Mind Gym plc (MIND) Earnings Call Transcript & Summary

Thank you, and welcome. Here we are for Mind Gym's annual results presentation. I'm delighted to share that we are in a healthy form with double-digit revenue growth and, even better, a return to decent profitability. I will -- in a moment, I'll hand over to Dom to share the highlights for FY '23. I'm then going to remind a little bit for those who are regulars on this call about our strategy, but update on the progress we're making towards delivering it, which is tremendously exciting. And then I'll conclude with a look at the outlook for the year ahead. So with that, I shall pass over to Dom for the FY '23 highlights.

Thank you, Octavius. So very pleased to announce our numbers. Revenue is at GBP 55 million, which is up 13% on prior year. We remain a highly digital business. So 68% of our revenues are digitally enabled. Now that's down a little bit versus prior year, but that's as expected because we saw an increase in in-person deliveries at the start of the year. That trend has stabilized, and we're not anticipating a significant shift from that in the future. And pure digital revenue growing somewhat from 11% to 13%, and that's things such as eWorkouts. As Octavius suggested, we're very happy to share that our PBT is at GBP 3 million, which is up GBP 3.4 million on prior year, which was a small loss in the prior year. So a significant improvement there. And the same thing obviously happening in EBITDA as well, which is up GBP 4 million and has increased from 3% to 10%. So significant progress, and we'll come on to that a little bit later. And of course, EPS following that as well. Cash at the bank is GBP 7.6 million. So significant reduction in net cash burn in FY '23. We're also using our CapEx more efficiently as well. So CapEx spend is down GBP 1 million, and most of that is because we did a restructuring at the end of last year, where we reduced the cost but increased the pace. So we integrated our technology organization, and that has led to a reduction in spend in FY '23, also using our CapEx better in different ways as well. So we're very happy to announce -- and we'll come on to this a little bit later, the acquisition of the rights to a Diagnostics platform. So this will accelerate the launch of our Diagnostic self-serve platform by something like 18 months, and it will also significantly reduce the required uplift in CapEx spend that we would have otherwise spent in FY '24 and FY '25. So CapEx spend will still go up, but not by as much as we had anticipated. So a strong set of financial results in line with expectations. As we move on to look at the regional breakdown of that, you can see that the U.S. is growing at 8%, and that reflects essentially the impact of FX there. But the EMEA region is growing at 20%. And there's underlying improvement there, of course, as well, but that also includes the impact of the large energy framework, which we've mentioned previously. So a strong growth in EMEA there off the back of that. Importantly, our client base remains highly diversified. So our largest client is less than 6% of our business. So it's -- we're not over reliant on one client. It's also important to note we have a very diversified industrial base. So if one sector such as technology is suffering a little bit, we have strength across a large number of industries such as pharmaceuticals, financials and energy, of course. So a strongly diversified client base, which is important. Still seeing high repeat rates, and we continue to work with the best companies in the world. When we break down to have a look at the revenue by product type, you can see a significant increase in design and advisory, revenue mix growing from 12% to 19%. That represents a large framework, particularly the energy one, which we've mentioned previously. And that also will lead to an increase in delivery, notably in the second half of FY '24, because there's the tail of delivery that follows design and advisory work. So robust revenue growth across the regions and strong D&A work as well. And finally, we're very excited, very happy with the progress we've made on profit. So we are setting a target of 15% to 20% EBITDA margin in the medium term. And you can see that strong progression from 3% to 10% in FY '23. And that's coming from a number of areas. We've initiated a number of savings programs, and also starting to see the ROI come through from our investments in '21-'22, which we made to make the business more easily scalable. So we recently opened a shared service center in Newcastle, which enables us to improve the effectiveness of our service and also reduce the cost. And we've invested in technology, which allows us to automate. That's what gives us the confidence as we head towards this medium-term target. We know that we've got the benefits of the shared service center, which will help us to reduce costs. We've also got the opportunity to arbitrage U.S. and U.K. labor costs. So that means that instead of backfilling roles in the U.S., we can move some of those over to the U.K. And of course, we've got a strong pipeline of automation, which enables us to save money and then improve the service through things like coach sourcing, session booking, as you can see there. So really excited with the operating margin development. It's made significant progress in the last 18 months, and we anticipate that, that progress will continue into the future. And I'm going to hand over to Octavius now, who's going to take us through our strategy.

Dom, thank you so much. I'm delighted to pick up of the strengths of a good year's performance, to talk about the vision for the future, and the enormous opportunity we have in front of us and how we're going about realizing it. Now the next slide will be familiar to those of you who are followers of Mind Gym. The market at the moment is not only vast, it's larger than the GDP of most countries in the world, but also massively disaggregated. But organizations, which we've got the word clients in here, but it could be a FTSE company or there are many sort of large significant organization, has a multiplicity of different priorities in order to drive human performance at work. And each of those is generally run fairly independently of the others, with a range of different providers that come together to help address it, whether it's diversity, inclusion or leadership development or coaching and so on and so forth. And what happens, therefore, is companies are spending, let's just say, imaginary $50 million, it could be much more over, let's just say, 100 providers with no coherence across the suite, significant waste as they create, recreate, duplicate, have gaps, and no consistent data to find out what is working and what is not. So what we're envisioning for the future is integrated approach where the total becomes worth more than the sum of the parts because all the bits fit together. And what you learn, discover in one place, you also augment and complement and supplement in another so it becomes one full suite and you are living one coherent approach to organizational health and well-being and personal performance. And we tested this out. We had a CHROs Summit a few weeks ago at Royal Opera House. We had an eye on 200 CHROs from great companies from Shell to Chanel, BT to DB, Sage to Kingfisher, and many, many more. And we asked them on this vision of the future, which they all subscribe to as very much where we wanted to go. Where were they at the moment? And the typical score was between 3 and 4 out of 10. So people recognize this is important, but recognize that it's a harder lift than they would have liked and there's a lot they need to do to get there. Now the good news is that we at Mind Gym are making progress not just in the where we're going, but also with the tools and techniques in order to get us there. So I'm going to briefly talk through a history of what we've been creating and how this fits together to create an overall behavioral change platform. Now we launched with One to Many, we deliver up to 500 live bite-sized workshops a week in over 40 countries, either in person or increasingly virtually. And we've been doing this since we've founded it. It's our bedrock of our strength. It's much more appreciated and proven to work. But sometimes, you don't want to learn or wait for a course or an event to go to, but you want to learn in the moment, you want immediate access and you want to dedicate your insights by yourself. And therefore, we developed and launched a few years ago our eWorkout portfolio. These are 100 digital assets and different topics, each roughly 9 minutes long, about how can I have a better, more courageous conversation or deal with goal setting or be a bit more creative? And they're very practical and very applicable. And as you heard from Dom, they account for about 1/10 of the revenue in our client spend. So sometimes you want to learn the group from each other. Sometimes you want to learn alone. But sometimes you want to talk to somebody personally, privately about something that's important to you and your particular challenge. And therefore, what we've done -- and in addition to that is we've launched Performa, which is our one-to-one coaching offer, of which, more in a moment. So that adds another dimension, another distribution channel for the content. But that's not the end of it. We also need to have Diagnostics to understand where am I at and where is the organization at, and therefore, where should I focus or the company focus in order to have greater impact. And there's more on that, just a moment. And in the final part of the picture is learning in the flow of work. What are the tools, techniques, immediate access to advice and guidance? And again, we've got some exciting developments there as well. So what we're doing is building this over 25 years of growth of 5 million participants taking part in our programs of IP that's being tested and validated and grounded in the science with multiple distribution channels, with data providing the source to flow from one to the next, helping our clients on the right-hand side decide where to focus their attention, but most importantly, helping members and individuals get the personalized guidance and service of content in the moment of need based on their profile and appetite in order to help make them more effective. So this is what we're creating. And I want to talk a bit more about the progress we're making in order to create it. So first of all, Performa. Now the world of coaching is fascinating, and we have just launched, again, at the summit, I mentioned, our new research paper, Precision Coaching, better, faster, always, whatever your goal. And the reason why this is so significant is it helps redefine what matters in the market. At that summit, we asked everybody what is the most important criteria in order to determine a good coaching? And we gave them 4 options. And 90% of the chemistry between the coach and the person being coached. Well, that's the popular view, but it's not the correct view, not grounded by the science. Only 8% of the differential from coaching is down to coach chemistry. By far and away, the biggest factor is the consistent evidence-based coaching methodology. So there's an element here, we're going to need to reeducate the market. But as we do, we have the only product that delivers in that new market space because we have developed our own Precision Coaching methodology, grounded in science, built by Mind Gym psychologists. We've worked hard how to apply that in the cycle of 4 by 45-minute sessions focusing on the goal, getting better at it, and then completing it before you move on to the next thing. And we're the only company in the world where all our coaches are certified in our own coaching methodology. So that ensures consistency. So there is a fantastic opportunity to deliver better, faster, always consistent coaching and build leadership strength. We -- our job now is to take that to the market and then reeducate people about some of the false assumptions that the -- that have been made and follow the science and the data. And we're already finding a very warm reception to that, not least at the tremendously successful fashion brand, Burberry, where they have integrated Performa into the Mind Gym leadership program that they are running. So they are both running one to many and also the Performa one to one coaching. So people get the benefit from learning from each other and also the personal advice and guidance that they get from their coach. And this is having tremendous results. Progress towards goals, starts off at about 40% and goes up to about 80%. That's a kind of doubling in goal attainment. It's one of the most accurate measures of improvement is not the self-report because we're known as self-enhancement bias, but the view of managers and whether the people they are managing have improved or not. And their 85% of managers could see an improvement in the leaders who reported into them. So this is a tremendous result, Burberry's delighted with this. And other organizations are increasingly adopting Performa or certainly exploring how to use Performa as part of an integrated solution. So we're really excited about the emergence of Performa. But we're also excited about Diagnostics, the next bit in that cycle that I shared with you. And here, we have a market where the diagnostics are done by different people from the people who actually come up with a solution. And this is incredibly expensive and wasteful of time for organizations. So they do the surveys, the employee has to do survey whatever it might happen to be. And then that -- what that does is analyze the problem. So there's a lot of time working out what is the real problem? And what's the problem behind it? How do you break down the data? And often, it can be weeks or months before anyone comes up with an answer what to do about it. And over time, they've actually implemented it. The survey is being done again, and it's almost no impact has actually happened, then the cycle repeats itself. What we're doing is integrating the 2, so the Diagnostic leads automatically to the solution, a solution that Mind Gym has and has proven to work. And that is incredibly different way of approaching Diagnostics, which we think will have an enormous appeal to our clients. And we're already in beta test with some clients who are very about this. And as Dom mentioned, we're not only designing the IP, the content for this, but we're also customizing a platform so that we can serve this using a Mind Gym-owned platform to all our clients so they can actually serve themselves, analyze the data, look at the dashboards, run the diagnostics themselves. So this will add to our digital. It potentially adds to SaaS revenue, and most importantly of all, it means that we are in control with our clients of the whole diagnostic process. That means we can add new features. For example, one of the features of this is that I may write a comment, I mean you can actually talk to me directly while I maintain my anonymity about what I've said about the organization and so forth. So you start with a relationship with the individual who's completing it. So there's some really exciting developments coming here. And then, to give you an example of how this works in practice. We are on the cusp of launching our new well-being point of view. This is a Mind Gym diagnostic designed by our psychometricians and data team. What this looks at is there's a difference, first of all, between ill-being on the x-axis and well-being on the y-axis. So simply because I haven't got a broken leg does not mean I can run a marathon. Now what we've done is built these assessments and benchmarked it to discover where people sit on these axes. And we're delighted, obviously, very healthy, so benchmark of 27% in flourishing and 26% coping. There's 2 other interesting categories that have emerged in the research. The first is top-left, fragile thrivers. These are people who are likely to be high performers. They look like being tremendously well. They seem very engaged. But underneath it, they're at risk of moving to struggling or possibly in crisis. And therefore, they require a very specific kind of attention. Which is different, bottom right, from those who are boring out. These people are slightly fed up, they're soft peddling, waiting for the next thing to happen, not a rush to do anything particularly productive and can be a great energy drain on the organization. For the first group, you probably want to reduce their workload, we'll give them more resources. The second group is reduce their workload or give them more resources, the problem only gets worse. So by being able to diagnose the problem, you can then come up with a solution that's far more likely to address the needs of the people concerned. So rather than a one-size-fits-all approach to well-being, which is what companies tend to do with the current smorgasbord of benefits, what this enables them to do is to have a much more tailored solution. So what we've got is Recover program, which is all about reducing ill-being. We've got a Reignite program, which is all about increasing well-being. And then we have a Reinforce program, which is about avoiding things getting worse. So it's helping the 96% who aren't in crisis and probably in need of professional, clinical attention and support to stop things getting worse and hold things where they are. And then what we've done is we've mapped our products across each of these programs. So this is a rainbow of different lovely colors. I will briefly translate, then you possibly can read the key at the bottom. The squares are Go Largers with the lions share -- they're virtual go largers. That's almost like a TED Talk in 60 minutes for as many people as you like. The green circles are 90-minute workouts. They're usually just smaller groups and they run both virtual and in person. The flower shapes are slightly longer than 180 minutes, and the yellow ones are eWorkouts, digital workouts that I mentioned earlier. And what we've got is these existing assets that allow you immediately to go and run your programs. You get the diagnostic, you discover you've got a group of marketeers in the consumer function area and what they need is to reignite. So you can run the Reignite program there. Whereas your full stack engineers in another part of the business, mainly Recover, and then you can run the Recover program there. So this allows a full integration of diagnostics to solutions. And then, of course, you can easily measure by repeating the diagnostic to see what impact you have had. So this is a tremendously exciting evolution. As I mentioned before, it's a beta test. We hope to have a platform ready for clients in the second half of this year. We'll be launching the diagnostics in full next year, having properly, thoroughly tested and got regular, reassuring, positive feedback from our clients. So this is another exciting evolution. But it doesn't stop there. We also mentioned in that cycle, if you may recall, the -- in the flow of work. And obviously, there's much talk about AI. And so what we've done is taken an instance of ChatGPT 3.5, if you like, and taught it Mind Gym content. And it's a very early trial, which I probably shouldn't be showing everybody -- from my product development team, they're much rather -- it's much more finished before I did. But what you can see here is that we've created an instance called Sigmund Friend, and Sigmund Friend is our Mind Gym coach bot that is taught in order to help with performance management. So at this stage, you share your problem and you say, I've got this issue with my team, I've got someone who's overperforming or underperforming or needs reenergizing. And then Sigmund Friend originally comes up with an informed answer. One of the challenges with ChatGPT and other AI is the quality of the response that you get. But by teaching it, our 23 years of IP, we can make sure that content is very robust and thorough. And so you can see this is an exciting development. It's not even in beta trials yet, but we're working on it, and I wanted to give you a glimpse of the future. So you start to see the -- not only what we've done and proven to do, but also we've got coming down the pipeline. So we're very excited about the overall direction. They'll move from total being less than the sum of our parts to being total more than the sum of the parts, the jigsaw you saw earlier, from combining the distribution channels so they are integrated, and we're using data to give more greater personalization and the diagnostics will clearly help with data. And actually making significant progress across all of these areas, although very openly at different stages. That's our strategy. What's the outlook for FY '24? And these are the highlights. The digital transformation continues, and we'll see digital revenue, we believe, continue to increase and we will progress exactly as we have said in the past and have done, and now I'm sharing with you what we're doing in our product pipeline and what is on the way. We're also pleased that we managed with our buy and build or buy and adapt of our diagnostics platform. We've actually managed to bring the product pipeline a bit further forward. We are confident about margins and keen to set ourselves the target of increasing those further. And we're also looking at growth in FY '24 with a skew towards the second half because of our framework agreement. So overall, we're very confident in our investments, the right ones to have made. We're building and delivering for scalable growth and accelerating the pace of the digital pipeline, but also the overall business pipeline.