Kip McGrath reported 1st half 2024 result today.
Main issue as i see it is ongoing investment in the business. It increased revenue by $2.5m but increased employee expense by $2.6m.
This increase in employee expense increase probably coming from corporate centers ( management flagged recent corporate center acquisitions incurred additional cost of $250,000.
It seems like it lost the Abu Dhabi schools' contract after AGM i.e lost $510,000 profit and it is the probably the reason why it subtly downgraded the full year outlook
From "Expect FY24 full year NPAT to exceed prior year" at the time of AGM in November to now " FY24 full-year profit is expected to align with the prior year result"
The market has lost patience and I am not sure how long current shareholders can keep faith in management.
Bag holder.
Here is an interesting chart.
KME is increasing its Revenue/Share but in the last 5 years, it has also invested heavily in corporate rollout / online shift / US expansion. Hence, increased Revenue/Share hasn't been contributing to an increase in earnings/share in the last 5 years. Hopefully, We are at the end of this investment cycle.
Kip McGrath released its FY23 report and the following are the graphs,
Revenue:
Customer Receipts:
Expense:
Operating Cash
No. of Shares
Geographic info ( USA is dragging the performance)
Revenue breakdown
Franchise fees are increasing because the Silver franchise is getting converted to Gold. Overall Student lessons are bringing higher revenue. ( at the end of the day that's the most important matric to see )
Some encouraging traction for Tutorfly
Corporate Center
Yes, Tutorfly is a drag but its a relatively small part of the business. The Franchise Network and Corporate Center are going in right direction. Hopefully based on the comments from the Annual Report, Tutorfly will come good in FY24. Overall happy with the result.
Monthly Newsletter_July_2023_Digital_230712_093419.pdf
Page 13 : Australasian Emerging Companies Fund comments
Tutorfly's performance was a major drag on Kip McGrath's performance in 1H FY23. with promising words about 2nd half in report.
Seems like the new revenue stream: drop-in tutoring" is working (https://www.dropintutor.com/)
https://gmcs.org/2023/01/free-on-line-tutoring/
KME Reported its FY23 report and the share price has gone downhill ( i.e no change after the result as it was going downhill before the result as well)
It seems that the market didn't like that NPAT has gone 29% down or it didn't like that revenue only increased by 9.2%.
Yes, the result wasn't great but to my eyes, It wasn't bad at all compared to what I was expecting or fearing that inflation will seriously hamper its tuition numbers.
Some of the bright spots in the results for me
- The corporate business continues to scale and has achieved profitability for the first time
- May be market didn't like the cashflow shown but the underlying net cash flow from operations was $3.1M
- Cash flow from operations this half was affected by $2.3M in outflows to franchisees
- Revenue from Franchise fees and Student lessons are trending in the right direction
- Revenue performance was hampered by UK/Europe and the USA. Now I have noticed the trend that most of the reported companies had issues gaining growth momentum in UK/Europe in this period and for USA, KME is saying that there were some delays with Tutorfly Director comments as below:
- " We have contracts in place for the second half to see revenue return to last year’s levels for the full year and are now working with 4 school districts up from 1. We have also developed a new revenue stream for ‘drop-in tutoring.’ Currently, in use at one school district, a click button provides an instant help feature. We believe this new service for drop-in tutoring provides an exciting new business opportunity more widely throughout all operations"
So in nutshell, Yes company didn't had a great half but I think it has been punished way more than it should ( in my opinion - anyway) probably illiquid nature has to do with it. Hopefully, the same illiquidity will at some point act in shareholder's favor - I shall wait for such time.
KME has provided guidance so the following is what I am expecting
Things I want to know in FY22 reports
- How Corporate centers are performing? What level of margin can be expected and when we will see effect on bottom line?
- How blended tutoring is working? Online tutoring percentage? further technology investment required?
- Tutorfly progress? What's the plan for the near and medium term for tutorfly?
One of the online learning platforms Cluey released its half-yearly result today.
Revenue has increased significantly from the previous period but I am not sure if the model is going to survive longer.
The way I read it, They had to spend 4.5m in marketing to get 15.7m revenue.
15.7m revenue required 7.2m cost to generate 8.5m gross profit
To increase gross profit, they increased their marketing 15 times, Admin roughly 10 times, and employee expense 10 times.
Most of the employee expense is also the cost of sales for this business as without tutors there is no classes. [ so in fact gross margin would be very less if you factor that also in]
Q1 FY22 updates
- 8% lesson growth rates
- 21% higher revenue compared to FY21
- 5 additional corporate centers by early 2022
Outlook
- Revenue, profit, and profit margin will continue to grow
