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

Welcome to our update for the first half of FY '25. Our focus remains unchanged. We're working hard to achieve free cash flow in FY '25. Disciplined cost management and returning the business to top line growth are the two key operation projects. Operating costs continue to show year-over-year and quarter-over-quarter reduction. And our leading growth metric New Students has not only turned positive in Q2 FY '25 for the first time in almost two years, but it is coupled with a 41% reduction in CAC achieved in the first half of FY '25. We're optimistic about the current peak enrollment period and look forward to further improvements. I will let Greg take you through our financial performance before returning to discuss the operational highlights of the quarter and the outlook for the second half of the financial year.

The hard work completed over the last two years in transforming the business has positioned Cluey well to take advantage of the increased demand for our services during the peak enrollment period experienced in the third quarter, which aligns with the commencement of the new academic year. As you can see from the chart on the left-hand side of this slide, the EBITDA performance improvements have been achieved consistently over successive quarters when compared to the prior corresponding period. Cluey has now delivered 10 consecutive quarters of improvement in EBITDA against the PCP. In the first quarter of FY '25, Cluey achieved an underlying EBITDA loss of $500,000 compared to $2 million in FY '24 and $3.4 million in FY '23 demonstrating the improved financial performance over the last two years. In the second quarter of FY '25, Cluey achieved an underlying EBITDA loss of $1 million compared to $1.4 million in FY '24 and $3 million in FY '23. The decline includes underlying EBITDA in the second quarter of FY '25 from the first quarter, reflects the typical end of the academic year seasonality of the Cluey business. During the second quarter, Cluey Learning's year 12 students complete their tutoring with Cluey ahead of their final exams in October. Many other students paused their tutoring after the conclusion of their year-end examinations in the lead up to the summer school holidays. Our Events and Experiences business unit experienced a softer second quarter due to the later start of New South Wales public school holidays, which resulted in less than a full week available between the end of the school term and Christmas for holiday camps to take place. This resulted in the delay of some school holiday camps until January. It's also worth noting that in FY '25, the comparable underlying EBITDA quarterly profile differed from that in FY '23 and FY '24, primarily due to the implementation of extensive cost-saving measures in those periods. For the first half of FY '25, Cluey delivered an underlying EBITDA loss of $1.5 million, achieving a 55% improvement compared to the PCP. This was primarily due to the impact of cost-saving initiatives. Revenue in the first half decreased by $3.8 million on PCP due primarily to management's strategic decision to reduce spend on customer acquisition to prioritize cash preservation. Total cost savings of $5.7 million were achieved in the first half when compared to PCP, more than offsetting the revenue reduction and delivering an improvement of $1.9 million in underlying EBITDA. The chart on the right-hand side includes the same data as the chart on the left-hand side, but plotted on a single line. This illustrates the significant progress made over the last 2.5 years in driving towards profitability. The chart on the left-hand side of this slide illustrates cash payments in the blue line and cash receipts in the orange line over the last 10 quarters. What is important to note is the narrowing of the gap between receipts and payments, particularly over the last 12 months. Significant cost savings in cash payments have been delivered derived from initiatives implemented in FY '23 and FY '24 as the company's focus shifted to driving towards profitability. In the most recent quarter, cash payments to full-time equivalent employees continued to decline to 35% of total payments, as we continue to leverage internal operations efficiencies and technology improvements. While cost reductions have been generated across the entire organization, a large driver of this reduction is due to the overall reduction in full-time equivalent employees over the last two years, as seen in the chart on the right-hand side of this slide. In December 2022, Cluey had a total of 198 FTEs, down from a peak of 224 in July 2022. Since then, through continued investment in product and technology that enabled efficiencies in business operations, we have reduced the total number of FTEs to 105 in December 2024. This is a reduction of 93 FTEs or 47% since December 2022. The number of FTEs in our head office supporting the four separate business units has reduced by 41 FTEs or 47% since December 2022. At this level of head office FTEs, the company is well positioned to support growth in New Students without requiring additional head office resources. Over the last two years, we also increased the number of FTEs supporting our U.K. business to nine. The U.K. business is on track to deliver more than $1.5 million in revenue and over $700,000 in contribution this financial year. The reduction of overall FTEs is one of the significant drivers of the improvement in our cash payments and profitability. At the end of December 2024, Cluey had total cash on hand of $5.5 million. The company is confident of and remains focused on achieving its pathway to profitability with its existing cash reserves.

Thank you, Greg. Let's dive into our operational performance, where we're seeing positive progress in both growing our student base and optimizing our cost efficiency. New Students have returned to positive year-over-year growth. In quarter 2 FY '25, we reached a turning point. Looking at the graph, the journey we started in quarter 1 FY '24 with internal restructuring and large reductions in marketing investments has come to an end. We have staged a solid recovery. And while quarter 2 FY '25 is just 2% up year-on-year, this positions us well for a stronger growth rate that we're now experiencing in the current quarter. On the cost side, we continue to improve our customer acquisition costs. Since 2023, the cost of acquiring new students has dropped from $348 to $171, reflecting more efficient marketing and more effective acquisition strategies. Why does it matter? The last 24 months have been about addressing the profitability issue of this business. Addressing that has meant sacrificing top line growth while preserving cash. This number has now shown that we have the ability to acquire new students at a customer acquisition cost that is 51% lower than two years ago, supporting the business to get to positive top line revenue growth in the near future. The year-on-year revenue performance shows that we're closing the gap to the previous corresponding period and getting ready to return to growth mode. Decline in year-on-year revenue growth is finally easing, and we continue to see this upward trend in the current quarter. When we look at our performance highlights from January and February 2025, we continue to see evidence of positive momentum across the group with three business units out of four in growth mode or about to go back into growth mode. Q3 is a critical time for us. It's a seasonal peak for enrollments in online tutoring and after school projects. As school kicks off the new academic year in late January and early February, this is when families turn to us for educational support. Let's dive into the numbers. Across the company, we're seeing real progress. In quarter 3 FY '25, so far, we have surely reduced our viable customer acquisition cost, or CAC, to around $141 down from $175 last year. This means we're spending much more efficiently on marketing and seeing returns faster. Most importantly, the company is returning to revenue growth. Our forward order book is looking positive, and we expect revenues to exceed those of the prior year in and around March this year. Our online division is recovering positive momentum. New student enrollments are up by about 14% compared to last year. Session frequency has increased by around 4%, and student retention has also increased by approximately 6%. School and partnership enrollments here dipped slightly, down about 4% but higher average prices have more than made up for it. We're forecasting Term 1 revenues to increase by around 2% compared to last year, with customer retention up by 19 percentage points and venue retention up by 26 percentage points in the division. The summer holiday camps business saw fewer enrollments due to shorter holiday periods and cost of living challenges. Even so, we improved our contribution margin by 4% through careful cost management. In the U.K., Code Camp continues to post strong growth rates. Enrollments and school locations are growing and revenues are up by about 33% compared to last year. Thank you for your time and interest in watching this presentation. If you have any questions about Cluey's H1 FY '25 financial performance, we encourage you to submit questions using the ask a question feature in the Cluey's Investor hub. Thank you.