JAM | Nov 18, 2022

Higher operating costs choking EduFocal

/ Our Today

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Net loss of J$27 million for September quarter

Durrant Pate/Contributor

Digital learning company EduFocal is being choked by higher operating costs, which has caused the company to chalk up losses during the September third quarter.

For the three months ending September 30, the Gordon Swaby-led EduFocal incurred net losses of J$27.6 million. The key drivers for the losses included growth in operating expenses and an increase in finance costs, which together outpaced revenue growth for the quarter.

EduFocal’s recent capital raise of J$200 million, organised by Mayberry Investments at competitive rates, incurred a one-off finance cost amounting to just over J$4 million for the quarter. Added to other one-off expenses, this amounted to $J12.7 million for the period, also contributing to the losses incurred.

Administrative and other operating expenses jumped by J$64.4 million or 59 per cent, moving from J$108.3 million in the third quarter of 2021 to J$172.8 million in the current period under review. This rise in expenses was driven by higher expenditure in core support areas of the business, specifically staff cost, legal and professional fees, consulting fees and advertising expense.

Strong December quarter anticipated

As such, net loss for the quarter closed at J$16.1 million, which is J$14.6 million higher than the prior corresponding quarter in 2021. Swaby however explained that the current third quarter is usually the slowest quarter in EduFocal’s business, with the current fourth quarter being the strongest.

“… Last year, for the corresponding quarter, a contract with a blue chip customer was front-loaded, and while our engagement with this customer continues, the timing of revenue didn’t allow us to book same within the Q3 2022 quarter.”

Gordon Swaby, co-founder and CEO of EduFocal

He further explained that “last year, for the corresponding quarter, a contract with a blue-chip customer was front-loaded, and while our engagement with this customer continues, the timing of revenue didn’t allow us to book same within the Q3 2022 quarter”.

The company has also been hiring new staff, taking advantages of the opportunities opening up in the market place.

Between January and September 2022, EduFocal employed 26 permanent and contract staff with 11 being hired in the September quarter, the most people hired in any single quarter in the history of the company. In particular, the Operations and Product Development teams saw significant growth in their headcounts, as the opportunities in the corporate learning space continue to grow.

Cutting mounting receivables

EduFocal is currently focused on reducing its outstanding receivables while continuing to invest in its digital platform and content, which are its differentiators in the marketspace. As of September 30, one of EduFocal’s major blue chip clients accounted for more than half of its receivables.

“While collection has been protracted, our client has always honoured their obligations, and we are confident that we will be able to significantly decrease receivables over the next two quarters, which should improve our operating cash flows going forward,” Swaby advised shareholders in his quarterly report.

Of note is the 98 per cent jump in intangible assets, due largely to EduFocal’s acquisition of Denver-based K1 Edtech SaaS company, Clever School Teacher last March.

The EduFocal CEO emphasised: “Being a SaaS firm, our intangible assets, including software and intellectual property are more reflective of our productive capacity than property plant and equipment.”

Restructuring advancing smoothly

Swaby disclosed that the company is currently undergoing a restructuring exercise, while building capacity and focusing on the diversification of its offerings. He did not go into details of the planned restructuring, promising that more will be shared before the close of the financial year 2022.

According to him, “this restructuring exercise will ensure we remain nimble and leverage the growing human resources. The results will be increased productivity and greater efficiency within the organisation, which will in the short term reflect in our bottom line, and benefit you, our dedicated shareholders”.

Gordon Swaby, co-founder and CEO of EduFocal.

Given that the global economy seems to be softening due to high living costs, Swaby believes education is noncyclical and that people are likely to continue to upskill, as they have done in prior periods of economic difficulty, and that technology will play a greater role in achieving this.

Of note is EduFocal’s five-year tripartite partnership with the Transport Authority and British Caribbean Insurance Company to facilitate training and evaluation of more than 40,000 PPV drivers islandwide.

He noted that, through its recently announced partnership with the Jamaica Library Service, EduFocal will leverage five physical spaces for commercial hybrid training opportunities and generally extend its reach in training and education where internet access is limited or unavailable.

“On that basis, we are confident in the outlook as 2023 begins. Our pipeline of projects is full, with timelines set for several initiatives, including financial literacy, to be rolled out in proceeding consecutive quarters,” Swaby said in conclusion.


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