eEducation Albert AB (publ)

Hello and welcome to today's webcast with Albert. We're CEO Jonas Mårtensson and CFO Katarina Strival will present the report for the third quarter of 2024. After the presentation, there will be a Q&A. So if you have any questions to Albert, you can send them in via the form to the right. And with that said, I hand over the word to you guys.

Thank you so much, Ludvig for that intro and warm welcome to everyone. So my name is Jonas Mårtensson and I'm the CEO of Albert Group. And with me today, I have Katarina Strival, who is our CFO. And during today's call, we'll talk about our third quarter in particular, but we will start with giving a little bit of a background talking about Albert for those of you who are new to us. Now we're talking about the Q3 in specific. And then a few words about what's in head of us. And then as Ludvig said, we'll continue with the Q&A. But before getting started, I'm just gonna summarize Albert very quickly and then the third quarter. So Albert started as the math at Albert some years ago, but has now developed into a leading Nordic ed tech group where we have focused on the Nordics, the UK and the US. We sell both into schools B2B and to families B2C. And the benefit of having both those two target groups is that we have dual revenue streams with a predictability stability from selling to schools with a scalability from selling to consumers. Our products and offerings are focused on the core subjects that you learn in school, which means math, science, coding, and learning to read and spell. And all our products are based on research and the curriculum. And looking at what makes us unique, then is the engagement that we combine gamification, creativity and pedagogy to really create good and engaging products. Talking more about the financials, we are on a journey towards profitability where we have now set really clear targets to reach positive EBTA next year in 2025 and then reach a positive cashflow in 2026 with the cash at hand. And that also means that we are well funded and with the cash we have, we should reach positive cashflow. And summarizing the third quarter, I can say it's been an operation in a very good quarter. I mean, Q3 is almost a very important quarter for us and we have had really good invoice sales in the period, which is up 11%. But so far as we are selling annual subscriptions and longer subscriptions, they have not been recognized. So the net revenue is down with 5%. Thanks to the good momentum in marketing and sales, we've also decided to invest more in marketing to build a good pipeline of leads and free trial customers. That is adding cost now in the short term, but that will benefit us in the longer term. We can also see in the third quarter that we have reduced staff costs. We had a major restructuring in our Swedish operations in the first quarter. Now we can see the full effect of those ones. And we have also now in the third quarter made a restructuring in our French operations, but that we don't see in the result yet and that will come in 2025. So all in all, this means that sort of the delayed revenues in combination with cost that we've already taken now creates a temporary dip in profitability. But all of this is in line with our profitability plan to reach positive EBTA in 2025. But you will hear much more about this during this upcoming presentation. So let's get going. And I will start with going back and talk a little bit about Albert and why we exist. And we are playing in the education field. And we are here because there are so many kids who are struggling in school. And especially with subjects like mathematics or science, with many kids things are challenging. And it can be due to motivation or other things. And one of the reasons why kids are struggling is that the lack of equal access to qualified teachers. So in some schools you get access to good teachers, some you don't. And depending on the support you get from school, you get more or less dependent on the support you can get from home. But not all kids can get full support from home either. And this has created an issue where the school results in general are declining in many countries, Sweden and our core markets in particular. And especially the socioeconomics are playing a big role in it. So if you grow up in a socioeconomic poor area, it's typically much more challenging. So this is a problem we wanna be part of solving. And it's also a good problem to be part of solving because this is a growing market. And therefore our mission is to help every child reach their full potential by making learning engaging and personalized. And these two words are so important because that's really where EdTech comes into play. We talk a lot about this one internally and when we see customers and users out there, sort of what makes us unique. And if you look on the one axis here on the horizontal one, there are many players out there who work with different educational products. And some are more game-like or some are very deep education products. And then you have the vertical line, which is that sort of how engaging are them, like typical traditional textbooks are often perceived to be quite boring. And then you have many other things, like especially very game-like games that are engaging and fun that kids really like to use. And in general, you can say that most players out there, they are either down in sort of really strong education products that are perceived to be quite boring for children in school and at home, or they are very fun and engaging to use, but then they're often very game-like and not that educational. And our USP is to combine these things, to have our roots in education and pedagogy and the curriculum, but really be engaging and fun for the children. And that we managed to do to achieve by combination, combining gamification, creativity and storytelling to really create products that the kids love. And at the same time, they are really good from a learning perspective, so also the teachers and parents like that. So what we wanna achieve is to put the learners, the children or the teenagers in the center. And then we wanna work with them in the school, together with the teachers and at home, together with the parents, because the children, they learn in both of those two arenas. And therefore it's so important for us to consider both of them, which many others are doing. And to do it, we're working on building a portfolio and have built a portfolio of really good learning products. Our core is really digital learning apps in the core subjects, mathematics, reading, spelling, programming and so on. But we also have hands-on kits for learning STEM or science and construction and programming. And we also work with educational films because that's very appreciated in schools by kids and teachers to really introduce new concepts before you really talk about the theories behind them. And these products are being sold under eight different product brands. And we are focusing on the Swedish and Nordic markets, the UK and the US, but especially with our B2C products, we are also present in many more markets, especially around in Europe. And that was my quick introduction of Albert. And now we'll put the focus on the third quarter. But before actually starting about the third quarter, I would like to go back to quarter one. For those of you who have been around and followed us for some time, we in the first quarter, or actually in the end of January, we launched a profitability program because we were so dedicated to get worse profitability. And I will not go through the details, but in general, it was about focusing more on business to business because that's where we were most profitable and it was most stable. We also wanted to focus on maximizing and optimizing the current business by really doubling down on what's working well and sort of reallocate resources to those areas. And up in the yellow box was very much about sort of ensure that we increase efficiency and we can find synergies in the group. So it's been a lot about like right sizing and putting the resources where it makes sense. And the last one was more about general, like cost reductions, like offices and different type of services and so on. Most of these actions were taken back in Q1 and we can now in these quarters start to see the result of some of them. But we have also conducted a strategic review throughout the summer of different markets and products and so on to really take the next step in this one and we'll come back to that soon. But now I'm gonna just mention a few like operational key points about the third quarter before handing over to Katarina to talk about the financials. And the first thing I would like to get a little bit more in depth about is sales. Like the third quarter is typically our most important sales quarter of the year. In B2C, it's summer and summer break and in B2B, it's about back to school or preparing for a new school year. And both these areas are so important so succeeding here is super crucial for us for the upcoming year. But starting with the B2C side, having a summer, summer break and so on often means resting for some children but for a lot of them it's also about preparing for the next school year. Typically for children who are struggling, it's a time of the year to be able to catch up. So they catch the next school year and get the flying start. And for the more motivated children, they are often sort of generally, they don't wanna let go of school, they wanna practice also in the summer time. And this is something we've seen for many years as the summer has always been a good customer acquisition period for us. And therefore it was so much fun this year to see that the summer campaign that we were running was the best one in over 18 months. It started already like the very first weeks where we typically if we reach more than 1000 customers in the customer acquisition in a specific day, it's something we go out and celebrate. But now it was like day after day and week after week we had more than 1000 customers signing up. Meaning that when we summarize the campaign, we reached 110% of the volume target we had set up. And that was an aggressive volume target because if we compare to the summer 2023, we doubled the volumes this time, which was super fun. But it also meant that since we had such good momentum in customer acquisition, we also decided to increase the marketing's bound to really capture that great momentum out there. So looking at the financial implications of this means that we spent more marketing money during the summer than we did the previous years, but we also managed to build a good portfolio now paying subscribers, which we benefited a bit from in this quarter, but it will benefit us even more in the upcoming quarters. Looking on the business to business side or sales to schools, this is a very important period for us, especially for the samdok business in the UK and the US. And samdok is our mass product for schools. And since this is so crucial, we had a lot of focus on preparing this period in the best way possible. Partly we had worked a lot with the existing customers because renewals or like avoiding churn stands for the absolute majority of sales. So we had the focusing on improving things in the product, whether it restructured our customer success organization and introduced new ways of working and something really had them be close to our customers. And this proved to be really successful as we managed to reduce churn during this period with one third and also the new customer acquisition was successful thanks to marketing and sales. So together we increased the invoice sales for 17, 17% compared to the same period last year. But the contracts we sell in samdok, all of them are annual subscriptions or multi-year subscriptions, meaning that they will be periodized for the upcoming contract period. So we just see a little share of that in the revenues this quarter. So all in all, it feels very good that we had a good Q3 in terms of customer acquisition and sales. The other area I would like to focus on is, I mean, the theme that we've had for the full year, which is really about optimizing the current business and so on, doubling down on areas that are performing well. We knew when we entered the year, a number of actions that we wanted to take, but we also knew that we had to do a strategic review during the summer to really look into all our different markets, all our different products and organizations to see are they right size? Do we have the right level of resources in relation to the value that we are creating from them? And when we could summarize that review, I mean, we concluded that we have a few areas which are really key for us. And if we translate to products, that's Albert Junior, Strawbees, SunDog and Filmen Skola. And from a market perspective, it's the Nordics with Sweden in particular, it's the US and the UK. So we've now decided to really focus on these products and these markets and doubling down on them and reallocate resources to those areas. But that meant we also had to choose some areas where we wanted to focus less on. And then our review concluded that then it's looking outside those markets and especially some bigger markets which we have started to invest in to really capture. And one of them was France. It was also the products of Geramba and HolyOllie, which both have profitable unit economics. And we have started to build organizations to really scale them and so on. But now we decided we will not focus as much on them. For instance, then we took the decision to restructure our French operations, which mainly work with growing on the French market and expanding the HolyOllie product. So with this restructuring, we are now right-sizing that organization to more maintain the current business that we have there. So we can free up resources and really focus on the areas which are well-performing and profitable today. And that was it about operations for now. So Katarina, please take us through the numbers.

Thank you, Jonas. As a part of our Q3 reporting, we have introduced a new KPI, Invoiced Sales, before we only reported net revenues which recognize all long-term contracts over their full contract period. This periodization creates a significant delay making it more difficult to get through the whole process. And it is also important to see how sales perform in the reported quarter. Invoiced Sales as a new KPI is a more forward-looking indicator of our sales performance. And together with the net revenue, it gives a clearer and more accurate picture of how the business is doing. For the quarter, net revenue is 5% lower compared to the same quarter last year. However, Invoiced Sales are up 11% quarter to quarter. And the decrease in net revenue reflects the sales we had earlier this year. If we look at the difference here between the net revenue and Invoiced Sales, we can clearly see the impact. The lower sales earlier in the year are visible, but what stands out is that all units show strong sales growth in Q3. Invoiced Sales in Q3 are higher compared to the same period last year. And all sales in the end of the year is organic. And if we look at this picture, we can see the different areas like B2C and B2B, the different products in our business model and our different markets. And we can see that all the different segments are following the usual seasonal patterns actually. For example, like strawberries have a strong performance in Q2. And digital subscription in the business model dominates this quarter by B2C due to the strong Albert sales that Jonas mentioned before. And going forward, EBTA for the quarter is minus 8 million SEK. And this lower EBTA compared to last year comes from different factors like lower sales in, for example, subscription sales earlier this year. Also, as we talked about earlier in the presentation. And it is also a portion of the strong sales who had this quarter is tied to subscriptions. These are periodized and will contribute to revenue in the coming quarters. And all costs linked to the good sales this quarter. And we had particularly high costs in marketing spend as we have heard before here. And we invested more in marketing during the quarter because we had a strong momentum and very good customer acquisition opportunities. And also on the cost side, saving side, personal costs have decreased as planned. And that is thanks to the restructuring program we carried out in the first quarter this year. Operating cash flow for the quarter was minus 6 million SEK which represents an improvement compared to last year. And the main driver in these changes are in working capital which contributed approximately with 4.2 million SEK to the improved cash flow this quarter. And this came primarily from increased short-term liabilities mostly from advanced invoicing for annual subscriptions in several of our entities. And now we go back to Jonas. Thank you.

Yes. So with Q3 behind us, obviously, we want to look forward. And I'm going to just repeat a few things that for some of you who have followed us for a long time, we are on a four-step plan towards profitable growth where the steps behind us were about growing a strong market position by both organically growing but also acquiring companies. And then during last year, we had a lot of focus on structuring this, want to lay a solid foundation for profitability and profitable growth going forward. And now we are in this step where we have laser focus on reaching profitability before we're next going to shift focus to more profitable growth when everything is fine-tuned here. And we stay committed to the financial objectives that we have which are to reach positive EBITDA in 2025 and to reach positive cash flow with existing cash in 2026 and then to reach WDG profitable growth. Some of the things we are focusing on to really do this and these are actually very much the same things as I talked about the last quarter in B2B. It's about continuing to work on reducing churn. I mean, in for instance, Scotland, which is a super strong market for us where we have some 80% penetration in the schools. It's about continuing to make the products essential and loved by teachers and having a great customer success organization who support them. And also winning and growing in England. We have had good progress there. We are having good conversations and have landed many orders with big mutual academy trusts. And now we're doing even more investments in the product, in marketing and in the partnership with YBO, which we talked about last quarter, which we really hope that will help us grow in England as well. The sales in the US is continuing to perform well and the sales model we have over there is working fine. And we're now taking the next step in it. So for next year, we are investing even more in marketing and customer success and so on to really scale the US sales model that we have. And also in terms of sales synergies, we are now focusing on the synergies between SunDog and Swovis, especially on the UK market where we have a really good relationship with many customers to whom we can now cross-sell the SunDog product. Looking on the B2C side, as I said before, we are now really focusing on Albert Junior since it's our best performing product there. We have a really strong position in many markets and where we just try to continuously optimize in how we acquire customers and retain the customers in a good way. But we have now seen, as I've been talking about a few times, that customer acquisition is key to us as the product and CERN and LTV is performing well. So we're now having a lot of focus on how can we find scale, for instance, new markets, achieving more opportunities. So during this quarter, we launched in Romania. We plan to launch in the new market in the beginning of next year and then at least one additional market next year as well. So we can continue to find more customers at an attractive customer acquisition cost. And then just in general, we continue the track on really doubling down on what's performing well and reallocating resources there and seeking cost synergies. Then there are some upsides to the plan which we're not building into the base plan and that is that some of the business KPIs which took a hit during the recession would come back to the pre-recession levels or that we would acquire profitable companies. Those are just icing on the cake. So to sum up the quarter and the takeaways, I would say are these three. It's been good momentum in invoice sales in the quarter and it's up with 11% but we don't yet see it in the recognized revenues. The big restructuring we did in Sweden, the Swedish operations in the first quarter now start to show up in the result with lower staff costs. And we did restructuring the French operations in this quarter and that will have impact in 2025 and onwards. Thanks to sort of the good momentum and that we have sort of cracked the sales model in both B2B and B2C marketing and sales, we have started to increase spend and investments in both those areas which have added spend and cost now in the third quarter and for the rest of the year but it will really pay off in the next year. So we are happy with this quarter. I think that operationally things are going as planned and following the path to profitability. But now Ludvig, we are curious to hear if there are any questions that have come

in. Yeah, thank you so much for the presentation and as you mentioned, we go straight ahead to the questions here. You talk about good momentum in both B2C and B2B. Why is that momentum? Can you tell us more about that?

Yeah, good question. I actually think it's a combination of, let's call it all the hard work that we've done in operations with how the macroeconomics is performing. If I start with B2C, for instance, and I mentioned many of these things before, so I will not go through everything. I mean, we had a very good start to 2023 when the customer acquisition costs were low and the volumes were high. Since then, it has been quite challenging to attract new customers at the low cost. Throughout this, full period like churn of paying customers has been very stable during the entire recession period. And based on our research, it has been that customers who really see the value in it think it's very easy to motivate to spend money on learning products for the children, but winning and converting the new ones have been hard. But this summer then really things started to change. As I said before, I mean, customer acquisition costs has been very low and volumes very high. I mean, we beat last year a lot and also the previous year. And this sort of year over year improvements have continued also now in the fall. The fall is not as good as the summer, it never is, but compared to the previous years, it's much better this year as well. So I think it's an indication that things are getting better in B2C. I think we can also see it in like our churn reasons when customers churn during the recession period, like the reason that price or I can't afford a product like this was increasing. But now that KPI or reason has decreased during the last months, maybe it's an indication that the economics is turning. On the B2B side, I mentioned before as well, I mean, we had a lot of changes to the products that really improved them and tailored them for the different markets where we are playing. I think we've also learned and improved the whole commercial organization with how we work with marketing in the best way to really show we get hot leads for the business development functions and the sales functions to really win those customers. And especially then how we work with customer success to really show very early on, help the customers in B2B to get onboarded in the products, to see the full value of them, to use them. Because if they are using them, it's a much easier decision to stay later on when it's time to renew. And we have also focused a lot about instead of selling to individual schools and try to win bigger deals with municipalities, local authorities, mutual academic trust. And with those ones, it's also been much lower churn. So yeah, actually, I'll stay there, I think. And let's go for the next question,

Lurg. Thank you very much. The EBITDA was down. Can you explain why?

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It is mainly due to lower sales and higher marketing spends. And in the lower sales, as I mentioned before, we had lower sales earlier in the year. And we have a strong sales in this quarter. But we haven't seen the full impact of the strong sales from this yet. And this is because part of the sales is related to paradise revenue, which will generate income in the future quarters. And also, we invested more in marketing during the quarter. But the full cost is recognized immediately while some of the revenue will come later on.

Thank you so much. How confident are you that you'll reach positive EBITDA in 2025 and cash flow with the cash you have?

Yeah, I mean, we started 2024 with, as I said before, launching this profitability program where we had a number of activities which we really knew that we wanted to take. We had to take rightsizing the Swedish operations and so on. But then we also had some ideas which we needed to investigate a little bit more. And that was the reason why we did this big strategic review during the summer. And now we have, I think, really identified the areas that are performing well and that we want to focus on. And also identify the areas that's sort of where we have to reduce cost and right size to enable the shift of resources to the well-performing areas. So that review is done, and which also meant we had to take some actions like restructuring the French operations. So now when we work with the business plans for 2025, in particular the budget for that one, and also the plans for 2026, it's like we have very solid plans to see, I mean, what we should do on the revenue side and on the cost side to achieve these things. So think with the things that are in our control. I mean, we are very confident. Then, of course, we can never know really what's happening in the world around us. If we will have a lot of headwind, it will be more challenging. If we'll have a lot of tailwind, it will get even better. But if we assume there will be some winds in both directions, it should definitely work.

Thank you. Did you shift more of the new subscriptions into long-term one-year subscription, etc.? If yes, how much did this contribute to the 11% -on-year invoiced sales?

It's a combination in B2B. It's very similar. Like it has always been. Though we have always had one or more year subscriptions. In B2C, yes, that's correct. I mean, we have over the last probably one and a half years focused on trying to achieve a higher share of annual subscriptions because we have better lifetime value or LTV of those customers. So in quarter three, we had a good quarter of annual subscriptions. It's not any significant difference to the previous quarters and years, but it's up a bit.

Thank you. The restructuring in France is expected to improve UBDA by 8 million SEK by 2025. Are similar restructuring opportunities being considered in other areas of the business?

Yes, I mean, the number you mentioned, they are correct. No, we are not. I mean, we feel we are done with a strategic review. We have really gone into every nitty-gritty detail. And now it feels like all our organizations are right-sized and we are having good profit in the unit economics. We are profitable on the brand level. So now it's really about scaling and doing more what's working well. So no more restructuring is like that planned.

Thank you. The integration of B2B products like Sandog and Strawberries appears to gain traction. What are the next steps to maximize synergies between these products?

I mean, to some extent, we want to find synergies, but we also really need to optimize each business individually. But to mention a few things, and I mean the next steps, as I mentioned, I think last quarter, we really launched our internal product, called the Straw Dogs, where we used the Strawberries product and tried to sell into the Sandog products. I think we now found an effective and efficient sales model, especially in the UK, where we can sort of very quickly line up the Sandog customers we have. We can through webinars introduce the Strawberries product and then we can visit them or they come to us and we have more hands-on experience, which is very important with the Strawberries products, because once you try it, you really love it, no matter if you're a teacher or a student. So that's something we are, so we think that model will really work for us. So now we are training some of the people in our UK sales team in sort of the sales and marketing of the Strawberries product. So that will continue. We're all sort of, if we look into, for instance, the marketing organization, thinking, because there are a lot of the expertise sits in sort of how do I talk to the customers on a specific market. So the team in the UK will have more focus on the UK market for both products and the team working more with the US will have more focus on the US market and the team where we're focused on the Nordics will have more focus there. So it's about sort of combining that. I mean, I really work with one product, but also having much focus on the market, where you are sort of the expert. And then some of the things that can just harmonizing how we work with best practices in terms of processes and tools and KPIs and sales training, those type of things are being done as well.

Thank you. That was all the questions we had for today. So thank you so much for presenting here and thank you all for tuning in and have a great weekend.

Thank you so much from us as well. Thanks for calling in and enjoy the weekend.