Qoria Limited (QOR) Earnings Call Transcript & Summary

Good morning, everyone and thank you for joining us for our FY '25 half year results presentation. We'll run the webinar as we usually do. Tim will go through the first section of the presentation. I'll do a piece on financials and then we'll leave time at the end for questions. Like always, we'll hold questions to the end. Once you're ready to ask a question, raise your hand and I will let you through. So over to you, Tim.

Thanks, Ben and thanks, everyone, for joining this session. And it's good to see some new names, new institutional investors that have recently joined our register. So welcome. I won't do too much in the background of Qoria. Mostly what I'll do today is just kind of focus on what we have achieved in the last 6 months and give you a bit of our thinking about what's coming in this calendar year. Okay. So firstly, positioning. Why do we think Qoria is a good investment? It's for these reasons. Firstly, it's an untapped market. We're dealing with student safety and wellbeing. It is a massive, massive problem globally and there is no [Technical Difficulty] anywhere and we think that can be us. We've been proven to be very good at bringing businesses together and cross-selling across those different products. I'll probably talk about that in a moment. Obviously, social impact, what we are doing is dealing with one of the most meaningful and challenging problems of our time. We are scaled. We are ready. I'll talk about that in a moment. Seen without question as a global leader, I'll talk about that at the end [Technical Difficulty]. Diversified with revenue streams across the globe, which puts us in a really good position with, for instance, ForEx movements, which has happened in recent times. And our vision, which is encapsulated in that chart, which I've spoken about many, many times, I won't cover today, but it is, without question, the most compelling vision for online safety and student wellbeing. And I think it's the reason why we're actually succeeding in particular, in the U.S. We have that way of thinking about this problem set is resonating with our core constituents. Okay. Now, we are now a global operator with 600 staff, luckily operating 11 offices in 6 countries. We have, well, 550 services, but it's now 600 including Qustodio. We're looking after more than 25 million kids, which is extraordinary, nearly as many kids as there are Australians. We support 7 million parents, which is up 17% year-on-year across 100 countries and 29,000 schools using our platforms. We're in the U.K. with nearly 40% of U.K. students managed in our platform, nearly 14% actually today of students in the U.S. managed through our platforms. And I think it's something like 19%, nearly 20% of potential clients, school clients in the U.S. are now buying services from us. So we are, without question, the fastest growing and the most impactful provider of these sorts of services globally. But what really we like to focus on is the impact that we're making and that last point on the bottom right is a key one. Literally every 3 minutes, our systems intervene in a life-threatening situation, which is absolutely remarkable. And everybody who's investing in it and everybody who is employed in our business should be really proud of that figure. So financially, we ended the half with $132 million of recurring revenue, up 26%. Our revenue at $55.4 million was only up 14%. Ben Jenkins, our CFO, will talk more to that, but there's accounting treatments and so on that impact that. But our underlying business is growing well north of 20% year-on-year. And pleasingly, our operating costs are flat and our gross margins are improving through an enormous effort in our direct up costs, which are mostly data and hosting costs. So overall, the financial health of our business moved extraordinarily fast in that first 6 months of this financial year. We generated free cash flow. We're EBITDA positive. Our balance sheet is strong. We're in a fantastic position to really take advantage of this next 6 months, which is the key selling period for the K-12 business in the northern hemisphere. So we're super excited about what we're about to deliver. Okay. Talking to profits. So we turned the corner this last half. So in the back half of last year and we're now seriously profitable on an underlying EBITDA basis. Essentially, what we're doing there is it's the reported EBITDA, which capitalize R&D costs and we remove from that the share-based payments. So that's the kind of underlying profitability of our business would now turn the corner in 2 halves profitable. This, I think, is the most important slide because ultimately, everything is -- everyone looks to what's flowing through your bank account. And what this slide is doing, it's a new chart we've never presented before, but it's showing the prior 12 months cash flows on a free cash flow basis over the last 5 halves -- sorry, 5 quarters. And so what you're seeing is our collections from customers are catching up with our cost structure and you're also seeing our cost structure is stable. And you can also see if you have got keen eyes that our gross margins, our direct costs are coming down. And so in the last year, we added something like $20 million of gross margin to this business. And you can see clearly from this chart that if we do that again this calendar year, which we think that we'll do comfortably, we're now printing real cash flow in this business. So I mean, that's an amazing chart and I think it really demonstrates this commitment this business has made to stabilizing our cost structure, improving our gross margins and growing strongly. They are 3 things that are not often achieved in one hit and we've done that very, very comfortably. In fact, I've spoken to some analysts this morning who have said that that's quite a remarkable result. Again, to maintain costs where they are, to improve gross margins and to accelerate growth is a pretty remarkable result. So I think we should all be very proud of what we achieved in the last 6 months. And again, more to come. And Crispin's on this call, if you want to talk more about sales. So this is our ARR, our recurring revenue. It grew very, very strongly. Obviously, we were impacted positively by the strengthening U.S. dollar at the end of December. But the underlying growth, ignoring ForEx is still 20% or above. All of our key markets in nominal currency are growing very, very strongly, ANZ at more than 31%, which is a fantastic result. Investors might recall over the last few years, we've been restructuring our business model, our go-to-market in Australia and New Zealand and that's really now starting to drive incredible growth, 31% growth in a pretty decent market. U.S. at 23% growth. The U.K., as we know, is a market that is battling for us because we haven't got all of our products to that market. Our unification work is still ongoing. We're expecting that all to be done this year and then all of our product sets will be available in the U.K. So I'm really excited about '26 U.K. And then Qustodio is just a machine, like clockwork that business is growing and I'm really excited about the potential and the future of that business. I think that will only accelerate, particularly now that we're starting to generate more and more gross margin in this business. And in time, not yet, I know some people are nervous about this, but in time, that gross margin will be available for further investments in the Qustodio business. And just to highlight one thing, we're achieving something like a 400% ROI on investments in that Qustodio business. It is an extremely strong addition to this business. It's without question, the best acquisition we've made. Per FTE, you can see the productivity, the efficiency of our business is now starting to achieve kind of global SaaS metrics or targets. Typically, for a really strongly performing highly valued SaaS business, you're looking at about USD 250,000 per FTE and we're definitely closing in on that. I think that's within the next 12 to 18 months, we'll be at those rates. Okay. We're also delivering and I've touched on this a couple of times in this presentation, much, much stronger unit economics. So our average revenue per student in the K-12 business has increased by about 50% in the last 2.5 years. Our service margins are constantly climbing. Service margins, to be clear, ignores marketing costs. So it's just the data hosting and hardware costs. And you can see our service margins are now comfortably over 90%, which is extraordinary. And then our gross margin, which is, again, after our marketing costs and channel commissions and so on. So the group gross margin across this business is extraordinary. It's growing strongly. You see the blue box behind and yet our cost to deliver those customers is coming down. So we're getting more efficient at marketing, bringing customers on board and we're getting -- and the way that we handle those through the delivery of hardware, data and hosting is getting more and more efficient. And that is -- that's a massive leverage opportunity, like the jaws are opening in our business and maintaining costs where they are. We're also -- not only are we improving our margins, not only are we selling to what's called new logos, finding new customers that are interested in our services, but we're expanding the average order value. We're selling more and more products to our existing customers, which is a key sign of health and these customers are liking our products. And the key one that I'm seeing here is the average order value. Obviously, it goes through different cycles, but the average order value are fundamentally increasing in our K-12 business. And the average order value in our consumer business, as the product is delivering on the needs of our customers, customers are willing to pay more and more for that product or the additional products that we offer. And you can also see on the chart on the left that all of our lines of products are actually expanding. We're growing all of them. Possibly the one that's not where we'd like it to be is the wellbeing product, it's called Pulse. However, as everyone knows, the market is demanding student monitoring and so taking all of the option out of our sales team. So we'll swing back into wellbeing, I think once the voracious appetite for student monitoring starts to shrink in the next kind of 12 to 24 months. The SaaS metrics. So again, this is how more analysts will kind of [Technical Difficulty] our SaaS competitors. And these stats are remarkable. Churn at around about 5%, we have no bad debt where net revenue retention of more than 100%. So we're adding value to our existing customer base every single month. Service margins over 90%, all of our revenue is recurring. And the one that I really like to talk about is for every dollar that we spend in marketing, we get about $9 of recurring revenue on the back of that, which is an incredibly efficient business. So again, keeping our fixed costs stable, growing our margins and we have a very efficient model of marketing and attracting new revenue of our business. Okay. So what next? Look, really this is no change from what we've been saying previously. We're at that inflection point. We're now profitable at the scale of $132 million of ARR. We're expecting EBITDA margins this financial year of 10% to 15%. We'll be generating free cash flow this year without question. You saw that very clearly in the chart I showed before and EBITDA margins of plus 20% comfortably in the '26 financial year. So no change there, albeit we feel like we're kind of derisking our business as you've seen in the numbers in that first half with our cost structure stable and our growth very predictable. More specifically, things that investors can look forward to is this half is the seasonally highest or key or strongest selling period in the U.K. and the U.S. The pipeline is extraordinary. You see that chart there, more than $32 million of K-12 pipeline with a weighted value of $11 million. So last year, I think in the equivalent half, we added, I think it was about $14 million of ARR. We're pretty confident that we'll do better than that this year. So all stage is set for an outstanding end of this financial year. We're also launching and I've touched on this in our quarterly report, we're launching a ton of new products, almost all of them AI-related. AI Cloud Scan is a particular one, which is an add-on product to our successful monitoring product, which, if you recall, has gone from about $4 million or $5 million of recurring revenue to over $30 million of recurring revenue in 2.5 years. We're now adding value [Technical Difficulty] with the ability to scan [ 0365 ] documents and chat messages and so on. So very exciting to see how that goes this half. Qustodio, this isn't the biggest selling period in retail, of course. But we do launch the partnership with SoftBank in Japan, which is something that we're very excited about. That looks like it's going to be launching in April at this stage. Very, very keen to see how that goes. And as we've been touching on, this is going to be a profitable half and a seriously cash flow generating calendar year. So more strategically, what are the things that investors should look at beyond just this next 6 to 12 months? With -- we're obviously adding a lot of features. Now we've got a big base, we're looking to monetize that base, extract more value and offer more features that they desire. And so a lot of those are AI-related and you see that in the box just below features. There's enormous investment now in this business, bringing AI not only into products, but also into making our services more efficient. A lot of the cost savings that you've seen in our direct cost is through using clever AI tools to reduce the need for our cloud services with processing data. Platform, we're investing in building what we believe will be the most integrated, beautiful dare I say and complete platform for schools and parents to, in an integrated way, protect and support the digital journeys of children. We're quite dominant, as I've said before, in the English-speaking world. We have a little business in Spain called Qoria Spain, of course. That's taking our K-12 offerings into the non-English-speaking markets. It's growing at about 100% year-on-year. It's not material yet in our business, but I expect it will be so in the next kind of 6 to 12 months. And that is really our stepping stone outside English world, which needs to be our focus in the '26 calendar year. We're investing in building out the Qoria brand. At the moment, we're trading, as you saw previously, as [ Wire Safe ] and Smoothwall and Linewize and Qustodio. But over the coming years, we'll morph all of those into the Qoria brand with the idea or the ambition of being the dominant, really the most well-known brand when it comes to student safety and online safety. Our unification box here is a really key ingredient to our plan, bringing together all the technology in sort of got single code base and most importantly, making sure that all of our products and services are available to all of our markets. That will -- that is probably the key driver for acceleration in our revenue in the coming years. And then I just -- I thought I'd add regulations here. I am personally in our business more broadly is very active when it comes to matters of policy in both online safety and competition policy. And there is clearly a tidal wave of interest around both of those things that will open up enormous opportunities for our business. I think if you just see how much media interest is in online safety, age verification, social media banning, mobile phone banning, the tailwinds of interest in what we do only exploding and us being scaled with the best products, hopefully, the most well-known brand and with those regulatory tailwinds, I think we're set up for a really exciting future. I think that's it for me. I'll hand over to Ben. And again, there'll be questions at the end.

Thanks. So yes, we touched on a few of these things earlier in the presentation, but just to, I guess, spend a bit more time on a couple of the highlights. The revenue number, I think Tim has explained to a degree, but to get in a bit more detail there. Revenue is up 14% compared to ARR, which was up 26%. There's a couple of reasons for that. The first and the major reason is the FX benefit that the ARR number got in the December quarter was very late in the December quarter. So there's very little FX benefit through statutory revenue through the half. And ARR is effectively a balance sheet item, measuring it at spot rate at the date you measure it versus statutory revenue, which is an average over the period. So that's one big factor. The other is to a lesser degree, which would be about $1 million of difference half-on-half. And without going into too much technical detail around something called significant financing component which relates to 3-year cash upfront deals, you gross up revenue and gross up interest expense when you write those deals. The gross up can be seen in the expense note in the accounts and it was about $1 million higher last year than this year. So you add that back in and the growth in statutory revenue is around about 16.5%, 17% as a result of that. So put those 2 factors in there and statutory revenues still quite strongly correlated to ARR growth. But more importantly and I think the things that we really should focus on this slide is that growth has been achieved with costs going down, not flat. Direct costs are down 2%, operating costs are down 2% and that's been achieved without pushing more into share-based pay. Share-based pay is down 27%. And you'll see on the cash flow side, that hasn't been achieved through pushing more salaries into capitalized development costs. Capitalized development costs are also down 1%. So it's a very pure result in terms of cost control and a fantastic effort by the team across the board. So I think that's been manifested in the margin improvement, which you can see with gross margin up from 71% to 75%, which is probably 6 months earlier than what we were aiming for and also the underlying EBITDA number being positive $6 million, which the only real thing that we exclude from the traditional EBITDA calculation is the share-based pay. And even if you added the $4.9 million worth of share-based pay into that, we're still positive EBITDA number. So it's a fantastic result in our minds. Won't spend too much time on these 2 slides. Probably a couple of highlights to point out there is the regional results are looking positive across the board. ANZ is the only one that's negative, but that's largely because it has a high proportion of corporate costs in other regions. Direct costs, I think, is interesting as well because you can see what I was talking to on that previous slide around direct cost being down across the board where we've had costs come down really. The only cost that's up is service cost and service cost is purely commission payments to resellers. So that is going to grow with the business growing. It's directly related, so. Depreciation and amortization, just a quick touch point here to show that the majority of this still relates to acquired intangibles. The FY '25 numbers still pretty steady at around about that $20 million worth of amortization for acquired intangibles that drops in '26 as well as the Smoothwall and Qustodio piece start to roll off to around about $11.5 million and then it should drop again in FY '27. Balance sheet, again, a fairly quick point here is just around the fact that the consolidation work around debt is now complete. Last phase of that wrapped up in July of 2024. So just after 30 June last year, the last Qustodio convertible was paid out and all our long-term debt now is with the one facility, which doesn't mature until 30 June 2028. So balance sheet in a very strong position, well-funded, lots of cash on the balance sheet and not a little bit of debt popping up anytime soon. Cash flow statement, again, we've touched on this really through the quarterly result that we've just been through, a very strong result for the half, free cash flow positive for the half when you strip out the payment for Octopus BI and CipaFilter, which is the $4.8 million payment for purchases of businesses there. I think the other thing that I think we didn't really touch on in the quarterly that is worth pointing out here is that this has all been achieved notwithstanding the fact that there's around about $2 million worth of cost in the business on an annualized basis for a divestment that we were looking into and have flagged probably 12 months ago that didn't go through. So we've achieved it notwithstanding that going through. And there's also around about $250,000 worth of cost relating to Octopus BI. So the cost being down that we've talked about on previous slides and the cash flow achievement that we've had here is notwithstanding those 2 things coming in. So again, we think it's a really good result. We are coming into our most quiet quarter seasonally from a cash collection perspective. But as we touched on the balance sheet slide, there's plenty of cash on the balance sheet. And from a calendar year perspective 2025, we will be free cash flow positive. So everything is heading in the right direction. On that note, unless Tim, you've got anything to wrap up on, we can go to questions.

No, let's go to questions.

All right. [ Laf ], I'm just allowing you through, you're first one in the queue.

Just wanted to start off with the Consumer Division. I think you've changed how you report. It's now all lumped under Europe. Is that right? And can you just remind me, is there any seasonality in the consumer business? If we kind of look at it sequentially, first half '24 was $10.7 million. The second half '24 was $14.6 million and now it's down to $12.1 million. Can you just talk me through -- are we missing something? Is there some seasonality or how we should think about it? And also, why is it all being lumped together now in Europe?

Yes, I'll cover that piece around the segment note. The segment note has always been that way for the first piece of it. So you've had USA, NZ, U.K. and then Europe, which was the consumer piece. The second section of it was a little bit confusing because it was put together in a slightly different way. It's now consistent between the 2 notes. Europe is the segment that is consumer because that's the Qustodio business of Spain, where Qustodio is based. So it's just tidying up that reporting so it's consistent between the 2. But the way we've always reported it in the presentation has been Europe is consumer, NZ, U.K. and USA is K-12.

And just with the seasonality and momentum. So just calling out that $10.7 million going to $14.6 million in second half and then $12.1 million in the first half here.

Yes. It's not seasonality. It is the sale of [ McGeary ] that was in half 2 of FY '24. So when you strip that out, it's been growth the whole way through, but you've got to take the McGeary sale out of Europe in half '24.

Okay. Can you remind me roughly how much that is on an annualized basis?

The McGeary [Technical Difficulty], well, it was about $1.7 million worth of ARR. So that comes out, but also the actual sale proceeds was in half 2 as well. So that was circa $2 million.

Oh, okay. So if you strip that out…

Yes.

Sort of $2.5-odd million, maybe $3 million, that's kind of in second half '24 kind of should probably be more seen as one-off in nature.

Correct. That's right.

Okay. Got it. And just with the cost base, definite improvement, as you pointed out, clean, not hitting anywhere across the board, improvement in the cost base. There was some cost savings to come from McGeary and you've got a new sort of found cost discipline. If we were to fast forward a year from now and we're looking at the first half result this time next year, would you be targeting a similar outcome where it's relatively contained cost control? Or when are you going to start sort of going back to BAU cost growth?

Yes. Look, I think to achieve 2% down this time next year would be challenging, if I'm being perfectly honest. I think there's probably second half of FY '26. I think we can get a little bit more around flat to maybe slightly down, but we'll have another payer review come through in half 1 FY '26. So you'll see some CPI type increases, a little bit of growth heads in the business, but nothing dramatic. So I think half 1 next year will be more BAU and then half 2, we should be able to deliver some efficiencies still.

Got it. And just one final question if I could squeeze it in. Last time at the quarterly, you talked to moving up the food chain with the U.S. district schools that some bigger candidates that you otherwise wouldn't get a look in with. Can you just give us an update as to what your targets will be this year and size and scope and how the strategy may have changed over the last few years?

I'll just start, [ Cris ]. So in terms of targets, we're basically trying to achieve on a nominal basis something like 10% to 15% higher growth in our ARR as we did over last year. So if you look at last year's growth rates, you can work that out and then kind of over to Cris to provide some commentary on our opportunities.

Yes. So to give you some stats in the last -- from January 1 until yesterday, we've generated 18 what we call [ RAF T5s ], which is our largest kind of designation of U.S. school districts, it's 25,000 students and above, which equates to around $3 million of ARR. So I don't think we've changed our strategy to be able to go after those and they're working now with some POCs with some of the largest U.S. districts. It really is just the brand -- sort of result of the brand improving. So somebody's doing, we do about, sorry, offputting. And yes, just getting much greater awareness in the market. We've deployed into a larger number of customers which sit in that sort of top 50 accounts and that builds your reputation. So no fundamental change in strategy, just time in the market.

Lindsay, just letting you through now. You should be able to unmute.

First question from me, just a clarification point on the guidance. On one of the slides and I think somebody put this question in the Q&A box as well. One of the slides historically, you said EBITDA margins of 20% to 25% in FY '26 and now it's 20% plus. Could you just confirm that there's no like fundamental change in your thinking that's just -- just changed the wording for some reason?

No, it's just a formatting thing look better on the slide. So yes, no change.

Yes. Brilliant. Second question, on your GP margins, I mean, that was quite a bit punchier than I thought you're going to be able to deliver in the half. Are these kind of 75%-plus? Is that kind of the level to work with going forward? Or is there maybe some one-offs that make this half look better? I mean, you're only 68% in the second half last year. So it just feels like a huge step up. Like just trying to understand where GP margins go next 6 to 12 months.

They're going to keep climbing, Linds. We've just released a new AI tool actually that started -- kicked off in January, that's saving in the order of $50,000 a month against our -- against our direct costs. So look, there's constant work, that's constant engineering work. And as we get scale, you get more and more opportunities to reduce those costs. So I think you know my ambition is to get our gross margin -- sustainable gross margin to 80% and then to invest every dollar of margin beyond that into growth or into advertising and marketing, particularly the Qustodio brand. So from Ben's perspective, we've hit the 75% than we hoped. I'm hoping to get that 80% this year.

And final question then just on unification. I mean, you've been speaking about for a while. There's kind of 2 parts to it, I guess. One is, once all the brands are unified, there's some cost-out. So maybe could we just talk about when you think all the unification is complete? And then second part of that is like when will the U.K. have access to full product suite as a result of the unification?

Yes. So the policy plan was meant to be fully unified by June this year. It's probably going to stretch out to the end of this year. It's complicated. It's really hard. We're wanting to make sure that we don't lose any customers on the way through, that we're not disrupting happy customers today in the U.K. And I think that's the right strategy. If we've just gone and thrown out the Smoothwall products and rolled out the Linewize product, we put a lot of ARR at risk. So we're just doing it very carefully. But the way it's also being delivered is pieces of value being delivered into different markets where we can, for instance, the content aware capability in the U.S. The sort of the text-based scanning will be coming to the U.S. The image capture and image scanning will be brought to the U.K. over time. We're expecting to be able to launch Classwize connected to the Smoothwall filter this calendar year, for instance. So where we can align with market priorities with proper value, it being a fully unified filtering engine, let's say, this calendar year being a fully unified platform experience sometime in the next year, so in the sort of in the '26 calendar year, I would say. Yes. And once -- as those things come together, yes, we're just creating new opportunities for the sales team to sell sizzle.

Thanks, Lindsay. Owen, you should be able to unmute now.

And well-done. I guess a couple of questions. First one is just to understand so you started the period with, call it, $116 million of ARR, ended the period with $125 million, excluding currency, revenue, call it, $55 million. Can you just talk through now that the ARR is running at as of December $132 million, when the $132 million is revenue on a monthly basis, if that makes sense, when does it all start generating revenue?

Yes, that's, I think, a good question. I think we normally lag about for it to get all the way through, it's normally about 10 or 12 months if you look back and have a look over the P&Ls over the years. I think the other way to look at it as well is if you look at the new slide we put in the presentation around cash flow if you look back 12 months, the cash -- the ARR number seems to follow through in cash flow for the next 12 months, if that makes sense. So if you go back and look on that slide and that's probably the best thing I think you can point to give people comfort that the cash does come is there's accounting noise and bits and pieces that happens with technical accounting standards these days that give you some lumps and bumps in the P&L. But at the end of the day, it's whether you actually receive the cash that's the important thing. And our historical cash flow does show that we receive the cash. So it's typically take ARR from 12 months ago, look at the cash collections for the next 12 months and it's pretty aligned.

Yes. That's the best way to think about it. Your ARR is, in theory, your next 12 months cash flow and up or down within the margin, your next 12 months revenue, accounting revenue.

Just to clarify that. So just to -- I guess on a 12-month basis, but if you think about key selling period being this half, we're now with the cash collection period, so call it, 3- to 6-month lag between ARR to cash and then there's kind of a 6- to 12-month lag on ARR to revenue? That's...

Yes. And you do get all sorts of lumps and bumps through the statutory revenue that it's -- like it's hard to be precise because this half is a perfect example. We've got a $6 million, $7 million lift in FX and ARR in December, basically in December. You don't see very much of that, if any, in the statutory number. So you've got a lot of swings and roundabouts that come through. But that's why I point to cash because at the end of the day, it's -- cash is king.

Now your pipeline is pretty strong. You talked about that up whatever percent versus last year. We're entering the selling period. Can you just talk through what's happening in the region, like the biggest growth region in the U.S. in terms of the funding, the government funding? I know there's a lot of scrutiny in the U.S. around government spending. Can you just talk through whether there's been an increased allocation or decreased allocation or just talk through the U.S. funding for some of your products?

Yes. I'll do that, Cris. Yes. So I've been talking to a lot of SaaS businesses and private equity businesses that focus on edtech over the last few months to get their thoughts on whether they see the expiration of the ESSA funding, which was the big COVID funding into technology or the Trump and DOGE dynamic, whether that's going to affect education. The overwhelming view is it's not going to affect it certainly in our area. And let me explain it like this. The amount of funding in the U.S. in education is extraordinary. It's like USD 17,000 per student per year, massive and 86% of that is people. So if Elon Musk or Trump want to materially reduce the cost of education, then it's really about bodies. It's not about infrastructure, IT services. In fact, the only way to truthfully do it is through innovative technology. Now there is a lot of complex technology, a lot of technology in schools. The small applications that particular schools, this is the reason for our success, in fact, in the U.S. is that in the U.S., they were very willing to try new stuff. But that means that we've got this complex web of technology in U.S. education. And so what you are seeing now is a rapid rationalization, moving away from multiple vendors into single vendors where you can and even some districts are willing to give up functionality to have a single throat to choke. So we're definitely seeing that. And we're definitely winning now. We've timed our run perfectly where we've got a very broad suite of services. We are the most obvious candidate in the U.S. to be that single provider of safety and wellbeing services because we're the only one that does all of it, in-line filtering, cloud filtering, hybrid, classroom management, student wellbeing, the whole bit. No one else does the breadth of things that we do. So we're in the right spot to be the winner in the consolidation game. We're also in the right spot to provide the evidence to schools about where they're wasting money. Our EdTech Insights product, which the Octopus BI team just launched in our business at [ FDTC ] and Bett in U.K. is now showing school administrators where they're wasting their money. We are literally now able to pay for our product set through savings through instructional content. Now more broadly, is there a more fundamental challenge in funding and education? I don't think so. I think as a simple example, the story that was told just last week was JD Vance wants to become the President in the next cycle, you can't be cutting the guts out of education funding. So the theory is that if there is a cut in federal funding in education, what you'll see is at least maintenance, if not an increase in funding at the coalface. One other stat that's relevant, Owen, is apparently, there is now more administrators in U.S. education than there are teachers, right? And so if anything, you're going to see that change, more investment at the coalface, mobility of funding, so people can choose what school they go to and more investment in technology and consolidation vendors. They are the real trends that you'll see. And as I said, I think we're in the best place to take advantage of that.

Wei, you should be able to unmute now.

So just a quick one for me. In regards to post, I guess, fundraising, we haven't kind of like paid down the AshGrove facility. Is that something that we are considering? Or is that something that we can't do? And how should we think about finance costs going forward?

Yes, we can do it technically, but there are holes within the agreement that mean we're better off with the amount of interest we can earn on that cash at the moment, putting the cash to work in high interest deposits, minimizing our net interest bill. And I guess sitting on that for a little while, but it's definitely something that we think about regularly and we'll continue to check the [indiscernible] at a point in time when it will work. But it's not sitting there for it to be spent on something else or anything like that. It's an offset for the net debt position to make sure that stays down and also our net interest bill is as low as possible. So yes, I guess, confirming your points. Owen, you're good to go again.

Just on the gross profit margin, is the expectation in the second half that that's going to -- you tipped before that could go up, but are you thinking that could creep up again in the second half to kind of near 80%?

I'm not going to promise 80%, but it will go up.

No, it should come up a little bit, yes. And we should have -- you're not going to see another 400 basis point jump in 1 half. I'd love to say that that's going to happen, but it's not going to be that significant, but it will continue to trend upwards towards that sort of 80% over the next probably 18 months.

And just understanding around consensus forecast here, revenue between $120 million and $125 million first half, call it $55-odd million implies kind of a $65 million to $70 million in the second half. I know ARR is your key metric, that's your growth metric. Can you just kind of talk through the expectations of revenue in the second half?

It really depends on FX, to be honest, Owen. Like I think if the Aussie dollar was at $0.62 against the U.S. and $0.50 against the pound, then you're probably looking at a number in those sort of realms. Remembering though that, that will -- the EBITDA impact is quite small because we've got quite a natural hedge between the exposure to U.S. and pound and also the cost on the flip side. We are a net beneficiary though of the weakening Aussie dollar and there's some math that I put in the quarterly presentation that's probably the best thing to refer back to in terms of what that all means for impact on bottom line. But yes, look, if we're -- if the Aussie continues to stay at a weakened sort of level, then you should see a big increase in revenue in the second half of the year. But you will see an increase in cost as well due to the cost denominated in those currencies as well.

Any more questions?

Yes, we've got Ross, who is -- I've just allowed him through. So Ross, you should be able to ask your question now.

Just a quick one. So I guess you mentioned once you get to that 80% gross margin level, you'd like to increase marketing spend and spend more broadly. Can you just elaborate a bit on that for us, maybe talking about either where the spend would go either by geography or by segment?

Yes. Well, I mean, we're -- I don't want to make any -- I don't want to confuse anyone to say that we're out -- we need more capital and we're going to invest capital and need to raise money or anything, like that is not the case. We've got a very clear plan of getting to cash flow breakeven sustainably and continuing to grow that cash flow and EBITDA. But within that, we think as we punch through 80% gross margin, there is capital to be deployed. At the moment, we are optimizing our go-to-market really to achieve those profit results and the cash flow results. But at some stage if our cost of capital, say our cost of capital is 60% or 80%, but we're out there in the Qustodio business for every dollar that we spend, we're getting 300% or 400%, then we're not optimizing our capital opportunities. So that's really the equation that's going to come to this business. Not yet, maybe the end of this calendar year, certainly next calendar year, we're going to be thinking about where is it best to invest our money to get the best return above our cost of capital. And Qustodio in my mind is the cleanest, like they're very, very good. That business is amazing and finding for price a customer that's interested about protecting their kids and that customer is delivering a USD 300 to USD 400 LTV. We're currently spending about $60 or $80 to win that customer. That's a very profitable business as it is, but there is opportunity to optimize that. So that's all I'm saying is that, in time, it's not yet, not at the moment, we want to get to that sustainable and growing EBITDA and cash flow position. And then I'm targeting in my mind around about that 80% gross margin as to think about future investments in growth. Again, moving it from just a simple LTV over CAC model to think about the return on shareholder funds, which is really where I think our business needs to move to.

There are a couple of questions in the Q&A chat, Tim. One of them, the first one, I think you've already answered. The second, I think, maybe touched on to a degree, but not worth discovering. It says with all the cost cutting in the education system in the USA, will this have any impact on the state/district growth Qoria is after?

No, I don't think so at all. We're attuned to this. We're looking for evidence of that, but we're seeing the opposite. We're seeing schools wanting to invest more in technology. We're seeing them wanting to use technology to make their businesses more efficient and to identify cost savings. And so we're in that game. And I think we're doing really well. In fact, I think we're outperforming and we will continue to outperform our competitors in that. I think also there is an opportunity when it comes to supporting student wellbeing, the psychological services, the kind of wellbeing services inside schools. I think there is a real business case for what we do in there as well. So I think there's a few more legs to go. So no, we're not fearful at all of cost cutting impacting what we do at the game. At the very least, what we do is legally required. It's saving kids' lives. Technology is needed to create efficiencies in education. And there is such a shortage of trained counselors and psychologists in education, they just literally have to use our sorts of services to make that efficient. So no, I think it's only positive for us, sadly.

I think that's it, Tim. So do you want to wrap up?

Cool. Look, thanks, everyone, for your time. Again, thanks, everyone, for joining us on this journey and creating this amazing business that's doing really good things in the world. Thanks for the -- and welcome to those new institutions that have just joined us in the last few months. The stage is set. We're now at that inflection point. We're going to be generating cash this year. There's huge pipeline. I'm staring at Crispin now who's going to deliver against that. Very excited to speak to you all in April, but in particular, in July when we crush this financial year. So I'll see you all soon.

Thanks, everyone.

Thanks, everyone.