Description

Schrole is a specialized recruitment platform for international teachers. Schrole's offering includes an international schools recruiting platform (ISS-Schrole Advantage), background screening technology (Schrole Verify), a cloud platform for filling temporary teaching roles (Schrole Cover) and a training and development business (Schrole ETAS).

The two sides on the Schrole platform are international schools (demand) and teachers (supply). While one would expect Schrole’s competition to be general recruitment platforms like LinkedIn the international school recruitment market is actually dominated by countless specialized headhunters and agencies. Schrole’s value proposition to schools relative to headhunters runs along the following lines:

1.       Better access and visibility into a far larger candidate pool

2.       More streamlined and comprehensive hiring processes, including background screening services (Schrole Verify)

3.       Annual platform subscription fee per school of $10,000 AUD is cheaper if a school needs to recruit more than 3 teachers per year

Candidates on the other hand pay a $110 AUD annual fee to see job listings from a far greater number of schools than they would have been shown by a headhunter. In summary, moving from an opaque system driven by headhunters to a marketplace where demand and supply are aggregated and both sides have full visibility represents a meaningful improvement for both teachers and schools over the existing system.

ISS-Schrole

In early 2018 Schrole launched a 50/50 JV with International Schools Services (ISS). ISS was created as a not-for profit organization dedicated to assisting international and American schools around the world. ISS is well known among international schools primarily due to the two annual job fairs it hosts for international teachers. By starting a JV with ISS, Schrole was able to significantly grow the number of schools as well as attract more teacher candidates to its platform.

While the ISS-Schrole JV led to a meaningful jump in both schools and users, growth more recently begun stalling out as the one-time boost from partnering with ISS began to wear off. In response to this, Schrole began looking for other service providers to international schools to partner with and facilitate customer acquisition.

The Faria Deal

In Faria, Schrole has found a strong partner to power the next stage of its growth. Faria is an education platform that powers curriculum planning, student applications, extra-curricular management and payments for international schools. Faria currently has over 3,000 international school customers (and another 8,000 US domestic schools) who subscribe to their software solutions. As there are about 11,000 international schools in total the Faria deal gives Schrole the opportunity to bring over a quarter of the international school market onto its platform.

Once Schrole has reached this size, it will be difficult for other aggregators to reach Schrole’s scale and replicate the broad selection of candidates and schools on Schrole’s platform. At this point, I would expect Schrole to continue to gain market share due to the winner take most dynamics in markets driven by scale and network effects.

The screenshot shows Faria’s current offering to its school customers. Upon completion of the integration (expected by end of October 2020) Schrole Advantage will show up as Faria’s teacher recruitment module on their front page and be cross-sold to Faria’s school client base.

A single-sign on integration has already been completed so that Faria users can log into Schrole without creating a new account and seamlessly move between Faria and Schrole offerings.

Schrole Advantage and Schrole Verify will also be marketed alongside Faria’s other products in their marketing campaigns. In return, Faria has bought a 19.9% stake in Schrole through the placement of a $2.9 million AUD convertible note. After the first 12 months of the partnership Faria will also receive a revenue share that is “commensurate with Faria’s role as an app store provider”. While exact details around this arrangement have not been released I assume this means somewhere between 15-30% of revenues that come through the Faria partnership. Given that Faria will introduce 3,000 more potential international school customers to Schrole, it is not difficult to see how the Faria deal can help power very high growth rates for several years to come.

As the Faria partnership was incompatible with the ISS-Schrole JV’s 50/50 revenue sharing agreement, Schrole is winding down the JV by June 2022. While Schrole was able to benefit from ISS’ strong brand in the international school space in the past, the partnership no longer offers much in the way of further growth prospects or other benefits commensurate with its costs. Faria is simply the better partner going forward.

At this point I don’t expect large customer attrition when the JV winds down in June 2022 as ISS does not have a comparable platform offering to Schrole. For schools that remain with Schrole, Schrole will be recapturing the sales that were previously shared with ISS.

Other businesses: Cover and ETAS

Schrole’s other two business are Schrole Cover and Schrole ETAS. Cover is an app that allows schools to quickly find temp teachers to cover when staff call in sick last minute. Cover’s client base is made up entirely of Australian schools as the value proposition here is really finding a temp teacher ASAP which requires very high local density.

Schrole ETAS provides customised accredited training solutions to clients. The ETAS business is bringing in about $1 million AUD in annual revenue, has been growing at a decent clip and contributing to the bottom line. The Cover business is difficult to expand beyond Australia (and management currently has no plans of doing so) and ETAS does not have the attractive platform economics of ISS-Schrole Advantage and Verify. Management is therefore rightfully focused on bringing Advantage to its full potential.

Valuation

When Schrole initiated its partnership with ISS, they achieved almost complete penetration of the ISS client base within two years. With the new Faria partnership Schrole could start signing several hundred new schools per year. Assuming a sign-on rate of 500 new school customers per year over the next 3 years Schrole would have over 1,900 international school customers signed onto its platform by year 3 (implying roughly 50% penetration of the Faria client base by Year 3). At $10,000 AUD per school that would mean $19 million in annual recurring revenue. This would also make Schrole the leading recruitment platform for international schools, putting it far ahead of its closest competitor Searchassociates who works with about 750 schools.

Add in another $600,000 AUD in revenue from premium candidates each paying $110 AUD (historically the ratio of premium candidates/schools has been around 3.3 to 1) and $1-2 million in revenues from Verify, ETAS and Cover and Schrole could be making well north of $21 million in total revenues by 2023 mainly driven by growth from the Faria deal. A 5x revenue multiple on $21 million of sales should be justifiable, likely even conservative for a quickly-growing SaaS business that is also the leader in its specialty recruiting niche. With a $30 million AUD market cap ($32.9 million after accounting for the Faria convertible) Schrole is still meaningfully undervalued relative to its newly improved growth prospects. At 5x 2023 sales of $21 million the market cap would be $105 million AUD.

While Schrole could be cashflow breakeven as early as this year, operating leverage will only really start kicking in after the termination of the ISS-JV in 2022. It is a little early to make concrete projections (the exact fee split with Faria is not even disclosed yet) but given their current cost structure Schrole is a business that should be capable of producing 30-40% operating margins post the ISS JV.

Risks

The high dependency on Faria, their largest customer acquisition channel, is the primary risk factor here. They are a 19.9% shareholder and are clearly interested in Schrole. So far they have shown themselves to be fair partners.

In addition, international schools may have limited interest in any conversations about recruitment for the duration of pandemic. This is reflected in Q2 numbers which saw the first drop in school subscribers (-9, down from 397). Any multi-year growth projections clearly embed an inherent assumption that the pandemic is controlled and international schools eventually return to a pre-pandemic business as usual state. 

Catalyst

Additional School customers signing on to Schrole's platform