I would now like to hand the conference over to Mr. Matthew Sandblom, Chairman.
Welcome to 3P Learning's presentation of the annual results for the year 2021-2022. My name is Matthew Sandblom, Executive Chairman of 3P Learning. Overall, we've had a good, strong year after the significant event of the merger with Blake eLearning back in May 2021. This was quite a transformative event for the business. As we can see by some of these numbers in front of us with the highlights for 2022, including the increase of the underlying EBITDA to $ 13.8 million. That's including taking account of some, you know, significant costs that we had with the transaction and retention payments and some other one-off costs. Revenue obviously grew a lot with this transaction to $ 97.2 million.
That would've been higher except for we had to stretch out and defer some revenue due to accounting policies to do with the delivery of service over a longer period of time. Highlight was a B2C, the consumer market, which is parents with children. We increased revenue 13% to $ 38.8 million, and that was already coming off a fairly high base of sales during the previous period, which was very positively affected by a lot of the COVID lockdowns and people learning from home. In the school space, the B2B space, we held our sales levels, which we were quite happy with as we restructured and reduced some of the footprint of the sales team, and also discontinued the promotion and selling of some of our less popular products like Ready Writer and Spellodrome.
We think that's a good strong result, as we build out the new product offering for growth, where we expect to be stronger, particularly from the 2023-2024 financial year onwards. The business is generating good underlying cash at $ 22.6 million. This is before we make investments in things like buying the Writing Legends program and also investing quite a lot in building on that program, and some other significant investments in product. Although we're still actually writing off the vast bulk of our product development costs, which has been a significant change from before the business merged with Blake eLearning, where a lot more was being capitalized. While we are only really capitalizing things which aren't actually produced yet and generating revenue.
Pretty much anything which is generating revenue for us, we then start writing off pretty quickly. Brand new products like Writing Legends, we capitalize their costs until they actually start generating revenue. Overall, you know, customer base has also been fairly stable or growing in the consumer space , with some slight reduction in the B2B space because of the discontinued product. Strong overall result and a good platform to grow on in future years. Now I'll just move on to the overall strategy of the business that we've been doing a bit of work on.
I thought before we get into more detail about all our financial performance and looking ahead to the next financial year, I thought I'd like to share with you some of the key strategic initiatives that we've been focusing on in the last year or so to really work out where we wanna go as a business and what's the big picture. The big picture, we've outlined some of this before, but I think we've certainly fleshed this out in more detail. This slide here shows some of this thinking. What we're really about is helping school students learn the basics of reading, writing, arithmetic. You know, reading, math, writing, all these key subject areas, which you need to succeed with all the other academic subject areas.
If you can't read, do math, and writing, you are going to struggle at school. Our focus is on those foundational skills. Currently, we have some great products in those areas, but we think we can do a lot more. We wanna be part of the reading journey where you know, all the way along. If whatever we can do, which we think can actually make a difference to learning outcomes, we are gonna get involved in that area. Currently, we have all our reading programs under the Reading Eggs banner, which are quite comprehensive. Reading Eggs, Reading Eggspress, Fast Phonics, The Library, Reading Journal, WordFlyers. We have quite a big range of programs there. In math, we have Mathletics and Mathseeds.
Mathseeds Prime, that's that bit at the bottom there, which is under development, is gonna take Mathseeds into higher grade levels. With writing, we're planning this Writing Legends program for release next year. That'll also include some of the grammar elements as well. They will also transition over into the consumer market, as well. We are planning on swapping out Mathseeds from being part of the Reading Eggs consumer offering into a separate offering with the aim of increasing our lifetime value per home customer. Now we've also in those sort of dotted boxes underneath those main areas, put in some areas that we'd like to grow into, such as assessment and reporting.
Because I think if you don't teachers that don't have assessment they can trust, they don't always know which adjustments to make to their teaching, both on a student basis and on a class basis, to better improve learning outcomes. We think assessment's a key part of helping people across the board, be it reading, math, or writing, become better at teaching and using the resources of time and their effort and the students' learning time more effectively. As part of that too, we also think that professional development is key too. We've all heard about the shortage of teachers and a lot of experienced teachers leaving the field.
We think there's a, you know, to help people improve their skills in teaching the foundation, teachers learn all these key skills of about how to teach better, what the latest theories are, how they work, and then proving it with the assessment. This is a winning combination for us and really feeds into our mission of helping, you know, people establish those foundational skills which will lead to long-term success. I will now hand you over to our CEO, Jose Palmero, and our CFO, Anton Clowes, to further elaborate on our financial performance for the financial year just finished. Thank you.
Thank you, Matthew, and good morning, everyone. It's been a great team effort to bring the 3P Learning and Blake eLearning businesses together, so I'm happy to present these results for our first full financial year as a combined and stronger entity. As Matthew mentioned, we had a solid year delivering revenue of $9 7.2 million, which was at the top end of our revenue guidance. Underlying EBITDA was $ 13.8 million at the midpoint of market guidance. I'll start with an update for revenue, operations, product, and people, and pass on to Anton for further financial details. I will then provide our market guidance for financial year 2023 and invite questions. Starting with revenue, B2C achieved double-digit growth with revenue of $ 39.3 million. Gross billings were $ 38.8 million this year, which was 13% higher than last year.
B2B posted single-digit growth with revenue of $ 57.9 million, which was 8% higher than last year. Annual recurring revenue was steady at $ 64.4 million, which was a good result given the more focused product strategy, sunsetting of Ready Writer and Spellodrome, and the smaller sales team in the U.S. We have not been successful, however, with enterprise sales, including the previously announced Middle East Ministry of Education deal. We will continue seeking opportunities, but we'll redirect our efforts towards CSR- related deals aligned with 3P events, such as World Maths Day, and of course, continue our focus on product development for our core markets. On to operations. As announced in our February update, the operational integration of the two businesses is now complete, creating a strong vision for our products and people and achieving synergy savings of about $ 10 million.
Also announced in February was the acquisition of Writing Legends to complete our product offering in reading, writing, and math, the three R's, and buying the school distribution rights for Canada from Edmentum to allow us to sell and market our full product suite in Canada. In terms of product, work continues apace for the bigger builds of Mathletics and Writing Legends. This will be our main priority for our fiscal 2023 product roadmap and include new courses, student center, and a new avatar system for Mathletics Australia, years three to seven, and new lessons for Writing Legends for years one to six. We expect to release some of these in the second half of financial year 2023.
Mathseeds will get its own standalone app as part of our strategy to offer it as a separate service for B2C, and new Mathseeds Prime content will be added to the app in financial year 2023. During the year, we also expect to release our B2C casual gaming app, Master Math Island. For Reading Eggs and Reading Eggspress, we're improving reports, adding more motivation and engagement features, and a newer Reading Journal to boost reading for pleasure. People and culture took pride of place alongside product this year, with a range of activities including updating our purpose statement, better ways to learn, our company values, and the first stage of our new ESG program, focused on education activities and educational impact. A busy year for our teams across the company, but great results all around. B2C was again our star performer in the consumer market.
Gross billings were $ 38.8 million this year, 13% higher than last year, but net billings performance was even better, delivering a 17% improvement on last year and a contribution margin of 53%. This reflects the fact that our direct website channel now makes up 50% of our billings and improved 18% on last year, saving on commission fees and growing our customer base. Fastest growing markets were the Americas, 24%, and APAC, 17%, higher than last year. Key focus areas for B2C in fiscal 2023 are increasing revenue and market share by offering separate literacy and numeracy solutions and increasing lifetime value by enhancing product features such as rewards, certificates, and parent reports.
In the schools market, B2B delivered good revenue growth of 8% at $ 57.9 million, with Reading Eggs and Mathseeds increases offsetting a small decline in Mathletics take- up. Exit ARPU also increased 6% to $ 12.40. Mathletics is still our largest B2B earner, with annual recurring revenue of $ 30.3 million, and we expect that to continue this year while we build the updated version. Other focus areas for fiscal 2023 are further increasing output through whole school deals, upsell, cross-sell, and implementing our math solution selling approach through our new sales team structure with dedicated new business retention and customer success specialists. I'll now pass on to Anton for further financial details for fiscal 2022. Thank you.
Thank you, Matthew. Thank you, Jose. Good morning, everyone. My name is Anton Clowes. I'm 3P's CFO. This morning I'm gonna take you through some of the results in cash flow, some key P&L drivers, and B2C and B2B performance metrics, plus, some cash flow bridges and, an EBITDA bridge. Turning to slide 14, P&L key drivers. B2B revenues increased 8% to $ 57.9 million, while ARR remained flat on PCP despite the U.S. sales team and sunsetting Ready Writer and Spellodrome. Record FY 2022 B2C revenue of $ 39.3 million. Sales marketing costs increased by $ 19 million, primarily due to digital marketing campaigns to drive B2C growth, partially offset by B2B synergies realized.
Products and technology now includes merged development teams, and expenses have primarily increased due to a significantly lower capitalization rate, partially offset by synergies realized. Underlying EBITDA, $ 13.8 million, up 46% on the prior corresponding period, driven by B2C growth combined with realized merger synergies. Significant one-off items relating to the Blake acquisition, depreciation and amortization of acquired products and restructure costs, retention bonuses, and consolidating the entities. We'll now turn to slide 15 and the B2C performance metrics. A good year, FY 2022, in this part of the business. Gross billings up 13% to $ 38.8 million. Licenses up 11% to approximately 313,000. Net billings growing 17% to $ 34.6 million. Our net billings contribution margin improved on last year at 53%.
From a revenue perspective, record revenue, $ 39.3 million. Expenses of $ 22.1, leaving a contribution margin of $ 17.2 million and a contribution margin percentage of 44%. Turning to slide 16, B2B performance metrics. Our closing ARR flat on opening at $ 64.4 million. Churn steady at 14%. Exit ARPU improved to $ 12.40. From a revenue perspective, we reported revenue in FY 2022 of $ 57.9 million, expenses of $ 26.9, and a contribution margin of $31 million, and a contribution margin percentage of 54%, which has improved from 52% at FY 2021. While revenues have increased by 8% to $ 57.9 million, ARR remains flat on PCP despite the sunsetting of Ready Writer and Spellodrome. Turning to slide 17, our cash balance bridge. A good story.
We had opening cash balances of $ 24.9 million last year, and we've closed FY 2022 with an improvement of $ 6.2 million to $ 31.1 million. Underlying cash flows healthy before tax of $ 22.6 million. We have underlying tax paid of $ 4 million. This excludes the $ 1.8 million paid in relation to the Blake stub period. We've got net intangibles addition of $ 5.4 million, which includes $ 3.1 million of Writing Legends and $ 0.9 million of Edmentum Canada rights we reacquired. Merger-related cash flows include the Blake stub period tax paid of $1 .8 million and $ 3.3 million one-off integration and retention payments. We have no external debt. Finally, on slide 18, we provide an EBITDA cash flow bridge.
Underlying EBITDA of $ 13.8 million, after taking into account the accounting normalization as a result of the merger with Blake of $ 10.2 million. A normalized $24 million underlying EBITDA. Adjusted for working capital, our underlying cash flows from operations before tax of $ 22.6 million. We paid underlying tax of $4 million. We had net PP&E additions of $ 400,000 .
Net intangible additions of $ 5.4 million, which includes $ 3.1 million relating to Writing Legends and $ 0.9 million relating to the Edmentum Canada rights reacquisition. We paid net rents and some effects of $ 1.4 million, and the merger- related cash flows similar to the cash balance bridge, $ 1.8 million relating to the Blake stub period, and $ 3.3 million one-off integration and retention payments, matching the net cash generated in FY 2022 of $ 6.2 million. Pretty healthy story. Thank you for your time. I'd like to now pass back to Jose.
Thank you, Anton, and congratulations on your first year-end with us. We now look at fiscal 2023 guidance. For financial year 2023, our market guidance is as follows. Revenue range, $ 111 million-$ 115 million. Underlying EBITDA range, $ 15 million-$ 18 million. Cash flow generation, excluding acquisitions, of at least the same amount as underlying EBITDA range. As Matthew said earlier, this was a transformative event for the company, so thank you to our shareholders, our customers, and the 3P board for supporting our efforts. Special mention, of course, goes to our talented and dedicated team for all the hard work during the year. This concludes our presentation today, so I'll now invite questions from the audience. Thank you.
Thank you. If you wish to ask a question via the phone, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type it into the ask a question box. Your first question comes from Piers Flanagan from Barrenjoey. Please go ahead.
Morning, Matthew, Jose, and Anton. Thanks for your time this morning. Just a couple from me, if I can. Maybe just firstly on the accounting impacts or changes with Blake. I mean, you talked about the underlying EBITDA impact in one of the slides. You able to give us a bit of color on the revenue impact as well in FY 2022?
Yeah, sure. The basic effect of the accounting changes in fiscal 2022 was something like $ 10.2 million, so that you could effectively add that on to what we reported to get a feel for what revenue would have been like without the accounting changes. For EBITDA, it's $ 13.8 million. As reported, there was another $4 million in what was previously reported as amortization of deferred contract costs, which is about. Last year was about $1 million, this year was $4 million. We decided to just take that. You know, that amount relates to deferred contract costs from our distributors, so it's effectively a commission expense in our view, even though it is technically correct, treated as an amortization cost.
We decided in line with our spirit of keeping accounts clean and simple and having as little items being the difference between EBITDA and underlying EBITDA, we decided to cross that off to report the lower number, because next year that number is gonna grow and more than that, you know, commissions that we pay our distributors, if they're increasing revenue, those commissions increase. In our view, that should just be treated as part of EBITDA. That number next year would have increased to $ 6.5 million. We decided to just strip that out from our underlying EBITDA calculation. You know, if you said this year was $ 13.8 million, we could have easily added another $4 million and reported $ 17.8 million, but that's not the spirit of how we do things.
We like full transparency with our numbers and simple numbers. That's how it ended up being $13.8. On the revenue, the number is $ 10.2.
Great. Thank you. Just on the guidance and maybe the EBITDA, I mean, looking at the tech spend or the product spend or development you had in FY 2022, sort of expensed at $ 22-odd million. I mean, how should we think about that number, going into 2023, and sort of how far along are you in terms of this tech build, over the product roadmap for the next few years?
Yeah, look, I think, you know, we're investing heavily in product, as you know, so we're doing Writing Legends, we're doing a lot on Mathletics, a lot of improvements to Reading Eggs and Reading Eggspress. In our view, we're adding about $ 3.5 million on expense, product development. For capitalized, we're trying to keep that to a minimum. Just the new products, that's gonna be around $ 4.5 million-$ 5 million dollar max, similar to FY 2022. The general effect that they should expect on expenditure is another 3.5 to 4 point expense for the full product suite.
Sure. Just finally on the B2C and some of the good traction you're getting in terms of the billings by platform from website. Are you able to talk about sort of what's driving that and some of the initiatives you've done during the year to increase that as an overall percentage?
Yeah, look, there's a lot of effort obviously on B2C. As you know, it's hard work. It's a bit of a treadmill. You have to keep working at it to keep delivering. The main things that we've done this year is a lot on the motivation, engagement. The move to monthly subscriptions is now firmly afoot, and we now see about 80% of our subscribers coming to do monthly subscriptions, and 20% do yearly. That's become a bigger thing for us. Obviously, a lot of work has gone into our direct marketing through our website channel because we don't pay commission on that, obviously. That's grown at 18% relative to last year. It now accounts for about half of all our billings in B2C. That's, you know, another effort.
You know, it goes hand in hand with our philosophy of doing as much marketing as possible and achieving good conversion rates with our own audience. You know, we get a lot of new customers each year, so our obsession is to keep them with us for bigger lifetime value. Yeah.
Great. Thanks. That's it for me.
Good.
Thank you. Your next question comes from James Bales from Morgan Stanley. Please go ahead.
Hi, guys. My first question's on the guidance range. You've basically guided at the midpoint to $ 16 million in incremental revenue and $ 2.7 million in incremental EBITDA, which doesn't. It looks like operating leverage is going the reverse way to how you'd anticipate that sort of growth. Can you maybe talk to some of the moving parts in that?
Sure. The main thing, obviously, as we just talked about, there's this, the amortization of deferred contract costs next year is gonna be $ 6.5 million. In fiscal 2023, it's gonna be $ 6.5 million, right? We've taken that away from the underlying EBITDA calculation. That's just effectively commissions that are paid to our distributors. That's one big change. The other changes are, of course, the increase in our product development and expenditure. That's around $ 3.5 million-$4 million for next year. The rest is just the margin that we're now getting. We're now getting about 14%-15% EBITDA margin all up from the additional revenue. That's a focus area for Anton and me this year to increase profitability.
The first thing we wanted to do, of course, was to get the right numbers so that we can guide the business properly, and that includes having as little between EBITDA and underlying EBITDA, you know. Those numbers should be simple. That's sort of the main things that are driving the flip, as you call it. The difference between the increase in revenue and EBITDA going the other way.
Got it. One area of strength in this result was the price growth that you saw in FY 2022. How should we think about your ability to extract further price leverage in 2023 and beyond?
In 2023, it's gonna be a little bit hard. I'm in the consumer market, so I split it between the consumer market and the schools market. In the consumer market, being B2B, there's a lot of pressure out there in consumer pockets. We'll try and keep the price as steady as we can for Reading Eggs. The big change there is splitting Mathseeds from Reading Eggs for B2C and offering it as a separate subscription. Our research shows that our customers are very happy to pay $ 13.99 a month for Reading Eggs, so we feel there is opportunity there to offer Mathseeds as a completely separate package so that later on it can be bundled with Mathletics along the lines of what Matthew described in the strategic product direction.
I think on B2C, there's not a lot of margin to increase price. I think what we can do, of course, is increase lifetime value, and the separation of Mathseeds is, it's a big part of it. The other thing is we'll be trialing a few things for customers who don't mind paying a little bit extra, and that is, a bit of a premium service we'll be trialing this year with about 300-400 of our customers on offering them a teacher-assisted learning.
You know, say you're a parent and you become stuck with a product and, or you lack some guidance, we'll have three or four teachers on call so that people can call them and say, "Oh, you know, how can I get the best use of the product?" I think that's for B2C. For B2B in 2023, where we're building the products, the majority of the increase in ARPU that we expect, which will be again on that single-digit level, will be on the cross-selling, up-selling and offering Mathseeds and Mathletics as a complete solution for whole of school deals, particularly if they're going, you know, single year deal whole of school, Mathletics and Mathseeds will attract a little bit more of a premium for ARPU. Yeah.
That's sort of the two main areas for B2B and B2C. I think for beyond fiscal 2023, of course, we will have the new products, Writing Legends, new Mathletics, that's got a bigger potential. I think from fiscal 2024, our expectation is that we'll go into double- digit growth for B2B as well.
Okay, got it. I guess the other sort of major moving part in license volumes in B2B was the decline in Mathletics. How should we anticipate the further trajectory in 2023 while you're still in this transition phase?
I think that's become pretty much steady now. The decline it's been less than 5%. I would probably you know, our own aim is to try and keep it stable, not dropping any more, and we'll try and do that through the pricing, through the whole of school sales, through the bundling with Mathseeds, all those initiatives. I think the work we've done with Mathletics, in particular, on the engagement, on Meritopia, the reporting, all that kind of stuff is working well with our customers. It's a new work for fiscal 2024 that will really attract the difference between the product as it is now and how we see it. From our perspective, we'd like that decline to be as little as possible for Mathletics.
Reading Eggs and Mathseeds at the moment are growing and pretty much making up for any shortfall in Mathletics. If we can keep that position for 2023 while we're building the product, then that'll be a good result.
Great. Thanks, guys. I appreciate the help.
All good.
Thank you. Once again, to ask a question via the phones, please press star one. To ask a question via the webcast, please type it into the ask a question box. Your next question comes from Edward Slade from Schoolhouse Solutions, who asks,
Can you please expand on the comment in the strategy section on slide seven that says you will offer a premium version with access to a live teacher?
Thank you. Yeah, that's what we mentioned with James before. Effectively, the big change in B2C is the separation from Reading Eggs of Mathseeds. We are trialing a premium service with a handful, you know, about 300-400 of our customers who have expressed interest in getting a bit of extra help while the kids are using the program. Basically, we've all known through working from home and the events of the past two years, that parents have become a lot more involved in the kids' education. They're worried about the kids progressing, and they would like a little bit of extra help. We'll be having three or four teachers helping and pretty much on a call center answering questions from teachers.
Again, it's another way of keeping lifetime value, keeping our customers engaged and providing additional value add solutions. The idea is to charge a premium. If that pilot is successful, we'll offer as a value add.
Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.