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

Okay. Good morning, ladies and gentlemen. And welcome to Janison Education's FY '24 Trading Update and Investor Presentation. Today, we're joined by Sujata Stead, the relatively new CEO of Janison; and Stuart Halls, CFO. We refer you to the FY '24 trading update investor presentation lodged this morning with ASX and just remind you that Janison will lodge its full year results audited on the 19th of August '24. This morning, we'll kick off with Stuart, who will take us through FY '24 unaudited results. Then Sujata will take us through some initial impressions after 3 months in the business and give an update on the development of Janison's new strategy. [Operator Instructions] We will address these questions at the end of the webinar, and we may also open the webinar to live questions from research analysts. I would like to then hand over to Stuart, who will take us through the FY '24 financials.

Thank you, Steve. Good morning, everybody. As Steve mentioned, I'll take you through the unaudited financials. And the audited financials will be released on the 19th of August with our annual report. But for now, we have, what we expect to believe, the final set of figures and again, unaudited. Just kicking off with a summary of our highlights for the year, for FY '24. As you can see there, some notable wins and achievements during the year. I think the main thing to say for the year that just went was that it was somewhat of a custodial year. We had quite a bit of change in our leadership. We had a new CEO join us in May, but there was a period of time throughout the year where we had an interim CEO in the form of Wayne Houlden, who's our Vice Chairman and Founder of the company. But nonetheless, despite that sort of turbulence, we were able to record some pretty good wins. Starting off with revenue. Modest revenue growth, we had 5% growth in total revenue for the group, up to $43 million on $41 million in the prior year. Underneath there, there were some even stronger results as well. So within Janison Solutions, which is our learning and assessment platform business, we actually saw a 16% growth in Insights, which was great. And that was driven by, as you can see the next one, our win with the Department of Education, which was a preexisting customer but a new contract, and it was our largest contract that we won in the company's history, $45 million total contract value over the 5 years. And that really helps cement our relationship with the New South Wales Department for a number of years to come. With that contract came quite of a large uplift in our services revenue. So it was the delivery of the selected entrance exams in New South Wales. And that services revenue, like most services revenues, is typically a slightly lower gross margin than the rest of our business, which is in the high 70%, 80%, and particularly, in the next point there, you can see Janison Insights business' platform margin was 85% in FY '24, consistent with the prior year. And so with that additional services revenue that we acquired from New South Wales Department of Education, that actually had an impact on our overall gross margin by bringing down the number from 62% last year to 59% in FY '24. Another point to note, I think, is that our operating expenses were quite modest as well this year. We managed to complete the year with only a 3% increase in OpEx, which was about $700,000, again, a good result in the current environment and also, I think, a number of increases in investment that we made in the business during the year. And I think the final point to note really just on this page is just our cash position as well. We managed to close the year with just over $10 million of cash on hand, so a pretty healthy cash balance to take us into FY '25. One of the final points, I think, as well is that in recognizing where our EBITDA finished for the year, we undertook a cost exercise at the end of the year, in early July, which is now in effect from August this year, and that will see us with some substantial savings that will allow us to invest in growth in FY '25. Just moving through to the next slide here, you can see sort of visual representation of our historical performance across the sort of key financial metrics. Revenue there growing relatively consistently over the last 4 years from $30 million to $43.1 million in the final year just gone. Underneath that, solutions revenue being a particular standout at $28 million, and again driven by the New South Wales Department of Education contract I just mentioned. Assessment revenue was certainly challenged in FY '24. We had assessment revenues, our branded school products, so test items like ICAS, AAS, QATs. We did see some growth in AAS and QATs, some marginal growth, single-digit growth, but our ICAS, like core products within assessments, was flat year-on-year. So again, that's what drove the result in assessments. Gross profit, as you can see on the bottom left there, took a bit of a dip in FY '24, so from down 62% to 59%, really because of that mix shift in the revenue for the year, so growing our services revenue, which is a critical component to what we offer our platform clients. The services, our associated exam management or implementation professional services that go with our platform, a core component and something that really helps retain our clients, is a typically lower margin than the, say, platform license income. And therefore, having a sort of higher proportion of that this year really impacted our margin by a few points. And then just in the middle, you can see the EBITDA results. So positive for the last 4 years, a good result. That's nonetheless 20% down in FY '24 and really a product of modest revenue growth and of that revenue being largely services and lower margin, coupled with a slight increase in operating expenses. We did see a reduction in EBITDA. And as I mentioned on the previous slide, assessing this result, we did undertake a fairly large cost-out exercise throughout the last couple of months, which took effect at the beginning of August this year and, as I say, will enable us the headroom for investment in growth in FY '25. Just moving through income statement, most of which I've largely talked through. As you can see there, Janison Solutions revenue growing relatively well. Sort of high single digits, 7%, driven by that New South Wales revenue, which was driving the Insights business within solutions, up by 16%. Janison Assessments revenue, as I talked about, flat at $15 million year-on-year. As you can see gross profit there, we talked about 59% from 62%, 3 points down on the prior year as a result of that mix in revenue changing this year, being more services revenue weighted. Operating expenses, I've touched on briefly. We were able to actively control our costs throughout the year, and we ended up with a 3% increase on the prior year. The thing to note there within that is that we did actually invest reasonably heavily in our sales and marketing in FY '24. We also invested in our product enhancements, so minor feature functionality improvements on the assessment platform and also on ICAS. And so despite all of those larger increases, I think it's a pretty reasonable result that we managed to only come in at 3% above on our operating expenses. And then just moving through to the final slide here. So on our cash flow, as I mentioned, we finished the year with $10 million in the bank. It was down the prior year by a couple of million dollars. A couple of drivers of that. One is, obviously, we had $1 million acquisition payment this year. That's the final payment now. So we purchased a business called AAS a couple of years ago and the staged earn-out acquisition payments were completed in July 2023. So we saw our final payment come through in this financial year. It's all done now, and that's completed for that acquisition. Another point to note here, as a positive, we did do some rationalization of our office spaces across the country in FY '24. And we saw a reduction there in our lease costs, so from $1 million down to $200,000. And I think just coming back to our operating cash flow as well. Obviously, there's a reasonably large reduction in operating cash inflow. We went from $5.4 million down to $2 million. As I mentioned, revenue being highly sort of services weighted and the increase in expenses and a little bit of timing with some of the work in this year contributed to that reduction in operating cash flow. But on the whole, as I say, we were able to finish the year with a healthy cash balance of about $10 million, as mentioned in the previous slide around the cost-out exercise, really setting ourselves up for a strong FY '25. And that's it for me. So I now hand over to Sujata.

Good morning, everyone. My name is Sujata Stead, and I'm the new CEO of Janison Education Group. I've been in the business since the 1st half May, so exactly 3 months. And in my update, I'll basically be giving two updates. One is very much what's my impression, my first impressions, of Janison, having been in the organization for 3 months; and secondly, very much what my focus has been in the last 3 months and also in the near-term future. In terms of my initial impressions, I come from the assessment sector, having worked in high-stakes assessment globally in India, in the U.K. and Australia for over 20 years, and having been very familiar with Janison for the last few years. So bringing that outside in perspective, I think some of my views of Janison as a customer on the other side are confirmed now having worked in the organization for the last 3 months. And foremost to me, I think, it is an amazing organization. It is at the forefront what we do. It's one of the pioneers in education technology coming from country New South Wales, long before education technology became a cool buzzword. And so as an organization, it has got this amazing track record of delivering high-stakes assessments at scale reliably across the world, in Australia and overseas. And what's very, very impressive for me is the list of blue-chip clients, both in Australia and overseas, and the exceptional customer relationship. I've spoken to quite a large number of customers and stakeholders and organizations which work in some capacity or the other with Janison. And what actually resonates with me is the feedback I'm getting consistently from almost all our customers, it's the excellent relationship that Janison has with our customers. So I definitely see that as a key strength of Janison, our people-to-people relationships, the trust we build and the great reputation that Janison has of being a solid organization, delivering high-stakes assessment, true technology in a very reliable, scalable and resilient manner. And of course, that means that as a result of that, if you look at the last 4 financial years, across 4 years, Janison has delivered over 30 million assessments in Australia and globally. And of course, all of that is underpinned by our staff. For any organization, I think what makes an organization special is its people. And what, I think, resonates with me is our people, the staff in Janison, who are highly committed and very passionate and very much driven by the organization's purpose. And that really, really excites me as a new CEO, to be leading an organization with very committed and passionate workforce. In terms of some other initial impressions, of course, is that while Janison has been able to do some amazing work in Australia, whether with NAPLAN Australia-wide or with the Department of Education in New South Wales. These are some amazing kind of experiences and track records that Janison has. And from my perspective, I think there is opportunity to scale up these kind of opportunities and replicate them in Australia, in other states and territories, or across the world. What I see is that digitization of education, in particular, K-12 education, in some ways, Australia is at the forefront, especially if we look at how NAPLAN is delivered across the country through the Janison platform, what in a manner way it is online but can be delivered on computer off-line as well in those parts of the country where Internet connectivity could be a problem. But yet being able to kind of deliver an exam through a digital platform across the country is pretty much at the forefront of what organizations and countries are doing. And Janison has that opportunity to be able to kind of take our successes here and replicate them globally and help education sectors across the world in their digitization effort. But having said that, of course, as you know, there are two parts of Janison. There's the organic part, which is our platform, but we've also acquired some content, some testing, over a couple of years. Some of these acquisitions have not delivered as planned. Now in terms of our environment, like most sectors, Janison is operating now in an environment, which is very fast changing, far changing for a number of reasons. There are more competitors. The demands of the market and customers are changing. And of course, the onset of new technology like AI is going to be changing the sector dramatically. And of course, AI will be seen as a disruptor but it could also be seen as an opportunity, an opportunity to kind of deliver greater operational efficiency, deliver greater customer experience. But overall, what we are seeing is that we are operating in a market which is in a state of flux. And I think from the way that Janison operates point of view, I think one of my observations is that Janison has been very much overly focused on annual short-term goals, so very much an organization driven by the annual plan. And what I would like to bring to the organization, which I'm introducing, is a good balance of, yes, focus on your annual plans and targets but also have a longer-term vision and strategic direction. So very much through the strategic review exercise that I'll talk to you in a couple of minutes about is very much making sure that giving Janison the north star, a set of goals to aspire to, what the organization is going to be in the next 2 to 3 to 5 years to realize its full potential, and to be able to achieve that, what do we do in year 1, year 2, year 3 and so on, so make sure the organization has a good balance of annual goals and short-term goals balanced by the long-term visions and the road map. And to me, I think all of this means, I think where I'm sitting at this point, what I see is an amazing organization with a great product, great platform, and great track record with customers. The organization can, yes, get better at replicating what we do well and scale them up and find more opportunities. Look at the acquired side of the business and see how do we make sure that they realize their full value acquisition vision as well and very much looking at very hard organization that has a longer-term way of working. So in essence, what I'm saying is that there's an opportunity at this point with a new CEO to actually reset and refocus the organization, and how we can best do that is by simplifying the organization. And very much, I think my observation is that Janison has been operating as 2 separate organizations, the organic part and the acquired part, and very much there's an opportunity to work as one single cohesive organization to unify all of us, to simplify our story in terms of what Janison stands for, what value we bring to our customers and to be bold. And I think being bold is important because what Janison has achieved actually, from my experience in this industry, very few organizations have been able to achieve what Janison has. And there are opportunities in the market, and it's a time to be bold and be confident about what we've done and, on the basis of that, also be able to carve out a vision for the organization, the future for the organization, which is bold and ambitious. In terms of my focus for the last 3 months, very much, again, as I mentioned, there's the balancing of the annual plan with the longer-term vision and strategy. And that's pretty much been my focus in the last 3 months. So what we've done is we made sure that we started FY '25 with a clear set of goals and plans of how the organization, in this current financial year, starting from 1st of July, we steer it to as a part of sustained growth and performance uplift. And one of the must-dos. So it's very much the must-dos in terms of how do we ensure as an organization, we have the right foundation on which we can scale the business. And by foundation, I mean, do we have the right governance. We've just launched an EPMO, an enterprise project management office, to make sure that we are delivering our goals to plan using best practices, and we are being able to track them in a timely manner. So it's about the cadence, how we are meeting the right ways of working, so making sure we have a solid foundation, then making sure we do have that laser-sharp focus on our customers, whether it's the existing customers and bringing in new customers that the organization is very much driven by customer is at the heart of everything we do. Then making sure our product is best in class and competitive. And all of them underpinned by bringing our people on the journey and making sure that they are aligned to our goals and all of us are rowing in the same direction. So that's very much the focus for FY '25 this current financial year. But while we are doing that, in parallel, we are also engaging on a strategy update exercise, working with a strategy consulting firm called Nous, who is well established in Australia but also in some of the key markets where there are opportunities for Janison like North America and the U.K. and very much working in tandem, looking at very much what the future direction of the organization needs to be. I'll talk a bit more about that a couple of slides later. And I look forward in September 2024, sharing the updated strategy with the market. Now in addition, I think what we've also done in the last 3 months is a strategic restructuring. And this is very much from the point of view as from the organization from a size point of view and a leadership structure point of view, making sure that are we actually structured to ensure that we are providing that leadership and the laser sharp focus and all of us are being able to kind of guide the organization towards a part of sustained growth and success. So what we've done is I've actually reshaped the entire executive leadership team across the whole organization in a manner that we are moving away from executives who are very much product-focused to function-focused, which means an executive team, which is focusing on the whole of Janison outcomes. And so we've set up 5 business units. You have sales and marketing, very much the customer revenue-driven part of the business; service delivery; product development and technology; people and culture; finance, legal and risk. So this means that now we do have this amazing executive leadership team, who all of them collectively are accountable and have the focus on customer and product excellence, on growth and efficiency. And also as part of the reshaping exercise, we've had to make some very hard decisions to reduce our workforce, to make sure that we are creating the headroom so we can invest in the areas where Janison needs to invest to make sure we are being competitive, and we are growing the business. And just the last couple of slides, I just thought I'll give you a bit more insight into exactly what kind of work we are doing with the strategy update. And the overall objective of the strategy update is very much to define our future strategy to enable us to deliver sustained growth, performance uplift and position us to realize our potential. And the approach we're generally doing is that we are splitting up this entire exercise into three stages and making sure that the whole exercise we are consulting with the market, whether it's our customers, our suppliers, our investors, our staff and the Board and making sure that it's not just now helping us with the strategy update exercise, then bringing the insight, but we are very much taking feedback from the market and our people in general. And then the first phase, what we're doing is very much doing an as-is review of Janison, where the organization is right now, what our strengths and opportunities are and equally, what our weaknesses and threats are. Looking at the market in terms of the disruptions happening in the market, the changes, our competitors and so on. Then on the basis of that analysis of as is, we are also now looking at the future options for Janison, and the future options that we are looking at is what the possible options could be for Janison to realize its market opportunities based on the as-is analysis and doing the financial modeling for each of them. And then, of course, on the basis of us sitting down together, choosing the right path for Janison, and defining what Janison's future strategy is. And more importantly, to be able to achieve that strategy and the vision and goal for the organization to realize its full potential, what is going to be the operating model for the organization, ensuring that it's not just a strategy, which, in some ways, is the easier part, but are we actually kind of organized in terms of our capable teams, in terms of our infrastructure, all of them, to make sure that we have the right operating model to deliver on these goals. And as I mentioned, the strategy review is well progressed, and I'm looking forward to sharing the updated strategy in September with the market. At this point, what I can share with you is some initial findings from the strategy update exercises. So I just thought I'll share some key highlights in terms of our advantage, why our customers value us, what the market is looking like and where the growth opportunities for Janison is. Now in terms of our advantage, of course, our biggest competitive advantage in terms of why customers value us is in terms of our unique combination of our technology platform. That's very much Janison Insights, which has a strong track record of delivering scalable, equitable, large-scale remote assessments globally whether in Australia or across the world. And that track record is something which customers really value. There are not many organizations across the world who can do what Janison has done. And of course, the other areas that customers value in terms of what our competitive advantage are is also our Australian heritage. Because Australia is a market which is at the forefront of K-12 digitization and something which other similar countries value the experience, so our Australian heritage is deeply respected. But at the same time, we have the global reach of delivering our exams to the Janison platform in across 100 countries in the world. In terms of the market, what we found is the market both in Australia and globally is expected to grow over the next 10 years. So there will be double-digit growth, and this is driven primarily by two reasons. One is the increased use in assessments. And the other one, of course, is what we will see over the next few years, from next 2 to 5 years, the increase in the digitization of assessment, the hold into an assessment from the development to delivery to marking to analysis of assessments. So there will be opportunities. As I mentioned, what we're doing in Australia is something that other countries are just starting or thinking. It's a good opportunity for Janison to be part of those conversations in key markets that Janison wish to operate in. The other thing, of course, is advancement in AI and other technologies will accelerate the pace and scope of assessment digitization, which will create both opportunities and a source of potential disruption. And we at Janison are very much looking forward, and we've already started working on developing our own AI tools to ensure that we are able to harness the power of AI to deliver operational efficiency, both within the organization and also to our customers who are very much looking forward to it. In terms of growth opportunities, the immediate growth opportunity is very much leveraging our assessment technology solutions, so very much the work that we are doing with our solutions platform, delivering assessments globally. There's an opportunity for us to increase the depth and the width of engagement in the market, whether in Australia or overseas using our platform, which has got this amazing track record. And that could be very much kind of looking at certain sectors like K-12 and making sure that we penetrate not only the Australian market, but globally replicate successes across the globe but similarly also moving to other sectors where Janison already is working, but there's an opportunity for us to further increase. So we see there's an opportunity for us to increase the depth and breadth of engagement across sectors and across geographies, using our platform. And secondary, of course, we are also looking at very much giving consideration to the growth opportunities for 2 of our star content products, which is ICAS and AAS, and we'll be exploring very much growth opportunities for these 2 products, both in Australia and globally. So that's very much kind of a very quick summary from myself at month 3 as a CEO in terms of my initial impressions, the work we are doing and some initial insights from the strategy update exercise. And I very much look forward to engaging with you and sharing the updated strategy in the coming months. And that is the end of the presentation for now. But if you have any questions, we'll be very happy to answer that.

Thank you, Sujata. Perhaps I'll ask the first question. And it was just in relation to the restructuring that was done in July. Can you provide a bit more clarity around what that will look like in terms of what to scale, annualized savings and similar.

In terms of numbers, it was a reasonably material change. We had about 38 roles that were made redundant from the business July, August this year just gone. In terms of the dollar value for that, it is around about a $4 million annualized gross benefit. Obviously, we at the beginning of the year, so there is some in-year salary costs as well as a reasonably large implementation cost as well to go with it. So on the whole, we're expecting about $2.5 million, maybe a bit more than $2.5 million of net in-year savings in the year.

And the key thing here, I think, Steve, is that we are looking at actually investing in growth. So I think the important thing to note out here is that the restructure is, yes, an opportunity to deliver greater operational efficiency, but equally important also is to create the headroom to be able to invest in growth so that Janison is investing in our product, investing in sales to ensure that we are being able to realize the opportunities available in the market. Got a hand up from Cameron.

Cameron, do you want to ask a question?

Can you hear me okay?

Yes, we can hear you.

Perhaps two for me. Could we start with activity, what you are currently seeing at the moment, particularly in the solutions business in terms of new opportunity across either government or broader Tier 1 enterprise?

Cameron, are you talking about the opportunities that Janison is focusing on? Or generally, what are the market opportunities?

Those currently in focus, so new enterprise wins, et cetera.

So at the moment, I think it is still early stages. It's only month 3 as CEO and month 2 of the new financial year. But at the moment, one of our kind of focuses is on very much on kind of increasing our pipeline, so making sure that we are bringing in new opportunities in the pipeline. And that means, Cameron, the way we are organizing our sales and marketing team, the way we are actually looking for opportunities. And one of the different areas that we're looking at quite differently is also strategic partnerships, which means that we're very much recognizing that we are a small-ish organization in Australia, looking at servicing organizations globally, which are geographically quite not far from us. So we are also focusing on strategic partnerships, which means that we are partnering with organizations who offer complementary products and services. And together, we have a wider reach. So in other words, Cameron, at the moment, we are making sure that we are laying the groundwork for improving our pipeline, the right partners, identifying the right markets. And in due course, we'll be able to tell you what the new opportunities are coming through.

Yes. I think from, I suppose, the more recent activity over the last 6 months. So there was the New South Wales Department of Education win, which was quite a material one for the business. So just wondering, obviously, that was quite an outsized win, but just broader conditions you're seeing over the last 6 months for potential new business, what does activity conditions look like?

I think, Cameron, from that perspective, I think what we've done is we've also begun conversations with other states about similar projects, but they are still at an early stage given that these large enterprise sales where the clients are typically government and can be not moving at the pace that we can make announcements in months, and so they are still early stage. But what I can say, Cameron is we are very much focused on replicating those and having conversations with other states as well and also, at the same time, working with some of our partners to identify and have similar conversations overseas as well.

If there are no further questions, we might call an end to the call. Thank you very much for your attendance. We have recorded today's call and we'll post it on the website. And just a reminder, results are on the 19th of August, and we will be doing a results road show in the next few days, in Sydney and in Melbourne. If you like to participate in that, please reach out at [email protected]. Thank you.

Thank you.

Thank you, everyone. Thanks for your attendance.