Skillcast Group (LSE:SKL) — 2022 Full Year Results Presentation

0:01 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 can be submitted at any time via the q and 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 it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Vivek Dodd, CEO. Good afternoon,

0:32 sir. Thank you, Lee. Good afternoon to everybody. I'm Vivek Dodd. I'm the CEO of SKILLCAST, and with me today is Richard Steele, our CFO. And we'll be taking you through the highlights of our financial year 2022 and give you some insights into how we're trading post the end of the year. So I'll start by, giving you some of the financial highlights. Richard will go over these in greater detail in his slides in just a few minutes. But for the year, our total revenues were up 17% to 9,800,000.

1:21 This is the figure that we guided at the time of our January update. The entire growth of the these revenues came from our subscription business, which was up 28%. Our other revenues come from professional services, which was steady at 3,200,000. Our recurring revenue mix as a result of the increase of subscriptions was up to 68% from 62% in 2021, And our gross margin was 70%, which is a composite of the gross margin for our subscription business, which is rather higher than that, and margins in the professional services business that are lower.

2:09 Our ARR for the month of December 2022 was 6,800,000, which was 16% up on the same month in 2021. The EBITDA, we guided that at at minus naught point 5,000,000 in our update in January. But when the final figures were out, that was minus not point 3,000,000. Our cash position of 7,700,000 was not very far off the cash that we had at the same time the previous year.

2:55 During the year, we made significant progress on our investment strategy. We hired key talent in growth roles in top management, including our CFO and our chief people officer. Our headcount, therefore, increased from 88 to a 111 at the end of twenty twenty two. This was a 26% rise, and it was mainly in the commercial sales and marketing roles, product development, and also in building out our organization. During the year, we kept our customer services levels up at a rating of 4.9 out of five, and we retained our pre platinum service status with FIFA for a fourth year running.

3:56 We also expanded our marketing activity, which was previously mainly content led. So bringing people to the website,

4:06 getting them engaged with our compliance content, with free games, courses, and downloadables for compliance officers. We expanded that out to include face to face events, which we then formalized into our SKILLCAST connect community for compliance officers, which we launched in November 2022. Very significantly, we also migrated all of our clients to the Microsoft Azure cloud hosting platform. This is something that we set out to do at the time of the IPO. It was outlined in our admission documents, and we did talk about it in our in our meetings last year.

4:55 This work was largely done in 2022, but was completed finally in 2023, and this now opens up new markets for us. Being listed on AIM, we also take our ESG obligations, very seriously. We achieved the carbon neutral status, last year and are continuing to make progress on this front. We've got more details on this in our, annual report.

5:25 Just on the next slide, confirming our strategy that remains the same as what we shared with you last year and at the time of the IPO. We stay focused on organic growth. We see great opportunities to accelerate our revenue growth both with new clients and reach retention of existing clients. With new clients, we are going after higher ACV deals that is annual contract values higher than £25,000 a year. We're also looking at providing an offering to the smaller firms to allow them to onboard more easily at a better price point with our core core plan.

6:16 For existing clients, our focus is on minimizing churn through excellent customer service and a good product fit, getting our clients to take up more than just our elearning product, and through that upsell, reduce the churn. We're also upselling regtech products to our clients, which helps us to, again, retain the clients and get a greater share of wallet. Our churn this year is lower than last year, and the combination of the outright churn of clients, the down sells of clients that stay with us but reduce user numbers, and the upsells to the same clients is over a 100%.

7:03 So we're able to extract the same or more revenues from our existing clients that we've had from the previous year and add new clients on top of that. And that's our strategy, which is the classic SaaS approach. In terms of new products, we brought out global compliance and global risk libraries. They came out in the month of March this year. Very recently, we launched a library of compliance microlearning modules that allow compliance officers to send out microlearning interventions to their staff to be able to evidence to their boards and to regulators that they are continually engaging with their staff on compliance issues rather than doing these things only once a year.

8:00 We're also utilizing artificial intelligence internally in our processes and embedding it into our products. We'll have more news on that, in the in the coming updates. So at this point, let me hand over to Richard to take you through the financials.

8:20 Good afternoon, everybody, and thank you, Vivek, for the introduction. Just going over the the the financials for 2022 in a bit more detail. So just to summarize, total revenues for the year ending the 12/31/2022 were 9,800,000, which is a 17% increase from the previous year. We have two main revenue streams, subscriptions revenue and professional services. What we saw in the year was all our growth in revenue at at a total level was derived from subscription revenue, and therefore, it grew from 62% of total revenue to 68%. The subscription revenue really is very well diversified. The business started twenty years ago selling elearning in specific to the financial services industry.

9:10 We now have over a thousand clients, and 45% of the revenues come from nonfinancial services sectors. We also continue to upsell to existing clients to help our ARR and our net retention by selling what we loosely call regtech products. These are any sort of products that might be a subscription sale that are not elearning. For example, SMC r three sixty in Policy Hub. Our internal target is to increase this to, at least 10% of subscription revenues as we believe this adds value to our overall offer, helps reduce churn, increase retention, and increase ARR overall. On that subject, ARR increased as a significant lead indicator for the business by 16% to 6,800,000 at the end of December twenty two twenty two, which is up from 5,800,000 a year previously.

10:08 Churn in the year was at 12%, which is higher than the 7% in the previous year. Underlying churn, as we'd like to call it, did remain in in single figures. There were three clients in The EU, one sort of very much a legacy client that that had been with the business for many years and is something that we're not particularly worried about and don't see as a sort of an underlying sort of trend churn rates. And indeed, so far this year, churn rates are are trending below the prior year.

10:40 The remaining sort of revenue stream is from professional services. This has remained very consistent at 3,100,000 for many years as you can see on the graph, and it's in line with our strategy to maintain this. As Vivek said earlier, it's it's a key revenue stream for us, but it's a less profitable revenue stream for us as as we need to use our internal staff to help customize the learning requirements that this revenue stream requires. It's still very important for us to continue,

11:11 though. It's a lot of it comes from significantly large clients, and it's of great value to us to actually understand what the key trends in their compliance learning are, which we can then use and accommodate to adapt and develop our own SaaS generic products.

11:32 In terms of the p and l, you can see that our gross profit was at 70% for the year, which is slightly down on the previous year by naught point four percentage points. And this is really due to the trans transitional costs we incurred on migrating over a thousand instances of our host of hosted clients from our sort of server farm environment to Microsoft Azure hosting.

11:59 We also seen that our EBITDA went from 1,100,000 in 2021 to a loss of 300,000 in 2022 as we invested in the cost base as intended. Overheads increased to 7,400,000 in the year, which is a 2,400,000 or 48% increase on the prior year. This is predominantly through headcount, which increased 28% on average from 78 in 2021 to a hundred and twenty twenty two. The largest increase was it was in the commercial teams to to help drive the revenues going forward. In terms of our cash flow, as Vivek said, we ended the year with £7,700,000 worth of cash, which is only £200,000 less than the 7,900,000 that we started the year with. And despite a loss before tax of naught 600,000, we actually generated free cash of naught 300,000 in the year. And the offset of the loss coming from significant improvement in debtors, circa 500,000 reduction in debtors despite the 17% increase in revenue.

13:12 This mainly came from sort of acceleration and management of overdue debts which fell as a percentage of total debt as overdue more than sixty days from 41% in 2021 to 20% in in 2022. Just to remind everybody, we we continue to pay our dividend policy of £400,000 of dividends per year.

13:39 Moving on to the balance sheet. In terms of items to to note note on on the the balance balance sheet, there's there's there's it's a very simple clean balance sheet. We just to remind everybody, we don't capitalize any of our tech development or r and d spend at all. It's expensed as as it's it's incurred within the year. Trade debt has has reduced, as you can see, from 3,800,000 in in December 21 to 3,300,000 despite the 17% increase in revenue. We also have a naught 900,000 of, non non trade debtor from the, Maltese tax authorities. We have some subsidiaries in Malta and some employees in Malta, and, we are due no 900,000 back from the Maltese authorities.

14:30 It's a little bit bureaucratic, but both ourselves and our auditors are confident of the recovery of this debt. The only other items to note on the balance sheet really is the deferred income, which reflects the the element of the subscription revenues and the professional services that that have yet to be recognized in the p and l, and as you can see, are are are up on the year. So I'm now gonna hand back to Vivek to give you an update on our current trading and an outlook.

15:01 Thanks, Richard. So post the year end, we are starting to see the fruits of our post IPO investments. Those investments are mainly in headcount and technology as we mentioned. Our ARR growth rate has edged up from 16% in in 2022 to 22%. That's year on year. So it's an annual growth rate from March 2021 to March 2022. So that's edged up from 16% to 22%. This is helped in part by higher ACV deals, and we have a lot more of those in our pipeline, which is stronger than the same time last year.

15:53 We've got other products coming up in our pipeline. I mentioned the the global compliance library and the global risk library, which we launched earlier this year, compliance bytes, which were launched very recently. We're getting, ready a few, assessment products to help our clients to assess, their, staff outside, the former learning programs so that they can assign well, evidence firstly to the regulators, but also assign training appropriately based on people's competencies. Another point we made throughout this presentation is that we filled out our key growth roles. What that means is that our overheads will not be rising as fast as they rose in 2022.

16:45 Instead, we should start seeing the benefits of those people who've now been in their positions, for some time. And that's what, the the first signs of that we're seeing, with that ARR edging up to 22%. Our trading into, q one is consistent with achieving market expectations, which require us, to accelerate that, ARR further from the 22% figure. So just to summarize our investment case, we're operating in the corporate compliance market. So we're helping companies to build more ethical and resilient workplaces and comply with their with the relevant laws and regulations.

17:32 This is often nondiscretionary spend for companies, especially in the regulated sectors like financial services. We've got the breadth and depth of offering, but which we mean that we've got more comprehensive course libraries, which provide us with a depth of offering, allowing our customers to select from our off the shelf courses to meet their compliance needs. And we've got the breadth of offering in terms of products that sit outside corporate elearning, things like policy attestations, staff disclosures and declarations, recording offline training activities, maintaining compliance registers such as breach registers and gift and hospitality registers.

18:23 So, we are in a position, to, serve our clients better than our competitors in that way. Our growth rates are faster than the industry growth rates, which are depending on the on companies coming out, with results and, the analyst forecast anywhere between, 15 and, 515%. We're grow growing much faster than that. We've got the the this the product as well as the team to take this growth even to a higher level. So at this point, I'll stop and take questions that you may have. We've got some questions that have been coming in.

19:10 Vivek, Richard, thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the top right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Vivic, Richard, as you can see, we have received a number of questions throughout today's presentation. Thank And you to all investors for submitting their questions. Could I please ask you to read out the questions and give responses where appropriate to do so? And I'll pick up from you at the end. Thanks. So I'll start with the first question that came in here. Can you expand on the pending launch of your new multilingual product?

19:55 What are your expectations here in adoption by clients and possible revenue to the group? Well, this launch actually happened earlier on this year. So we launched our multilingual global compliance and global risk library. So two libraries, distinct libraries. We launched them in March this year. Our sales cycles being what they are, it will start to see the impact that they generate on sales by June and July this year. It does enable us to serve our clients in The EU much better, but there are UK clients as well that have a global presence, and these libraries do appeal to them as well.

20:44 Perfect. I can take the next question if that's okay, and I'll read that out. How much revenue visibility at any one time do you have besides the ARR? Are there months, quarters which are busier for the business? So we we run a a a classic sort of SaaS, funnel metrics funnel. So we, we have a customer relationship management system called HubSpot where we bring in, leads from, all inbound and outbound from website activity, other activities that we do. And we we we monitor and categorize the the stage the stages of all the leads that we have and quantify them at different stages. We provide a weighted average to that. So we effectively have a a weighted pipeline of future opportunities, and we feel confident at the level of growth of of of that pipeline on last year is is gonna substantiate our sort of guidance and our expectations in the marketplace at the moment.

21:45 The second part of that question is, are there months, quarters when which are busier for the business? It generally is quite quite flat and even over the years, not that cyclical. But there there are certain months like July and April, holidays where the level of sort of new business and and and renewal levels are are lower. But generally, it's not that that not that cyclical. We have bigger months in March and December clearly because they're around typical year end timings, but but generally, it's not too bad. Right. I'll take the next question. This is about liquidity being very tight for this stock. Are is the management looking to address this? This actually overlaps with another question that was submitted before this webinar, which was along the similar lines of is management able to address the lack of liquidity?

22:36 The the bid offer spread seems to be too wide. Now we have we're aware of the issue. We're aware of the the the low liquidity since the listing. And we have consulted our nomads as well as some of the market makers. There are several market makers for this stock in the market, and we've spoken to them. A a few different reasons for it. Firstly, some of the stock is is locked up by VCT and EIS investors, so it's not in the market. Our free float was a bit tight to begin with at the time of the IPO. We recognize that.

23:23 We are, though, engaging with investors in participating in investor events, in web webinars like this one to reach out to retail investors, telling them our investment case. So we're we're encouraging liquidity in that way. We do see that the liquidity has edged up this year. So if you look at the months of January, February, and March, the liquidity was up on any of the months in the prior year. And the bid offer margin also narrowed to 1p per share, although at the moment, it seems to have widened out again to to 3p.

24:08 These fluctuations do happen with liquidity, which is low, but it is not completely atypical for stocks of our size on AIM. There's another question here about who we are displacing when customers subscribe to our services. And do we have any plans for offering into new work verticals? Yeah. So this is again a two parter. Who are we displacing? In over 80% of the cases, we are moving into greenfield clients.

24:53 By that, I mean, clients that haven't actually had any kind of formal compliance portal in place. They may have done some kind of elearning in b to c sites or sending their employees to do training on an ad hoc basis, but they don't have a compliance portal in place. So in most of the clients where we move in, it's the first time that they're implementing, formal compliance training or formal compliance processes. In terms of the the the competitors, there is another question here. Who are our competitors? Well, that depends on the segment. So we have a vast number of competitors on in the bespoke space where we provide our professional services.

25:50 Something like 400. So too many to count. But when we look at, like, our library products, there's very few competitors. In the compliance space, there's three main players along with us who provide training to compliance and insurance to to financial services and insurance companies. Outside that vertical, we find other competitors who have an entrenched position. However, we haven't really targeted any of those verticals in isolation. We provide a a product called, compliance essentials, which provides, the base level training that all companies in every sector, need to provide to their, their staff to comply with regulations in the areas of data protection, money laundering, fraud, equality and diversity, modern slavery, and others.

26:56 And we feel confident that we can continue to grow with that offering, because that's really the core of what companies need to provide, to to stay compliant. There's one more question, Vivek. Yeah. What is your average contract term, which I can get? So the vast majority of our contracts are subscription contracts. That is our for one year to which we invoice upfront in full and payment terms of thirty days. Sometimes we we will we are very happy to contract for two or three years. Sometimes clients want two or three years.

27:46 But, typically, even in those instances, we invoice annually. Vivint, Richard. Thank you. And I think you've addressed all those questions you can from investors. And, of course, the company will review all questions submitted today, and we will publish those responses on the investor meet company platform. Before redirecting investors to provide you with their feedback, which I know is particularly important to yourself and the company, Vivek, could I please just ask you for a few closing comments? Thank you. And thanks to everybody to for joining us today for this update. As you would have gathered, we've performed, as per the expectations, for 2022, and we are well positioned for, delivering in 2023, again, in line with market expectations.

28:34 David, Richard, thank you for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of SKILLCAST GROUP PLC, we'd like to thank you for attending today's presentation. Good after