Northcoders Group PLC (CODE) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Northcoders Group Plc Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. And we can review all questions submitted and publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand over to Chris Hill, CEO. Good afternoon, sir.

Good afternoon. So we've had a great start to the year with our H1 results. So thank you for joining us, and we're looking forward to go through them with you. My name is Chris, I'm the Founder of Northcoders, I'm the CEO.

Hi, everyone. My name is Charlotte Prior, CFO. Just to go through some financial highlights from today, and we're really pleased about our half year results that are around half of the market expectations for the year. Revenue grew 26% to GBP 4.4 million in the period, and this was slightly ahead of management expectations. As a growth company, we are usually second half weighted. And so really happy to get to the halfway stage on that market expectations. We're pleased to report that gross margin increased to 67% from 62% last year. The year 2023 also ended on around 62%, 63%. So we've really driven those efficiencies within that teaching model. So that's down to the NCore platform that we have invested into over the last couple of years. We've had a tenfold increase in underlying adjusted EBITDA this year, and EBITDA was adjusted just for share-based payments, and that's gone from GBP 40,000 to just over GBP 400,000 in the same period. Dive down to investments made in the efficiencies and loss -- the investments that we made last year are now coming to [Tenfold] this year. We have returned the profitability bottom line and with an EPS of going up to GBP 2.58. We've got a strong balance sheet with a cash balance at GBP 1.3 million. This is a really comfortable position for us to be in, and the cash generation and the underlying cash generation enables us to continue to invest in platforms that will drive efficiency that are involved. So operational highlights. We are pleased that the demand for our training group counts has not decreased. We are now looking at registrations rather than applications. Registrations really tell us the people that are interested in the course after they sample some of our material. And we believe it's a much more actual [indiscernible] metric to follow. So that has increased to [ 4,700 ] in the period and that has continued to grow with over 3,000 in Q3, which is obviously not actually finished yet. We have the GBP 10 million Department for Education funding in January this year, which is -- will continue to June 2025. That was an 18-month contract. We're working through that really well and producing very good outcomes and really good KPIs on that contract. The geographic expansion continue. We now have almost 62% of our learners based outside of Manchester and Leeds. Manchester Leeds, where we predominantly was. That happened really organically, and we have 34% of our students based in London. We don't have physical space in London, that is down to marketing efforts and alone. And so that is a really good area for us to grow in sales to put a bit of investment to really explore the London market. Corporate Solutions division has rebranded as Counter in May this year. We've appointed Tom Walton as a strategic adviser, and then Chris will go on to talk more about Counter later on the presentation. In Manchester, we have downsized our office. We will be moving into a smaller office at the beginning of next year. That is because we took 10,000 square foot just before COVID and we don't need all that space with this new teaching model. So we're pleased to be able to come out and downsize that office at the end of this year. That will give us a good cost saving and with rent and with that [indiscernible] area design. And we have released 2 new courses in the period. So Java and C Sharp. Java, we are moving on to our second cohort, and the C Sharp cohort is due to start in November. These are our iterations of software development but more specialized to enable people to go into more different jobs.

Thanks, Charlotte. A significant effort that we've made this year is to really to simplify the business model. Same like last year, we had many different products and services, especially in the corporate side and also company. And what we wanted to do is really bring that back to just things that we excel at and we'll concentrate more on those and not have to make different -- too much in messaging and barely understand how to intensify our growth in simple ways. So last change we made is that Tech Returners has now been dissolved into the 2 divisions of Northcoders. Last year, we operated 3 divisions, Training Bootcamps, Corporate Solutions and Tech Returners. We've now extracted out the elements of Tech Returners, which are courseware and put them into the training boot camps and the Corporate Solutions recruit with all the experienced engineers has following to [ consult ], I'll talk more about it in a few moments. So just we'll do really quickly on the business model. And we are super proud to have a training model that feeds into our corporate business. And we, as Charlotte said, it's 2 new elements of software development this year to our courses which is Java and C Sharp. Now these are more enterprise-level programming languages and frameworks. They are used by, for example, bigger banks as opposed to smaller start-ups. And it's quite new in the industry because we do have competition from both the coding Bootcamps are almost coding mostly Javascripts and web-based. And training programs that are going to these areas gives us an expansion into markets, especially the Counter on the corporate side, which we did we'll have to follow. In terms of [indiscernible] courses, we then have different options for those individuals. There you go and get a volume stable if they join Counter. And they will become a consultant for our business, and that's serving the [ description ] subscription model to the highest [indiscernible]. Again, back to simplicity, the core drivers of the business genuinely on the fact that we have an excellent reputation and fantastic training services. We attract so many people who want to do our courses and need to let the best people for that. And we technically believe that our Training Bootcamp's power our corporate market and the B2B market is a vast opportunity for this business. But of course, over the years, the growth opportunity Bootcamps alone as well as the efficiencies that we've brought into by really innovating on that teaching model, growing more profitability in those areas. So in terms of vision, we generally believe we are the world's leading Training Bootcamp again with the innovation and doing things that not all of our competitors do, such as enterprise level training courses. We think we can go on from here to go up to being a real technology skills accelerator or businesses, certainly within the U.K. and in the [ Las Vegas ] in future, and there's no reason why us and companies are doing that kind of growth.

So many USPs around our Training Bootcamps. So we have always concentrated on quality over quantity. We have an exceptional reputation in the industry, where people will hire our graduates. And that is because the quality of our education is the best and around. We believe that we are a market leader and our static salaries for students leaving the course at circa GBP 30,000. We have flexible learning options. So we have a full-time course and a part-time course available now for students that can't quit their jobs, they can't kind of put their -- and the life, the job life on hold for 13 weeks. And that, we've opened up a part-time version of the course. All our tutor in the field they're all software developers or data engineers, and we ensure that they really keep up with the leading edge of what technologies are being used in industry and what -- and to bring that back into the picture. We have over 8-year community now, and we've trained over 3,000 students. So we are seeing the benefits of those students now moving into CTO roles or management roles and coming back and hiring jobs [ coaches ]. We have job placement support. We don't just teach tech. We teach the career side of things. We teach people how to get through a tech interview and how to learn that virtual industry. And we have a lot of companies that we have partnered with that will take graduates from us. And 89% of our grads are going into jobs that we want to go into after their course.

So a significant milestone this year has been the rebrand of our Corporate Solutions division, which was previously branded under the Northcoders -- it's now Counter. So Counter is a consultancy, and meanwhile we are Counter Consultants because we do things differently. And we're really innovating on the Hire-train-deploy market by bringing out a fresh perspective to the ways that companies can engage with their different teams by giving -- Tech Returners believe and actually handpicking individual support projects as opposed to having the employees plus incentive people that we are deploying out into contracts. And we definitely believe that people may be deployed into war zones, but not so much into add something -- create something [indiscernible] while we believe that we're very challenged around to that market. We've got a highly experienced team. Amul has been with the company since the very early days, he's head of our partnerships, and we are growing this time initially with a very small footprint on Manchester and Leeds, where more is very well connected and also engaged with other businesses to really push forward the brand. Tom Walton was the founder of a company called Infinity Works, and I've had to work with Tom years ago at Srum. And Tom has always been a keen follower and also an investor in Northcoders. And it is worth mentioning to see [ exponential ] reverse and it's sold to Accenture. And each [indiscernible] really help us with the strategy and with almost keeping this [ grand ] and not focusing on the quality and the excellence before we really go for kind of huge growth that we believe that Counter can achieve. And also James at Tech Returners, now he is at Counter. James is the previous CTO and a technical expert, who looks after our tech leads and the kind of wrap around support that we offer to our Counter Consultants to make sure that both our clients and the individuals that go into to these programs then get the best [indiscernible]. So what we do at Counter. So we cherry-picked Counter consultants, committee officers. That's not only about their technical skills. It might be about they're mere trainers of previous experience in other areas, so you are a products and services, if you got experience in that sector, that would be very beneficial to your future employer, whilst you role might be completely different. We don't have a only utilization rate issues because we are 100% of our account resources are employed just for that project hold. We can also source different expertise of specialisms to Tech Returners, which might help to support those projects on genuine people more experienced leads to a higher revenue model. But that adds the great setup on the Counter. So and I was working with this not only the -- and need to technology that people are to mitigate Hire-Train-Deploy businesses, but the returns are experienced at the end of program is employed by our clients. So we go across a fair view areas there within Counter and in spending on the expertise from the Training Bootcamps up on the return of programs. We do software engineering, data engineering, cloud and mobile. And we're also now into like Artificial Intelligence, which has been our first hire recently with someone from AWS internal experience in building up those large language models of product a lot balance over the past 12 to 18 months. And yes, we also can look at areas such as like local development, for example, salesforce will be 1 of those things if -- for those who [indiscernible]. So what are your fees? Huge. We ask those people to meet a Northcoder or a Tech Returner so we can actually engage early in [indiscernible] people for that business. And we're also an onshore model, which is the same part as a near shore model. So as things like tax credits get more and more strict, organizations are incentivized to bring the kind of engineering and the tech processing actually in U.K. based. And the fact that we can do that on the same price model as the near shore models, and that's a great thing for Counter. I want to turn to competition. So we Training Bootcamps that even comes as a message sector now than it was when we first started. We find that in many -- it's been new other businesses that is there equipped to go into the area. But we generally innovate and we generally excels first in terms of both the people that we recruit for our courses. Some we are always try to have a major feedback on what we do. Before coming into areas such as we're necessarily like more enterprise level engineering is also trade contribute. And yes, course within Corporate Solutions, this is a vast market, the smallest slice you could possibly imagine of that market Northcoders could go into would give us exponential growth, as we've seen from other organizations, who succeeded in that field. And those of you that, listed in some of them are our competitors, but we also have a consultancy -- consultancy model within Counter that means we can work with businesses to provide like soft ball expertise, but where we are more of -- the team on the ground actually builds the work and as beneficial to businesses to build out long-term capital.

So just about a few systems there before we go into the financials. We are seeing an uptake in the labor market. And we did see in our internal share in the company's hiring tech graduates what that has have increased this year. The demand for software engineers isn't going anywhere. And that continues -- these jobs continue to be a big demand in the jobs market. And we just wanted to pull out a statement from Kier Starmer to kind of look at the way that labor, looking at skills and the need for skills within the U.K., especially tech skills. They have spoke about localized in sales funding, and they've also spoken about further utilizing the apprenticeship levy as well for things like Bootcamps. And so we'll see what happens in that area over the coming weeks and months, but we are in a good position to pick up any funding that there is for this type of training. Looking at the finances, I just want to start with some graphs on here to show the revenue growth over the last few years. The '24 and '25 are based on the growth forecast. But as you can see, we're not trying to change the world in 2024 or 2025. And we are halfway towards that management expectation at the half year. EBITDA-wise, we did have a rough year last year. We did lose money at EBITDA level. And we've kind of spoke about the investments that we made that year where revenue didn't grow as much as we hoped or forecasted. We've completely turned that around this year, and we're very, very comfortable with the market expectation of just under GBP 1 million for EBITDA in 2024 and that involve particularly in 2025 falls through really comfortably as well. So for the first 6 months, we have a revenue increase to GBP 4.3 million and gross profit margin to [ 2.9%, ] up 67%. Adjusted EBITDA at just under GBP 450,000, which is a margin of 10%, and an operating profit of GBP 154,000. We do expect that the operating profit level will be second half weighted. We are comfortable with the expectation in the market on that figure. Well, there is more profit to come through in the second half of the year because we've made investments in the first half, which will carry through. On the statement of cash flow is next slide, please. And we have positive cash inflow from operating activities, slight increase in trade of the receivables. The timing thing on the DfE money coming in we obviously teach us bigger cohorts as the years go on. And therefore, that's caused a slight increase there. And then a slight increase on trading of payables as well, a very, very small increase, mostly just timing. We have had no new issue of shares in the period and only part of the borrowing. We repay back loans at around GBP 22,000 capital per month, and we obviously repay our lease obligations as well. As I said, for next year, we do have a rent-free period on the leases. So we will generate cash in that area compared to the previous year. We have, obviously, interest on the bank loans, but most of that is offset with the savings account that we report the cash balance into. And the cash balance at the end of the period ended on GBP 1.3 million. Balance sheet wise, we have non-core assets of GBP 3.6 million. This is GBP 1.6 million worth of intangible assets. So when we developed the platform such as NCore and JS Basics. So NCore is our learning platform. JS Basics is the platform that we use when people are fine with the course. So they will shift some entry material -- they will release some entry material work the way or to fit in that entry challenge. That's all now doing on an internal platform so we can really merge with our pipeline. We have GBP 1.3 million of goodwill in that, which is the goodwill from the Tech Returners acquisition, and then about [ GBP 4.3 million ] of tangible assets, laptops, screens, stuff like that. Something to note on the balance sheet is that the bank loans at the end of the period totaled [ GBP 0.6 million ], so we do expect to have to be paid off by the end of next year. And yes, as said before that paid off [ GBP 23,000 ] capital to bring those to any asset figure just over GBP 5 million.

So we started again in the second half of this year, really, really well, and we are pleased by and what is an expectation in terms of that half of the year. We continue to look at increases in our brand awareness, and we're always looking to do different things to diversify revenue streams -- and revenue streams. And -- so we continue to invest on investors here in those new technology disciplines with C Sharp being the final course to that we're going to introduce. And then not final course forever. But for next year, we're going to let those 4 that we've got really bed in, and get back to my discussion on the business model before we are trying to keep things really, really nice and simple and not go off and do too many things because we tell you think that the market opportunity is vast to say on thinking we do really well. We provide great value for all our stakeholders. And yes, we are super confident in our ability to deliver on the expectations for this year, and certainly beyond that also. So yes, thank you.

And I have got some questions, which I'll start. I'm going to do the first one. I'm going to hand over to Charlotte for the second and then a couple more. And so thank you, James, if you anticipate further reduction in physical space but it you're to shift into a fully virtual model? Can move to a great setup in how you managing the quality outcomes for -- in getting students? And so we have our head offices in Manchester, so we do set in the new one, we do still have sort of that kind of we worked out a working space to the learners. And we do have the same needs also because we've got quite a few of operating needs for many, many years, and we do have couple of our quality members [indiscernible] based in that area. And we are now, for example, versus today and some one within the [indiscernible] development for corporates [ Starace ] London we got our office. But they're happy to kind of do the other thing and work promoting to that course is not. But I think it's even more important to talk about kind of the community and then some [indiscernible] something as opposed to having an office that you can go to do your coding costs. We no longer have the [ Holy New Castle ] or in Birmingham, and we've never had one in London. But however, we now have 1/3 of our students based here in London. And what we're merely going to keep them engaged as opposed to giving them an expensive office and we took a lot more with up selling that Central when you need to spend on Central and not between your lot more to make those individuals engaged and drive fantastic outcomes for them because of that providable office.

So we have a question from Rob. How much of your future revenue can you see at any [indiscernible]? So coming into this year, we actually had something like 95% of our revenue visible. And maybe even higher than that because we won a GBP 10 million Department for Education bid. And obviously, in an ideal world, we will always win that title for the event just before the year-end, so that we're going into the year with the revenue visibility kind of tied up. We know that our cohorts will oversubscribe and that all we can kind of map out that cohort revenue. The new labor government with the new local government and changes within the government. We are seeing a slight or a slightly slower approach to getting those bids out, but we're still confident that by the end of the year, we'll have -- we'll have an idea and something in place. So hopefully, we will be the same next year. That's very, very different for us. We used to operate our model of -- we would have 3 months' worth of revenue visibility because a student would sign on to the course, they would pay and they would be on the course for 3 months. So that's changed quite a lot. It will change further with Counter, so Counter contracts are around 6 to 12 months long. And so we will have the revenue visibility and the contracted revenue with the current contracts as well. And so we've moved from a company that didn't have much revenue treaty visibility ideally to a company that pretty much sort of half the revenue visibility to the year tied up.

Yes, I think I will just add [indiscernible] in government. And we actually have a ministerial visit next week on Friday at [indiscernible]. But yes, we're super confident in the investment in skills. And we think that the -- what we're hearing about what it obviously would be apprentice [ leviathan ] what do you want to do with travel skills in England. I mean these Training Bootcamps are providing significant value. Northcoders is having, for example, someone was a busker, now earning double the national wage working as a software engineer. And in terms of the payment on that very small sort of the GBP 10,000 investments from the government. They have years and years and years of that kind of income tax in the mind business value being provided by [indiscernible]. Yes, once we hear quite a lot about the books in, we're all hearing about our capital gains tax about and people kind of told, you're not going to get any help care for that inter fuel anymore or they've been told or being sold. And however, we are not hearing any -- we're going to make significant cost to education and skills to the future of the superpower workforce of growth. We're hearing the coal offers it again. It's a little bit uncertain at times, but from what we see, we're fairly confident in what's going on. So Rob, a question here. Do you action -- what options do you have to accelerate growth? Are there any opportunities you see in the near term? So then definitely near term being on a guess on that. And we are now operating a part-time Training Bootcamp Model as we intend to roll out costs, all of our disciplines. That's a very different model, and the way that we are doing it is we're giving lots of different flexible options as soon the way that they learn don't need to be in that. And at a certain time, we said we don't need to give up your job to attend Northcoders Monday to Friday 9 to 5. Now that's again yet we're minimizing the 30 min time space that isn't being done by many of the bigger competitors, the bigger brands that sit alongside us. And it might have been done in smaller places. But we think that to be a real growth driver because entering in a way to multiple like from Northcoders, but still a top quality and high price seat item. But yes, we definitely think that could be sort go easily roll out further field than the U.K. and we just see some kind of small cohort testing at the moment. And the same goes for -- same as the counter. So we have got cancer contract zone. We look at what we found in May. We focus on getting it right and really focusing on delivering quality and making sure that we build up a business model that is going to really be able to grow massively in the future and the kind of these things were super fast. We're also doing the same while making sure that we are bringing in profit for stakeholders. So that could be something that once we get a bit of a critical mass of contracts and case studies, and we also have the right of predictability of our pipeline, about how things take to land, land for contracts, so on and so forth. Yes, we could really move do the business that's a master area that [indicernible] we have a huge opportunity to trout. But yes, it's about I think is what control you to tell you that. I'm sorry, there's a question here. I detailed presentation. Great progress on training. What percentage is completion rate? So in terms of the courses, it's -- the completion rate as you at more students just go down is around about at 90% of our people from starting to complete the course in the education that's pretty good. Of course, we can always make sure that anyone's committed to Northcoders get all the way too. And how do you achieve near shore pricing has launched or supplier? Well, because the onshore -- the onshore consultancies have always starting with money on the near shores have found the way of doing it cheaper, but so they can talk the profit, and we're doing at a 50% margin where you get generally amazing people who are based in the town all the 60 that you want them to be and yeah, it's a profitable model. And we're winning with appetite scalable not ask that question.

Yes. I think it's that we also don't have eventually people. We don't have to pay people whilst they're not on contract. We can literally win a contract, hire the people straight from our Bootcamp, and then consult them out. So we don't have any kind of loss costs within that model, and therefore, we can just be cheaper than the competition.

So I'll take this for a well as questions couple of that from gentelmen. Do you think it's a --, sorry, thank you, David, but there's opportunity for geographic expansion with [indiscernible] delivery? I think that probably seems the question being asked in the answer to the other couple of questions. . And -- but yes, in terms of the actual virtual kind of delivery of courses and basically the core product, it looks more efficient having offices and building up into outside it. And in terms of the part time model, that is able to be to even be done without kind of not staffing completely. There's still mention physical delivery being acquired even in [indiscernible].

I think something to just to point out on that, we actually do run all virtual course and all of the [indiscernible] have streamed out virtually seminar groups are virtual and the kind of virtual. The office space just provides people with the desk and are quiet environment to learn in. And we've had a student in Hong Kong learn virtually on the same course people in Manchester. We have some in Iceland. And also the time -- timezone kind of work, the main barrier to kind of grow up on that type of thing is making sure we have partnerships with businesses that only have the reputation in that geography to be able to enable that students and then go and get a job. And that is something that we will -- we were always looking to invest in marketing around new indie areas to ensure that once we've got that reputation that, we can open up the cost of students and they can get that positive outcome at the end. This one from Matthew. [indiscernible] role of bolt-on acquisitions, featuring our growth prospects? Or are you happy with your organic initiatives? We did an acquisition in February last year, and we feel that that's really embedded in nicely now. We are seeing the efficiencies from the acquisition. We're seeing the new areas that has to go into. And the reputation of that brand has really helped us in other areas as well. For now, we are trying to really grow organically. We know where we want to be. We know how to get there, and that is organically. Never say never, if something comes up and it just really makes sense, it enables us to speed up our growth plans, then we would lock at it. Right now, it's not acquisition kind of growth is not in our strategy.

I think that's it. Thank you for the questions, and we've finished all the questions.

Thank you very much indeed for answering all those questions. Of course, any further questions do come through the team, they will review those and we publish responses where appropriate to do so on the Investor Meet company platform. And just before redirecting investors provided their feedback now it's particularly important too, Chris, can I just actually ask you for a few closing comments, please?

Yes. Yes, just thank you all for giving us time to joining us. And we -- yes, we see with where we are now so compared to where things got to last year. And we believed and totally knocked in our process to the future, and we look forward to engaging with everyone where possible. And yes, thank you. That's all.

Fantastic. Thank you, Chris, Charlotte. Thanks indeed for updating investors today. Can I please ask investors not to close the session as you'll be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This is going to take a few moments to complete, and I'm sure it was greatly valued by the company. On behalf of the management team of Northcoders Group, we would like to thank you for attending today's presentation. That concludes today's session, and good afternoon to you all.

Thank you.

Thank you.