I will now hand over to the presentation by Matthew, Jose, and Anton from 3P Learning. Please go ahead.
Welcome to 3PL's full-year results presentation for the financial year 2024. I'm Matthew Sandblom, Executive Chairman, and for today's presentation, I'm joined by CEO, Jose Palmero, and CFO, Anton Clowes. Reviewing the 2023-2024 financial year overall, I'm pleased to report that we delivered some significant product releases that will position us well for future growth, while at the same time, we maintained tight cost control. However, sales growth in the schools market was hard to achieve, especially in North America. We have delivered AUD 110 million in sales and AUD 12 million in EBITDA. These results are just under the lower end of our previous guidance of AUD 112 million-AUD 115 million for revenue and AUD 13 million-AUD 15 million for underlying EBITDA.
We achieved modest growth in the direct-to-consumer, B2C, part of the business in 2023, 2024, as well as a good increase in the gross margins due to very tight cost control. This is a good result in the face of a very tight consumer spending, as parents were buffeted by high mortgage, rent increases, and utility costs. We see further modest growth in the 2024, 2025 financial year in this market, which could be boosted further in the second half by some joint marketing efforts with partners selling related services, such as tutoring. Over the last three years, we have invested a considerable amount in new products like Writing Legends and Brightpath Progress. We have also invested in significant improvements in Mathletics and Reading Eggs. The 2023, 2024 year saw some major releases for Writing Legends and new Mathletics.
However, these releases covered only parts of the curriculum, and many schools want to see full curriculum coverage before making buying commitments. Most of the remaining curriculum releases for these programs will happen during the 2024, 2025 financial year, which will put us in a much better position to convince decision-makers to adopt our programs. We also decided that with a bigger range of programs to sell to each school, we needed to rethink our sales model and sales team structure. The strategy that we have been working towards has been to have the best programs to help students learn the essential academic skills of reading, math, and writing for students aged 4 to 12-year-old. Previously, our sales team focused on individual program sales to schools, but now we need to focus on selling them the complete package of programs.
To do this, we need to make using our programs as a suite as easy as possible, with simple sign-on, navigation, and integrated reporting for the student and teacher. We also need to move away from focusing on ARPU, Average Revenue Per User, and instead target the total sales that we are getting from each school. What matters is not if we have increased Mathletics ARPU from AUD 16- AUD 18, but whether the school has increased their total spend with us from, say, AUD 4,000 -A UD 6,000 for all of our programs. In July, we launched the 3 Essentials suite of programs to Australian and New Zealand schools, with plans to roll out similar suites of programs in the United Kingdom and North America over the next 12 months.
We have also restructured our APAC sales teams to greatly increase the number of frontline sales positions, who are responsible for both renewal and new business. These were previously separate teams, but the reality is the biggest new business opportunity are selling existing customers a bigger suite of programs. We believe that the 3 Essentials strategy gives us the best chance of achieving significant growth in the school markets in the coming years. Our sales to schools in the last few years have hardly grown. This is not an acceptable outcome considering the significant product investment we have made in these areas. We expect these changes to show good growth in the rate of annual recurring revenue in the second half of the 2024, 2025 financial year, and then in the actual recognized revenue in the 2025, 2026 financial year.
With the implementation of the 3 Essentials product suite and the new sales model, we have decided not to release guidance for the 2024-25 financial year. We believe this approach is the best way to achieve significant growth in the schools market, but until we've fully test it in the APAC market over the next 12 months, we won't know what level of growth is likely. Even if this new suite is well-received by schools, only a few months of extra revenue will be recognized in the 2024-25 financial year, mainly from February 2025 onwards, when schools return from holidays. The 2024-25 financial year is a pivotal one for the 3PL business. We need to demonstrate that that the considerable investment in new and improved programs has been justified by a significant increase in sales.
Otherwise, we need to invest less and push for a greater level of profitability. It is also the first full year where we will be directly selling the Reading Eggs program into the U.S. market after buying the rights back from our distributor, Edmentum, at the start of the 2024 calendar year. Again, we need to demonstrate that the investment that we have made in buying these rights back can pay off by increasing sales beyond what the distributor was achieving and in a cost-effective way. As a significant shareholder, I want to see the 3PL business move from an investment stage to a growth stage, and I'm impatient to make this happen. The key to this is growing the school's business by making our programs the go-to solutions for all the key academic skills for primary school students.
The 3P team is very focused on delivering on this strategy over the next 24 months. I'll now hand you over to Jose Palmero to continue this presentation.
Thank you, Matthew, and good morning, everyone. We will begin with the highlights for the year, but in today's presentation, I will also cover in more detail our plans for the schools market, starting with APAC, and how we view the broader B2B opportunity. As Matthew mentioned, executing well on these plans in APAC first, followed by EMEA and AMA, is fundamental for us to get a good return on the substantial product investment we have made over the past three years. So let's look at the full year results and work our way from there. The main highlights this year included achieving strategic milestones with product releases and first sales from new programs, Writing Legends and Brightpath Progress, the acquisition of Reading Eggs U.S. schools distribution rights from Edmentum, and the performance of our B2C segment.
Revenue for the year was AUD 110 million, which was 2% higher than the prior corresponding period, but about 2% lower than expected. B2C performed well despite the tougher economic environment in the consumer market, to deliver AUD 43.3 million in billings, which was 6% higher than last year, while B2B revenue increased only marginally by about AUD 200,000 - AUD 66.9 million. Disappointingly, annual recurring revenue for B2B was 5% lower than the prior corresponding period at AUD 62.1 million, which I will explain in a subsequent slide. On the expenditure front, we reviewed and reduced costs in lower priority areas in the second half of the year to achieve annualized savings of AUD 5 million from March 2024, with full effect from financial year 2025.
This helped us to deliver underlying EBITDA for financial year 2024 of AUD 12 million, which was 1 million lower than we expected. Underlying cash flow from operations before tax was closely aligned at AUD 11 million. During the year, we invested AUD 27.5 million in product development and AUD 20.5 million in reacquiring the Reading Eggs U.S. schools distribution rights. We also invested AUD 4.5 million in our share buyback program. It is important to note that we have funded all product development and the U.S. investments entirely from cash generated by the business, that we have expensed most of that already, and that we are at a point where we have reached peak development costs. We still need to complete the product rollout for the three regions, but the focus now moves from product build to sales and marketing execution.
Looking at segment performance in more detail, B2C billings increased 6% in financial year 2024, improving across all key markets and all channels, with new subscription options for Google Play and the App Store contributing to the positive result. We also continued to be disciplined with marketing spend and achieved net billings contribution margin of 52%, which was one percentage point higher than the prior corresponding period. This was a good result, considering that most of our B2C customers are young families who have been affected by higher mortgage rates and cost of living pressures. As I mentioned earlier, in the schools market, revenue was marginally higher than last year at AUD 66.9 million, but we saw a 5% decline in annual recurring revenue to AUD 62.1 million, which was disappointing.
We had good billings performance from new business in all regions, but lower than expected retention rates from Mathletics, particularly in EMEA and AMA, as we have not yet released Mathletics new courses in all regions. We also had lower performance from our third-party distributors in the US for Reading Eggs in the first half, prior to us taking over. This reinforced our timeliness in reacquiring the Reading Eggs US schools business. The operational transition from Edmentum went well and was completed in early February 2024, so we are now servicing Reading Eggs customers from about 4,300 schools in the US directly. Early response from customers is positive, with the bulk of renewals due by the end of September, so we will have a better update at the end of quarter one.
Market feedback from new products launched in APAC and EMEA was also positive, but we still need to complete the product rollout during financial year 25 to realize more of this potential. I will now go through the changes we're making to our B2B model and our view of the broader market potential. For the past three years, we've been putting together a comprehensive content and assessment suite covering the fundamental skills of reading, writing, and math. Most of the focus has been on the schools market, and it's taken considerable investment and hard work, but it has enabled us to offer our best value proposition yet, the 3 Essentials package. 3 Essentials combines and presents our content offering on a unified landing page with single sign-on, simplified rostering system, and usage and progress reports across all programs.
This gives us the opportunity to cement our leading market position in APAC and to increase our chances of success in other markets. Product, sales, and marketing have worked together to launch this compelling offer to existing APAC customers from July 2024, with EMEA to follow from November 2024. To put some color to this, we'll look at the potential opportunity of this offer in the Australian market, which is still our largest for B2B. In Australia, 70% of primary schools have a paid subscription to at least one of our programs, but that only covers 46% of students in K to six. This large installed customer base will be our focus to expand our presence in existing schools with the 3 Essentials package and win new customers.
Similarly, of those schools in Australia, 45% already subscribe to two of our programs and only 1% use three programs. That leaves 54% of customers using one reading or math program, which presents a clear cross-selling opportunity to increase revenue per school. We also know that customers using two or more of our products renew at a higher rate, so a successful implementation of the 3 Essentials model would also benefit our retention rates and reduce churn. Our aim is, therefore, to progressively increase our average billings per school, rather than focusing on average revenue per user or per product. This offers greater value to our customers and increases our billings and revenue potential.
In our view, the biggest opportunity in APAC is with existing customers who know and love our programs, as they can now upgrade to the 3 Essentials to get the best value from our content. For 3PL, we think this represents a significant opportunity to achieve growth in the schools market, but we won't know the actual level of growth until we've fully tested in APAC over the next 12 months. We have covered the 3 Essentials package as a key priority to drive our B2B content model, alongside our increased presence in the U.S. schools market with direct distribution of Reading Eggs. But as a reminder, Brightpath continues, of course, to complement the offering as our assessment solution.
The aim is to establish a stronger footprint with content and then use that base to achieve further growth with assessment and reporting, but our overall corporate strategy for B2B remains the same. So to wrap up, our focus areas for B2B in financial year 25 are to implement our 3 Essentials strategy in APAC and EMEA, expand our Reading Eggs user base in the US, and improve B2B customer retention and profitability. For B2C, we expect similar market dynamics in financial year 25 to those we experienced in financial year 24, but we will focus on growing the homeschooler market in the US, exploring partnerships with relevant associations, online schools, and tutoring services, and then extend that to other markets where possible. We will also refresh and improve user experience, the parent dashboard and reporting, and continue to look for ways to increase lifetime value.
For product, the upcoming releases in financial year 25 support our B2B strategy for the 3 Essentials and US market requirements, as well as starting to develop Brightpath Reading to complete and align our assessment programs with our content offering for reading, writing, and math. This concludes my presentation on the key themes and priorities, so I will now hand over to Anton for the financial and statutory report update.
Thank you, Matthew. Thank you, Jose. Good morning, everyone. I'll be moving through in more detail our results and cash flow for the financial year 2024. Turning to the P&L key drivers slide. Total revenue, AUD 110 million, up AUD 2.6 million or 2%. Split B2B, AUD 66.9 million, which was relatively flat on FY 2023, a disappointing result. B2C, AUD 43.1 million, up 6%, given the current market and macroeconomic factors and the general cost of living pressures, not a bad result. Expenses up 7%, principally driven by sales and marketing investments in people and the B2B go-to-market costs, which was to facilitate direct selling in the US schools market, stemming from the acquisition of distribution rights for Reading Eggs from Edmentum. Underlying EBITDA for FY 2024, AUD 12 million, down from AUD 15.9 million in FY 2023.
Again, largely driven by the additional investment in people as a result of the Edmentum transaction. Significant other items include the non-cash goodwill impairment expense of AUD 44.5 million, relating to the B2C segment. Refer to the consolidated financial statements, note 14, for more detailed information on this. And we had to expense the Edmentum acquisition of AUD 20.5 million, or AUD 14.4 million after tax, owing to the Australian Accounting Standards, which required us to do so. Moving on to B2C performance metrics. Revenue up AUD 2.4 million at AUD 43.1 million or 6%. Steady contribution margin of 43%. Gross billings also up AUD 6 million, and ARPU up to AUD 149. Net billings contribution margin up one percentage point to 52%. Moving on to B2B performance metrics. A disappointing result from the B2B business.
Revenue largely flat at AUD 66.9 million in FY 2024. Contribution margin also down to 46%. Licenses also down by 8%. However, our exit ARPU is up to AUD 12.94, and this is largely due to price increases, combined with a lower number of licenses. Closing ARR, AUD 62.1 million, down 5% from AUD 65.4 million. ARR decrease, driven by slow Edmentum performance, as well as a higher than expected Mathletics churn in the UK. We've had positive market feedback in response to new product launches, but no material impact on FY 2024 billings and revenue. Moving on to the pro forma cost slide, where we set out these costs in more detail relating to FY 2024. The first is the non-cash goodwill impairment expense of AUD 44.5 million, which relates to the B2C segment.
We had marginal headroom at the start of FY 2024, and moving into FY 2024, we had to adjust the cash flow projections downwards and discount rates changed to 11.5%, as well as a marginal reduction in the terminal growth rate. The consolidated financial statements contain more detailed information that can be found in Note 14. We would like to add, these impairments are driven by accounting rules and accounting standards and do not necessarily reflect the commercial aspirations that the business has for the B2C business.
Also, in the pro forma costs was the impairment to Master Maths Ireland of $0.6 million, $0.7 million of integration, retention, and merger costs, purchase price D&A of $7.4 million, the after-tax rights purchase from Edmentum of $14.4 million, and restructure costs relating to cost-saving initiatives executed in the second half of 2024, amounting to $1 million. Moving on to the cash bridge slide. We started the year with $27 million and ended the year with $5.1 million. We utilized just under $22 million in FY 2024, and principally, the big spend was around the buyback of the US distributor rights for $20.5 million, as well as the investments in the share buyback program for $4.5 million.
We also paid AUD 4.2 million in relation to property, plant, equipment, and intangibles, including AUD 1.9 million relating to the Writing Legends investment. We had pro forma payments of AUD 2.8 million, which included AUD 1 million relating to the Brightpath earn out amount. Our underlying cash flow from operations was AUD 11 million, which is up 8% and is closely aligned to the underlying EBITDA for the same period of AUD 12 million. Our net cash is calculated as statutory cash of AUD 2 million, plus restricted cash of AUD 4.1 million, less AUD 1 million of external borrowings. At 30 June 2024, we have AUD 9 million available to draw on the loan facility. I will now hand back to Jose to provide the outlook. Thank you for your attention.
Thank you, Anton. At 3PL, we have commenced our B2B business model shift to 3 Essentials, increased focus on our U.S. strategy, and identified the key factors that we believe will contribute to a positive financial outlook in the coming year and beyond. Some of these factors, however, need to be market-tested and proven so we can better understand future billings and revenue potential. While we are not issuing specific earnings guidance at this time, we expect both revenue and underlying EBITDA to be better than what we have delivered in financial year 2024. We will continue to update the market on our progress and key milestones as they occur through the year. It's been a busy year at 3PL, so thank you to our team, our board, shareholders, customers, and everyone joining us today for our financial 2024 results presentation. We will now invite questions from those attending.
Thank you. If you wish to ask a question via the phones, you will need to press the star key followed by the number 1 on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the Ask a Question box and click Submit. The first phone question comes from James Bales from Morgan Stanley. Please go ahead.
Hi, guys. I'd just like to understand a bit more about the change in sales trajectory that you saw in the second half versus expectations.
So the main thing, James, is the churn was a bit higher than we expected, mostly from Mathletics in the UK specifically and in Canada. In Australia, we also saw a bit of a drop in Mathletics retention, which was higher than expected overall, yeah. The other bit was the Edmentum performance in the US for Reading Eggs. So about-
... 55% of the drop that we saw in the second half was in the US Reading Eggs, and the remainder was mostly in Mathletics, UK, Canada, and Australia. Now, before the year end, sorry, James, before you know, by 31 December, we started releasing new product features for Mathletics, and the signs that we're seeing were a bit more positive. But by the time it came to you know, the billings and invoicing in March and April in APAC and EMEA, there was a big gap there, yeah?
Yeah. So that, that ties in well. I was just trying to understand what, if any, sort of signs that you referred to as being positive for a signal of inflection. Can you talk to us about what you're seeing and what gives you confidence that you will see improvement in FY 25?
So generally in EdTech, when you launch a bad product, you know immediately, because the feedback you start getting is pretty bad, and people don't buy the product. We saw that with Master Maths Ire land, for example. That was not a good release. It was a small investment, but the market response was not very good, and we knew that immediately in the first three months since release. For all the releases we've done since July 2023 until now, we've had very positive response. Usage data has increased substantially, very strong double-digit growth on all the usage data we're seeing from Mathletics, from Writing Legends, and for Brightpath.
So typically, when you get that kind of response, that's usually a very good sign of how people will respond to it when it comes to actually paying for the subscription and being invoiced for that, yeah? Now, in Australia, as you know, we probably launched from August to December. That's right in the middle of the buying season. For Writing Legends, for example, we only launched with two products, but we've already sold to about 200 schools. So to me, that's a pretty good result. Similarly for Brightpath Progress, we've got another 120 new schools.
So given the amount of time, the time in the selling season when we started selling and the overall market factors and school budgets and things that we've seen reduced in Australia in the past six months, they're the kind of things that give me confidence that the product is going to be well received, yeah? When we do releases that are not that popular, you start getting a lot of feedback very quickly about it, yeah? So from what I've seen so far, that's all positive.
Got it. And maybe just last one on OpEx. I think you called out a AUD 5 million improvement expected for FY 2025. It seems like you've made a bit of progress towards that already, with OpEx being AUD 44.5 million for the second half. Is the improvement... Has the improvement already been made reflected in that second half result, or partially, and the annualization gets you to a number that's AUD 5 million better than 2024? Is that the way to think about it?
Yes. I think, we implemented most of the changes in March 2024, so you will get a partial, improvement in, in the second half of 2024. Full impact should be on financial 2025. As we talked about at the half year results, our aim now is to keep our expenditure level at similar levels, total expense, yeah, for the business, at the same level while we grow in revenue. So that's the operational leverage, that we need to exploit from now on. Obviously, we have reached peak development costs now, so we don't expect big increases there. But the idea with implementing the costs early in, the calendar year, in, in February 2024 or March 2024, was that we would benefit for that i- in the full financial year 2025.
Our general expectation is to keep total expenses at very close to where we are and always grow revenue higher than expenditure from now, yeah?
Perfect. Thanks, guys.
All right. Thanks, James. We'll see you later on, yeah?
Thank you once again. To ask a question via the phones, please press star one and wait for your name to be announced. If you wish to ask a question via the webcast, please type your question into the Ask a Question box. The next question comes from the webcast. Could you please provide an update on the U.S. distribution strategy? What is the momentum since acquiring rights?
Thanks. Yeah, I'll take that one. Hi, Ray. So the main thing, it was a big challenge, right? We closed the deal just before Christmas with Edmentum, and the transition happened on the second of February. So within those 6 weeks, we had to hand over close to 4,500 customers, which in itself was a big challenge. But the team did very well with that. As of the second day of February, we've now managed those customers directly. The first thing we needed to do for the first 4-6 weeks was to contact those customers, reestablish the relationship, letting them know about the handover. And as we were talking to them, most of their responses were about, "Fantastic to hear from you guys directly.
We haven't heard from Edmentum for a little while. So, the feedback that we were getting on the product and on the direct relationship was very positive. What we've seen since then, so say about March until now, is pretty good retention rate on those customers. But we probably won't know the full extent of the retention until the end of September, end of quarter one for us, which is when all the invoicing gets done. But from what we've seen, on the retention, you know, the first four months of retention were pretty small numbers. The bigger numbers are July, August, and September, yeah? But so far, we're positive.
We're happy with what we're seeing in retention and upsells, and on establishing that direct relationship with customers, because obviously it gives us a bit of opportunity to also upsell Mathseeds and a bit of Mathletics, yeah? So all those are positive signs. I will give a better update at the end of quarter one, because by then we'll know exactly how many of those customers we've invoiced, yeah?
Thank you. The next question is from the webcast: Why is there only AUD 200,000 difference between EBITDA and NPAT when you have around AUD 10 million in D&A?
Hi, Jesse, I'll take that one, Jose. So I think you're, you're looking at slide 22 of the investor presentation, the detailed profit and loss statements. The delta is between underlying EBITDA of AUD 12 million and underlying net profit after tax of AUD 11.8. So we do have some pro forma costs which sit below underlying net profit after tax, including the historical purchase price, accounting, depreciation, and amortization of AUD 7.4 million. So the statutory loss for the period was AUD 57 million.
Thank you. Once again, to ask a question via the phone, please press star one. To ask a question via the webcast, please type your question into the Ask a Question box and click Submit. We'll pause for a moment to allow parties to enter their questions. Once again, to ask a question via the phone, please press star one. As there are no further questions at this time, we thank you for attending the 3P Learning 2024 full year results investor and analyst briefing. A recording of the presentation will become available on the 3P Learning website. Thank you.