Earnings Call: H2 2023

Apr 30, 2024

Good afternoon, ladies and gentlemen. Welcome to the Northcoders Group PLC full year results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q&A tab just situated in the right-hand corner of your screen. Simply type in your question at any time and press send. The company may not be in a position to answer every question it receives during today's call. However, the company can review all questions submitted today, and will publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation. I'd now like to hand over to CEO, Chris Hill. Good afternoon. Thank you very much, and hi, everyone. My name Sorry, I thought it said the mic was mute. My name's Chris. I'm the founder and the CEO of Northcoders Group, and I'm with Charlotte. Hi, everyone. Charlotte Prior, CFO, of Northcoders. I'll just give it a little bit of a backstory for people who are new to Northcoders. I founded Northcoders 8 years ago now. What we did is we took the need for skilled software engineers, and coupled that with the fact that people are looking for better careers, and we set up one of the first coding bootcamps in the U.K. I'm a career changer myself, and when I got my first corporate job at Sky, I recognized through some of the recruitment drives that we were doing within university graduates coming to work for us, that there was a gap between the underpinning knowledge, which some of that was excellent and very useful, but the actual skills and the tooling that we were using on the ground, the modern technologies that we were looking for people to work with. We were kind of setting up these sort of mini training courses for these individuals, and obviously that made it completely apparent, given my background and given the people coming out of computer science degrees needing training, that you did not need to be a computer science graduate to become a software developer. We went off, and we started a coding bootcamp in Manchester, which trained 10 people on our first cohort, and it was incredibly successful, and we have built the business from that point forward. We now have multiple divisions and multiple courses, which we will go on to further in the presentation. Just go through some financial highlights. We are really pleased to report that group revenue has increased 27%, to GBP 7.1 million in the period. This is driven by expansion into new geographic regions. We have now got a higher presence in London, Scotland, and throughout the U.K. We have also driven this revenue by teaching more courses and changing the way that we teach the courses as well. Gross profit has increased 13% to GBP 4.4 million, with a gross profit margin of 63%. Adjusted EBITDA reported at GBP 0.1 million, which was in line with the market expectation reset in September last year, and the loss after tax was GBP 1 million. We had a cash balance of GBP 1.6 million at the end of the period, and then net assets of GBP 4.8 million. I will go into more detail on financials further in the presentation. Thanks, Charlotte. In terms of operational highlights, we had a record growth in the number of individuals that we have trained through our bootcamps. That is now a lifetime of 2,852 people. We have further strengthened our relationship with the U.K. government who do now provide funding for these much needed courses and much needed skills through the Skills Bootcamp Framework. Recently in January, we just agreed a GBP 10 million funding round with the Education and Skills Funding Agency to fund individuals to do our courses. We teach these courses all across the U.K., mostly in England, but we do now have a varied geographic spread of people coming from different regions to do our bootcamps. It is not just the north anymore. We have around about 20% of our students are located in the south. In terms of our corporate division business solutions, we began our first central government contract in Q4 last year. We have also been investing in the technology that we use to power our coding bootcamps to see more efficiencies and higher profitability in the future, and more on that later as well. As we said, the company was founded in 2015, and we are on a mission to close the digital skills gap whilst creating life-changing opportunity for individuals from all walks of life. In terms of the student enrollment numbers, we have healthily grown those year on year, and we have actually got around an average of 50% revenue growth derived from training bootcamps year on year. We have four main courses. I will give a bit more information about those courses later. We now teach software development. Data engineering is growing rapidly. There has been quite a lot of hype and people adoption of AI, and behind of AI is the data engineering skills that we are teaching people day to day. I am sure everyone is aware as to why there is so much growth in that area. We also do cloud, and we are beginning to do more different flavors of software development, starting with Java, just to make sure that we differentiate the outcomes of people completing our courses. Training bootcamp, all the training bootcamps are 13 weeks long. We have recently released a part-time version of our course, which people can kind of learn while they earn by doing the course in their own time, which will run for double the length. Most of our courses are in software development. As I said, the data engineering is growing substantially, and pretty much catching up with software development. Then we also have our business solutions division, which is our hire, train, deploy, our consultancy division of the company. What we do with that is we take the best performing people from our training bootcamps, and we actually put together ready-made teams for corporate businesses. Whilst last year was a difficult year, we invested in sales and marketing activity and corporate solutions. We are now seeing a better outlook for our business solutions division, which is obviously very pleasing. In terms of the things that we are doing within our training bootcamps, this is our recognized revenue over the years, as well as our recognized and contracted revenue for this year. We do currently stand to have 97% of the market expectation visible, which is fantastic. What we are doing within our training bootcamps for further growth in the future is that we are diversifying our technical disciplines. We are staying within the areas that we know best, software development, data and cloud engineering, but we are going into different flavors of software development, just so that we are having people coming out at the end of our courses with different skill set, which better appeals to the corporate market, programming languages and frameworks and so on. We are also investing in follow-on courses, so for career and professional development for individuals who have completed Northcoders or completed any training bootcamp to continue their journey and to keep learning and cross-skilling into different areas to make themselves more valuable. We still have further initiatives to grow our geographical expansion. We are investing in places further afield from England now and starting to see more learners come on board from Ireland, Scotland, Wales, and further afield, which also diversifies our revenue because we have different funding mechanisms in different locations. In terms of our USPs, we are very much a quality above quantity. We have an exceptional reputation. We, last year, had 14,000 people apply to join the Northcoders framework, and we had around 100 people a month, less than actually, going through our courses. We are highly selective, and I can show you later some of more of that process and the way that we choose people. But ultimately, this is open for anybody to apply to do this course and to get a career in tech. All you've got to do is learn some of the basics yourself just to prove that you're going to be the right type of individual for us to get a good outcome for you through our course. We've got eight years of community building up. One thing that we are seeing now is we're starting to see more and more people going into more senior hiring managers, even starting their own businesses and coming back again to Northcoders to hire from us. And we have a great reputation for our building up our relationship with corporate businesses over the years, and therefore, driving those job outcomes for individuals who do join Northcoders. Business solutions, we had somewhat more of a larger menu of different items that we were doing for different corporate businesses last year. We have really focused on making that much simpler as we go into this year, and we have our main product, which is Developer Incubator. What that is that is a team of entry-level technologists, but they are managed by someone much more senior, so that the ultimate proposition to a business is that you can take these people into your organization without distracting the more senior people, and we will look after that process for you. It is in terms of, we'll look at some of the competition later on, but we have got a more profitable model whereby a lot of people will have to hire and pre-train people while they've got them on their payroll. What we do within our business solutions division is that we select people who are the best performing people coming out of our courses, and we then talk to businesses about putting together some bespoke requirements for those individuals. And we don't then need to have a bench of people that are underutilized. We can literally engage with a corporate, start a contract, and deploy people almost immediately after being recruited by Northcoders. So it's a more profitable model than traditionally exists in the sector. We have got some nice new pilot programs starting soon that we're going to be looking to make sure that we can continue and get some renewals from. We are looking happier with the outlook on the business solutions side than we were last year. So yeah, in terms of the USPs for business solutions, it's a bit of a, we say, a try before you buy offer. And what that means is that you can have a team from Northcoders, which is completely managed before you begin to build your own ecosystem. Because not everyone is used to taking people from different walks of life. That's something that we are certainly heavily encouraging. We don't have recruitment fees for businesses. You can build your pipeline through using our Developer Incubator, and we're more than happy at the end of the contract for the individuals to go to. Oh, sorry. The lights just got off for maybe. No. For individuals to join our partner companies. Yeah, we are an onshore solution to the needs of technology businesses. But we are competitive with some of the abroad, overseas models that have been fairly popular over the years. But we are seeing a lot more companies talking to us because they want to bring their engineering capabilities back to the U.K., which is great to see. One of our investments through the course of last year is our NCORE and what we call our JS Basics, which is our core teaching platform for our courses. We've prepared a little video just to show people what we've been working on and how we think this is going to drive more profitability and automation of our business in the future. I'll move on to the next slide, and then we're going to play the video. This is the basic teaching platform, and the main use case internally for this at the moment is to help us automate that onboarding process. We said we get down from 14,000 applications down to about 1,000 people. We do that now fully online through our own platform. It starts off fairly simplistic and not exactly groundbreaking, where we have interactive quiz-based learning for people, and this is just because that is the best way to get people to begin to feel some success of reading some of the material you can see on the screen there that looks incredibly complicated and begin to make sense of it. This is more about teaching people new things than it is about assessing their ability. Our platform then can run some coding algorithms and equations, do simple bits of code, like some additions that we're doing here, give feedback directly to the person using it, and they can go and attempt to make that correct and then move on from there. This is one thing that we do to begin to get people feeling like, "Oh, yeah, I'm writing some code now and I'm seeing the results and I'm keen to get into this and take this journey further." We then get into assessments which are a little more complicated. We're now using our system to analyze complete chunks of code function that our students are writing. This is something that previously we used to have people sat with individuals or going on Zoom calls with the remote model, to actually help people to talk through building their own assessments and mark their software. As we can see from the video here, we are now doing that automatically. We have also plugged this into a. We have built our own complete learner management system as a well-known LMS from scratch. This is the way that we manage our cohorts on our courses, and we have built this ourselves because quite a lot of things that we do is bespoke, but the most interesting part of what we are doing is we are plugging in the evaluation from the coding courses and from the code that people are writing. Whilst you can see here on the screen, one of our tutors using this software to do a manual review, and this is the process that we have always done over the years. What we are also doing in the background behind of this is we are also automatically evaluating the submissions that they make. We are trying to gauge in our data engineering team, what parts are we getting right through the automation that we have put in place and what parts are we still thinking that we need to tweak slightly so that before we begin to release automated teaching to students, we know that we are doing the right thing. Ultimately, we were trying to do this to obviously make ourselves more profitable and save on some of our costs, but make the experience better for the individuals. We should actually be able to spend more of our time rather than going around evenly distributing the knowledge of our instructors across the cohorts of people. We are able to intervene with larger groups, giving them more focused time and giving them ultimately more learning to get to where they want to be and the reason why they joined Northcoders in the first place. We are using this software now on our courses, and we are beginning to see some of the efficiencies that can build and that should start showing into increased profitability from the training bootcamps in the future. Thank you. That would be good to show people that one. Well, let us talk about competition in terms of training bootcamps now. We are now considering our competition. Some of these are international companies because we think with the online model, we have taught people from Hong Kong, so we obviously have to keep an eye on what everyone else is doing. The main differentiator with Northcoders is in terms of, we do have an amazing reputation, especially here in the U.K. What we are doing to make ourselves different is we are beginning to diversify in the areas that we teach. We are beginning to break down not just software development, but into giving people more specialist areas to focus on and be more skilled in. We are going to be better from that point at targeting the corporate businesses that require people with those kind of skill sets, and ultimately just being able to take cohorts of 100 people, let's say, and we are coming out with rather than everyone having the same skill set, we have got four groups of people, which should make the outcomes better for the individuals, and obviously better for the business. Business solutions, we do compete. There are some big names on there, like Accenture, one of the biggest companies ever. But we are in the consultancy space in terms of QA, FDM, Sparta Global, and Ten10. They are companies that have a very similar model to Northcoders, apart from the differentiators that they are hiring people up front and training them, which is a large cost base to them. Also some of the ways that these individuals are contracted to earn outs and if they are not placed, they have to stay on for a large amount of months where they are contracted, but they do not really have a role. It is just not really the culture that we are trying to build. We are trying to disrupt and differentiate in that sector. In terms of companies like Accenture, we can also go in alongside some of the expert businesses, and it is almost like that can become from the strategy and the implementation. Then what Northcoders does is builds up the teams for those businesses. We are, as we said, we have got some pilot programs coming through, which is really good. We have got a rebranding exercise going on which we are excited to announce to everyone. We are much more confident in the outlook of the market, which I can go into next. We are seeing the hiring last year, the hiring market did get really tough. There was lots of redundancies in the tech sector. Obviously, ourselves, we lost some corporate contracts, and our academy division did struggle with the fact that businesses weren't recruiting graduates because they were making redundancies at the other end. Hence the reason why, obviously, we sort of reset our expectations last year. But we do feel much better about it. There is especially lots of talk in the AI space and stuff we are doing within data engineering to make sure that we are producing people that can work in those fields as well. We are happy to say that we have a better outlook for this year. Cool. Fab. Oh, do you want to have the mouse, yes? Yes. Thank you. There you go. I will dive a bit deeper into the numbers. We just have some visuals here to kind of show the revenue increase year-on-year, and then obviously the movement in the EBITDA as well. 2020 being the COVID year, and then our growth path really starting from there once we kind of put together the online platform and the hybrid model, and then with 2023 being an investment year. P&L wise, revenue GBP 7.1 million, up 27%. The gross profit margin at 63% is slightly lower than where we like it to be. This is due to corporate solutions having slightly lower profit margin. Going forward, once we start to realize the efficiencies from the NCORE platform, we do forecast that that will be up back up to 70%. Adjusted EBITDA is down to GBP 0.1 million, so the investments in the year that we made that unfortunately didn't pay back as quickly as we had hoped, were sales and marketing. We launched our London presence. We invested into business solutions and also into Tech Returners, which was the acquisition that we made in February last year. These investments are all now started to pay off and it's really helped the business solutions pipeline as we come into Q1 of this year. We are in line with market expectations for this year. The difference between the adjusted EBITDA and the operating profit, it's adjusted for share based payment expenses, some business restructuring costs, depreciation, amortization, finance costs, and there is also a revenue adjustment in there as well for unrealized contingent revenue. If we go on to the cash flow, cash flow from operating activities is down due to the loss. We have a decrease in trade and other receivables signaling a better cash relationship with the DfE. We are really into the swing of the DfE contract now, and the cash generation on that contract is really good. All of our other revenue streams are cash generative from this point forward. Tax refund is from R&D activities. The cash used in investing activities consists of capitalized development costs, mostly the platforms that Chris has just been through, and some IT equipment at quite a low value, and the cash element of the Tech Returners acquisition as well. We did not raise any money in the period, and we did not take out any new bank loans. We are continuing to pay off our existing loans as well. We also have some lease liabilities and obviously the interest on those loans. Balance sheet wise, the non-current assets rose to GBP 3.5 million. That is made up of goodwill from the Tech Returners acquisition, intangible assets, computer equipment, and there is a deferred tax asset in there as well. Current assets are mostly debtors and cash with a balance of GBP 1.6 at the year-end, and bank loans now stand at just over GBP 700,000. We have also got some non-financial results. In the period we received just under 14,000 applications, and this was obviously up quite a lot from the previous year. 38% of our students taught were non-university educated. The average starting salary that graduates went on to earn increased to just under GBP 30,000. Placement rates were strong at 89% and we are still offering funding options to our students, although we are keeping an eye on cash and that can be turned on and off whenever we need to. Cool. Yeah, I think Charlotte has covered it all. We are happily trading in line with market expectations this year and due to the restructuring of that expectation of the academies, we do not envisage having a H2 weighted year this year. There are some pilot programs that we are looking at and some contracts within the solutions space that could also give an upside to revenue and drop straight through to profit this year. It is good to be seeing momentum in that space. We still great momentum on the training boot camps. We are feeling the call so far this year. Got around 3,000 applications coming in and all this evaluates to us having 97% of our revenue target for this year, with our profitability and our management accounts wise, looking healthy, certainly much healthier than last year, due to the rebudgeting. Again, it is just great to see for us the support from the U.K. government and a lot of people ask us about, well, are you expecting a change in government and expecting this to be a massive change to the Skills Bootcamp Framework? I think the change in government everyone is expecting, I would say it is more of a traditional area. We think about Tony Blair and the apprenticeship reforms and so on. We are pretty confident in the framework. We are performing incredibly well on the government funded side. We will be able to continue to grow that. We are doing very well in supply. We have had our Ofsted inspection and so on. We do think that that framework looks set to continue for some years to come. But of course, not taking our eye off the ball and we are diversifying into other areas to ensure that we keep up with that. What was the question? That is great. Chris, Charlotte, thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions just using the Q&A tab situated on the right-hand corner of the screen. But just while Chris and Charlotte take a couple of moments to review the questions submitted already, I would just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your Investor Meet Company dashboard. Chris, Charlotte, as you can see, you have had a number of questions from investors throughout today's presentation. So firstly, thank you to everybody for your engagement. Could I just hand back to you, Chris, maybe just to read out the questions where it is appropriate to do so, and I will pick up from you at the end. Yeah, absolutely. Ben has asked a question here about changing government funding, how reliant is Northcoders on public funding? I think any changes to the government funding frameworks, for example, for Skills Bootcamps, would not only affect Northcoders, they would affect everybody. So there would certainly be some backstop to the other ways that we used to rely on funding the training bootcamps. But yes, we are diversifying into other areas. We are looking for sales further afield to make sure we keep up with that private market, and we are making into the corporate space. We are much more confident about the outlook of that this year. So again, that is diversifying away from those areas. So are there any other potential acquisition targets or partnerships on the horizon that could complement your current offering or expand your tech reach? I think we're focusing internally on growth. Sorry. I was just What's up? We're focusing on the internal business and organic growth, certainly for this year. I'm not sure in the future what would or wouldn't be on the horizon, but we don't expect anything to be announced anytime soon. Did you want to say something? Yeah, go on then, Charlotte. Yeah. So what unique factors or services give you a competitive edge in the crowded tech education market? The tech education market is quite crowded. It's very fragmented. We are seeing some new players in the field, and then we're kind of seeing the original kind of players obviously still around. We have always focused on quality over quantity, and I think that is probably one of the reasons why we've managed to keep the reputation that we have. And we've built up years and years of testimonials and relationships with corporates, and I think that gives us the edge when somebody decides to spend GBP 8,000 or to kind of give up three months of their lives just to sit our course. It's quite a considered decision, and I think going to a coding bootcamp that has been around for quite a few years and that does have the testimonials and the outcomes that we do, is quite comforting for people. At the minute, we are not shy of applications, and the demand far exceeds the capacity that we have. I think that's what gives us the edge. Thanks, Charlotte. I'll do this one here. Can you say more about the placement rates? Is that of the total intake of 1,100? Do you anticipate any difficulty given the job market affecting future intake? The way the outcomes are calculated is they're actually on a trailing since graduation 6-month basis because that's about the time that we give ourselves to work with an individual to get a job. We do see some people getting outcomes further past that point, but that's the way that we calculate it. Intakes, as you can see from the graph earlier in the presentation, the intakes have grown. It's not of the total amount of enrollments last year, it's the percentage of people that are placed within that period. The market was difficult last year. The market was difficult for the tech space, but we keep working with individuals and people obviously also are keen to find roles themselves, so working with people to give one-on-one advice, careers workshops. We're always there to support whenever we can. In terms of affecting future intakes, the intakes are set for this year. It is something that we review. The outlook we do feel is improving in that space, and especially diversifying the outcomes of the individuals. We're giving people differentiating skill sets at the end of our courses as well as the data engineering space I think is a higher growth trajectory as well, and we're doing more growth ourselves into that area. We do adapt to the needs of the market in terms of the types of skills that we teach people. I think that's all of it. You've taken all the questions, so thank you once again to everybody for their engagement. Chris, Charlotte, I know investor feedback will be important to you. I'll shortly redirect the shareholders on the call, the investors on the call to give their thoughts and expectations. But Chris, before doing so, could I just ask you for a couple of closing comments? Yeah, thank you. Thank you everyone for joining our presentation today, and we look forward to further updates throughout the year. We have got exciting things happening in the corporate space as well as we do feel happy with the progress we are making this year within the training bootcamps. We are excited about the things to come, such as the part-time offering to be able to help people access careers in technology that cannot give up their jobs for three months and things like that. So yeah, we are looking forward to getting back to business and growing the company. That is great. Chris, Charlotte, thanks once again. Ladies and gentlemen, please can I ask you not to close this session, as we will now automatically redirect you for the opportunity to provide your feedback in order that the company 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 evening to you all. Thank you. Thank you.