I think we've got enough in now, so we may as well kick off, Tim. Welcome everyone to our March Quarterly Results for FY 2025. I'm running the presentation as normal. Tim will kick off with his presentation. I'll do some financial pieces in the middle, and at the end we'll turn over to questions. As usual, you can ask questions through the Q&A functionality, or at the end of the presentation I will unmute people's microphones. If you raise your hand during the queue to ask a question, we'll unmute you one by one, and we'll go from there. Handing over to you, Tim.
Great, thanks Ben and thanks to everybody for joining. Hopefully everyone can hear me. We also have Crispin Swan here who runs our revenue operations for K-12, part of our business. He is available for answering any questions you may have as well. Look, in summary, it was a pretty solid quarter actually, and really the focus of the March quarter, given that it is not the biggest selling period in our K-12 business or the consumer business. It is really about sales up for the key selling periods of June and into July, August. Without question, we in particular, Crispin's team did that fabulously well. We do like to highlight this slide at the beginning because obviously our business is a purpose-driven business where we are trying to support children's journeys, online journeys.
We're now looking after more than 25 million kids and 7 million parents using our products every day, and that's pretty substantial growth. What you'll see here is our financial growth is even stronger still. Our ARR is growing. I think we've added $25 million of recurring revenue in the last 12 months organically, which is an amazing result, more than 25% year-on-year growth. We've added $18 million in this financial year to date, coming into the biggest selling period. I'll talk more about that in a moment. Ended the quarter with $137 million of ARR. Our balance sheet's in a great position with net debt of just over $22 million. Operating cash flow, massive surplus so far this year of nearly $20 million and burnt less than $500,000 for the financial year to date.
We're delivering very, very strong top-line growth, maintaining our cost structure really well, improving our gross margins really well, and most importantly, setting ourselves up for the killer end of the financial year. Here's the ARR of the last quarter in waterfall, and you can see both parts of our business, the consumer and K-12 business, grew gross revenue really well. We were impacted by a little bit of positive FX movement, and of course, as any enterprise business does, you have a bit of churn. Overall, added $5 million for the quarter, which is on target. As I said, 25% year-on-year growth. Again, coming into, I'll keep highlighting this, coming into the biggest quarter that we have every year, and I'd expect to substantially improve that year-on-year growth through the funnel.
As you can see on the regional splits, the US is obviously the huge market, the standout market. I think where we're becoming, if not already being seen as the leader in that market, where we're starting to dominate 30% year-on-year growth in a very mature market is amazing. Qustodio, I think that understates the performance of the Qustodio business. I think you'll see certainly in the back half of this calendar year a very swift acceleration of that business. It's doing brilliantly. ANZ is again, I've touched on this a couple of quarters, a highlight and a standout for this business. We've kind of retooled the business model in K-12 in Australia and New Zealand, and I'll highlight something in a moment, some really amazing progress that we're having in these markets. As you see, 33% year-on-year growth is pretty good.
The U.K., I think the U.K. team should be applauded for what they're doing there. We don't yet have all of our product available in that market. That's some content that we're filtering, classroom management, and some data analytics tools. That's coming. The cavalry will soon arrive. We are expecting the 2026 calendar year to be a growth year, substantial growth year for the U.K. That is probably the only thing that I'm, I wouldn't say disappointed because I think the team are doing an outstanding job, but I think there's room to significantly improve those numbers next year. Yeah, this is a new chart we've put in, and really the purpose here is to highlight how strong and reliable our business is.
What you're seeing here is a chart showing the weighted value of our K-12 pipeline over the last three years, split by quarter, with a comparison as to how much of that pipeline is then converted into actual gross ARR or contracted ARR in the next quarter. You see within a, you know, with a band that there is a reliability, very much a predictability in the numbers that we provide to the market in terms of a weighted pipeline and then the dollars that it turns to in exit ARR in the subsequent quarter. Now, quarter three is the quarter that we're in at the moment, also that we just reported on, and our weighted pipeline was nearly $20 million. Our unweighted pipeline was over $43 million. It was $43 million. It's an extraordinary figure.
The marketing team in the U.S., the sales team in the U.S. have done an outstanding job building that pipe into this quarter. Historically, we've been converting somewhere around 70%-75% of that pipeline. Now, timings are always hard to predict, you know, within a tolerance, but you know, that gives us a lot of confidence that Crispin's team have set us up for an outstanding into this financial year. Remember, whilst the main fiscal year end in the U.S. is the June quarter, there are some states, Texas in particular, which is the second biggest region in the U.S., their fiscal year ends in August. There is a sell-through to really kind of end of August, early September. Yeah, we're set up in an amazing position, and the pipeline's still growing, I might add. Incredible, incredible result.
These SaaS metrics have not really changed since they were last reported, except maybe the value of this business at about 3.3 times revenue. It is very much underperforming. Certainly, when I look at our private equity-backed competitors, I was in the U.S. recently talking to private equity groups that are in our space and EdTech beyond, and you know, typically they are talking 8-12 times revenue multiples, and yet we are currently trading at 3.3 times revenue multiples. You know, I have got work to do with our leadership team to explain our story to the capital markets and hopefully lift that in the coming months. I am very confident that what we will deliver through June will give us an outstanding story in July, and hopefully we can all see some appreciation in this valuation.
Okay, another new chart that we decided to put in this quarter because I think again, it speaks to the reliability of this business. We're an ARR business, and what I think the market doesn't understand is how visible our business is. We have, for instance, in the U.S., we have access to, for the most part, details on what all of our potential clients, all school districts, you know, who their providers are, what they're paying, and the kind of general contract terms. We can then load that into our CRM, and then we can allocate those opportunities across our sales teams and give them targets. We have an enormous amount of predictability in terms of the opportunities that we get when they come through the pipeline and how they convert, and then when we invoice and when it turns into cash flow.
The idea of this chart is to show you from the reported recurring revenue and how that converts into cash and revenue. I think the best chart to look at that is the chart on the bottom left. What you see here is our reported ARR, what we describe as exit ARR. As I said before, our exit ARR at the end of March was $137 million. What we are seeing in the last two years is our exit ARR has almost to the dollar turned into the subsequent year's revenue and the subsequent year's cash collections. Very, very predictable. I think within, again, and subject to FX movements, I think investors could probably have confidence that from 1 April through to 31 March next year, we should be collecting more than $137 million.
Remember, that figure is net of reseller commissions, and reseller commissions go through our margin. I think that very quickly you can calculate that this business can be generating serious profits and cash flow in the next 12 months. We have turned that corner. Again, this is highlighting how predictable this business is and that inflection point. This is looking at our cash flow and again, adding another piece of insight, which I think the market has been asking us about for a while, which is how cyclical are your cash flows. What you're seeing here is our quarterly cash collections over the last three years split by quarter. You can see on average in the March quarter, we're collecting around about 20%. That's the reason why we burned cash in March, burned less cash in June, but that's the cyclicality of this business.
The majority of our cash flow comes in that September quarter, followed by December, not far behind. As I said, in the March quarter, that's cyclically our low point. Totally to be expected that this business burned a bit of cash in the March quarter. That will then churn, that will be less in the June quarter, and then this business will never burn cash in our modeling from one to the high omens. Okay, Crispin's on the line, but look, I'll speak on his behalf, but feel free to ask questions if you'd like. The K-12 part of our business is doing exceptionally well, particularly in the U.S., where I feel like we're, I mean, we're certainly dominant in the U.K., but in the U.S., we are without question dominating.
All the kind of key things that we look for in our business are going the right way. You know, the kind of lagging metrics of ARR growth, of churn and renewals and products per customer and average revenue per student and average sales price, they're all going the right way. What we're also seeing at the coal face is outstanding NPS scores and customer satisfaction scores and even things like the ability of our team to respond to customer service requests, you know, inside 30 seconds. We are way ahead of everybody in the market in terms of our ability to understand customers, deliver products to them, understand expectations. All of our kind of leading metrics are going the right way. As a consequence, you're seeing what you see here, which is our lagging metrics are showing outstanding results.
The highlights for me, I guess, are the two charts at the bottom. The average sale price is going up, which means that we are layering additional products and going upscale, selling to bigger and bigger school districts, you know, big enterprises. We're talking about schools with more than 100,000 students and now regularly interacting with our business. Whilst doing that, we are also increasing the price points of the, you know, our student licensing, which is a very hard thing to do, and we're doing it really well. I think that is a trend that you'll see continuing. Very excited to see what the sales team does in this June quarter, where you'll see that continue, but you'll also see us having a crack at a lot of renewal opportunities.
The kind of products we sell, the cross-selling, the net revenue retention figure will be a key thing that we look at and we'll be reporting on in that June quarter. Again, Crispin's on the call. There are a couple of things to highlight. We've launched the EdTech Insights and CloudScan products, which we promised last quarter, and they've now generated more than $3 million of pipeline that I just spoke about then. We've already announced this, but we were recently appointed as the preferred provider in Ohio, which is a very significant state, 1.8 million students. It's, you know, it's nearly half the size of Australia. It's massive.
We've nearly reached 25% of Texas students on our platform, and our Texas preferred partnership with TASI, the organization called TASI, has now been extended for two years, I think it is, which is a huge pat on the back of this business. Texas is now our fastest performing region. We've recently deployed our technology into a school district with 400,000 students, and it worked. We are incredibly proud that our business, which literally four years ago was selling into school districts with 4,000 students, we can now reliably deploy into school districts that are bigger than Adelaide and South Australia, sorry, South Australia and Western Australia combined. That's the scale that we can now sell into, which is super exciting. All right, so a couple of highlights. I'll just touch on it then. TASI is the Texas Alliance for Statewide Initiatives.
It's essentially a cooperative of all of the Texas education regions, 20 regions there. All of the CTOs of those regions got together and formed this alliance, and they worked collaboratively together to get better technology outcomes for Texas students. A few years ago, they went out and scoured the market looking for the right safety and wellbeing products set for that market, and they selected us. We're really proud to announce that that's been extended now for a couple of years. It's our best performing region. We're getting close to 25% of students in that region on our products. It's 5.84 million. It's bigger than Australia. It is an outstanding opportunity. As we say here on the last point, Texas is very pro-parent, as you can imagine, and it's very much oriented towards empowering parents and our parent schools to keep kids safe.
The implications of that pro-parent, pro-safety approach are really driving business to us. Their regulatory environment supports many of the things that we can uniquely provide, particularly the ability for parents and schools to share control of those learning devices. We are in an outstanding position to service that market, and I think that market is a great exemplar of what is possible. I think you will see similar regulatory moves not only in the U.S., but outside. Actually, Chris, could I get you to talk about the New Zealand Trust? This is an amazing achievement for this business, and I am super proud of you and the team.
Thank you, Tim. What this talks to is a partnership that we formed with the West Auckland Trust. The Trust, as it says there in the bottom left, received their funding through alcohol and gambling taxes.
Their sort of MO in life is to invest in projects that deliver good to, you know, to families. What we've done collectively is work with the Trust to fund Pulse, which is the student check-in tool for a large number of schools within the West Auckland purview of that Trust. That just opens up the opportunity for, you know, for students that are looking at a way to have a voice and reach out at times for help can actually get that through the funding to the Trust rather than the schools having to fund it themselves. We, as it says in there, have integrated this cultural localization with Te Reo Maori, the local language, so that it's very unique to the New Zealand market.
What we now expect and are seeing with other discussions is that this model with other trusts, and there are multiple trusts across New Zealand, and also communities of learning that are all interested in investing in children. They see not only Pulse, but we are in discussions to expand that out to our other offerings as a very worthwhile investment of their resources. Yeah, a lot more to come out of this. I would love to see this replicated in other regions in the future as well.
Yeah, thanks, Chris. Yeah, look, what I love about this is we are now working with a community, a very substantial community with underprivileged and disaffected kids in New Zealand, and we can now be able to demonstrate the efficacy of these tools, you know, working with these communities, working with these schools.
That's, you know, everyone knows I'm a massive fan for the wellbeing aspects of our business. I think mental health for youth is a huge problem, and I see our business pushing further into there. I think this now will provide an evidence base for us to do that more aggressively globally. It's very exciting stuff. Okay, our consumer business, look, I keep mentioning it is just so well run, and it's in such a good spot. One key highlight for us, we've been diving deep into the cost structure of that business, and we're now generating literally 360% return on investments for every $1 of marketing in the consumer business. We're adding about $4 of margin of lifetime value. That's time to accelerate. We're gradually lifting our investment in that market, but making sure that we're maintaining our, you know, financial disciplines and promises.
That is an outstanding business. All the metrics going the right way. In particular, churn is incredibly well managed. Average annual recurring revenue is growing around 20% per year, and average revenue per account is consistently growing. We're also now, without question, starting to see a moderation in our customer acquisition costs because we've got U.S. schools talking about printer controls and talking about the Qustodio product. Really, that's the kind of, that's the end game of this business, is to allow us to put our foot down in the consumer part of our business, but not just have to pay for every customer that we acquire, actually to get a resident benefit because we've got, you know, soon to be 20% of U.S. schools talking about printer controls and our approach to printer controls. That's the game there. Yeah, really well positioned.
I think really well positioned. That will become a big growth story for us in the next few years. We also highlight there in the call out that SoftBank have now launched Qustodio through BSS, which is their subsidiary. SoftBank is now available through the, sorry, Qustodio is now available through SoftBank's online channels. It will be available on their retail channels in the next month or two. We are also hopeful if we do a good job there, we are hopeful for a deeper relationship with SoftBank. I will not go into much detail there because we are working on that with them, but a lot more to talk about there in coming months. What would I ask investors to think about or look at for the next few months? Clearly, it is K-12, June quarter, September quarter, there will be significant growth.
Last year, as an example, we added $9 million of recurring revenue across the business in the June quarter. In an extrapolation of our conversion numbers from the slides I saw before, we put that somewhere between, you know, 14-16. Look, we're hoping to deliver a very, very strong quarter. Again, there's more to come in the August quarter, September quarter with Texas. We should collect a little bit more money than the March quarter. If you think about our cash collections profile, the main cash collection period, as we highlighted in the previous slide, is that September quarter. Certainly for this calendar year, we're expecting to be significantly cash flow positive. For this financial year that we're in, we're expecting to be materially EBITDA positive, you know, still forecasting somewhere between 10-15% EBITDA margins for this current financial year.
All right, hopefully that was a decent summary. In 20 minutes, I'll hand over to Ben.
Thanks, Tim. Okay, so a couple of highlights from this slide. Something to point out around the March quarter receipts is in the prior year, there was around about $500,000 worth of receipts relating to McGeary, which is a business that was divested in June 2024. If you strip that out, the customer receipts growth is actually around about 12% year- on- year. Worth highlighting that the March quarter is difficult to shift the receipts number because the business is so quiet from a new business perspective in the U.S. in particular in the December quarter, but also the U.K. You are not going to see the same double-digit growth as you do in some other quarters.
As we flagged earlier this year and have talked to a number of investors about, the business has been slowly moving away from the three-year cash upfront deals, which does impact the cash flow profile slightly. If you go back two years, we were probably riding around about 15%, a little bit more of our deals in three-year cash upfront business. Now that's in any given month, maybe 5-7%. You saw that manifest in the half-year report where we talked about the significant financing component. That's attached directly to that coming down from about $1.4 million for the half to around $400,000. They're probably the main factors at play with the cash receipts, operating activities, and investing activity cash flows.
We're pretty happy with that. It stayed relatively flat, which we'll touch on in a bit more detail on the next page. The other point to note on this page is around that FX sensitivity. We've included the same analysis that we put in on 31 December just to give people a feel for the impact of a movement in the Aussie dollar against the U.S. and the pound in particular. Those are the two main currencies that we have sensitivity towards. You do see the numbers come through a lot more in the ARR, and there's a bit of a natural hedge within the business in terms of net cash flow as well. At the moment, compared to last year, it still remains slightly positive, even at that sort of $0.635.
There's a little bit of a tow in there without being enormous from a net cash flow perspective. Moving to the next page. A little bit more detail here around the line-by-line costs. Some of the headline numbers look bigger, so around staff costs, the increase is 13%. If you strip that out, the effects impact there out, the increase quarter- on- quarter is actually around 4%. It is in line with 3%, I should say. It is in line with CPI and the pay rises that have come through for the majority of the business were 1st of October, but for Custodial, it was 1st of January. Relatively stable there, which we're pleased with. Direct costs, there's some seasonality in the payment profile there. Again, in line with prior year and stripping effects costs out, actually down year- on- year.
Now that a number of those annual upfront payments have moved through the business, I'd actually expect them to be slightly down in the June quarter. Fixed other, again, there's a reasonable amount of FX impact in there and some months off annual payments within the quarter. I'd actually expect fixed other to be down quarter- on- quarter in the June quarter as well. Costs should be largely flat across the June quarter when compared to March. As Tim touched on earlier, we should collect a little bit more cash in the June quarter. It will really depend on the timing of ARR being written, which often does happen later in June. The pipeline will convert to cash most likely in the September quarter. June is historically a slightly stronger month than the March quarter, I should say.
Hardware costs is probably another one that's worth calling out. There's been a big effort across the business there to get efficiency there. The March quarter is a period where we start to purchase a large amount of hardware in advance of the selling season. Notwithstanding the fact that the business has grown IRR by 25% year- on- year, we've managed to get those hardware costs down 12% year- on- year, which is a really good outcome. That's been a big effort across the business to try and maintain those things. Net interest costs that we've talked about previously as well with deploying some of the excess cash that they've got into high interest standing term deposits, we've managed to bring the net interest costs down slightly as well. That's a very pleasing outcome as well. Next slide, Tim, please. Not much to add here.
It's just the usual update around the market cap. On that note, we can move into questions. Just turning microphones on. Owen, you should be able to unmute now.
Can you guys hear me? I think I'm on.
Yeah, perfectly.
G'day, team. Well done. Forward indicator's very strong. Just a couple of questions. Just to kind of clarify a few things here. Some new charts, new analysis. Is the expectation that the IRR from FY 2024, call it 116, will convert to cash for FY 2025, i.e., 116 mil for cash receipts for this year? That leads to kind of a fourth quarter number of 28 mil relative to your cash costs of 29 mil. Just to kind of understand the expectations around the cash burn in the fourth quarter, is it like negative one, negative two mil? Is that what you're thinking?
Yeah, probably not quite that strong given the move away from the three-year cash upfront and also a portion of the IRRs pushing further into the June quarter than historically. I expect that U.S . this year will be, I'd say, 60%, maybe even more of their new business written in the June quarter, which will be a peak. That pushes some of the cash flow into the September quarter. It'll probably be slightly softer than that, but materially within touching distance of that.
Okay. You haven't given guidance for FY 2025. Obviously, lots of moving parts just around IRR. Just so I can just talk through numbers with you guys. Nineteen million, the weighted pipeline, that's strong. Times that by, call it, 70%, gives you kind of 13 on $137 million.
The expectation here that it comes in and around that $150 million mark, was that within the ballpark, Ben? Tim?
Yeah. Look, yeah, that's why we're trying to provide those numbers to allow investors to kind of come up with their own conclusions on that. Again, it can be significantly impacted by the last week of sales and, of course, foreign exchange. Yeah, they're all in magnitude about right. Look, that would be a, if we pull that off, right, it's a 50% increase or 45% increase year on year.
Yeah, big numbers. The $150 million, what I'm trying to lead to is the $150 million of cash receipts then in FY 2026 is kind of what we're talking about here. That's what you guys, the analysis you're providing. In that third quarter, the fully loaded cash cost base of your business was 29.
Annualized, that's 120. Is there any expectation that 120 will move materially in FY 2026?
Look, you've got some variable costs in there, Owen, I think. Your data and hosting costs will decline a little bit, obviously, the commissions. I don't think it's materially wrong, Ben. Do you want to add to that?
Yeah. Look, I think we'll maintain the same, I guess, outlook as we've mentioned in the past, which is you'll have CPI in there for staff in the first half of the year. If you work on CPI plus a little bit, so maybe in that sort of 4-5% realm, then I think you're reasonably comfortable. There's certainly not a linear tie between even the variable costs and revenue increasing. We do get scale benefits, but the data and hosting costs will increase.
Just to kind of, as you go through into the promised land of free cash for break-even, as I say, the talk to there around having the capacity to reinvest in the consumer, because you can scale that with marketing dollars, you could say. What's your view around your view? Do you think you'll hold the debt, maybe get a new facility at some stage in the future, more favorable around the interest rates? Or do you think you'll hold that facility in place, or do you think you'll do a debt draw and pay that down? Just to understand capital allocation going forward.
Look, our expectation is that we can fund acceleration of the custodial business through gross margin, so without affecting your views or your modeling of cash generation into the future.
In terms of the debt, we're already in discussions with Escrow about restructuring that debt. We have the ability, I think, in a year and a half's time, maybe just over, to, with limited make goods penalties, let's say, restructure it. We're in conversation with them about doing that now. For the moment, we're pretty comfortable with our net debt position. Of course, if we can and we are trying to reduce the interest burden, we'll do that.
The last one here, just the 25% increase in IRR. How much is price related in that? It sounds like it's like 5%-6% price and the rest is volume. Is that a good way to think about it?
Yeah. Yeah.
Okay. Good one, guys. I guess we're all looking to wait to see the cash receipts cash out with the IRR growth, right?
Maybe a question for you guys and the market and the questions that get asked of me. In your view, which quarter? I guess that's a bad way to think about it because it's seasonal run. Anyway, just when that's going to play catch up.
Yeah. I think I understand your question. The main reason it's not growing at the same rate is that three-year cash upfront pivot that we're talking about. To give people some context that probably don't understand the, I guess, benefit to the business of that is when you write a three-year cash upfront deal, they're typically giving away a 10-15% discount on IRR. So we're costing the business IRR. There's no need to do that anymore. Historically, there was actually a push within the market off the back of Trump's first term.
There was a lot of funding. The customer was actually looking for it as much as we were. There's still an element of that within the market. It's not going to completely disappear. Our competitors are offering it, and some of the customers want it. There will always be an element of three-year cash upfront. The other point to make around that is we still look to tie all customers into a three-year deal. The majority of our contracts are still three-year deals. They're just billed annually now for the most part, rather than a portion of them being three-year cash upfront. As that normalizes over the next 12 months, you'll see the growth in cash receipts normalize back again with the growth in ARR, if that makes sense.
Yeah. Yeah.
While you're on that slide, just the last one, I've had a few questions. Just in that fourth quarter to FY 2024, the average sales price per client per annum, is that like a forward indicator? What's that? You got the fourth quarter.
That's a heading issue. That should read Q3. Okay. Apologies for that.
Thanks, guys.
Okay, Lindsay, you should be able to unmute now.
Yes, hopefully I'm here. Can you hear me? Yep. Yeah, cool. Thanks. Guys, a couple of questions. Just one tacking on the back of Owen asked and you answered. The $137 million ARR plus a $13 million-$14 million-$16 million—I don't know what Q4 is going to look like—but you're going to earn something like $150 million. If I just run spot FX rates through today, that's like a $4 million headwind versus kind of what you've printed in the March quarter.
Just trying to understand, like the 150, as of today, is that if we held everything flat to the end of March? Because it just feels like talking to 150 when you've got a $4 million headwind might be a bit tough. Or maybe not. Maybe you're still confident with the 150.
Yeah. I mean, the U.K. rates are still pretty consistent. It's just the U.S., and you're looking at about a 1.5 cent-1.6 cent variance to the rate used at 31 March. You're talking maybe $2 million-$2.5 million worth of headwind, which should still land us around about the numbers that Tim was talking to.
Okay. Very good. Second question is just this move away from the multi-year contracts. You've called that out, obviously, as being both a detriment for the upfront cash, but then a benefit for the ongoing margin.
Could you put a finer point on that? Because it just feels like this quarter's cash flows were quite a bit lower than I'd anticipated. I figure a portion of that is just me mismodeling it. Just trying to understand how much, as we were kind of environment, cash receipts would have come in. Is it a $500,000 impact, $1 million, $2 million in this quarter?
Yeah. It's more than $500,000. I think the biggest indicator I can point you back to is that $1 million worth of significant financing component difference in the first half of the year. That's something that's, I guess, out there in the public domain. From a cash flow perspective, it would be around about that sort of $1 million-$1.5 million.
The other factor, which is probably where your expectation differential has come from, is more of the IRR than historically has been the case, was pushed into that June quarter. That is a combination of the U.K. probably being a little bit softer that Tim touched on earlier. We are comping some pretty decent periods in the U.K. in the December quarter last year and the March quarter last year off the back of the KCSIE regulations changing. There was significant growth in the U.K. then. The U.K., having gone backwards, has actually grown a little bit, but it was comping a pretty tough period. That is probably the other factor there. You can see it in the pipeline data.
All the numbers that we've talked about from a revenue, a cash flow, and all those sort of things are coming, but it's just pushed back a little bit further into the year is the other piece of the element.
Okay. Brilliant. The flip side of that coin is obviously there is a long-term rationale here, right, where this is just driving, like you said, a 10%-15% or 10%-15% less discounts across 10%-15% of clients. Does that imply something like going forward, a natural kind of couple of million dollar tailwind to IRR versus what we were anticipating previously?
Yeah. I mean, the question is, yeah, the question is whether we can get the price increase out of those existing customers that already have the discount to a degree.
I suspect Chris can probably answer that better than I can. Certainly for new business that's getting written, that discount will not be offered any further. Correct. You have to wait until the renewal contract comes up.
All right. Brilliant. Just final question. Just on the U.K., I know you've touched on it a little bit, but it does not kind of matter how I think about this. You've been pretty consistently growing that business 10-15% a year. This quarter was like 7%. My understanding was also that March is typically the peak selling period in the U.K., and you've added like $200,000 quarter on quarter. It just feels weak. You've given some justification for it, but maybe we could just expand on the U.K. a little bit more, please.
Yeah. I'll start with it. Yeah.
The top line sales, they're on budget, but where we're likely to be. We've been impacted a little bit by churn. A big chunk of churn is the movement of schools out of local authorities providing filtering into. The way it worked is municipalities would hand over responsibility for connectivity and filtering to these local authorities. In the last year or two, because of budgetary and, I guess, political reasons, they're deciding to hand back filtering responsibility to the schools, the council-run schools, or the multi-academy trusts. That is creating an opportunity for us to sell individual cells at a high price point, but it looks bad in terms of churn. There would be a big chunk of that. Maybe you can give a bit more color on that, Chris. Yeah. That's part of it.
Part of it was just coming off the back of the elections and waiting on the new budgets. That sort of deferred some decision-making. Tim, we've talked consistently about investing, I guess, in the U.S. in terms of giving that the full expression of our capabilities. What I see now in the U.K. is we're going into this quarter already with $4 million of pipe and $1.5 million of weighted pipe. We introduced CloudScan as a new capability for the U.K. in March, and that's already generating $500,000 of pipe created in months. As we move towards the unification story and getting EdTech Insights and other things into the U.K. team's hands, we'll start to see them kind of return to double-digit growth, which is where I absolutely expect them to be in FY 2026. None of this is surprising to us.
As Tim said, the team are doing everything to optimize and build for the future. I am expecting greater contribution from them in the June quarter.
Yep. Brilliant. All right. That's it from me. Thanks, guys.
Thank you.
The next question's actually through the Q&A function. I'll just read it out. The U.S. competitor's trading at 8-12 times, and we are at 3.3 times. How do you close the gap? Quick, or do you become someone who is taken over by the other companies in the U.S.?
Yeah, that's a risk, and that's a well-trodden path with ASX tech companies that have got to our scale or even smaller and have not made it through into indexes and being properly valued. That's something that is definitely weighing on my mind.
How do we get the market to see the business that I see, which is a company that's growing north of 25% year on year with a well-managed cost structure that's cash generating, that's profitable, profitable to the tune of 10%-15%? We're rule of 40, effectively, from 1 July, and we'll be rule of 40 forever. Comparable companies, even less performing companies in the private space in the U.S., are trading at 8-12 times multiples. I think it's just I think the capital markets want us to deliver it multiple times to start paying you that value. Whereas in the private space, they're willing to take the punt, I guess. What we can do is keep reiterating that story, the story that I'm explaining to you now about where the company's at, and hopefully, we can bring the market along with us. Okay.
Wei, you should be able to unmute now and ask your question.
Hi, Ben. Can you hear me? Yep. Hey, Tim, Ben, Crispin . Thank you. My question is just related to the U.S. opportunity going forward. So we've got Texas on the TASI now, Ohio. Can you talk about just the size of the opportunity of Ohio relative to Texas? And I guess on a look-forward basis, the outlook for the U.S., which states you think are highest likelihood? I believe you were in the U.S. a few weeks ago, Tim. Maybe just talking about, I guess, what the sentiment is with Trump and what have you. Thank you.
I'll start, Chris, and then I'll let you talk about more specifics in case I was in the U.S. mostly. I went to the ASU GSV event.
Mostly, I was there to speak to the competitors and the private equity groups that are circling our industry and just kind of get a read for how they're thinking. That was really interesting. There is a view in the private equity world in the U.S. that there'll be a convergence of online safety and real-world safety. Obviously, issues around safety in schools, guns being brought to school, teachers protecting themselves, tracking students, hall pass systems, alert systems, and so on. It's a big and growing industry in the U.S. There is this overwhelming view, actually, of the PEs that online safety and real-world safety will merge. I wanted to kind of keep abreast of that, how they're thinking about that and how they're thinking about us in that context. That was interesting.
In terms of the Trump thing, nothing's changed since we put out that release a few weeks ago. There was an element. There was, without question, a move in education to simplify procurement, single throat to choke, single vendors, however you want to describe it. We're getting the benefit of that against groups like kind of specialist providers of classroom management tools or monitoring tools and so on because we've got multiple sets of products. Also, EdTech Insights product is aimed at that procurement commercial function inside schools that are looking for savings, and we can identify them as well as anybody. Beyond that, our industry is funded by local rate payers, state budgets, and it's backed by federal legislation. There's no direct impact on our business, but we do definitely see some more circumspect buying, which I think is an opportunity for us.
Chris, and then more broadly, Chris, for you to talk about where we win and how we win in Ohio.
Yeah. The question was in regards to which sort of states we expect to win. We doubled our penetration in the Texas market through the TASI relationship in the last 12 months. I think we'll continue to see that growth in Texas. The parent piece that we have, which is truly unique, is a big part of why we're winning those deals into these Texas districts. I expect to see a similar opportunity whilst a smaller state, still at 1.8 million students, Ohio, in the same relationship we've formed there. I expect us to see a comparable growth within Ohio. Florida, we've got some material opportunities underway with districts well in excess of 100,000 students.
In fact, we've got 25 roughly opportunities with student sizes of that range throughout the U.S. Florida will be a large contributor for us this quarter. As Tim said, going back to Texas, we'll continue to see them outperform in the September quarter as well. Finally, California, just in terms of the size, which is now the fourth largest economy in the world, apparently, we'll continue to see major contributions from the state of California.
Great. Thank you very much. Maybe just one more in terms of on a look-forward basis into FY 2026. Sounds like U.K., we're getting excited about the potential growth opportunity over there. U.S. is also very strong. Just on the relative, I guess, opportunities in the two larger regions, how should we think about it? Which one are you more excited about?
Y eah.
Last financial year, we added $19 million of ARR. This year, we've added effectively that already, and we've got the biggest quarter to go. I think I've said in a previous quarterly release that we try and aim for 15% growth in our growth of the prior year. We were kind of expecting for this financial year to get somewhere between $22 million and $25 million of ARR growth. I think that's clearly quite comfortable now. That's probably how Chris Ben is going to be. He hasn't yet finalized his budget, but for the 2026 financial year, that's no doubt how we'll be doing it. They'll be thinking about growth on our prior year growth. So 15%-20% growth on maybe $25 million-$30 million of ARR growth. That's probably how you'd be thinking about it.
Look, we can talk more about that in the coming months as we lock down that budget. Now, there is infinite opportunity. I mean, you and I have spoken about this. The U.K. monitoring, the parental controls, well-being, the U.S., we're only at 2.4 products per customer, and we've got five products to sell and more products and modules coming. We've got the non-English speaking world. We've got parental controls. There is infinite opportunity for us. We do not budget on that about how much could we own of those markets. What we do, and Crispin 's team does this brilliantly, is they literally go down to account by account and salesperson by salesperson and give everybody a number.
That process gives us high confidence, predictability on this person has a million-dollar target and most likely going to get 80% of it, and therefore they're going to double their wage and so on. That is how we build our budgets. That is why I think in these sessions we speak so confidently about our ARR and our pipelines and how all that will turn into cash and profit. I know it's probably not the specific answer that you're looking for, but honestly, I feel like there is infinite opportunity, but we kind of run our business much more in a granular salesperson, account manager by account manager type structure.
No, that's great, color. Thanks, Tim. Thanks, Ben, and thanks, Crispin .
Okay, Ross, you should be able to unmute now and ask your question.
Thanks. Can you hear me now?
Yep.
Yeah, great. Morning, guys.
Just I guess my two questions have kind of been answered, but I'll revisit it in some way. Tim, on slide 11, I guess where you're referring to the average revenue per student, and you're referring to that targeting $10. Have you put any timeline, I guess, on reaching that? It's probably a tricky bit I'll ask nonetheless. Maybe just revisiting some of those comments you quickly made there about the products or services that will drive it up to that $10.
Yeah. Look, it's a bit of price increases, but it's mostly about cross-sales and up-sales. We've progressed very, very well in the last couple of years, last year and a half in particular, as you can see in those charts. Look, I've been aiming to get there by the 2027 year. Whether we can get there or not, I'm not sure.
Look, we'll know a lot more by the end of June, to be honest, with all these new products to sell. Let's have this conversation in July. As I said, 2.4 products per customer in the U.S. We've got Filter, Classwize, which most customers have those. We have Monitor, which is probably 30%-40% of customers have that. We have Pulse. Very few customers have that. We've got the Qustodio product, but it's a free product for schools, albeit now creating a benefit, a resident benefit outside. We have EdTech Insights, which has only just been launched, and it's showing unbelievably positive signs. EdTech Insights is going to then morph into more fulsome data analytics products inside the next 6-12 months, which should offer another kind of $2 plus per student product opportunity.
I think that's six paid-for products, plus Crispin 's got up his sleeve these content-aware capabilities, which he sells as modules or added value to the filtering and monitoring products, which are another $1 per student per year each as well. In combination, that's there, and we're at about 2.4. Look, that's the key for us at the moment. When I think about my priorities, the first thing is unification, which makes our capability available everywhere. The second thing is the experience of the go-to-market to make sure that as many customers can buy those products as possible. I think about the parental control piece, selling through our expanded footprint of parents. Internationally, the problems that we deal with are an international and other English-speaking problem.
We have a little business in Spain that is, I think, doubling every year, has done so in the last couple of years. That will become the kind of partnering and international capability of this business probably from the end of next year going forward. Yeah, hopefully that answers your question, Ross. Definitely in the next 12 months, it is a high focus on unification, all of our products available everywhere, and lifting the products per customer.
That is very helpful. Thank you. Back on the U.K. just for a second, I think you and I have said this pretty well, but you said the growth of 7% was, you have acknowledged, is a little bit softer, but you are also cycling a pretty strong PCP.
I was just thinking there might have been a timing issue where the growth that did not happen in the U.K. that you were hoping to has kind of been pushed into the fourth quarter, and that was one of the contributing factors to having a higher-weighted pipeline. It feels like that is probably not the case, and the weighted pipeline is probably far more genuine growth than a timing issue.
Chris, do you want to cover that?
I think it is a factor of both, but mostly on the general growth of the ARR pipeline, Ross. We are definitely through the, as I mentioned before, some of the just delays in decision-making we saw through the government changes and budget concerns, etc., which have now been addressed. We saw some decision-making push out, and now we are actually seeing customers place orders.
I definitely see, like I said, greater contribution from the U.K., which this quarter is around 29%. Last quarter, it was less in terms of expectation of annual contribution. I definitely expect this quarter to contribute more than what we did this quarter.
Okay, great. Thanks. Just a quick one, Tim. I think you mentioned in the past the Octopus BI. There were some cost savings there, just some internal processes they were automating. You were saving tens of thousands a month on that. Could you just maybe revisit that if you found anything else? Is that accelerating? Is it still a flat number? Or maybe some broader comments around how you're getting efficiencies from that offering?
Yeah.
Yeah, I think there's a whole range of cost-saving opportunities, and one of them is the potential to increase investment in engineering in Sri Lanka, which is obviously somewhat of an offshore-type model. We're building out the team. We're building out structures there to make that a possibility, and I'm really excited to see how that's progressing. The specific measure that we put in place a couple of months ago, actually, was in our moderation pipeline. It's the data that we capture from these devices and cloud services and send to our cloud services for analysis and so on. Some tweaks that we did in there with our data team have delivered something like $50,000-$60,000 a month of savings. That's now starting to come through those numbers.
Yeah, there's ongoing work inside direct costs in our human moderation, making that more efficient and support costs, which Crispin , I think, was touching on before. There's constant work going on, including, of course, product innovation, which is the Octopus team's main role is to accelerate the delivery of insights into the decision-makers and schools. That's the thing that makes sure that we are truly sticky and allows us to increase our price points. Most significantly, I'm so excited about what that team are doing. I think their delivery of EdTech Insights inside like three months was unbelievable. The work that they're doing on the evolution of our Qoria platform and what we'll literally be seeing inside the next six months is astonishing. Yeah, it's a brilliant deal for us.
Okay. Thank you.
Thanks, Ross. We've got a two-pronged question through the Q&A channel.
First part is, could we please talk through how we view commissions and taxes in relation to ARR versus cash receipts coming through? I think the main thing to point out there really is that cash receipts are net of reseller commissions. Taxes are a separate issue in there. They are disclosed separately in the cash flow statement. We obviously have tax losses still available to us, so that is limiting the amount of taxes paid at the moment. Yeah, it is important to note that cash receipts are net of the reseller commission, so you do not see them in the cash flow statement, but you do see them in the P&L. The second part of the question is, how is the sales agreement with the broadband provider in the U.K. going?
I mean, not quite where I hoped it would be in terms of the pipe.
We've got a few hundred thousand dollars of opportunities now. Fundamentally, it's partly due to the same issues that I spoke about before with the U.K. market, which have sort of almost readied themselves now. The other issue is just they've had two of their people move on. We've had to then wait and work with the people that have been moved into the roles, and that's all now happened. Yeah, it's been a little bit frustrating, but yeah, looking forward, it's looking far more optimistic. I'm hoping that in the future, we'll be able to sort of talk to more specifics around close-run opportunities and a larger pipeline that we have with broadband.
That's it for all the questions, Tim. If you'd like to wrap up.
Yeah, great. Look, that was a long session. Thanks, everyone, for attending, for all the great questions.
Look, as I said, I think we've done a great job of maintaining costs. We've grown this business at more than 25% over the year, about $25 million of ARR in 12 months. I think in July, when we report the next results, they'll be even stronger than that. We'll be very forcefully talking about being cash flow generating and profitable. We're at that turning point. Hopefully, we will just keep banging the drum as a leadership team. We'll keep delivering, and Ben and I will keep talking to the capital markets. We're expecting to see the kind of markets turn their favor in the coming months. Thanks, everyone.
Thanks, everyone.
Thank you.