Earnings Call: H2 2024

Apr 29, 2025

Quarterly report

Summary

FY24 revenue rose 17% to £13.2m and ARR grew 25% to £11.6m, with EBITDA returning to £0.5m and free cash flow reaching £2m. Q1 2025 ARR exceeded £12.1m, and operational gearing is expected to support further profit growth.

Good afternoon, and welcome to the Skillcast Group PLC annual results 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, and I would now like to hand you over to CEO Vivek Dodd. Good afternoon to you. Thank you, Alex, and thank you all for joining us today for our full year results for 2024. I'm Vivek Dodd, I'm the CEO of the company, and I'm joined today by Richard Steele, our CFO. I'll just go quickly over the financial and operational highlights with you, and then I'll hand over to Richard to take you through the details of the financials. 2024 was an eventful year for us. We kept up our ARR growth, got back to profitability whilst generating very strong cash flows, as you see here on this page. These give an indication of further performance to come. Our book of annual subscription contracts, which is essentially captured by our ARR, grew by 25% in the year, ending at GBP 11.6 million, which incidentally is exactly twice the level with which we went to market three years earlier. This resulted in a 29% growth in subscription revenues to GBP 11 million, which in turn raised our overall revenue by 17% to GBP 13.2 million. The overall revenue was slightly held back by professional services. We'll talk about that later on in this call, which although are non-strategic, still very important to us. However, our revenues now are totally dominated by subscriptions that have grown from around 60% of our total revenue mix at the time of the IPO, to 83% at the end of 2024. in 2024, we also saw the end of our investment phase, whereby we used the IPO funds to accelerate investments in our infrastructure, governance, team leadership, senior roles, product development, sales, and marketing. With that phase now over, you can start to see that operational gearing really come through. Whilst our revenues grew by 17%, our overheads grew by only 9%, which took us from an EBITDA position of -5% in 2023, the year before, to +4% EBITDA or GBP 0.5 million in 2024. We expect this operational gearing to continue driving up our EBITDA profitability in future periods. This also, of course, helped our free cash flows bounce back from slightly under zero in 2023 to GBP 2 million in 2024. In light of these improvements and the return to profitability, we declared a final dividend up 25%. The total dividend for 2024, including the interim we paid in October last year, is therefore up 16%. Just turning over to the operational front. I'm delighted to report that the Skillcast Premium plan we launched last year that bundles together many of our GRC tools accounted for 6% of our ARR book by the end of the year. The Premium Plan gets us embedded more firmly as a GRC solutions provider with our clients. It has a revenue uplift for us, as well as better client retention. I am also encouraged by the progress we made with CoreCompliance, our pre-configured, no-frills solution for cost-sensitive smaller businesses. This got up to 1% of our ARR book, and we see a huge potential for this product ahead. We are also very excited about our AI-powered compliance assistant. I spoke about this briefly in our presentation September last year. This AI power tool is something we call Aida, and it is now in our beta testing with clients and has been well-received by compliance officers. It allows essentially employees to ask compliance-related questions within our courses as well as on their compliance portals, and it gives them answers based on content that we have created at Skillcast and that our clients have provided in the form of their policies and other documents. If Aida cannot find an answer within this document, it declines to answer. This way, it reduces the risks associated with some of the public AI bots. We have also made progress on a few other fronts, which I reported back in September last year. That is our marketing. You will notice that our website has a new look. It has been rebranded. It has also had a fresh back end to drive data-driven marketing. We have maintained our client service record with the Feefo Platinum Service Award, our accreditations in the cybersecurity areas, and our new terms of service which have now pretty much been rolled out to all of our existing clients, incorporating auto-renewal. One area where we had to reduce our headcount was professional services to bring it in line with the reduced revenues, and reflect lower demand. However, we bore the full cost for the year 2024, and these reductions will only be reflected going forward in 2025. At this point, I will hand over to Richard to take you through the financial performance. Good afternoon, everybody, and thank you, Vivek. Just a little bit more information on our financials for the year ending 31st December 2024. As you can see on the screen, looking at our income statement, our revenues grew 17% on the year, and this was all from the increase in our subscription revenues, which grew to almost GBP 11 million or 29% increase on the year. This was a similar growth rate to the previous year. The graph in the bottom left shows the increasing trend of our subscription revenues as a percentage of total revenues go from around 50% six, seven years ago to over 80% in the last year. As Vivek mentioned, our non-strategic professional services revenues have been impacted and have declined by 18% on the year, have been impacted by clients being more hesitant to commit to bespoke projects. It is still an important part of our business, though it is our subscription revenue that we are focused on strategically to keep growing. Our gross profit percentage increased almost 4 percentage points from 69.7% in 2023 to 73.6% in 2024. This was primarily as a result of operational gearing as our costs of sales grew at a slower rate than our revenues. Our overheads also increased at a slower rate than our revenues, increasing by 9% on the year to GBP 9.5 million. This was primarily through some people cost increases and increased marketing activity. All of this enabled us to return to profitability by generating GBP 500,000 of EBITDA, which is GBP 1.1 million more than the previous year. In light of that, we are looking at increasing our dividends by 16% on the year by paying a final dividend 25% up on the year. This chart looks at our overheads as a percentage of our ARR or annualised recurring revenue, and we show this as an indicator of our future profitability. In the second half of 2024 or H2 '24, on the right-hand side of the chart, our overheads as a percentage of ARR had fallen to 40%. As you can see, this is lower than the 43% and 44% pre-IPO in December 2021, and gives an indication that our profits in 2025 and beyond should continue to grow. The increase to 58% of overheads in H2 '22 was, as Vivek mentioned, during our period of post-IPO investment in overheads, primarily in the commercial and organizational structures to support the future growth that we are now seeing. The business is highly cash generative, as well as producing GBP 550,000 of PBT in the year. It generated GBP 2 million worth of free cash compared to the loss of GBP 300,000 the year before. The business is cash rich. It has GBP 9.1 million in the bank at the end of December, and from this, we generated over GBP 300,000 of interest from cash and deposit. The business model is primarily from subscription revenues, where clients contract for 12 months and are invoiced upfront and typically pay on 30 days. Therefore, as the business grows and the ARR grows, the cash grows, as you can see in the increase in trade other payables through deferred revenue. The group's policy, as we said, is to increase dividends broadly in line to subscription revenues now that we've returned to profitability. In 2023, a final dividend of GBP 250,000 was paid during the year in July 2024. In October 2024, we paid an interim dividend for 2025 of GBP 150,000. We are now paying a final dividend for 2024 of 25% up on the year on GBP 312,000, which we are declaring to pay in July 2025. Our balance sheet grew and remains very healthy. We have few non-current assets or fixed assets, and we do not capitalize any of our product and tech development. Our receivables, and including debtors, remained GBP 3.1 million on the year despite a 17% growth in revenues, as you saw improved working capital and debtor reduction during the year. Our net cash therefore grew in the year from GBP 7.2 million at December 2023 to GBP 9.1 million at December 2024. We just thought we would just spend a moment to sort of reflect on the three years of progress we've made since our IPO in December 2021. As you can see on the left, we have doubled our annualised recurring revenue from GBP 5.8 million in December 2021 to GBP 11.6 million in December 2024, which is a compound annual growth rate of 26%. This has also led to a doubling of subscription revenues to GBP 11 million over the same period. Our gross profit margins have increased from 70.5% in 2021 to 73.6%. The dip in the intermediate years were primarily due to the investment in cloud-based computing for all our clients, and the migration to Microsoft Azure. The EBITDA margin is on a recovery path, as you can see. We have not got back to the 15% of 2021, but we have got to 4% in 2024. As indicated earlier on the chart of overheads as a percentage of ARR, we anticipate that this margin will continue to grow. Free cash flow has increased from GBP 1.1 million in 2021 to over GBP 2 million in 2024. The main milestones that we have achieved in this period are: in 2021, we IPO'd and constituted a board. In 2022, we started our investment phase, we strengthened our governance and executive team, we expanded our sales and marketing overheads, and we started to build and improve our regtech registers. In 2023, we migrated all 1,300 plus clients into the Microsoft cloud environment. We developed new embedded learning fast track products like Fast Track and microlearning to support and improve the learning environment and the experience of our clients. In 2024, we crossed the GBP 10 million ARR milestone. We launched our Skillcast Premium plan offer that Vivek mentioned earlier, and we also launched our CoreCompliance entry-level self-serve e-commerce offer. 2025 has started well. Having developed Aida, our AI digital assistant in 2024, we started the year with some successful initial trials. We have launched our Enhanced Plan offer for people that want to use Aida, our digital assistants, as well as Fast Track and our other microlearning products. We have launched our new Remote Services offer for clients that do not want to take our learning management system, but do want to benefit from all the analytics we can provide. Current trading. In the first three months of 2025, we have seen a solid start to the year, with our ARR continuing to grow and reach over GBP 12.1 million and remain above 20% year-on-year at the 31st of March. We have increased our prices from the 1st of January by 3%, which has been well received by clients. Our professional services are slight below expectations, but it is inherently lumpy and has poorer visibility than our subscription revenue, but is performing okay at the moment. Our product and marketing activity continues to increase. We had an annual summit in January, which was complete sellout, and we had to create a virtual room for those that were not able to attend in person to attend. Our AI digital assistant, Aida, was trialed by over 87 clients, and we intend to launch that later this year. Our sales of Skillcast Premium and CoreCompliance offers continue to grow, and we launched our Enhanced Plan offer in January 2025. As Vivek said, and hopefully you have noticed, we rebranded and launched our new website in March 2025. In terms of profitability, we continue to trade in line with expectations and continue to hope to see benefits from operational gearing with profitability weighted toward H2 as it was in 2024 due to the pay rise and rebrand marketing costs hitting H1. I would like to hand back to Vivek to talk a bit more about strategy. Let us just move to the next slide. Our strategy is very firmly centered around growing our ARR book organically. We do this in several ways. Firstly, our focus on product innovation, continuous improvement, and proactive customer service to maintain client retention. That is the base layer of our business. With add-ons and upgrades, we are moving our existing clients up, giving ourselves an ARR uplift there. This helps to keep our net retention, which includes the churn, downsells, upsells, and upgrades, upsells all included in there, above 100%. On top of that, we are adding new client logos using our well-established inbound marketing and sales funnel. We also are exploring other areas, as I mentioned, CoreCompliance, which is our no-frills pre-configured compliance e-learning solution for the smaller, more price sensitive businesses. We have spoken about Aida, our AI-powered digital assistant. We are using this as an incentive, as Richard mentioned as well, to incentivize the take-up of our Enhanced and Premium Plans. Also, we brought in Remote Services to help us reach companies that cannot or will not move their LMS platform to Skillcast. We still remain committed to our professional services. These are non-strategic. Of course, our strategic priority is all around ARR. They are still important in client retention, because we help our clients with our professional services to customize our content, make it more relevant for their employees, and make it more sticky. Professional services also provides to us market intelligence, both in the areas of content and technology, by working with some of the leading firms in the world. We are also open to using our cash to make acquisitions in adjacent verticals. Slightly challenged at the moment with the valuation gap that exists between our own valuation and what we see in the private market, but we are still looking at opportunities there. Before we end and take questions, I just want to reiterate our investment case. We are operating in a market that is large and resilient. We have seen that in the several downturns in the market, and the one that is currently going on, that we can continue to grow at pace. The size of the market allows us quite a long runway ahead in terms of growth. We are building this growth based on that solid net retention rate, above 100%, having a consistent sales pipeline of new ARR, keeping a very diversified customer base, so no one customer loss has a major impact on us. Also in line with that, we've got our operational gearing, which started to show through in 2024 and should carry on in the future. That means improving gross margins, improving EBITDA margins, running ahead of our overall revenue growth. We are well-placed in the changing marketplace with this focus we've got on several ends of the market, from the smallest, most price sensitive end with CoreCompliance, and the larger, less price sensitive end of clients that want the full GRC solution with our Skillcast Premium plan offer. We believe that we have a fantastic offering with our AI-powered tool, Aida, to help the upgrades to Skillcast Premium and Enhanced Plans. We are also entering areas not previously available to us through using Remote Services. Finally, we have strengthened our operations and our governance since the IPO with the board and management, all of us having minimum of 25 years experience. Myself and my co-founders each have over 25 years of experience in the compliance sector. We also maintain high employee retention by looking after our people, and that drives customer service, continuous innovation, and knowledge retention in the company. Another strength of ours is that all of our technology and content IP is owned by us and internally generated by us, which allows us the agility to react to market trends and stay ahead of competition. With that, I think we can turn to the questions that have come in. That's great, Vivek. Richard, 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 top right corner of your screen. While the company takes a few moments to review those questions submitted today, I would like to remind you that your 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 in 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'll pick up from you both at the end. Thank you. Thank you, Alex. The first question is, "Why has churn increased so much over the past two half-year periods?" Our churn is a little bit cyclical. If you look at a 3- to 4-year history, on the whole, we tend to have a high single-digit churn. So 2024 was slightly higher than we have seen previously. Good to see that in 2025 it has come back down so far to single-digit figures. There is no particular strong reason as to why the churn increased in that year. We are at the mercy of clients being bought and sold by other companies in the market, and quite often it is beyond their control, and it can be if they have been bought by someone that they could lead to a churn. We remain fairly competitive in our marketplace. Sometimes there is a churn because the client may feel that our offer is not broad enough, and occasionally it is for price reasons. But generally, there is nothing in our churn while slightly higher than we would like in 2024. There is nothing in that churn figure that is of any real concern to us at this point in time. Yeah, I can take the next question. It is saying, "Can we elaborate on the type of content and tech assets we are targeting for bolt-on acquisitions, and how would these be integrated?" Well, we are very focused and very clear internally on the type of acquisitions we would consider, and these are very much in the area of buying content providers who can give us an entry, a solid entry. They have got reputable product, and they can give us a solid entry into an adjacent sector. So sectors like professional services, outside financial services where we are pretty strong already. Social care, blue light, government sector. So it is in those areas. We are unlikely to make an acquisition of tech assets. We are not looking for doing that. We believe we have already got a fantastic comprehensive and compelling offering on the technology side, and by acquiring smaller content providers, we believe we can cross-sell our technology in there. The next question is, "Is a share buyback program under consideration given the disconnect between valuation and operational progress?" Obviously, we discuss various issues on the uses of our cash and our surplus cash. Our primary objective maintains to use that cash for M&A activity if we can. We have also, as you have noticed, started to increase our dividends now that we have returned to profitability. At this moment in time, though, a share buyback scheme is not something that we are looking at, as it will probably make the impact on liquidity, which is already relatively small, increasingly challenging. The next question is, "Can you talk about your M&A strategy? Have you done any DD on any? You stated in your finals that price expectations amongst private companies are considerably excess of those we are experiencing in the public markets. Does that mean you will no longer be looking to bolt on acquisitions? Again, I'm happy to get that one, Vivek, if that's okay. Yes. I did speak about this in context of the previous question. We are certainly open to acquisitions. We don't have any active prospects at the moment. We continue to speak with brokers and explore avenues. However, we don't have any active proposals at this stage. Although the price expectations in the private market are ahead of what we have been able to pay in the past, our position is continually evolving, and it may work out in the future by looking at the overall dynamic and how we are able to upsell our products in there. So we still remain hopeful. The next question is, "What percentage of current clients are using the full compliance stack versus only select modules, and how are you incentivizing broader adoption?" The short answer is there's probably a relatively small amount that use the whole compliance stack because it doesn't relate or be relevant to every single client. The other way of answering this question is that well over 90% use at least some of the tech stack. As we said earlier, there is these upsell products like embedded enhanced learning and Skillcast Premium that we're using to help incentivize and upsell people to use more of the tech products. I'll take the next question. This is asking, "Could we explain simply what we do?" And forgive us for not giving that introduction. We have spoken about it in previous presentations, but let me just take you to this slide in the appendix, which talks about our services. This is in a snapshot everything that we do. So essentially we've got two streams, professional services accounting for around 17% of our revenues in 2024, and subscriptions accounting for 83% of the revenues. We spoke about professional services, and in the area of subscriptions we, again, break things down between technology and content. Both are delivered as a subscription service to our clients. We do not normally sell individual courses. We bundle our courses in the form of these libraries that you see running through the middle: Compliance Essentials, Compliance Bites, FCA Compliance, Insurance Compliance, Global Compliance, and Global Risk Management. In technology, once again, we bundle the features on our platform in the form of plans. The one on the extreme left is Managed GRC. That is the core of our technology offering, where clients are hosting, effectively, their compliance processes on our technology. Standard is essentially helping our clients digitize their compliance e-learning. Enhanced is one level above with some of the innovations that Richard mentioned earlier. Premium is the full GRC offering that helps our clients digitize not only their compliance training, but also policy management, registers such as gifts and hospitality, and declarations such as fit and proper. We also have alternatives for clients that cannot move to our technology platform in the form of Remote Services and the pre-configured GRC, that is CoreCompliance I spoke about earlier as well. I hope this helps you get a fuller picture of everything that Skillcast has to offer. I will also take the next question, which is asking whether AI could be a threat to Skillcast. Of course, it could be. It is a threat as well as an opportunity for all digital businesses such as ours. Currently, we perceive it more of an opportunity. With Aida, we are able to deliver something we were never able to do, which is that two-way conversation with our end users. An enhanced experience whereby we can be more meaningful to them. Instead of utilizing our services once or twice a year when they are being assigned mandatory training, they can actually use our services in the flow of their work. We are hugely excited with the potential that AI has to offer. But of course, we do see the threat element as well. The last question we see here- Alex. I will take the last question here, which is that we mentioned earlier that there is the valuation gap between private targets and ourselves. It does not suggest that a share buyback would be a better use of capital at the current time. We would not draw that conclusion necessarily. The cash in bank offers us a very small interest, which is not something we look forward to. But at the same time, a share buyback, although it has been discussed, is certainly not on our agenda. I think that is the end of the questions. Probably best to hand back to Alex, is it? That is great, Richard, Vivek. Thank you for addressing all those questions from investors today. The company can review all questions submitted today, and we will publish those responses on the Investor Meet Company platform. But before redirecting investors to provide you with their feedback, which is particularly important for the company, Vivek, could I please ask you for a few closing comments? Thank you all for joining us today. In wrapping up, I will say that we are pleased to return back to profitability in 2024 whilst maintaining our ARR growth. 2025 has started well for us, and we are excited about continuing our growth and profitability path ahead. Thank you. That is great, Vivek, Richard. Thank you once again for updating investors today. Could I please ask investors now to close this session, as you will now be automatically redirected to provide your feedback and also let the board committee 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 Skillcast Group PLC, we would like to thank you for attending today's presentation, and good afternoon to you all.