management, which has improved our operating margin. We've now set our sights on sustainable growth and the generation of free cash flow. So these are the 4 pillars that we're going to rely on. We're going to continue to scale the core. We are ready to deploy working capital efficiently to scale our activities as evidenced by our LTV to CAC ratio now exceeding 3x. We want to expand our distribution. We have evidence that our omnichannel approach is effectively broadening our distribution, leveraging our robust customer acquisition capabilities to reach more students across diverse channels. Partnerships were ready to collaborate with complementary providers such as after-school care services, to integrate our unique Cluey Learning and Code Camp offerings and create a more cohesive ecosystem. And finally, our global reach. Our international expansion is gaining momentum. We are -- with our corporate-owned venture in the U.K., growing very strongly, as described by Greg earlier and strategic equity partnerships in discussion in other parts of Europe. This position us in a very strong ground in terms of gaining significant presence in these new markets. With this road map, we're not just aiming for growth, we're engineering a resilient and highly diversified mix of verticals. In the next few slides, I'm going to explore these strategies more in detail. So scaling our core. We have achieved a strong position in our financial trajectory by realizing immediate returns through robust marketing ROI. We now have the capability to acquire new customers for less than $300, showcasing the efficiency and effectiveness of our marketing spend. There's been a 25% improvement in our lifetime value to customer acquisition cost ratio compared to the prior corresponding period, demonstrating better profitability for each new customers that we acquired. Most importantly, we have reduced the time to recover CAC investment to just 4 months. This accelerates our cash flow cycle and enable us to reinvest into growth initiatives more quickly. The faster return on marketing and much lower cost base are a great strategic setup that we want to leverage in the coming quarters as we return to growth. Our hybrid model is highly versatile and diversified, opening up new avenues for growth. In the online space, we've seen strong adoption and engagement in online tutoring, which we have achieved significant optimization of our customer acquisition cost and ongoing improvements in LTV, setting the stage to amplify our marketing efforts and reaccelerate growth. We're also well positioned to expand our online offering with STEM programs that will expand reach and ability to monetize the existing online active customers. Within the school sector, Code Camp has witnessed rapid growth over the last 18 months. Although we have encountered some operational challenges to do the growth that we have experienced, we're confident that these challenges are solvable and they're currently are priority. We see an opportunity to roll out new programs in that space and adapt our existing ones to make them available for in-school and after-school context. These will allow us to expand our rich and collaboration with schools. Our holiday programs have delivered steady and consistent performance, while profitable scale in these programs poses some challenges. The opportunity here is to explore new ways to run these events that cater to specific marketing needs and different audiences, such as secondary school students. And finally, on the retail front, we're exploring M&A opportunities here to include physical learning centers in our distribution channels. We aim to leverage our substantial marketing reach and CAC synergies to attract a segment of the market that prefers in-person or blended learning experiences. School and holiday programs can leverage strategic partnerships with complementary school providers such as OSHC. We have identified key partnership opportunities in this space. We've providers that include integrating our operations within schools to seamlessly offer our services, gaining access to school communities and their clients, which allows for greater market penetration, placing a strong emphasis on child engagement and while being aligning with our core values and enhancing our brand reputation. Cluey adds value to the OSHC providers by addressing the issue of limited differentiation in the more traditional OSHC sector. We bring fresh and innovative educational content. While the majority of OSHC providers are focused on non-academic activities, we bring a balanced mix of learning to their regular OSHC play. Recognizing that OSHC providers might like the resources for comprehensive learning experiences. We come equipped with the necessary skills and curriculum-aligned programs to fill this gap. Our programs can attract a broader audience of students eager for enriching outside of school experiences. We shift the value proposition for parents from just playing to learning, aligning with the increasing demand for educational enrichment in after-school programs. With these partnerships, we're not only expanding our reach, but we're also fortifying our offerings within the school ecosystem. And finally, we're charting new territories in our international expansion by exploring a mix of nonorganic growth strategies, each offering different levels of financial commitment, risk, control and profit potential. In Switzerland, our licensing approach with Code Camp has demonstrated the viability of exporting our educational model, backed by local teams with expertise in delivering successful holiday camps and corporate programs. This strategy has seen strong demand, highlighting the appeal of our unique offering even in small markets. In the U.K., our direct investment has led to the scaling of Code Camp U.K., thanks to the efforts of our local team, we fully boost-up the U.K. market, reflecting our ability to not only enter new markets, but also to achieve sustainable growth independently. On top of this, we're also evaluating JV opportunities in large European markets. Our objective here is to combine our strengths with local operators who possess deep market knowledge and business development capabilities, enabling us to tap into new customer databases while mitigating risks. Our diverse approach ensures that we unlock international growth potential while maintaining the integrity and focus of our local Australian operations. This is -- the strategic exploration is core to our vision of becoming a global leader in education. Thanks for following us thus far. Now we will be happy to take any questions.

Thank you, Matt. Thanks, Greg. We have a question, which is, which strategies or vision will enable the business to grow to 10x its current size. Matteo , would you like to handle that question? And I'm happy to comment as well.

So our objective, as we just went through, has been about resizing the business for profitability. And as you see, top line has paid some sacrifice, but the bottom line is greatly gaining momentum. Once we reach the breakeven point, and we initiate the free cash flow generation that we just presented just now, we think we can benefit from an accelerated operated leverage within the business. It won't take that long to get to that point, which will allow us to accelerate investment in marketing, as I mentioned in the first pillar in terms of growing the scale, we were benefiting from a 3.6x return on every dollar that we put in, in the marketing, in the media spend. We are talking to strategic partnerships in the after-school and holiday camp space that can definitely accelerate our growth. We are in advanced conversation for our European expansion with some JV opportunities in Central Europe. And we cannot forget that product becomes the core strategic advantage that we hold, and product needs to continue to be central to our investment strategy to continue to expand our offering and to tap into avenues for growth that at the moment are not available. So I think the simple answer that I can give to you how we're going to 10x the business is we have to play a multilayer investment strategies that will allow us to leverage what we know very well in terms of cheap marketing activity, low acquisition cost, but high return on that investment with some medium long-term opportunities such as the partnerships in the after-school and holiday space as well as the international expansion.

Thanks, Matteo. I would add one comment to then, that is, we've spoken for some time now about leveraging an omnichannel strategy. We've identified some key opportunities in the learning center space, which would enable us to leverage all of our existing assets being the content, the curriculum, the online learning platforms to deliver an integrated hybrid learning model at a much more cost-effective level. And obviously, that is subject to M&A, and M&A subject to capital markets being open for us to gain access to the capital required to acquire these businesses because there is only so much we can grow organically, we need to be able to leverage some of these M&A opportunities as well. I don't have any further questions. Are there any other questions anybody would like to ask if there are, please would you post them in the Q&A box. I think that's all. Thank you very much for your attendance at today's session. And thank you, Matteo, and Trevor for all the hard work that you guys have been putting in. And we look forward to our full year results that will be out not that long from now. Thanks, everybody. Bye.

Thank you.