AF Legal’s Cash Flow Timing Risks Shadow Strong Q3 Profit Turnaround

Strong Revenue Growth and Profitability Turnaround

AF Legal Group has delivered a standout performance in the third quarter of fiscal 2025, reporting revenue of $7.0 million, a 9% increase from the previous quarter and a remarkable 43% jump compared to the same period last year. This growth is partly attributed to strategic acquisitions, including Armstrong Legal's Contested Wills & Estates and Criminal Law practices, which have broadened the group's service offerings and geographic footprint.

More notably, the group returned to profitability with a net profit before tax (NPBT) attributable to owners of $250,000, reversing losses recorded in both the prior quarter and the prior corresponding period. This marks AF Legal's fourth consecutive profitable quarter, underscoring a sustained turnaround in financial health.

Operational Dynamics and Cashflow Timing

While revenue and profitability metrics show positive momentum, the group's cash and cash equivalents declined by 43% to $1.9 million during Q3. This reduction is primarily a timing issue linked to seasonal factors such as the extended summer holidays and court closures, which delayed collections and increased trade receivables by 23% to $10.6 million. Early Q4 activity has already begun to clear these receivables, suggesting a normalization of cash flow in the near term.

Work-in-progress (WIP) balances also rose by $0.7 million, reflecting strong input from legal teams across all practice areas. The group’s balance sheet remains solid with net assets steady at $10.4 million, supported by disciplined management of lease liabilities and right-of-use assets.

Project Titan: Modernising Legal Operations

AF Legal is progressing well with Project Titan, a comprehensive 14-month upgrade and migration to a modern practice and document management system. The project is currently under budget and on schedule, focusing on data cleansing and mapping to enhance operational efficiency. While project expenses will temporarily offset profits over the next two half-years, management expects significant time savings and process improvements that will benefit the group’s long-term productivity and client service capabilities.

Positive Outlook Driven by Talent and Digital Growth

Looking ahead to Q4 FY25, AF Legal is optimistic about consolidating its profitable growth trajectory. Key drivers include a people-first management approach that has successfully attracted and retained legal talent, including the return of two lawyers and the appointment of a senior criminal lawyer in Melbourne, expanding the group’s geographic reach beyond NSW.

Digital marketing initiatives have also gained traction, with Family Law digital lead generation up 19% and appointment conversions increasing by 22% compared to Q2 FY25. The Armstrong Legal brand continues to generate strong new client demand, supporting ongoing expansion plans.

The board and executive team remain committed to a balanced growth strategy combining organic expansion with targeted acquisitions, aiming to leverage a largely fixed cost base to enhance profitability further.