Pearson (PSON) Q3 2024 TU earnings summary

Executive summary

• Achieved 5% underlying sales growth in Q3 and 3% for the first nine months, with all divisions contributing.

• Advanced strategic priorities: expanded enterprise deals, scaled AI across products, and returned Higher Education to growth.

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

• Signed a significant multi-year enterprise contract with ServiceNow, demonstrating momentum in bundling solutions for enterprise clients.

• AI-powered tools rolled out across divisions, with double-digit year-over-year billings growth in AI-enabled products.

Financial highlights

• Underlying sales growth of 5% in Q3, 3% for the first nine months, excluding OPM and Strategic Review businesses.

• Higher Education sales up 4% in Q3, flat for nine months; English Language Learning up 7% for nine months.

• Virtual Schools saw enrollment growth (4% like-for-like, 6% including new schools), but full-year revenue is expected to decline modestly due to prior school losses.

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

• Received a favorable tax case outcome, with £105m to be repaid, expected in one installment next year.

Outlook and guidance

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

• Virtual Schools expected to be down 2% for the full year, with growth anticipated for the 2025-26 academic year.

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

• Continued sales growth expected in Assessment & Qualifications, Higher Education, English Language Learning, and Workforce Skills.

• No material impact expected from ESSA funding expiration; future funding sources being explored.