Earnings call transcript: Qoria Ltd Q2 2025 sees stock surge 11%

Qoria Ltd (Market cap: $343.66M), a prominent player in the school safety and technology sector, reported significant growth during its second-quarter earnings call for 2025. The company added $29 million in recurring revenue, marking a 50% year-over-year increase. Following the announcement, Qoria’s stock surged by 11.11% to $0.33, reflecting investor confidence in its growth trajectory and market position. InvestingPro data shows the stock trading near its 52-week high of $0.34, with impressive gross profit margins of 79.44%.

Key Takeaways

• Qoria’s recurring revenue grew by 50% year-over-year.
• The company’s gross margins exceeded 90%.
• Stock price increased by 11.11% post-earnings call.
• Qoria is expanding its market presence in the US, UK, and Canada.

Company Performance

Qoria has demonstrated robust growth in its financial performance, with a 50% increase in recurring revenue and a 25% rise in its customer base. The company has maintained gross margins above 90% and expects to achieve over $140 million in revenue next year, building on its current revenue growth rate of 15.53%. Its strategic focus on expanding into new markets and enhancing product offerings has positioned it well within the competitive landscape. InvestingPro subscribers can access 7 additional key insights about Qoria’s financial health and growth prospects.

Financial Highlights

• Recurring Revenue: $29 million added, 50% YoY growth.
• Customer Base Growth: 25% YoY increase.
• Gross Margins: Over 90%.
• Projected Revenue: $140 million+ for the next year.
• EBITDA Margins: Targeting 20%.
• Free Cash Flow: Expected to be positive for the year.

Market Reaction

Following the earnings announcement, Qoria’s stock saw a notable increase of 11.11%, reflecting positive investor sentiment. The stock’s performance has shown strong momentum, with a one-year total return of 18.42%. According to InvestingPro analysis, analyst consensus is highly bullish, with price targets ranging from $0.33 to $0.43. The market’s reaction underscores confidence in Qoria’s strategic initiatives and financial health, though investors should note the company’s current ratio of 0.64 indicates some liquidity challenges.

Outlook & Guidance

Qoria is targeting an average revenue per user (ARPU) of $10 and is expanding its product suite to include real-world safety, security, and mental health services. The company anticipates a return to double-digit growth in the UK market by FY2026, further solidifying its market leadership.

Executive Commentary

Tim, Qoria’s CEO, highlighted the company’s growth trajectory, stating, "We’re now set up with a business that’s growing strongly with high visibility." He emphasized the importance of being integrated into school workflows, noting, "We need to be deeply embedded in the workflows of schools." Tim also mentioned the company’s financial discipline, saying, "We’re a Rule of 40 company from January going forward."

Risks and Challenges

• Market Saturation: Potential challenges in expanding market share.
• Economic Conditions: Macro-economic pressures could affect school budgets.
• Competition: Increasing competition in the EdTech sector.
• Regulatory Changes: Potential impacts from changes in educational policies.

Qoria’s strategic initiatives and strong financial performance have positioned it as a leader in the school safety and technology sector. The company’s focus on expanding its market presence and enhancing its product offerings bodes well for its future growth prospects.

Full transcript - Qoria Ltd (QOR) Q4 2025:

Ben, CFO/Finance Executive: And we’re looking forward to talking you through some of the highlights and having some q and a at the end. As normal, q and a can be asked in the q and a functionality or at the end, turn on the ability to raise your hand and unmute microphone. Over to you, Tim.

Tim, CEO: Thanks, Ben. I’m just seeing people still jumping in, so I might give a moment. Alright. Cool. I think everyone’s in now.

Let’s go. So look. Let me just quickly start with the highlights and position, and then I’ll go through some of this. So it was, you know, massive into the financial year you know, in so many different ways. Let’s start with top line, so we added something like ’29, just over $29,000,000 of recurring revenue in the year, which is 50% more than the prior year, and it grew our customer base, IRR by 25% year on year, those are outstanding figures.

Massive contributions over all markets, particularly US and UK and we added $14,000,000 of net IRR in that quarter, up 55% on the record of $9,000,000 in the same quarter. Yeah. Consumer business is flying at $18,000,000 or more of IRR. I’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 collections grew 24% against the prior year.

Gross margins are now over 90% operating costs, and despite all that growth, our operating costs grew at less than which is an outstanding result. The first time we have now started to provide guidance on some measures outside of the margins, and we’re expecting really based on the visibility that we have in the business when they’re buying you know, we’re we’re starting conservatively, but we’re starting to provide guidance on things like revenue at a $140,000,000 or more next year, more than 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 with the same year on year improvement at least. So they’re the highlights, huge, huge end to the financial year, Provided unaudited accounts, financial accounts in this this result as well, which then Jenkins will go through in a moment. Okay.

So let’s go through in a little so some big numbers here. We’re now looking after 27,000,000 kids, which we have more kids on our platform than there are Australians, which is achievement. 8,000,000 parents use our services, and it’s actually 32,000, not going here, 32,000 schools are on our platforms. We intervene in a life threatening situation every two hours with calls being made to safety schools, and that’s something that we all should be acknowledging and being proud of. On the financials, it said pass through $145,000,000 revenue that was negatively impacted by weakening US dollars, so we would have otherwise been just under $150,000,000 of IRR which we made them all, but we’re close to that now.

As I said, we added $14,000,000 of IRR in the quarter which is 55% higher than the $9,000,000 we did last year. Mean think about that $14,000,000 of added in this quarter. It was only in twenty twenty one when we acquired Smooth Wall, our entire business was $14,000,000 and we added that in one quarter, adding $29,000,000 off a base of contain in the year. Now something I I really think investors need to look at is this new markets growth. It’s it’s probably a 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, K Club, IP 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 commoditised side of our industry. So yeah, let’s touch on guidance. We had an outstanding quarter.

We’ve also was talked to and shown, demonstrated the the certainty out of our exit ARR and how that revenue and cash flow. And based on that history, that confidence in 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 a $145,000,000 of IRR, 117,000,000 of revenue which compares to $117,000,000 of exit IRR last year, our IRR 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 up and if we hadn’t made some extra investments in marketing spend, which we’ll touch on the moment, and our free cash flow is negative over the year of 11,000,000, but a big chunk of that was our movement from multi year 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 $140,000,000 and ARR growth of 20%, EBITDA margins of 20% means that we are comfortably a rule of 40 company from January going forward with a strong balance sheet and also will only be going upwards from January.

So, you know, we’ve I feel very confident to say that we’ve turned the corner and we’re presenting ourselves as a very different business than we were two years ago. Okay. So let’s drop into the numbers. As I said before, growth in all regions, but in particular, very strong growth in our US k 12 business, which added, you know, think it was like $9,000,000 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.

Custodial business is is, I’d say, I used to say metronomically growing, but they’re actually starting to accelerate. I’ll talk more about them. UK business is doing okay. All the products will be available to The UK market in Quebec in the January in January next year. Actually, sorry.

I think that’s March next year. And Australia, New Zealand business on a tear grew 41%. They’re doing an amazing job. And we’ve we’ve kind of reorganized our go to markets in these markets based on the success of The US model, and that’s now actually, you know, exceeding certainly exceeding our budgets. So where we are financially, we’ve got more than $15,000,000 in the bank at the June, as I said that number is only going up, so a net debt position of $37,000,000 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 $70,000,000 so we’re in a really good position from cash flow, 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 maximise 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 aware of products become more well known in the market, and then the custodial growth is outstanding, and this is the key selling period for custodial, you’ll see big selling in this half of the custodial 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 IRR by $4,000,000 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 at US dollars.

So the net effect of that isn’t massive, but it doesn’t does impact our headline IRR number. Alright. Kristen Swan’s on the call who runs our k twelve business. He’s available for questions. And, you know, we are we are literally killing it, as they say.

The US business in particular has an immensely successful period. Not only the highlights of of the ARR growth of $12,000,000 in that business, which is which is astounding. Some really key things. We’ve won our first district in some of the top 10 school districts in The US by student number. That’s huge.

We added 1,500,000 students more actually than in the quarter, which is amazing. We grew our every order value or every sales price we described here by 20% in the quarter, so that means that we are building a reputation and selling it from bigger and bigger school districts, enormous figure. We’re maintaining our net revenue retention and 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 are doing obviously well, particularly in The States and Australia and New Zealand, and as I said, we’ll have the entire core of our platform, all of our capability will be available in The UK in the first quarter of next calendar year, and so GAD who runs that business there will be 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 $1,500,000 above budget given the kind of the current understanding of that was and so on in stack studio business and achieved unbelievable results. You know, cost of acquisition of less than the average order value. So actually, flow creating growth, albeit it costs us in our p and l sense because we have to write off the cost of acquisition and we take the revenue over time. So we we cut that back.

We pulled back on marketing investments in the custodial business to hit our EBITDA guidance. But from January, that’s now taken off again, and I’m sure you’ll see very exciting results in that business. Now just to put in context, Life360, which people often compare us to, they spend $90,000,000 in marketing every year, and we spend in the consumer business, I think, five or six. If we spent like like Life three 60, we’d be a multi billion dollar business, and I think in in time we’ll get there because of the the the performance of this business. And you see here the evolution of the product.

The experience of that product is evolving rapidly, and it’s without question that the 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 parents that we’re now trying to target through our schools program in The US, which is clearly making impact on our cost to acquire, is coming down very, very fast. So outstanding business, you’ll hear a lot more, you’ll hear me talking a lot more about custodial business in this half which is their case selling period. So I think these are really interesting slides to highlight the efforts that we’ve put into maintaining our cost structure. Fixed cost percentage of our IRR is falling very nicely. As I said, our service margin or gross margin excluding marketing costs is over 90% now, there was a three point increase there in the quarter and our sorry in the year, and our net IRR, so essentially our forward cash collections, right, the next twelve months collections which net IRR is essentially an analysis 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 gonna 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’ve obviously reported $145,000,000 of IRR at thirty June, and so if you look at the chart at the bottom, our IRR highly correlates with our next 12 revenue. So that’s why we’re now confident giving guidance of $140,000,000 of revenue in the next year, and we’ve also given guidance on growth that we’re expecting 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 $30,000,000 last year. We’re expected to grow higher than that in this coming year. So you can do the maths and see that we’re not only free cash flow positive, we’re paying down our net debt very quickly from the twenty seventh financial year and there on. I won’t dwell on these metrics because Aussie investors don’t seem to be that interested, Our SAS metrics are without question industry leading. And this is a really important chart.

Know people will flick to the back of our I’m calling the update and look at the the policy report, but what’s missing is the nuance of understanding what’s transforming it. During COVID, many schools were paying multi year funds. The money was aplenty, and so they would commit to three year contracts, even five year contracts to get filtering and firewalling and so on. That’s not so much the case anymore, and obviously to get those multi year deals you discount in the order of 15 up to 25%, and so now our business is moving away from these multiyear billing into annual billing cycles, and so that kind of working capital sugar 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, right hand three columns, so June 23 to June 25, we’ve seen a very significant fall in the amount of multi year 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 sale of the McGeery business last year negatively impacted our cash collections this year by $4,100,000 on a per comparison comparative period basis, so if you do the sums actually billing underlying and underlying annualised receipts were 24% up year on year, which is exactly what our IRR growth was the year, so the underlying business is only strengthening and that is translating into cash flow.

Pipeline, obviously we empty the pot surprisingly well in that June quarter, and so you’re seeing our red column here shows that the pipeline’s come off a lot, but it is still a record pipeline into the December and our marketing team who are exhausted and they’re coming back to work now, They’ve gone busy again back to work trying to refill that part to make sure that we’re we’re kicking goals and hitting records again this quarter. We’re in a fantastic position with nearly $9,000,000 of weighted pipe into the December. Remember, a big chunk of US sales are still in that September, albeit we did do a cracking job at converting those in June, and the Australian New Zealand team who are on its hair, as I said, their key period is that December. Some good things happening for the December half. Generally, though, The US and UK teams are focused on back to school, you know, delivering outstanding experiences for customers, and the custodial business will be a big revenue growth period for us.

Okay. Less financial. I think it is 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 26,000,000 risky behaviors by kids on our platform. 26,000,000 times kids did something on our platform that was so notable it had to be flagged for further analysis.

Of those, 2,000,000 of those concerns, so ten percent, just under ten percent of those concerns, were handled by our human moderation team in The UK who deal with some very harrowing moments, you know, life threatening often and sexually charged frequently too. And of those 4,400, four and a half thousand concerns related had a call, required a call to be made with a safety lead with the authorities. That’s a call every two hours to deal with a child who’s at imminent risk to safety, that’s an extraordinary achievement. These pie charts in here, these circles in there, show something that’s quite intriguing, which is distinct difference in level five, which is the most serious concerns that we capture, the distinct difference between UK and USA toxicity. Porn, sexualized content in The US is the dominant concern that is raised.

Configuration of the tools are the same, it’s just that the incidence of highly concerning access to pornography in The US is, know, was it two times, twice as big as The UK and Australia and New Zealand, and Australia and New Zealand is much more about kids at risk of self harm, and that’s the the purple parts of these charts. So we’re always seeing remarkable data now, and we’re actually also starting to see clear data that shows the efficacy, the evidence of the the safety outcomes, and soon to show the learning outcomes as 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 picked Korea or Linewise is the name of our product set in The UK as a preferred partner. So this is an outstanding achievement.

US team, this gives us access to preferred access to 1,700,000 students in that market, in a market that’s essentially half the size of Australia, which is so it’s an outstanding achievement. The agreement encompasses all of our products, including EdTech Insights, is our brand new product line. So that’s the high level overview. I I think it’s an amazing result both in top line growth, maintaining our cost structure where it is, improving our gross margin, you know, improving our underlying cash collections by 24%. So every single line was an outstanding result.

We’re now cash flow positive into the future and growing strongly. So I couldn’t be more proud of of the team. I think we’re set up for success and continued domination of the this 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.

Ben, CFO/Finance Executive: Thanks, Jim. So believe we’ve decided to include an unaudited premium 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 what Tim’s talked about, the custodial investment, that was the conscious decision to make. You account for that and adjust backward about 14.4.

So towards the top end of the of the guidance range that we’re given. And as I say, it was a very conscious decision. It wasn’t something that was out of our control. So it’s a it’s an easy one to, I guess, isolate and identify as a at the normalization. And in the months where we we made that commitment, the or made that spend, the IRR added in that custodial business was more than double what was in in prior months.

So the impact it had was was really significant. And I I think I just take the opportunity as well to reiterate Tim’s point around capital raising and and marketing custodial because we’ve we’ve had a few questions on on conferences over the last little while. There is zero intention to raise money to fund custodial marketing. It’ll 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 on how the business is operating.

So we will manage that spend through the financial year with the guidance we’ve given around FY twenty six in mind. So I think it’s just an important thing to 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 a it’s a really big achievement and just shows the leverage that’s within this business. Quarterly cash flow, things touched on the customer collection, I won’t labor that point too much more.

We split out the data in the in the chart earlier in the presentation, so you guys can see it really clearly as to how we’ve performed there. It’s a it obviously, on face value, cash collections looking flat is it’s something that might raise questions. But when you dig into the data, you can clearly say that the the annual billing has increased significantly year on year, broadly in line with with revenue. I’ll jump more into the detail on the next page. So again, on cash collections.

Direct costs, obviously, out there, but that is largely the the marketing spend. You strip the additional marketing spend out of that and direct costs are 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 direct costs 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 pace. Staff costs, broadly in line with what they’ve been for the last couple of quarters, notwithstanding pay rises that have come in in October quarter end in 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 five to 6% increase range accounting for CPI and some growth heads. It then maybe it’s 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 in staffing levels to justify the or to deliver the the growth that we’re talking about from a revenue perspective.

Fixed costs, it can bounce around a little bit, but it looks like a big percentage, but it’s a small number. So again, broadly in line with March, 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 to June. 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, I’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 IRR perspective that the $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 the US dollar and the the pound cost that’s going out of the business. FX have moved slightly favorably to us in the 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 and A.

Tim, CEO: Thanks, Ben.

Ben, CFO/Finance Executive: I just need to turn on microphones. Give me two seconds. Owen, you should be able to ask your question now.

Tim, CEO: There he is. You’re on mute now?

Owen, Analyst: Yeah. Sorry. I had the I was not in the in the desktop. Just a second. The different screen.

The well done, guys. Good good set of numbers. All the leading indicators are very strong. Just a couple of questions for me. One, more operational, but just setting 10 mil in the k to 12, business.

Like, that’s a big uplift. Can you just kinda talk through the drivers of that 10 mil? How much was called the call filtering and firewall? How much was the new products with monitoring and and the various others that you’re pushing through the platform? How much just just kind of just just talk through the the drivers there?

Tim, CEO: It was it was 12. It was 2,000,000 of cross and upsell, and and the rest was in new logos, if I recall. But over to you, Chris.

Chris, K-12 Business Leader: Yeah. That’s correct, Tim. Still the majority out of The US is in the new business, new logos, Owen. And that’s come through, you know, going up market as well as to mention that average sales price went up materially. In fact, we the 10 the top 10 deals that we did last quarter in The US had an ASP of about 350,000 Australian dollars.

So there is a greater 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 US 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, EdTechInsights is hitting 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, yeah, the the you’ll continue to see accelerated growth in both new business and upsell cost up.

Owen, Analyst: But in terms of the product drivers, is that predominantly still the filtering of firewall that’s driving the the the new logo growth?

Chris, K-12 Business Leader: Filtering firewall, craft and management, all of the above. And we did close, I think, about quarter of a million dollars in the quarter of EdTechInsights for early kind of customers. So I’m gonna expect a much greater contribution from that sort of data analytics products moving forward.

Tim, CEO: Well, one thing that’s of of interest is the monitor product which we acquired with Smooth Wall in ’21 that had about $5,000,000 of recurring revenue. That that product on its own passed through $30,000,000 of ARR of thirty June. So, you know, that’s that’s becoming part of the packages in some big deals, but it’s mainly across all.

Owen, Analyst: Yes. I’m just trying to understand. It’s not the 10 mil of of the new how much was the kind of monitoring? How much was new products? How much was filtering a part?

If you know I mean, if you get a product split about 10, just to understand if that’s changing every time.

Tim, CEO: All all of that will include filtering and classroom management, possibly some firewall in The UK, and, yeah, a a small part of that would be initial purchase monitoring, I I I’d imagine, but most of the monitoring is a cost. So it wasn’t good.

Ben, CFO/Finance Executive: The mix has been pretty consistent with the last sort of six to twelve months.

Owen, Analyst: And just shipping to shipping across to the So OpEx guidance goes from I’m assuming that GP margin of 72% will hold into FY 2026, just around operating leverage, around reinvesting in custodial. So first question, 72% the right number for FY ’26 GP?

Ben, CFO/Finance Executive: Yes. Think it’s a starting point. That’s about right. Hopefully, we outperformed that a little bit. But you’re right.

We’ll if custodial is performing well, we’re getting good growth there. We’ll look to reinvest.

Owen, Analyst: Okay. So OpEx guidance around that 73 odd mill mark. The real question here is in FY ’27, you kinda given FY twenty six ARR guidance, which is quite large, which kinda gives you indication of what FY twenty seven revenue would be. We kinda know what the GP margin should be or thereabouts. Can we talk through what 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 10% OpEx growth? Just just talk us through that.

Tim, CEO: Well, that that target in internally is to just CPI growth, the OpEx only. We’re finding efficiencies in particular in front of front of the house. Kristen’s driving, you know, efforts with AI tools to drop efficiency in front of the house. In the back of the house, again, AI, unification work, sorry, and my and the movement of our engineering a lot of engineering growth is into Sri Lanka. I think we’re adding gee, what’s the number?

Ben’s, like, 30 people this this calendar year into the Sri Lankan team. So there is a there a strong emphasis on on optimizing our engineering and product expenses, which is the large share of our costs. So, yeah, I think if you moderate CPI, I’m hoping I can outperform that. It’d be more CPI. The the doors open up.

Owen, Analyst: The doors definitely do open up. Like and then custodian, so 1 and a half mil additional in marketing in that quarter. I guess that was new information that you added two mil in the in in the quarter. Obviously, just understanding the unit economics here because I thought most of the growth would have come from, like, the b to b to c channel, which is obviously much lower CAC. And you just talked about the one and a half mil step up.

I’m guessing that’s in performance marketing. So just talk us through how we should be thinking about unit economics within the custodial going forward.

Tim, CEO: Yeah. That’s I’m actually organizing for Victoria, who’s the CEO of custodial, and Tamara is the head of product to run a session, which is hopefully happening next week. So you you might get this opportunity to ask these questions directly to Vic then. In simple 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, you know, north of 60 US dollars and average cost to acquire a customer of less than that. And that’s a little bit of performance marketing, but what we’re starting to play with is in in social media investments and brand building, and that’s layered on top of the b to b to c piece.

So essentially, in simple terms, what we’re finding is that the an effort in that 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 UK, Brazil, and and, of course, The US. And they’ve also done a very good job at hijacking things like the adolescents, you know, TV series that came out with Netflix. The team’s now standing responding very quickly to hijack that that news flow and and then turn that into eyeballs. So, yeah, it’s been about performance marketing, but more increasing amount of their investment is now into social channels, and of course, you know, ad generative AI type search. What we’re hoping to do is is obviously hit the guidance, number one, not raise capital, number two, but find tune that business to not invest any more than they generate and they’re seriously profitable now, but ideally, you know, optimize acquisition at around their average order value.

So it’s, you know, it’s it’s cash in zero cash impacting growth. But I think that’s certain times of year, that’s gonna be very possible. Other times of the year, not so much, but that’s how we’re trying to target that business.

Owen, Analyst: Good one. Well done, guys. It’s it’s a it’s a great setup for the next two years.

Tim, CEO: Thanks, man. Rob.

Ben, CFO/Finance Executive: Ross, you should be able to participate.

Ross, Analyst: You alright, Timmy?

Last, Analyst: Yep.

Ross, Analyst: Yep. Great. Hey. Morning. Congrats.

Just two for me. Pennsylvania, can we

Last, Analyst: talk about that a little

Ross, Analyst: bit more? You said that it’s a panel. Is it fair to assume it’s a panel of two like it has been in the past? And then the second part of that one is you also called out that, you know, four products could be sold into that opportunity. I guess historically, when you’ve had these opportunities, you’ve started with one and then shown them the menu and they can they can buy more over time.

You should we read it that you’re able to sell far more earlier on into Pennsylvania than they have in the past?

Tim, CEO: Yeah. Maybe I’ll I’ll hand over to Chris. But, yeah, look, it is it it’s it’s a panel. It’s essentially that we’ve been endorsed by the state as a suitable product for that market with a great price with that market. And so so it’s a big leg up, but, you know, Chris, over here, explain more.

Chris, K-12 Business Leader: You kind of summarized it well to me. Yeah. It Yeah. It gives us the contractual relationship of the incentives to work with Pennsylvania for them to promote it out to their districts. So, yeah, you can think of it similar to, you know, Tassie and also, you know, higher management council deal that we we’ve referenced previously, Ross.

And, yes, in this case, we’ve been able to, from the outset, get all of our products onto the, you know, the the pricing list with them. So, yeah, you know, these things take a little bit of time to get going, but certainly my expectation is that this as well as Ohio will will start to follow the successes that we’ve seen in in Texas with CASI where think since that deal was done, we’re we’re now close to 20% of, you know, subscriber base in that in that market.

Ross, Analyst: You’re right. And sorry. Is it a panel of two? Did you mention that or Have you not mentioned?

Chris, K-12 Business Leader: I I haven’t mentioned it. We we believe it’s a panel of three, but they haven’t told us to be direct. So we’re making some inferences there, Ross.

Ross, Analyst: Cool. But a low number still by the sounds of it.

Tim, CEO: Yeah.

Will, Analyst: Correct.

Ross, Analyst: 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 out the one that would be? Or is is it more of a ’27 story with that where you can be pretty confident that it can happen?

Ben, CFO/Finance Executive: Yeah. First half, so September, strongly free cash flow positive. December

Tim, CEO: Yep. Yep.

Ben, CFO/Finance Executive: For for regards to positive, but less so March and June, we’ll we’ll still burn cash. But hopefully to a a lowering degree, obviously, than than this year and on balance over the whole year, free cash flow positive.

Ross, Analyst: And without getting too far ahead, feels like that just gets closer and closer in the in the three q, four q, and the twenty seven year.

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

Ross, Analyst: Got it. And just a super quick one. The weighted the weighted pipeline at nine mil is a good number, but also flat year on year. Would you have liked that to be in higher? Is that just an example of just good selling that got the weighted pipeline down back down to that number?

Good conversion.

Chris, K-12 Business Leader: That’s correct, Ross. Yes. Yeah.

Ben, CFO/Finance Executive: The other thing to point out, it’s in the data that we’ve used to calculate the with the weighted average conversion of The US pipe. It it continues to build in July, August, and September. And one of the years in the last couple of the the pipeline actually converted at a 110, funnily enough. So not saying that that’ll happen this year, but it’s it’s a unique period in the year for The US and with the September year end for Texas and a couple other bits and pieces. Great.

Ross, Analyst: Thank you much.

Tim, CEO: Thanks, man. Thank you. Hey, Will. You’re not on mute so far?

Will, Analyst: Hello? Hi. Have you got

Tim, CEO: me? Yep.

Will, Analyst: Cool. I had a phone call come in at the exact same time, so I wasn’t sure what was happening. Okay. So a couple of questions for me. So I guess interesting comment about your ROI on, marketing spend in consumer and how you dialed it back to basically achieve, your your guidance despite it being highly cash accretive.

So what have you baked into your f y twenty six guidance for marketing here on the custodial side?

Ben, CFO/Finance Executive: Yeah. I mean, I won’t give you a specific number off the off the top of my head. It’s I guess, in in a in in in simplest terms, it’ll be a similar level to what we’ve got in the q four spend.

Will, Analyst: Over the full year though, annualized?

Tim, CEO: Over the full year.

Chris, K-12 Business Leader: Yep. Yep.

Ben, CFO/Finance Executive: But as I’ve said, it’s an in inherently variable spend, and we will manage it accordingly. Yeah.

Will, Analyst: Yeah. And what what channels do you use to sort of market that?

Tim, CEO: Oh, it’s you know, the main one historically was obviously, you know, Google AdWords. You know, so paid advertising for all those performance channels. It’s it’s affiliate marketing through online websites where you can find out about technology or, you know, trying to control apps or whatever. And then now increasingly, so it’s it’s finding influences or promoting our products or, you know, just general content, AI generated content too inside social media platforms. And they’re toying with how do you get identified in these AI tools as well.

So it’s pretty broad brushed.

Will, Analyst: Yeah. Okay. Cool. Thanks. And then, I guess, a couple of years on as you get more growth and more operating leverage, you’re gonna go from a a net debt position to a a strongly net cash position.

So in your view, what is the best use of surplus cash?

Tim, CEO: Looking forward to that day when this is a real problem. Yeah. I was I was on a a a chat with a a group of staff, 50 staff globally this morning and talking about this. And, ultimately, I think the number one thing for our business is to focus on what our customers need, right, and and buy or build products that customers need, make sure it makes sense for them, and, you know, that will then the money will then follow from that. So I think that’s really has to be the core focus.

Now if if in so doing, it’s so cash generative that there’s a a dividend potential, then, of course, you know, we’ll we’ll deal with that when when it comes to that. But I don’t I don’t wanna be in a position where we’re just buying adjacencies that can better sell. Well, you know, you sell the schools, 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 and circumspect about what makes sense for customers and extend out that those words.

Ben, CFO/Finance Executive: And to to give the really boring financial answer, you know, that leverage isn’t a bad thing, but the 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 and continue and invest in the business? That’s a possibility, but not with the existing facility. We would we would look to refinance it at the very least to a more commercial terms and then make decisions from there.

Will, Analyst: Yeah. Cool. That’s all for me. Thanks, guys.

Tim, CEO: Thanks, mate.

Ben, CFO/Finance Executive: Last, you should be good to go.

Tim, CEO: You found the unmute button, mate?

Ben, CFO/Finance Executive: Yep. There he is.

Last, Analyst: Hey, guys. Just a couple 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.

Tim, CEO: Yeah. So I think the the number one thing that’s propelling us forward is the monitoring product, and that’s still less than 40% penetrated in both UK and The US. So a heap of white space just for digital monitoring, which is a very established need in in both those markets. Then it’s the content aware modules, which is, at the moment, standalone pricing. It’s, you know, add on pricing in our markets, but we’ll probably just be embedded in higher priced filtering products and going forward.

EdTechInsights, which is the ability for schools to analyze all their data to just look at the efficacy of their hundreds of millions, if not billions of dollars, are 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, you know, 1 to $2 price points for those sorts of new products coming in the next twelve months. And then well-being analytics and the well-being products, which is nice 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 establish our penetration.

Chris, do you wanna add?

Ross, Analyst: I just think you yeah.

Chris, K-12 Business Leader: You probably overlooked the the new capabilities that we’re delivering over the next half into monitor. That’s by far our highest ARPU product. And we’re delivering we have delivered CloudScan, but now we’re moving that to the ability to to interrogate Google Docs, email 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, but the absolute the market dominant player in that space. So we’ll see a far greater conversion ratio of monitor deals. As Tim said, yeah, across The UK where we’ve been very successful with monitor, we’ve got 40% of our existing customer base. We’ve got 4,600 customers only that have monitor. And in The US, that number is even lower.

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 you may I think we share that data, but the continued growth in how many products where we have per customer, will see more bundling and therefore again a higher higher RPM.

Last, Analyst: Yeah. So, I mean, look, it almost appears you’re not you’re not too far off your target at the moment. Right? And so you’ve 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, you know, in a year’s year’s time or so, is it possible that you could be recasting where that potential is? And and are you thinking about other business lines that you think are a natural fit to to really entrench yourselves within their school ecosystems?

Tim, CEO: Yeah. We are. Look at thanks for pointing out that trajectory. The trajectory is about fantastic growth in our ARPU, k 12 products, but also global products. So, yeah, we’re really on on a really strong pathway.

And the insights analytics products from Octopus, I think, is the thing that’s gonna propel that again for the next two years. Beyond online safety and student well-being, there’s some natural extensions. Some of our competitors are entering real world safety, things like hall pass management, student management, systems to dismiss your kids, like literally our schools in The US 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 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 institution’s executive, and that’s the thing that gives you sustainable advantage. And so that’s how we think about these these decisions.

Last, Analyst: That makes sense. Thank you. That’s it for me.

Tim, CEO: Excellent.

Ross, Analyst: Hi,

James, Analyst: guys. Thanks for taking my questions. Just a few for me. Firstly, The USA market, just came to understand kind of where your market share is now. And I think, Kristen, you mentioned that earlier, but then perhaps sort of where it was three years ago and whether that’s accelerating and your ability to continue to hold growth looking forward on a headline dollar number or on a percentage growth basis?

Thanks.

Tim, CEO: Chris?

Chris, K-12 Business Leader: Yeah. So I’ve mentioned, James, where we’re just shy of that 16% market share on a, you know, a percentage of the the students that I think is about 55,000,000 in The US. But there’s still massive upside there, clearly. So we talked about some of the tailwinds regarding, you know, going up market. I mentioned some of the the successes just recently, greater product bundling, EdTechInsights, those other things coming into play.

So for me, when I look at The US in particular, we’ve got massive greenfield opportunity, the significant brownfield opportunity into our existing base for cross sell. We’ve got opportunities. There’s a big I’m sponsoring that 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 US, you know, we started to look at markets like Canada that opened up another five and a half million students, you know, 16,000 schools. So the potential there is really just starting.

So I don’t see it slowing. I actually see it accelerating in The US. And then we get into The UK, you know, with, as Tim mentioned before, the full expression of our solution sets coming to The UK shortly and their proven capacity to be able to cross sell. Or they were, like, 4044% of their total new ARR was cross selling, and they’ve essentially got two products. We’ll start to see a real positive turnaround in in The UK, and we’ll start to see their growth getting back into the double digits as of FY ’twenty six and beyond.

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

Tim, CEO: Yeah. Look. I’m I think it’s a winner. I guess, you know, it’s not turning into direct dollars that are flying from b to b to c upsells, but we’re getting I think we’ve got 16% of our US districts have now launched the program. The process of launch is taking longer than we’d like.

We’re working on that. Then getting north of 20% of parents signing up to the product. We’re getting 1% of them paying for the product. We’ve more than a 100,000 parents using it now. But more importantly, what we’re seeing is the brand benefit of it is is astonishing.

Like, the the the impact on our cost to acquire is very clear. And no no more clear than in Australia where I think we talked about this years ago, James. Look at Custodial was outside of Australia was outside of the top 10 of custodial’s highest performing markets. Custodial is not overweight in marketing in this market, but is now Australia is now the number third top market for custodial. The only difference is there’s a 130 multiples here talking about parental controls and talking about custodial as an option.

And there’s no question we’re starting to see the resonance of that in The US market. So what’s what’s clear is it’s it’s this overall play we have of solving the 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 k 12 and the consumer side because of that capability. So it’s yeah. Look, it’s it’s I think it’s really working.

I think it’s a massive strength of ours.

Chris, K-12 Business Leader: Just just just to add to that, Tim, if I may, James. One one of the other sort of indirect benefits we’re seeing of what we call community is just the the increase in, I guess, close one ratios we’re seeing across our filter offering. It is undeniably the market leading opposition where a superintendent can engage their parent community and provide them capabilities on that school owned device outside the school and then ultimately pushing custodial onto their, you know, their children’s phones and tablets. And that level of capability doesn’t exist in any of our competitors and is 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 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 class wise. We throw a monitor and short air tech 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 the kind of supporting effects of what KeyStudio is doing for our b to b is is is significant.

James, Analyst: Appreciate the detail there. Maybe just a couple more. In terms of in terms of larger deals, so you’ve won recently Ohio, SoftBank, Schools Broadband, now Pennsylvania. Can we get a bit of an update on where these are at in terms of penetration and potential over time as well?

Tim, CEO: Yeah. Sure. I’ll start with SoftBank. So that’s that’s live online. The next step is, I think I’ve said a few times, is their retail channels.

That’s being pushed back for technical reasons from their side. We’re we’re ready to go. So so waiting on that one. We’ll start reporting numbers, I’m sure, within the next three to six months on that. So that’s a strong commitment from PBSW and SoftBank.

So super excited about that. Do wanna talk about the telco, the k 12 ones, Chris?

Chris, K-12 Business Leader: Yeah. So school’s 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 scores broadband. But without going into too many details, we’ve essentially got if there’s a new head of sales on board, we’re aligned with David.

I think you would have probably attended his webinar we did some time ago now to 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, yeah, it’s been frustrating, but certainly expect expect us to be able to start talking about some more successes out of school’s broadband. I think, Tazi, we’ve referenced, you know, the growth there and in particular, you know, how how we’ve accelerated to close to 20% of Texas students through that consortium relationship.

Ohio, and we’ve just mentioned Pennsylvania, are just really quite fresh. But as I said at at the beginning of this call, I’m expecting that we’ll start to see, you know, similar traction to what we’re seeing out of Texas. So more to come, James. More to come on those.

James, Analyst: Thanks, guys. We’ll explore some of this later. Thanks for taking my questions.

Tim, CEO: Thanks, buddy.

Ben, CFO/Finance Executive: Ron, you should be able to unmute now.

Ron, Analyst: Hey guys, can you

Ross, Analyst: hear me?

Tim, CEO: Yes, guys.

Ron, Analyst: Yeah. Just a couple of financial questions. In terms of the balance sheet, the 52,000,000 Ash Grove facility, can you just pay it down as you go? Are there any penalties? Can you just clarify that?

Ben, CFO/Finance Executive: We can pay it down, but there are make holes within the agreement. We’re about two years into a into a five year deal. So right now, it makes more sense for us to keep cash in in term deposits and those sorts of things and offset the net interest margin. But come f y twenty seven, you know, sort of twelve, eighteen months down the track, they’ll they’ll make some sense to start chipping away at it and and start paying it down as those make holes become a lot more minor.

Ron, Analyst: Yep. And then you mentioned FY ’26, you’ll be free cash flow positive. You finished the year with 15,400,000.0 of cash. Should we expect that to be the lowest point in the cash balance through FY ’26? Or it’s gonna dip below that 15.4 through the year, but maybe finish higher at the end of the year?

Ben, CFO/Finance Executive: No. That that should be the last balance and and come to this time next year to be a a slightly higher number.

Ron, Analyst: Yep. And then just in terms of the capitalized cost, so you did 21 mil of capitalized development cost through the year, but the the last quarter was 6.2. So are you kind of annualizing more like 24, 25 mil? Or is it No. Around the 21?

Ben, CFO/Finance Executive: 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 a really large exercise of time sheet reviews, engineering department go through, find to its kind, identify everything that they’ve done throughout the year that’s r and d related, and finalize the number for for full year accounts. So there’s always a little bit of a true up in the June. I’d expect the number next year to be the same plus your your wages increase.

So, yeah, add five or 6% to it, and that will be the the number for next year. It should be pretty steady.

Ron, Analyst: And then property, plant, equipment, that was sort of 6 and a half mil. I mean, what what what are you spending that on? That’s quite high. I mean, you’re not a, just a bunch of computers and

Ben, CFO/Finance Executive: No. That’s 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 your staff, laptops, and and all the bits and pieces. So the the filtering product we offer is a hybrid system where you you have cloud only or there’s inline filters as well that are that 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 with brand brand new ones at no cost and all sorts of different things like that.

Ron, Analyst: So going forward, that should remain around that $67,000,000 a year. Is that kind of it

Tim, CEO: for now?

Ben, CFO/Finance Executive: It’ll grow a little bit, but not straight line with revenue. No. It should if it’s 6 and a half, call it 7 for next year and maybe 7 and a half for the year after that.

Ron, Analyst: Yep. Yep. Okay. Alright. Well, that’s it for me.

Thanks. Great result.

Tim, CEO: Thanks,

Ben, CFO/Finance Executive: Ron. Thanks, Ron. That’s everything, Tim. So if wanna wrap up? Yeah.

I will. Look.

Tim, CEO: Thanks, everyone, for joining the call. We had over a 100 people. It’s a record, so it’s a lot of interest in us, which is great. And as I guess, I summarized my section with I think we’re now set up with the with the business that’s growing strongly with high visibility, growing in all of the markets that we operate in, the whole range of optionality in the business with new products coming to coming to the markets that we operate in, which is very exciting. Cash generating, profitable, you know, we’ll be talking now on the basis of us being a, you know, cash profitable business this this year, and we’re a 40 company.

So, you know, really great position to be in. Thank you, everyone, for their support in helping us get here, and looking forward to speaking to you in the next few months. Thanks so much.

Ben, CFO/Finance Executive: Thanks, everyone.

Chris, K-12 Business Leader: Thanks, everyone.

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