Open Learning released their annual report. A quick skim through and it's not looking great.

Revenue was down 9.7% to $3.167M

Despite modest reduction in expenses, net loss for the year was $5.6M vs $6.7M pcp

Cash on hand is $2.2M with a cash outflow from operating activities of $5.4M

A capital raise will be required in the near future

Very modest growth in SaaS ARR, SaaS customers, SaaS revenue

Modest falls in Program delivery revenue, Gross sales, Group revenue

Management seems to be pivoting to the use of "AI" and "ChatGPT". A true use case or a redflag? Management are not promotional but with a capital raise on the horizon I'd say it's the latter. OLL continues to be a growth company struggling to grow and burning a lot of cash along the way. Until they show some traction and an ability to self-fund I can't see this being investable.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02648784-6A1142874?access_token=83ff96335c2d45a094df02a206a39ff4

Appendix 4E Preliminary Final Report

Open Learning released their Preliminary Final Report today for the year ended Dec 31^st, 2021.

Business Highlights

Platform SaaS customers increased by 23% to 205

The company’s push into Program Delivery segment comprised two programs delivered in partnership with top institutions:

-The UNSW Transition Program Online (TPO), a four month direct entry program for prospective international students

-The CS101* (computer science 101) micro-credential designed in collaboration with leading tech companies

Revenue from TPO exceeded investment within the first year of operation

The first intake of TPO was highly successful with 86% of students receiving an offer from UNSW for either a degree or diploma. Five further intakes are scheduled for 2022 and the goal is to have more Universities, beyond the current 6, recognise the program.

Alchemy Tribridge Sapphire Pty Ltd acquired a 17% stake in OLL via a capital raise

Platform Subscription revenues and Program Delivery revenues – Platform Revenue, rose 170% to $3.045M

Overall group revenue (which deducts shared revenue with education providers) increased 86% yoy while cash receipts improved by 43% to $4.56M

Financial Highlights

Revenue up 86% yoy to $3.5M

Expenses rose 71% driven mainly by investments in program and service delivery

Loss up 19.6% to $6.7M

Cash of $4.6M plus an additional $1.58M post reporting period

Net assets of $4.1M

Cash receipts up 43% as a result of upfront payments from learners and SaaS customers

Cash outflow from operating activities of $6M for the year

Thoughts

I was originally attracted to OLL based on the business model, tailwinds and management team; however, I was too early and should have monitored from the sidelines. OLL showed some impressive growth but still has a long way to go. With a $6M cash burn for the year and ~$6.2M cash on hand another capital raise is likely.

*I’m enrolled in OLLs CS101 course but due to personal circumstances have been unable to complete it. I have until Oct 2022 to complete the course and plan on returning to it when I have more time. As someone who’s spent a lot of time learning over the past 2 years I’ve been impressed with how CS101 has been delivered. There are still a few bugs that need to be addressed (mainly completed tasks not being shown as completed) but consider I was part of the first intake. CS101 is advertised at ~$1,500 but they discounted this to $1,000 and further to $500 as the course start date approached. If anyone has any questions around CS101 I’m happy to discuss in the forum.

Adam Brimo, CEO of Open Learning, appeared on Mark Tobin and Phil Muscatellos' podcast Talking Companies. Adam provides some unique insight into the UNSW contract, competitors, strategy, competitive advantage and more. It's a great episode for anyone interested in the company.

https://play.acast.com/s/03c07c25-68cc-5cf6-96da-d93d8a611701/618dadfd89bd7300139b27b9

OLL has entered a trading halt in relation to:

1 A material license agreement with the University of New South Wales Global to design and deliver a new online education program for international students; and

2 A proposed capital raise

Thoughts:

UNSW is a top 5 Australian University and my understanding is UNSW Global provides online learning, diplomas, foundation studies and English language courses as a pathway for international students to gain admission to UNSW.

While a potentially important win with potential for further work directly with UNSW I think it's important to distinguish the difference between UNSW and UNSW Global (even if minor).

https://www.unswglobal.unsw.edu.au/

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02297265-6A1002500?access_token=83ff96335c2d45a094df02a206a39ff4

Business Model

OpenLearning generates revenue through its OL Platform to Providers and through its Design Services and OL Marketplace.

OL Platform SaaS

Providers (e.g. Universities) are able to offer short courses, blended learning and online degrees through the cloud hosted OL social learning platform. Providers are charged based on usage with more usage equalling higher cost and vice versa. For example, 250 learners with 1 educator costs $600/year through to 5,000 learners with unlimited educators costing $26,400/year.

The OL platform is a vertically integrated, turn-key solution. It enables end-to-end education delivery, from student acquisition and payment, to assessment and certification, within a global cloud platform. This saves Providers substantial investment (monthly SaaS vs large upfront cost) and time (procuring a range of products and services from multiple companies) which would normally result in a long payback period and significant execution risk.

Design Services

Course materials supplied by Providers are redesigned into courses on the OL Platform to align with OLLs educational philosophy. These are charged on an hourly, daily or fixed price arrangement (these services are no longer offered to Malaysian Providers).

OL Marketplace

The global Marketplace is used to promote and sell publicly accessible courses that have passed OpenLearning’s quality guidelines and that are in-line with their educational philosophy.

Revenue is generated through the Marketplace in 2 ways:

Directly: through a % of revenue from courses sold; 0% for B2B SaaS customers up to 65% for design services on a revenue share basis

Indirectly: increasing number of enrolments may lead to higher SaaS revenue

Provider Experience

The SaaS product provides customers with a co-branded institution portal that runs on the OL platform providing admin, marketing and analytics.

This portal also acts as a first point of contact and promotional website for a Provider.

The company views the Marketplace as a key differentiator and selling point for education providers looking to acquire new students and increase their brand awareness. If the company is successful this is where powerful network effects can develop, leading to an eventual inflection point, and strengthening of its competitive advantage (think Facebook).

Thesis

•3 very passionate and driven founders – Brimo, Collien and Buckland – own 4.6%, 2.6%, and 3.6% for a total of 10.8% ownership

•Founders possess sizable teaching experience (practical and theory), strong tech skills with an interest in AI (2 software engineering degrees), entrepreneurial skills and traits of intelligent fanatics

•Competitive advantages

-          Serve more flexible underdeveloped markets than competitors1 SEA (OLL) vs NA (Coursera & edX) vs EU (FutureLearn)

-          Little-to-no competition in SEA (south-east Asia)

-          First scalers (still in progress)

-          Potential for strong network efforts

-          Potential for sticky customers/high switching costs

-          Possess economies of scale2

-          Strong company culture, vision and values

•Tailwinds

-          Covid-19/international travel restrictions/lockdown3

-          44% of jobs could be automated with existing tech – need to upskill

•Disruptive4

•Global addressable customer base (current focus is SEA)

•Serves multiple markets

•Relatively unknown with minimal interest from funds

•Forecast5 EV/Sales 2.55x; trailing 7.2x

•ARPU $377

Concerns

•Founders have minimal experience running a large company

•$1M cash burn/quarter

•Are tailwinds strong enough to push the online learning trend?

Summary

With close to a million in cash burn per quarter and 6 quarters of funding left I believe strong tailwinds, first scaler advantage and most importantly a very passionate founder led company will overcome short-term hurdles to ensure long-term success. It is possible a capital raise will be required in the future. I would sell if significant, continued revenue growth has not been achieved and/or cash flow breakeven was not in sight 6 quarters from now.

Disclosure: I hold a position in OLL.
 

Notes

1 Mr Brimo states most developing countries are lucky they haven’t made significant investments in traditional education compared to developed countries. Traditional markets have spent a lot of money on existing offline educational infrastructure and are reluctant to change even when they know change is good. Developing countries have less invested in traditional infrastructure (sunk costs), are therefore more flexible and can go straight to what’s best – they can embrace ideas for online learning that work.

2 Economies of scale are also passed along to customers (e.g. University) by adopting OLL platform. Customer can target a larger customer base with cost per student decreasing the more they enrol. Traditional classrooms are limited by physical space online are not. I believe this will force more institutions to join OLLs platform (a future inflection point), create their own or risk being left behind competitors.

3 Victoria University’s Mitchell Institute models show Aus university sector faces cumulative loses of $19bn over the next 3 years due to loss of international students. International university students’ fees are twice that of an Australian student. Lockdown has forced educational institutions to consider new ways of delivering material to both domestic and international customers. I believe this will speed up the transition to online learning.

4 Current platforms, competitors and teaching practices are very one directional. Teacher disseminates info to students through lectures, videos or documents. “Real learning” happens from our experiences, interactions between students, group work, and practical application of the learning. Lectures where lecturer just stood up and taught – not that memorable. OLL is designed to bring those (good experiences) online and go against the trend that online learning is just ticking boxes/boring.

5 March Q rev = $720, June Q rev = $945. Assuming continued linear growth of 131% ($945/$720); Sep Q rev = $1,237, Dec Q rev $1,622. Yearly rev to Dec 2020 of $4,524,000

OLL - OpenLearning

Competitors

OLL views massive open online course (MOOC) platforms as its primary indirect competitor. OL Group’s primary competitors offering MOOC platforms are Coursera, Udacity, EdX (all NA) & FutureLearn (UK).

A few things set OpenLearning apart from its competitors:

•OpenLearning is non-exclusive and available to all education providers globally

•OpenLearning uses (predominately) a SaaS model versus revenue share

•OpenLearning takes an active, project-based, more social learning approach versus competitors more passive approach (think reading documents, watching videos)

Barriers to entry:

•Cost of developing a similar platform

•Establishing a consumer marketplace

•Establishing a large enough user-base to gain economies of scale and network effects

•Building a reputation with top tier universities

•Sector experience

These are not insurmountable barriers to entry but because OLL is the first to scale and as they develop network effects it will be harder and harder for competitors to threaten them (think Facebook). They will need to maintain a high-quality offering and grow revenue sufficiently to achieve this.

If we are skeptical of OpenLearning’s claim it has no competitors in South-East Asia (SEA); here is a brief look at other possible competitors in the education sector.

Other ASX-listed online education providers

IEL

$4850M

Engages in student placements internationally, low mgt ownership. Opinion: not a competitor in online education

GEM

$673M

Operates 492 educational childcare centres in Aus and Singapore, low mgt ownership. Opinion: not a competitor

3PL

$146M

Global online education to schools covering math, spelling, reading, highly paid CEO, possible liquidity issues, low mgt ownership, Mathletics & Reading Eggs etc Opinion: strong competitor in school aged sector & could be incredibly hard to displace

KME

$50M

K-12 online tutoring internationally, franchise model trying to transition to online – could prove challenging as it puts them at odds with frnchsees. See AlphaAngle’s straw. Opinion: disadvantaged competitor

AKG

$31M

Au+Singapore, CEO 14%, lots of recent buying on market, Campus based and no mention of online learning – not a significant competitor

SIT

$22M

Good mgt ownership, illiquid?

RDH

$27M

Highly paid CEO, poor mgt ownership, recent cap raise

ICT

$19M

IPO 02/18, good mgt ownership

UCW

$11M

Liquidity issues, good mgt ownership

8VI

$24M

Liquidity issues, niche Singaporean educator, not really competitor

Comparing Janison Education Group (JAN) vs OpenLearning. JAN listed Dec 2017; OLL listed Dec 2019 (founded 2012).

Janison Education Group vs OpenLearning

JAN

$79M MC

CEO $441,690

Non-Exec Directors ~$180k avg

OLL

$30M MC

CEO $268,340

Non-Exec Directors ~$35k avg

Management

Category - Winner

Experience - Janison Education Group

Passion - OpenLearning*

Energy-  OpenLearning

Intelligent Fanatic - OpenLearning*

Diversity - OpenLearning

M/F ratio - Tie

*I’ve only been able to find one video of JAN CEO Wayne Holden speaking – small sample size
 

Glassdoor Reviews

Janison Education Group

13 reviews 2.5/5

OpenLearning

4 reviews 4.2/5

Career Opportunities

Tie

Positive Business Outlook

Tie

Overall Rating

OpenLearning +1.7

Compensation & Benefits

OpenLearning +0.7

Work-life Balance

OpenLearning +2.5

Senior Management

OpenLearning +0.5

Culture & Values

OpenLearning +1.8

% Recommend to a Friend

OpenLearning

CEO approval

JAN n/a OLL 100%

JAN review red flags

Jan 2018 – states high staff turnover

Jan 2018 – poor review of leadership

Multiple – long work hours

June 2017 – poor review of management

May 2017 – long work hours, stress, poor review of ownership

March 2017 – 2nd mention of bullying from senior management. States “lack integrity”, “toxic”

Feb 2017 – Poor review of management, 3rd mention of bullying

Jan 2017 – Management taking on more than they can chew and not listening to staff

*One of above specifically stated CEO/management asked them to leave a positive Glassdoor review

OLL review red flags (only 4 reviews)

Sep 2019 – no growth opportunities, better comm from leadership but says good employee culture

Conclusion:

It’s a small sample size but OLL handily beats JAN in several areas. Of importance to me are company culture and how staff view senior management which are all strong for OLL and better when compared to JAN.

JAN senior management are more highly paid relative to MC, particularly directors.

Please see elpaso96 straw for an explanation of JANs capital structure and what this could mean for investors.

Special thanks to AlphaAngle and elpaso96 for their straws contributing to this analysis.

Management & Culture

The Founders

Adam Brimo CEO B.Eng Software, B. Arts Politics 4.68% + 2M Options/performance rights

https://www.youtube.com/watch?v=gBdqxKDSbeQ

Prof Richard Buckland 3.6%

https://www.youtube.com/watch?v=ktfIkfNz99Y

David Collien Bsc Computing 1st class honours 2.55%

https://www.youtube.com/watch?v=queefjFW3PI

Much of my assessment of management is subjective. I recommend watching the above.

Adam Brimo (2M) and David Buckingham (0.75M) hold performance options, 50% of which are conditional on ARR reaching $4M by Dec 2020; ARR currently $1.1M. The remaining 50% are conditional on ARR reaching $8M by Dec 2021. This sets a high bar and aligns managements interests with shareholders.

Of concern could be that founders lack experience running a large company. Therefore, surrounding themselves with a strong management team will be important.

BOD

Reasonably paid with over 6% ownership if 3.5M options are exercised.

Kevin Barry and Spiro Pappas are the only directors with directorships in other listed companies - ICS Global Ltd and Splitit Payments Ltd, respectively.

Kevin Barry bought shares on market on 2 occasions, shortly after IPO, in December.

Former directors Frank Beaumont and Clive Mayhew still hold 1.67% and 5.86% respectively or over 10.5M shares between them and have not sold down.

Company Culture

4 reviews left on Glassdoor:

•100% CEO approval

•High work-life balance score

•Good senior management score

•High culture and values score

Team consists of a good mix of ethnicities and gender.

Company Overview

How it Began

Open learning started when Professor Richard Buckland from University of New South Wales approached CEO Adam Brino after he had originally put his lecture videos on YouTube and received over two million views. Students from all around the world were contacting him saying how fantastic the course was and how much they loved the videos.

Prof Buckland was devastated he couldn't give these students the actual course experience and for him that experience goes beyond just the lectures and involves students working together to solve problems, helping each other and going on a learning journey together. He tried numerous mediums but none of them solved the problem.

In 2012, together with David Collien the three decided to build a platform to run this style of large, global online course. It quickly evolved into OpenLearning where anyone could create a course. The courses involved fostering community, the social interaction and providing engaging activities for the students.

The Problem

Online learning has progressed in stages over the past 5-15 years. Current platforms and traditional teaching practices are very one directional. A teacher disseminates information to students through lectures, videos or documents. However, higher quality learning happens from our experiences, interactions with other students, group work, and practical application.

Around 2005-8 it progressed to the second stage where documents were combined with a forum or video. However, none of this was integrated well together.

Currently, online learning is becoming a lot more like Facebook with peer-to-peer interaction. It’s no longer just disseminating information but instead the students are crowd building the course together, learning together. This transformation has had positive results.

What They Do

OpenLearning is a SAAS company providing an online learning platform and course design services to education providers. With 2.5M users and a growing library of courses OLL provides a global marketplace of micro-credentials and online degrees. The online platform is a turn-key solution enabling education providers to deliver both accredited and non-accredited courses and degrees entirely online. No specialist IT knowledge is required.

OpenLearning Philosophy

Built on proven learning sciences research and a social constructivist learning philosophy, OpenLearning goes beyond traditional instructivist approaches and static learning management systems to deliver authentic, active and connected learning experiences.

OpenLearning’s vision is to improve access to quality education, promote lifelong learning, and future-proof the workforce by enabling education providers to design, deliver and sell courses and degrees worldwide.

OLL is the leading platform for online higher education in Southeast Asia and has 2.5 million learners worldwide, 3,800 active courses and partnerships with over 116 education providers.