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

Good morning, everyone. My name is Wayne Houlden. I'm the founder of Janison and Interim Managing Director. With me today is Stuart Halls. We're here today to give you an update on the first half of 2024. Stuart, do you want to move to the next slide? There are sort of 4 key highlights that I'd like to make you aware of before I pass over to Stuart, who will walk us through some of the financial numbers. Firstly, group revenue was flat in the first half of the year. But what has been encouraging is our continued growth in our core solutions business.

Sorry, we can say what sort of growth is it though.

We saw a growth of 11%. And we've also had significant improvement in our cash flow, up 51% for the prior period. We have a number of new contracts that are continuing to demonstrate that our strategies on improving relationships with some of our strategic customers such as the Department of Education in New South Wales are bearing fruit. A new contract, biggest contract, in fact, for -- in the history of our business was signed just a few weeks ago, which was for $45 million over a 4.5-year period with the department to deliver to the selective schools placements tests. So that's great news from our perspective, and we'll continue to drive the relationship with the department, and we already have a number of other opportunities that are sitting in the pipeline related to the department as a result. We also have strong cash flow. We've got a strong cash flow focus throughout this financial year. We've been able to cut significant costs from the business in the first half of the year and those savings are flowing through into the second half and -- I mean, in particular, further into FY '25 as well. So that's certainly good news from our perspective in terms of managing cash as we move forward. And finally, we can confirm that our new CEO, Sujata Stead, will be starting on the 1st of May 2024. She's previously the CEO of Cambridge Boxhill Language Assessment, and her notice period was for 6 months. And we've been unable to -- she's been unable to secure an early release from her notice period. So she'll be finishing up late in April at Cambridge Boxhill and she'll be starting at Janison on the 1st of May. Over to you, Stuart.

Thanks, Wayne. All right. So I'll take you through most of the key metrics of the first half. Just for everyone's benefit, we published the audited statutory interim report today. This is 2 weeks following the draft trading update that we put out to the market on the 12th of February. Pleased to say that all major financials are in line and consistent with what we put out 2 weeks ago. So no change really. Slight improvement with our EBITDA due to an expected credit loss provision on one of our customers that was laid, but actually paid during the audit process. So we were able to release a little bit more profit and we saw EBITDA climb to $1.7 million from the $1.6 million that you've got here. Just for everyone's benefit, this deck is what we presented a couple of weeks ago, so we haven't put out an updated deck. This is largely the same or is exactly the same, I should say, but the financials are largely the same as to what we have in the interim report. Just touching on the key highlights or key sort of metrics of the business. So as Wayne mentioned, first half revenue was tough. We did have a flat first half to the prior year, largely due to ICAS. We saw ICAS was flat in Q1, and that was something we put out just shortly after the AGM, where we achieved just around $6 million for ICAS. We also saw some declines in Learning. We were cycling quite a large period of development work in Learning in the previous year, which we didn't do this year. We've obviously not had Learning as a priority for a while. And so that has been in decline, it did have an impact this year fairly materially. So yes, we came in flat at $22 million versus the prior year. The other thing to note within the revenue was that the mix was slightly adverse. We had a similar percentage of services revenue as we did the prior year, but the services that we did do in the 6 months to this December were a lot more in the area of exam management, so running and invigilating and facilitating exams for our clients, whether payment based or online, and that generally carries a slightly lower gross margin than our typical development services revenue, which is slightly higher. And because of that, our gross profit was down on the prior year, both in dollars and in percentage terms to $14 million and 61%. As I mentioned, we did have a tough first half, and we were aware of that fairly early on in the quarter when we published our ICAS results, and we responded with a pretty rigorous cost review across the business, and that saw us take out a large amount of cost, not just in OpEx, but also some in cost of sales as well, but largely in OpEx, and it's to the tune of about $2 million annualized. We didn't see a huge amount of that benefit in the first half. A lot of it was realized towards the end of the half or came with some costs associated with doing that. For example, redundancy costs where there were some losses of roles, not a huge amount. We probably lost about 8 roles in total, not all redundancies, but 8 roles, some were attrition not replaced and a few were redundancies, but we have about 199 headcount, 160 FTE at the moment. So sort of a small percentage of our overall employee base. But that did see us remove a large amount of cost. And as Wayne said, we'll see more of that benefit come through in the second half, probably about $1 million roughly and then about $2 million in the full year next year. And so as I mentioned, yes, we had a slight difference to the number that you've got here presented on the screen. We had an EBITDA of $1.7 million in the end, which was slightly -- it was in the roundings, but it was a small amount of credit loss provision that we were able to take back after a customer had paid us during the audit process. So that was a bit of a win there. And then just in general, I think the other sort of key takeout that's not on this slide is the cash position. Had a really, really strong cash position at the end of December. We finished just over $9 million, and that was about 50% up on the prior year. So leading into the second half and into a period where it typically is cash flow positive as well, which we expect in the second half. So a very strong financial position for us. I probably won't go through too much of the detail. I mean we did present this a couple of weeks ago, but perhaps for those who weren't on that call, there's a little bit more detail here than we saw in the previous slides. And there's obviously a lot more detail that can be found in the interim report which was published this morning on the ASX. That's our full statutory set of accounts, P&L, balance sheet, cash flow and notes. So there's a lot more information there if anyone is interested or if there's any further detailed questions, I'm happy to take them at end of this or arrange a time later today or throughout the week. But as I mentioned, yes, Janison Solutions within our overall revenue is probably the standout. Clearly, we saw about 11% growth in our core Solutions business. So this is our B2B enterprise platform clients, the likes of AICD, Cambridge, Oxford and so on. We did see the overall business unit go up by only 3%, though, despite that 11% growth in core because of the learning decline that I mentioned at the beginning and also because of a bit of decline in PBTS, international partner revenue -- platform partner revenue in PBTS. On Janison Assessments, the second business unit within our group. This is our product business, our sort of more B2C school and parent business. We saw -- this contains like the brands of ICAS, obviously, as I mentioned, QATs and AAS. ICAS was flat, and that was largely the biggest component of the Assessments business unit in the first half, that flattens around Q1. It's actually starting now again for this calendar year, and it will be recorded in our Q1 FY '25 coming up later on this year. But yes, ICAS results were largely what drove the overall Assessments result. Underneath that, there were some positives as well. We saw Assessments -- sorry, we saw AAS, the business that we acquired a couple of years ago now, which primarily sells scholarships and other sort of progression testing to mostly the sort of upper end of the school market. That went pretty well and it was growing again and has grown consistently over the last couple of years very strongly at double digits in prior years, at single digits in the first half this year. QATs as well was obviously a much smaller component but another acquisition that we made in that division a couple of years ago, and that also grew pretty well in single-digit growth in the first half. I think another standout here to call out here is the OpEx. We -- despite not being able to realize a lot of those benefits that we found through that cost review process, we were able to keep our OpEx pretty flat, so $11.9 million in the first half versus $11.8 million in the prior year. Again, something that we've stated a number of times is our intention to keep that in the single digits, preferably low single-digit growth. And yes, we see, obviously, going into the second half for some of the realization of those cost outs. And then into FY '25, a similar pattern, hopefully, with having OpEx remain at a fairly low growth rate on the prior year. And free cash and cash flow, as I mentioned in the beginning, all good results as well, much lower outflow of cash, down to $1.7 million negative in the first half. That's typically how our sort of first half and second half pan out, we have a negative cash flow in the first half and a positive in the second half due to the sort of timing of customer receipts for ICAS, but also customer receipts in our large enterprise clients that pay us sort of annual contract license fees upfront in and around sort of the fourth quarter of the year. I probably won't go through too much in detail. This is a summary of the 2 business units. Again, this was published a couple of weeks ago and sort of largely what I've just explained on my previous slide. Again, I won't dive too much into the detail of the individual business units that you can read these. If you wish there's a slide on solutions, there's a slide on the new deal that we won. And there's also a slide on our Janison Assessments business unit. But I think just before we go to the -- pass back to Wayne for the outlook, I think just to sort of, I guess, summarize in a -- for the financials, this first half, I think a few things that I'd like to call out, I guess, are the fact that, one, a really strong focus on cash and cash control, being able to go through the cost base and restrict our large amount of cost in the first half was quite pleasing and obviously being able to realize more of that in the second half is something I'm looking forward to. We -- and the fact that we recognized there was a tougher first half approaching us in terms of revenue, and we sort of responded well. We've had cost out was also quite pleasing. The second point, which sort of leads on from that, is just around the cash flow, having finished with $9.1-something-million in the bank, $9.16 million, I think it was, good position, very good position, much improved on the prior year. And obviously, going into the second half is typically stronger, is something that I'm pretty pleased about. And then I think just in general, in terms of the wins, the contract win with New South Wales is obviously a very big win for us, our biggest yet in the company's history. And I think just sort of adds to the number of new wins that we've had and the number of new relationships that we've built with our -- with not just the sort of professional association bodies like AICD and CA Australia -- CAANZ as well, so with these global assessment authorities now, the likes of Cambridge and Oxford and also New South Wales Department of Education. Now on top of that, we do have a reasonably healthy pipeline of deals as well. They are not all as large as DOE, but some quite large and a lot of smaller ones as well. They do take a while to come through the DOE. One we announced recently did take a lot longer than we thought. It was a very lengthy contract process. And that's just the nature of those deals that we do and the customers that we work with, they tend to work at a pace that we would prefer was somewhat quicker, but that's just the nature of those deals. But generally speaking, when they do come and they're won, they are quite large and they are quite sticky as well. So it's worth the investment. So yes, so looking ahead, a good sort of healthy pipeline on top of what's a reasonably stable set of financials for the first half. Back to you, Wayne, do you want to take over?

Thanks, Stuart. Yes. So finally, just I guess reiterating what Stuart was saying with regards to the outlook, we're very much pleased to have this new project that we're working on with the department. Work has actually started on that at this point. And we'll be -- we are working towards trials in the middle of the year of the new online platform for selective schools placement tests. Again, as I highlighted before, we're looking very much looking forward to Sujata starting in May. I've enjoyed my time back at the helm of Janison for the last 6 months, but I'm also looking forward to seeing Sujata take up her position and to work on her strategy for the next 5 years for Janison and I believe that there are lots of opportunities that she has identified already that I think are exciting and will help drive the business in the future. And as Stuart mentioned, too, there's positive momentum in a number of the businesses that we've acquired. We are doing a lot of work around the ICAS business as well to make sure that it becomes cash flow positive from a business perspective as well going into the future, and that's our goal for FY '25. So all up, there's lots of positive things to think about with regards to Janison, and we thank you for your interest and your continued support.

Thanks, Wayne. I think maybe if there's any questions that people would like to put on a Q&A or in a chat, happy to answer any or raise your hand and come up here and we can take some questions. We've got sort of some 15 minutes -- 16 minutes, I think. [ So there aren't ] any questions, I think. There we go. I got a question here from [ Bruce ]. Thank you, Bruce. Can you help me understand where the $2 million in cost savings is coming through in the P&L? FTE reduction, what quantified costs were incurred here? So yes, that's correct. Most of the savings are coming through in people costs. There were some discretionary expenses that we pulled back on as well and a few sort of savings we found through just sort of better engineering, the use of various services and renegotiating things like subscriptions and so on and so. But largely, it was in employee costs. There weren't that many redundancies. There was only, I think, 3 redundancies in all of that. But most of them were roles that had been made vacant through people resigning of their own accord and then not being replaced and sort of either finding a work around or being able to absorb the work within the existing teams. So there wasn't -- of the total $2 million of gross savings, I think it was less than $200,000 of costs to enact that. And a lot of that was recorded in the first half. So yes, there's not a huge amount of cost to go with it. So it's not -- it is a reasonably net number. And yes, there won't be any more costs coming through in relation to those changes in the second half. It will be savings from hereon. But yes, in terms of where it sits in the P&L, largely in OpEx. As I said, there's a few costs in cost of sales, but incremental, I think it was maybe $100,000 or $200,000 in cost of sales and the remainder in OpEx on an annualized basis. Can you walk us -- sorry, another question, thank you, is can you walk us through the nonrenewals in Learning. What is the feedback on the nonrenewals? Yes, good question. I think the -- there weren't that many nonrenewals in Learning. So for everyone's benefit, Learning was the sort of foundation or the genesis of Janison a long time ago. It's a learning management system business that provides software to mostly large sort of blue-chip clients to run their in-house learning. It has been sort of deprioritized for a number of years now, but since we focused our efforts on Assessments probably 5, 6, 7 years ago. And as a result of that, we have seen some renewals every year -- sorry, nonrenewals, I should say, each year. We tend to see 1 or 2 smaller clients fall away as they come to the end of their contracts. This year and the sort of difference in the Learning revenue this year was largely due to development work we did in previous years that we weren't doing this year. So cycling that higher revenue. That sort of made the biggest step change down in revenue. We were doing a lot of content development work in terms of Learning content for one of our large bank clients, and that's something we just didn't do this year. So it was less about nonrenewals, but more about non-repetitive or non-repeating services work. Anything you'd like to add at all, Wayne, in terms of nonrenewals for Learning?

No, I think you've pretty accurately described it, Stuart. It's largely related to that contract services that we no longer continued in -- into '24.

I think the one thing to add about Learning, thanks, Wayne, is that as a business unit, it is very cash flow positive, it's not like it's a drag on the business. It is in decline, and we've sort of left it to continue as it is without a lot of development work or any development work, in fact, and we're sort of just existing -- maintaining the existing clients. So we do expect it to continue to decline. But I think at this point now, it's making up, I think, less than 10% of our total revenue. So it's having a smaller and smaller impact each year as it does. Question here, Wayne, can you see this one? Can you talk through the broader macroeconomic impact on contracts and where it's impacting us in different divisions, contract negotiations, pricing, et cetera? Yes, I think if you take -- break it in -- break the business into 2 parts. So the Janison Assessments business is largely a sort of post sort of business. So on our B2B, B2C product basis in Janison Assessments, we generally resell every year. So there's no contract as such. In general, it's more of a first sort of statement of work. In terms of pricing, we have been on a pretty aggressive price increase plan with ICAS over the last few years, and we've pulled back in more recent years. The strategy is more around regaining a lot of schools, something more of a win-back program. So we have been more careful with price and we left it flat, in fact, this year or for the Q1 in this financial year, so 2023. In terms of our Solutions business, a lot of the clients are on long-term contracts, sort of 3 to 5 years. The pricing is generally locked into that agreement, and there's either a step-up or there's an increase factored in that's sort of amortized across the whole agreement. But we have seen a couple of contracts expire and renew in the last couple of years and one particularly last year in May. We -- sorry, in November, we were successful in putting in a reasonable increase in single digit -- a reasonably high increase in our contract, that was a large -- one of our large Solutions clients. So I think there is scope to do that. Anything you'd like to add at all, Wayne, to that?

I think that's probably a reasonable assessment, Stuart. I mean many of these contracts are often 4, 5-year agreements. We've got CPI style increases factored into those agreements. We -- I think last year, we announced that the 5-year agreement with the Australian government for NAPLAN was being renewed. That's been substantially re-factored in a number of ways to improve not just the pricing, but the way some of that revenue is being recognized. We continue to see many of these large contracts that are very sticky with our customers once they've made significant investments to put our platform in place and to provide assessments on the digital platform, we find that it's a compelling story to continue the relationship with us and to continue to build on the product as we go forward. So we've seen a number of extensions. There's been a couple of clients where their requirements haven't really been able to match our strategic view of what our platform will be providing in the future. So we have, unfortunately, parted company in those circumstances, but those have been careful decisions that we've made with regards to ensuring that the priorities that we have for our platform meet the customers that we currently have and our plans for the future. Well, it looks like we might have come to the end of questions. Do you think, Stuart? I think we...

Yes, we better make this -- time might draw up to close, I think.

Well, thank you very much, again, and we look forward to giving you an update in 6 months' time.

Thank you.

Bye-bye.