Qoria Limited (QOR) Earnings Call Transcript & Summary

Thanks, everyone, for joining us, and we look forward to talking you through some of the highlights and having some Q&A at the end as normal, Q&A can be asked in the Q&A functionality or at the end, I'll turn on the ability to raise your hand and unmute microphone. Over to you, Tim.

Thanks, Ben. I'm just seeing people still jumping in, so I might give a moment. All right. Cool. I think everyone is in now. Let's go. So look, let me just quickly start with the highlights and position and then I'll go through the slides. So it was massive into the financial year in so many different ways. Let's start with top line. So we added something like $29 million, just over $29 million of recurring revenue in the year, which is 50% more than the prior year, and it grew our customer base, our ARR by 25% year-on-year. These are outstanding figures. Massive contributions overall in markets, particularly U.S. and the U.K., and we added $14 million of net ARR in that quarter, up 55% on the record of $9 million in the same quarter last year. Consumer business is flying at $18 million or more of ARR. We'll talk more about that in a moment. Cash collections, there's been movements given the sale of business and movements in our billing cycles, but now underlying actions grew 24% against the prior year. Gross margins are now over 90% operating costs. And despite all that growth, the operating costs grew at less than 1%, which is an outstanding result. For the first time, we have now started up guidance on some measures outside of margins, and we're expecting really based on the visibility that we have in the business we are now providing, we're starting conservatively, but we're starting to provide guidance on things like revenue at $140 million or more next year, ARR at 20%, EBITDA margins of 20%, being free cash flow positive for the year and for the half. And we're expecting cash collections to be very strong, particularly in this coming half and [indiscernible] year-on-year improvement at least. So they are the highlights, huge end to the financial year. We provided unaudited accounts, financial accounts in this result as well, which Ben Jenkins will go through in a moment. Okay. So let's go through a little -- so some big numbers here. We now look after 27 million kids. We have more kids on our platform than there are Australians, which is an achievement. 8 million parents use our services, and it's actually 32,000, only 32,000 schools are on our platforms. We intervene in a life-threating situation every 2 hours with calls being made to safety at schools. And that's something that we should be acknowledging and being proud. On the financials, said, past through $145 million revenue that was negatively impacted by weakening U.S. dollars, so we would have otherwise been just under $150 million of ARR, which we remain -- we're close to that now. As I said, we added $14 million of ARR in the quarter, which is 55% higher than the $9 million we did last year. And we think about that $14 million that added in this quarter, it was only in 2021, when we acquired Smoothwall, our entire business was $14 million, and we added that in 1 quarter, adding $29 million off a base [indiscernible] in the year. Now something I really think investors need to look at is this new market growth. It's probably a confusing metric, but it's something that I look at deeply. This is the amount of growth in our business that comes out of the IT -- K12 IT persona. All of our competitors are selling to the commoditized IT buyer in schools, and 50% of our growth is outside of that buyer. That's the reason why we'll dominate this industry because we've got legs beyond just the commercialized side of our industry. So yes, let's touch on guidance. We had an outstanding quarter. We've also, over a couple of quarters, talked to and shown -- demonstrated the certainty out of our exit ARR and how that [indiscernible] revenue and cash flow. And based on that history, that confidence inside our numbers, we're now confident to talk about the next year. And by extrapolation, I think you can start thinking through in your own quiet moments where that takes us in the coming years. So for this financial year, we ended with $145 million of ARR, $117 million of revenue, which compares to $117 million of exit ARR last year. Our ARR grew 25%. EBITDA margins were at the top end of our guided range of 10% to 15%. It would have been high. We would have been just [indiscernible] if we haven't made some extra investments in marketing spend, which I'll talk in a moment. And the free cash flow is negative over the year of $11 million. A big chunk of that was our movement from multiyear billing to annual billing cycles, which cost roughly half of that. So all those numbers were on or better than any expectations that we've been given. We expect to be comfortably free cash flow positive this half, free cash flow positive for the year. Revenue will be north of $140 million, and ARR growth of 20%, EBITDA margins of 20%. It means that we are comfortably a Rule of 40 company from 1 July going forward with the strong balance sheet and that will only be going upwards from 1 July. So we've -- I feel very confident to say that we've turned the corner, and we're presenting ourselves as a very different business to where we were 2 years ago. Okay, let's look into the numbers. As I said before, growth in all regions, but in particular, very strong growth in our U.S. K12 business, which added I think it was like $9 million recurring revenue on their own in that June quarter. They're growing faster than anyone in the States. So it's done a tremendous job. Qustodio business is, I'd say -- I used to say metronomically growing, but they're actually starting to accelerate. I'll talk more about that in a moment. The U.K. business is doing okay. All the products will be available to the U.K. market in [indiscernible] in the January -- in January next year. Actually, sorry, I think that's March next year. And our Australia and New Zealand business are on a tear, grew 41%. They're doing an amazing job. We've kind of reorganized our go-to-market in these markets based on the success of the U.S. model, and that's now actually exceeding -- certainly exceeding our budgets. So where we are financially, we've got more than $15 million in the bank at the end of June. As I said, that number is only going up. So a net debt position of $37 million negative will never be as that low again. As I just mentioned, we're expecting cash collections to be well north of at least 20% higher than what they were last year. And in this half last year, if I recall, we collected just under $70 million. So we're in a really good position from cash flow. I saw some commentary about capital raisings. That's ridiculous. We're not doing capital raisings. So balance sheet is good. Cash flow is in a really good place and in a place where we can actually start making some very sound decisions around where we allocate capital to maximize growth and make sure we achieve these strong guidance numbers that we've offered. Now our growth again, highlighted not only by the regional story, so we're now getting serious contributions from things outside of new logos. We've very much been a new logo sales business. But now we've got significant contribution from cross-selling new products. That's only going to accelerate as, in particular, our insights and content where our products become more well known in the market. And then the Qustodio growth is outstanding. And this is the key selling period for Custodial. You'll see the excelling in this half of the Qustodio or consumer business. We were negatively impacted by FX. That goes both ways. We have guidance at the back of this slide which Ben might touch on which shows that whilst the FX movement cost us in top line ARR by $4 million and has a revenue impact, it also has a cost impact because a lot of our cost of sales, data and hosting, of course, and a lot of our big chunk of our staff, about 90 staff [indiscernible]. So the net effect of that isn't massive, but it doesn't -- does impact our headline ARR number. All right. Crispin Swan's on the call, who runs our K12 business. He's available for questions. And we are literally killing it, as they say, the U.S. business, in particular, has immensely successful period. Not only the highlights of the ARR growth of $12 million in that business, which is astounding. Some really key things. We've won our first district in sort of the top 10 school districts in the U.S. by student number. That's huge. We added 1.5 million students, more actually than in the quarter, which is amazing. We grew our average order value or average sales price, we described here by 20% in the quarter. So that means that we are building a reputation and selling to bigger and bigger school districts. Enormous figure. Maintaining our net revenue retention. We're maintaining our net revenue retention now keeping our churn under 5%. And we've signed another state deal, which I'm really excited about. So Pennsylvania has selected us as one of their preferred partners in that region, which is a huge achievement. So all metrics in our education business is doing tremendously well, particularly in the States and Australia and New Zealand. And as I said, we'll have the entire Qoria platform. All of our capability will be available in the U.K. in the first quarter of next calendar year. And so [ Gab ], who runs that business there, will actually start to accelerate our cross-selling into '26. So that's super exciting for everybody. Consumer, we tried some investments. I think we invested about $1.5 million above budget, given the kind of the -- our understanding and so on into that Qustodio business and achieved unbelievable results. Cost of acquisition of less than the average order value. So actually cash flow creating growth albeit it cost us in our P&L sense because we have to write off the cost of acquisition and we take the revenue over time. So we cut that back. We pulled back on marketing investments in the Qustodio business to hit our EBITDA guidance. But from 1 July, that's now taken off again. And I'm sure you'll see very exciting results in that business. Now just to put it in context, Life360, which people often compare us to, they spend [ $90 million ] in marketing every year, and we spend in the consumer business, I think $5 million or $6 million. If we spent like Life360, we'd be a multibillion dollar business. And I think in time, we'll get there because of the performance of this business. And you see here the evolution of the product, the experience of that product is evolving rapidly, and is without question the best parental control product. And it's now becoming much easier for non -- for the users who are kind of less anxious about controlling their kids, and these are the parents that we're now trying to target through our schools program in the U.S., which is clearly making an impact on our cost to acquire, which is coming down very, very fast. So outstanding business. You'll hear a lot more. You'll hear me talking a lot more about Qustodio business in this half, which is their key selling period. So I think these are really interesting slides to highlight, the efforts that we put into maintaining our cost structure. Fixed cost percentage of our ARR is falling very nicely. As I said, our service margin or gross margin, excluding marketing costs, is over 90%. Now there was a 3-point increase there in the quarter. And our -- sorry, in the year -- and our net ARR. So essentially, our forward cash collections, the next 12 months collections, which net ARR is essentially analogous of as compared to our cash costs is showing heavily positive figure. So unquestionably, we're at that inflection point or through the inflection point. The predictability, and I know I'm probably going to get a question from Owen about this. The predictability of our sales from pipeline to converted deals, to revenue and collections is a feature of this business. And so we have obviously reported $145 million of ARR at 30 June. And so if you look at the chart at the bottom, our ARR highly correlates with our next 12 months revenue. So that's why we're now confident giving guidance of $140 million of revenue in the next year. And we've also given guidance on the growth that we're expecting in the next year and then you can start doing your sums about where revenue will go going forward. So as I said, every dollar that we add is adding 91% to the bottom line. We grew $30 million last year. We're expected to grow higher than that in this coming year. So you can do the math and see that we're not only free cash flow positive, we're paying down our net debt very quickly from the '27 financial year and there on. I won't dwell on these metrics because Aussie investors don't seem to be that interested. Our SaaS metrics are, without question, industry-leading. And this is a really important chart. I know people will kind of flip to the back of our call, the update and look at the [indiscernible] report. But what's missing is the nuance of understanding what's transforming [indiscernible]. During COVID, many schools were paying multiyear funds. The money was aplenty. And so they'd commit to 3-year contracts, even 5-year contracts to get filtering and firewalling and so on. That's not so much the case anymore. And obviously, to get those multiyear deals, you discount in the order of 15% up to 25%. And so now our business' trends are moving away from these multiyear billing into annual billing cycles. And so that kind of working capital surely hit that we've been enjoying to help fund this business going forward, we're moving away from. So our margins are improving very rapidly, as I said, into the 91% range, but it's impacting working capital now. And you can see it clearly on the June section of this chart, the right-hand 3 columns. So June '23 to June '25, we've seen a very significant fall in the amount of multiyear upfront cash collections that we're getting. Essentially, we're borrowing less money from customers, but it's translating to higher margins. And so that had a big chunk. That and the loss of -- and the sales of the Migiri business last year, negatively impacted our cash collections this year by $4.1 million on a per comparison -- comparative period basis. So if you do the sums, actually billing -- underlying billing and underlying annualized receipts were 24% up year-on-year, which is exactly what our ARR growth was the year. So the underlying business is only strengthening, and that is translating into cash flow. Pipeline, obviously, we emptied the pipe surprisingly well in that June quarter. And so you're seeing our red column here shows that the pipeline has come off a lot. But it is still a record pipeline into the December half. And our marketing team who are exhausted and they're coming back to work now, they're kind of busy again, back to work, trying to refill that part to make sure that we're kicking goals and hitting records again this quarter. We're in a fantastic position with nearly $9 million of weighted pipe into the December half. Remember, a big chunk of U.S. sales are still in that September quarter, albeit we did do a cracking job of converting those in June. And the Australia, New Zealand team who are on a tear, as I said, their key period is the December quarter. Some good things happening for the December half. Generally, though, the U.S. and U.K. teams are focused on back-to-school, delivering outstanding experiences for customers. And the Qustodio business will be a big revenue period -- revenue growth period for us. Okay. Less financial. I think it is worthwhile that investors realize the impact that we're making or from time to time, hear about it at least. So in the last year, we flagged 26 million risky behaviors by kids on our platform. 26 million times, kids did something on our platform that was so notable it had to be flagged for further analysis. Of those, 2 million of those concerns, so 10%, just under 10% of those concerns, were handled by our human moderation team in the U.K., who deal with some very harrowing moments, life-threatening often and sexually charged frequently, too. And of those, 4,400 -- 4,500 concerns related -- had a call -- required a call to be made for safety lead with the authorities. That's a call every 2 hours to deal with a child who's an imminent risk to safety. That's an extraordinary achievement. These pie charts in here, these circles in here show something that's quite intriguing, which is the distinct difference in Level 5, which is the most serious concerns that we capture, the distinct difference between U.K. and U.S.A. toxicity. P***, sexualized content in the U.S. is the dominant concern that is raised. The configuration of the tools is the same. It's just a big incidence of highly concerning access to pornography in the U.S. is -- what is it -- 2x, twice as big as the U.K. and Australia and New Zealand. In Australia and New Zealand, it's much more about kids at risk of self-harm, and that's the purple parts of these charts. So we're seeing remarkable data now, and we're actually also starting to see clear data that shows the efficacy, the evidence of the safety outcomes, and soon to show the learning outcomes is adjacent to the things that we do. So I'll be reporting more of that coming soon. I just mentioned that we won this deal. So this is the third state that's peaked Qoria or Linewize is the name of our product set in the U.K. as a preferred partner. So this is an outstanding achievement. U.S. team gives us access to -- preferred access to 1.7 million students in that market -- in a market that's essentially half the size of Australia, which is such an outstanding achievement. The agreement encompasses all of our products, including Edtech Insights, which is our brand-new product line. So look, that's the high-level overview. I think it's an amazing result both in top line growth, maintaining our cost structure where it is, improving our gross margin, improving our underlying cash collections by 24%. So every single line was outstanding result. We're now cash flow positive into the future and growing strongly. So I couldn't be more proud of the team. I think we're set up for success and continued domination of this segment. I'll now hand over to Ben, who will go through the numbers, and we'll then hand over for questions. Over to you, Ben.

Thanks, Tim. So believe me, we decided to include an unaudited P&L to show people where we landed, again on an unaudited basis for the full year against the guidance we provided. And so looking at that, we landed at about 13% EBITDA margin. And Tim's talked about the Qustodio investment, that was the conscious decision to make. You account for that and adjust back, we are about 14.4%. So towards the top end of the guidance range that we've given. And as I said, it was a very conscious decision. It wasn't something that was out of our control. So it's an easy one to, I guess, isolate and identify as a normalization. And in the months where we made that commitment or made that spend, the ARR added in that custodial business with more than double what it was in prior months. So the impact it had was really significant. And I think I'll just take the opportunity as well to reiterate Tim's point around capital raising and marketing custodial because we've had a few questions on conferences over the last little while. There is zero intention to raise money to fund custodial marketing, it will be funded out of excess cash flow, and we can tweak it up and tweak it down within a day's notice if we need to, depending on how the business is operating. So we will manage that spend through the financial year with the guidance we've given around FY '26 in mind. So I think it's just an important thing to reiterate. The really pleasing thing outside of that is our ability to keep costs under control throughout the financial year again. I think it's been -- it's a really big achievement and just shows the leverage that's within this business. Quarterly cash flow, Tim's touched on the customer collections, so I'd labor that point too much more. We split out the data in the chart earlier in the presentation. So you guys can see it really clearly as to how we've performed there. It's obviously on face value. Cash collections looking flat is something that might raise questions. But when you dig into the detail, you can clearly see that the annual billing has increased significantly year-on-year, broadly in line with revenue. I'll jump more into the detail on the next page. So again, touched on cash collections. Direct costs are obviously up there, but that is largely the marketing spend. You strip the additional marketing spend out of that and direct costs are well under control and being managed excellently by the team. On a per unit basis, it's continuing to come down. We've touched on the direct cost before and that it is a variable cost and will increase as the business grows. But the per student number will continue to come down over time. So we'll get efficiencies out of that piece. Staff costs broadly in line with what they've been for the last couple of quarters, notwithstanding pay rises that have come in, in the October quarter and -- sorry, in the October month and the April month. I'd expect staff costs over the next financial year to be somewhere in the sort of 5% to 6% increase range, accounting for CPI and some growth heads. Maybe it's slightly higher than that, depending on what FX does, but it should be broadly in those lines. So no dramatic increases needed in staffing levels to justify the -- or to deliver the growth that we're talking about from a revenue perspective. Fixed costs, it can bounce around a little bit, but -- and it looks like a big percentage, but it's a small number. So again, broadly in line with the March quarter, and we expect that to continue on. There's nothing significant that we need to invest in, in that sense. Hardware costs are largely seasonal in the increase from March quarter to June quarter. They're in line with last year, in fact, slightly down. So trending in a good direction. And for the purposes of the normalization of the June quarter, we've actually split out the detail there, so everyone can see it really clearly in the bottom quarter. Tim touched on the FX exposure previously. You can see from an ARR perspective, a $0.01 movement is reasonably significant. But from a net cash flow perspective, it's much, much smaller. So we're reasonably naturally hedged as a business due to the U.S. dollar and the pound cost that's going out of the business. FX has moved slightly favorably to us in the last couple of weeks as well. But as I say, the net impact to the bottom line isn't massive. So we're relatively comfortable there. And on that basis, we'll jump to Q&A.

Thanks, Ben.

I just need to turn on microphones. Give me 30 seconds. Owen, we should be able to answer your question now.

Sorry, I had to -- also [indiscernible] in the desktop to get a different screen. Well done, guys. Good set of numbers. All the leading indicators are very strong. Just a couple of questions from me. One, more operational, but just having $10 million in the K12 business, I guess that's a big uplift. Can you just kind of talk through the drivers of that $10 million? How much was, call it, the core filtering and firewall? How much was the new products with monitoring and the various others that you're pushing through the platform? How much is just kind of -- just talk through the drivers there.

It was $12 million. It was $2 million of cross and upsell and the rest was in new logos, if I recall. But over to you, Cris.

Yes, that's correct, Tim. Still the majority out of the U.S. is in the new business and new logos, Owen. And that's come through going up market as well as to mentioned our average sales price went up materially. In fact, we -- the 10 -- the top 10 deals that we did last quarter in the U.S. had an ASP of about AUD 350,000. So there is a great emphasis moving forward on upsell, cross-sell. And we do expect that percentage to continue to grow. But we're still at 16% of the market on a student basis in the U.S. if we focus there. So the new logos will continue to grow and we've got many different levers made to continue to see new customer acquisition as well as new products, like Tim said, Edtech Insights is hitting the ground and new other modules. So there's a lot of opportunity along with some of the channel deals that we've referenced before with CDW. I'll leave it there. But yes, you'll continue to see accelerated growth in both new business and upsell, cross-sell.

But in terms of the product drivers, is it predominantly still the filtering of firewall that's driving the new logo growth?

Filtering, firewall, crafter management, all of the above. And we did close, I think about $0.25 million in the quarter of Edtech Insights for early kind of customers. So are we going to expect a much greater contribution from that sort of data analytics products moving forward.

One thing that's of interest is the monitor products, which we acquired with Smoothwall in '21. That had about $5 million recurring revenue. That product on its own passed through $30 million of ARR by 30 June. So that's becoming part of the packages in some big deals, but mainly a cross-sell.

Yes, I'm just trying to understand how the $10 million of the new -- how much was the kind of monitoring, how much was new products, how much was filtering, if you get a product split about tenders, I understand that's changing over time.

All of that will include filtering and classroom management, possibly some firewall in the U.K. and a small point of that would be initial purchase monitoring, I'd imagine, but most of the monitoring is a cross sell as a group.

The mix has been pretty consistent with the last sort of 6 to 12 months.

And just shipping across to the guidance then. So OpEx guidance goes from -- I'm assuming the GP margin of 72% will hold into FY '26 just around operating leverage, but around reinvesting in Qustodio. So first question, is 72% of the right number for FY '26 GP?

Yes. I think as a starting point, that's about right. Hopefully, we outperformed that a little bit. But you're right, Qustodio's performing well. We're getting good growth there. We'll look to reinvest.

Okay. So OpEx guidance around that $73-odd million mark. The real question here is in FY '27, you kind of given FY '26 ARR guidance, which is quite large, which kind of gives an indication of what FY '27 revenue would be. We kind of know what the GP margin should be or thereabouts. Can we talk through what's your view around the OpEx increase will be into '27? And the reason why I asked that is because the operating leverage gets very large. Like if you're growing at 20%, is the expectation that you'll reinvest half of that? Or do you have a number in mind? Is it 5%, 10% OpEx growth? Just talk us through that.

Well, look, our target internally is to just CPI growth, the OpEx only. We're finding efficiencies, in particular, in front of the house, Crispin is driving efforts with AI tools to drive efficiency in the front of the house. And the back of the house, again, AI unification work and the movement of our engineering -- a lot of engineering growth is into Sri Lanka. I think we're adding -- what's the number, Ben, it's like 30 people this calendar year into the Sri Lankan team. So there was a strong emphasis on optimizing our engineering and product expenses, which is the lion's share of our costs. So yes, I think if you moderate CPI, I'm hoping I can outperform that model CPI, the doors open up.

They will definitely do. And then Qustodio, so $1.5 million additional in marketing in that quarter. I guess that was new information but you added $2 million in the quarter. Obviously, just understanding the unit economics here because I thought most of the growth would have come from like the B2B2C channel, which is obviously much lower CAC. Can you just talk about the $1.5 million step-up? I guess, that's in performance marketing? So just talk us through how we should be thinking about unit economics within the Qustodio going forward.

Yes. That's -- I'm actually organizing for Viktorija, who's the CEO of Qustodio; and Tamara, who's the Head of Product to run a session, which is hopefully happening next week. So you might get the opportunity to ask these questions directly to Vik then. In similar terms, what we found in that trial period in that kind of first quarter into the second quarter of this calendar year, we were finding average order values of north of USD 60 and average cost of Qoria customer of less than that. And that's a little bit of performance marketing, but what we're starting to play within in social media investments in brand building and that's layered on top of the B2B2C piece. So essentially, in simple terms, what we're finding is that the -- an effort in brand building and communication with schools is lowering our average cost to acquire in these key markets that we're operating in; in Australia, the U.K., Brazil and of course, the U.S. And they've also done a very good job at hijacking things like the Adolescence TV series that came out with Netflix. The team has been outstanding, responding very quickly to hijack that news flow and then turn that into eyeballs. So yes, it's bit of a performance marketing, but more increasing amount of their investment is now into social channels, and of course generative AI type search. What we're hoping to do is obviously hit the guidance, number one; not raise capital, number two. But fine-tune that business to not invest any more than they generate and they're seriously profitable now. But ideally, optimize acquisition at around the average order value. It's cash -- 0 cash impact in growth. But I think that's -- certain times of the year, that's going to be very possible. Other times of the year, not so much, but that's how we're going to target that business.

Good one. Well done, guys. It's a great setup for the next 2 years.

Ross, you should be able to participate now.

You guys can hear me?

Yes.

Congrats. Just 2 for me. Pennsylvania, can we talk about that a little bit more? You said it's a panel. Is it fair to assume it's a panel of 2 like it has been in the past. And then the second part of that one is you also called out that 4 products could be sold into that opportunity. I guess historically, when you've had these opportunities, you've started with one, and then shown in the menu and they can buy more over time. Should we read it that you're able to sell far more earlier on into Pennsylvania than you have in the past?

Yes. Maybe I'll hand it over to Cris. Yes but, look, it's a panel, it's essentially that we've been endorsed by the state as a suitable product for that market with the group pricing in that market. And so it's a big leg up, but Cris, I'll let you explain more.

You kind of summarized it well, Tim. Yes, it gives us the contractual relationship, but the incentives to work with Pennsylvania for them to promote it out to their districts. So you can think of it similar to [indiscernible] TASI and also the Ohio Management Council deal that we've referenced previously, Ross. And yes, in this case, we've been able to finally outset, get all of our products on to the pricing list with them. So yes, these things make a little bit of time to get going. But certainly, my expectation is that this as well as Ohio will start to follow the successes that we've seen in Texas with TASI where I think since that deal was done, we're now close to 20% of subscriber base in that market.

Sorry. Is it a panel of 2? Did you mention that or you did not mention?

I haven't mentioned it. We believe it's a panel of 3, but they haven't told us to be direct. So we're making some inferences there, Ross.

But a low number still, by the sounds of it.

Yes. Correct.

Just the second one, just on free cash flow. Do you think that each quarter in '26 could be free cash flow positive? And if not, maybe call it the one that would be? Or is it more of a '27 story with that where you can be pretty confident that can happen?

Yes, first half, so September strongly free cash flow positive; December, free cash flow positive, but less so. March and June will still burn cash, but hopefully, to a lowering degree, obviously, than this year. And on balance over the whole year, free cash flow positive.

And without getting too far ahead, it feels like that just gets closer and closer in the 3Q, 4Q in the '27 year?

It does. And I think Qustodio will be a big part of that because it's got a much smoother profile of billing annually. I think the March and the June quarters from an education perspective, they will never be huge quarters because the Australian and New Zealand markets are really the drivers of those 2 quarters from a cash flow perspective, and they're not -- they just don't shift the dial. So I'd say it's probably -- I'd say it's more likely actually '28 before you get to free cash flow positive in both of those quarters. '27 would be pretty close.

Got it. And just a quick one. The weighted pipeline at $9 million is a good number, but also flat year-on-year. Would you have liked that to be higher? Or is that just an example of just good selling that got the weighted pipeline back down to that number? Good conversion?

That's correct, Ross. Yes.

The other thing to point out, it's in the data that we've used to calculate with the weighted average conversion of the U.S. pipe. It continues to bill in July, August and September. And one of the years in the last couple, the pipeline actually converted to 110%, funnily enough. So not saying that, that will happen this year, but it's a unique period in the year for the U.S. with the September year-end for Texas and a couple of other bits and pieces. Hey, Wei? You need to unmute yourself, Wei.

Can you hear me?

Yes.

I had a phone call coming at the exact same time. So I wasn't sure what was happening. So a couple of questions for me. So I guess, interesting comment about your ROI on marketing spend in Consumer and how you dialed that back to basically achieve your guidance despite it being highly cash accretive. So what have you baked into your FY '26 guidance for marketing here on the Qustodio side?

Yes. I mean I won't give you a specific number off the top of my head. It's, I guess, in simplest terms, it will be a similar level to what we've got in the Q4 spend.

Over the full year, annualized.

Yes, yes. But as I said, it's an inherently variable spend, and we will manage it accordingly.

Yes. And what channels do you use to sort of market that?

The main one historically was obviously Google AdWords. So paid advertising for all those performance channels. It's affiliate marketing through online websites where you can find out about technology or parental control apps or whatever. And then now, increasingly so, it's finding influencers who are promoting our product or just general content, and AI-generated content to [indiscernible] social media platforms. And they're toying with how do you get identified in these AI tools as well. Just pretty broad based.

Yes. Okay. And then I guess a couple of years on as you get more growth and more operating leverage, you're going to go from a net debt position to a strongly net cash position. So in your view, what is the best use of surplus cash?

Looking forward to that, Wei, when this is a real problem. I was on a chat with a group of staff, 50 staff globally this morning and talking about this. And ultimately, I think the #1 [indiscernible] business is to focus on what the customers need, right, and buy or build products that customers need, make sure it makes sense for them. And that will then -- the money will then follow from that. So I think that really has to be the core focus. Now if in so doing, it's so cash generative, that there is a dividend potential. And of course, we'll deal with that when it comes to that. But I don't want to be in a position where we're just buying adjacencies -- competitors say, well, you sell the score, so let's do this, too. I don't think that's the way it should work. I think we need to be very conscious in circumspect about what makes sense for customers and extend out those ways.

To give the really boring financial answer, leverage isn't a bad thing, but the current debt that we've got is expensive. And so I guess reading through the lines of your comment, do we leave the debt there and to continue and invest in the business. That's a possibility, but not with the existing facility. We would look to refinance it at the very least to more commercial terms and then make decisions from that. [ Laf ], you should be good to go.

Just a couple of quick ones for me. I just wanted to follow up on your on your target of $10 per student ARPU, which products in particular do you think will drive that in the next few years? And if you could just update us on where the AI filtering on videos is at?

Yes. So I think the #1 thing that's propelling us forward is the monitoring product, and that's still less than 40% penetrated in both the U.K. and the U.S. It's a heap of white space just for digital monitoring, which is a very established need in both those markets. Then it's the content-aware modules, which is, at the moment, stand-alone pricing. It's the add-on pricing in our markets, but we'll probably just be embedded in higher-priced filtering products going forward. Our Edtech Insights, which is the ability for schools to analyze all the data to just look at the efficacy of their hundreds of millions, if not billions of dollars of spending on apps inside their institutions. And then later stages of this product is then connecting all of that data into human outcomes. So we expect $1 to $2 price points for those sorts of new products coming in the next 12 months. And then well-being analytics and the well-being products, which is nascent in our business, I think that there's still a long way to go on that product as well. So heaps of things coming, and some we already have and starting to show penetration. Cris, do you want to add?

I just think -- yes, you probably overlooked the new capabilities that we're delivering over the next half into monitor. So it's, by far, our highest ARPU product. And we're delivering -- we have delivered cloud scan, but now we're moving that to the ability to interrogate Google Docs, e-mail, chat. And what that will do is twofold. One, it will allow us to increase our pricing. And secondly, it will make us -- we already are at the absolute the market-dominant player in that space. So we'll see a far greater conversion ratio of monitor deals. As Tim said, yes, across the U.K., where we've been very successful with monitor, we've got 40% of our existing customer base. We got 4,600 customers only that have monitor. And in the U.S., that number is even though it's like 24%. So massive opportunity even in our existing base for cross-sell, but equally, as we get better and better, I think in the -- I think we shared that data, but the continued growth in how many products where we have per customer, we will see more bundling and therefore, again, a higher ARPU.

Yes. So I mean, look, it almost appears you're not too far off your target at the moment, right? And so you just called out a whole range of uplift from monitoring, including the Cloud Scan. You've got the AI filtering components, which can add more ARPU, you've got in tech insights. So in a year's time, also, is it possible that you could be recasting where that potential is? And are you thinking about other business lines that you think are a natural fit to really entrench ourselves within the school ecosystems?

Yes, we are. Look, and thanks for pointing out that trajectory. The trajectory is about fantastic growth in our ARPU K12 products, but also global products. So yes, we're really on a really strong pathway. And the insights, analytics products from Octopus, I think, is the thing that's going to propel that again forward in the next 2 years. Beyond online safety and student well-being, there are some natural extensions. Some of our competitors are entering real-world safety, things like call pass management, visitor management systems to dismiss your kids, like literally there are schools in the U.S. where you have to register to pick up your kid after school. So there's those sorts of things which are safety adjacent security, tons of funding in security because schools are being hacked constantly by threat actors. Mental health support services, at least on the data side, but potentially beyond that. The heaps of things. Ultimately, as I said earlier, look, we need to make sure that what we do makes sense for customers. And our view is that what we need to be is deeply embedded in the workflows of schools. We need to provide beautiful experiences, and we need to be part of the decision-making of the institutions' executive, and that's the thing that gives you sustainable advantage. And so that's how we think about these decisions.

So James?

Just a few for me. Firstly, around the U.S.A. market. Just keen to understand kind of where your market share is now? And I think Crispin, you mentioned that earlier, but then perhaps sort of where it was 3 years ago? And whether that's accelerating in your ability to continue to hold growth looking forward on a headline dollar number or on a percentage growth basis?

Cris?

Yes. So as I mentioned, James, we're just shy of that 16% market share on a percentage of the students that I think is like [ 55 million ] in the U.S. But there's still massive upside there, clearly. So we talked about some of the tailwinds regarding going up market. I mentioned some of the successes just recently, greater product bundling, Edtech Insights, there's other things coming into play. So for me, when I look at the U.S. in particular, we've got a massive greenfield opportunity. There's significant brownfield opportunity into our existing base for cross-sell. We've got opportunities. There's a big sponsoring in the organization focused on continuing to improve our already market-leading retention, price increases because of the improvements in products. And even, whilst it's not a short-term focus in the U.S., we started to look at markets like Canada. That opened up another 5.5 million students, 16,000 schools. So the potential there is really just starting. So I don't see it slowing. I actually see accelerating in the U.S. And then we get into the U.K. with -- as Tim mentioned before, the full expression of our solution sets coming to the U.K. shortly. And they're proven capacity to be able to cross-sell or they were like 44% of their total new ARR was cross-selling, and they've essentially only got 2 products. We'll start to see a real positive turnaround in the U.K., and we'll start to see their growth getting back into the double digits as of FY '26 and beyond.

Excellent. And also, I mean, one of our original premises is when we picked up the stock a while ago, it was kind of around B2C intercepting B2B, originally got us excited. Can we have a bit of an update on that and potential for that pillar of growth over time as well?

Yes. Look, I think it's a winner. I guess it's not turning into the direct dollars that are flying from B2B2C upsells. But we're getting -- I think we've got 15%, 16% of our U.S. districts have now launched the program. The process of launch are taking longer than we'd like. We're working on that. But then getting north of 20% of parents signing up to the product. We're getting 1% of them paying for the product. We have more than 100,000 parents using it now. But more importantly, what we're seeing is the brand benefit of it is astonishing, like the impact on our cost to acquire is very clear. No more clear than in Australia, where I think we talked about this years ago, James. Qustodio was outside -- Australia was outside of the top 10 of Qustodio's highest performing market. Qustodio was not overweight in marketing in this market, but is now -- Australia is now the #3 top market for Qustodio. The only difference is there is a [ 130 ] private schools here talking about parental controls and talking about Qustodio as an option. And there's no question we're starting to see the resonance of that in the U.S. market. So what's clear is it's -- this overall play we have of solving a problem, the school community approach and building a brand and talking about parental controls and school safety all in one breath is improving our business in all parts of our business. Even deals in telco deals are coming to us both on the K12 and the consumer side because of that capability. So it's -- look, it's -- I think it's really working. I think it's a massive strength of ours.

Just to add to that, if I may, James. One of the other sort of indirect benefits we're seeing of what we call community is just the increase in, I guess, close one ratios we're seeing across our filter offering. It is undeniably the market-leading proposition where a superintendent can engage their parent community and provide them capabilities on that school-owned device outside of school and ultimately pushing Qustodio onto their children's phones and tablets. And that level of capability doesn't exist in any of our competitors, and it's very hard to replicate in the short term. So it is a big reason why these customers that are signing up to us initially for filter because the community is a core part of that proposition. Then we see a very high attachment rate, as I've spoken to in the past, of class-wise. We've got monitor [indiscernible] Edtech insights. It is helping us get our foot into the door and then expand. So that piece of it for me, when we look at the kind of supporting effects of what Qustodio is doing for our B2B is significant.

I appreciate the detail, and maybe just a couple more. In terms of larger deals, so you've won recently Ohio, SoftBank, schools broadband, now Pennsylvania. Can we get an update on where these are at in terms of penetration and potential over time as well?

Yes, sure. I'll start with Softbank. So that -- that's live online. The next step is, I think, I've said a few times, is their retail channels. That's been pushed back for technical reasons from their side. We're ready to go. So waiting on that one. We'll start reporting numbers, I'm sure, within the next 3 to 6 months on that. So that's a strong commitment from BBSW and SoftBank. So super excited about that. Do you want to talk about the telco, the K12 one, Cris?

Yes. So schools broadband openly has been frustrating and a disappointment. We actually spoke about it on an internal call last week, James. There's been changes in the head of sales within schools broadband. But without going into too many details, we've essentially got -- if there's a new Head of Sales onboard. We're aligned with David. I think you would have probably attended his webinar we did some time ago now to have kind of monthly executive reviews of progress. Previously, they were not giving us visibility of deal registrations because of their markup methodology that we agreed. We're now going to see every deal [ reg ], so we can support them more actively in helping them close those deals. So yes, it's been frustrating, but certainly except -- expect us to be able to start talking about some more successes out of schools broadband. I think TASI, we have referenced the growth there. And in particular, how we've accelerated to close to 20% of Texas students with our consortium relationship. Ohio, and we've just mentioned Pennsylvania are just really quite fresh. But as I said at the beginning of this call, I'm expecting that we'll start to see similar traction to what we're seeing out of Texas. So more to come, James, more to come on those.

Ron, you should be able to unmute now.

Just a couple of financial questions. In terms of the balance sheet, the $52 million Ashgrove facility, can you just pay it down as you go? Are there any penalties? Can you just clarify that?

We can pay it down, but there are make-wholes within the agreement. We're about 2 years into a 5-year deal. So right now, it makes more sense for us to keep cash in term deposits and those sorts of things and offset the net interest margin. But come FY '27, sort of 12, 18 months down the track, they'll make some sense to start chipping away at it and start paying it down as those make-wholes become a lot more minor.

Yes. And then you mentioned FY '26, you'll be free cash flow positive. You finished the year with $15.4 million of cash. Should we expect that to be the lowest point in the cash balance through FY '26? Or it's going to dip below that $15.4 million through the year, but maybe finish higher at the end of the year?

No, that should be the last balance. And come to this time next year, it will be a slightly higher number.

Yes. And then just in terms of the capitalized costs. So you did $21 million of capitalized development costs through the year, but the last quarter was $6.2 million. So are you kind of annualizing more like $24 million, $25 million? Or is it -- they're under $21 million?

That's an estimate throughout the year, a little bit more accurate at half year for half year reporting purposes, and then we do a really large exercise of timeshare reviews, engineering department going through [indiscernible], identify everything that they've done throughout the year that's R&D related and finalize the number for full year accounts. So there's always a little bit of a true-up in the June quarter. I'd expect the number next year to be the same plus your wages increase. So you add 5% or 6% to it, and that will be the number for next year. It should be pretty steady.

And then property plant equipment, that was sort of $6.5 million. I mean, what are you spending that on? That's quite high. I mean, you're not just a bunch of computers.

No, that's almost entirely appliances that go into schools and school districts for the filtering products. So that would be 95% of it. The rest would be your staff laptops and other bits and pieces. So the filtering product we offer is a hybrid system where you have cloud only or there's in-line filters as well that are effectively service that go into the schools and school districts. So -- but there's been a huge amount of work put into that to keep the cost flat year-on-year even though the business is growing. So that's just about efficiency in the process, making sure we're not returning appliances that don't need to be and replacing them with brand new ones at no cost and all sorts of different things like that.

So going forward, that should remain around that $6 million, $7 million a year? Is that kind of it?

It will grow a little bit, but not straight line with revenue, no. It should -- if it's $6.5 million, call it, $7 million for next year and maybe $7.5 million the year after that.

Yes. Okay. All right. Well, that's it for me. Great results.

Thanks, Ron. That's everything, Tim. So if you want to wrap up?

Yes. Well, look, thanks, everyone, for joining the call. We had over 100 people. It's a record. So it's a lot of interest in us, which is great. And as I guess I summarize my section with, I think we're now set up with a business that's growing strongly with high visibility, growing in all of the markets that we operate in with a whole range of optionality in the business with new products coming to the market that we're operating in, which is very exciting. Cash generating, profitable. We'll be talking now on the basis of us being a cash profitable business this year and a Rule of 40 company. So really great position to be in. Thank you, everyone, for their support and helping us get here. And looking forward to speaking to you in the next few months. Thanks so much.

Thanks, everyone.

Thanks, everyone.