Earnings Call: H2 2024

Apr 23, 2025

Summary

Revenue grew 24% to £8.8m, with adjusted EBITDA recovering to just under £1m. Growth priorities are Counter consultancy and diversified training, supported by £4.1m contracted revenue as at April and a new £1.5m NatWest loan.

Good afternoon, and welcome to the Northcoders Group PLC investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged, and they can be submitted at any time by the Q&A tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to open the following poll. I would now like to hand you over to CEO, Chris Hill. Good afternoon to you, sir. Hi. Good afternoon. Thank you. Hi, everyone. My name is Chris Hill. I am the founder and CEO of Northcoders. I started the business almost 10 years ago now, and I have been with the company since the early days of training around 10 software engineers a quarter, all the way to around 100 people a month, which we trained last year. Hi, everyone. My name is Charlotte Fryer. I am the CFO at Northcoders. I have been with the company for around seven years now, and I am a Fellow of the Chartered Institute of Management Accountants. We also have three other board members, Amul Batra, who was a very early-stage investor in the company and is still with the business today. He concentrates on partnerships, both with government funding authorities and with businesses more directly. And we have two non-executive directors, Nick Parker and Angela Williams, who is our chairperson. Results out this morning. We are pleased to report revenue growth at 24% to GBP 8.8 million. Gross profit has grown to GBP 5.9 million at a margin of 67%. Our adjusted EBITDA, adjusted only for share-based payment expense, is at GBP 1 million, which is back to expected levels after a drop in 2023. In 2023, we continued to invest into our platform and into our courses at a time when the tech industry was quite unstable and there was a couple of economic difficulties for us as a business. We continued to invest anyway, so that we are now seeing the fruits of that labor. We ended the period with cash of GBP 1.2 million and net assets of GBP 5.3 million. Some operational highlights. We grew our hiring partner network to 510, and we also grew student numbers to just under 4,000 ever taught. We taught around 1,100 in the period, and although on par with 2023, we really increased that revenue per seat and increased that value per student, which has enabled us to grow revenue overall as a company. Business overview. We founded in 2015. Our vision is to deliver life-changing opportunities for people from all walks of life. That has always been our mission, and that is what we continue to do, whilst also providing the U.K. tech industry with the skills that it needs. We work with a lot of corporate partners. We work with big corporations and also small companies. There is kind of no such company that can take on a Northcoder. We even placed a student onto an egg farm. We have seven different courses. We have full-time software development in JavaScript, part-time software development in JavaScript, full-time in Java, full-time C#, full-time data engineering, full-time cloud engineering, and our newest course, which is our full-time data engineering with AI and machine learning, which we will go on to explain further in the presentation. Demand is higher than ever. We had application numbers in 2024 of just over 17,000. That is continuing to grow. We have a rigorous entry challenge and entry process into our course to ensure that quality is kept high, and that is still very important to us today as it has ever been. We are managing to retain our reputation in the industry as being a quality bootcamp, and that is the strategy that we want to continue with. Okay. I will just talk through the business model. We have two divisions within the company. We have our training bootcamps, and then we have our consulting division, which is branded as Counter. Our heritage is training, and our reputation is built on the excellence of the technical training that we have done and the impact the individuals that have been through our frameworks have made on the organizations that they have gone on to thrive in. The training bootcamps are relatively simple. We have marketing and customer attraction efforts to build pools of people who are interested in joining one of our frameworks. A lot of recommendations because of the quality, which our number one emphasis is always to be the top quality provider and have the best outcomes for the individuals. We have a significant pool of around about, let's say, 1,000 learners for each cohort in our pool who are interested in joining the framework. We then give people some pre-assessment, so we make sure that everyone's going to be able to keep up with the pace of the course and that they've got a good chance of getting themselves to the level they need to be to secure a great outcome both for themselves and for us as an organization. We do that basically through, we call it an entry challenge, but ultimately it's an exam, which also has a one-to-one with one of our tutors to make sure that the people do really understand the basics of what they are doing. While we will go on to talking about how we can empower ourselves in technology by using AI at the very beginning of our courses, it really is about understanding how everything works under the hood. We need people to make sure that they can explain that to us and that they are going to be able to grasp the concepts required to build upon the foundations. You then go into one of the bootcamps that Charlotte just mentioned on the previous slide. We have now both full-time and part-time options for these courses, but we will talk a little bit more about diversification efforts in a couple of slides' time. You complete your bootcamp and you are shown the subject. At the end of the bootcamp, you will put together a portfolio piece project that you will be able to go on to showcase your skills to either your current or you are looking for your new employer. At that point, once you have graduated the bootcamp, you will join our career and recruitment pool, where we support you for a number of months to get a great outcome based on the training you have received. Within our consultancy division, within Counter, which we will talk more about in much more detail in a couple of slides' time as well, we also have an organization called Tech Returners, which is all about getting people who have had career breaks in technology back upskilling to the current trends and back into businesses. We, through Counter, offer blended teams to organizations where we are tech-led at all times by a tech leader as part of the team. Then you can have some of the graduates from the Northcoders programs and also from Tech Returners, and we will talk again more about exactly how that works soon. I think one of the areas of this is our training is significantly underpinned by government funding, and obviously there has been a change in the U.K. government. On the page in front of you, there is some of the initiatives and the areas that we are working with to secure and keep working with the government to fund these much really in-demand skills. One of the things that is apparent is that through the Labour government, they are preferring to go quite regionalized on these skills funding. They're actually giving devolved authorities more power to allocate their own skills budget. I kind of agree with that because I do think that the skills. London just announced their GBP 27 million bootcamp fund. Greater Manchester surely is not far behind it as well. I do think that each authority being able to pinpoint exactly what type of training, what type of skills they need in their region, because it is different between Greater Manchester, probably slightly more creative and app agency development, for example. Whereas, London is more your high tech, your AI, and so on. I do think that in the longer term, it will lead to better outcomes for individuals and the size of the funding that we're seeing come through for the bids. There's 29 current live opportunities where you literally just heard good news on the first one yesterday because the new funding has now been allocated within the new budget post-April. We got our first bit of good news on that one yesterday. So plenty more to come in that area. There is also the opportunity of Skills England. It's a big initiative from the government where they're looking to reform the apprenticeship levy to allow businesses to use it for more shorter, sharper training courses, which I will have more news on the opportunities that presents later in the year. We've now introduced our AI engineering bootcamp. This bootcamp is for private paying customers only at this point. In the future, there will be opportunities for us to modularize our training to apply different modules and different courses to the various needs of those local authorities through the government funding. But on this initial course that we've launched, this is for individuals who want to privately pay for their training. It's our flagship course. This is all about the engineering behind AI, not using AI to do your job as a software developer or anything like that. This is about actually implementing what is behind the large language models that people have really started to use and how to actually engineer those things from the ground up. That's what we've introduced, and that's going live in June. Further other revenue diversifications within the training division is that we have also introduced part-time methods for our courses, where people can obviously still continue in their job or whatever else they're doing with their busy lives, as well as learning, taking part in one of the Northcoders courses on a part-time mechanism. Again, that is just for people or businesses to pay for privately. We don't have funding or are seeking any funding for those courses, so it's just bringing in more diversification of revenue. Feels much more accessible that people should be able to continue to do their jobs while learning to code. As well as that, for some of our courses like the AI, which is serviced for private payers only, we have lots of different funding mechanisms and even where people can come onto our course and they don't have student loan style, where they don't have to pay Northcoders back until they actually get into a job. We raised some extra finance to make sure that we've got plenty of capital to support that at the beginning of the year, which we'll come into again in a second. Okay. I'll talk a bit more about Counter now. I also want to talk about the business model. We were talking about that. Counter is a challenger brand to the kind of consultancy and the hire, train, deploy market. We have a great network of individuals that we are training and a fantastic network of people who want to return to tech through Tech Returners. Rather than having a pool of people that we recruit to train directly, then we ultimately deploy onto contracts at businesses, we're actually much more tailored and much more working with organizations to build them successful teams of people that want to be with them for the long term, really well supported throughout the initial engagement. We're also able to operate very quickly and turn new contract opportunities around in short spaces of time with businesses rather than having to pre-hire people and train them. One of the best things about Counter is that because of none of the sunken costs that you often have within consultancy or hire, train, deploy, we're able to price this at nearshore pricing, and there is a huge emphasis on businesses to bring services and engineering, especially with the reforms to R&D tax credits, back to being onshore in the U.K. That's where we operate, so that's a big opportunity for us and something that people really like about the business. In terms of the progress we've made so far with Counter, if you're following our news feeds through the London Stock Exchange, we did announce on the 1st of April some new contracts. Skipton Building Society are super happy with all the work we've done with them, and so we have started a new contract with them. Since then, we have also won more business. We've expanded some of our current clients as well as winning new ones, which gives us now over GBP 1 million of revenue contracted for this year, and we currently have a pipeline of potential contracts that we're valuing at around about GBP 2 million. We should be able to see those numbers increase significantly. It's a big drive from us as a business to really give Counter what it needs to go to market and win the business. Which brings me on to the strategy. We really have built this up from our reputation, our heritage as a training provider, which most of that's been within the North, although now we actually, for the first time ever, do have more students on our training frameworks in London than we do in the North, which obviously presents itself as some great future opportunities for Counter. Now we have a product that is ready to go to market. We are building out testimonials and case studies for public sector frameworks with the organizations that we have worked with. We have recently just expanded the business development efforts by hiring a couple of new people, and we look to continue the investment into that now that we know we have got a fantastic proposition that is ready to go to market and that clients are actively choosing to grow the representation of the organization Counter and taking out some of the other more traditional providers. There are just some companies there that we have worked with. Obviously, things are going great with Skipton Building Society and Manchester Airports Group. We have also expanded that client base there as well, and we are looking in the future to do more larger public sector contracts. They are probably likely to be partnerships with other consulting organizations that can do the much more sort of the high-level strategy and security and all of those kinds of infrastructure projects for large public sector clients. Whereas actually delivering the engineering and doing the work that is required, Counter is a far better value and better long-term proposition for organizations. Through the frameworks that we are currently on and that we are also joining should open up some significant opportunities for Counter and partnerships with some of the companies that we partner with. In terms of competitive landscape, there has obviously been quite a lot more through, especially through the funding and other training providers going into running bootcamps. The way that we feel about the industry is it really is quality that counts, so we are always looking to keep ourselves at the very forefront of technological advances, making sure that we are keeping up with the demand from our hiring partners and listening to that feedback and making sure that we just keep striving every day to deliver those outcomes for individuals so that we remain top of the market for our training within our training bootcamps. Within Counter Business Solutions, we do have a much more refreshing, challenging proposal, which we are beginning to see within some of the clients that we work with, that they are actively growing the Counter teams that we have engaged, and they are actually taking out more traditional consultancy work because it just does not offer the same long-term value as Counter, where we can deliver, we can go in, can look after the projects we need to look after. But then there is that real long-term longevity of those individuals being part of the business for the long term. We are able to be much more agile on contract length as well as rates because we do not have sunken costs, unlike many of our competitors in the hire, train, deploy, or consulting business. On this slide, we just have some recent articles regarding market conditions. News still states that we do have a wide skills gap, technical skills gap in the U.K. There is no surprise there, but we are increasingly seeing the need for skills in data and AI. We will always track market conditions. We will always look out for what is needed at the bleeding edge of tech skills, and we are able to be agile. We are able to spin up courses and react to the market. Next. Yes. Cool. We will dive through financials. The two graphs on the page just show how revenue has grown over the years and also how EBITDA has grown this year. It took a dip in 2023. Again, that was an investment year on the back of some unfavorable market conditions. We chose to continue to invest, and we now forecast that EBITDA to keep increasing. P&L-wise, we GBP 8.8 million revenue, GBP 5.9 million gross profit, which is a 67% margin. As I said before, adjusted EBITDA is only adjusted for share-based payments this year, and that came in at just under GBP 1 million. Within that kind of EBITDA to operating profit, we have depreciation of around GBP 130,000, amortization of GBP 265,000, and share-based payment expense below that of GBP 138,000. We had a tax liability of GBP 9,000 for the year, which is obviously reduced because of carried forward losses and R&D tax credits, which gives a profit after tax of GBP 388,000, a basic EPS of 4.58, and adjusted EPS of 6.58. Moving on to cash flow. We had cash flow from operating activities of GBP 978,000. We had a decrease in trade receivables, largely down to payables being— money ending significantly on more favorable payment terms, mostly within the DfE. We may see a change to that. We will see obviously a much more diverse revenue mix with more diverse payment terms, but we are well-placed with cash for that looking forward. We have GBP 819,000 net cash used in investing activities. That is made up of GBP 571,000 of intangible assets spent in the year. We continued to invest into our NCore platform. There was add-ons that we needed to do for that platform, which will further push efficiencies in the future, and so we chose to do that. That will decrease significantly in 2025. There was GBP 38,000 of tangible assets and GBP 240,000 of deferred consideration in there from the Tech Returners acquisition that we obviously won't see this year. We also had no proceeds from issues of shares, no new bank loans and borrowings. We repaid our bank loans borrowings to the tune of GBP 292,000. We continued to pay our lease obligations. We had a 10,000 sq ft office in Manchester, which we are now out of the lease for that. We signed that lease just before COVID, around five years ago, and it is now way too big for our current model. We are pleased that we are now out of that lease and we are not going to be carrying that cost forward and that cash outlay forward as well. Then we have interest paid from the bank loans, which brings us to a cash balance of just under GBP 1.2 million at the end of the year. Balance sheet-wise, we have non-current assets of just over GBP 3.7 million. This is made up of GBP 1.3 million of goodwill, GBP 2 million of intangible assets, GBP 0.2 million of tangible assets, and GBP 0.1 of deferred tax assets. Current assets include the GBP 1.2 million of cash, and our borrowings at the end of the period were GBP 474,000. Next slide, please. Please do. Yeah. Just some non-financial results as well. It took on average 72 days for our students to find work. We have trained around 30% of women into tech during the year, which is something that we focus on. We are passionate about bringing diversity to the tech industry. Our drop-off rate was 8%. Really pleased with a drop-off rate of 8%. Obviously, people not paying for the course are not as motivated to stick to the course as people that are paying. As a large proportion of our students were government-funded, it just kind of shows the quality of the course to have such a low drop-off rate. Average starting salary was just over GBP 28,000, 39% non-university educated students, and 67% of our students went into jobs within six months after the course. This is a drop on previous years, and it is not something that we are used to. When we have analyzed this, there are a higher percentage of people going into work after the six months. It is largely a result of people not paying for the course, having other intentions after the course. We do expect to increase that number in 2025 as the revenue mix changes. Outlook. Coming into 2025, we have seen a positive shift in the tech jobs market. The first quarter of the year has been really successful for people moving into work. We have over GBP 1 million of Counter revenue already secured and a really healthy-looking pipeline. We took a GBP 1.5 million loan from NatWest in March this year. NatWest have brought out a new loan where basically you can borrow money against your internally generated IP. As I spoke about before, the IP on our balance sheet is valued at around GBP 2 million. It was valued by an external company at around GBP 5 million. NatWest have borrowed us GBP 1.5 million on much lower interest rates than we had our existing loans. GBP 0.5 million was to refinance those, and then we are going to use the other GBP 1 million to allow us to expand our payment mechanisms onto the course. It will allow us to offer more student loans and income sharing agreements, and it will also allow us to comfortably continue to invest in Counter. Just a couple more things on there. The GBP 4.1 million of contracted revenue as at April. Although we do have lower contracted revenue than we've seen in previous years, it is a timing issue of the Department for Education contract. In the past, we've received the Department for Education contract at around this time and have been able to come out and say that we have, for example, 97% contracted revenue. Because it wasn't a yearly contract, it was an 18-month contract, the timing's changed, and we're not in that position this year. But we're still very pleased with GBP 4.1 million, and we expect that to obviously grow in the near future. Then, as Chris said before, contracts for regional funding are being released. We've received the good news on one yesterday, and we expect for that to continue over the next couple of months. Now we are finished. Sorry for skipping in front. Okay, cool. We've got some questions here which we'll read out and then answer. Are there any plans to expand into other emerging tech areas like cyber or cloud infrastructure? We are currently within Counter, working with Amazon Web Services on being able to partner with them to go into organizations and have teams that work directly on cloud infrastructure. Cloud is something, we do have a cloud engineering course, and we mentioned earlier that we're starting to look at chopping our courses up into being more modular offerings where we can, for example, if there was demand from a certain combined authority or certain business for cloud skills, whether that's for their employees or for learners, then we would be able to offer that and be a bit more agile with the different courses that we offer, rather than being just a long 3 months boot camps at the moment. So yes, is the answer to that question. Next question is, how scalable is your current delivery model with NCore? What's the maximum student-to-tutor ratio you're comfortable with while maintaining quality? Yeah, NCore has improved the student-to-tutor ratio significantly. The way that cohorts work is to answer this is, let's use a cohort of 60, would then be broken further down into seminar groups so that you obviously have your cohort leader who runs the lectures, does the live content, and that is delivered to everybody. Then within your seminars, you break out into smaller groups where you can ask more direct questions, and about 30 people is about the perfect number for that seminar group. Then within there, we also have mentors so the people can be assigned to their seminar lead or to their mentor. Yeah, if we were to have around 10 students to each live active delivery staff member, that is a really highly profitable ratio as well as one that we are certainly comfortable with. The quality of the course now that it is backed up by all of the systems and all of the things we have in play. We are also starting to feed our own AI data lake models to see about the questions that we can, things that we can bring, help us learn what we can bring into our pre-planned content for the bits where people always get stuck on the courses and so on. But for now, yeah, we are pretty comfortable with that level. What are your key priorities for growth? Geographic expansion, new course development, or consultancy services? Do you want to go that one or you want me to? Yeah, of course. Our key priority for growth right now is the consultancy services. We know that that is the best way to scale the business, and obviously a consultancy contract is worth, say, GBP 300,000, whereas a student is a lot lower revenue. But we recognize that obviously the teaching is quality revenue. It is at a higher gross profit margin. The strategy is to grow consultancy services whilst really keeping the quality and the profit margins high with training. You have kind of answered the question with all three. We know that the best way to keep quality within the training division is to diversify the outcomes for the students, and that involves diversifying the jobs that the students go into and also diversifying the geographic regions that they come from, just to ensure that the jobs are there even in a tough jobs market. All three are important, but consultancy for us is the main growth area of revenue. Yeah. The next question is, with gross margin expanding to 67%, how sustainable are these margin levels given the investment into new courses? The investment into new courses does not affect gross profit margin straight away really anymore. There is kind of a stepped approach to gross profit margin within the courses. A new course at a low level is actually really profitable because obviously we do not need as many tutors to run the course. A seminar group of, say, 30, if we only took 30 onto the course at first whilst it was at a low level, we would only need one seminar group, et cetera. It is not the courses that are going to shift the gross profit margin. Counter as the consultancy area of the business does become a more prominent revenue stream within the mix. That is done at around a 50% gross profit margin. The strategy is to increase the profit margin on training up to around 72%, but then that will be pulled back down by Counter. Around 65% should be where it ends up. Okay, thanks, Charlotte. I will take this one here. "I note that there is an increase in hiring partners. What is the retention rate among these partners, and how do you measure the lifetime value of repeat business from the relationships you have gained via partners?" Hiring from Northcoders is a free service that we offer, and we do see partners coming back time and time again. Of course, has been due to size. We have had a two-person startup who has been a hiring partner, but then we have also had partners back, for example, as one of our hiring partners and there is no, just like with business, it seems a typical Northcoder, people come from all walks of life. It is the same with hiring partners. We have had really high-tech kind of businesses, and then we have your financial services, and then we had an egg farm once, which was a bit of an out there example. The biggest opportunity with hiring partners is to offer further training to people who they have hired or obviously for them to have a look at what Northcoders does and get. It is a relatively easy way to start to work with us, introduce some of our graduates, see the quality, and then what we can offer to really help you with that kind of framework of bringing in entry-level technologists and returners. There is always an opportunity for Counter once people know that the heritage of our training can really kind of power our consulting offering. "Are you looking to expand internationally?" We are taking in terms of marketing for the Northcoders brand, so people have heard of us. We are making efforts, and we do our budgets in place to sort of get our brand out there before we try and directly sell consumer courses and so on. We are building a genuinely scalable model within Counter so that in terms of the attraction of the people who become Counter consultants or returning Counter consultants, we are thinking of ways that we would be able to do that internationally without necessarily having such a training presence as well. It is not a focus right now. We have really grown our model from being based solely in the North to being here in London. I think we said before, there is now more people on the training frameworks in London than there is in the North, and that is a huge opportunity for Counter. But we are just really putting together the case studies and really seeing we need to deliver excellence and just be a little bit different to competitors that just sell, sell, grab a contract, and then deploy whoever you have got on the bench. Whereas, we are looking to keep Counter as something that people always say is different, and we can uproot those consultancies because people are looking for a fresher approach. It is getting rather stale, the offering. Got that one, Charlotte. Melissa? Yeah. "In 2024, what percentage of students were supported by government funding versus students paying directly?" So 2024 was a large proportion. It was around 90% of students being funded by the government versus students paying directly. The main reason for that was the fact that we took a GBP 10 million contract from the government. Our mission has always been to increase diversity within the tech industry, and the government funding provided us with the opportunity to offer our course to people from all walks of life, and we jumped at that. We recognize that it is not ideal to have that large of a concentration with one organization, and that is why last year and in 2023, we have been starting efforts to diversify the funding streams, and that was the reason for taking the NatWest funding as well. Students paying directly last year was mostly people that was not eligible for DfE funding. So there is some eligibility criteria on that scholarship, and not everyone qualifies. So obviously those students still chose to come to us and still chose to pay. Okay. Thanks, Charlotte. Okay, we have got the last question here. So, "Thanks for your presentation. Two questions, please. You have 17,000 applicants versus 1,300 enrollments. This is a large filtering exercise. How does this happen? Is it AI, human, or a bit of both? Also love your gross margin, but is it at a premium for training and consultancy?" So I think Charlotte has gone through the gross question previously. We went through the gross profit margins. We are super confident in really keeping those, if not increasing them within training. Obviously, Counter's gross margin is lower, but each contract value is higher. In terms of the filtering process, it is kind of, yeah, a bit of both. It is a nail on the head, really. We have all our own part of NCore, all of our own systems for absolute beginners to start to work in the way that you would at Northcoders to consume some content, apply those skills, and get ready for what we call our entry challenge. We filter out a lot of those applicants before allowing them to book time on an entry challenge because, again, that is automated and done through a platform. There is a short interview at the end to ensure that people who do the entry challenge have done it. We have got other ways now of capturing people who are just getting through all the pre-course material by just asking AI. AI is quite good at Northcoders entry challenge, you will be surprised to hear. We do just want to make sure that people understand the concepts of it. Using AI to help you learn things, understand things is fine, but you do need to understand some of what is going on. This is quite sort of simple, basic kind of algorithm programming, algorithms that we really do need people to understand to have any chance of landing a role through Northcoders. We do make sure that we just double-check that through a human. That is probably the one thing that humans are better at than AI these days. There we go. Yeah, that is it then. Look, thank you everyone for taking the time and joining us. I think I will just wrap up by just saying we are super happy with these results we have delivered for last year, and we have had a great start to this year also. We are ahead of our expectations, and we are really, really happy with that. Charlotte touched on the kind of revenue visibility, but we are still confident in what we are looking to deliver this year, and we are confident in the current government supporting us, possibly even making that better, creating better opportunities than the previous contract for both individuals and for Northcoders as a business, and Counter is getting off to a great start. We are really building something with amazing product-market fit, doing it in the right way, not trying to run before we can walk. But that could be sort of hyper scalable when the time is right, and we know exactly what we need to do to get the right people in the right places and the right kind of marketing exercises and so on to literally win more business and in a way that does not have a huge cost base, massive amounts of investment. We can just win contracts, deliver excellence, and keep focused on that and take it from there. Yeah. Thanks again for joining us. That is that. Goodbye from us. Thank you. Perfect. Chris, Charlotte, thank you very much for updating investors today. Could I please ask investors now to close the session. As you know, we automatically redirect it to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I am sure it will be greatly valued by the company. On behalf of the management team of Northcoders Group PLC, we would like to thank you for attending today's presentation, and good afternoon to you all.