The Advantage platform is meant to be the flagship program for Schrole, around which, the sticky ARR is meant to be built. The following comparison was my biggest concern from the Dec '19 4C.

Sep: “in excess of 87%”

Dec: “exceeding 80%”

Accurately forecasting future cash flows is dependent on my ability to accurately estimate churn rates. Seeing multiple schools not renew their licence is obviously less than ideal but the question still remains… why?

• Are Schrole not providing the service the school’s expected?

• Is the quality of teachers simply not high enough?

• Are schools cancelling their subscription if they don’t have any vacancies in the following year?

• Did a 'big fish 10-school conglomerate' up and leave?

The fourth quarter was meant to be the money quarter for Schrole with the most activity, yet they only netted 200 teachers and 11 schools.

My thesis right now is built around a churn figure of 15% for the next 5 years. This gives Schrole time to add more incentives to their Advantage platform (such as Verify) which should help increase stickiness. After 5 years, I’d want churn to decrease circa 10%. Greater retention rates are obviously better but this is the trend I am hoping to see should my thesis play out.

Schrole have their own in-house software development team which means all “Development” expenditure is reported on the “Product manufacturing and operating costs” line.

The June ‘19 quarterly flagged “major upgrades to the Advantage platform” to provide a user-interface redesign, additional search and filtering capacity. The Dec ‘19 quarterly reported the introduction of the “school group functionality”. This delineates a clear attempt to target the “70 international school groups that consist of 10 or more schools, representing 2000 schools”.

The plan here is similar to the strategic direction of PushPay. Let’s focus our sales team on the big fish and net 10+ schools in a single sale. I like it for the same reason I liked it with PushPay. It should reduce CAC but also add slightly more reliance on those key relationships. We will really notice an uptick in churn should one of these schools ‘groups’ choose to leave.

Product manufacturing and operating costs from March '18 to Dec '19:

$186,000 - 64,000 - 144,000 - 1,215,000 - 249,000 - 1,176,000 - 687,000 - 1,531,000
 

As you can see, expenses have been steadily increasing. What is difficult is we have to extrapolate from this data how much is going towards product development in comparison to other expenses, but we can make good guesses. Dec ‘18 saw the integration of ISS and Advantage. Jun ‘19 was the UI overhaul, Sep ‘19 was Verify and Dec ‘19 was the group functionality. I can also see from the App Store that ‘Schrole Cover’ App was last updated in Oct ‘19.

The variability in this line will directly correlate to negative or positive cashflow quarters. I’m not concerned about a negative quarterly like Dec ‘19, as long as it is because of an uptick in product development rather than a faltering top line. 

One of the first questions I ask myself is "am I sitting on a one-legged stool?" Schrole currently has 4 revenue generating platforms with a 5th in the late stages of product development.

ISS-Schrole Advantage: The flagship product is a Saas platform that enables international schools to streamline teacher recruitment and candidate management activities. I see this as a niche version of seek or even LinkedIn. There is an alliance here between ISS and Schrole which means net revenue is split 50:50. Schrole generates additional revenue through ‘add-ons’ and ‘up-sells’ through the Advantage platform which ISS does not get a share of. Schools pay a listing fee and teachers can purchase a premium subscription for US$70 pa to search for and apply for jobs.

• 385 active school licences (retention rates went from 87% to “exceeding 80%” over the last qtr)

• 6,200 active premium teacher subscriptions (47% churn - I expect there to be greater churn with teachers with many signing up for a specific job and then disappearing once they job is filled)

Schrole Verify: Released in Sep 2019, Verify provides background screening for prospective International teachers. All International teachers have a requirement (read strong recommendation under the International Task Force on Child Protection) to undergo a background check every 2 years. Schrole is enabling the School to do this with a single click of a button. This is one such add-on to the Advantage platform. The Verify clearance process incorporates a qualification check, employment history check and a press and social media review. Each check is about US$300 gross profit.

• Attempt to cross sell to the schools on the Advantage platform to have them check all of their staff members.

• Encouraging teachers to pay for this themselves which is interesting. Could become one of those things 'you just have to have' in order to be competitive.

Schrole Cover: Another cloud-based Saas platform that engages relief teachers (or any type of staff member). This service has been getting traction outside of the education sector with hospitals, security firms and mining companies adopting the technology. As far as financial metrics are concerned, two hospitals with approximately 5,500 and 3,000 staff members equals a combined $30k per year. Currently have 181 active licences. Continually reference “Western Australian schools”. Appears to be isolated to this geographic area. It makes sense to work in clusters for this vertical as the more options each casual worker has the greater the network effect. Main competitor in the app-based school vertical is ClassCover who has 2,200+ schools Aus-wide.

Schrole ETAS: The Education and Training Advisory Service provides accredited training solutions customised to the client. Specifically, they provide the ‘train the trainer’ course, TAE40116. This vertical has experienced solid momentum over the last two years, however will always be at a lower margin than the core Saas businesses.

• Costs A$4,100 per course member / 11 courses being run in 2020 / Unk # per course.

Schrole Connect: An independent vertical to mirror Advantage for an Australian audience. Not yet generating revenue.