Skillcast Group (LSE:SKL) — Final Results

0:01 Good morning, and welcome to the SKILLCAST GROUP PLC final results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated on the right hand corner of your screen. Just 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, company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to split the following poll.

0:30 I'd now like to hand you over to Vivek Dodd, CEO and Chris Backhouse, CFO. Good morning to you both. Good morning and thank you, Paul. And good morning everybody and thank you for taking the time to join us. It's a pleasure to be here. My name is Vivek Dodd. I'm the CEO of SKILLCAST, and I'm joined today by Chris Backhouse, who has served as our CFO over the past four years and is handing over his role to Richard Steele, our incoming CFO this week. Today, we'll give you an introduction to our business and cover some of the highlights of our financial year ending 12/31/2021. On this next slide, I'll just draw your attention quickly to our customary legal notice.

1:18 And since this is our first investor presentation since our IPO in December last year, I will take just a minute to introduce to you our Board of Directors, which includes Katrina Raszig, our Chief Commercial Officer Anthony Miller, our CTO Richard Steele and myself and the three non exec directors, Richard Amos, our Chairman, Sally Tilleray, our Chair of Audit Committee, and Isabelle Napper, our Chair of REMCOM. Myself, Katrina and Anthony co founded SKILLCAST many years ago and have grown it rapidly since 2016 with the aid of Chris Backhouse. Richard Steele served until the end of last year as the CFO at Mind Gym, another AIM listed company. And our non execs bring C level and board level experience at other industry listed companies in the field of compliance and also law and training.

2:20 Now let's jump straight in to have a quick look at 2021 highlights first. For those of you who don't know us previously, SKILLCAST is a b to b software as a service or SaaS company that provides content and technology to help companies digitize and streamline their staff compliance processes. So it's things like, compliance elearning, policy attestations, employee disclosures, surveys, and online registers for things like gifts and hospitality. We have over 800 clients ranging from small businesses to blue chip FTSE 100 firms, and we're adding more to that at the rate of around 20 per month.

3:07 We just reached our 100 employee landmark recently. That's split between our headquarters in the city of London and our operations based in Malta. We had an excellent financial year 2021 with total revenues up 15% at £8,400,000 This is composed of two revenue streams, annual subscriptions that are recurring and professional services that are not. In 2021, our entire revenue growth came from recurring subscriptions. That's our strategic positioning. And these were up 28% to £5,200,000 We kept our professional services steady at our preferred level of just over £3,000,000 So in the year 2021, our recurring revenues accounted for 62% of our total revenues.

4:02 We were profitable in the year with our adjusted EBITDA approximately same as that in the previous year, although the revenues were higher in 2021. And this is because we picked up our investment in growth, all of which gets fully expensed in our P and L. There's another performance measure that we have here in the middle of the screen, and that's our ARR or annualized recurring revenue. In case you're not familiar with this, it's used quite often in the SaaS world to size up recurring revenue businesses. So our ARR grew by 29% in 2021, aided by high net retention of clients as well as new client acquisitions. We have no debt and a fairly large cash position following our IPO and our healthy trading performance in 2021.

4:52 This puts us in a stronger position than ever to invest in our technology. We're investing in organic growth, so in our technology, content and marketing to pursue even faster growth than in the past. Another point to note here is that we've been able to maintain our dividend in line with what we had indicated at the time of the IPO. In addition to the £150,000 interim dividend that we paid last year, the board has proposed a final dividend of £250,000 which together works out to a full year 2021 dividend of approximately 0.45 pennies per share.

5:34 Next, let's turn back to what exactly SKILLCAST does and what makes our business so resilient. You'll all be aware of the regulatory obligations that companies have today to comply with legal and regulatory requirements. So laws and regulations and everything from some of the which you see here on the left, bribery, money laundering, data protection, equality, health and safety, and taxation, modern slavery, etcetera, require companies to train their staff and keep various records of their activities. SKILLCAST helps these companies to digitize and streamline their compliance processes and manage them from a single compliance portal.

6:19 We typically start doing this by providing compliance e learning to their employees and adding tools then to record and analyze their activities to demonstrate compliance. Our product range includes an e learning management system loaded up with vast libraries of e learning courses on compliance topics, a policy hub, tools for staff declarations, anonymous surveys, CPD tracking that you see here, and compliance registers for recording gifts and hospitality, PA dealing, breaches, whistleblowing, etcetera. And by doing all this within a single application, we help our clients streamline their user and administrator experience, consolidate all their data in one place, reduce their overheads, and reduce their cost of compliance failures.

7:20 This brings me to the SKILLCAST investment case, and I'll start by reiterating again that staff compliance has become pretty much of a nondiscretionary spend for most companies and a relatively large burden for firms in regulated sectors like financial services. Companies have to constantly educate their employees and record, monitor, and analyze their activities. Many companies are now reacting to this challenge by choosing technologies to digitize their compliance processes and workflows to cut costs, reduce risks, and improve employee experience. Several studies have noted this trend and projected very high healthy growth rates for corporate training and compliance technologies.

8:07 And as companies move to transform their staff compliance, SKILLCAST is in a prime position to help them because of the breadth and depth of our offering and because of our ability to bring various compliance processes onto a single platform. This market for compliance transformation is still at an early stage, but SKILLCAST has already built a brand name due to the path breaking work that we've done for clients like SKL, OUP, and Royal Mail. You'll see some examples of these client success stories in our annual report that should be released soon. And our content marketing efforts have established us as a go to site for many compliance professionals. That's building our community in this space.

8:53 We also have a highly experienced board that I went over and management and a highly talented team. And we're extremely driven in our mission to help companies build more ethical, inclusive and resilient workplaces. Finally, our subscription model gives us great scalability, excellent revenue visibility and compounding growth, which is running ahead of these industry estimates and very strong cash generation.

9:24 Now before we go on to our financial results, I'll explain our two revenue streams again in a bit more detail. As I've mentioned these earlier, annual subscriptions that are recurring and professional services that are not recurring. Our strategy for many years has been to grow our subscriptions whilst keeping our professional services steady. And you'll see that in the two graphs here. Our subscriptions revenues have grown since 2018 at a compound annual growth rate of 24%, whilst our professional services revenue have been maintained fairly constant.

10:10 So just a little bit more about our subscriptions first. We sell subscription contracts for our content and technology products. We offer these mainly to clients in The UK. These clients can vary from few tens of employees to few thousands. Typically, such companies are large enough to see the value in digitizing their compliance training and other compliance processes and are willing to invest in technology and content to reduce their risk and also their costs in the longer run. To get a sense of our client journey, I'll give you an example of a client that's a challenger bank in The UK that started, with our content and learning management system, paying us, roughly, £6,000 a year.

11:00 Quickly, they realized in the very first year the benefit of adding other products, having bringing on their induction process onto the platform, adding policy management, CPD, online capture of their offline training, in person training, mentoring, which increased their ARR to what is today £18,000 a year. So from 6 to 18, that's a tripling of our ARR with that one particular client. We help to lighten the load, the burden of compliance for such companies by keeping things really simple for them. So we'll bundle our courses into libraries instead of selling them one at a time, and we offer fixed price annual contracts.

11:49 We provide a highly responsive service and provide clear and easy to use dashboards for management reporting. As a result, we've won several awards for client service and customer experience, and this is a very scalable model. We have a subscription base of over 700 clients, and we're adding to that at the rate of 20 per month. We also strive to build long term relationships with our clients and hence benefit from low churn rates.

12:26 Next, I'll touch upon our professional services business. We have around 50 blue chip clients who require their own global policies to be brought to life with bespoke learning experiences, which we built for them. We executed a 140 such bespoke projects in 2021 with an average contract value of approximately £14,000. A lot of for a lot of these clients, we will have done multiple projects over the course of the year. And although these revenues aren't recurring, we have a great retention rate with such clients. So for instance, we've been creating courses for some clients like Barclays, UBS, UniCredit, Tesco every year for well over a decade.

13:16 In 2021, we won some fantastic new clients like Puma, Lloyds Bank, Siemens, and Pandora. Within professional services, we have another line of business which is to customize our off the shelf courses for subscription clients. So subscription clients will take something that's off the shelf. It's really inexpensive, convenient, and and quick to roll out in their firms. But they are advised to look at those off the shelf courses and customize them for their business, make it their own courses. It has a much bigger impact on their on their staff. And we do offer a service to help those clients customize those businesses.

14:02 This service is relatively small in terms of revenues that you can see here in the middle, but it does set us apart from our competitors and helps us to create very strong relationships with those subscription clients. And with that introduction to our business, I'll now hand over to Chris to take you through our financial results for 2021. Thanks, So starting with the income statement for the year in comparison to last year and picking up on some of the numbers that Vivek has already mentioned. Total revenues are up at to 8,400,000, up 15%

14:44 with driven by the SaaS revenue growth up up 28%. And that's profitable growth driving the gross profit up to 6,000,000 in the year, and that's a gross profit of just over 70%, up up just over 1% on the prior year. The graph on the right hand side just emphasizes that ARR growth rising to 5,800,000 by the end of twenty twenty one, up 29%. And the SaaS revenue growing as a a increasing part of the business's recurring revenues at 62% by the end of the year.

15:33 The EBITDA was off that's after adjustment for the flotation costs, which were just shy of 900,000 in the year, was held at 1,100,000. As in part, we invested the in the team and the technology of the business. And we'll continue to do that, so utilizing the money raised at the float to drive future growth, though we do expect that to impact profit in the near term because as Vivek has mentioned, we don't capitalize r and d type expenditure. Turning to the balance sheet.

16:22 This is very clean. We don't have any debt, and we don't have any capitalized r and d costs. So none of those appear on our balance sheet. Main figures here being our deferred income up at 3,000,000 by the end of twenty twenty one on the back of the SaaS revenue growth as we typically invoice customers a year in advance and then spread that in the p and l over over a period of year. The the cash at the end of the year boosted by the 3,500,000 raised on the float was just short of £8,000,000.

17:08 And the the dividends that Vivek mentioned was was expenditure of 400,000 on dividend payments. The working capital we benefited from working capital improvement during the year. So turning to the cash flow statement, the cash generated from operations was up at 1,500,000, and that's up about 300 and 3 to 400,000 on the prior year despite the fact that we had the cost of the flotation process, and that that was assisted by good control of of debt as an improvement in in the debtor days.

18:08 And I'll hand back to you, Vivek, on that. Thanks, Chris. Let me take that back. A slide. Oops. Allow me. So I'll now give a quick update on our current trading in Q1 this year. This has been in line with our growth and bottom line expectations.

18:33 Our client acquisitions are running at a rate higher than the same period last year, which is driving up the growth of our subscriptions revenues. Our professional services are very much in line with the previous year, which is exactly the level we want them to be.

18:50 At the time of the IPO and since then, a high priority for us has been hiring top talent in key position. And I'm happy to say we've progressed very well on that front. We are also on schedule for accelerating our investments in technology, which was a key reason for our fundraise at IPO.

19:18 And in conclusion I'll summarize the SKILLCAST investment case once again. We provide content and technology to companies helping them to digitize and streamline their compliance processes. We operate in a large attractive market with demand that is non discretionary. We are well positioned to meet this demand given the breadth and depth of our product lines and we have an attractive SaaS subscription model that gives us excellent visibility over our revenues. We have diversity and talent at all levels from the board through to our teams, and we're highly motivated to helping our clients build better workplaces. As a result, we are on an excellent growth path.

20:04 Our total revenues were up 15% in 2021 with the subscriptions components up 28% with underlying profitability.

20:13 And we have the financial resources now after the IPO to accelerate our investment in technology, content and marketing to pursue faster growth. We'll stop here now and take your questions. I can see already that a few are coming through.

20:33 Vivek, Chris thank you very much for your presentation. Ladies and gentlemen please do continue to submit your questions using the Q and A tab situated in the top right hand corner of the screen. But just while Vivek and Chris take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed by your investor dashboard. Vivek as you mentioned we received a few questions throughout today's presentation. Thank you to all the investors for submitting those. Could I just ask you to read out those questions and keep response to where it's appropriate to do so and then I'll pick up from you both at the end. Certainly. I'll pick up the first few here. So the first one is who do we compete with? And and and this the second part, what is our USP to win new clients?

21:19 Well, for the first part, well, we compete with a lot of firms. Elearning is a very fragmented market and so is regtech. So the two sectors that we compete in. In elearning, there was reputedly over 400 companies in The UK alone, but most are very small, run by individuals, sole traders, undercapitalized. Our financial position gives us the ability to build the technology to serve our clients much better for them to bring together those compliance processes as I was speaking about earlier. And that is our effectively our USP. In many market segments, we are also the cost leader. So that's another USP that we've got. Another one is our brand name, our reputation for client service. As you as I showed to you, we've got this platinum award for client service for three years in a row.

22:26 So those are some of the USPs that we we trade on. Our longevity is another one. Also, the just the fundamental nature of subscriptions recurring subscriptions business. So we're if we're able to retain our clients, which we do very well, everything that we sell effectively adds on to for that compounding effect, and that's really driving the growth. So the next one along here is, are we looking at using our listing to make acquisition or do we favor organic growth is very much of the latter. We went to market to raise funds to invest in our technology and marketing.

23:14 Our technology is the core strength that we have. Bringing in acquisitions would cause complications with that. Now we don't rule out the acquisitions, but we have nothing planned there at the moment. The next one along is, do we see any growth potential in professional services business? And if not, should we be focusing our resources at all on this business or should we just focus very much on the subscription side of the business? Well, we do focus very much on the subscription side of the business, but the professional professional services is really important for us. If we wanted, we could potentially grow that business.

24:08 We don't want to because we retain it for special reasons. Firstly, it's the blue chip logos that gives us a lot of credibility in our subscriptions market. Secondly, it gives us inroads into those same very large clients, into the Royal Mail Groups and Oxford University Presses of this world, to be able to do more ARR type business there. Another reason is that these firms are usually further ahead on the maturity curve. They're they've got their ears to the ground, so as to speak, and we learn a lot from them in terms of both content and technology products to bring out to the market. So that business is really important for us, and we do foresee maintaining that business for the foreseeable future, but not growing it much more.

25:07 Another one that's come up is what does our annual churn look like? And what about NPS? Now we have surveyed our clients for NPS. We've got scores because the day the data is a bit outdated, so I won't recite it. But the scores that we received were well in advance of SaaS companies, closer to consultancy. So if you've know about the NPS world, some of the NPS scores are for consultancies because they have this close relationship with their clients, and they're able to influence the scores that much better, more so than SaaS companies, which are a bit more arm's length, here's a service, use it as you will. So we fall in between SaaS and consultancy, I'd say, closer to consultancies than to SaaS companies.

26:09 As for the annual churn, in 2021, it was under 10%, well in line with where we'd like it to be. We'd like to think of our net retention more than churn in isolation. So the net retention is the sum of the upsells that we make with our existing clients and, well, minus the churn, the absolute churn, which is clients going away. Mostly that tends to happen because they get acquired or their parent company decides to refocus to supplies from The US, from Europe, and whatnot. So our net retention, which of where the upsells offset the churn and the downsells, because some of our clients have reduced their headcount, is more than 100%.

27:10 And we feel really good about that. That is, pretty much gold standard in the SaaS world. Another one coming along here is how have we been impacted by the current economic climate? I take that to be both the uncertainty created by war, also inflation that's edging up towards 10%. Well, firstly, by Russia and Ukraine, we have no exposure to either of those two countries in terms of suppliers or clients. We've done an audit of that. And so we're relatively immune on that front.

27:58 But we can't escape, of course, the so the macroeconomic fundamentals that are affecting all companies and primarily inflation. That does affect our current wage bill as well as the offers we're making in the market for talent. However, that is well in line with our expectations, lower than the headline numbers that you see out there. One the important reasons for us to go to market last year was to get employee participation up. So we all of our employees have share options. And they're also driven by our purpose, which is to help clients build better workplaces, more ethical, inclusive, and resilient workplaces?

29:01 Shall I take that next one there, Vivek? The question is the company's intent to invest IPO proceeds in technology and content IP, do we intend to capitalize this expenditure? And have we capitalized this expenditure previously? And the answer is no. We don't capitalize that expenditure. We've always expensed that, and we intend to continue with that policy. Right. Here's another one, which is asking, will growth primarily come from new clients or more business from existing clients? It's a bit of both, as I outlined, especially in the recurring part of our business. It's really important for us to keep our net retention up close to that 100% mark, whereby our upsells offset some natural churn that will happen in any SaaS business and any down sells because of companies cutting back on employee headcounts.

30:17 So that's really important for us. That's the foundation upon which we then build with new clients. But to answer that question more specifically, the new client growth is relatively a bit more important in that SaaS part of the business. When it comes to professional services, that's underpinned by our existing clients. So most of our business, the vast majority of our professional services business comes from the existing blue chip clients that we have, some of the names we showed to you earlier. And and however, we are taking on new clients as well. I pointed out a few there, Puma, Siemens, Pandora, Lloydsbanks, to name a few in 2021.

31:07 In 2022, we've already had a a few amazing names of the same caliber, blue chip. I can't share those names with you at the moment. But we have carried on that growth. So we're quite selective about the professional services clients that we take on. I hope that answers that question. Did that, Chris, thanks for that. I think you actually managed to address all those questions from investors and of course the company will review all questions submitted today and will publish those responses on the investor meet company platform. But just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Vivek, can I just ask you for a few closing comments? Thanks Paul, and thanks to everybody for joining us today. As we outlined in this presentation, we see a major opportunity in the market for companies wanting to digitize and transform their compliance processes.

32:04 With our content and technology products, we're helping clients to make this transformation and helping them to build more ethical, inclusive and resilient workplaces. And of course, in the process, we're building a fantastic business with recurring revenues and great profitability. We had an excellent 2021 with 15% top line growth, as you can see here, 28% recurring revenue growth and a healthy underlying profit. We're excited about the potential to push this up even further with the investments that we're now making in our product and marketing. So thank you again, and we look forward to engaging with you in the future. Vivette, Chris, thanks once again 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.

32:54 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, and good morning to you all.