Skillcast Group (LSE:SKL) — Annual Results 2024

0:01 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 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 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

0:32 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. And 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. So 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.

1:21 Our book of annual subscription contracts which is essentially captured by our ARR grew by 25% in the year ending at 11,600,000, 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 11,000,000, which in turn raised our overall revenue by 17% to 13,200,000. The overall revenue was increase 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.

2:11 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 twenty twenty four. 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. So whilst our revenues grew by 17%, our overheads, grew by only 9% which took us from an EBITDA position of minus 5% in 2023 the year before, to plus 4% EBITDA or 500,000 in 2024.

3:18 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 2,000,000 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%. So just turning over to the operational front, I'm delighted to report that our the 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.

4:24 It has a revenue uplift for us as well as better client retention. I'm also encouraged by the progress we made with, CORE compliance, our pre configured, no frills solution for cost sensitive, smaller businesses. This got up to, 1% of our AR book and we see a huge potential, for this product ahead.

4:50 We're also very excited about our AI powered compliance assistant. I spoke about this, briefly, in our presentation September last year. This AI powered tool, is something we call AIDA, and it's 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've created at SKILLCAST and that our clients have provided in the form of their policies and other documents. If ADA cannot find an answer within this document, it declines to answer. This way reduces the risks associated with some of the public AI bots.

5:44 We've also made progress on a few other fronts which I reported back in September last year. That's our marketing. You will notice that our website has a new look, it's it's been rebranded, it's also had a fresh back end to drive data driven marketing, we've maintained our client service record with the 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.

6:37 However, we bore the the full cost, for the year 2024, and these reductions will only be reflected going forward in 2025. At this point, I'll 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 12/31/2024. 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 11,000,000 or 29% increase on the year. This is, a similar growth rate to the previous year.

7:25 The graph on the bottom left shows, the increasing trend of, our subscription revenues as a percentage of total revenues go from sort of around fifty percent 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 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 four percentage points from 69.7% in 2023 to 73.6% in 2024.

8:16 This was primarily as a result of operational gearing as our, costs of cost of sales, sort of saved grew at a slower rate than our revenues. Our overheads also increased, at a slower rate on our revenues, increasing by 9% on the year to 9,500,000. This is primarily through, some people cost increases and increased marketing activity. All of this enabled us to return to profitability by generating £500,000 of EBITDA, which is 1,100,000 more than the previous year. And 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.

9:10 This chart looks at our overheads as percentage of our ARR or annualized recurring revenue. And we show this as an indicator of our future profitability. In the second half of twenty twenty four, or H2 two twenty four 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 4344% pre IPO in December 21 and gives an indication that our profits in 2025 and beyond should continue to grow. The increase to 58% of, overheads in h two twenty two was, as Vivek mentioned, during our period of post IPO investment in overheads, primarily in the commercial and organizational structure to support the future growth that we are now seeing.

10:09 The business is highly cash generative as well as producing 550,000 of PBT in the year. It generated £2,000,000 worth of free cash compared with a loss of £300,000 the year before. The business is cash rich, it has £9,100,000 in the bank at the end of December and from this we generated over £300,000 of interest from cash and deposit. The business model is primarily from subscription revenues where clients contract for twelve months are invoiced upfront and typically pay on thirty days. So, therefore, as the business grows and the ARR grows, the cash grows, as you can see in the increase in trade and other payables through deferred revenue.

11:03 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 £250,000 was paid during the year in July 2024. And in October 24, we paid an interim dividend for 2025 of 150,000. And we're now paying a final dividend for 2024 of 25% up on the year on 312,000 which we're 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.

11:56 Our receivables and including debtors remained GBP 3,100,000 on the year despite 17% growth in revenues as you saw improved

12:08 working capital and debt reduction during the year. Our net cash therefore grew in the year from 7,200,000 at December 23 to 9,100,000 at December 24.

12:25 We just thought we'd 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 annualized recurring revenue from 5,800,000 in December 2021 to 11,600,000 in December 2024, which is a compound annual growth rate of 26%. This has also led to a doubling of subscription revenues to 11,000,000 over the same period. Our gross profit margins have increased from 70.5% in 2021 to 73.6%. The the dip in the in the intermediate years were primarily due to the investment in cloud based computing for all our clients and the migration to Microsoft Azure.

13:19 The EBITDA margin is on a recovery path as you can see. We've not got back to the 15% of 2021, but we have got to 4% in 2024. And as indicated earlier, on the chart of overheads of percentage of ARR, we anticipate that this margin will continue to grow. And free cash flow has increased from GBP 1,100,000 in 2021 to over GBP 2,000,000 in 2024. The main milestones we've achieved in this period are in 2021, we IPO ed and constituted a board. In 2022, we started our investment phase. We strengthened our governance executive team. We expanded our sales and marketing overheads, and we started to build our and improve our RegTech registers.

14:11 In 2023, we migrated all 1,300 plus clients from our from our into the Microsoft cloud environment. We developed new embedded learning fast track products like fast track and micro learning to support and improve the learning environment, the experience of our clients. In 2024, we crossed the £10,000,000 ARR milestone. We launched our premium plan offer that Vivek mentioned earlier, and we also launched our core compliance entry level self serve ecommerce offer. 2025 has started well, having developed AIDA, our AI digital assistant in 2024.

15:01 We started the year with some successful initial trials. We've launched our enhanced plan offer for people that want to use AIDA, our digital assistance, well as Fast Track and our other micro learning products. And we've 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 twenty twenty five, we've seen a solid start to the year with our ARR continuing to grow and reach over 12,100,000 and remain above 20% year on year at the March 31. We've increased our prices from the January 1 by 3%, which has been well received by clients.

15:52 Our professional services are slightly below expectations, but it is inherently lumpy and has poorer visibility than our subscription revenue, performing okay at the moment. Our product and marketing activity continues to increase. We had an annual summit in January, which is a complete sell out, 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 premium and core compliance offers continue to grow, and we launched our enhanced offer in January 2025.

16:40 And as Vivek said, you've hopefully, you've noticed, we rebranded and launched our new website in March 2025. In terms of profitability, we continue to trade in line with expectations and would continue to hope to see benefits from operational gearing with profitability weighted towards h two as it was in 2024 due to the pay rise and rebrand marketing costs hitting h one. Now I'd like to, hand back to Vivek to talk a bit more about strategy. And let's just move to the next slide. So our strategy is very firmly centered around growing our ARR book organically,

17:25 And we do this in several ways. Firstly, our focus on product innovation, continuous improvement, and proactive customer service to maintain client retention. That's the base layer of our business. With add ons and upgrades, we are moving our existing clients up giving ourselves ARR uplift there. This helps to keep our net retention which is the sum of the which includes the churn, down sells, up sells and upgrades, up sells all included in there above 100%.

18:13 On top of that, we're adding new client logos using our well established inbound marketing and sales funnel. We also are exploring other areas as I mentioned core compliance which is our no frills pre configured compliance e learning solution for the smaller, more price sensitive businesses. We've spoken about AIDA, our AI powered digital assistant and we're using this as an incentive, as Richard mentioned as well, to incentivize the take up of our enhanced and premium plans. Also, brought in remote services to, help us reach companies that can't or, won't, move their, LMS platform to SKILLCAST.

19:09 We still remain committed to, professional services. These are non strategic. Of course, our strategic priority is all around ARR, but they're 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.

20:03 Slightly challenged at the moment with the valuation gap that exists between our own valuation, what we see in the private market, but we are still looking at opportunities there. So before, we end and take questions, just want to reiterate our investment case. We're operating in a market that is large and resilient. We've seen that in the several downturns in the market and the one that's 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

20:48 and we're building this growth based on that solid net retention rate above a 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, which 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 core compliance and the larger, less price sensitive end of clients that want the full GRC solution with our premium plan offer.

21:53 We believe that we have a fantastic offering with our AI powered tool, AIDA, to help the upgrades to premium and enhanced plans. We are also entering areas not previously available to us using remote services. And finally, we have strengthened our operations and our governance since the IPO with the board and management, all of us having minimum of twenty five years experience, myself and my co founders each have over twenty five years of experience in the compliance sector.

22:38 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. And gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right corner of your screen.

23:28 While the company take 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 and a can be accessed via our investor dashboard. I'm 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, and 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 us, three to four year history, on on the whole, we tend to have a high single digit churn. So 2024 was was slightly higher than we we have seen previously.

24:16 Good to see that in 2025, it has come back down so far to single digit figures. There's 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

24:35 companies in the market, quite often it is beyond their control, and it can be if they've been bought by someone that they could lead to a churn. We we remain fairly competitive in our marketplace. Sometimes, the there there's a churn because the the the client may feel that our offer isn't completely isn't isn't broad enough, and occasionally, it's for price reasons. But generally, there is nothing in our churn, well, slightly higher than we would like in 2024. There's 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's, saying, can we elaborate on the type of content and tech assets, we're targeting for bolt on acquisitions, and how would these be integrated?

25:25 Well, the we've 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 have who can give us an entry, a solid entry. They've got reputable product and they can give us a solid entry into an adjacent sector. Sectors like professional services outside financial services, where we're 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.

26:12 We are not looking for doing that. We believe we've 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 discussed various issues on the uses of our cash and our surplus cash. Our primary objective maintains to use that cash for M and A activity, if we can. We've also, as you've noticed, started to increase our dividends now that we've returned to profitability.

27:09 At this moment in time though, a share buyback scheme is not something that we are looking at, as the fact 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 and 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 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 you are, if that's okay.

27:55 Yes, I did speak about this in context to the 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.

28:53 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 relatively small amount that used 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. So, 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.

29:39 This is asking, could we explain simply what we do? 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: Essentials, Compliance Bites, FCA compliance, Insurance compliance, Global Compliance and Global Risk.

30:46 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 processes, 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 and premium is the full GRC offering that helps our clients digitize not only their compliance training but also policy management, registers such as gift of hospitality and declarations such as fit and proper.

31:46 And then 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's core compliance I spoke about earlier as well. So I hope this helps you, get a fuller picture of everything that, SKILLCAST has to offer. I'll also take the next question, which is asking, whether, AI could be a threat to SKILLCAST. Of course, it it could be. It's 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. So instead of utilizing our services once or twice a year when they've been assigned mandatory training, they can actually use our services in the flow of their work.

32:55 So we're hugely excited, with the potential, that AI has to offer, but, of course, we do, see the threat element as well. And then the last question we see here I'll take the last question here, which is that we mentioned earlier that there's the valuation gap between private targets and ourselves, so it doesn't suggest that a share buyback would be a better use of capital at current time. We wouldn't draw that conclusion necessarily. So 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's been discussed, is certainly not on our agenda.

34:00 I think that's the end of the question, so probably best to hand back to Alex, is it? That's great, Richard, Vivek. Thank you for addressing all those questions from investors today. And of course, the company can review all questions submitted today, and we'll publish those responses on the investment company platform. But before redirecting investors to provide you with their feedback, which one is particularly important to the company? Vivek, could I please ask you for a few closing comments? Thank you all for joining us today. And in wrapping up, I'll say that we're 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's great, Vivek, Richard. Thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations?

34:59 This will only take a few moments to complete, and I'm sure we're 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 afternoon to you all.