I have been very patient with Janison, a serial underperformer in my RL portfolio. My reasons for liking the company are well summarised in @jcmleng 's previous post.

However after reading through the FY24 annual report documents and presentations there are numerous disclosures that I find unsettling:

• Despite ostensibly having a seasoned and well experienced board of directors, despite the business founder still being on the board, and despite the recruitment of a new CEO with "20 years spent in global education and assessment", the company has retained the Nous Group to advise on a new strategy. "In July 2024 a significant reshaping of the business was implemented to create capacity to invest in capability to drive long-term growth." Create a capacity to invest in capability??? This sounds like bullsh*t - I hoped for better communication from the new CEO.
• There is a bit more detail in the full annual report: "More specifically, we have created two new senior enterprise sales positions and engaged external professionals to assist in building the foundation for growing our pipeline of deals and establishing the processes and support necessary for the best chance of success in winning new business." So they don't know how to sell the value proposition of their assessment platform despite having been trying to do so since inception, and need some more expensive consultants to tell them how to do it. It sounds like Janison lacks the skills internally to grow the business. If nothing else, I expect operating costs to swell in FY25 due to this dependency on external consultants. Let's hope that revenue grows to compensate.
• The company has ceased working with Singapore Exam Board, allegedly this is an intentional choice because it required a lot of bespoke work, but this marks the end of a long term relationship and one that helped shape the current Insights platform. This is perhaps not a material loss - worth maybe $0.5 million in revenue pa.
• Alarmingly, the much vaunted 5-year contract with the OECD to be the platform for delivering the PISA for Schools program has not been extended. Instead for FY25 onwards "ETS has been selected as the international digital delivery platform provider for the OECD’s PISA-based Test for Schools (PBTS) digital assessment through 2029 pending final signature. In this role, ETS will design, develop, and maintain an international digital delivery platform for the PBTS." (https://www.theewf.org/news/2024/ets-expands-its-longstanding-work-with-oecd-becoming-the-international-digital-delivery-platform-provider-for-pisa-based-test-for-schools-pbts-digital-assessment-through-2029). It sounds like ETS don't even have a delivery platform the PISA test, so Janison must have done something seriously wrong to lose the OECD contract to them. This represents a loss of at least $2.5m pa.
• "In August 2024 a company-wide restructure was completed resulting in the loss of approximately 40 roles and an annualised savings of approximately $4 million – to be realised across Opex, Capex and Cost of Sales." Since they had 190 full time staff at the end of FY24, this means that 21% of the employees have been sacked.
• "Acquisitions in the Assessments business over the past 3 years have proved challenging and not performed as initially expected."

Against the backdrop of a 5 year $45m contract win with the NSW Dept of Education, none of the above may be material from a financial perspective, but at the end of the day a business is a collection of people and I'm afraid these people no longer convince me that they deserve my support. So I'm out.

The company released unaudited financial highlights today, in advance of the end of year results due to be published on 21st August.

It looks like they were keen to get the good news out:

FY23 Financial Highlights

• The company achieved record group revenue of $41 million, an increase of +13% compared to FY22. 
• This growth was driven by a 21% increase in Janison Assessments and a 17% increase in Janison Solutions core growth (9% Solutions combined growth including Learning and PBTS IPP).
• Gross profit margins remained strong due to improved pricing, scale benefits, and efficiency, reaching 63%, a 28-percentage point increase since FY19. 
• Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) grew by +111% to $4 million compared to last year, driven by improved operational leverage and strong gross margins.
• The company generated a positive operating cashflow of $5 million showing a combination of disciplined cost management of operational expenses and solid revenue growth.
• Net cashflow was positive for the year and improved by $11.5 million compared to the prior year, to finish the year with a cash balance of $12 million as of 30 June 2023.

Janison is the most speculative holding in my RL portfolio. I had kept it to a small position size due to its lack of profitability, but I really like the business model and the company is clearly gaining traction with a small but prestigious client list.

After the announcement I threw caution to the winds and doubled down on my holding. What could possibly go wrong?

The AGM today was curiously muted, hardly any questions were asked, it's almost as if nobody cares. Some highlights:

• Q1 revenue of $12.1m was up 95% on pcp
• (By comparison FY22 revenue for the year was $36m)
• Revenues are growing faster than expenses, despite investment of sales staff in UK and USA
• Q1 was EBITDA positive (for the first time ever, I think) at $2.1m, and company is guiding to positive free cash flow for the year
• The post-COVID world is one which favours JAN, as governments increase their investments in education to make up for the learning loss of the past few years
• "Management has confidence in achieving +20% CAGR in revenue for the next 3-5 years with gross profit margins of 70%-75%".

Clearly it is still early days. I am very optimistic for the future based on the customer wins over the past year, particularly with Cambridge University Press, which validate JAN's market leadership in high volume, high stakes online assessment. I almost wish that management would be less cautious in their growth strategy, and invest more in sales and marketing.

I hold a small parcel in my rl portfolio. My conviction level is high, but given JAN is not yet profitable I am still holding back from a full position size.

Announcement of 3 year deal with Cambridge University Press worth $1m to deliver tests on Insights platform in UK. Further evidence of the upside potential of this company. It can grow revenue both by selling its Insights platform as a delivery vehicle for 3rd party high stakes tests, and also by delivering tests for which it owns the IP such as NAPLAN.

I still like the story here, but the execution leaves a little to be desired.

The good:

• Revenue up 20% to 36m, all segments of the business reported growth
• New product Rise+ launched as a direct-to-consumer offering for practice tests, allegedly has a TAM of $200m. This is evidence of Janisson starting to monetize the IP of its huge bank of questions.
• Gross margin has expanded 9% to 64%
• Delivered NAPLAN testing to 1.2m students, a 48% increase. The Insights platform supported 0.5 million concurrent users during this test, which was conducted 100% online for the first time. This is very impressive.
• "Management have confidence in surpassing analyst consensus and achieving +20% CAGR in revenue for the next 3-5 years with gross profit margins of 70-75%"

The not so good:

• $4.1m of revenue came from the acquisition of Academic Assessment Services in November 2021 (upfront cash payment of $6m.) $0.7m came from the acquisition of QATs in October 2021 (upfront cash payment of $1.25m). If you take the acquired $4.8m out of the total revenue of $36.3, then the organic revenue growth on FY21 is only 4%, or $1.3m
• A paltry $0.9m of revenue came from new or expanded customers using the Insights platform. According to the investor presentation "New client acquisition (Chartered Accountants ANZ) and expansion of existing assessment platform clients in FY22 added $1.6m of revenue", yet platform revenue only increased $0.9m for the year so most probably the missing $0.7m will be recognised in future years.
• Still not profitable, but expects to be 'operating cash flow' or 'net cash flow' positive in FY23 after a significant rationalisation and cost take out process in FY22.
• PISA has only grown from 15 to 17 countries in the past year, out of the TAM of 90+ countries. In the prior year it added 8 countries, and reported that ARR was $2.6m, which no longer seems to be accurate. The segment of PISA where Janisson is the National Service Provider increased revenue 69% from $0.8m to $1.3m, thanks mostly to becoming the NSP in the UK, as well as more take up of the test in the US. Being charitable, I have to assume that Covid is responsible for the lacklustre performance of this business unit.
• Cash reduced by $11.3m to a balance of $11.7m. There could be another capital raising on the cards.

The ugly:

• EBITDA declined 38% to negative $1.9m, and net loss increased a whopping 181% to $9.1m.
• The company highlights that it's cost of sales has declined slightly (3%), contributing to 9% improvement in gross margin, without mentioning that operating expenses have increased by 56%. This is explained as a 'necessary step change in the operating structure of the business to satisfy the growth in revenue' A step change of $7.7m in opex to support a $6.1m increase in revenue either means the company is very positive about its future growth opportunities, or is lacking in budget discipline.
• Personnel costs increased 100% ( but headcount only increased 34%) and share based payments increased 300%.
• 'Non operating expenses' (restructuring, acquisition costs and share-based payments) have increased by 145%.
• Janisson stil seems to be struggling with how they classify the different segments of their business. 6 months ago the business units were grouped into two buckets 'Educational Assessments' and 'Assessment Platform'. Now we still have 'Educational Assessments', which basically seems to mean the administration of tests where Janisson owns the IP for the tests themselves, as in the case of ICAS and PISA. 'Assessment Platform' has become 'Janisson Solutions', and seems to refer to the use of the Janisson platform for executing large scale testing, where Janisson does not own the IP for the tests, e.g. NAPLAN. To make matters more confusing, revenue from PISA tests in countries where Janisson is the National Service Provider is classed under 'Assessments', whilst revenue from other countries is classed under 'Solutions'. The business unit structure still seems like a work in progress to me.

Takeaways

• The upside still beats the downside with many revenue drivers
• The scalability of the Insights platform and the depth of test bank IP gives Janison a healthy moat
• I'm happy to keep holding my very small rl allocation to Janisson, but see no reason to increase my holding whilst profitability still seems to be a few years (and CRs) away

I thought the provisional FY22 results were a disappointment. At the half year, on 21st February, the company was forecasting the second half revenue growth to be 45% on pcp. Yet the reality appears to be only 16% growth on pcp. So I was expecting revenues of $40m for the full year, compared to the actual $36m.

If nothing else this tells me that management are rubbish at forecasting. They continue to use Covid as the explanation for the lower than expected revenue, but they could have taken better / more conservative account of the impact of that back in February, which isn't very long ago.

I guess with 20% revenue growth for the year, and a huge amount of optionality for future revenue streams, I will keep my modest shareholding in rl, but I would like to see a bit more transparency from management, and also an explanation of the 50% reduction in EBITDA, which was not explained at all in the provisional results.

On the back of half year results, today's investor presentation gives a very good description of Janisson's business model, and also provides some more detail on growth expectations. Revenue for 2H22 is expected to be 45% up on 2H21, making the projected fully year revenue $40m, which would be a healthy year on year growth of 33%.

One of the growth drivers is increasing penetration of the 'direct to parents' market, where the 86,000 ICAS tests sold to parents represent only 10% of the addressable market, and where a new practice test will be launched in the current financial year.

Janisson have declared 'horizon' revenue targets of $40m for conducting educational assessments and $20m for selling the assessment platform to customers who then deliver their own tests. There is no stated timescale for these horizon targets, but given the total $60m revenue target only represents a 50% increase on expected FY22 revenue, and given the multiple growth drivers, I think that management is setting itself a fairly low bar.

The high Opex remains my key concern, with a cash burn of $8m for the half, and closing cash balance of $15m. Given the company seems averse to debt - no bad thing - it wouldn't surprise me to see another capital raising within a year.

At first glance Janisson's half year results look encouraging, with revenue up 23% to $19.5m. Growth was strong across school assessments (21%), PISA tests (147%) and corporates adopting the Janissson assessment platform (40%). The legacy business of learning portals declined 28%, which is no drama as Janisson has clearly telegraphed that it is transitioning away from this business.

On the other side of the ledger, cost of sales was down 9%, but operating expenses were up a whopping 87% to nearly $11m. As a result net loss has tripled to almost $1.7m. To calm the horses, the announcement says that this increase in Opex is in line with management expectations, and due to increases in R&D, customer support and sales and marketing. This is all well and good, but there are no signs of operating leverage at play yet, so the other good news about increasing ARR and gross profit margins isn't really getting me too excited.

Nonetheless I do like the story of what this company is doing. It is building up a great reputation in high-stakes online tests and exams, with many levers for growth. I'm happy to continue holding, but not sufficiently inspired to put more money in.

Janison is stock of the week in this Motley Fool podcast.

I hope that's not the kiss of death.

Held in SM and RL.

Ausbiz interview with David Caspari, Janison CEO, after FY21 results 

I have been on the hunt for a new investment candidate for my IRL portfolio since ditching APX a few weeks ago. I took a good look at ReadyTech, but somehow just couldn’t get too excited about it. It is now in my Strawman portfolio but I don’t have sufficient conviction to invest real money in the company.

A few weeks ago I stumbled across Janison, and naturally the first place to start my research was Strawman. I must thank @elapso96 for the many insightful straws. The more I read both here and in company reports, the more surprised I am that Janison hasn’t come to my attention before, since it is exactly the kind of business I like:

• Primarily a SaaS business, with high recurring revenue
• A recognised market leader in a growing market, with a global customer base
• Very sticky customers
• A no-nonsense management team who tell it like it is
• Providing a valuable service to society

Where Does The Revenue Come From?
Learning

At first I thought Janison was all about providing a portal for organisations to manage their internal staff training needs. Customers can curate their own custom learning materials on the Academy platform, and can also access off-the-shelf content provided in partnership with the likes of Deloitte, McKinsey and LinkedIn as well as content developed in house. I’m not sure how self-service the content creation is on this platform, it sounds like customers typically buy consulting from Janison as well as the Academy platform, to help them implement their own learning management system.

If you Google ‘Janison Portal’, a host of organisations that use this platform are revealed, including The Australian Sports Commission, the Commonwealth Government, Corrective Services NSW, David Jones, Netball Australia, NSW Ambulance, NSW Dept of Education, Royal Life Saving Society, Sailing Australia, Ryman Healthcare. A pretty impressive collection, I thought, with a strong focus on state (mostly NSW) and federal government organisations, and large enterprises. In 2019 for example Janison renewed a 3-year contract with Westpac worth $4.2m for “an integrated enterprise learning solution.”

This segment of the business is however static or even in decline, with revenue going from $5.7m to $7.3m to $6.1m in the past 3 years. Yet net client retention is 109%. There are 52 customers (47 in pcp). There is virtually no mention of this segment in the CEO or Chairmans’s narrative for the growth drivers of the business - it appears that it is going to be left to wither on the vine.

Assessment

The segment of the business that is getting all the attention is Assessments. The Janison Insights digital assessment platform allows education organisations to create the assessment, and deliver it in a locked-down, controlled environment, as well as closely manage the marking process. It also offers an analytics tool that, once results are in, can help staff identify how to improve student performance through reviewing the data. This segment has seen accelerated growth as the world has had to transition to online assessments and away from the classroom in the past year - a trend which Janisson reckons is a long term structural shift rather than a short term Covid sugar rush.

The beauty of the Assessments business is that it has multiple growth opportunities, using the Insights platform as the foundation. Janisson can sell SaaS subscriptions to organisations that want to conduct online assessments using their own test materials, a recent sale to the CFAA being a case in point. The CFAA deal is worth $5m over 5 years.

More excitingly though, Janisson can acquire the IP for widely used educational tests then charge a fee for administering those tests via the Insights platform. In 2019 Janisson won a tender from the OECD to administer the Programme for International Student Assessment (PISA) test to member countries. This test is used by schools to benchmark their performance against other institutions. So far Janisson has agreements in place with 9 countries. In Australia and the USA Janison is the service provider, meaning they enroll schools and manage the test cycle, for which they collect $7000 per school. At least 200 schools in Australia signed up this year. There are 2,700 schools that serve secondary students across Australia, meaning a total addressable market of $19 million, just for this one test in one country.  In the other 7 countries Janison provides the Insights platform and the test materials, but other organisations administer the test. According to OECD materials the base cost for a country to participate in PISA is 205 000 euro spread over 4 years. Assuming (arbitrarily) 60% of this cost flows through to Janison as revenue, that equates to $50,000 per country per year. The target market for PISA testing is 90+ countries.  

The second assessment that is really building a reputation for Janison is NAPLAN. In May 2021, 800,000 school students completed their NAPLAN tests online. Janison’s digital assessment platform had over 3 million tests completed in a two-week period, and at the peak, more than 195,000 students were being tested concurrently., with more than 32,000 transactions a second.

The NAPLAN test typifies the high-stakes, high-volume testing in which Janison is carving out a niche. In 2021 NAPLAN Online became the largest online schools assessment ever run world-wide, breaking all records, and considered by all parties to be an amazing success. 70% of students sat NAPLAN online in 2021 and the plan is to move to 100% in 2022. Janison’s customer here is Education Services Australia (ESA), i.e. the federal government. Janison was paid $367,000 for the development of Naplan Online in FY20. Presumably there is an ongoing revenue stream for making enhancements to the test, as well as for delivering it to schools.

The third assessment that Janison can now deliver on the Insights platform is the ICAS competition. In a very astute move Janison bought the rights to the ICAS test from a division of UNSW called Educational Assessments (EA) this year (for less than $1m!) so all revenue from running this test each year will flow to Janison. The target is to charge $15 per test, with 1 million tests pa, but Janison acknowledges it will take 'a few years' to get to $15m pa. EA had an annual recurring revenue of $10m in 2019. As well as the ICAS test itself Janison acquired EA’s item bank of 20,000 test questions, developed by academics over the past two decades, plus the skillset of EA’s team of psychometricians, statisticians, and exam authoring and reporting experts. This gives Janison the raw material to develop further test products for delivery on the Insights platform.

A final major (?) growth opportunity is the recent (March 2020) partnership with D2L (Desire to Learn), developers of the Brightspace learning management system, which is a cloud-based software suite used by schools, institutes of higher education, and businesses for online and blended classroom learning. D2L has 1,000 customers in 40 countries. The idea behind this partnership is that D2L provides online learning and Janison provides online examinations to measure the results of this learning. However, after a hunt around the D2L website I couldn’t find any reference to Janisson, so I suspect that it is going to be up to Janisson to knock on the doors of D2L customers if they want to win any business from this channel. This year’s annual report doesn’t provide any insight into the revenue from this channel.

What About The Management?

There seems to be a rather turbulent leadership history. Tom Richardson resigned as CEO in 2020 after 5 years as CEO, which included taking the company public in 2017. Previously he founded a small training / learning consultancy but that no longer seems to exist. With no strong credentials in either education or IT he perhaps wasn’t the right fit to lead the company in its current growth trajectory. 
David Caspari took over as CEO in 2020, an external hire. He has had market-facing leadership positions (VP and similar) with IT companies since at least 2004, including Cisco, HP, EDS, Singtel then Optus. I like the fact that he has worked in India, Singapore and Hong Kong. He seems to be a good communicator, and has a 90% approval rating on Glassdoor. 
George Gorman the CTO also joined in 2020, and previously worked as a technology consultant, specialising in ‘program recovery’. It sounds like he was brought in to reshape the IT organisation, or as the press announcement had it at the time “to establish the technology vision for the Company and to work closely with the CEO and executive team on delivering this vision as the business continues to further productise its offering and focus on growing recurring revenue in its target markets.”
Software development is managed by David Irvine, who joined in 2017, and previously held CTO roles. Daniel Berkovitch, the sales director, joined in 2019.
Wayne Houlden who founded the company in 1997 is still around, but in what sounds like primarily an honorary role of Vice Chair.

Risks

• With so many levers for growth, how can Janisson fail?
• The OECD may not renew the exclusive agreement with Janisson to deliver the PISA test in 2024;
• There may be a very public performance failure in executing NAPLAN online tests, causing the commonwealth government to look at another partner for future test delivery (NAPLAN is a 7-year deal 2016-2023);
• With so many avenues to explore for the creation and delivery of tests, Janisson may spread its resources too thinly, rather than focussing on the high stakes, high volume tests for which it is building a hard-won reputation;
• It may run out of cash. Growth has been funded by numerous capital raisings, the company is not yet consistently generating free cash flow, and expenses will continue to rise particularly in sales and marketing;
• Competition may depress margins and profitability - a very brief survey of the market for educational assessment products revealed almost 50 competitors (https://sourceforge.net/software/product/Janison-Insights/alternatives)
• The leadership team is relatively new and unproven, although the continuing involvement of the founder gives some comfort

Revenue Projections for 2025

Learning segment  - $5m, assuming gradual decline
PISA tests -$15m, pure guesswork, the TAM must be at least 10x this, Janisson ‘horizon target’ is $30m
ICAS tests - $15m, Janisson ‘horizon target’ is $20m
NAPLAN tests  - there doesn't seem to be any information in the public domain, but let's say $2m
Other tests - $5m
SaaS subscriptions - $5m, assuming 5 more deals like the CFAA
Services revenue - $10m, assuming moderate growth from current $7m
    
It is pretty easy to project total revenue of $50m + in 2025. Janisson’s own ‘horizon target’ is $80-$100m. With a TAM of $40B (if you believe market researchers) that doesn’t seem much of stretch.

Comparables

KME enterprise value $44.12m, revenue $19.28m, EV/revenue = 2.3
IDP enterprise value $8778m, revenue $528.7m, EV/revenue = 16.6
JAN enterprise value $205m, revenue $30.2m, EV/revenue = 6.8

US Comparables (from https://www.raymondjames.com/-/media/rj/dotcom/files/corporations-and-institutions/investment-banking/industry-insight/education-technology-quarterly.pdf)

See attachment (I wish I knew how to get inline images into a straw). This shows EV/revenue ratios for 10 EdTech companies, with Coursera at the high end (17.9)  and 2U Inc at the low end (3.3).