Janison Education Group Limited (JAN) Earnings Call Transcript & Summary

Okay. We might get started. Welcome, everyone. I'm Wayne Houlden. I'm the Founder and Interim Managing Director of Janison. And with me here today is Stuart Halls, our Chief Financial Officer.

Good morning, everyone.

So we might get started. Stuart, do you want to get to our first line. So here's our highlights for the first half of 2024. We've divided these highlights into 4 areas, the financial performance, expansion of our strategic relationships, strong cash flow focus and our leadership changes that are coming into '24 as well. I leave these items for you to read, but the highlights that I would sort of draw you to are the continuing growth in our core Solutions business of 11% in the first half. That's a little bit lower than some of the growth we've experienced previously. We think that that's a seasonal growth that will change and improve in the second half of this financial year and continue to improve in future financial years as well. Also, I bring your attention to our cash flow. At the end of this year we'll -- at the end of 2023, we had $9 million in the bank. That's 51% up from the previous -- on the prior period. Additionally, the new contract that we signed with the Department of Education that we announced just a week ago is obviously a great example of the expansion of our strategic relationships. We've now been working with the Department of Education in New South Wales for more than 20 years. The work that we do continues to grow and expand, the services, the projects that we work on and deliver with them are growing more important each year. And there are still more opportunities for us to work with the Department and expand that relationship as well. So we're really excited by these new opportunities, new contract, which will see us expand even further into the schools, having a very strong relationship with schools, providing the Selective schools -- Selective tests across New South Wales. So the first online version of that will happen in 2025, but we will be doing pilots in 2024 of the technology as well. So there's a lot of work and activity happening in that space already. The teams have mobilized very quickly and have already started the project. We've also seen continued growth in our strategic relation up $2 million in the first half '24. Those relationships with our global assessment authorities are really important relationships, which we believe will continue to expand, and will drive growth in the Solutions business in the future as well. We also have a healthy pipeline of our Solutions opportunities as well. We expect some of those small opportunities potentially to come later on this year. So look, I might then pass on to Stuart to talk a little bit more about our financial results.

Thank you, Wayne. Just looking over what you can see here is a few charts to represent our key financial metrics. Revenue was flat for the first half at $22 million. Underneath that is a mixed results, some really good strong results coming through in Janison Solutions, where we had core growth of about 11%, offset by ICAS, which fell short of where we expect it to be in the first quarter, which we announced back in the AGM. So no new news there, but definitely an impact on the first half as was our Learning business as well, which PBTS was in decline for the first half, but Learning now is contributing less than 10% of the business revenue, still profitable, but a smaller proportion. And yes, as I say, in decline for the first half. In terms of the margin and gross profit, we were down a little bit on gross profit. The mix of revenue in the first half was a lot more weighted towards in-person exam delivery revenue. So similar sort of services sense revenue. But in terms of what that services revenue is made up of was it was more of in-person exam management revenue, which is a lower -- slightly lower margin than where our other software development services or onboarding client services were generally lands at higher percent. So that did have a slightly dilutive effect on our gross margin. In -- as a result of this shortfall in ICAS, we set about our cost review. So we went back -- Wayne and myself and the digital team have gone back and thoroughly reviewed every aspect of the business in terms of costs. And through that process, we've uncovered approximately $2 million of gross annualized costs we've stripped out of the business. That's all been implemented in the first half. A lot of it will obviously fall through in the second half and then onwards in the full financial year FY '25 once it's -- I don't know, all annualized. EBITDA32 came in at $1.6 million, below where we were last year, but for those reasons I mentioned above, slightly lower revenue and -- sorry flat revenue and slightly lower gross margin. And I think the big standout here I'm most pleased with is where our cash finished. We were sitting at $9 million in the bank as of December 31, which was about $3 million -- just over $3 million up on the prior year, December 31 and about a 51% increase. So I am very happy with where our cash landed. In terms of the P&L, so this is a quick summary P&L. Again, I should just stress, all of the numbers here are preaudit numbers [ with a draft ] results. So we'll have the interim statutory reports coming out in a couple of weeks' time, but for now, we don't expect that the numbers will move significantly, if at all, from where they are today. The revenue, as I mentioned, $22.1 million. You can see that it's split between the 2 divisions. We've got a bit more information to come at the moment on those 2 divisional results, Solutions and Assessments. Key highlights within Solutions was that we saw a core growth, which core being everything, but Learning effectively, growing at about 11% with the overall division at 3% brought down by obviously Learning and the PBTS results. Janison Assessments was up marginally when it comes to the business, excluding the PISA for NSP results, but down overall as a combined division. Within there, I should mention AAS and QATs are going well. QATs was up over 20% in the first half. AAS up in single digits, but still growing, which is good. So that's sort of a summary of the 2 divisions. Other than that, gross margin, gross profit, as we've talked about on our previous slide, affected by the huge amount of exam delivery services revenue that we generated in the first half and hence, the slightly lower gross margin. OpEx was also a good result. We're pleased with where this landed to come in just over 1%, I thought it was pretty good given the sort of inflationary period that we're in, particularly around wages, to hold that steady at just over 1% above prior corresponding period. It does have some cost out in there, not a lot, a small amount of the annualized cost benefit came through in the first half, with most of it coming through in the second half. Just to explain, we had $2 million of cost out and a couple of hundred thousand dollars of actual costs to transition or redundancy costs within there. And all this captured in the first half, so hence why not a lot of the benefits flowed through in the first half. And you can see the free cash flow and cash on hand, also very good, pleasing results. Just moving on there to divisions. So you've got 2 divisions of Janison Solutions and Janison Assessments solutions. Just a reminder for anyone who's a bit unfamiliar, Solutions is our B2B sort of enterprise platform clients, contains largely Assessments clients but also Learning clients as well, which is a legacy business that we deprioritized somewhat, that was in decline for the first half, whereas the remainder of the division has been growing at circa 11% for the first half. We'll come on to the reasons why in a bit more detail in a couple of slides' time. And then on the blue on the right-hand side is our Janison Assessments business. This is our B2C or our [ parent ] and school business, product business. Again, down slightly overall, 2%, but with that, you can see ICAS, as we mentioned back at the AGM in Q1 had a slightly lower revenue results for the ICAS and we'll come on to the details in a moment. But AAS, growing pretty well. And QATs also growing well within the sort of other bucket as a smaller component, offset by largely PISA, NSP results within Janison Assessments. So just a bit of detail around the 2 divisions. So Solutions, again, just a very strong growth in the core business, so Janison Solutions platform clients. We were [ in course of ] over the last year, 18 months implementing a number of clients, 2 major strategic clients of note Cambridge and Oxford University press under the sort of banner of global assessment authorities. Those 2 businesses we announced over the past 2 years and have been since building and influencing and growing well. We delivered about $2 million in the first half of revenue for those 2 clients alone, which was up from nothing a couple of years ago. Other clients that we've secured, smaller clients, but key clients were the likes of Finsia, AICD, Sydney Catholic Schools, et cetera. All of those we secured over the past 18 months, 24 months, and have been in implementation mode and they are delivering good incremental revenue of about $0.5 million combined for the first half and helping just hold that growth in the core of the business. One of the standouts for Janison Solutions was we had a pretty major event since the in-person paper-based version of the exam or set of placement tests that we recently secured with the DoE. This is the paper-based version we delivered a very large-scale event, testing over 15,000 students across a number of venues all across the state. And What it does, it really demonstrates Janison's ability to deliver those large-scale events, high stakes events, and they really help lead the way to win the $45 million agreement that we've just secured we New South Wales Department. Learning does make up a component of the Solutions business and Learning has been in decline for a little while. We did a lot more development services work in the prior year, which we're recycling this year, hence why there was a pretty reasonable decline in that business. And as I say, overall, learning there contributes less than 10% to the overall revenue but needless to say we're still down the prior year. And then on top of that, we'll talk about this a bit later on, but we do have a pretty healthy pipeline of large and small platform opportunities within this Janison Solutions business unit, all in various stages of sort of competitive tender process. I'm going to just pass back to you if you want to talk about this.

Yes, a little bit more detail around Department of Education, Selective Skills Placement Tests contracts. It's $45 million of total contract value over 5 years. It commences in the second half of this year. So as I said, previously, the team has already started work on that -- on the project. In terms of transition all of the state's selective placements tests from paper-based delivery to computer-based delivery, that's going to see a much more efficient process for schools. It was a very competitive tender process. But as I said also earlier, it strengthens our 20-year history between Janison and the Department. We are the lead contractor in this project and Cambridge will be a subcontractor that will be developing and designing the actual tests themselves and the items that we see within the test. As we mentioned here, we expect to earn around $5 million for the initial implementation and the additional pilot period. And some of that work will be executed within this financial year. And then there will be approximately $10 million per annum for each of the test cycles that commenced in the second half of 2025. Also, in the year around May 2025 the test cycles will start. So we see that as being approximately a $6 million per annum incremental revenue increase. That being on top of the current income that we own from the Selective Skills processes delivered in paper-based form that we provide as a subcontractor to Cambridge. The revenue includes services that are delivering -- developing and delivering and managing tests, but the proportion of TCV is also recorded as platform license revenue. And that is the digital -- Janison Digital system platform Insights, which is used as the core engine for the delivery of the tests. I believe the tests are being delivered to approximately 30,000 students this year. Did you want to talk about this one?

Yes. Yes. So moving on to the other divisions now. So Janison Assessments, whilst impacted by the Q1 performance of ICAS as we talked about there were some challenging economic conditions. Obviously, we're selling directly into parents and schools, both of which were facing tough conditions in the first half -- sorry, the second half of last year, leading into the sales campaign. And we did see revenue fall just below prior corresponding period of $6 million. But again, reasonably well below where we expected it to be for this year. In saying that, we -- once we were aware of that situation, we set about a cost review and we constrained a lot of costs within ICAS and across the rest of the business to optimize the profit. One thing we should note is that we did intentionally discontinued a couple of subjects within the portfolio of test subjects within ICAS. And that was done as a means of improving our profitability. Some of them are less popular and therefore not as profitable or potentially loss making. So therefore, we did cut some subjects. And so on a like-for-like basis, we actually were marginally up 2%, but our reporting revenue shows, we were just nicely negative. We're still positive on how we think ICAS will pan out in the future. We've got another assessment coming up in this first quarter of FY '25. So in August this year, we've spent a reasonable amount of money, seven figures plus on investing in our technology around ICAS, helping making the ordering process, delivery process better for consumers and also improving our CRM. And we believe from that, we expect to get some growth. We also see growth in international regions as well as in area of practice assessment. That's something else we think will help us drive more growth along with the sort of nominal price rise this year as well to deliver a better outcome for ICAS in FY '25. AAS. It's going well, growing at 2%, has been growing considerably well for the past couple of years and exceptionally well last year. QATs as well as another recent acquisition of ours was a good standout in the first half where we saw about 20-plus percent growth in revenue, and both divisions have a sort of integrated sales and marketing function there, which really allows us to open up our ability to cross-sell across all of our Janison Assessment product portfolio. We touched on PISA before and you would have seen and heard that PISA results were negative on the prior corresponding periods. Part of that is due to around some of the changing policies of the OECD, which means that we are unable to focus on the national service provider model. And instead, we will be focusing our efforts on the international platform model, which sees us provide the software at a country level rather than putting boots on the ground and selling into schools within countries where we were approved to do so. That was Australia and U.K. and the U.S.A. Just touching on costs for a moment. So as we've spoken about throughout this, we went through a process, a pretty rigorous process in the first half, towards the end of the first half to remove a lot of costs and lot of costs came from discretionary areas, travel training, but also from headcounts. We have about 160 FTE headcounts and we saw across many divisions, not sort of real focus but 1 or 2 roles from each area either removed through sort of a more rigorous view of our performance management process or through straight redundancy and also attrition, but we just chose not to backfill temporarily. So all of that has allowed us to generate about $2 million, so 10% annual reduction in our OpEx. And we can sense some costs to actually deliver that in the first half. But we see -- we'll see most of that flow through certainly all through FY '25 but a lot of it, approximately $1 million will flow through in the second half. So really, again, another way we're sort of helping to keep our OpEx down. Just [indiscernible] a couple of key statements, cash flow balance sheet in summarized sort of format. You can see here operating cash flow improved on the prior year. A lot of that is through better management of our debtors. This time last year, we did have quite a large amount of outstanding debt which we controlled now and have better process in place. We spent, sorry, we earned interest this year with the higher interest rates. And we also sort of benefit from some of the timing of our major contract renewals, which fell a bit earlier this year and that saw us land a bit more revenue, just more cash this side of December than we did last year. Another key component of our cash flow which is a bit different this year is our CapEx. So in prior years, we've been spending pretty heavily on CapEx on product development to develop our Janison Solutions, digital assessment platform. And so that was because for the past probably 5 years, we've been in a fairly heavy build mode with now sort of reached the phase where we're in a sort of more mature stage in platform's life cycle and hence it doesn't need as much product development. So you can see there CapEx is down to about $1.4 million. And we don't see any change in that for the second half and it is a reasonably comfortable figure going forward, but that certainly give us an improvement in our cash flow. In the first half as well, we made cash payments for the final cash consideration of AAS, the acquisition made in 2021, and that was slightly higher than the prior year, where we made a payment for the QATs business. And so through that and some financing costs, we see us land at $2.9 million of net cash outflow and that $9.2 million of final closing cash in the bank, which probably as we call out, a very good results for the first half, much improved on the prior year, $3 million up on where we finished in December, about 50%. Looking ahead to the second half, as I touched on with the CapEx, for example, I see this as being a sort of a -- the first half is traditionally a cash flow negative period with the way our cash receipts fall -- second half cash flow generally turns to be positive and we expect that be the case for the second half of FY '24 with the receipt of ICAS leading into the ICAS delivery in Q1 and also just the timing of where our annual license fees fall. On the balance sheet. So again, not a huge amount to call out cash as we've talked about starting out in a much better position than we were last year. Intangible assets have moved considerably down, that's really just because of the rate at which we depreciate or amortize the acquisition of AAS. That was a large spend, and that's what's contributing to the reduction every year in intangible assets and also as well, not having the need to develop the platform as much means they are not spending as much on our products. Another big movement there at the bottom, towards the bottom is the other current liabilities. Again, we completed the purchase of AAS in the first half, and that was a combined cash payment of $1 million, but also a $7 million share-based payment, so in the form of ordinary shares. And that was held as a liability this time last year and hence now being paid out, sees the liability fall down by same amount. This is the final slide, so we'll quickly talk about the outlook and then maybe hand over to Wayne for some closing comments and then Q&A. In terms of where we see the business going, we're pretty happy with where things are looking. We've got a positive outlook on the future for a number of reasons. We obviously now just announced last week the largest deal in our history with the New South Wales Department of $45 million, and that will see us generate income in this second half, small amount of income in the second half but mostly into FY '25 and the large amount of incremental revenue from that too. We're in a good financial position. As I say, we've got a great cash balance with no need to raise capital, certainly not for working capital purposes. And we're moving into the second half, which is expected to be cash generative. And also, as we've talked about, we stripped quite a large amount of cost out of the business. So our OpEx is looking pretty good as well. So we're starting the second half in FY '25 in a good financial position. And as Wayne mentioned, our new CEO, Sujata begins in May, on the first of May. She comes from Cambridge BoxHill, with a great pedigree and a great demonstrated success in growing that business exceptionally well over a number of years in revenue and profit terms. In terms of our divisional priorities, we still remain clear on growing ICAS, and we have a strategy to do so, which is implemented. We have good momentum in our AAS and QATs and we've got that cross-sell opportunity with the integration of sales and marketing. And we will continue to focus on growing our existing clients, so that the large assessment authorities like Cambridge and Oxford and also other key accounts and also converting more deals in the pipeline like the Department of Education deal that we announced last week. And yes, as we say always, we're in a very large addressable market, and we believe that Janison's very well placed to capitalize on that.

Yes. I guess and closing to my comments would be that I'm also extremely positive about the future for our business. The relationships that we're building with these strategic assessment authorities, whether they be international or here in Australia are very, very important relationships and ones which demonstrate that they can continue to grow and expand. Only in a couple of weeks' time, we'll be running NAPLAN. I think now since we will be, I think, the third time that we've delivered to this full cohort of schools in Australia, that's nearly 10,000 schools in Australia that will be using NAPLAN in early in March. We've got a large team assembling in a central location to support that event alongside some of the government agencies that we work very closely with. We also know that we've worked now with something like 3,500 schools. We have a commercial relationship with them through our Janison Assessments division, whether that be through ICAS or through AAS or through QATs, that's almost -- or more than 30% of all schools in Australia that we have a commercial relationship with in B2C type scenario. I think that's a really important fact to consider as we think about the opportunities for our organization. We're continuing to invest in our technology, even though our CapEx seems to be largely reduced because the very large work that we've been doing in building our platform is now complete. We are continuing to invest in our technologies and our services across both the Assessments and Solutions platform. And we see that, that has been very important in terms of growing, being able to create the opportunities to grow that market for Assessments both here in Australia and also internationally. And we think there is quite a lot of potential for our systems products in the international market, particularly the countries close to Australia in the Asian region. So there's many things I think to be positive about. Also, of course, we've taken some cash out of the business. We've looked at very carefully at how we can be more efficient. And that is essentially a little bit of a cultural change, I think inside our organization. You'll see that continue, particularly you will see that continue when Sujata starts. And I think Sujata will bring to our organization a new energy and a new depth of understanding of the assessment market as well, areas in which we haven't been quite so -- been accessing. So there's more opportunities from that perspective as well. So I'm very positive about what the future holds for our business and the opportunities that we will -- that we will continue to execute against. Thanks Stuart.

Thank you, Wayne.

So we'll now hand over to Q&A. So there's actually a Q&A function within Teams. [Operator Instructions] First question here, maybe to you Wayne, how much focus is being given to leveraging our relationship with New South Wales Department of Education and in regards to other states?

There is quite a bit of focus on that, James. The challenge always is each state has their own agendas and their own priorities. But they all do also communicate their projects, what their goals are and the relationships that they have with other states. So it is certainly something that is very top of mind that we have such a strong relationship with New South Wales, but haven't really expanded those relationships into the other states at this particular point in time, and it will continue to be a focus for us in the future.

Thanks, Wayne. Next question for Michael is from the DoE -- for the DoE selective school contracts, how much of that $45 million will be passed through to Cambridge?

I don't think we're able to disclose, that is probably confidential, commercially sensitive, but I would say that it's not a major portion of the agreement. It is small. I think in the past, we've disclosed numbers around what we do when we write questions, and develop tests for other third parties. So there's probably some reference today in previous releases. It's small. It's a relatively immaterial component of the total deal.

Looks like Cameron, you got your hand up. Did you want to raise a question?

Yes, sure. You can hear me okay?

Yes.

Wonderful. Just a 2-parter. First, is the 0% to 5% OpEx growth target for the full year reiterated? And just second, what's the incremental, if there is any, cost requirement to get the DoE contracts severed up given it's obviously much larger than what's already in place?

Yes. Good question. Thanks, Cam. So yes, 0% to 5% is achievable for the full year, especially now with our cost out plans that we've got. Our aim was always to be single-digit growth but no more. But certainly with the cost out we've discovered, we are reasonably confident with where that is. So that's fine.

In terms of scaling out DoE, I don't think so. I mean it's no intention to increase OpEx, that is the sort of reference. We believe we have the people, the teams experience required to implement this project. So we've got the capacity within our existing teams. There are some elements where we'll change a little bit of the nature of the people who we use to deliver the placement tests. There's a little bit of that, that will be required, but the teams are already very much started on the project that we expect to managing through the current resources that we have inside the organization.

Yes. It's pretty well trodden path. We do a lot of large events already through DoE plus sort of clients as well within [ JAN ] Division or [ JAN ] services team. So it's really just around scaling up people for the day, events, venues, equipment.

And we also expect to be implementing efficiencies on this project over a period of time as well. So this is not the first time that we've done this particular style of work. Some of the work that we've been doing with some of the smaller customers over the last few years have actually given us the opportunity to build and development ways in which we can improve efficiencies. And we expect those efficiencies to be applied in this project. In fact, we have applied them to our internal P&Ls to get this particular project already.

I think that is it for the moment unless anyone put any other questions, we might just wait a minute or 2. But otherwise, we might wrap up. Sounds like someone is coming up? Anyone -- any more questions?

No, I think that's it.

Well, thanks again, everybody. I appreciate you joining the call today, and we look forward to talking to you again in the future.

Thanks, everyone. Goodbye.