Qoria Limited (QOR) Earnings Call Transcript & Summary

I think we've got enough now, so we may well kick off, Tim. So welcome, everyone, to our March quarterly results for FY 2025. Running the presentation as normal. Tim will kick off with his presentation. I'll do some financial pieces in the middle. And then at the end, we'll turn over to questions. So as usual, you can ask questions through the Q&A functionality or at the end of the presentation. I'll unmute people's microphones if you raise your hand. Join the queue and you can ask the questions, we'll unmute you one by one. And then we'll go from there. Over to you Tim.

Great. Thanks, Ben, and thanks, everybody, for joining. Hopefully, everybody can hear me. So we also have Christian Swan here, who runs our revenue operations for K12 part of our business. So he's available for answering any questions you may have as well. But look, in summary, it was a pretty solid quarter actually and really the focus of the March quarter given that it's not the biggest selling period in our K12 business or the consumer business, it's really about those up for the key selling periods of June and into July, August. And without question, we, in particular, Crispin's team did that fabulously well. We do like to highlight this slide at the beginning because, obviously, our business is a purpose-driven business where we're trying to support children's journeys -- online journeys. We're now looking after more than 25 million kids and 7 million parents using our products every day, and that's pretty substantial growth. But what you'll see here is our financial growth is even stronger still. Our ARR is growing. I think we've added $25 million of recurring revenue in the last 12 months, organically, which is amazing result, more than 25% year-on-year growth. So we've added $18 million in this financial year-to-date coming into the biggest selling period. I'll talk more about that in a moment, ended the quarter with $137 million of ARR. Our balance sheet is in a great position with net debt of just over $22 million. Operating cash flow, massive surplus so far this year of nearly $20 million and less than $0.5 million for the financial year-to-date. So we're delivering very, very strong top line growth, maintaining our cost structure really well, improving our gross margins really well and most importantly, setting ourselves up for the killer end of the financial year. Here's the ARR of the last quarter in waterfall. And you can see the both parts of our business, the consumer and K-12 business grew gross revenue really well. We were impacted by a little bit of positive FX movement. And of course, as any enterprise business does, you have a bit of churn. But overall added $5 million for the quarter, which is on target. And as I said, 25% year-on-year growth. Again, coming into -- highlighting this coming into the biggest quarter that we have every year, and I'd expect to substantially improve that year-on-year growth through the... As you can see on the regional splits, the U.S. is obviously the huge market, the standard market. I think we -- we're becoming, if not already being seen as the leader in that market where we're starting to dominate 30% year-on-year growth in a very mature market is amazing. Qustodio, I think that understates the performance of the Qustodio business. I think you'll see certainly in the back half of this calendar year, a very swift acceleration of that business is doing brilliantly well. ANZ is again, I've touched on this a couple of quarters, a highlight and a standout for this business. We've kind of retooled the business model in K12 in Australia and New Zealand. And I'll highlight something in a moment, some really amazing progress that we have in these markets. And as you see, 33% year-on-year growth is pretty good. The U.K., I think the U.K. team should be applauded for what they're doing there. We don't yet have all of our product available in that market. That's some content that we're filtering, classroom management and some data analytics tools. That's coming. The Cal will soon arrive. So we're expecting the '26 calendar year to be a growth year, a substantial growth year for the U.K. So that's probably the only thing that I'm -- I wouldn't say disappointed because I think the team are doing an outstanding job, but I think there's room to significantly improve those numbers next year. Yes. This is a new chart we've put in. And really the purpose of here is to highlight how strong and reliable our business is. What you're seeing here is a chart showing the weighted value of our K-12 pipeline over the last 3 years, split by quarter, the comparison as to how much of that pipeline is then converted into actual gross ARR or contracted ARR in the next quarter. And you see with a band that there is a reliability, very much a predictability in the numbers that we provide to the market in terms of the pipeline and then the dollars that it turns to exit ARR in the subsequent quarter. Now the quarter 3 is a quarter that we're in at the moment, also that we just reported on. And our pipeline was nearly $20 million. Our unweighted pipeline was over $40 million -- was $43 million. That's an extraordinary figure. The marketing team in the U.S., the sales team in the U.S. have done an outstanding job building our pipe into this quarter. And historically, we've been converting somewhere around 70%, 75% of that pipeline. Now timings are always hard to predict within a tolerance, but that gives us a lot of confidence that Crispin's team has set us up for an outstanding into this financial year. And remember, whilst the main fiscal year-end in the U.S. is the June quarter, there are some states, Texas, in particular, which is the second biggest region in the U.S. their fiscal year ends in August. So there is a sell-through to really kind of end of August, early September. So yes, we're set up in an amazing position. And the pipeline is still growing, I might add. So incredible result. The SaaS metrics haven't really changed since they were last reported, except maybe the value of this business at about 3.3x revenue is very much underperforming. Certainly, when I look at our private equity-backed competitors, I was in the U.S. recently talking to private equity groups that are in our space and EdTech beyond. And typically, they're talking 8 to 12x revenue multiples, and yet we're currently trading at 3.3x revenue multiple. So I've got work to do with our leadership team to explain our story to the capital markets and hopefully lift that in the coming months. But I'm very confident that what we'll deliver through June will give some outstanding story July. And hopefully, we can all see some appreciation in this valuation. Another new chart that we decided to put in this quarter because I think, again, it speaks to the reliability of this business that we're an ARR business. And what I think the market doesn't understand is how visible business-- So we have, for instance, in the U.S., we have access to, for the most part, details on what all of our potential clients, all school districts, who their providers are, what they're paying and the kind of general contract terms. And we can then load that into our CRM and then we can allocate those opportunities across our sales teams and give them targets. And we have enormous amount of predictability in terms of the opportunities that we get when they come through the pipeline and how they convert. And then when we invoice and when it turns into cash flow. And the idea of this chart is to show you from the reported recurring revenue and how that converts into cash and revenue. I think the best chart to look at that is the chart on the bottom left. What you see here is our reported ARR, what we describe as exit ARR. And as I said before, our exit ARR at the end of March was $137 million. And what we're seeing in the last 2 years is our exit ARR is almost to the dollar turned into the subsequent year's revenue and the subsequent year's cash collections. So again, very, very predictable. So I think within -- again, and subject to FX movements, I think investors could probably have confidence that from 1 April through 31 March next year, we should be collecting more than $130 -- remember that figure is net of reseller commissions and reseller commissions goes through our margin. So I think that very quickly, you can calculate that this business is can be generating serious profits and cash flow in the next 12 months. So we have turned that corner. And again, this is highlighting how predictable this business is and that inflection point. This is looking at our cash flow. And again, adding another piece of insight, which I think the market has been asking us about for a while, which is how cyclical your cash flows. What you're seeing here is our quarterly cash collections over the last 3 years split by quarter. And you can see on average, in the March quarter, we're collecting around about 20%. And that's the reason why we burned cash in March, burn less cash in June, but that's the cyclicality of this business. The majority of our cash flow comes in that September quarter, followed by December, not far behind. And as I said, in the March quarter, that's cyclically low point. So totally to be expected that this business burned a bit of cash in the March quarter. That will then -- will be less in the June quarter, and then this business will never burn cash in our modeling from 1 July onwards. Okay. Chris is on the line, but look, I'll speak on his behalf, but feel free to ask questions if you'd like. But the KXL part of our business is doing exceptionally well, particularly in the U.S., where I feel like we -- I mean, we're certainly dominant in the U.K. But in the U.S., we are, without question, dominating. And all the kind of key things that we look for in our business are going the right way. The kind of lagging metrics of ARR growth of churn and renewals and products per customer and average revenue per student and average sales price. They're all growing the right way. But what we're also seeing at the coal face is outstanding NPS scores and customer satisfaction scores and even things like the ability of our team to respond to customer service requests inside 30 seconds. So we are way ahead of everybody in the market in terms of our ability to understand customer, deliver products to them, understand expectations. So all of our kind of leading metrics are going the right way. And as a consequence, you're seeing what you see here, which is our lagging metrics are showing outstanding results. The highlights to me, I guess, are the 2 charts at the bottom. The average sale price is going up, which means that we are layering additional products and going upscale, selling to bigger and bigger school districts, big enterprises we're talking about schools with more than 100,000 students are now regularly interacting with our business. But whilst doing that, we are also increasing the price points of our student licensing, which is a very hard thing to do, and we're doing it really well. And I think that is a trend that you'll see continuing. Very excited to see what the sales team does in this June quarter, where you'll see that continue, but you'll also see us having a crack at a lot of renewal opportunities. So the kind of products we sell, the cross-selling, the net revenue retention figure will be a key thing that we look at and we'll be reporting on in that June quarter. So again, Chris is on the call. A couple of things to highlight. We've launched the EdTech Insights and Cloud scan products, which we promised last quarter, and they've now generated more than $3 million of pipeline that I just spoke about then. We've already announced this, but we were recently appointed as the preferred provider in Ohio, which is a very significant state, 1.8 million students. It's nearly half the size of Australia. It's massive. We have nearly reached 25% of Texas students on our platform and our Texas preferred partnership with TASI, organization called TASI has now been extended for 2 years, I think it is, which is a huge pat on the back of this business. Texas is now our fastest performing region. And we've recently deployed our technology into a school district with 400,000 students, and it works. And so we are incredibly proud that our business, which literally 4 years ago was selling into school districts with 4,000 students, we can now reliably deploy into school districts that are bigger than Adelaide and South Australia -- South Australia and Western Australia combined. That's the scale that we can now sell into, which is super exciting. All right. So a couple of highlights. I'll just touch on it then. TASI is the technology alliance for statewide initiatives. It's essentially cooperative of all of the Texas Education regions, 20 regions there. All of the CTOs of those regions got together and formed this alliance, and they worked collaboratively together to get better technology outcomes for Texas students. And a few years ago, they went out and scoured the market looking for the right safety and well-being product set for that market, and they selected us. And we're really proud to announce that that's been extended now for a couple of years. It's our best-performing region. We're getting close to 25% of students in that region on our products. It's 5.84 bigger than Australia. It is an outstanding opportunity. And as we say here on the last point, Texas is very pro-parent, as you can imagine, and it's very much oriented towards empowering parents and parent schools to keep kids safe. And the implications of that pro parent safety approach is really driving business to us. Their regulatory environment supports many of the things that we can uniquely provide, particularly the ability for parents and schools to share control of those learning devices. So we're in an outstanding position to service that market. And I think that market is a great example of what is possible. And I think you'll see similar regulatory moves, not only in the U.S. but outside. Actually, Chris, could I get you to talk about the New Zealand Trust because this is an amazing achievement for this business, and I'm super proud of you and the team.

Yes. Thank you, Tim. So -- what this talks to is a partnership that we formed with the West Auckland Trust. Now the trust, as it says in the bottom left, received their funding through alcohol and gambling taxes. And their sort of MO in life is to invest in projects that deliver good to families. And what we've done collectively is work with the trust to fund Pulse, which is the student check-in tool for a large number of schools within the West Auckland purview of that trust. And really, that just opens up the opportunity for students that are looking at a way to have a voice and reach out at times for help and actually get that through the funding to the trust rather than the schools having to fund it themselves. So -- and we, as it says in there, have integrated this cultural localization with Tamari, the local language. So that it's very unique to the New Zealand market. And what we now expect and are seeing with other discussions is that this model with other trusts, and there are multiple trusts across New Zealand and also communities of learning that are all interested in investing in children, and they see not only Pulse, but we're in discussions to expand that out to our other offerings as a very worthwhile investment of their resources. So yes, a lot more to come out of this. And I'd love to see this replicated in other regions in the future as well.

Yes, thanks Chris. Yes. Look, what I love about this is we're now working with a very substantial community with underprivileged and disaffected kids in New Zealand, and we can now be able to demonstrate the efficacy of these tools, working with these communities, working with these schools and that everyone knows I'm a massive fan for the well-being aspects of our business. I think mental health for youth is a huge problem, and I see our business pushing further into there. And I think this now will provide an evidence base for us to do that more aggressively globally. It's very exciting. Okay. Our consumer business, look, I keep mentioning it is just so well run, and it's in such a good spot. One key highlight for us, we've been diving deep into the cost structure of that business, and we're now generating literally 360% return on investment for every $1 of marketing in the consumer business, we're adding about $4 of margin of lifetime value. So that's time to accelerate. We're gradually lifting our investment in that market, but making sure that we're maintaining our financial disciplines and promises. -- but that is an outstanding business. All the metrics going the right way, in particular, churn is incredibly well managed. Average annual recurring revenue is growing around 20% per year and average revenue per account is consistently growing. We're also now, without question, starting to see a moderation in our customer acquisition costs because we've got U.S. schools talking about printer controls and talking about the custodial product. And really, that's the kind of -- that's the end game of this business is to allow us to put our foot down in the consumer part of our business, but not just have to pay for every customer that we acquire actually to get a resident benefit because we've got soon to be 20% of U.S. schools talking about print controls and our approach to printer controls. So that's the game there and really well positioned, I think, really well positioned. That will become a big growth story for us in the next few years. And look, we also highlight there on the call out that SoftBank have now launched custodial through BSS, which is their subsidiary. So SoftBank is now available through the -- sorry, custodial is now available through SoftBank's online channels. It will be available in their retail channels in the next month or 2. And then we're also hopeful if we do a good job there, we're hopeful for a deeper relationship with SoftBank. So again, I won't go into much detail there because we're in -- we're working on that with them, but a lot more to talk about there in coming months. So what do you -- what will I ask investors to think about or look out for the next few months? So clearly, it's K12 June quarter, September quarter, there will be significant growth. Last year, as an example, we added $9 million of recurring revenue across the business in the June quarter. An extrapolation of our conversion numbers from the slides I saw before, we put that somewhere between 14% to 16%. So look, we're hoping to deliver a very, very strong quarter. And again, there's more to come in the August quarter, September quarter with Texas. We should collect a little bit more money than the March quarter. And so if you think about our cash collections profile, the main cash collection period as we highlighted in the previous slide is that September quarter. So certainly for this calendar year, expecting to be significantly cash flow positive. And for this financial year that we're in, we're expecting to be materially EBITDA positive, still forecasting somewhere between 10% and 15% EBITDA margins for this current financial year. All right. Hopefully, that was a decent summary in 20 minutes. I'll hand over to Ben.

So a couple of highlights from this slide, something to point out around the March quarter receipts is in the prior year, there was around about $500,000 worth of receipts relating to McG, which is a business that was divested in June 2024. And so if you strip that out, the customer receipts growth is actually around about 12% year-on-year. Worth highlighting that the March quarter is difficult to shift the receipts number because the business is so quiet from a new business perspective in the U.S., in particular, in the December quarter, but also the U.K. So it's -- you're not going to see the same double-digit growth as you do in some other quarters. But also as we flagged earlier this year, and I've talked to a number of investors about that the business has been slowly moving away from the 3-year cash upfront deals, which does impact the cash flow profile slightly. So -- if you go back 2 years, we were probably writing around about 15%, a little bit more of our deals in 3-year cash upfront business. And now that's in any given month, maybe 5% to 7%. And you saw that manifest in the half year report where we talked about the significant financing component and that's attached directly to that coming down from about $1.4 million for the half to around $400,000. So they're probably the main factors at play with the cash receipts, operating activities and investing activity cash flows, we're pretty happy with that stayed relatively flat, which we'll touch on in a bit more detail on the next page. And the other point to note on this page is around FX sensitivity. We've included the same analysis that we put in 31 December, just to give people a feel for the impact that a movement in the Aussie dollar against the U.S. and the pound in particular. Those are the 2 main currencies that we have sensitivity towards. You do see the numbers come through a lot more in the ARR, and there's a bit of a natural hedge within the business in terms of net cash flow as well. And at the moment, compared to last year, it still remains slightly positive even at that sort of $0.65. So there's a little bit of a tailwind there without being enormous from a net cash flow perspective. Moving to the next page. A little bit more detail here around the line-by-line costs. Some of the headline numbers look bigger around staff costs, the increase of 13%. But if you strip that out, the FX impact there, the increase quarter-on-quarter is actually around 4%. So it's in line with 3%, I should say. So it's in line with CPI and the pay rises that have come through for the majority of the business were 1st of October, but for custodial was 1st of January. So relatively stable there, which we're pleased with direct costs. There's some seasonality in the payment profile there, but again, in line with prior year and stripping FX costs out, actually down year-on-year. And now that a number of those annual upfront payments have moved through the business, I'd actually expect them to be slightly down in the June quarter. And fixed other, again, there's a reasonable amount of FX impact in there and some once-off annual payments within the quarter. So I'd actually expect fixed other to be down quarter-on-quarter in the June quarter as well. So costs should be largely flat across the June quarter when compared to March. And as Tim touched on earlier, we should collect a little bit more cash in the June quarter. It will really depend on the timing of ARR being written, which often does happen later in June. So the pipeline will convert to cash most likely in the September quarter, but June is historically a slightly stronger month than the March quarter -- quarter, I should say. Hardware costs is probably another one that's worth calling out. There's been a big effort across the business there to get efficiency there. So the March quarter is a period where we start to purchase a large amount of hardware in advance of the selling season. So notwithstanding the fact that the business has grown ARR by 25% year-on-year, we've managed to get those hardware costs down 12% year-on-year, which is a really good outcome. So that's been a big effort across the business to try and maintain those things. And net interest costs that we've talked about previously as well we're deploying some of the excess cash that we've got into high interest term deposits, we've managed to bring the net interest cost down slightly as well. So that's a very pleasing outcome as well. Next slide, Tim, please. Not much to add here. It's just the usual update around the market cap. So on that note, we can move into questions.

Just turning microphones on. We should be done right now. Can you guys hear me?

Well done. Indicators is very strong. So a couple of questions. Just to kind of clarify a few things here, some new charts new analysis. Is the expectation that the ARR from FY '24, call it, $116 million will convert to cash for FY '25, i.e., $116 million for cash receipts for this year -- and that leads to kind of a fourth quarter number of $28 million relative to your cash cost of $29 million. So just to kind of understand the expectations around the cash burn in the fourth quarter, is it like negative $1 million, negative $2 million. Is that what you're thinking?

Yes, probably not quite that strong given the move away from the 3-year cash upfront and also a portion of the ARR pushing further into the June quarter than historically. So I expect the U.S. this year will be, I'd say 60%, maybe even more of the new business written in the June quarter, which will be the peak. So that pushes some of the cash flow into the September quarter. So it will probably be slightly softer than that, but materially within touching distance of that.

And you haven't given guidance for FY '25. Obviously, lots of moving parts around ARR. But just so I can just talk through numbers with you guys. So $19 million, the weighted pipeline that's strong, times that by, call it, 70%, gives you kind of 13% on $137 million. So is the expectation here that it comes in and around that $150 million mark? Was that within the ballpark then, Tim?

Yes. Look, yes, that's why we're trying to provide those numbers to allow investors kind of come up their own conclusions on that. Again, it can be significantly impacted by the last week of sales and, of course, foreign exchange. But yes, they're order magnitude about right. And look, that will be a -- if we pull that off, 50% increase or 45% increase year-on-year.

Yes, big numbers. And so the $150 million -- what I'm trying to lead to is $150 million of cash receipts in FY '26 is kind of what we're talking about here. That's what you guys -- the analysis you're providing. In that third quarter, the fully loaded cash cost base of your business was $29. Annual that is 120. Is there any expectation that $120 million will move materially in FY '26?

Look, you've got some variable costs in there, I think. So hosting costs will decline a little bit obviously the commissions. But I don't think it's materially wrong. Ben, that?

Yes. Look I think we will maintain the same, I guess, outlook as we've mentioned in the past, which is you have CPI in the staff in the first half of the year. And so if you work on CPI plus a little bit, maybe in that sort of 4% to 5% realm, then I think you're reasonably comfortable. There's certainly not a linear tie between even the variable costs and revenue increasing. We do get scale benefits, but the data and hosting costs will increase.

And just to kind of as you go through the -- into the promise land of free cash flow breakeven, as I say, the you talked to there around putting -- having the capacity to reinvest in the consumer because that's quite -- you can scale that with marketing dollars, you could say. What's the view around your view? Do you think you'll hold the debt, maybe get a new facility at some stage in the future, more favorable around the interest rates? Or do you think you'll hold that facility in place? Or do you think you'll do a debt draw and pay that down? What's the -- just to understand the capital allocation going forward?

Look, our expectation is that we can fund acceleration of the custodial business through gross margin. So without affecting your views or your modeling of cash generation into the future. And in terms of the debt, we're already in discussions with escrow about restructuring that debt. We have the ability, I think, in 1.5 years' time, maybe just over to -- with limited make goods penalties, let's say, restructure it. So we're in conversation with them about doing that now. For the moment, we're pretty comfortable with our net debt position. But of course, if we can -- and we are trying to reduce the interest burden, we'll do that.

And the last one, just the 25% increase in ARR, how much is price related in that? It sounds like it's like 5%, 6% is price and the rest is volume. Is that a good way to think about it?

Yes.

Okay. Good. And I guess we're all looking to wait to see the cash receipts cash up with the ARR growth, right? Maybe a question for you guys and the market and the questions that get asked to me. In your view, which quarter I guess it's a bad way to think about it because it's seasonal, right? But anyway, when that's going to catch up.

Yes. I think I understand your question. And the main reason it's not growing at the same rate is that 3-year cash upfront pivot that we're talking about. And to give people some context that probably don't understand the, I guess, benefit to the business of that is when you write a 3-year cash upfront deal, they're typically giving away a 10% to 15% discount on -- so we're costing the business ARR and there's no need to do that anymore. But historically, there was actually a push within the market off the back of Trump's first term there was a lot of funding. And so the customer was actually looking for it as much as we were. And there's still an element of that within the market. So it's not going to completely disappear. Our competitors are offering it and some of the customers want it. So there'll always be an element of 3-year cash upfront. And the other point to make around that is we still look to tie all customers into a 3-year deal. The majority of our contracts are still 3-year deals. They're just billed annually now for the most part rather than a portion of them being 3-year cash upfront. So as that normalizes over the next 12 months, you'll see the growth in cash receipts normalize back again with the growth in ARR, if that makes sense.

Yes. And while you're on that slide, just the last one I've had a few questions. Just in that fourth quarter FY '24, the average sales price per client per annum -- is that like a forward indicator that you get the fourth quarter?

That's a heading issue that should read Q3.

Yes. So guys, a couple of questions. Just one on the back of Owen asked and you answered. 137 AR plus a $13 million to $14 million to $16 million, I don't know what Q4 is going to look like, but you're going to end something like $150 million. If I just run spot FX rates through today, that's like a $4 million headwind versus kind of what you've printed in the March quarter. So just trying to understand like the $150 million, is that as of today? Is that if we held everything flat to the end of March? Because it just feel like talking $150 million when you've got a $4 million headwind might be a bit tough or maybe not, maybe you're still confident with the $150 million.

Yes. I mean the U.K. rates are still pretty consistent. So it's just the U.S. and you're looking at about a $0.05, $0.06 variance to the rate used at 31 March. So you're talking maybe $2 million, $2.5 million worth of headwind, which should still land us around about the numbers Tim was talking to...

Okay. Very good. And second question is just this move away from the multiyear contracts. So you've called that out obviously as being both a detriment for the upfront cash, but then it benefits the ongoing margin. So could you put a finer point on that? Because it feels like this quarter's cash flows were quite a bit lower than I had anticipated. I figure like a portion of that is just me mismodeling it. But just trying to understand how much like as we were kind of environment, cash receipts would have come in? Like is it a $0.5 million impact, $1 million, $2 million in this quarter?

Yes. It's more than $0.5 million. I think the biggest indicator I can point you back to is that $1 million worth of significant financing component difference in the first half of the year. So that's something that's, I guess, out there in the public domain. From a cash flow perspective, it would be around about that sort of $1 million, $1.5 million. And then the other factor, which is probably where your expectation differential has come from is more of the ARR than historically has been the case was pushed into that June quarter. So that's a combination of the U.K. probably being a little bit softer that Tim touched on earlier. So we're comping some pretty decent periods in the U.K. in the December quarter last year and the March quarter last year off the back of the CII regulations changing. So there was significant growth in the U.K. then. And so the U.K. having gone backwards, it's actually growing a little bit, but it was comping a pretty tough period. So that's probably the other factor there. But yes, you can see it in the pipeline data, all the numbers that we've talked about from a revenue or cash flow and all those sort of things are coming, but it's just pushed back a little bit further into the year is the other pace of the.

Okay. Brilliant. And then the flip side of that coin is obviously, there is a long-term rationale here, right, where this is just driving like you said a 10% to 15% or 10% to 15% less discounts across 10% to 15% of clients. So does that imply something like going forward, a natural kind of a couple of million dollar tailwind to ARR versus what we were anticipating previously?

The question is whether we can get the price increase out of those existing customers that already have the discount. And to the degree, I suspect Crispin can probably answer that better than I can. But certainly, the new business that's getting written, that discount won't be offered any further.

Correct. You wait until the renewal contract comes up.

All right. Brilliant. And then just final question, just on the U.K., I know you touched on it a little bit, but it doesn't kind of matter how I think about this. Like if it's -- you've been pretty consistently growing our business 10% to 15% a year. This quarter was like 7%. My understanding was also that March is typically the peak selling period in the U.K. You've added like $200,000 quarter-on-quarter. So it just feels weak. Like you've given some justification for it, but maybe we could just expand on the U.K. a little bit more, please.

Yes. I'll start with it. Yes, it was the top line sales on budget, but weren't where we'd like them to be. We've been impacted a little bit by churn. A big chunk of churn is the movement of schools out of local authorities, providing filtering into -- so the way the work is municipalities would hand over responsibility for connectivity and filtering to these local authorities. And in the last year or 2, because of budgetary and, I guess, political reasons, they're deciding to hand back filtering responsibility to the schools, the council run schools or the multi academy trusts. And so that's creating an opportunity for us to sell individual sales at a high price point, but it looks bad in terms of churn. So there'll be a big chunk of that. And so maybe you can give a bit more color on that, Chris.

Yes, that part of it. Part of it was just coming back from the elections and waiting on a new budget sort of deferred some decision making. Tim is talking consistently about U.S., in terms of getting that impression of our capabilities. What I see now in the U.K, we're going into the quarter already with $4 million of pipe, I mean $1.5 million of weighted pipe. And we used [indiscernible] for the U.K launch and that's already generating $0.5 million pipe in a month. And as we move towards the implication story and taking it inside, another things into U.K teams hand. Starting to see them coming to return to double digit growth which is what absolutely expected in FY '26. So, none of this is surprising to us and I can say teams have been able to optimize and build the future. And I am expecting great contributions to make in the June quarter.

The U.S. competitors trying to get 12x and we're at 3.3x. How do you close the gap? Quick or do you become someone who's taken over by the other companies in the U.S.

Well, yes, that's a risk, and it's a well-trodden path with ASX tech companies that have got to our scale or smaller and have not made it through into indexes and being properly valued. That's something that is definitely weighing on the mind. How do we get the market to see the business that I see, which is a company that's growing north of 25% year-on-year with a well-managed cost structure that's cash generating, that's profitable to the tune of 10% to 15% like we're Rule of 40 effectively from 1 July and will be Rule of 40 forever and comparable companies, even less performing companies in the private space in the U.S. are trading at 8x to 12x multiples. I think it's just -- I think the capital markets want us to deliver it multiple times to start paying you that value. whereas in the private space, they're willing to take the, I guess. So all we can do is keep reiterating that story, the story that I'm going to explain to you now about where the company is at. And hopefully, we can bring the market along with us.

And [indiscernible] me now, ask your question.

Ben, can you hear me? My question is just related to the U.S. opportunity going forward. So we've got Texas on the TA now, Ohio. Can you talk about just the size of the opportunity of Ohio relative to Texas? And I guess, on a look-forward basis, the outlook for the U.S., which states you think are highest likelihood? And I believe you were in the U.S. a few weeks ago, Tim. So maybe just talking about, I guess, what the sentiment is with Trump and what have you.

I'll start, Chris, and I'll talk about more specifics. Look, I was in the U.S. mostly -- I went to the AS GSV event, mostly I was there to speak to our competitors and the private equity groups that are circling our industry and just kind of get a read for how they're thinking. And that was really interesting. There is a view in the private equity world in the U.S. that there will be a convergence of online safety and real-world safety. Obviously, issues around safety in schools, guns being brought to school, teachers protect themselves, tracking students, fall pass systems, alert systems and so on. It's a big and growing industry in the U.S., and there is this overwhelming view actually that the of the PEs that online safety and safety will merge. So I wanted to kind of keep abreast to that, how they're thinking about that and how they're thinking about us in that context. That was interesting. In terms of the Trump thing, nothing's changed since we put out that release a few weeks ago. There was an element -- there was, without question, a move in education to simplify procurement, single throat to choke, single vendors, however you want to describe it. And we're getting the benefit of that against groups like kind of specialist providers of classroom management tools or monitoring tools and so on because we've got multiple sets of products. And also our AdTech Insights product is aimed at that procurement commercial functions on schools are looking for savings, and we can identify them as well as anybody. Beyond that, our industry is funded by local rate payers, state budgets and it's backed by federal legislation. So there's no direct impact on our business, but we do definitely see some more service spec buying, which I think is an opportunity for us. So Chris, and more broadly, Chris, so for you to talk about where we win and how we win and then.

Yes. So the question was in regards to which sort of states we expect to win. We doubled our penetration in the Texas market through the TAS relationship in the last 12 months. I think we'll continue to see that growth in Texas. The parent piece that we have, which is truly unique is a big part of why we're winning those deals into these Texas districts. And I expect to see a similar opportunity whilst the smaller state still at 1.8 million students, Ohio and the same relationship we've formed there, I expect us to see a comparable growth within Ohio. Florida, we've got some material opportunities underway with districts well in excess of 100,000 students. In fact, we've got 25 roughly opportunities with student sizes of that range throughout the U.S. But Florida will be a large contributor for us this quarter. As Tim said, going back to Texas, we'll continue to see them outperform in the September quarter as well. And then finally, California, just in terms of the size, which is now the fourth largest economy in the world apparently, we'll continue to see major contributions from the state of California.

Great. And maybe just one more in terms of -- on a look-forward basis into FY '26. It sounds like U.K., we're getting excited about the potential growth opportunity over there. U.S. is also very strong. So just on the relative, I guess, opportunities in the 2 larger regions, how should we think about it? Which one are you more excited about?

Yes. So last financial year, we added $19 million of ARR. This year, we've added effectively that already, and we've got the biggest quarter to go. I think I've said in the previous quarterly releases that we try and aim for 15% growth in our growth of the prior year. And that -- so we were kind of expecting for this financial year to get somewhere between $22 million and $25 million of ARR growth. And I think that's clearly quite comfortable now. But that's probably how Chris is going to be -- he hasn't yet finalized his budget for the '26 financial year. That's no doubt how we'll be doing it and we'll be thinking about growth on our prior year growth. So 15% to 20% growth on maybe $25 million to $30 million of ARR growth. That's probably how you'd be thinking about it. Look, we can talk more about that in the coming months as we lock down that budget. Now there is infinite opportunity way. I mean you and I spoke about this, like the U.K. monitoring, the parent controls, well-being, the U.S., we're only at 2.4 products per customer, and we've got 5 products to sell and more products and modules coming. We've got the non-English-speaking world. We've got controls, there's infinite opportunity for us. But we don't budget on that about how much could we own of those markets. What we do, and Crisman's team does this brilliantly, is they literally go now to account by account and salesperson by salesperson and give everybody a number. And those -- that process gives us high confidence, predictability on this person has a $1 million target and most likely they're going to get 80% of it, and therefore, they're going to double their wage and so on. So that's how we build our budgets, and that's why I think in these sessions, we speak so confidently about our ARR and our pipelines and how that will turn into cash and profit. So I know it's probably not the specific answer that you're looking for. But honestly, I feel like there is infinite opportunity, but we kind of run our business much more on a granular salesperson account manager by account manager type structure.

Just I guess my 2 questions have kind of been answered, but I'll revisit it in some way. But Tim, on Slide 11, I guess, where you're referring to the average revenue per student and you're referring to that targeting $10. Have you put any time line, I guess, on reaching that? It's probably a bit tricky but I ask nonetheless. And then maybe just revisiting some of those comments you quickly made there about the products or services that will drive it up to that $10.

Yes. Look, it's a bit of price increases, but it's mostly about cross-sells and upsells. We've progressed very, very well in the last couple of years, last year and half in particular, as you can see in those charts. Look, I've been aiming to get there by the '27 year, whether we can get there or not, not sure. Look, we'll know a lot more by the end of June, to be honest, with all these new products. So let's have this conversation in July. As I said, 2.4 products per customer in the U.S. We've got filter class wise, which are -- most customers have those. We have Monitor, which is probably 30%, 40% of customers have that. We have Pulse, very few customers have that. We've got the custodial product, but it's a free product for schools, albeit now creating a benefit, a resident benefit outside. We have EdTech Insights, which has only just been launched, and it's showing unbelievably positive signs. And then EdTech Insights is going to then morph into more fulsome data analytics products inside the next 6 to 12 months, which… which should offer another kind of $2-plus per student product opportunity. So yes, I think that's 6 paid for products plus Chrisman's got up his sleeve these content aware capabilities, which he sells as modules or added value to the filtering and monitoring products, which are another $1 per student per year each as well. So in combination, there, and we're at about 2.4. So look, that's the key for us at the moment. When I think about my priorities, the first thing is unification, which makes available capability available everywhere. The second thing is the experience and the go-to-market to make sure that as many customers can buy those products as possible. And then I think about the control piece, selling through our expanded footprint of parents and then international, the problems that we deal with are an international, not English-speaking problem. And so we've got a little business in Spain that I think, doubling every year has done so in the last couple of years. That will become the kind of partnering and international capability of this business probably from the end of next year going forward. So yes, that's -- hopefully, that answers your question, Ross. But definitely in the next 12 months, it's a high focus on unification, all our products available everywhere and lifting the products per customer.

That's very helpful. Back on the U.K. just for a second. I think you've -- and I said this pretty well, but you said the growth of 7% was you've acknowledged a little bit softer, but you're also cycling a pretty strong PCP. I was just thinking there might have been a timing issue where the growth that didn't happen in the U.K. that you're hoping to has kind of been pushed into the fourth quarter, and that was one of the contributing factors to having a higher weighted pipeline, but it feels like that's probably not the case and the weighted pipeline is probably far more genuine growth than a timing issue.

Chris you want to take that?

I think it's attract both but mostly on the general growth that we have in the pipeline. Ross, so we have definitely as I mentioned before just delays in the decision of a sort due to government [indiscernible] and budget concerns etc., which has been addressed. We saw some decision making [indiscernible] and now we're actually seeing customers based on this. So, I definitely see… I can say contribution from the U.K in this quarter is around 29%, last quarter it was less. In terms of expectations of end of contribution, I guess to expect this quarter to contribute more than this quarter.

Just a quick one, Tim. I think you mentioned in the past about the Optus PI, there was some cost savings there, just some internal processes you were automating. You're saving tens of thousands a month on that. Can you just maybe revisit that -- have you found anything else? Is that accelerating? Is it still a flat number or maybe some broader comments around how you're getting efficiencies from that offering?

Yes. So yes, I think there's a whole range of cost saving opportunities. And one of them is the potential to increase investment in engineering in Sri Lanka, which is obviously somewhat of an offshore type model. We're building out the team. We're building out structures there to make that a possibility, and I'm really excited to see how that's progressing. The specific measure that we put in place a couple of months ago actually was in our human -- was in our moderation pipeline. So it's the data that we capture from these devices and cloud services and center our cloud services for analysis and some tweaks that we did in there with our data team have delivered something like $50,000, $60,000 a month of savings. So that's now starting to come through those numbers. Yes, there's ongoing work inside direct costs in our human moderation, making that more efficient and support costs, which I think was touching on before. There's constant work going on, including -- and of course, product innovation, which is the Octopus team's main role is to accelerate the delivery of insights into the decision makers and schools. And that's the thing that makes sure that we are truly sticky and allows us to increase our price points. And I'm most significantly, I'm so excited about what that team are doing. I think the delivery of EdTech insights inside like 3 months was unbelievable and the work that they're doing on the evolution of our Career platform and what we'll literally be seeing inside the next 6 months is astonishing. So yes, it's a brilliant deal for us.

Thanks, Ross. We've got a 2-pronged question through the Q&A channel. First part is please talk through how we view commissions and taxes in relation to ARR versus cash receipts coming through. I think the main thing to point out there really is the cash receipts are net of reseller commissions. Taxes they're a separate issue there they disclosed separately in the cash flow statement. We obviously have tax losses still available to us. So that is limiting the amount of taxes paid at the moment. But the idea is, it is important to note that cash receipts are net of the reseller commissions. So you don't see them in the cash flow statement, but you do see them in the P&L. The second part of the question is, how is the sales agreement with the broadband provider in the U.K. going?

Yes. It's -- I mean, not quite where I hoped it would be in terms of the pipe. We've got a few hundred thousand dollars of opportunities now. Fundamentally, it's partly due to the same issues that I spoke about before with the U.K. market, which is sort of almost ready themselves -- the other issue is just they've had 2 of their people move on. So we've had to then wait and work with the people that have been moved into the roles, and that's all now happened. So yes, it's been a little bit frustrating, but looking forward, it's looking far more optimistic. So I'm hoping that in the future, we'll be able to sort of talk to more specifics around closed opportunities and a larger pipeline that we have with.

And that's it for all the questions, Tim. So if you'd like to wrap up.

Yes. Great. Look, that was a long session. Thanks, everyone, for attending for all the great questions. Look, as I said, I think we've done a great job of maintaining cost. We've grown this business at more than 25% over the year. We've added $25 million of ARR in 12 months. I think in July when we report the next results, that will be even stronger than that. and we'll be very fortunately talking about being cash flow generating and profitable. So look, we're at that turning point. Hopefully, we'll just keep being the drum as a leadership team, we'll keep delivering and Ben and I will keep talking to the capital markets, and we're expecting to see the kind of market in the coming months. Thanks, everyone.

Thank you.