Skillcast Group (LSE:SKL) — Interim Results

0:01 Good afternoon, and welcome to the SKILLCAST GROUP PLC H1 twenty twenty six Results Investor Presentation. Call Please Thank morning, morning, Thanks for the introduction, and good afternoon, everybody. And thank you for joining and expressing interest in SKILLCAST. I look forward to giving an introduction and update on on our business. So I'm I'm joined by our CEO, Vivek, who will be here to help and answer questions at the end, but I'm going to be running through a CFO of the major part of the presentation today.

1:02 So here are financial highlights for the six months ending the 06/30/2026. We're pleased to show another period of double digit revenue growth. Our subscription revenues lifted 15% on the same period last year to 7,400,000. Total revenues were up to 8,200,000, and our total revenue growth was 10. Our ARR, annualized recurring revenue, was up 14% to 14,500,000. 90% of our revenues are now recurring revenue. Our gross margins lifted 1.6% to 77.7%, and our EBITDA grew 48% to $1,000,000 and a margin of 12% from 9% last year.

1:54 We continue to build our cash reserves going up to 13,600,000 of net cash and no debt as of the 06/30/2026, 2,100,000 more than last year and increased our free cash flow by £700,000 in the period. We increased our dividend as per our policy in line with subscription growth by 15% to nought 0.232p per share. And our rule of 40, the SaaS metrics that looks at adding the ARR growth and the EBITDA margin together was 26% for the period, 6% below the h one last year due to lower ARR growth. Thank you.

2:43 So I just gone. I'm sorry. I I can't actually see how I can move the slides at the moment. Thank you. That's fine. So in terms of our h one twenty six ARR breakdown, as I said just now, we grew that by 14... 40% to 14,500,000. Our total client numbers, excluding the smaller clients, distort the metrics on our self serve core compliance platform, grew 6% to 1,250. Our average ARR per client also increased by 7% to just over £11,400, and our net retention remained at a 100% in line with last year. The the variables, the factors within the net retention were we had 5% price rises that most customers accepted within the period compared to 3% last year.

3:38 We did have slightly higher churn of 9% rather than 7% the year before. While slightly disappointing, there's no one factor that's particularly driving this, and it's nothing that's causing management any any undue concern. We were also... Net retention is also supported by our product upsells. And the graph on the right shows that our nonstandard plans, so our enhanced plan, our premium plan, and our core compliance plans rep... Increase their representation of total sales by... Total ARR by 77%, 78%. So up to 50% of total ARR, and we believe there's still a long way to go on this upside trajectory.

4:31 I just now wanna talk about some of the sort of strategic and operational progress we've made during the period. Our major focus and something we're very proud and excited about is how we've developed our products, which have all been developed in house over the last twenty five years with with the adoption of AI. So just to remind you all, in 2025, we launched our first AI product, and that was called Ask AIDA. AIDA is our sort of generic sort of username for any of our AI products within our courses and and technology. And we launched that as a compliance assistant that provides instant access to trusted compliance guidance within the product. So any training course you're doing or any of our tech tools you're looking at, there is a ability to ask a chat assistant any questions on any of the content or anything about the course or tools that you want and get an instant response.

5:29 Just after the end of the half, we launched we launched in July our next tool, which is called edit with ADA. Now this is a tool that enables our clients to effortlessly come... Customize our trusted compliance courses in minutes. And we're really excited that within two months of launching, by the end of September, 15% of all clients were using this tool and had used this tool. So we feel this is a really exciting tool to support our business and explain the rationale why Claunch carry on using a proven trusted provider to supply their compliance needs. And later this year, we're going to launch our next product, which is called LearnLaider.

6:18 This is a conversational learning tool. So it's taking these with the ask aider assistance and making it much more interactive. So the AI tool within the courses will ask the learner questions about the course and make those questions specific to how the interaction with that learner is going to help them build understanding and confidence in a controlled environment. It also enable greater knowledge retention of the courses. In later this year, we're also going to launch translate with AIDA, which is an AI tool within any courses. So you can... The the the compliance manager or the l and d manager is able to translate any of our courses into any other language using AI.

7:13 On the on the road map for next year, we're excited to launch create with AIDA, and this is taking taking our AI edit with AIDA to the next level where rather than editing an existing course, it will let you build courses from scratch using secure sources. So all of this, all of our AI, I have to remind everyone, is within a secure environment. It can only look at at documents and sources of information that that you choose. We also hope to build on our extensive dashboard reporting with some AI analytics and insights to support learners and managers. As well as as well as adoption of... And development of our AI products, we've maintained our... And excelled with our customer service.

8:01 Every client in our organization is... Has a dedicated human customer support representative. They still do use AI to to enhance their productivity, but we know one of our USPs is the fact that there is always a human being that can talk to any clients if need be on any issues they may have. We effectively kept our head count the same, 1% more than last year, and this is something we feel we can continue doing in the near future. We've seen productivity gains as not only as we've developed AI in our products, we've also developed AI tools within our organization to enhance our productivity, both which is enhanced both our cost of sales and our and our and our overheads to increase at a slower rate than our sales, thus improving our margins.

8:54 And we're we're excited that we're at the progress we're making on multiple acquisition opportunities as a... As the main use of our surplus cash. Slide. Thank you. So just looking at the income statement, as you can see, subscriptions, revenues drove all of the revenue growth up 15% to 7,400,000. We've saw a reduction of professional services. Our nonstrategic professional services revenues fell 22%, and they'd fallen 7% in the year before. This is not not a whole... A complete surprise to us in the current market and in the current world of AI.

9:40 There are still some people that want to spend lots of money on to... On people like us to actually write bespoke courses from scratch, but it's understandably reducing and is something we we expect will probably continue to plateau. So total revenues are up to 8,200,000, 10% growth on the year. As stated, our gross margin increased by one one point six percentage points, and this is a factor due to our subscription revenues now representing 90% of all revenues, which are at a higher margin. Plus, we've also actually increased the margin within the subscription business too as well. Overheads increased by 7% to 5,300,000, and our average headcount increased 3% behind that.

10:33 That led to an EBITDA of just under £1,000,000 or 48% up on the year. On that basis, as we know, we've always paid dividends, and we said a few years ago that we're going to increase our dividends every year in line with the subscription revenue growth. So we are proposing to pay in October an interim dividend of 15% higher last year than last year of naught 0.232p per share. Per share. We we retain and continue to grow our balance sheet. It's a very fairly straightforward balance sheet. Our noncurrent assets increased from naught 600,000 at this time last year to 1,100,000 as we've recognized the renewal of our London office lease.

11:31 Just to remind everybody, we don't capitalize any of our product and tech development. It's always all expense purely for simplicity, and that would have equated to about naught 0.77... Naught 700,000 in the period. Our receivables, including trade creditors, were 2,800,000, 4% above thirtieth of June last year due to higher revenue growth supported by auto renewal terms. Debt today has increased marginally from 52 to 50 four. Nought 200,000 receivables relates to Maltese withholding tax, which was paid just after the half in July.

12:18 So net net cash overall has increased to 13,600,000, 2,100,000 up on the same time last year. And just to remind, we have no no bank debt in the business. Trade credits and other payables were naught 300,000 lower than this time last year, partly due to the correction and repayment of VAT payment from HMRC. Deferred income at the June 30 was up 11% from the same period last year, driven by 10% higher annual SaaS subscriptions and 27% higher professional services. Deferred income at the June 30 was materially the same as at the 12/31/2025 due to £200,000 worth of uninvoiced contracts renewals and 300,000 of overages not being reflected in deferred income at the balance sheet date.

13:18 In terms of cash flow... Oh, apologies. We go. No. So there's a bit of a delay on the slides. Apologies. There we go. In terms of the cash flow, we generated £700,000 of free cash flow in the period. This came as we've generated £300,000 worth more PBT. But we've seen more of that be go through to be tied up in working capital in the same period last year. Part of that was the £500,000 worth of historic Maltese tax settlement received in h one twenty five.

14:05 Nil 800,000 was due to a lower increase in deferred revenue, partly due to slower ARR growth in h one twenty six and h one twenty five, but also due to a higher amount of uninvoiced renewals and overages, and also partly due to a VAT correction received in h two twenty five. In terms of our strategy, just to remind everybody of our strategy, our strategy is continue to grow our ARR by 15 to 20% per annum, primarily through a combination of new logos and upsell, supplemented by content acquisitions and with con... Continued operational gearing to consistently achieve the rule of 40 in the medium term.

14:57 So we're gonna continue to grow our new ARR to attract new logos both in the FS sector and other sectors, increase our presence, and continue to develop our market and our our... Around self serve and core compliance and expand into other markets. We will maintain our net retention by at least a 100% and continue to expand our ARR from upsells to enhanced and premium. We continue as we've just evidenced to innovate our product and strengthen our differentiation by developing agentic AI and non AI tools to simplify compliance for all our clients. We will maintain a PS presence or continue to expect that nonstrategic area not to not to continue to grow.

15:46 But we will continue to develop operational gearing benefits to further strengthen our EBITDA margin, and we'll continue to invest in technology and own and third party to drive further productivity improvements in product development, customer support, and commercial administration areas. We'll maintain a strong balance sheet and option... Optionality to support primarily m and a. And we're see... Continue to seek and have made progress, we believe, in looking for acquisitions in the digital compliance trading sector that could leverage our technology platform and operational infrastructure and provide cross sell opportunities. Our business model is to digitize, automate, and consolidate compliance and make it simpler for organizations.

16:41 We believe we operate in a large and resilient market with demand growing as companies seek to streamline and automate staff compliance. And we believe that that we have a high drop through rate of incremental ARR through to EBITDA. We offer extent... Extensive content and GLC tool within four subscription plans. We have market leading client support with in house content and technology. We have an established infrastructure and headcount in place to support growth. And we have AI and non AI technology embracing culture to maximize our productivity to support all that. In terms of current trading and outlook, we see and are confident the GRC markets remain strong.

17:33 We've had a very encouraging early reaction from our adoption of edit with AIDA, which was launched in July with a 15% client take up as already mentioned. We're excited about launching learn with AIDA this half, And we expect ARR in h two to grow at similar levels to h one twenty six in absolute terms, but that will have a slight impact on the the year on year growth rate due to a stronger growth in h two last year. Professional services, we will continue to serve as and when there is an incoming need, but we do have limit... Limited visibility of that. And we expect our EBITDA continue to grow and benefit from operational gearing and enhanced productivity from AI. And we continue to expect full year revenue and profit to be in line with expectations.

18:28 So thank you for listening, and I think we are now hand back, and we'll open the floor to questions. That's great, Richard. Thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would 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 via our investor dashboard. Richard Vivek, if I may now hand back to you to take us through the questions, and I'll pick up from you both at the end. Thank you. Thank you. So the the first question, which was presubmitted is, can share buyback be an option to generate much needed shareholder value? Oil gas companies reward shareholders.

19:14 Why can't you? So, absolutely, it is an option. It's probably not an option we're focusing on in the short term. As as stated, we... Our priority is to use our surplus cash to look at acquisitions. And we believe... Well, we can't say too much now. We believe we're making significant progress in that arena. But obviously, if if if that doesn't happen, we will have to address the the the cash in other ways. The second question is, is the company taking proactive steps to improve the short term share price? We... We're main... Maintaining our focus on what we can control in the short term, which is driving our revenue and improving our sales as much as possible. And we believe by doing that, that the market will recognize the efforts and the strength of our business model.

20:13 Can the company improve visibility by doing interviews? Very good question. Thank you for that. We we we will certainly take and consider that. Just to remind everybody what we... We regularly attend the Mellow investor events that are held twice a year. And our broker and Nomad Cavendish also have a research portal where we have research on it, and we've also got a a video demonstration of our of our tech stack and our products on that just to remind everybody. The next question is with 13,600,000 in net cash representing over 35% of your market cap, the share price trading at a deep discount to your fair value of 90 p, what is the specific timeline for deploying the capital? If earnings accretive m and a opportunities don't materialize in h two, will the board consider the structured share buyback to support the equity value?

21:12 So absolutely similar question to what we've had. Yes. We are aware that we've got a significantly large cash balance. In the short term, we will be looking at, hopefully, spending this on m and a. And if that doesn't happen, I'm sure sometime during or by the end of twenty twenty seven, we'll have to come up with other ways. Share buyback may be one option, but also a larger dividend could be an alternative option. We're very well aware of liquidity on... Particularly on the end market and within our stock overall. And we are we are aware that a share buyback a share buyback could sort of negatively impact that. What are you doing to attract new investors?

21:58 Again, we are... We do a red show twice a year with our in house broker. We do intend we do intend retail investor events like Mello to attract retail investors, and we'll consider doing more like minded events for that. What would an attractive acquisition need to offer in terms of strategic fit and ARR growth to justify the valuation and any near time EBITDA dilution? So the type of acquisition we're looking for is a is a content acquisition. We believe and are confident that we've got the technology needed and the infrastructure in place to support any acquisition.

22:43 So what we're really looking for is buying revenue or buying ARR to to support lever... And leverage our our our cost base. And that could be within our own sector or it could be with adjacent sectors. So it could be a a GDPR training provider. It could be a provider in the public sector. It could be provided in a health and safety sector or or other sectors where there is digital compliance training and where perhaps there are owners that are looking to retire or to derisk or have not been able to keep up with the advance of technology and so are concerned about their their future and they're looking to to get out that way.

23:37 That's great. And, Richard, if I may just jump back in there as you have addressed all those questions for investors today. But, Richard, before we direct investors to provide you with their feedback, which is particularly important to yourself and the company, could I please just ask you for a few closing comments? Vivek, do you want to take that one? Yes. Thanks. Is my mic on? Yes. We can hear you. Yes. Thank you. Sorry. I haven't been speaking very much because I'm not feeling very well today. But thanks, Richard. And I'd like to thank everyone who's been attending today, joining us for this call. Just like to know that we are on track to deliver growth and increase profit margins in 2026. And beyond that, we expect the growth of the GRC, the demand for risk and compliance solutions to stay strong and for SKILLCAST to play a big role in that by helping our customers to adopt AI, to enhance employee compliance experience, to reduce costs, and to reduce risks.

24:47 This will enable us to continue growing our ARR, improving margins, and delivering shareholder value in the medium and long term. Fantastic. Thank you both once again for updating investors today. Could I please ask investors not to close the session as you now will be automatically redirected to provide you feedback, which will help the company better understand your views and expectations. Behalf of the management team, we would like to thank you for attending today's presentation, and good afternoon to you all.