ONE-on-ONE Educational Services Limited has taken a $10.6-million provision against intellectual property held as inventory for sale, cutting its third-quarter profit.

Chief Executive Officer Ricardo Allen told the Jamaica Observer that management recognised the charge while the company’s overall performance was strong. He expects One-on-One to recover the value when the intellectual property is sold.

Allen said quarterly profit would have been approximately $39 million before the provision. The financial statements indicate that he was referring to operating profit, which was reported at $29.2 million but would otherwise have remained close to last year’s level.

The charge explains much of the weaker quarterly result. Net profit fell 37 per cent to $23 million, but the company’s regular operations did not deteriorate by the same amount.

The write-down still means One-on-One does not currently expect the intellectual property to fetch its previous carrying value. Revenue also declined during the quarter, while the reported gross margin narrowed.

Over the nine months, however, net profit increased 16 per cent to $64.1 million even though revenue slipped four per cent. Gross margin improved from 72.4 per cent to 77.6 per cent as direct costs and administrative expenses declined.

With sales lower, the earnings increase came from better margins and lower costs.

The directors attributed the improvement to “a business mix with greater contribution from higher-margin and platform-based activity”.

One-on-One will have to maintain those margins while restoring revenue growth. Finance costs increased 29 per cent during the period, reducing some of the gains made in its operations.

Receivables collection also provided a lift. The company generated $133.6 million from operating activities and cleared the $50.8-million overdraft carried at the end of its last financial year.

That cash came mainly from collecting money already owed to the company, rather than from higher sales.

One-on-One continued investing in its technology portfolio, taking its intangible-asset balance to $452 million, or approximately 62 per cent of total assets.

With 62 cents of every dollar of assets tied up in intangibles, future earnings are increasingly dependent on those products reaching the market and attracting paying customers.

The $10.6-million provision does not reduce the $452-million intangible-asset balance because the intellectual property being written down is classified as inventory held for sale. It nevertheless shows that developed products may not always realise the values originally assigned to them.

One-on-One’s investments include adaptive-assessment technology, artificial intelligence capabilities and the consolidation of its platforms. It is also refining the subscription and revenue model for One Academy ahead of the new academic year.

Management expects research and development spending to decline as products are completed and the company moves towards commercialisation and customer acquisition.

Within the school market, One-on-One intends to move beyond providing access to live and recorded classes. It wants schools to make greater use of assessments, student diagnostics, teacher support and learning data.

“The objective is to move progressively from platform availability to sustained adoption and measurable value for schools, teachers and learners,” the company said.

One-on-One also reported securing additional customer accounts expected to generate recurring revenue, but did not disclose their number or value.

Separately, the balance sheet carried $26 million due from directors at the end of May. The interim financial statements did not identify the directors involved or provide the purpose or repayment terms.