Pearson (PSON) Q3 2024 TU earnings summary

Executive summary

• Underlying sales growth reached 5% in Q3 and 3% for the nine months, with all divisions contributing positively and Higher Education returning to growth.

• Strategic priorities advanced through enterprise deals, AI integration across products, and focus on core business performance and adjacent market expansion.

• Teams executed high-priority projects, emphasizing synergy realization and digital transformation.

• On track to meet full-year expectations, with robust operational and financial performance.

Financial highlights

• Higher Education achieved 4% organic growth in Q3, with K-12 representing about 10% of the segment and growing at 7%.

• Virtual Schools showed 4% Q3 growth and 4% nine-month underlying enrollment growth, but full-year revenue is expected to decline modestly due to prior school losses and OPM exit.

• English Language Learning grew 7% for nine months and 2% in Q3, with strong institutional growth in LATAM and Middle East.

• Workforce Skills delivered 6% growth in Q3 and nine months, supported by enterprise deals like ServiceNow and expanded Degreed partnership.

• Double-digit year-over-year billings growth in AI-enabled products and over 5 million student AI tool interactions.

• Completed £500m share buyback (7% of shares) and issued £350m Educational Bond.

Outlook and guidance

• Full-year guidance reaffirmed, with underlying sales growth, adjusted operating profit, interest, and tax outlook in line with market expectations.

• Free cash flow conversion expected at 95-100%; interest expected at c.£45m.

• Virtual Schools expected to see a similar revenue decline as last year (~2%) for the full year, with growth anticipated for the 2025/2026 academic year.

• PTE revenues could be flat or slightly up for the full year, despite ongoing market challenges.

• Anticipated repayment of GBP 105 million from HMRC expected next year; £63m tax provision to be released in 2024.