Good morning, everyone, and thank you for joining us for our FY25 half-year results presentation. We'll run the webinar as we usually do. Tim will go through the first section of the presentation. I'll do a piece on financials, and then we'll leave time at the end for questions. Like always, we'll hold questions to the end. Once you're ready to ask a question, raise your hand, and I will let you through. So over to you, Tim.
Thanks, Ben, and thanks everyone for joining this session, and it's good to see some new names, new institutional investors that have recently joined our register, so welcome. I won't do too much in the background of Qoria. Mostly, what I'll do today is just kind of focus on what we've achieved in the last six months and give you a bit of our thinking about what's coming in this calendar year. Okay, firstly, positioning. Why do we think Qoria is a good investment? It's for these reasons. Firstly, it's an untapped market. We're dealing with student safety and well-being. It is a massive, massive problem globally, and there is no one anywhere, and we think that can be us. We've been proven to be very good at bringing businesses together and cross-selling across those different products. I'll probably touch on that in a moment.
Obviously, social impact, what we are doing is dealing with one of the most meaningful and challenging problems of our time. We are scaled. We are ready. I'll talk about that in a moment. Seen without question as a global leader, I'll talk about that at the end of this session. Diversified with revenue streams across the globe, which puts us in a really good position with, for instance, Forex movements, which has happened in recent times. And our vision, which is encapsulated in that chart, which I've spoken about many, many times, I won't cover today, but it is without question the most compelling vision for online safety and student well-being. And I think it's the reason why we're actually succeeding, in particular in the U.S., where that way of thinking about this problem set is resonating with our core constituents.
Okay, now we are a global operator with 600 staff, luckily, operating 11 offices in six countries. We have 550 staff here, but it's now 600, including Qustodio. We're looking after more than 25 million kids, which is extraordinary, nearly as many kids as there are Australians. We support seven million parents, which is up 17% year on year across 100 countries and 29,000 schools using our platforms. We're in the U.K. with nearly 40% of U.K. students managed in our platform, nearly 14% actually today of students in the U.S. managed by our platforms. And I think it's something like 19, nearly 20% of potential clients, school clients in the U.S. are now buying services from us. So we are, without question, the fastest growing and the most impactful provider of these sorts of services globally.
But what really we'd like to focus on is the impact that we're making. And that last point on the bottom right is a key one. Literally every three minutes, our systems intervene in a life-threatening situation, which is absolutely remarkable. And everybody who's investing in us and everybody who's employed in our business should be really proud of that figure. Okay, so financially, we entered the half with AUD 132 million recurring revenue, up 26%. Our revenue at AUD 55.1 million was only up 14%. Ben Jenkins, our CFO, will talk more to that, but there's accounting treatments and so on that impact that. But our underlying business is growing well north of 20% year on year. And pleasingly, our operating costs are flat, and our gross margins are improving through enormous effort in our direct costs, which are mostly done around hosting costs.
So overall, the financial health of our business moved extraordinarily fast in the first six months of this financial year. We generated free cash flow. We're EBITDA positive. Our balance sheet's strong. We're in a fantastic position to really take advantage of this next six months, which is the key selling period for the K-12 business in the northern hemisphere. So we're super excited about what we're about to deliver. Okay, talking to profits. So we turned the corner this last half, so in the back half of last year, and we're now seriously profitable on an underlying EBITDA basis. Essentially, what we're doing there is it's the reported EBITDA, which capitalized R&D costs, and we removed from that the share-based payments. So that's the kind of underlying profitability of our business. We've now turned the corner and two halves profitable.
This, I think, is the most important slide because ultimately everyone looks to what's flowing through your bank account. And what this slide is doing, it's a new chart we've never presented before, but it's showing the prior 12 months' cash flows on a free cash flow basis over the last five halves, so five quarters. And so what you're seeing is our collections from customers are catching up with our cost structure, and you're also seeing our cost structure is stable. And you can also see if you've got keen eyes that our gross margins, our direct costs, are coming down. And so in the last year, we added something like AUD 20 million of gross margin to this business.
And you can see clearly from this chart that if we do that again this calendar year, which we think that we'll do comfortably, we're now printing real cash flow in this business. So I mean, that's an amazing chart, and I think it really demonstrates this commitment this business has made to stabilizing our cost structure, improving our gross margins, and growing strongly. They are three things that are not often achieved in one hit, and we've done that very, very comfortably. In fact, I spoke with some analysts this morning who said that that's quite a remarkable result. Again, to maintain costs where they are, to improve gross margins, and to accelerate growth is a pretty remarkable result. So I think we should all be very proud of what we achieved in that last six months. And again, more to come.
Crispin's on this call if you want to talk more about sales. This is our ARR, so our recurring revenue. It grew very, very strongly. Obviously, we were impacted positively by the strengthening U.S. dollar at the end of December. The underlying growth, ignoring Forex, is still 20% or above. All of our key markets in nominal currency are growing very, very strongly. ANZ at more than 31%, which is a fantastic result. Investors might recall over the last few years, we've been restructuring our business model, our go-to-market in Australia and New Zealand, and that's really now starting to drive incredible growth, 31% growth in a pretty decent market. U.S. at 23% growth. The U.K., as we know, is a market that is battling for us because we haven't got all of our products to that market. Our unification work is still ongoing.
We're expecting that all to be done this year, and then all of our product sets will be available in the U.K. So I'm really excited about 26% for the U.K. And then Qustodio is just a machine, like clockwork, that business is growing, and I'm really excited about the potential and the future of that business. I think that will only accelerate, particularly now that we're starting to generate more and more gross margin in this business. And in time, not yet, I know some people are nervous about this, but in time, that gross margin will be available for further investments in the Qustodio business. And just to highlight one thing, we're achieving something like a 400% ROI on investments in that Qustodio business. It is an extremely strong addition to this business. It's without question the best acquisition we've made.
Per FTE, you can see the productivity, the efficiency of our business is now starting to achieve kind of global SaaS metrics or targets. Typically, for a really strongly performing, highly valued SaaS business, you're looking at about $250,000 per FTE, and we're definitely closing in on that. I think that's within the next 12-18 months we'll be at those rates. Okay, we're also delivering, and I've touched on this a couple of times in this presentation, much, much stronger unit economics. So our average revenue per student in the K-12 business has increased by about 50% in the last two and a half years. Our service margins are constantly climbing. Service margins, to be clear, ignores marketing costs. I've just got that data hosting and hardware costs, and you can see our service margins are now comfortably over 90%, which is extraordinary.
And then our gross margin, which is again after our marketing costs and channel commissions and so on. So the group gross margin across this business is extraordinary. It's growing strongly. You see the blue box behind. And yet our cost to deliver those customers is coming down. So we're getting more efficient at marketing, bringing customers on board, and the way that we handle those through the delivery of hardware, data, and hosting is getting more and more efficient. I mean, that's a massive leverage opportunity. The jaws are opening in our business and maintaining costs where they are. We're also expecting not only are we improving our margins, not only are we selling to what's called new logos, finding new customers that are interested in our services, but we're expanding the average order value.
We're selling more and more products to our existing customers, which is a key sign of health. It means customers are liking our products, and the key one that I'm seeing here is the average order value. Obviously, it goes through different cycles, but the average order value is fundamentally increasing in our K-12 business and the average order value in our consumer business. As the product is delivering on the needs of our customers, customers are willing to pay more and more for that product or the additional products that we offer, and you can also see on the chart on the left that all of our lines of products are actually expanding. We're growing all of them. Possibly the one that's not where we'd like it to be is the well-being product, what's called Pulse.
However, as everyone knows, the market is demanding student monitoring and is taking all of the oxygen out of our sales team. So we'll swing back into well-being. I think once the voracious appetite for student monitoring starts to shrink in the next kind of 12 to 24 months. The SaaS metrics, so again, this is how more astute analysts will kind of compare to our SaaS competitors, and these stats are remarkable.
Churn at around about 5%. We have no bad debt. We're net revenue retention of more than 100%, so we're adding value to our existing customer base every single month. Service margins over 90%. All of our revenues are recurring, and the one that I really like to talk about is for every dollar that we spend in marketing, we get about AUD 9 of recurring revenue on the back of that, which is an incredibly efficient business.
So again, keeping our fixed costs stable, growing our margins, and we have a very efficient model of marketing and attracting new revenue into our business. Okay, so what next? But really, this is no change from what we've been saying previously. We're at that inflection point. We're now profitable at the scale of AUD 132 million of ARR. We're expecting EBITDA margins this financial year of 10%-15%. We'll be generating free cash flow this year without question. You saw that very clearly in the chart I showed before. And EBITDA margins are + 20% comfortably in the 26th financial year. So no change there, albeit we feel like we're kind of de-risking our business, as you've seen in the numbers in that first half, with our cost structure stable and our growth very predictable.
More specifically, things that investors can look forward to is this half is the seasonally highest or key or strongest selling period in the U.K. and the U.S. The pipeline is extraordinary. You see that chart there. More than $32 million of K-12 pipeline with a weighted value of $11 million. So last year, I think in the equivalent half, we added, I think it was about $14 million of ARR. We're pretty confident that we'll do better than that this year. So the stage is set for an outstanding end to this financial year. We're also launching, and I've touched on this in our quarterly report, we're launching a ton of new products, almost all of them AI-related.
AI Cloud Scan is a particular one, which is an add-on product to our successful monitoring product, which, if you recall, has gone from about AUD 4 million or AUD 5 million of recurring revenue to over AUD 30 million of recurring revenue in two and a half years. We're now adding value to the product with the ability to scan O365 documents and chat messages and so on, so very exciting to see how that goes this half. Qustodio, this isn't the biggest selling period in retail, of course, but we do launch the partnership with SoftBank of Japan, which is something that we're very excited about. That looks like it's going to be launching in April at this stage, very, very keen to see how that goes, and as we've been touching on, this is going to be a profitable half and a seriously cash flow-generating calendar year.
More strategically, what are the things that investors should look at beyond just these next 6 to 12 months? We're obviously adding a lot of features now. We've got a big base. We're looking to monetize that base, extract more value, and offer them more features that they desire. A lot of those are AI-related, and you see that in the box just below features. There's enormous investment now in this business, bringing AI not only into products but also into making our services more efficient. A lot of the cost savings that you've seen in our direct cost is through using clever AI tools to reduce the need for our cloud services to be processing data.
Platform investing in building what we believe will be the most integrated, beautiful, dare I say, and complete platform for schools and parents to, in an integrated way, protect and support the digital journeys of children. We're quite dominant, as I've said before, in the English-speaking world. We have a little business in Spain called Qoria Spain, of course, that's taking our K-12 offerings into the non-English-speaking markets. It's growing at about 100% year on year. It's not material yet in our business, but I'm expecting it will be so in the next kind of 6-12 months, and that is really our stepping stone outside the English world, which needs to be our focus in the 2026 calendar year. We're investing in building out the Qoria brand.
At the moment, we're trading, as you saw previously, as ySafe and Smoothwall and Linewise and Qustodio, but over the coming years, we'll morph all of those into the Qoria brand with the idea or the ambition of being the dominant, really the most well-known brand when it comes to student safety and online safety. Unification box here is a really key ingredient to our plan, bringing together all the technology in a sort of single code base and, most importantly, making sure that all of our products and services are available to all of our markets. That is probably the key driver for acceleration in our revenue in the coming years. And then I thought I'd add regulations here. I am personally, and our business more broadly, is very active when it comes to matters of policy in both online safety and competition policy.
There is clearly a tidal wave of interest around both of those things that will open up enormous opportunities for our business. I think if you just see how much media interest is in online safety, age verification, social media banning, mobile phone banning, the tailwinds of interest in what we do are only exploding, and us being scaled with the best products, hopefully the most well-known brand, and with those regulatory tailwinds, I think we're set up for a really exciting future. I think that's it for me. I'll hand over to Ben, and again, there'll be questions at the end.
Thanks, Tim. Yeah, we've touched on a few of these things earlier in the presentation, but just, I guess, spend a bit more time on a couple of the highlights.
The revenue number, I think Tim has explained to a degree, but to get into a bit more detail there, revenue is up 14% compared to ARR, which is up 26%. There's a couple of reasons for that. The first and the major reason is the FX benefit that the ARR number got in the December quarter was very late in the December quarter. So there was very little FX benefit through statutory revenue through the half. And ARR is effectively a balance sheet item, measuring it at spot rate at the date you measure it versus statutory revenue, which is an average over the period. So that's one big factor. The other is, to a lesser degree, which would be about AUD 1 million of difference half on half.
Without going into too much technical detail around something called significant financing component, which relates to three-year cash upfront deals, you gross up revenue and you gross up interest expense when you write those deals. The gross up can be seen in the expense noting the accounts, and it was about AUD 1 million higher last year than this year. So you add that back in, and the growth in statutory revenue is around about 16.5%-17% as a result of that. So put those two factors in there, and statutory revenue is still quite strongly correlated to ARR growth. But more importantly, and I think the things that we really should focus on on this slide is that growth has been achieved with costs going down, not flat. Direct costs are down 2%, operating costs are down 2%, and that's been achieved without pushing more into share-based pay.
Share-based pay is down 27%, and you'll see on the cash flow side, it hasn't been achieved through pushing more salaries into capitalized development costs. Capitalized development costs are also down 1%. So it's a very pure result in terms of cost control and a fantastic effort by the team across the board. So I think that's then manifested in the margin improvement, which you can see with gross margin up from 71%-75%, which is probably six months earlier than what we were aiming for. And also the underlying EBITDA number being a positive AUD 6 million, which the only real thing that we exclude from your traditional EBITDA calculation is the share-based pay. And even if you added the AUD 4.9 million worth of share-based pay into that, we're still a positive EBITDA number. So it's a fantastic result in our minds.
Won't spend too much time on these two slides. Probably a couple of highlights to point out. The regional results are looking positive across the board. ANZ's the only one that's negative, but that's largely because it has a high proportion of corporate costs in other regions. Direct costs, I think, is interesting as well because you can see what I was talking to on that previous slide around direct costs being down across the board where we've had costs come down. Really, the only cost that's up is service costs, and service costs is purely commission payments to resellers. So that is going to grow with the business growing. It's directly related. So depreciation and amortization, just a quick touch point here to show that the majority of this still relates to acquired intangibles.
The FY25 numbers are still pretty steady at around about that AUD 20 million worth of amortization for acquired intangibles. That drops in 2026, as well as the Smoothwall and Qustodio pieces start to roll off to around about AUD 11.5 million, and then it should drop again in FY27. Balance sheet, again, a fairly quick point here is just around the fact that the consolidation work around debt is now complete. That last phase of that wrapped up in July of 2024. So just after 30 June last year, the last Qustodio convertible was paid out, and all our long-term debt now is with the one facility which doesn't mature until 30 June 2028. So balance sheet in a very strong position, well funded, lots of cash on the balance sheet, and no little bits of debt popping up anytime soon.
Cash flow statement, again, we've touched on this really through the quarterly result that we've just been through. Very strong result for the half, free cash flow positive for the half when you strip out the payment through OctopusBI and Cipafilter, which is the AUD 4.8 million payment for purchases of businesses there. I think the other thing that I think we didn't really touch on at the quarterly that is worth pointing out here is that this has all been achieved, notwithstanding the fact that there's around about AUD 2 million worth of cost in the business on an annualized basis for a divestment that we were looking into and had flagged probably 12 months ago that didn't go through. We've achieved it, notwithstanding that going through. There's also around about AUD 250,000 worth of cost relating to OctopusBI.
So the costs being down that we've talked about on previous slides and the cash flow achievement that we've had here is notwithstanding those two things coming in. So again, we think it's a really positive result. We are coming into our most quiet quarter seasonally from a cash collection perspective. But as we touched on on the balance sheet slide, there's plenty of cash on the balance sheet. And from a calendar year perspective for 2025, we will be free cash flow positive. So everything's heading in the right direction. On that note, unless Tim, you've got anything to wrap up on, we can go to questions.
No, lets start with questions.
All right. Lafitani. I'm just allowing you through. You're the first one in the queue. You should be able to unmute now, Lafitani, if you're ready to go.
Hi, sorry, guys.
I just wanted to start off with the consumer division. I think you've changed how you report. It's now all lumped under Europe. Is that right? And can you just remind me, is there any seasonality in the consumer business? If we kind of look at it sequentially, first half 2024 was AUD 10.7 million. The second half 2024 was AUD 14.6 million, and now it's down to AUD 12.1 million. Can you just talk me through, are we missing something? Is there some seasonality or how we should think about it? And also, why is it all being lumped together now in Europe?
Yes, I'll cover that piece around the segment note. The segment note has always been that way for the first piece of it. So you've had USA, ANZ, U.K., and then Europe, which was the consumer piece.
The second section of it was a little bit confusing because it was put together in a slightly different way. It's now consistent between the two notes. Europe is the segment that is consumer because that's the Qustodio business or Spain, where Qustodio is based, so it's just tidying up that reporting so it's consistent between the two, but the way we've always reported it in the presentation has been Europe is consumer. ANZ, U.K., and USA is K-12.
And just with the seasonality and momentum, so just calling out that 10.7 going to 14.6 in second half and then 12.1.
Yeah, so that's not seasonality. It is the sale of Migiri that was in half two of FY24. So when you strip that out, it's been growth the whole way through, but you've got to take the Migiri sale out of Europe in half two of FY24.
Okay.
Can you remind me roughly how much that is on an annualized basis?
The Migiri's capital, well, it was about AUD 1.7 million worth of ARR. So that comes out, but also the actual sale proceeds was in half two as well. So that was circa AUD 2 million.
Oh, okay. So if you strip that out, sort of two and a half odd, maybe three, that's kind of in second half 2024, kind of should probably be more seen as one-off in nature.
Correct. That's right.
Okay. Got it. And just with the cost-based definite improvement, as you pointed out, clean, not hidden anywhere across the board, improvement in the cost base. There was some cost savings to come from Migiri, and you've got a new sort of found cost discipline.
If we were to fast forward a year from now and we're looking at the first half result this time next year, would you be targeting a similar outcome where it's relatively contained cost control, or when are you going to start sort of going back to BAU cost growth?
Yeah, look, I think to achieve 2% down this time next year would be challenging, if I'm being perfectly honest. I think there's probably second half of FY26. I think we can get a little bit more around the flat to maybe slightly down, but we'll have another pay review coming through in half one FY26. So you'll see some CPI-type increases, a little bit of growth heads in the business, but nothing dramatic. So I think half one next year will be more BAU, and then half two, we should be able to deliver some efficiency still.
Got it.
Just one final question, if I could squeeze it in. Last time at the quarter, you talked about moving up the food chain with the U.S. district schools that some of the candidates that you otherwise wouldn't get a look in with. Can you just give us an update as to what your targets will be this year and size and scope and how the strategy may have changed over the last few years?
I'll just start, Chris. So in terms of targets, we're basically trying to achieve on a nominal basis something like 10%-15% higher growth in our ARR as we did over last year. So if you look at last year's growth rate, you can work that out. And then kind of over to Chris to give us some commentary on our opportunities.
Yeah.
To give you some stats, in the last, well, from January the 1st until yesterday, we've generated 18 what we call RFT T5s, which is our largest kind of designation of U.S. school districts. It's 25,000 students and above, which equates to around $3 million a day or half. I don't think we've changed our strategy to be able to go after those. They're working now with some POCs with some of the largest U.S. districts. It really is just the brand sort of result of the brand improving. Sorry, somebody's ringing my doorbell. It's very off-putting. Yeah, just getting much greater awareness in the market. We've deployed into a larger number of customers which sit in that sort of top 50 accounts, and that builds your reputation. No fundamental change in strategy, just time in the market.
Got it. Got it. Thank you.
Thanks, Lafitani. Lindsay, just letting you through now. You should be able to unmute.
Yeah. Thanks, Ben. Can you hear me?
Yep.
Brilliant. Thanks, guys. So first question from me, just a clarification point on the guidance. One of the slides, and I think somebody put this question in the Q&A box as well. One of the slides historically said EBITDA margins of 20%-25% in FY26. It now says 20%+ . Could we just confirm that there's no fundamental change in your thinking? You've just changed the wording for some reason?
No, it's just a formatting thing. It looked better on the slide. So yeah, no change.
Yep. Brilliant. Second question. On your GP margins, I mean, that was quite a bit punchier than I thought you're going to be able to deliver in the half. Are these kind of 75%+ ?
Is that kind of the level to work with going forward, or is there maybe some one-offs that make this half look better? Because I mean, you're only 68% the second half of last year or something. It just feels like a huge step up. Just trying to understand where GP margins go next 6-12 months.
They're going to keep climbing, Linds. We've just released a new AI tool, actually, that kicked off in January that's saving in the order of $50,000 a month against our direct costs. So look, there's constant work. There's constant engineering work. And as we get scale, you get more and more opportunities to reduce those costs.
So, I think you know my ambition is to get our gross margin, sustainable gross margin to 80%, and then to invest every dollar of margin beyond that into growth, into advertising, marketing, particularly the Qustodio brand. So yeah, from Ben's perspective, we've hit the 75% better than we hoped. I'm hoping to get that 80% this year.
Okay. Brilliant. And final question then, just on unification. I mean, you've been speaking about it for a while. There's kind of two parts to it, I guess. One is once all the brands are unified, there's some cost out. So maybe could we just talk about when you think all the unification is complete? And then second part of that is when will the U.K. have access to the full product suite as a result of the unification?
Yeah.
So the policy plan was meant to be fully unified by June this year. It's probably going to stretch out to the end of this year. It's complicated. It's really hard. We're wanting to make sure that we don't lose any customers on the way through, that we're not disrupting happy customers today in the U.K. And I think that's the right strategy. If we've just gone and thrown out the Smoothwall products and rolled out the Linewise product, we've put a lot of ARR at risk. So we're just doing it very carefully. But the way it's also being delivered is pieces of value being delivered into different markets where we can. For instance, the content-aware capability in the US, sorry, the text-based scanning will be coming to the U.S. The image capture and image scanning will be brought to the U.K. over time.
We're expecting to be able to launch Classwize connected to the Smoothwall filter this calendar year, for instance. So where we can, aligned with market priorities where drop in value, it being a fully unified filtering engine, let's say, this calendar year being a fully unified platform experience sometime in the next year. So in the next, sorry, in the 2026 calendar year, I would say. Yeah.
And as those things come together, yeah, we're just creating new opportunities for the sales team to sell sizzle.
Brilliant. That's it for me. Thanks, guys.
Thanks, Lindsay. Owen, you should be able to unmute now. Do the double unmute.
Morning, Tim, and well done. I guess a couple of questions for you.
First one is just to understand so that you started the period with a call at 116 million of ARR, ended the period at 125, excluding currency, revenue call at 55. Can you just talk through now that the ARR is running at, as of December, 132 million, when the 132 million is revenue on a monthly basis, if that makes sense? When does it all start generating revenue?
Yeah. That's, I think, a good question. I think we normally lag about for it to get all the way through. It's normally about 10 or 12 months if you look back and have a look over the panels over the years.
I think the other way to look at it as well is if you look at the new slide we put in the presentation around cash flow. If you look back 12 months, the cash, the ARR number seems to follow through in cash flow for the next 12 months, if that makes sense. So if you go back and look on that slide, and that's probably the best thing I think you can point to to give people comfort that the cash does come. It's that there's accounting noise and bits and pieces that happens with technical accounting standards these days that give you some lumps and bumps in the P&L. But at the end of the day, that's whether you actually receive the cash. That's important thing. And our historical cash flow does show that we receive the cash.
So it's typically take ARR from 12 months ago, look at the cash collections for the next 12 months, and it's pretty aligned.
Yeah. That's the best way to think about it. Your ARR is, in theory, your next 12 months cash flow. And up or down, within a margin, your next 12 months' revenue, accounting revenue.
Just to clarify that, so just to, I guess, on a 12-month basis, but if you think about your key selling period being this halfway now with the cash collections period, so call it three- to six-month lag between ARR to cash, and then there's kind of a six- to twelve-month lag on ARR to revenue. That's it.
Yeah. Yeah.
And you do get all sorts of lumps and bumps through your statutory revenue. It's hard to be precise because this half's a perfect example.
We've got a AUD 6-7 million lift in FX and ARR in December, literally in December. You don't see very much of that, if any, in the statutory number. So you've got a lot of swings and roundabouts that come through. But that's why I point to cash because at the end of the day, cash is king. Yeah.
Now, your pipeline's pretty strong. You talked about that up whatever percent versus last year. We're entering the selling period. Can you just talk through what's happening in the bigger region, the biggest growth region in the U.S., in terms of the funding, the government funding? I know there's a lot of scrutiny in the U.S. around government spending. Can you just talk through whether there's been an increased allocation or decreased allocation, or just talk through the U.S. funding for some of your products?
Yeah. I'll do that, Chris. Yeah.
I've been talking to a lot of SaaS businesses and private equity businesses that focus on EdTech over the last few months to get their thoughts on whether they see the expiration of the ESSER funding, which was the big COVID funding into technology, or the Trump and DOGE dynamic, whether that's going to affect education. The overwhelming view is it's not going to affect it, certainly in our area. And let me explain it like this. The amount of funding in the U.S. in education is extraordinary. It's like $17,000 per student per year, massive. And 86% of that is people. So if Elon Musk or Trump want to materially reduce the cost of education, then it's really about bodies. It's not about infrastructure, IT services. In fact, the only way to truthfully do it is through innovative technology.
Now, there is a lot of complex technology, a lot of technology in schools. These small applications at particular schools, this is the reason for our success, in fact, in the US, is that in the U.S., they were very willing to try new stuff. But that means that they've got this complex web of technology in U.S. education. And so what you are seeing now is a rapid rationalization, moving away from multiple vendors into single vendors where you can. And even some districts are willing to give up functionality to have a single throat to choke. So we're definitely seeing that. And we're definitely winning now. We've timed our run perfectly where we've got a very broad suite of services.
We are the most obvious candidate in the U.S. to be that single provider of safety and wellbeing services because we're the only one that does all of it: inline filtering, cloud filtering, hybrid, classroom management, student wellbeing, the whole bit. No one else does the breadth of things that we do. So we're in the right spot to be the winner in the consolidation game. We're also in the right spot to provide the evidence to schools about where they're wasting money. Our EdTech Insights product, which the OctopusBI team just launched in our business at FETC and Bett U.K., is now showing school administrators where they're wasting their money. We are literally now able to pay for our product set through savings, through instructional content. Now, more broadly, is there a more fundamental challenge in funding and education? I don't think so.
I think, as a simple example, the story that was told just last week was if JD Vance wants to become the president in the next cycle, you can't be cutting the guts out of education funding, so the theory is that if there is a cut in federal funding in education, what you'll see is at least maintenance, if not an increase in funding at the coalface. One other stat that's relevant, Owen, is apparently there is now more administrators in U.S. education than there are teachers. Right, and so if anything, you're going to see that change: more investment at the coalface, mobility of funding so people can choose what school they go to, and more investment in technology and consolidation of vendors. They're the real trends that you'll see, and as I said, I think we're in the best space to take advantage of that.
Good one.
Thanks, guys. Well done.
Thanks, Owen. Wei , you should be able to unmute now.
Hey, guys. Can you hear me?
Yes, man.
Oh, great. So just a quick one from me. In regards to post, I guess, fundraising, we haven't kind of paid down the Ashgrove facility. Is that something that we are considering, or is that something that we can't do? And how should we think about finance costs going forward? Thanks.
Yeah. We can do it technically, but there are make-whole provisions within the agreement that mean we're better off with the amount of interest we can earn on that cash at the moment, putting the cash to work in our high-interest term deposits, minimizing our net interest bill. I guess sitting on that for a little while, but it's definitely something that we think about regularly.
We intend to check the math on it at a point in time when it'll work, but it's not sitting there for it to be spent on something else or anything like that. It's an offset for the net debt position to make sure that stays down and also our net interest bill is as low as possible. So yeah, I guess confirming your points.
Okay. Great. Thanks. That's it from me.
Owen, you're good to go again.
Can you guys hear me okay? Yep. Yep. Just around the gross profit margin, is the expectation in the second half that that's going to expand before that could go up? But are you thinking that could creep up again in the second half to kind of near 80%?
Not going to promise 80%, but it'll go up. No. No. It should come up a little bit, yeah.
You're not going to see another 400 basis points jump in one half. I would love to say that that's going to happen, but it's not going to be that significant. It'll continue to trend upwards towards that sort of 80% over the next probably 18 months.
Just understanding around consensus forecast here, revenue between AUD 120 million and AUD 125 million, first half, call it 55 odd, implies kind of a AUD 65 million to AUD 70 million in the second half. I know ARR is your key metric. That's your growth metric. Can you just kind of talk through the expectations of revenue in the second half?
It really depends on FX, to be honest, Owen. I think if the Aussie dollar was at 62 cents against the U.S. and 50 cents against the pound, then you're probably looking at a number in those sort of realms.
Remembering, though, that that will, that the EBITDA impact is quite small because we've got quite a natural hedge between the exposure to U.S. and pound and also the cost on the flip side. We are a net beneficiary, though, of weakening Aussie dollar. And there's some math that I put in the quarterly presentation that's probably the best thing to refer back to in terms of what that all means for impact on bottom line. But yeah, look, if the Aussie continues to stay at a weakened sort of level, then you should see a big increase in revenue in the second half of the year. But you will see an increase in cost as well due to the cost denominator in those currencies as well.
Okay. Good one.
Any more questions?
Yep. We've got Ross. I've just allowed him through.
Ross, you should be able to ask your question now.
Is that where we go?
Yep.
Great. Just a quick one. So I guess you mentioned once you get to that 80% gross margin level, you'd like to increase marketing spend and spend more broadly. Can you just elaborate a bit on that for us? Maybe talking about either where the spend would go, either by geography or by segment. Thanks.
Yeah. Well, I mean, I don't want to confuse anyone to say that we're out, we need more capital, we're going to invest capital and need to raise money or anything. That is not the case. We've got a very clear plan of getting to cash flow break even sustainably and continuing to grow that cash flow and EBITDA.
But within that, we think as we punch through 80% gross margin, there is capital to be deployed. At the moment, we are optimizing our go-to-market really to achieve those profit results and the cash flow results. But at some stage, if our cost of capital say our cost of capital is 16% or 18%, but we're out there in the Qustodio business, for every dollar that we spend, we're getting 300% or 400%, then we're not optimizing our capital opportunities. So that's really the equation that's going to come to this business. Not yet. Maybe the end of this calendar year, certainly next calendar year, we're going to be thinking about where is it best to invest our money to get the best return above our cost of capital. And Qustodio, in my mind, is the cleanest. They're very, very good.
That business is amazing at finding for a price a customer that's interested about protecting their kids, and that customer is delivering a $300-$400 LTV. We're currently spending about $60 or $80 to win that customer. That's a very profitable business as it is, but there is opportunity to optimize that. So that's all I'm saying. Is that in time? It's not yet. At the moment, we want to get to that sustainable and growing EBITDA and cash flow position, and then I'm targeting in my mind around about that 80% gross margin as to think about future investments and growth. Again, moving it from just a simple LTV over CAC model to think about the return on shareholder funds, which is really where I think our business needs to move to.
That's great. Thank you.
There are a couple of questions in the Q&A chat, Tim. One of them, the first one, I think you've already answered. The second, I think, maybe brought up, touched on to a degree, but not worth discovering. It says, "With all the cost-cutting in the education system in the USA, will this have any impact on the state/district growth?" Qoria is after.
No, I don't think so at all. We're attuned to this. We're looking for evidence of that, but we're seeing the opposite. We're seeing schools wanting to invest more in technology. We're seeing them wanting to use technology to make their businesses more efficient, to identify cost savings. And so we're in that game. And I think we're doing really well. In fact, I think we're outperforming, and we will continue to outperform our competitors in that.
I think also there is an opportunity when it comes to supporting student wellbeing, the psychological services, the kind of wellbeing services inside schools. I think there is a real business case for what we do in there as well. So I think there's a few more legs to go. So no, we're not fearful at all of cost-cutting impacting what we do in the game. At the very least, what we do is legally required. It's saving kids' lives. Technology is needed to create efficiencies in education. And there is such a shortage of trained counselors and psychologists in education. They just literally have to use our sorts of services to make that efficient. So no, I think it's only positive for us, sadly.
I think that's it, Tim. So if you want to wrap up.
Cool. Well, thanks, everyone, for your time.
Again, thanks, everyone, for joining us on this journey and creating this amazing business that's doing really good things in the world. Thanks for the, and welcome to those new institutions that have just joined us in the last few months. The stage is set. We're now at that inflection point. We're going to be generating cash this year. We're a huge pipeline. I'm staring at Crispin now. He's going to deliver against that. Very excited to speak to you all in April, but in particular in July when we crush this financial year, so I'll see you all soon.