Earnings Call: H1 2024

Sep 17, 2024

Summary

H1 revenue rose 26%, gross margin reached 67% and adjusted EBITDA exceeded £400k, with profitability restored. Growth plans center on bootcamps, Counter and flexible delivery, while management remains confident in full-year EBITDA expectations.

Good afternoon, and welcome to the Northcoders Group PLC interim results investor presentation. Throughout this recorded meeting, investors are in listen-only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated in the right-hand corner of your screen. Just type in your question and press send. The company may not be in a position to answer every question received during the meeting itself, however, we can review all questions submitted and publish responses where appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Chris Hill, CEO. Good afternoon, sir. Hi, everyone. Good afternoon. We've had a great start to the year with our H1 results. Thank you for joining us, and we're looking forward to going through them with you. My name is Chris. I'm the founder of Northcoders and the CEO. Hi, everyone. My name is Charlotte Fryer, CFO. Just to go over some financial highlights from today. We're really pleased to put out our half-year results that are around half of the market expectation for the year. Revenue grew 26% to GBP 4.4 million in the period, and this was slightly ahead of management expectations. As a growth company, we are usually second half weighted, so really happy to get to that halfway stage on that market expectation. We're pleased to report that gross margin increased to 67% from 62% last year. The year 2023 also ended at around 62%, 63%. So we've really driven those efficiencies within that teaching model. So that's down to the NCore platform that we have invested into over the last couple of years. We've had a tenfold increase in underlying adjusted EBITDA this year. EBITDA is adjusted for share-based payments, and that's gone from GBP 40,000 to just over GBP 400,000 in the period. That is down to investments made in the efficiencies. The investments that were made last year that are now coming through this year. We have returned to profitability bottom line, with an EPS of going up to 2.58. We've got a strong balance sheet with a cash balance of GBP 1.3 million. This is a really comfortable position for us to be in. The cash generation, the underlying cash generation enables us to continue to invest in platforms that will drive efficiencies going forward. Some operational highlights. We are pleased that the demand for our Training Bootcamps has not decreased. We are now looking at registrations rather than applications. Registrations really tell us the people that are interested in the course after they have had a pulse on our own material, and we believe it is a much more accurate metric to follow. That has increased to 4,700 in the period and then has continued to grow with over 3,000 in Q3, which is obviously not actually finished yet. We had the GBP 10 million Department for Education funding in January this year, which will continue to June 2025. That was an 18-month contract. We are working through that really well and producing really good outcomes and really good KPIs on that contract. The geographic expansion has continued. We now have over 62% of our learners based outside of Manchester and Leeds. Manchester and Leeds is where we predominantly were. That has happened really organically, and we have 34% of our students based in London. We do not have physical space in London. That is down to marketing efforts alone. That is a really good area for us to grow into, for us to put a bit of investment and to really explore the London market. Corporate Solutions division has rebranded as Counter in May this year. We have appointed Tom Walton as a strategic adviser, and Chris will go on to talk more about Counter later on in the presentation. In Manchester, we have downsized our office. We will be moving into a smaller office at the beginning of next year. That is because we took 10,000 sq ft just before COVID, and we do not need all that space because of the new teaching model. So we are pleased to be able to come out and downsize that office at the end of this year. That will give us a good cost saving with rent and with a rent-free period as well. We have released two new courses in the period, so Java and C#. Java, we are moving on to our second cohort, and the C# cohort is due to start in November. These are both iterations of software development, but more specialized suits to enable people to go into more different jobs. Thanks, Charlotte. A significant effort that we have made this year is to really simplify the business model. I feel like last year we had many different products and services, especially in the corporate side of the company. What we wanted to do was really bring that back to just the things that we excel at and concentrate more on those and not have too much different messaging, and really understand how to best drive growth from a single base. Large changes we have made is Tech Returners has now been dissolved into the two divisions of Northcoders. Last year, we operated three divisions, Training Bootcamps, Corporate Solutions, and Tech Returners. We have now extracted out the elements of Tech Returners, which are courseware, and put them into the Training Bootcamps. The Corporate Solutions recruitment of experienced engineers has fallen into Counter, which I will talk more about in a few moments. Just to run through really quickly on the business model. We are super proud to have a Training model that feeds into our corporate business. We, as Scott said, have introduced two new elements of software development this year to our courses, which are Java and C#. These are more enterprise-level programming languages and frameworks that are used by, for example, bigger banks as opposed to smaller startups. It is quite new in the industry because we do have competition from other coding bootcamps that are almost running mostly JavaScript, web-based training programs. To go into these areas gives us an expansion into markets, especially for Counter on the corporate side, which we did not really have before. In terms of graduates finishing our courses, we then have different options for those individuals. They go and get a role in industry or if they join Counter, they will become a consultant for our business, and that is their bit of the disruption model to the hire train deploy sector. Back to simplicity, the core drivers of the business genuinely are the fact that we have an excellent reputation and fantastic training services. We attract so many people that want to do our courses, and we select the best people for that. We genuinely believe that our training bootcamps power our corporate market and the B2B market is a vast opportunity for this business. Of course, over the years, the growth of the training bootcamp alone, as well as the efficiencies that we have brought into by really innovating on that teaching model, are growing more profitability in those areas. In terms of our vision, we genuinely believe we are the world's leading training bootcamp, again, with the innovation and doing things that not all of our competitors do, such as enterprise-level training courses. We think we can go on from here to grow that to being a real technology skills accelerator for businesses, certainly within the U.K. and in the not too far distant future, there is no reason why, as other companies have done, that cannot go global. Some USPs around our training bootcamps. We have always concentrated on quality over quantity. We have an exceptional reputation in the industry where people will hire our graduates, and that is because the quality of our education is the best around. We believe that we are a market leader and our starting salaries for students leaving the course are circa GBP 30,000. We have flexible learning options, so we have a full-time course and a part-time course available now for students that cannot quit their jobs. They cannot put their job life on hold for 13 weeks, and therefore, we have opened up a part-time version of the course. All of our tutors are experts in the field. They are all software developers or data engineers, and we ensure that they really keep up with the leading edge of what technology is being used in industry and to bring that back into the curriculum. We have over 8 years of community now. We have trained over 3,000 students, so we are now seeing the benefits of those students now moving into CTO roles or management roles and coming back and hiring Northcoders. We have job and placement support. We do not just teach tech, we teach the career side of things. We teach people how to get through a tech interview and how to land that first role in industry. We have a lot of companies that we are partnered with that will take graduates from us, and 89% of our grads are going into jobs that we want to go into after the course. A significant milestone this year has been the rebrand of our Corporate Solutions division, which was previously under Northcoders to Counter. Counter is a consultancy, and the reason why we are a Counter consultancy is because we do things differently and we are really innovating on the hire train deploy market by bringing a fresh perspective to the ways that companies can engage with the different teams, by giving it technological lead and actually handpicking individuals for projects as opposed to having a big policy bench of people that we are deploying out into contracts. We genuinely believe that people may be deployed into war zones, but not so much into jobs and careers that they love. That is the reason why we believe that we are a great challenge brand to that market. We have got a highly experienced team. Amal, who has been with the company since the very early days, is head of our partnerships. We are growing this brand initially, with a very small footprint of Manchester only, where Amal is very well connected and also engages with other businesses to really push forward the brand. Tom Walton was the founder of a company called Infinity Works. I actually worked with Tom years ago at Sky, and he has always been a keen follower and also an investor in Northcoders. Infinity Works went on to see exponential growth, and they sold to Accenture. He is now on to really help us with the strategy, with almost keeping us grounded on focusing on the quality and the excellence, before we really go for the kind of huge growth that we believe that Counter can achieve. Also James, the tech returner coming into Counter. James is a previous CTO and a tech expert who looks after our tech leads and the kind of wraparound support that we offer to our Counter consultants to make sure that both our clients and the individuals that go into these programs are going to get the best outcome possible. What do we do at Counter? We cherry-pick Counter consultants to come into your business. That is not only about their technical skills, it might be about their career changes and returners have previous experience in other areas. If you are in financial services, if you have got experience in that sector, that could be fairly beneficial to your future employer whilst your role might be completely different. We do not have a utilization rate issue because we have 100% of our Counter consultants are employed just for that project only. We can also source different expertise and specialisms through Tech Returners which might help to support those projects and genuine people with more experience leads to a higher revenue model for that. The greatest selling point with Counter for a client who is working with us is that not only the new to technology people, like in many hire train deploy businesses, but the returners as well, who experience at the end of the program are free to be employed by our clients. We go across a fair few areas within Counter again spreading out the expertise from the Training Bootcamps or from the returner programs. We do software engineering, data engineering, cloud and mobile, and we are also now into areas like artificial intelligence. We have just made our first hire recently with someone from AWS, internal experience in building up those large language models we have all heard a lot about over the past sort of 12 to 18 months. We also can look at areas such as low-code development, for example, Salesforce will be one of those things for those who are not familiar with the term. What are our USPs? Huge. We are the first people to meet a Northcoder or a Tech Returner, so we can naturally engage early and cherry-pick the very best people for that business. We are also an onshore model which is the same price as a nearshore model. As things like tax credits get more and more strict, organizations are incentivized to bring the kind of engineering and the technical expertise back to being U.K.-based. The fact that we can do that on the same price model as the nearshore models, that is a great thing for Counter. Cool. In terms of competition, Training Bootcamps is a much larger sector now than it was when we first started. We have had many spin-off and new other businesses such as recruitment firms going into the area. We genuinely innovate, and we genuinely excellent first in terms of the people that we recruit for our courses. We are always first choice. We have amazing feedback on what we do. As well, going into areas such as we mentioned earlier, like more enterprise level engineering is what we focus on from a Training Bootcamps point of view. Of course, within Corporate Solutions, this is a vast market. The smallest slice you could possibly imagine of that market for Northcoders to go into would give us exponential growth as we have seen from other organizations who succeed in that field and through their list of whom some of them are our competitors. We also have a consultancy to consultancy model within Counter that means that we can work with businesses to provide sort of boardroom expertise, but where we are more of the team on the ground that actually does the work, and that is beneficial to businesses to build out that long-term talent pool. Just to pull out a few statistics that we will cover before we go on to the financials. We are seeing an uptake in the labor market. We did see a downturn last year in the companies hiring tech graduates, but that has increased this year. The demand for software engineers is not going anywhere. That continues. These jobs continue to be a big demand in the jobs market. We just wanted to pull out a statement from KSM to kind of look at the way that Labour are looking at skills and the need for skills within the U.K., especially tech skills. They have spoke about localizing skills funding, and they have also spoke about further utilizing the apprenticeship levy as well for things like bootcamps. We will see what happens in that area over the coming weeks and months. But we are in a good position to pick up any funding that there is for this type of training. Looking at the finances, I just wanted to pop some graphs on here to show the revenue growth over the last few years. The 2024 and 2025 are based on the broker forecasts. As you can see, we are not trying to change the world in 2024 or 2025, and we are at halfway towards that management expectation at the half year. EBITDA-wise, we did have a rough year last year. We did lose money at our EBITDA level, and we have kind of spoke about the investments that we made at a year where revenue did not grow as much as we hoped or forecasted. We have completely turned that around this year, and we are very, very comfortable with the market expectation of just under GBP 1 million for EBITDA in 2024 and then the GBP 1.2 million in 2025 all through really comfortably as well. For the first six months, we have a revenue increase to GBP 4.3 million. Gross profit margin to 2.9 at 67%. Adjusted EBITDA of just under GBP 450,000, which is a margin of 10%, and an operating profit of GBP 154,000. We do expect that the operating profit levels will be second half weighted. We are comfortable with the expectation in the market on that figure, but there is more profit to come through in the second half of the year because we have made investments in the first half which will not carry through. On the statement of cash flows, next slide, please. We have positive cash inflows from operating activities. We have a slight increase in trade and other receivables. That is a timing thing on the DfE money coming in. We are obviously teaching bigger cohorts as the years go on, and therefore that has caused a slight increase there. Then a slight increase on trade and other payables as well. A very, very small increase, mostly just timing. We have had no new issue of shares in the period and no new bank loans or borrowings. We repay bank loans at around GBP 22,000 capital per month, and we obviously repay our lease obligations as well. As I said, for next year, we do have a rent-free period on the leases, so we will generate cash in that area compared to this year. We have obviously interest on the bank loans, but most of that is offset with the savings account that we put the cash balance into, and the cash balance at the end of the period ended on GBP 1.3 million. Balance sheet-wise, we have non-current assets of GBP 3.6 million. This is GBP 1.6 million worth of intangible assets. When we develop the platforms such as NCore, JS Basics. NCore is our learning platform. JS Basics is the platform that we use when people apply for the course. They will sit some entry. They will study some entry material, work their way up to sitting that entry challenge. That is all now done on an internal platform, so we can really monitor that pipeline. We have GBP 1.3 million of goodwill in there, which is the goodwill from the Tech Returners acquisition, and then about GBP 0.3 million on tangible assets, laptops, screens, stuff like that. Something else to note on the balance sheet is that the bank loans at the end of the period totaled GBP 0.6 million. We do expect to have these paid off by the end of next year. As I said before, they are paid off 22,000 capital to bring us to a net assets figure of just over GBP 5 million. We started again the second half of this year really, really well. We are trading slightly ahead of our management expectations in terms of that half of the year. We continue to look at increases in our brand awareness. We are always looking to do different things to diversify our revenue streams. We continue to invest this year in those new technology disciplines with C# being the final course that we are going to introduce, and then not final course forever. For next year, we are going to let those four that we have got really bed in. Back to my discussion on the business model before, we are trying to keep things really, really nice and simple and not go off and do too many things because we genuinely think that the market opportunity is vast. It is to concentrate on things that we know we do really well and that provide great value for all our stakeholders. We are super confident in our ability to deliver on the expectations for this year and certainly beyond that also. Thank you. I have got some questions which I will start with. I am going to do the first one, then I am going to hand over to Charlotte for the second, and then there is a couple more. Thank you, James. Do you anticipate further reduction in physical space with a view to shifting to a fully virtual model? With the move to a great virtual offering, how are you managing the quality outcomes for unvetted students? We have our head offices in Manchester, so we do sit in the new one. We do still have sort of that WeWork style co-working space for those learners. We do have the same in Leeds also because we've got quite a few. We've operated in Leeds for many, many years, and we do have quite a lot of our core team members based in that area. We are now, for example, we actually listed today, had someone within the partnerships development for corporates start with us based here in London. We don't have an office, but they're happy to do their own thing and work remotely. That, of course, is an option. I think it's really more important to talk about the community and events and feeling part of something as opposed to having an office that you can go to do your coding course. We no longer have the hub in Newcastle or in Birmingham, and we've never had one in London. However, we now have one-third of our students based here in London. What we're really doing to keep them engaged as opposed to giving them an expensive office is we can do a lot more with the cost of a Central London. The money you need to spend on essentially an office, we can do a lot more to make those individuals engaged and drive fantastic outcomes for them because of that, than providing an office. We have a question from Rob: How much of your future revenue can you see at any point? Coming into this year, we actually had something like 95% of our revenue visible, maybe even higher than that because we won a GBP 10 million Department for Education bid. Obviously, in an ideal world, we will always win that type of funding just before the year ends, so that we're going into the year with the revenue visibility tied up. We know that our cohorts are oversubscribed, and therefore, we can map out that cohort revenue. With the new Labour government and changes within the government, we are seeing a slightly slower approach to getting those bids out, but we're still confident that by the end of the year, we'll have an idea and something in place. Hopefully, we will be the same next year. That's very different for us. We used to operate a model of, we would have three months' worth of revenue visibility because a student would sign up to the course, they would pay, and they would be on the course for three months. That's changed quite a lot. It will change further with Counter. Counter contracts are around 6-12 months long, and so we will have the revenue visibility and the contracted revenue from the Counter contracts as well. We've moved from a company that didn't have much revenue visibility at IPO to a company that pretty much should have the revenue visibility for the year tied up. Yeah. I think I will just add to that one, Devol, in terms of the Labour government. We actually have a ministerial visit next week on Friday, if it happens. We are super confident in the investment in skills, and we think that what we are hearing about what they want to do with the apprenticeship levy and what they want to do to develop with Skills England, these Training Bootcamps are providing significant value. Northcoders is having, for example, someone who was a busker, now earning double the national average wage, working as a software engineer. In terms of repayment on that very small GBP 10,000 investment from the government, they have years and years of that kind of income tax, never mind the actual business value being provided by that individual. Whilst we are hearing quite a lot about the budget, we are all hearing about our capital gains tax, about people getting told they are not going to get any help paying for their winter fuel anymore. Well, they have been told, not being told. Sorry. However, we are not hearing any, "Oh, we are going to make significant cuts to education, to skills, to the future of the super important workforce for growth." We are hearing the polar opposite. It is a little bit uncertain at times, but from what we see, we are fairly confident in what is going on. Rob, question here: what options do you have to accelerate growth? Are there any opportunities you see in the near term? Obviously, the definition of near term being one I will take a guess on, but we are now operating a part-time Training Bootcamp model, which we intend to roll out across all of our disciplines. That is a very different model. The way that we are doing it is we are giving lots of different flexible options for students, the way that they learn. You do not need to have that at a certain time. You certainly do not need to give up your job to attend Northcoders Monday to Friday, 9:00 A.M. to 5:00 P.M. Now, that is again, yet another innovation in the coding bootcamp space that is not being done by many of the bigger competitors, the bigger brands that sit alongside us. It might have been done in smaller places, but we think that could be a real growth driver because that is being built in a way that is much more lighter touch from Northcoders, but it is still a top quality, high price per seat item. We genuinely think that that could be something that we could easily roll out further field than the U.K., and we are just doing some kind of small cohorts of testing really at the moment. The same goes for Counter. We have got Counter contracts now. We literally launched this brand in May. We focused on getting it right, and we are really focusing on delivering quality and making sure that we build up a business model that is going to really be able to grow massively in the future. We can't do these things really super fast, but we're also doing these things while making sure that we are bringing in profit for stakeholders. That could be something that once we get to a bit of a critical mass of contracts and case studies, and we also have a better idea of predictability of our pipeline, about how long things take to land, length of contracts, so on and so forth, yeah, we could really move the business. That's a massive area that I genuinely believe we have a huge opportunity to disrupt. But yeah, it's about, I think the term is walking before you run. Sorry, I've missed a question here. "Thanks for the detailed presentation. Great progress on training numbers. What was the percentage complete rate?" In terms of the courses, the completion rate, as you add more students, does go down. It's around about 90% of people from starting complete the course. In the education sector, that's pretty good. Of course, we do everything we can to always make sure that everyone who's committed to Northcoders gets all the way through. "How do you achieve nearshore pricing as an onshore supplier?" Well, because the onshore consultancies have always charged far too much money, so then the nearshores have found a way of doing it cheaper but still making tons of profit. We're doing it at a 50% margin where you get genuinely amazing people who are based in the town or the city that you want them to be. Yeah, it's a profitable model. We're winning with that, and it's highly scalable, too. You've asked that question before. Yeah. I think the fact that we also don't have a bench of people- Yeah. We don't have to pay people whilst they're not on contract. We can literally win a contract, hire the people straight from our bootcamp, and then consult them out. We don't have any kind of lost cost within that model, and therefore, we can just be cheaper than competition. I will take this one here, Charlotte, and we will answer these questions, and we will let everyone get on with their evenings. Good update. Thank you, David. There is an opportunity for geographic expansion with a shift to virtual delivery. I think that is probably since the question being asked, come up in the answers that you cannot see to the other couple of questions. But yeah, in terms of the actual virtual delivery of courses and basically the core product, it is much more efficient than having offices and building that community alongside it. In terms of a part-time model, that is able to even be done without. Not without staffing completely. There is still mentoring and so on, so forth. But without actual physical delivery being required even online. I think something just to point out on that, we actually do run a full virtual course. All of the lectures are streamed out virtually, the seminar groups are virtual, and the mental health is all virtual. The office space just provides people with a desk and a quiet environment to learn in. We have had a student in Hong Kong learn virtually on the same course as people in Manchester. We have had someone in Iceland. As long as the time zones work, the main barrier to growth on that side of things is making sure we have partnerships with businesses, and we have the reputation in that geography to be able to enable that student to then go and get a job. That is something that we are always looking to invest in marketing around in new areas to ensure that once we have got that reputation there, we can open up the course to students, and then they can get that positive outcome at the end. This one is from Matthew. Could external growth or bolt-on acquisitions feature in your growth prospects, or are you happy with your organic initiatives? We did an acquisition in February last year, and we feel that that is really bedded in nicely now. We are seeing the efficiencies from the acquisition. We are seeing the new areas that that has got us into. The reputation of that brand has really helped us in other areas as well. For now, we are trying to really grow organically. We know where we want to be. We know how to get there, and that is organically. Never say never. If something comes up and it just really makes sense, it enables us to speed up our growth plans, then we would look at it. But right now, acquisition growth is not in our strategy. Okay. Amazing. Thank you for the questions. We've faced the questions. Fantastic. Look, thank you very much indeed for covering all those questions. Of course, any further questions that do come through, the team will be able to review those, and we'll publish responses where appropriate to do so on the Investor Meet Company platform. Just before redirecting investors to provide their feedback, I know it's particularly important to you, Chris, can I just ask you for a few closing comments, please? Yeah, of course. Great. And yeah, just thank you all for giving us time to joining us, and we're super happy with where we are now certainly compared to where things got to last year, and we believe incredibly in our prospects for the future, and we look forward to engaging with everyone where possible. And yeah, thank you. That's all. Fantastic. Thank you, Chris. Charlotte, thanks indeed for updating investors today. Could I please ask investors not to close the session? You should be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure it's greatly valued by the company. On behalf of the management team of Northcoders Group PLC, we'd like to thank you for attending today's presentation. That concludes today's session, and good afternoon to you all. Thank you. Thank you.