Mind Gym plc (MIND) Earnings Call Transcript & Summary

Welcome, and good morning, everybody, for dialing in for the Mind Gym results presentation for our first half. I'm delighted to have you here. I'm Christoffer Ellehuus. I'm the CEO here at Mind Gym. I have been in role now for close to a year, and I am very excited about both my time here at Mind Gym, interacting with customers, our teams, and I'm excited to share with you today progress on our strategy and the organization for the first half. We've made some good progress. So let me hand it over to Emily, our new Chief Financial Officer. Emily, over to you.

Thanks, Christoffer, and good morning, everyone. My name is Emily Fyffe, and I'm delighted to be joining you today as Mind Gym's new CFO. I spent my formative years as an accountant working in the audit department at Grant Thornton, and I've now spent 8 years at Mind Gym, holding increasingly senior positions, including Group Financial Controller and most recently, Group Finance Director. It's an exciting time to be at Mind Gym as we recalibrate the business, and I'm a passionate believer in the quality of our content, talent of our team and in the strategy that Christoffer set out, making Mind Gym easier to buy, sell and renew. I'll now hand back to Christoffer to take us through today's agenda.

Thank you very much, Emily. So let's dive into the overview. So the agenda for our time today is around these three areas that you see on the page here with eight key takeaways for the presentation. First, around our performance for the first half. I'm excited to report that we have returned to EBITDA profitability. We have gone through a tremendous effort to resize the organization, taken more than 20% of cost out of the business year-over-year, and we are in a sustainable place now to build for investments and growth. Our first half revenues are broadly flat. We're still in a fairly disruptive and challenging environment, but have had good year-over-year flat kind of performance. On the strategy that I laid out this summer as we went into this fiscal year, we've made progress in three main areas. Number one, we've launched a number of new packaged subscription-based solutions, which aligns very much with the strategy that I laid out to make Mind Gym easy to buy, sell and renew. And we've introduced now more recurring sustainable revenues to build on for the future. We have moved from a build to a partner platform strategy. So taking advantage of technology progress in the market and build those inside the organization, both to improve our operational efficiency, but also to drive new features and functionality to our customers. And then we've used some of those capabilities to now in the last month or so and in the next couple of months to launch new products. Two highlights is our new AI coaching product and our new data and diagnostic and analytics offering. How that looks as we look into the opportunity for growth. The outlook for the full year remains unchanged. We expect to see underlying revenue growth in FY '26, the next year. So that's subtracting the large energy framework agreement. If you subtract that, we are expected to see underlying growth, and we are also setting us up then for growth in FY '27 and beyond. We continue to be optimistic about our opportunity and our position in the broader market, and we still target medium-term revenue of more than 10%, and 15% to 20% EBITDA margins. Now let me dive into a couple of points around our broader market before handing it over to Emily, who will take you into the financial performance in the first half. So broadly, the market that we are in, right, the broader talent management market continues to be a huge opportunity for Mind Gym. Overall, it's a $320 billion corporate L&D buyer market, significant. The addressable market portion within that, that's very relevant for Mind Gym is around leadership and interpersonal skills training, and that's about $80 billion of that. So a sizable market, both in our core markets here in Europe and in the United States. It is, though, a very highly fragmented market as we reported before. So there is no one big or two big players that really dominate this market with a lot of providers. I would say there's four trends that kind of impact us, two that you could kind of more characterize as headwinds and probably two that I think play very well to Mind Gym's competitive strengths and our capabilities. First and foremost, there's been tremendous amount of investments in the HR tech space flowing into that. And obviously, that is very noisy and it is very disruptive. However, I think there is a flip side to that, which is a lot of clients are starting to not really see the full return on investment in that. The second one is that because of the changes in the market and just general disruption and uncertainty, HR has been under pressure, and we are seeing smaller budgets and prolonged deals just due to hesitancy of the buyer constrained budgets and some level of uncertainty, which just means that it takes us longer often to get deals over the line. I will say, though, on the flip side on some of those dynamics, as I mentioned before, while there's been a lot of investments in HR tech, it does mean that HR is really starting to be concerned about learner engagement and HR tech adoption. And if there's one thing that Mind Gym has consistently proven to clients again is our ability to engage both end learners and users and engage our clients in phenomenal user scores, NPS scores, et cetera. So the flip side of the tech investment is we actually really fulfill that need of learner and client engagement. Secondly, there's also been a continued move back to in-person training after COVID, and we are also picking that up, especially when it comes to leadership into personal skills. It's increasingly something clients want to do in person and Mind Gym's broad facilitator network of more than 300 global facilitators really comes into strength here. So continued big opportunity, some headwinds in terms of HR budget, but also things in the market that play to our strength. So with these market dynamics, let me hand it over to Emily to talk more specifically about our financial performance from the first half. Over to you, Emily.

Thank you, Christoffer. We're delighted to report a return to EBITDA profitability with GBP 0.8 million, representing a 4% margin, a significant improvement on the GBP 4.1 million adjusted loss in the prior year. This was driven by the significant cost reduction exercise and operational efficiencies gained in line with our globalized strategy. Average headcount fell from 358 to 264. And overall, our costs are down 42%, GBP 12 million or 23% when we exclude the impact of adjusting items. Despite the market challenges that Christoffer has outlined, we're pleased that revenues remained broadly flat at GBP 20.2 million, minus 3% or 2% in constant currency. EMEA's strong performance, delivering GBP 12.1 million, a 24% improvement on the prior year, largely offset the weak performance in the U.S., delivering GBP 8.1 million, a 27% reduction. The latter was particularly impacted by the market challenges and also a sustained reduction in DEI spend. EMEA's performance was inclusive of the multiyear energy framework agreement. This was expected to last for 2 years and extended beyond its initial 2-year term and therefore, delivered revenues above expectations. EMEA's underlying performance, excluding this framework agreement, was broadly flat at minus 3%, and we're confident of a return to underlying growth in this region in H2. The company continues to retain sufficient liquidity with GBP 0.7 million in the bank and a new GBP 4 million overdraft facility secured. This reduces our ongoing finance costs and provides improved liquidity versus this time last year. A couple of years ago, we identified an opportunity in the coaching market. And given the relative immaturity of the market at the time, set about to develop our own in-house platform. Whilst we remain committed to our Precision Coaching methodology, the technology improvements in the coaching market are outpacing what we can develop internally. And therefore, the right decision here is to move from a build to a partner approach. This enables us to continue to deliver our award-winning Precision Coaching methodology in a more scalable and cost-effective way, whilst also providing clients with improved insights and reporting. The impact of this is that a one-off noncash GBP 4.4 million adjustment will be reflected in H2. This has been disclosed in the interim accounts as a non-adjusting post-balance date event. In summary, we're pleased to report the return to profitability, and we have solid foundations to build on. I'll now hand back to Christoffer to talk you through Mind Gym's market-leading solutions.

Thank you, Emily. So I thought this would be a good time to demonstrate and highlight a couple of client stories. I just give you a peek back in some of the world-leading phenomenal work that we're doing with clients and the impact that also gives a glimpse in our ability to scale the business across multiple different areas. The first one is the big opportunity that we've been working on and account over the last set of years, our global energy framework agreement, which initially some years back were more than GBP 10 million over 2 years. It continued into a third year as we move from not just focusing on leaders, but also changing behaviors for individual contributors. So this has been a really, really strong journey for Mind Gym. We were selected initially based on our world-leading global facilitator network, the quality of IP and our ability to move beyond simple training solution to real true behavioral change partnerships for this organization. The focus was very much in helping their leaders be prepared for the future. If you think about global energy companies faced with transformation to renewable energies, global uncertainty, geopolitical uncertainty, there's no amount of change that these leaders are going through. So it's really helping both mature leaders in their current role and deal with that uncertainty, but also make them ready to transition to that next level of responsibility. And you can see some of the impact that we've had there. We've touched over 13,000 participants with our global facilitator network. We've been in 26 different countries, and we've delivered world-leading NPS scores at all levels. You see the NPS scores there ranging between 60 and 70, which compares to a global benchmark of around 47 for global world-class programs. So demonstrates a case for our ability both to do things at scale globally and also to deliver a really high per in-person engaging experience for clients. I think that really, really plays well to this current environment that we're in, and we're very proud of this work. The second case I wanted to provide you a view into is our Precision Coaching solution that we launched a couple of years ago to really provide more one-to-one coaching for managers and leaders across organizations. And we have rolled this out across a number of organizations. One of those is Finastra, and Finastra has been using this with their leaders. But instead of me talking too much about it, we have a little interview with Helen, who is the Chief People Officer at Finastra, who will give a little view into how they've used it and why they used it. [Presentation]

So as you can hear, a lot of impact delivered through our Precision Coaching solution. And I really think the differentiator here, again, in Mind Gym, is our methodology. It's our intellectual property that comes to bear that really is very, very competitive. As Emily was mentioning earlier, we're moving from a build to a partner strategy. So we will be moving to a new partner platform that will just further enhance features and functionality of this coaching experience that we can do and further expand this product set and solution set together with other products that we have. So we're very excited about rolling that out and building upon our great methodology that we already have. So hopefully, that gives you a glimpse into some of the work that we are doing and our ability to really scale across global organizations with our different products and solution. Let me turn a little bit to our strategy and the progress that we've made on our strategy in the first half. In the summer, I laid out a 3-year kind of vision for growth that took Mind Gym from what I called an episodical training program provider to more of a strategic behavioral change partner that's more sticky and embedded with clients over time. So you can see some of the things on the page that really characterize that move. It's really moving from providing one-off research, third-party data and individual project delivery to something which is much more packaged solutions, built on data and diagnostics to make our solutions more sticky with client and increasingly using partner ecosystems and platforms to deliver that. There are three areas or five areas in sum around this strategy to move from left to right that I call easy to buy, easy to sell and easy to renew. And there's five pillars of that. Three of those we have made tremendous progress on around go-to-market, our platforms and our products in this first half. And let me just give you a quick overview of what we have done in the first half. First off, our new package solutions is really a launch that we have done to expand our market reach, tap into new buyer needs, make it easier for our sellers to go to market with a solution and easier for our clients to buy access to our solutions and to our IP. If you think about the way we've typically gone to market on the left-hand side, we typically engage with clients on individual behavioral change projects or training needs that they might have. We've used our proven training content, and we have really used our in-house delivery team and our team of psychologists to deliver those. An example of this could be to change leadership behaviors in support of a strategic shift a client is having. The two new things that we have launched in the first half is, first, a package solution that gets after a recurring specific need for clients. This could be an employee wellness concern. It could be developing performance management skills in brand-new first-line managers, for example. These are then packaged solutions where we take the individual components of our products and package them and price them in a more license-based way that embeds further with clients. Thirdly, we have also created a new content access solution. Think of this as an all-you-can-eat of the best of Mind Gym. It basically provides clients with subscription access to our content in a 1- to 3-year license agreement. And this is often used, for example, for clients who already have in-house certified facilitators that are certified in Mind Gym content. They can now buy access to the content and have a much more flexible use of it to embed it into their own organization, again, making it easier to buy and access our content and making our relationship much more sticky over time while building more recurring sustainable revenue for the organization. So the second one where we have made significant progress in the first half is this shift from build to partner platform strategy that we talked a little bit about, both to enhance our operational efficiency, but also to make our products and our services and solutions more competitive. There are three areas that we have made progress on, on this new partner platform strategy. First is, as I mentioned before, we're putting our world-leading IP Precision Coaching solution on our new coaching platform that allow many more new features and functionality to make us much more competitive in the one-to-one coaching space. Secondly, we have a new Talent Management System and Learning Management System platform with both vastly increases the efficiency of how we operationalize engagements with clients in-house, but it also provides a client-facing portal where we can give access to our content in a digital way that further allows us to scale our services. And thirdly, we have done a new partnership with an AI coaching platform organization that brings an AI capability combined with our content to further personalize our experiences, which we're very excited about. Thirdly on progress is our new product launches. So this is kind of taking advantage of some of these new platform investments and of our IP, and then further productizing that and bringing it to market. So in the first half, the first thing we've done is we've basically taken the new partner platform we have on the AI coaching side with an organization called Yoodli. And we've essentially trained their AI coaching platform with Mind Gym content. So it is not just providing a third-party platform. The magic here is really training it on Mind Gym's behavioral change platform so that we together can give the client a personalized experience on our content, but delivered through an AI that really helps train and deliver a much more in-personal experience at scale. This is packaged with Mind Gym's core products, our training and our products, and it's also branded as a Mind Gym product. But let me give you a quick view into what that actually looks like. We have a small video here. [Presentation]

So hopefully, you'll get an impression of how we are leveraging new technology, AI coaching in this case and pairing it with Mind Gym's content in this case around how to help managers have difficult performance conversations with their staff. And now we're really able to leverage this technology to give a much more personalized experience beyond what we could already do in a typical classroom setting through our facilitated network. So we're really excited about pairing those two and further expanding our reach into this thing and delivering a really game-setting differentiated experience. Now the second piece of our product that I wanted to highlight is what I already mentioned in the summer is the big focus on data analytics and diagnostics as a way to further also provide clients with a better view into their specific issues and further tailor how our interventions align to the challenges of our clients. So if you think about the data and analytics diagnostic market in the HR space, if you look on the left-hand side, this typically highlights what that market looks like today. You have a lot of providers in the market that provides data and analytics services. So they provide clients with a view into where are their gaps in their culture, and their leadership capabilities in their employee engagements with the organization, for example, but then they have to rely on another provider that would typically come in and close that gap. That could be a traditional behavioral change provider like Mind Gym or could be a training provider, of which there are many in the market. With Mind Gym's really focus on data and diagnostic capability, we can really complete this circle now. So we can both help a client understand the challenges, the gaps that they have in their leaders and their workforce. We can deliver a solution to close that gap and we can measure the impact on our interventions at the back end. So we can both diagnose and we can provide the remedy now in the future, which I really see as a game setting and game-changing capability for Mind Gym to do that. Not a lot of providers have the full suite of offering from analytics to the intervention to close the gaps that you find. We have started this on the right-hand side, you see in terms of new products. We have launched a culture diagnostics that provides a view into client challenges around driving innovation and change in businesses. We're working currently with a large pharmaceutical company to help change their culture around innovation and change capability. We can do it in the space of DE&I, diversity, equity and inclusion. And I'll show in a little bit, we can also do it around our Wellworking and wellness, so helping employees understand gaps in how they're doing at work to close performance productivity gaps. And in the second half and moving into the new fiscal year, we will double down on individual behavioral tools around 360 feedback tools and taking advantage of our IP that we have owned for a while around 10x, which is our personality assessment that we will put on a new platform and offer as a solution as well for leadership and managerial development. So on the data diagnostics, what we've launched here about a month ago is our new Wellworking diagnostic, which really helps clients with the big productivity and performance challenges that they have now. A lot of managers and employees feel that they can get more out of employees. And meanwhile, a lot of employees and organizations are struggling with wellness issues. They feel burned out, stressed out, et cetera. Mind Gym's world-leading tool here around Wellworking really embeds our IP and understanding what are the gaps in wellness for employees that impede productivity gains for organizations. On the right-hand side, you see this wellness diagnostic, it basically provides individuals with a view into the gaps that they have so they can self-improve their capabilities and how they produce and how they feel at the job. They aggregate also their results so the manager can better manage their teams and any wellness gaps that they have, and it aggregates against to senior business leaders across the business so they can better manage these gaps at an organization and drive more sustainable performance over time. What's magic about this is we pair it then on the left-hand side with our learning and interventions, behavioral change interventions. So we've created journeys both for individuals, for managers and for leaders to close the gaps that are coming out of the results of the diagnostic on the right-hand side. So really, this strategy in place about both leveraging data and analytics and diagnostics to identify gaps and our existing solutions to close those gaps as we deliver. So much more of that strategy to come in other areas around manager effectiveness, leadership, et cetera. So with that, at the end here, let me summarize kind of what we've achieved and where we are as an organization as we look ahead. So as mentioned, FY '25, as we already said in the summer, is kind of a year of recalibration for us as we set up for more sustainable growth in the organization. We're excited that we returned to EBITDA profitability in the first half, while we are making selective investments in positioning the company for sustainable growth. We have globalized our organizational structure and drive more efficiency, taken out significant costs, as Emily mentioned. We still see a significant opportunity for Mind Gym in this market. It's an $80 billion market just in leadership and into personal skills itself, where we have significant opportunity to grow. And a lot of the dynamics that I mentioned before about increased focus on in-person experiences, more user and learner engagement, taking advantage of IP and AI, for example, are things that Mind Gym can take advantage of to grow in the quarters and years to come. We have made great progress on executing our strategy. We've launched new package subscription solutions. We've shifted to a more platform-based strategy to enhance our operations and deliver new features and functionality. And we've launched new capabilities and products to our clients the AI coaching product that I just mentioned and setting the base for a new diagnostic and analytics offering. So we still believe that we have plenty of opportunity to grow as we look into the future. We believe that there will be underlying growth. If you look at and exclude the energy framework agreement year-over-year, we will see underlying growth, if you take that out of the equation, in excess of 10% in FY '26 and beyond. And we still believe in our medium-term EBITDA margin objectives of 15% to 20%. So overall, really excited about the progress that the team has made at Mind Gym to bring us to this next level and really looking forward to see the payoff and then further investments of all of this as we look into the second half and in our next set of fiscal years.