Qoria Limited (QOR) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our full year results presentation. We've got Tim here with us and Crispin hopefully joining, although I think he might be having some technical difficulties. Tim, do you want to take it away?

Thanks, Ben. And thanks, everyone, for joining the meeting. I can see a good group of new and old names. So yes, this is -- as Ben said, this is the release of our full year results for the financial year 2025. Of course, as I've seen through a lot of commentary today, a lot of this is already known news. We're a quarterly reporter, and we provide a glimpse into our pre-audited financial numbers in the quarterly report that came out, well, 8 weeks ago or thereabouts. So in this session, there might not be that much new news, but let me put things in context, particularly for those people that are new to the story. So Qoria is an online safety business. We're focused on the child that you see in the center of that diagram on the right, which is a little bit different to a security business, which is focused on protecting information or, for instance, a Life360, which is more focused on real-world safety or the location of devices and kids. We are now very close to being the biggest specialist provider of online safety and wellbeing technology globally, literally so close. I expect that we'll be there by the end of this financial year. And we believe Qoria is a very compelling investment opportunity. It's a massive market of something like 1.8 million kids that are in the hitting zone of online safety challenges. Obviously, that's a market that's becoming very influenced, I guess, by media interest, regulatory interest. There's constant talk about age bans and mobile phone bans and so on. So the attention in our space, and I'm glad for this, is only growing. We are a proven acquirer, brought together 8 businesses. I'll show you more of that in a moment, and we do that incredibly well, very, very well, known as a great acquirer. We are dealing with one of the most important challenges of today, which is dealing with the people that we love the most, our children. We're scaled already, $145 million of recurring revenue and now cash generating and profitable. Close to being the leader in terms of revenue, but I think we're definitely seen as the innovator and leader in this market, diversified, which is a huge advantage we have over some of our U.S. competitors where we have levers that we can pull with customer bases globally, particularly our consumer business, which is very [ core and ] operated. You can very much allocate your investment there to make sure that we're hitting guidance, but also achieving our growth numbers. And we have a very unique and compelling vision, which is I speak about often, I won't deal with it in detail today, but it's encapsulated in that diagram on the right-hand side, which is our student safety and wellbeing framework, which schools absolutely adore. It really talks to the way that they think about the challenges. Okay. We operate in 6 countries. We have 11 offices. We have customers in more than 100 countries globally. I think it's about 160, actually. But primarily, our revenue comes out of the U.S., which is probably 55% to 60% of our revenue now; U.K., Australia and New Zealand follow up behind on the K12 side and then the rest of the world in the consumer part of our business. Let's go through the highlights of the 2025 financial year. So we ended the year -- we're looking after a remarkable 32,000 schools, and we look after 27 million kids, which is more kids that we look after than there are Australians, which is a huge achievement. 8 million parents log into our services daily. These numbers have obviously grown healthily. We now have around 17% of U.S. students on our platform, around 40% of U.K. students on our platform. I think it's 35% of New Zealand schools are on our platform, and it's probably a similar percent of private schools in Australia using our platform, which is now becoming a huge growth market for us again, which is great. Most importantly, we are making a real impact day-to-day. I think it's every 31 minutes we're intervening in some situation for a school and it's every 2 hours we are making a call that is dealing with a life-threatening situation, making a call to a school safety lead or the authorities. These are remarkable numbers that this little business that started here is now achieving. In terms of financials, we ended the financial year at $145 million of recurring revenue. It would have been close to $150 million, but for the fall in the U.S. dollar, which, of course, we're very wired into, which is a huge achievement, 25% year-on-year achievement in revenue or ARR. Our EBITDA, $15.4 million was a sensational 684% growth on the prior period. And our overall ARR that we added in the year was $29 million, which is 44% up, higher than what we achieved -- what we added in that prior year. So essentially, the message there is we're scaled and we're accelerating. So the growth in our revenue is now stepping up as I guess customers are starting to understand us, our brands, what we stand for and why we're different. But the other stat on here that's most important to me is the new growth markets stat, 50%. So where the origins of the safety tech industry in K12 is selling to the IT director, selling filtering and firewall and technology. And that's somewhat of a commoditized industry. It's backed by regulation. There's always funding for it. It's very efficient. It's a good business model. But you're never going to break out. You're never going to be selling incredibly high-yielding products if you're just selling to the IT director. 50% of our revenue that we added last year was outside of the IT director. There is no safety tech provider in -- particularly in the U.S., but in K12 that would come close to that. That is the thing that is our sustainable advantage. That's the thing that's going to give us higher penetration and higher yields and higher growth into the future. So this is -- I had a previous version of this chart, which identified all the companies that we acquired that merged in with us over the last few years. But this is a pretty compelling chart. What it shows is, yes, we did from late 2021, we brought in a number of businesses into our business, Smoothwall, Qustodio being the biggest ones, but also some smaller groups like Educator Impact and [ Super Filter ] and one other. And those businesses brought talent into our business. But what you see since we've kind of absorbed those business, and you can see that really starting to take off late 2024, growth is accelerating. So what is, I think, becoming a feature of this business is the ability to bring groups of people together, technologies together, merge it into our ways of working and then take off. And that's very, very clear in that chart. Our revenue is really growing everywhere pleasingly. As I said before, we're diversified, which is the strength of this business. We have all these different channels to market. We are growing -- from now on, I think we'll be growing fastest in the consumer business. That wasn't the case last year. It grew 21%, the education business 25%, but you'll see that shift this year as the consumer -- businesses -- we're unlocking potential in that consumer business now we're becoming cash generating and profitable. U.S. market, obviously, K12 has been great for us. It's growing north of 30%. We're expecting 20% to 30% growth continuing from here at 17% of the U.S. market. We've got still tons of white space opportunity for us, let alone the increasing cross-selling of all of our new products that we're releasing to that market. So there's reasons to be very confident in the U.S. U.K. has been a little bit restrained because they don't yet have access to all of our products, but they've done a remarkable job growing over the last few years in the order of a CAGR of 8% to 12%. That will return to double-digit growth comfortably in the next 6 to 12 months as all of our product sets get launched into the U.K. market. New Zealand is growing incredibly well, continually growing close to 20%, I think it is, even though they're selling against a free filtering offering provided by the government in New Zealand. And that really shows it's a great testament to the value that we can create in our business that schools are willing to take money out of their instructional budgets and give it to us because of the impacts that we're making in the classroom and in the community. It's a huge story. Actually, I need to talk more to the capital markets about what we're achieving in New Zealand. And then Australia, which has gone through a number of go-to-market changes over the years as we've really kind of trialed different products and different GTMs in this market. We've really found our straps in last year, fastest-growing market for us last year of all of our K12 markets, and we're very confident that you'll see that continuing from here. Yes. So that's -- again, the strength of our business is that diversification and the ability to take our products in different go-to-markets and make them work in different jurisdictions. That's something that we've worked very hard at. We are not a hyperstructured organization. We're very much a delegated authority with an aligned structure, which works really well within our business. I think it's always worthwhile highlighting these charts to particularly people new to our story. Let me explain it this way. There is incredible predictability in our business. Our education business, we download literally from public records what services all of our customers have. A school district in the U.S. might be using GoGuardian for classroom management and Lightspeed system for filtering. That, by and large, is a matter of public record. And so we can find those contracts, contract terms, including oftentimes pricing. And so we can really target those markets. We can target those customers. We can target customers that are close to customers that ours who have enjoyed our service. We can work with resellers who are active in those particular markets. So we have incredible visibility about our opportunities. We've also now got 5 or 6 years of history of targeting those particular regions, customers or working with particular resellers. We then go through our planning cycles and allocate individual numbers to our sales teams and individual salespeople and success people. And so we have incredible visibility into what's coming for us in the next 12 months. And it's represented in this chart. The ARR that we book turns into revenue very reliably and turns into cash flow very reliably. In fact, historically, the end of year ARR, which for us at 30th of June was $145 million, almost the dollar turns into cash flow, cash collections and revenue in the subsequent year. So again, from planning cycles, all the way through to delivery, bookings, revenue, cash collection, this business is incredibly predictable, which is a great place for us to be. And it's the reason why we've now started to becoming a little bit more forthright in providing guidance to the capital markets, which we did for the first time in June, which I'll cover off in a moment. We're achieving something pretty remarkable in this business actually, which is reflected in these charts here. We're not only through our performance and brand recognition, particularly in the U.S., we're not only climbing up the totem pole into these major districts, we've got a school district in the top 6, we've got many school districts in the top 100 now. So massive districts with hundreds of thousands of students. These are huge enterprises that, at their scale, are expecting discounts on the products that we buy. So we're achieving sales at the big end of town in education, we're selling more products at higher price points. So our average sales price on the chart on the left is going up, reflecting that we're getting to bigger districts. The ARR per student, so essentially the average license fees that we're delivering is going up because we're increasing our price points because of our reputation and we're selling more products. And you see that reflected on the chart on the top right. We're selling more and more incremental dollar values of all of our products into all of our markets. Achieving all of that is a fantastic result, and it's the testament to the ability of our engineering product teams to deliver products that add value to customers and our sales teams to take those up and create amazing experiences with our support and delivery teams for our customers. That is a very unique achievement to be able to achieve all of those things. And all that means leverage is kicking in. One thing we've done very well in the last few years is keep our costs -- operating costs flat. And we've also improved our gross margins by making our variable costs -- limiting growth in our variable costs. And you see that latter point in the top chart. Our average revenue per student is -- so this is just in the K12 business is climbing consistently every year. But the cost to deliver that service, which is data hosting, hardware and marketing costs and channel reseller commissions, of course, they're staying flat on a per unit basis. So that's the jaws opening up at the gross margin line. And then what that's allowing on the chart below, given our fixed costs now have stabilized, it's turning into EBITDA margin and giving us confidence of now providing guidance to the capital markets about our EBITDA margins going forward. So we've seen a lot of commentary today talking about the inflection points, and that's reflected in these 2 charts here. Well, this is a new piece of information, which we haven't provided before. But I think people will find it interesting. We're now in the U.S. Let's focus on the U.S. Net penetration of the market, as I said before, we've got about 17%-- 16% to 17% of students in the U.S. are looked after by us. 14 states in the U.S. have -- we're in 20% or more -- 20% or more of students are using our product, 7 states have 30%, 4 states have 14%. And in one state, 63% of students in that state are looked after by us, 63% of students in one state, and this isn't a small state. It's a pretty big state. And so I'm often asked the question, how big could it be? How far can you penetrate into the market? Well, on some analysis, maybe we can get to 63% or maybe higher. The bottom line is there is a phenomenal and huge opportunity here. And the U.S. is enormous. It's not monolithic like the U.K. or the Australian private sector. It is a big place with all sorts of different procurement practices and all sorts of different challenges and problems to be solved. And we're showing that we can take up those different regional differences and solve those regional challenges in a very clever way. So I don't know what -- how far a penetration could get to. But certainly, our U.S. team, and Crispin is on the call if people want to probe him on that, are pretty confident into getting to the north of 30% in the medium term, let's say. We all put these up now because I think on the things that really matter, beyond profitability and growth, how are we actually performing in delivering good services to customers and doing so efficiently. And these are real highlights, in my opinion. So our recurring revenue -- all of our revenue is essentially recurring revenue. Our service margin is at over 93%, which gives us the ability to really drive up our marketing costs as our growth kicks in, where for every customer that we're losing, we're adding more revenue from existing customer base, and we're still losing a very low 5.5% of our customer each year. And I think that's probably going to be the high point over the coming years because we're doing amazing things at reducing churn. We essentially get no bad debts. And for every dollar that we pour into advertising, we get $9 in return. So a very efficient business. And now we've kind of hit that critical mass of cost structure, customers are knowing us, for the most part, that growth is accelerating and that growth is turning into EBITDA margins at the bottom. Okay. What's next? So as I said before, with the predictability in our business, the now years of strong growth, and I guess also the fact that we've made great strides in bringing these different businesses, people and technology together, that we're now comfortable providing more guidance to the capital markets. So this half, so for December '25, we're obviously expecting free cash flow. And I think Ben will also talk about the cash collections versus last year. I think the guidance, if I recall, is 20% higher than last year. That's so far flowing very neatly. For the financial year '26, we're expecting revenue of plus $140 million. I think there's real upside there. ARR growth of 20% plus, I think there's upside there. EBITDA margins of 20%. That's the promise that we're making. And every dollar that we make beyond that, we want to pour into marketing, particularly in the Qustodio business, which is doing incredibly well. And of course, for the financial year, we expect to be free cash flow positive. I guess that is where I'll wrap up. But let me make the point again about the scale of this opportunity. We're only getting started, and we're only really focused on 2 primary English-speaking markets. But this problem is a global problem. We also have a small business in Spain that's starting to open up international non-English-speaking markets to our K12 proposition, and it's growing at 100% year-on-year. So this is a global problem. There is no dominant provider anywhere, and we're hoping to be that global name in safety. It's an industry that's backed by regulation globally, that's funded globally because you have to protect kids when they're under institutional care. We are unquestionably the innovator in this space, and we're now starting to really see the improvements in our business, our cost structure and value-adding to customers through the introduction of artificial intelligence. And I think I'll be talking a lot more over the next 12 months about where else we can go with this safety proposition. In the U.S., there's obviously huge concerns around security and real-world safety, where is my child when there was an active shooter at school. These are things that penetrate the minds of communities in the U.S. and those are the things that are obvious extension of what we do. So you'll hear us talking more about that. I'll hand over to Ben, and then we'll open up for Q&A.

Thanks, Tim. If you can jump to the next slide, please. Thank you. I won't go into too much detail around the financials because we obviously announced at least the P&L in the July quarterly, so there's not really any new information here. But on the P&L, I guess the theme is similar. Costs are under control. We're growing top line. There was a small adjustment from the July numbers, reallocating some costs from direct costs into admin. So that's the only change. Otherwise, the numbers that we presented in July are all the same down to the earnings after tax line. So nothing from an overall P&L perspective, just a reclassification to tidy up something within there. So the gross margin ended up the year at about 75%, which was pleasing. On direct costs, you can see in here the effort that's gone into cloud and data and hosting. There's a lot of efficiency there that the team has managed to get that we've talked about in the past, and that's allowed us to spend a little bit more money on marketing. And as Tim mentioned, going into the new financial year, we'll aim to meet the guidance targets around EBITDA and invest a little bit more in the marketing spend as well to continue to accelerate growth in Qustodio. Depreciation and amortization, I won't touch on anything here. That's really just for people's information. Balance sheet, again, the message really here is that the balance sheet is now in a good position. The debt consolidation work from the last 12 to 24 months was complete earlier in the FY '25 financial year. There's still 3 years left to run on the AshGrove facility maturing in June 2028. So from a capital perspective, we're in a good position. And cash flows, again, we've touched on cash flows to a degree. The thing I'll, I guess, reiterate here and some of the feedback we've had today was around the 20% growth in cash collections guidance that was put in the July quarterly. I think the main thing to reiterate there is that was on the intro slide. The actual guidance slide hasn't changed at all. The 20% growth expectation in cash receipts in the first half year lines up with the free cash flow guidance that's on that slide. So nothing has changed. And you can see in the bottom line there that we aim to continue to grow revenue and receipts at 20% plus. So yes, just reiterating that absolutely nothing has changed there and July receipts are in line with that expectation. So there's nothing that I'm seeing that is worrying me at this point in time around cash receipts. So on that basis, I'm happy to open up to questions. I'll just turn -- anyway, Sim, you should be able to turn on your microphone now and ask your question.

Tim, can you hear me?

Yes, mate.

Yes, good. Yes. And yes, I think just a lot of it, as you pointed out, has been pre-reported and apologies for asking this, but this, I think, comes up as like the one key concern speaking to investors about the positive story for yourselves is that I think one thing that has changed between now and, I guess, Q4 is the share price is up more materially at $0.60-odd versus $0.40 something back then. So just in terms of like thoughts around cap raise, does this influence our view in any way? Sorry to bring it up.

No, absolutely not. We don't need to raise money, don't plan to raise money. I certainly have got zero interest in opportunistic capital raising. Of course, as our share price hit mid-60s, all sorts of brokers came to us and said, "Hey, now is your chance." But no, myself and our Board have zero interest in that. Obviously, you need to leave your options open in case there is an accretive acquisition down the track. But an opportunistic balance sheet style capital raising has got no interest in this organization.

Okay. Perfect. And then just in terms of, I guess, talking about like previously M&A activities, mergers of 2 equals and all that kind of stuff, are you able to just give us a bit of an update as to how you're thinking about that at this point in time?

Yes. Look, that's a good question. Yes, look, at the $0.40 range, it was really difficult. But in the $0.60 and $0.70 range, and I think fair value is still to come for our business, yes, that's a currency that can be used. And there is, as you and I have spoken about this in the past, there's a lot of subscale, well-meaning, good tech, good cultural fit type organizations in education in some of those adjacencies I've already mentioned, real-world safety, security, mental health, you name it, that would look good in our business, look good in our colors and honestly chasing us because we've got a fantastic reputation as being a good home for these businesses. So yes, I think there's some chance for that. The thing that we will not put at risk though is our guidance, our EBITDA guidance, our cash flow guidance. So that's a pretty high bar for anybody to join our party now. They've got to be accretive to our story and our financials.

Yes, makes a lot of sense. It's always good to hear the good story reiterated.

Wei-Weng Chen, you should be able to turn your microphone on there.

Can you hear me now?

Yes, got you.

Excellent. Cool. Just a single question for me, but multipart. Appreciate everyone is very busy today. So when thinking about guidance, what are the big sort of swing factors that will result in you guys exceeding or missing? Are there any large contracts that you're assuming that you renew or win or anything like that? And then September quarter is very important, obviously, for you guys. Just wanted to see if by 1Q whether you'd be confident enough to kind of refine guidance? Or realistically, would we have to wait for whole half to be through before we think about refining of guidance?

Well, to answer your first question first, the key thing that can have a material impact on our guidance is, in my view, foreign exchange movements, that's impacted us before. On a net basis, not so much because we are quite hedged, naturally hedged, and where our costs and revenues come from. But on top line and ARR, so cash collections, ARR and revenue, it can have an impact. So that's the only thing. And we keep disclaiming subject to FX movements. But again, thinking about our business, most of our sales in the U.S. and U.K. happen in the June half. Most of those big chunk, maybe 60% or 70% of those sales turn into invoicing in the second half of the calendar year. And therefore the ARR growth that Crispin's team will deliver this year doesn't have a massive impact. It's not irrelevant, but it doesn't have a huge impact on our financial results for the coming year. So the results for the '26 financial year, a big chunk of it is already baked in our existing customer base, the services we've already deployed, and the revenue that will follow from that. Yes. I hope that answers your question. We can obviously get things wrong and sign some customers and lose customers. But again, these are contracts, and we've got a good track record of looking after customers and managing their expectations. Is there upside in what's baked into our business? Absolutely. There's a pipeline of deals that Crispin's team have got. There's some big deals that always float in the outside of our pipeline, which we talk about from time to time. But also, our Qustodio business is a shining light in the business. Now we've got more capital to give it. We're seeing some very exciting growth. In fact, I'm hoping to host a session in the next few weeks to talk about the excitement that we're seeing in that business. And I'm flying to Barcelona on Saturday to spend a week with that outstanding team to go through their strategy for next year. So yes, there's upside, yes, but a good chunk, I couldn't tell you the percentage of it, but a good chunk of our financials for next year are already baked into this business. Jono?

Sorry, you've actually got [ James ] here. I couldn't raise my hand on my side. So I'm just speaking on behalf of Unified on Jono's end. Maybe just a few for me. Firstly, you flagged that significant product update imminent for Qustodio, and then you've got content aware, AI and data offerings for the K12 business as well. Can you give us an idea of whether they're accretive to ARPUs and when are they live and what sort of uplift we can expect there, if any?

Yes. So the Qustodio team, what they're doing is they're trying to move their focus from -- and this might get a little bit complicated. They're moving their focus from a direct customer, focus on that anxious parent whose 13-year-old child has become addicted to gaming or Instagram or they've watched a porno or have been bullied. That's a quite an anxious parent that wants to do all sorts of things to look after their child and they're happy to pay $150 right now to have that problem solved. They're trying to move away from that being the focus of their customer, that highly anxious parent, which are difficult to find online and you're competing for that SEO search term against Bark and Aura and others to more of a general what's called top-of-the-funnel marketing and those parents that know there's something going on, they've heard the school talking about it, they've seen an influencer online. So we're trying to find those parents now through Instagram and Reddit and TikTok and school promotion and so on. And so that means that the product advancements that we're doing in the business are much more about simplicity, beautiful experiences. We know your child, just leave it with us, and we'll let you know if you need to do something. So it's kind of low configuration, easy to deploy. That's the real emphasis in that business. And if you've used -- if any of the people on the call have used Qustodio, you would have seen substantial changes in the UX of that product over the last 12 or 18 months. Heaps to go. We're getting so much learning out of the experience of the 100,000 parents from U.S. schools are now using Qustodio. So we're now tuning the product to deal with their slightly different requirements, in particular, the content strategy in the U.S. customer base is working incredibly well. So I think there's -- well, I've already said like, I think there's huge upside in that Qustodio business and upside that if we get it right, we can actually be cash flow neutral growth in that business with the way that the cost of acquisitions perform in that business, again, supported by our B2B2C stuff. On the other product developments, yes, we're working really hard to lay out new data analytics and AI tools in our platform. They're doing really well. Millions of dollars of ARR have now come from products that we've developed in the last 12 to 15 months. The key thing in my view, I will hand over to Crispin actually in a sec. So unmute yourself, Crispin. The key opportunity I think we have is getting all of our products into that U.K. market. At the moment, they're essentially selling 2, the monitor and filtering. And by the middle of next year, they'll have monitor, classroom management, filtering, EdTech Insights, Qustodio and hopefully, any new other products that we're about to launch. So I'm really pumped about what's going to happen in the U.K. and I'm pressing my product and engineering teams hard until I'm red in the face to get that product to them as soon as they can. But anything you want to add to that, Crispin?

In terms of the product per customer mix today globally, it's at 2.2. And Tim just described the number of products that are now licensable, which is 6. And equally the contribution from upsell and cross-sell as a percentage of total ARR in FY '25 was 27%. So beyond the growth in new customer logos in the U.S. with only 16% today, just Tim talks about the levers we have, but the opportunity to drive additional products into our customer base. And to your original question, to increase the ARPU per student is material with the products that are coming down the line. And yes, just reinforcing what Tim said, the product unification story for the U.K. is materially exciting for us. And just to see that team being armed with the platform that we succeed so well in the U.S., is really exciting.

And is there much baked into that FY '26 revenue guidance for some of the product growth into the U.K. as you launch those? Or are you staying pretty conservative there?

It's pretty conservative, yes. I don't expect that to have a material impact until probably the subsequent year.

Okay, great. Another one for me, just on Slide 12, the one with the U.S. K12 share across your top 10 states, that was really good. I think it's an average of 36% across those top 10 in terms of your share. Just on some of the recent deals, so Ohio and Pennsylvania, is there potential to reach those similar penetration levels in those states over time? Or are there limiting factors and other things? Just interested in your views there.

Crispin, do you want to talk to that?

Yes. Certainly, over time, we expect certainly in Ohio, maybe less so in Pennsylvania to reach the same success and penetration that we've seen in Texas with [indiscernible]. So the answer is yes.

Okay, great. And maybe just one more, just on the pipeline. So I think that was $28 million unweighted and $9 million weighted at June. We're a couple of months post that now. So are you starting to see a conversion of that weighted to signed? And then similarly, is some of the unweighted flowing into the weighted? Just interested in any trends there that you're able to share with us.

Yes, that's how it works. We're seeing deals close. We're seeing a strengthening of the -- I guess, the weighted versus unweighted as those deals progress through the pipeline. So yes, all heading in the right direction.

That's it for the questions, Tim. So if you want to wrap up.

Okay, cool. Look, thanks, everyone, again for your support. Looking forward to seeing everyone on our roadshow that we just highlighted at the thank you slide there. I think that's in September, so if not sure, I'll see many of you in a couple of weeks. And of course, looking forward to talking cash flow -- big cash receipts in the October 4 [indiscernible]. I'll see you all very soon. Thanks again.