• Revenue: $52.7 million, down 2% from the prior corresponding period.
• Underlying EBITDA: $6.8 million, up 98% from the prior corresponding period.
• Net Profit After Tax: $3.6 million underlying; statutory net loss after tax of $0.7 million.
• Annual Recurring Revenue (ARR): $64.4 million, including $2.2 million from LiteracyPlanet acquisition.
• B2C Billings: Increased 1% to $22 million.
• B2B Revenue: $30.9 million, down 4% due to US transition.
• Gross Margin: Maintained at 95%.
• Cash Generation: $1.4 million, an improvement of $3.8 million over the prior corresponding period.
• Contribution Margin: Improved to 52% for B2C and 51% for B2B.
• Net Cash Position: $1.9 million as of December 31, with $9 million in borrowings.

• Warning! GuruFocus has detected 5 Warning Signs with ASX:3PL.

Release Date: February 17, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• 3P Learning Ltd (ASX:3PL) has successfully transitioned to a new business model, integrating key learning programs into a unified interface for teachers and students.
• The company has seen early success with the 'three essentials' program, with over 200 schools signing up and an average increase in school revenue of 47%.
• The acquisition of LiteracyPlanet complements 3P Learning's product suite and is expected to be profitable and cash flow positive in its first year.
• The company achieved a 98% increase in underlying EBITDA, reflecting significant cost reductions and improved operational efficiency.
• Cash generation improved by $3.8 million over the prior corresponding period, with plans to repay borrowings in full by the end of March.

Negative Points

• Total revenue for the first half was down 2% compared to the prior corresponding period, primarily due to lower-than-expected transition of Reading Eggs school customers in the US.
• The B2B segment experienced a 4% decline in revenue, impacted by declining license numbers during the transition from the distributor Edmentum in the US.
• The schools market faced challenges due to budget cuts and uncertainty over US schools funding, affecting overall sales results.
• The transition from Edmentum in the US resulted in a lower-than-expected retention rate of 74% for billings.
• Despite improvements, the company reported a statutory net loss after tax of $0.7 million, although this was an improvement from the previous year's loss.

Q & A Highlights

Q: Can you elaborate on the progress and impact of the new business model transition? A: Matthew Sandblom, Executive Chairman, explained that 3P Learning has made significant progress in transitioning to a new business model, integrating key learning programs into a unified interface. This transition involved rolling over millions of student and teacher accounts, which has been largely completed. The new system aims to simplify access to all programs from a single homepage, enhancing user experience and potentially boosting future growth.

Q: How has the acquisition of LiteracyPlanet affected the company's financials and strategy? A: Jose Palmero, CEO, stated that the acquisition of LiteracyPlanet, completed for less than 1 times revenue, complements 3P Learning's product suite. It contributed $2.2 million to annual recurring revenue, aligning with the company's strategy to strengthen its literacy offerings. The acquisition is expected to be profitable and cash flow positive in its first year.

Q: What are the key financial highlights for the first half of FY25? A: Adam McArthur, CFO, reported that total revenue was $52.7 million, a 2% decrease from the prior period. However, underlying EBITDA increased by 98% to $6.8 million, reflecting cost reductions and efficiencies. The B2C segment showed stability, while the B2B segment faced challenges due to the transition from Edmentum in the US.

Q: What is the outlook for the company's financial performance in the coming year? A: Matthew Sandblom, Executive Chairman, indicated that the focus will be on improving EBITDA margin and cash generation in FY25-26, even with low single-digit revenue growth. The company aims to maintain a healthy level of EBITDA and cash to support potential acquisitions or shareholder returns.

Q: How has the direct-to-consumer market performed amid economic challenges? A: Jose Palmero, CEO, noted that the direct-to-consumer market maintained year-on-year sales levels despite economic headwinds. The company plans to grow this market by creating a more complete offering for the homeschooler market in the USA, with key elements expected to be released in the second half of 2025.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.