Northcoders Group (LSE:CODE) — Interim Results

0:00 Good afternoon, and welcome to the NORTHCODERS GROUP PLC Interim Results Investor Presentation. Throughout this recorded meeting, investors are in listen only mode. Company The may not be in a position to answer every question received during the meeting itself. However, can review all questions submitted there and publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Chris Hill, CEO. Good afternoon, sir. Hi. Thank you very much. Good afternoon. So we've had a great start to the year with our H1 results. So thank you for joining us, we're looking forward to going through them with you. My name is Chris. I'm the founder of NORTHCODERS. I'm the CEO. Hi, everyone. My name is Charlotte Prior, 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 $4,400,000 in the period, and this was slightly ahead of management expectations.

1:05 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 on around 62, 63%. So we've really drove driven those efficiencies within that teaching model. So that's down to the end core platform that we have end And And we're lot past. A we're seeing 40,000 to just over 400,000 in the period.

1:54 That is down to investments made in the efficiencies last the investments that we 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 1,300,000. This is a really comfortable position for us to be in, and 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 boot camps has not decreased.

2:39 We are now looking at registrations rather than applications. Registrations really tell us the people that are interested in the course after they've sampled some of our material, and we believe it's a much more accurate metric to follow. So that has increased to 4,700 in the period and then has continued to grow with over 3,000 in q three, which is obviously not actually finished yet. We had the £10,000,000 department for education funding in January this year, which is will continue to June 2025. That was an eighteen month contract. We're working through that really well and producing really good outcomes and really good KPIs on that contract.

3:27 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 was. That's happened really organically, and we have 34% of our students based in London. We don't have physical space in London. That is down to marketing efforts alone. And so that is a really good area for us to grow into, for us to put a bit of investment to really explore the London market. Corporate solutions division has rebranded as COUNTA in May this year. We've appointed Tom Walton as a strategic strategic adviser, and Chris will go on to talk more about COUNTA later on in the presentation.

4:14 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 square foot just before COVID, and we don't need all that space because of the new teaching model. So we're pleased to be able to come out and downsize that office at the end of this year. That'll give us a good cost saving with rent and with rent free period as well. And we have released two new courses in the period, so Java and c sharp. Java, we are moving on to our second cohort, and the c sharp cohort is due to start in November. These are both iterations of software development, but more specialized to to enable people to go into more different jobs.

5:06 Thank you, Scott. A significant effort that we've 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. And what we want to do is really bring that back to just the things that we excel at and concentrate more on those and not have too many different too much different messaging and really understand how to best track growth from simple base. So large change that we've made is tech returners has now been dissolved into the two divisions of NORTHCODERS. Last year, we upgraded three divisions, training boot camps, corporate solutions, and tech returners. We've now extracted out the elements of tech returners, which are courseware and put them into the training boot camps and the corporate solutions recruitment of experienced engineers as well into counter, which I'll talk more about in a few moments.

6:02 So just to look through really quickly on the the the business model, we're super proud to have a training model that feeds into our corporate business. We, as Charles said, have introduced two new elements of software development this year to our courses, are Java and c sharp. Now these are more enterprise level programming languages and frameworks that are used by, for example, bigger banks as opposed to smaller startups. And it's quite new in the industry because we do have competition from other coding boot camps that are all almost running mostly JavaScript web based training programs. And to go into these areas gives us a expansion into markets, specific counter on the corporate side, which we didn't really have before.

6:53 In terms of graduates finishing our courses, we then have different options for those individuals. They go and get enrolled in the industry or if they join COUNTA, they will become a consultant for our business and that's a bit of a description to the higher training employee sector. Again, back to simplicity, the core drivers of the business genuinely are the fact that we have an excellent reputation and, you know, fantastic training services. We we attract so many people that want to do our courses, and we select the best people for that. And we generally believe that our trading boot camps power our corporate market and the B2B market is a vast opportunity for this business. But of course, over the years, the growth of the trading bootcamps alone as well as the efficiencies that we brought into by really innovating on that teaching model, growing more profitability in those areas.

7:50 So in terms of our vision, we generally believe we are the world's leading training boot camp, again, with the innovation and doing things that not all of our competitors do, such as enterprise level training courses. And we think we can go on from here to grow that to being a real technology skills accelerator for businesses, certainly within The UK. And in the much more distant future, there's no reason why as other to we're we're that. That. Exceptional reputation in the industry where people will hire our graduates, So and that is because the quality of our education is the best around.

8:39 We believe that we are a market leader, and our start salaries for students leaving the course are circa £30,000. We have flexible learning options. So we have a full time course and a part time course available now for students that can quit their jobs. They can kind of put their and the life the job life on hold for thirteen weeks, and, therefore, we've opened up a part time version of the course. All of our tutors are experts in the field. They're all software developers or data engineers, and we ensure that they really keep up with the bleeding edge of what technology is being used in industry and what's and to bring that back into the curriculum. We have over eight years of community now, and we've trained over 3,000 students. So we are not seeing the benefits of those students now moving into CTO roles or management roles and coming back and hiring North Dakota's.

9:41 We have jobs job and placement support. We don't 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. And 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. So significant milestone this year has been the rebrand of our corporate solutions division, which was previously on the NORTHCODERS it's a COUNTA. So COUNTA is a consultancy, and the reason why we are a COUNTA consultant is because we do things differently, and we're really innovating on the higher trend deploy market by bringing a a fresh perspective to the ways that companies can engage with the different teams, by giving a technological lead and actually handpicking handpicking individuals for projects as opposed to having a big collective bench of people that we are deploying out into contracts. And we generally believe that, you know, people may be deployed into war zones, but not so much into jobs and careers that they love. And that's the reason why we believe that we're a great challenge brand to that market.

11:04 We've got highly experienced team. I'm always been with the company since the very early days as head of our partnerships, and we are growing this brand initially with a very small footprint of Manchester only, where Among is very well connected and also engages with other businesses to really push forward the brand. Tom Walton was a founder of a company called Infinity Works. I actually worked with Tom years ago at Sky, and he's always been a keen follower and also an investor in in in North Codders, and in its words, went on to see exponential growth and they sold to Accenture. And he's now going 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 COUNTA can achieve.

11:55 And also James, tech returns coming into COUNTA, James is the previous CTO and a technical expert who looks after our tech leads and the kind of wraparound support that we offer to our COUNTA consultants to make sure that both our clients and the individuals that go into these programs are gonna get the best outcome possible. So what does we do at COUNTA? So we cherry pick consultants coming to your business. That's not only about their technical skills, it might be about their career changes and returners, have previous experience in other areas. So if you're in financial services, if you've got experience in that in in in that sector, that could be incredibly beneficial to your future employer whilst your role might be completely different. We don't have an a utilization rate issue because we have a 100% a 100% of our accounts consultants are employed just for that project.

12:51 We can also source different expertise and specialisms through tech returners, which might help to support those projects and genuine with people with more experience leads to a higher revenue model for that. And the great self worth of counter for clients working with us is that not only the new to technology people like in many, hey, higher trained, deployed businesses, but the returns as well of previous experience at the end of the program free to be employed by our clients. So we go across a fair few areas within COUNTA, again, spreading out the expertise from the training boot camps, from the returner programs. We do software engineering, data engineering, cloud and mobile.

13:38 And we're also now into areas like artificial intelligence. We just made our first hire recently with someone from AWS who's had a lot experience in building up those large language models that we've all heard a lot about over the past sort of twelve to eighteen months. And, yeah, we also can look at areas such as, local development. For example, Salesforce would be one of those things if if for those who are not familiar with the term. So what's our UXPs? Huge. You know, we are the first people to meet a note owner or a tech returner, so we can naturally engage early and cherry pick the very best people for that business. And we're also a onshore model, which is the same price as a as a near shore one. So as things like tax credits get more and more strict, organizations are incentivized to bring the kind of engineering and the technical associates back to being UK based. And the fact that we can do that on the same price model as the initial models, that's a great thing for Kanta.

14:50 According to the competition, so we you know, training training boot camps, training boot camps is a much larger sector now than it was when when we first started. We've had many a spin up and a a new other businesses such as recruitment firms going into the area. But we genuinely innovate, and we generally excellence first in terms of both people that we recruit for our courses. So we're always first choice. We have amazing feedback on what we do. We're also going into areas such as we mentioned earlier, like more enterprise level engineering is what we focus on from a trading boot camp point of view. And, yeah, of course, within within corporate solution, this is a vast market, you know, the smallest smallest slice you could possibly imagine of that market for North Carolina is to go into would give us exponential growth as we've seen from other organizations who succeed in that field and there's a few there listed who some of them are our competitors, but we also have a consult ancy to consultancy model with encounter that means that we can work with businesses to provide, like, sort of boardroom expertise, but where we are more of the the team on the ground actually does the work, and that's beneficial to businesses to to build out that long term talent pool.

16:12 We've just pulled out a few statistics that we will I'll 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 the company's hiring tech graduates, but that has increased this year. The demand for software engineers isn't going anywhere, and that continues. These jobs continue to be a a big demand in in the jobs market. And we just wanted to pull out a statement from, to kind of look at the way that labor are looking at skills and the need for skills within The UK, especially tech skills. They have spoke about localizing skills funding, and they've also spoke about further utilizing their apprenticeship levy as well for things like boot camps. And so we'll we'll see what happens in that that area over the coming weeks and months, but we are in a good position to pick up any funding that that there is for this type of training.

17:23 Looking at the finances, I just wanted to pop some graphs on here to show the revenue growth over the last few years. The '24 and '25 are based on the broker forecast. But as you can see, we're not trying to change the world in 2024 or 2025, and we are halfway towards that management expectation at the half year. EBITDA wise, we did have a rough year last year. We did lose money at EBITDA level, And we've kind of spoke about the investments that we made a year where revenue didn't grow as as much as we hoped or forecasted. We've completely turned that around this year, and we're very, very comfortable with the market expectation of just under 1,000,000 for EBITDA in 2024, and then the 1,200,000 for 2025 falls through really comfortably as well.

18:22 So for the first six months, we have a revenue increase to $4.4300000 and gross profit margin to 2.9 at 67%. Adjusted EBITDA of just under 450,000, which is a margin of 10%, and an operating profit of a 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've made investments in the first half, which won't carry through. On the statement of cash flows, next slide, please.

19:08 And we have positive cash inflows from operating activities. We have a slight increase in trading of the receivables. That's time to think on the DFE money coming in. We obviously teach in bigger cohorts as the years go on, and therefore, that's caused a slight increase there. And then a slight increase on trade and other payables as well, a very, very small increase, mostly just timing. Have had no new issue of shares in the period and no new bank loans or borrowings. We we pay bank loans at around 22,000 capital per month, and we obviously repay our lease obligations as well.

19:53 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. The cash balance at the end of the period ended on 1,300,000. Balance sheet wise, we have noncurrent assets of 3,600,000. This is 1,600,000 worth of intangible assets. So when we develop the platforms such as encore and JS basics so encore is our learning platform. JS basics is the platform that we use when people apply to the course. So they will sit some entry will study some entry material, work their way up to sit in that entry challenge. That's all now done on an internal platform so we can really monitor that pipeline.

20:55 We have 1,300,000 of goodwill in there, which is the goodwill from the tech returns acquisition, and then about 9,300,000 of 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 9,600,000, so we do expect to have these paid off by the end of next year. And, yes, as I said before, they paid off 22,000 capital to bring us to a net assets figure of just over 5,000,000. So we started, again, the second half of this year really, really well, and we are very slightly ahead of our management expectations in terms of that half of the year.

21:55 We continue to look at, you know, increases in brand awareness, and we're always looking to do different things to diversify our revenue streams, learning streams. And so we continue to investment invest this year in those new technologies with c sharp being the final course for the that we're going to introduce. And then not final course forever, but, you know, for next year, we're gonna let those four that we've got really embedded and, you know, 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 generally think that the market opportunity is vast to concentrate on things that we know we do really well and provide great value for all our all our stakeholders. And, yeah, we're super confident in our ability to to deliver on, you know, the expectations for this year and and certainly beyond that also. So, yeah, thank you. And I have got some questions, which I'll start, and I'm gonna do the first one. I'm gonna hand those to Charles for the second and then a couple more.

23:01 So thank you, James. Do you anticipate further reduction in physical space with the beauty shift into a fully virtual model? With the move to a great virtual offering, how you imagine the quality outcomes for in mid students? So we have our head offices in Manchester, so we do step in the new one. We do still have sort of that kind of we works out co working space for those learners. And we do have the same leads also because we've got we've got quite a few with operating leads for many, many years, and we do have quite a lot of our core team members based in that area. And we are now, for example, rest of it today, had someone within the partnerships development for corporate set start with pace here in London. We don't have an office, but, you know, they're happy to kind of do their own thing and and and work remotely. So that course is is an option. But I think it's really more important to talk about that kind of community and events and feeling part of something as opposed to having a office that you can go to to do your coding course. We no longer have the hub in Newcastle or in Birmingham, and we've never had one in London. But, however, we now have one third of our students based here in London. And what we're really doing to keep them engaged as opposed to giving them an expensive office is we can we can do a lot more with the cost of a central when you need to spend on a central office, we can do a lot more to make those individuals engaged and drive fantastic outcomes

24:31 for them because of that than providing an office. So we have a question from Rob. How much of your future revenue can you see at any point? So coming into this year, we actually had something like 95% of our revenue visible, and maybe even higher than that because we won a £10,000,000 department for education bid. And, obviously, in an ideal world, we will always win that type of funding just able do do The to new labor that. Government with the new labor government and changes within the government, we are seeing a slightly more a slightly slower approach to getting those bids out, but we're still confident that by the end of the year, we'll have some we'll have an idea and something in place.

25:35 So, hopefully, we we will be the same next year. That's very, very different for us. We used to operate a model of we we would have three months worth of revenue visibility because a student would sign to the course, they would pay, and they would be on the course for three months. So that's changed quite a lot. It will change further with COUNTA. So COUNTA contracts are around six to twelve months long, And so we will have the revenue visibility and the contracted revenue from the COUNTA contracts as well. So 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, the one in terms of the late government.

26:22 We actually have a a ministerial visit to our next week on Friday as it happens. But, yeah, we're super confident in the investment in skills, and we think that the what we're hearing about what they want to do with the apprenticeship levy and what they want to do develop with skills England. I mean, these training boot camps are providing significant value. Like, NORTHCODERS is having, for example, someone who was a busker, you know, now earning double the national average wage working as a software engineer. And in terms of repayment on that very small sort of 10,000 investment from the government, they have years and years and years of that kind of income tax, then mind the actual business value being provided by that individual. And, yeah, whilst we're hearing quite a lot about the budget, we're all hearing about our, you know, capital gains tax about, you know, people getting told they're not gonna get any help paying for their winter fuel anymore while they've been told not being told. Sorry.

27:13 However, you know, we're not hearing any oh, we're gonna make significant cuts to education, to skills, to the future of of the super important workforce, the growth. We're hearing the the polar opposites again. It's a little bit uncertain at times, but from what we see, we're fairly confident in what's going on. So, Rob, a question here. Do you have option what options do you have to accelerate growth? Are there any opportunities you see in the near term? So I don't I'll say, definitely, this is near term being know, one I'll take a guess on, but we are now operating a part time training Google model as we intend to roll across roll out across all of our disciplines.

28:00 That's a very different model in the way that we are doing is we're giving lots of different flexible options to students the way that they learn. You don't need to be in you know, have that at a certain time. You certainly don't need to give up your job to attend NORTHCODERS Monday, Friday, nine to five. Now that's, again, yeah, looking at base of the CODE boot camp space isn't being done by many of the the the the bigger competitors, the bigger brands that sit alongside us. It might be done in 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 light to touch from North Coast, but it's still a top quality and high price per seat item. But, yeah, we tend to see that that could be something that could easily roll out, you know, further field than than than The UK, and we're just doing some kind of small cohorts of testing really at the moment.

28:57 And the same goes for same goes for COUNTA. So, you know, we we we have got counter contracts now. We looked at the launch of brand in May. We focus on getting it right, and we're really focusing on delivering quality and making sure that we build up a business model that is gonna really be able to grow massively in the future. And we kind of do things really super fast. We're also doing these things while making sure that we are bringing in profit for stakeholders. So that could be something that once we get to a bit of a critical mass of contracts and case studies, and we also have 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 we could really move the business side as a that's a massive area that I genuinely believe we have a a huge opportunity to disrupt.

29:51 But, yeah, it's about I think the term is walking for you before you run. Oh, sorry. I missed the question here. Thanks for the detailed presentation. Great progress on training numbers. What was the percentage complete complete rate? So in terms of the courses, it's the completion rates as you add more students does go down. It's around about ninety percent of people from starting complete the course in the education sector. That's pretty good. Of course, we do have to make sure that anyone who's committed to NORTHCODERS gets all the way through. And how do you achieve nearshore pricing as an onshore supplier? Well, because the the onshore the onshore consultancy, they've always charged far too much money. So that the nearshores have found a way of doing it cheaper, but still making tons of profit. And we're doing it at 50% margin where you get genuinely amazing people who are based in the town or the city that that that you want them to be. And, yeah, it's a it's a profitable model. And, you know, we're we're we're we're winning with our entire scalable too. I'm not sure. I've never asked that question before. Yeah. I think the fact that we also don't have a bench of people Yeah. To we don't have to pay people whilst they're not on contracts.

31:08 We can literally win a contract, hire the people straight from our boot camp, and then consult them out. So we don't have any kind of lost cost within that model, and therefore, we can just be cheaper than competition. So I'll take this one here, Charlotte, and we'll answer these questions, and we'll let everyone go with that. Evening. So good update sorry. Thank you, David. Good update. There's opportunity for geographic expansion with a shift to virtual delivery. I think that's probably since the question being asked, up in the answers that you can't see to the to the other couple of questions. But, yeah, in terms of, yeah, the actual virtual kind of delivery of courses and the the the basically, the the the core product, it looks more efficient than having offices and building up into outside it. And and in terms of a part time model, that is able to be to to even be done without kind of not without staffing completely. There's still mentorship and so on and so forth, but without actual physical delivery being required even even online. I think something just to point out on that, we actually do run a full virtual course.

32:16 All of the lectures are streamed out virtually. The seminar groups are virtual, and the kind of mental health is all virtual. The office space just provides people with a desk and a quiet environment to learn in. And we've had a student in Hong Kong learn virtually on the same course as people in Manchester. We've had someone in Iceland. And as long as the time time zones kind of work, the main barrier to kind of 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. And that is something that we will we will always look into investing in marketing around new in new areas to ensure that once we've got that reputation there, we can open up the the course to students, and then they can get that positive outcome at the end.

33:10 Oh, so Yeah. This one's from Matthew. Could external growth or bolt on acquisitions feature in your growth prospects, Or are you happy with your organic initiatives? We we did an acquisition in February last year, and we feel that that's really embedded in nicely now. We are seeing the efficiencies from the acquisition. We're seeing the new areas that that has got got us into, and the reputation of that brand has really helped us other areas as well. For now, we are trying to really grow organically. We we know where we want to be. We know how to get there, that is organically. Never say never. If something comes up and it just really makes sense, it it enables us to speed up our growth plans, then we would look at it. But right now, it's not acquisition kind of growth is not in our strategy.

34:08 Okay. That's it. Thank you for the questions. We've finished the we've finished the questions now. Fantastic. Look, thank you very much indeed for covering all those questions. Often, of course, any further questions that do come through, the team will be able to review those, and we'll publish response as appropriate to do so on the Investor Meet company platform. Just before redirecting investors to provide you their feedback, know it's particularly important to you, Chris, could I just ask you for a few closing comments, please? Yes, of course. Yes, great. And yes, just thank you all for giving your time to joining us. And we yeah. We're super happy with where we are now, so they compare to where things got to last year, and we believe incredibly in our in our prospects for the future. And we look forward to engaging with everyone wherever possible. And yes, thank you. That's all. Fantastic. Thank you, Chris, Charlotte. Thanks indeed for updating investors today. Can I please ask investors not to close the session? It should be automatically redirected to provide your feedback in order the team can better understand your views and expectations.

35:02 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.