Lumi Education Group AS (LUMI) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this Q1 webcast with Lumi Gruppen. Today we have with us Erik Brandt, CEO; and Martin Prytz, CFO. When you're ready, guys, just go ahead.

Thank you, Cristina. And good morning, and welcome to all of you. And thanks again for joining this presentation. Obviously we are looking forward to presenting the results for you, and also we will answer any questions you might have by the end of the session. And you are also welcome to ask questions in written form, in the comments feed. Before we dig into the results, just a quick reminder of the market position and financial characteristics of Lumi. Obviously Lumi Gruppen has a solid education platform, both on campus and online, with a strong market position and undisputed quality. Sonans is declared #1 in the private candidate market, with a solid offering through campus, online, and also now our new product, Live, which is launched in 2022. Our higher education segment ONH is a market winner so far in the intake cycle. And its high quality is proven through its top 3 rank in student satisfaction and #1 in online offering in the 2021 official national student survey, Studiebarometeret. The group consists for now of 2 operating segments, as you all know. And in total, Lumi Gruppen serves almost 11,000 students this quarter. We have more than 8,000 students in Sonans enrolled this quarter. 55% of them are campus students and 45% are online students. ONH had 2,550 students enrolled, 31% campus students and 69% online students. When looking at the executive summary, the key takeaways from the quarter is that ONH's growth strategy is on plan. And Sonans has taken significant initiatives and measures to adapt to the online shift, which we have discussed with you previously. And we will get back to this in more details later, including some market perspectives. Total revenue in Q1 ended at NOK 133 million, in line with our expectations, on level with Q1 '21 and also Q4 2021. Adjusted EBIT ended at NOK 21 million, also in line with what we expected, which is decline of 30% compared to last year and slightly behind Q4 2021. Martin will go back to -- come back to the financials in more details shortly. As a part of the online shift we have implemented cost cut measures totaling to NOK 10 million to NOK 12 million. And we add additional cost cut by reducing the campus footprint in 2022. As a part of the digital transformation, the new product, Live, has also been tested this quarter with success, and has now been launched in the market with school start in August 2022. Yes. Just some additional information before we move on. EMK Capital, the former main shareholder, sold its remaining shares in Lumi Gruppen in February. And as a result, the 2 board members from EMK has resigned. The AGM resolved to elect Harald Arnet and Frode Eilertsen as new independent members to the Board of Directors. The 2 new members have strong and relevant experience and will contribute to positive development of the group going forward. Harald is the CEO and partner in Datum Group and has more than 30 years’ experience in national and international finance. He holds several board positions, both listed and non-listed companies. Frode is a senior high tech business executive with unique and extensive experience from telecom, internet and digital media. And I'm looking forward to collaborating with them in the Board going forward. So Martin, I'll leave it to you to go through the financial details.

Yes, thanks, Erik. So we'll run through at least the highlights for the group and for Sonans and ONH for this quarter. So starting with revenues. We are, like for the previous quarters, we are happy to see that ONH continues to deliver double-digit growth with 17.2% growth this quarter. This is a result of the additional spring intake with this first half 2022. And also that we have higher recurring revenues from the multiyear programs. Sonans continues to grow the online part of its business. But not surprisingly, as we saw in second half of 2021 campus revenue is softer compared to previous periods. And on average there is decline of 20% in Q1 '22, like for Q4 '21 compared to first half of 2021. So what we see is that the development for campus is similar in Q1 this year as for second half last year. Sonans. And the prices have been adjusted during the quarter, and going forward, together with new commercial terms, and also we'll now improve the performance for Sonans. And also, as Erik will comment more about and elaborate on, we will launch -- we have launched a new product, Live, that also will be key to offset adverse impact from lower prices from online courses in the short term. And we also believe that the pricing over time should be harmonized across channels for Sonans. And I think we have taken big steps so far this year to come to that end state. We'll look at the EBIT for the quarter. We see that as announced in the Q4 report, we have implemented cost measures for Sonans. And in Q1 '21 Sonans reported NOK 3.5 million in lower OpEx for the quarter, and this is the net of inflation. For ONH we have an increase in OpEx space, and this is representing the full year effect of the ramp-up cost that came into the P&L mainly from second half of 2021. So it's important to keep in mind there is no additional ramp-up costs this year, but it is in line with the run rate that we have in -- from Q3 or second half of 2021. And the effect of this will be more neutral from the second half of 2022 when we have the full-year effect implemented in the P&L for ONH. For Sonans again we are closely in line with Q4 '21, but we are down 8% compared to last year. Online revenue is, as we see, strong. But as mentioned several times as well, the volume growth in online has not been strong enough to offset the price differences between the offerings. For the quarter, we report savings of NOK 3.5 million. And it's actually when we're looking in the numbers, the underlying saving is actually NOK 4.5 million when we are adjusting for a higher bad debt accrual. This accrual could potentially be reversed, but the new assessment needs to be made during Q2, but we see there is a slight change in development in our [ vectors ], but it's too early to conclude, but I think it's important to highlight that the underlying savings is actually higher. And we also implemented measures to monitor the credit risk of the business and working towards keeping bad debt costs on a steady level. And also important to mention as well that we have more savings ahead of us for Sonans. We have, as we announced this last -- in the previous quarter, we have decided to close down 3 campuses from the second half of 2022, and that will contribute with NOK 7 million in lower OpEx for the second half of 2022 and NOK 14 million on an annual basis. So when we add the effect of closing the campuses together with the NOK 10 million to NOK 12 million we also announced in Q4, the total savings now is around NOK 24 million to NOK 26 million on a yearly basis and NOK 17 billion to NOK 19 million this year. And our ambition is to identify further savings to make Sonans more robust to also deal with variances in volumes. And we will continue, of course, to develop our digital platform that we believe is very strong in the market and the potential to increase average value per student. And I think in combination with this, the new Live offering, adjusted prices, new commercial terms, cost savings, et cetera, I think that Sonans is better-positioned now to deal with variances in volumes and also to protect the margin of the business for the time to come as well. Moving on to ONH. As we see, growth in revenues, double digit this quarter as well, continuing. But as mentioned, we have a higher cost base this quarter compared to last year, and this is due to the increase in ramp-up costs from second half of last year. I think it's important also when we look at the numbers for ONH is that the higher share of the revenues hits the P&L in the second half of 2022, meaning that approximately 40% of ONH revenue is in the first half. And from the second half, approximately 60% of the revenue will be in the P&L. And that means also on a constant OpEx base from Q1 with continued top line growth, the margin will improve for ONH as well. What we also see is that we have slightly higher marketing costs for ONH in addition to the employees that is constituting the majority of the OpEx increase for ONH. But what we see is also is that the prices for online marketing has increased quite significantly as well. So we have been trying to be careful, but it has been a challenge in the market to -- the prices for online marketing have increased, and it's a balanced area. So the increase in cost for ONH is a combination of both inflation and more activity, just to mention. Just summarizing the financial focus of the business. I think for us it's -- for Sonans, do what we can do internally for Sonans, working with the cost base, the structure of the business and developing the offerings for Sonans and to be better-prepared for variances in volume short term. For ONH it's about increasing the student volumes and increase the -- improve the margin from the -- driven by the higher volumes from the investments made in ONH. And I think as a group, we are constantly working to facilitate shared services and reduce costs through joint operations across the operating segments of the business. Just wanted to mention, we're not spending much money on this. But still, we see that we need to serve our investors in the best way, and we are with very limited funds trying to do improvements as well, and the communication for financials and the information from the business. So we will also launch a new Investor Relation event with more information and better structure than the current version that we have. So I hope that will be a better solution for the ones using our websites as well. So hopefully, to be launched soon, so to say. So I think with that I conclude the financial part. And then you continue with the strategy part, Erik.

Absolutely. Yes, I think some of the highlights from these sections will be the following. Obviously, that we are strengthening the online offering with the new digital campus that we call Live. I mean, we are working on the marketing side to improve reach and conversion. We need to further tap into the private candidate market. And we have a new and optimized marketing campaign, it's launched. ONH is the market winner so far in the higher education sector with strong growth in the student intake so far, especially for bachelor programs. I think the key priority now is to increase student volumes, especially in the bachelor programs in ONH, but obviously also in Sonans as well. But first, let's look at digital transformation. It's progressing on plan. As we informed the last time, when we were informing you about the digital campus that we call Live, I mean the project will increase geographical reach, be an important part of our total offering and also support digital transformation of Sonans. Obviously the product is for students who wants the flexibility of not traveling to school, but still wants the full student experience, including interacting with teachers and fellow students. We have run a pilot this spring, which we also have informed you about with exceptional student results, including very positive feedback of the teacher and the product. And when looking at the student satisfaction this spring, as you can see on the right part, the Live students are even more satisfied than the campus and online students with a 4.7 in average of total where the best is 5. So obviously, we are very pleased with that. So we believe that this product will strengthen our competitive edge going forward. And as you can see on the slide there, we now have 3 different channels, campus, online and live. And the aim is to target, capture a larger share of the market in addition to better-adapting to different student needs. And also just to let you know, we started selling this product a couple of weeks ago, and so far response has been good in the market. Yes. Let's go over to the autumn sales. Sonans' sale cycle for autumn has started, but less than 20% of the sale is complete so far. Most of the sale takes place during the summer, and it is crucial for us to be well-prepared for this period through excellent marketing and sales work. We see some negative market trends this year with a drop in number of applicants to higher education, cancelled high school exams for the third consecutive years and a strong labor market. But I think as a respond to this uncertainty, Sonans has acted by reducing the cost base, improve our product offering through Live, increased prices and improve the marketing campaign. These measures increased our chance of succeeding in a potentially softer market and limit our vulnerability to shift between channels, online and campus. The status now is that we are on par with the 2020 intake so far at the same time 2 years ago, but we are lagging the 2021 intake. Last year, as you can see, we were 26% ahead of 2020. In 2022, now we are 18% behind last year. But as you can see on the graph on the right, 2020 was a more successful year than 2021. And the final outcome this year is dependent on a successful campaign during the summer. So the intake so far must be considered indicative with only less than 20% completed. A very important tool for us to succeed in the market is excellent market campaign. Sonans is the market leader, but we need to continually improve our marketing effort to support the student autumn intake. This year we have introduced a targeted campaign for our new Live product in areas without campuses for now. But the geographic reach of the campaign will increase throughout the cycle. Sonans will through this campaign consolidate its position as the premium brand in the market with the strongest multichannel offering, campus, online, live, tailored to different student needs and the best offering to achieve the excellent results the students need to reach the target. And we obviously use existing students and former students in our campaign to tell their success stories. And you see there on the slide right some elements from our new campaign which has recently just started. Over to ONH. A winner by number of applicants. As you can see, the number of applicants for the public universities is now published by Samordna opptak, NUCAS, and show a decline of a little bit more than 12%. Then it is encouraging that ONH is the market winner by number of applicants after the deadline of 20th of April. When looking at the total number of applicants for ONH including annual units and single subjects, ONH has a growth in applications for autumn of 8%. I think also the larger private institutions in this market reported flat development compared to last year. But also, I think the most pleasing result from the campaign so far is the strong development in applicants for bachelor programs with a growth of 21%, as you can see on the right there. And the growth is driven by increasing number of applicants to programs that we launched late in 2021. And I think also these results highlights the very importance of continuing to innovate and renew the portfolio of programs going forward. I think it's also an important reminder that the intake for ONH is not completed, obviously, but the number give us a strong momentum for this year intake. ONH also have an important sales period during the summer, just as Sonans. This period is both important for students not admitted to public universities but also for online students who tend to be older and decide later what they want to do. So obviously we are admitting and marketing and taking in students the whole period from now and until semester start in late August. So the marketing offer will continue throughout the summer and -- but the key priority right now is to convert the applicants we have received to actual students. I think also another interesting takeaway from the public figures from NUCAS Samordna opptak is the growth in applicants for online programs. The number of applicants for these types of programs, the online programs is still a small part of the total number of applicants, but I think the growth is significant to with 34%. ONH is a leading player for online programs in the sector and is well-positioned to benefit from this trend. As you all know now, I have also mentioned it before, that we are ranked #1 when it comes to online solutions for students in higher education. And ONH will continue to think online first when developing new programs and offerings going forward. Yes. Just -- yes, closing in here, but I think some final remarks. The total market for higher education is still solid with more than twice as many applicants that admission places. And the market for online programs is increasing. And I think Lumi Gruppen is well-positioned to increase its share of this market. We have launched Live. We have improved marketing and we see that ONH succeeds in the market with the new bachelor programs that we were launching last year, and obviously the broad online offering. When looking at the trade schools, trade school market NTech, the market for trade school is still increasing when we have -- what we have been able to see when looking at the major players. But unfortunately, we will not be able to enter the market with NTech this year, and that is basically incredibly enough due to capacity constraints and delay in NOKUT because our application is stuck in NOKUT. And this semester and this quarter, most or all applicants that NOKUT received and we're supposed to process this spring, including for all tech programs, they are put on hold until the autumn because they don't have enough people to process that, and that includes our program as well. So focus now is for us to continue to develop the online plan platform for a launch in 2023. Yes.

And coming to the end of the presentation, we just wanted to give a short update on the outlook of the business. I think we've already given some indications on directions we're moving, the direction we're moving towards right now with new program or new offerings, price adjustments, a strong intake ONH. I think what we're trying to say is that we try to keep our -- or not trying, we are keeping our guiding unchanged so far compared to what we said last quarter. We have said -- already implemented cost savings and measures -- cost-saving measures, and we adjusted prices to reflect the online shift. And we also launched a new digital offering with equal prices to campus that will reduce the financial impact of the online shift going forward. But in our assumptions for the estimates for the year, we assume that we will have, need higher student volumes in the autumn to improve the profitability of the group. So the assumption is based on higher volumes for ONH, but slightly higher volumes for Sonans then. So what we see now is that ONH is current on plan, while Sonans is lagging slightly behind that. But as Erik said, it's still early in the sales cycle for both ONH and Sonans. So what we see is that we have limited, more visibility on ONH on the numbers that we have so far, but we have more limited visibility on Sonans so far, as we are very early in the intake for Sonans. But I think the preparations we have made on cost savings, price adjustments and product offerings has made Sonans at least better-prepared for the intake for the autumn, so to say. And I think that ends our presentation, and we are open for questions.

The first question is, "The split between online/campus by accumulated sales per week 17 on Slide 27. Could you say how much of this is Live? And is that put in online or campus?" Live is not included in the figures. So I mean it's very small numbers now, but Live will be reported as we will report post total and we will report campus, online and Live. I think that is the plan. But it is not included. So it has some additional sale of Live in the figures, but not very much because that's from week 17.

I think on the next question, "Live is well-received, and indications on the willingness to pay a premium for this product. And I think Erik, we could see at least for the pilot this spring without marketing the offer, we see that there is a willingness to pay for the product."

Yes, it is.

And the next question is on the feedback from NOKUT. I think you elaborated on the deposits there with NTech and the…

Yes, that's the question, if we have received some feedback on the NTech application. We have not received. I mean we received feedback last year, but we have not received feedback this spring because the only thing we received was that everything is delayed because we are -- we don't have enough capacity to proceed further with your applications. So it is delayed until the autumn. So we really don't know anything more than that at the moment.

When it comes to the price increases Sonans, it's with the effect for the autumn intake 2022. So you will see the effect of the price increases in the P&L from second half of 2022, and it will be effective for the autumn and the coming spring and for the school year '22 and '23.

Yes.

And as you saw in the numbers as well, it's a very -- a very limited share of the sales is done by Sonans so far. So the majority of the sales will be with new prices for Sonans as well.

Yes. Okay.

Yes, it doesn't seem that there are any more questions. We are of course available through the IR e-mail.

Yes.

And also available for meetings as well. So then I think we can close the presentation [ part ].

Okay. Thank you all for joining. Thank you.

Thank you.