ReadCloud Faces Industry Training Funding Risks Despite Strong School Business Gains

Strong Momentum in Core Education Segments

ReadCloud Limited has delivered a compelling set of audited results for FY25, showcasing significant earnings momentum primarily driven by its Australian school-focused businesses. The company reported a 26% increase in sales and fee revenue from its VET-in-Schools segment, alongside a 17% rise in direct eBooks sales to Australian schools. These gains contributed to a remarkable 109% jump in underlying EBITDA, underscoring the operational leverage ReadCloud is unlocking through organic growth and cost discipline.

Customer retention remains a cornerstone of ReadCloud’s success, with retention rates exceeding 90% in both the VET-in-Schools and direct eBooks businesses. The VET-in-Schools segment also maintained gross margins above 90%, reflecting the premium nature of its offerings and effective pricing strategies. The company onboarded 62 new school customers for the 2025 school year, further expanding its footprint in a resilient education market.

Challenges in Industry Training Segment

Despite the strong performance in school-based digital learning, ReadCloud’s industry training division faced headwinds. Revenue in this segment declined by 28%, largely due to the uncertain renewal of the NSW Smart & Skilled funding contract, which is critical to Southern Solutions’ operations. The company acknowledged the challenges posed by unpredictable state funding and is initiating a review of this business to address the funding volatility and scale inefficiencies.

Financial Health and Cash Flow Strength

ReadCloud’s financial position remains robust, with cash on hand increasing by 34% year-on-year to $1.9 million and operating cash flow rising 26%. The company continues to operate debt-free, supported by effective working capital management and strong cash conversion of 69% from underlying EBITDA. Operating expenses grew modestly by 4%, reflecting increased investment in advertising and marketing aimed at sustaining future growth momentum.

Outlook and Strategic Priorities for FY26

Looking ahead to FY26, ReadCloud is focused on disciplined execution to extend its earnings momentum. Key priorities include winning over 50 new school customers, maintaining customer retention above 90%, preserving VET-in-Schools gross margins above 90%, and increasing average customer value by more than 7%. The company plans to concentrate resources on its core competencies in school-based digital learning, aiming to deliver stronger and more predictable returns for shareholders.

While the industry training segment remains a concern due to funding uncertainties, ReadCloud’s scalable technology platform and recurring revenue models position it well to capitalize on large addressable markets in education. The company’s proprietary technology also supports a global reach, with sales across six countries, offering exciting organic growth prospects on a self-funded basis.