Release Date: February 28, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pearson PLC (PSO, Financial) delivered a financial performance in line with market expectations, achieving a 3% sales growth and a 10% profit increase.
- The company successfully renewed key contracts in US student assessments and scaled its qualifications business internationally.
- Pearson PLC (PSO) is building momentum in the enterprise business, evidenced by a new partnership with AWS.
- The company is scaling the application of AI across its products and services, leading to commercial benefits.
- Pearson VUE achieved a customer retention rate of 99%, showcasing strong customer loyalty and satisfaction.
Negative Points
- The virtual schools segment experienced a 1% decline due to known school losses, although enrollments were up 4% on a same school basis.
- Higher education margins remained flat due to inflation and one-off investment and restructuring costs.
- The English language learning segment faces potential headwinds from immigration market fluctuations due to upcoming elections.
- Despite enrollment growth in US higher education, the number of paid users to Pearson did not increase.
- The company faces challenges in maintaining growth rates in virtual schools and improving margins in higher education.
Q & A Highlights
Q: Can you explain the partnerships with AWS and Microsoft in simple terms? What are the expected outcomes and revenue implications?
A: The partnerships involve leveraging AWS and Microsoft's AI capabilities and engineers to enhance Pearson's product offerings. These companies are also expanding as customers of Pearson, utilizing a range of Pearson services. The collaboration includes joint go-to-market strategies, where software engineers from both sides work together to develop new AI-driven products. Financially, these partnerships aim to underpin and expand existing business, with potential for mid-single-digit growth and additional opportunities from joint market activities. – Omar Abbosh, CEO
Q: How might the new US administration's policies affect Pearson's business, particularly in student assessments and PDRI?
A: The administration's focus on school choice and building a competitive workforce aligns well with Pearson's offerings. Virtual schools and accountability measures are expected to benefit. Most of Pearson's work is at the state level, which aligns with the administration's push for state control. PDRI, a small part of Pearson's portfolio, focuses on merit-based hiring, which aligns with the administration's objectives. – Omar Abbosh, CEO & Art Valentine, President - Assessment and Qualifications
Q: Can you provide more details on the expected growth and challenges in the English language learning segment?
A: English language learning is expected to grow, albeit at a moderated pace compared to last year. PTE might see a slight decline due to market fluctuations from elections in Australia and Canada. However, institutional business is expected to grow strongly, supported by innovations like AI-powered tools and geographical expansion in MENA and Latin America. – Sally Johnson, CFO
Q: How do you plan to maintain growth in higher education, especially in the second half of the year?
A: Growth will be supported by a reorganized sales team focused on new business and retention, product innovations, and pricing strategies. International markets, which had a tough year previously, are expected to contribute to growth. The focus is on providing quality products at reasonable prices and managing channel complexity effectively. – Tom Ap Simon, President - Higher Education and Virtual Learning
Q: What is the rationale behind the GBP350 million share buyback, and does it indicate a shift away from M&A?
A: The share buyback reflects strong free cash flow and confidence in future growth. M&A remains a tool for strategic growth, but it is not pursued as a budgetary requirement. The focus is on organic growth, with M&A considered when it aligns with strategic goals and offers value. – Sally Johnson, CFO & Omar Abbosh, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
