Earnings Call: H1 2025

Sep 23, 2025

Summary

H1 revenue grew 18% organically, ARR rose 23% to £12.8m and EBITDA reached nearly £0.7m. Strong cash generation supported a 20% interim dividend increase, while product development and EU expansion underpin continued growth plans.

Good afternoon, and welcome to the Skillcast 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 using the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. I would now like to hand you over to CEO, Vivek Dodd. Good afternoon to you. Thank you, Alex, and thank you everybody for joining us today for the Skillcast Group H1 2025 interim results. I am Vivek Dodd, the CEO of the company, and I am joined by Richard Steele, who is our CFO. Just a quick introduction. As some of you might not be familiar with Skillcast, we provide GRC software and content to help companies digitize, automate, and consolidate many of their staff compliance processes, such as training, policy management, staff declarations, submissions, et cetera. We have offices in London and in Malta. We have around 125 employees. We have over 1,400 corporate clients, mostly in the U.K., but also increasingly in the E.U. And we have got some of their logos here on the screen. The reason why these clients choose Skillcast is because we make compliance simple. We do that by providing an excellent technology platform, ready-made content that they can easily customize, and an exceptional level of service that takes away their admin hassle. The demand for our services is relatively resilient, as compliance for many firms is a non-discretionary spend, and our retention rates are high because of the level of service we provide. Our business model is B2B SaaS, that you might be familiar with. We have high net retention, which produces growing annual recurring revenues and a strong operational gearing. This is reflected in our H1 results, shown on the screen now. Our total revenue was up 18% year-on-year. This growth was entirely organic and driven by a 23% increase in our SaaS subscription revenues, which account for 85% of our revenue mix now. Our annual recurring revenue, or ARR, was also up 23%. Our EBITDA continued to grow as expected. If you have been following us, in H1 last year is when we reached break-even point. In H2, our EBITDA was GBP 0.5 million, and in H1 this year, that is grown to GBP 0.7 million. We have also improved our score on the Rule of 40, which is effectively the sum of ARR growth rate and EBITDA margins. In H1 last year, we were at 27% on this measure, and this year we have reached 32%. At this point, I will hand over to Richard to take you through further details. Thank you, Vivek. Good afternoon, everyone. Just finishing the financial highlights. Moving on from EBITDA, we also are fortunate to have a strong net cash position, which increased to GBP 11.5 million at the end of June this year, and that increased in the period by GBP 2.2 million in terms of free cash flow. We have always paid a dividend, and last year we changed our dividend policy, having returned to profitability, to state that we would broadly increase our dividends in line with subscription revenues every year. Therefore, this interim, we are proposing a 20% increase in our interim dividend to just under GBP 0.2 pence, which is just under a third of the EPS. Looking at some of the operational statistics in a bit more detail. We have now grown our client base in total by 17% to just over 1,400 clients. This includes the CoreCompliance customers, the customers that buy direct from our B2B e-commerce website. Our ARR increased by GBP 1.1 million in the period, and that was purely from new clients. By difference therefore, our net retention in the period was exactly 100%, which is the same as it was in the previous half in H1 2024, however, for different reasons. We are delighted to see that our churn has reduced to more normalized levels of 7% compared with 12% last year. We like to see that our churn is normal in the high single-digit figures, and we present to that level. Conversely, our upsells have reduced on last year as well. The main reason for that reduction in the upsells is that we only increased prices in 2025 by 3% compared with 7% in 2024 on the back of 10% in 2023. While our churn is not that sensitive to prices or our offer overall is not that sensitive to prices, I think after two years of 10% and 7% growth, our clients are relieved to see that we have returned to more lower levels of price increase. Overall, the average ARR per client has increased by 12% to GBP 10,629, and this is a combination of new clients, bigger ARR from new clients, but also from upsells to existing clients. In terms of our products progress and upsells, we have typically got four offerings and products. We have got our standard compliance product, which is a combination of e-learning libraries and ad hoc and Enhanced learning modules. We then introduced beginning of this year, what we call our Enhanced learning package, which is our content libraries and our Learning Management System, plus other factors such as a FastTrack module that enables, if you are a competent professional to reduce your learning time, and our Aida digital assistant and our virtual learning compliance product. Then we have our Premium plan, which is our all inclusive top of the range, if you like, library that includes all our e-learning libraries, all our Enhanced learning products and all our regulatory tools. For example, Policy Hub, statutory declarations and registers. In these modules, we are delighted we have started to see some significant growth come through. Our Premium plan, which we launched at the beginning of 2024, has increased from 2.9% of ARR last year, the period, to 7.4% of ARR this year. Our CoreCompliance product, which is our buy with your credit card directly from our website online with no managed service, for up to 50 users has gone from 0.3% to 1.2%, but has a much lower average contract value of around GBP 1,000, compared with our new ARR clients from standard, Enhanced and Premium, which averages around GBP 8,500. We are delighted that within our Enhanced and our Core and our Premium packages, we have also launched our Aida digital assistant after successful trials, and we are now planning on working with our existing Premium plan holders to roll that out in the second half of this year. We are always responsive and receptive to change in the regulation, and we have built an Enhanced learning libraries with the new courses to help support our clients in training against Failure to Prevent Fraud, which is the new legislation that I believe comes in a week from today. As always, we continue to ensure our product and our client experience and user experience is as good as ever. We are on a plan to improve the UI/UX of our product and our authoring tool to build courses, which should be done by the end of this year. The other area where we have made some significant improvements is in our marketing. Typically an area that has been under-invested in previous years. We have seen a 35% increase in spend in the six-month period. A lot of that, as some of you might have noticed, has come from a revamped, new branded website. That is not just to make things look prettier, but also really it is all about the engineering. As we are a content-driven business, it is all about how can we get more people engaging in our website, clicking through, and ultimately improving our funnel and leading to more sales. We have seen at the top of the funnel that our domain authority engagement scores have increased, and coupled along with more PR activity that we have done, we have seen a higher share of voice that has come through in our marketplace. Also, we are responding to the very live real change in search behavior as more and more people choose alternative AI tools like ChatGPT over traditional search engines like Google. This means we need to change how we build and interact our content online so that we optimize the click-through and the response from that search. In terms of our financials, in a bit more detail. Our P&L is now on the screen, and as you can see, for six months, till 30th June, our total revenues are up 18% on the year, driven by subscription revenues of 23% on the year. Our professional services revenues declined by 7% on the back of a 9% decline the year before. As we said, these are always more non-strategic services. They are a bit more lumpy in nature and harder to predict and plan for. Typically, they are from larger financial services organizations that have had the budget and ultimately increasingly less budget to commission bespoke courses. It is a small reduction, and last year you may remember we made some significant reduction in the headcount of that team, reducing it by approximately a third. That is the reason why our gross profit margin has increased by 3.8 percentage points from the year to 75.5%. Our SaaS margins have stayed relatively consistent with the previous year at 80%. Our overheads have grown in the period by 9% against revenues of 18%. Most of that overhead growth is from people. We've only increased our headcount by an average of 3%, and we increased the average cost per headcount in salaries, bonuses, and commissions in the period by 5%. So we're delighted to see, as guided and as expected, a significant increase in profitability coming up just short of GBP 700,000 worth of EBITDA, representing a 10% to revenue margin. Making more EBITDA in six months of this year than we did in the full 12 months of last year. As you can see in the graph on the bottom left, we've continued the trend of increasing the percentage revenue mix that have come from our recurring revenues with subscription services up to 85%. The ARR, as you can see, has continued to grow, which is the main driver and lead indicator of our subscription revenue growth, has grown to GBP 12.8 million, up 23% on the year. As you noted, we've got a healthy cash balance ending the end of June of GBP 11.5 million and generating GBP 2.2 million worth of free cash. There are three main elements where this GBP 2.2 million worth of cash came from. GBP 0.8 million came from an increase in deferred income. Well over 90% of our clients contract with us on an annual basis, invoiced up front, and paid over 30 days. So as long as our ARR is growing, so is our cash. We've also generated GBP 700K worth of profit to support that cash, and we've had a significant reduction or improvement in our receivables, by introducing auto renewal terms in 2024. We've seen a reduction in the quote-to-cash period, which has had an impact on reducing our debtor days, and helping our trade debtors by GBP 300K. We've also seen another GBP 0.5 million improvement from a legacy payment of Maltese withholding tax from our subsidiary over there. So that healthy cash generation has helped us sort of justify and fund the increase in the interim dividend. Moving on to our balance sheet. Just to say, we are pleased it's very clean and easy. We don't capitalize any of our tech and our product development spend. We expense it at source. Apart from our debtors and our cash, we have deferred income on the balance sheet, and that's effectively the main elements from that area. We have no bank debt at all. We've increased our cash by GBP 3.2 million between June 2024 and June 2025. Just to reiterate, our strategy remains the same and consistent that we want to keep focusing on growing the ARR, which leads to our subscription revenue growth rate. We'll continue doing that through innovating our products, obsessing about our customer service, and maintaining client retention. We will continue to develop our products and to encourage our clients to upsell and to maintain net retention of at least 100%. We'll focus on building our funnel, our inbound market funnel through the continued marketing activity and initiatives. We will continue to focus and look for opportunities to grow the CoreCompliance e-commerce self-serve option. We will continue to develop our Aida digital assistant within the products to make it more user-friendly for everybody in the marketplace. We have also launched our remote services to larger companies that cannot or will not want our current platform in. Some contenders, clients, particularly the larger ones, there is pressure to consolidate learning platforms across organizations into one platform. Excuse me. The likes of Cornerstone. In that instance, we have a remote services option where we can plug in seamlessly to these other platforms, but still give the data to the compliance officers and the learning management to understand what is going on. We are still committed to professional services despite it being non-strategic because we believe there is a good way of understanding the market intelligence and what the key technology and content insights that the big financial services clients are considering. As our cash continues to grow, our primary priority for that cash, if we can find it, is to look for acquisitions, small acquisitions of around a million GBP ARR of digital content in adjacent verticals. We have recently engaged a deal origination company to help us find them. Since the end of June, we have continued to grow our ARR and trade in line with expectations. We are rolling out the Aida digital assistants to our clients that have subscribed for it. We are improving our UI/UX, our authoring tool. We held a sold-out compliance and culture seminar last week at The Institute of Chartered Accountants' Hall, which was very well received. We are growing our offering and improving our offering to EU clients by launching an EU Compliance Library in the last half quarter of this year. In terms of profitability, we continue to expect to see benefit from operational gearing and see the growth in sales filter down to the bottom line. Thank you for listening. I think we just hand back now. While we assess Chris, I assume you have That is correct, Richard. Vivek, thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated on the right-hand corner of the screen. While the company takes a few moments to review those questions submitted today, I would 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 Investor Dashboard. Vivek, Richard, as you can see, we have received a number of questions throughout today's presentation. If I may now hand back to you and kindly ask you to read out the questions where appropriate to do so, I will pick up from you both at the end. Thank you. Thank you, Alex. Vivek, would you like to take this first one? Yes, indeed. It's about how material could the EU expansion be in terms of new ARR contribution over the next 2-3 years. I'd like to remind everyone that we already are present in the EU. Around a third of our colleagues are based in Malta. We've always done business there. It's been more of a professional services variety than subscriptions. However, we've got just under 100 subscribers that produce ARR. Somewhere around 4% of our total ARR is coming from EU clients. What we are doing in the second half of the year is bringing out an EU Compliance Library that will provide multilingual, pan-European compliance e-learning on all the key topics that we see our clients demanding. That is first and foremost, to provide a better product fit for our existing clients. We are quite hopeful that that will find traction, and if it does, it could be a real driver of growth. Of course, given the economies that we're dealing with over there, that increases our total addressable market by a few multiples. We'll report back on that in January release. Thanks, Vivek. The next two are around free cash flow and cash generation. I think I'll take them. One, how should we think about cash generation going forward, especially with increased marketing spend and potential acquisition? We certainly expect to continue to generate free cash because ultimately, as long as the ARR is growing, we should be cash generative because of the nature of our contracts and payment profile. However, I do think that the free cash flow in the H1 of this year was stronger than would be the normal underlying position, boosted partly because of the half a million GBP Maltese tax rebate. You would expect that to continue as profits increase. In terms of how you mentioned exploring acquisitions in adjacent verticals, what valuation discipline and strategic fit criteria will guide your approach? It's a very good question. We believe we've got very strong technology, so we're not looking for technology buys. We're looking for content that we believe we can leverage onto our existing infrastructure, both of people, our sales team, and our client support team, and our technology. We're looking at companies probably of around GBP 1 million worth of ARR that maybe have not advanced or invested in technology or feel they can afford to invest in technology. In terms of our valuation, we've been looking at We are really capped by the current valuation of ourselves and our current valuation is around the 3x ARR max. That would be our max. Could I add to that? We're quite prudent in our approach, and we've probably been a bit too strict with our criteria in the past. We're not changing that stance, but we are becoming more proactive about scanning the market, as Richard mentioned earlier. We are proactively looking there and there are interesting opportunities. However, given our strict criteria, we will proceed prudently whenever we do. The next question is about what do you see the EBITDA margin in the next 1-3 years. I mean, I can't really answer that too specifically, but I would advise you to look at the guidance in the marketplace by Cavendish as an indication of where that could be. Our estimated market share, and where do you see us in the medium term? Do you want to take that one, Vivek? Yes. There's a sweet spot for us between 100 and 2,000 user companies. So companies with employees between 100 and 2,000. Of that demographic, we have around a 3%, just over 3% market share. In there, we do want to expand a lot more with the smallest businesses, even the nano-sized businesses with our CoreCompliance product. There's a lot of progress to be made over there. Amongst the very largest clients, those with over 2,000 employees, once again, we have a few percent market share. The next question, what markets do you operate in, and do you plan to enter any other markets or segments within the same market? Mm-hmm. Yes. The vast majority of our ARR is coming from companies in the U.K. As I mentioned earlier, only about 4% from those in the EU, and then we have a scattering of other clients outside those that might be exposed to U.K. regulations. In the U.K., the vast majority of our clients, so somewhere in excess of 50% of our clients and in excess of 50% of our ARR comes from clients in the financial services sector. That's our big sector exposure. Outside that, we don't have an exposure in any of the other areas. We do see opportunities through acquisitions and through our own organic marketing to enter other sectors in professional services, social care, public sector. We do see opportunities there. "Any specific areas that you're looking for an acquisition in? Your general opinion on the possibility of an acquisition would be appreciated since your last meeting." As I said earlier, we've now engaged in some deal origination people to look more seriously at this. We have got a list. We are making approaches, and we've got some meetings happening. It's still fairly early days. I think the market is heavily fragmented. There's an awful lot of players in the market, many small players, and we remain optimistic that there is a chance to acquire some things, but it really does depend on the seller's value expectations as to how successful we will be. I can take the last one here, which is about who we think are the main competitors of Skillcast and how we see the competitive landscape developing. Is it getting more competitive? I'd rather not name any names on this call. You can do a quick check and find out that in financial services sector where we are very strong, there is really just two competitors of ours that we come up against often. There are three very strong players. Outside of financial services, as Richard just said, there is a lot of small companies with a few clients each and not very strong technology as the way we have it. When we win new clients, it is far more likely than not that they tend to be greenfield, so companies that have not yet put in place a proper compliance platform of the type that we offer to our clients. We are really still dealing with greenfield clients most often. In financial services, we do win clients against our competitors. The way we see the competitive landscape developing is certainly there are new entrants excited about artificial intelligence or AI offerings. We have our own AI offering. However, we do see that the threat level from competition has, if anything, just reduced a little bit over the past few years, apart from those AI-led offerings. Those vendors are more successful in the skills space, so skills e-learning. In the compliance domain where we operate, clients still want robustness, long track record, care and cautiousness, which is what we offer to our clients. We feel that the competitive landscape is quite steady. That is great, Vivek. Richard, if I may just jump back in there, and thank you for addressing all those questions from investors today. The company can review all questions submitted today, and we will publish the responses on the Investor Meet Company platform. Vivek, before I redirect investors to provide you with their feedback, which is particularly important to the company, could I please ask you for a few closing comments? Certainly. I would like everyone to take away some of the salient points that we discussed today. Namely, that we operate in a large and very resilient marketplace. We have a consistent B2B SaaS revenue growth model. We have good underlying profitability at all levels, gross, EBITDA, and net profit levels. We are well-placed in the changing marketplace. We have got a robust operation to deliver high-quality service to our clients. We at Skillcast are on a journey to help companies build more ethical compliance and resilient workplaces. We are making good progress on that. Thank you all for joining, and thank you for the investors who have believed in us and are here on this journey. Fantastic, Vivek, Richard. Thank you once again for updating investors today. Could I please ask investors not to close the session, as you will now be automatically redirected to provide your feedback in order that the team can better understand your views and expectations. This will only take a few moments to complete and I am sure will be greatly valued by the company. On behalf of the management team of the Skillcast Group PLC, we would like to thank you for attending today's presentation and good afternoon to you all.