Northcoders Group PLC (CODE) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Northcoders Group PLC Full Year Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. I'd now like to hand over to Chris Hill, CEO; and Charlotte Prior, CFO. Good afternoon.

Hi, all. Yes, thank you, [ Rob ], and thank you, everyone, for joining us. So we're really, really pleased to have our first ever results presentation as a PLC company. We have beaten the market expectation that we set out at our IPO back in July, so we're just really proud of everything that the team has done to get to this point. I'll talk about the team, I'm going to introduce the rest of the Board who aren't here today. So I'll introduce ourselves first. So my name is Chris Hill, I'm the CEO; and Charlotte Prior is our CFO, who is with me today. We also have our Chief Operating Officer, who is back in Manchester, Amul. Amul was one of our customers on our first ever coding [ course ] actually, and then he came on as an early-stage investor alongside his brother. And he's still here today, and he mostly works on our corporate and commercial offering with the businesses across the North. So I'll introduce non-executive directors. We've got a non-executive Director from our Chief Financial Officer background, Nick Parker, who has been with us for quite some time as an adviser and a consultant and helped us to get through the IPO process. More recently joining us here was Angela Williams, who joined as our Non-Executive Chair. So Angela brings a wealth of experience as a Plc Executive Director. She was the Chief People Officer by trade, which is really important to our company. And she's also been at the forefront of many tech transformations over -- during her career. She's worked as an executive for British Airways, for the Post Office and for Land Securities Plc. So Northcoders was founded in 2015 -- just towards the end of 2015, and we ran our first coding bootcamp course in 2016. I'm [indiscernible] myself. And previous to Northcoders, I worked as a software engineer for the company, Sky Bet in Leeds. And we just couldn't get software developers. Everywhere that we looked, we were just always needing more and more people, and we just couldn't get anybody to apply for the job. We tried multiple angles to get software developers into the organization. One of the [ towers ] involved with it was hiring university bachelors, thinking that if we went out to the career fairs to attract people from universities to come on, workforce gave them the best package, we'd get the best people, go to the universities, most of all, for computer science, we'd get a group of graduates to be able to hit the ground on and really help us with our technical roadmap within the company. But it just wasn't the case. We've got some great people and have some very underpinning knowledge of, yes, exactly that computer science. But in terms of the everyday coding and software languages and frameworks and cutting-edge technologies that we require to use day-to-day in our jobs, we'd [ best ] have to start from scratch with these people, which led me to an understanding that, you know what, we don't need a computer science degree to be a software developer. Coding bootcamps are gaining traction, certainly in the States and in London also. So the general idea was, you know what, let's get a cohort of people to learn how to code and see how we get on. On our first cohort, we actually closed every single person. On the right-hand side here, you can see some of the biggest brands that we work with to help fuel their need for skilled coders and close their digital skills gap. Our mission is to close digital skills gap for businesses while creating life-changing opportunities for individuals. So people have come to Northcoders, people that were trying to make the most of these life-changing opportunities which are available to them, come from any background, from all walks of life. Our people are as young as 67 and as old as 17, joined our course and succeed in becoming a software developer. We have a 94% success rate in terms of people that we train, landing a job in industry, which we're super proud of, and certainly beats quite a lot of much longer -- causes some degrees that you'll see the statistics on, which take 3 or 4 years versus 3 months. We have 3 revenue streams within our company. We have our core coding bootcamp, which is mostly individual people who wish to become a software developer, and our learner acquisition team finds people who arrive for the course. Our employee [ acquisition ] team finds people who needs to be employed, junior software developers, and we kind of match those people together to become a success story for our company. We've had people from partners in law firms, people who have contracts in supermarkets. We've had a [indiscernible], who is now a software developer, earning over [ GBP 50,000 ]. And we've also had the platform [ stations ] announced from Manchester Piccadilly train station, all [ chasing ] us and succeed in becoming a software developer with no technical background and in some cases, no qualifications whatsoever. This is really, really great to be part of the business, which is profitable, cash generative, but is also creating those real, fantastic, life-changing outcomes for individuals, which we'll come on to when we look at some of our [ ESG ] credentials in the presentation.

Yes. So I will just go on to kind of talk through the revenue streams in a bit more detail. So our B2C offering, our consumer bootcamp, is a 13-week intensive full-time program. So the cost of the program is GBP 8,500, including VAT, and this is paid for via several different payment options. So some of our students pay upfront, some of our students take advantage of our student finance options, our loan options. Or at the minute, we actually have the Department for Education funding so that we can offer scholarships for this type of course. We have our 13-month apprenticeship. So this is on-the-job training. So we will take companies that have employees that they wish to upskill or reskill. And then we will put them through the same course just under a less intensive basis. For this quarter, we get GBP 18,000 worth revenue per seat, and that is government funded, so that's been the Education Skills Funding Agency. And then we also have our corporate solutions division of the business. So if a corporate customer comes to us and the penny doesn't fit the slot, so they don't want to put someone on our bootcamp or they don't want to put one of their employees through our apprenticeship, then we will tailor a bespoke option for them. So this could be in the form of a bespoke training program for them to deliver in-house or it could be that we will build that tech for them or we could put them onto what was now called our Developer Incubator, which is a new product that we have, which basically gets their tech team ready to then be able to deploy them back into the business.

Underpinning everything that we do is a balanced and flexible business model, which Charlotte just spoken out. We have multiple ways of putting together different modules to create many programs in many different businesses and many different industries. There's not very many industries that we haven't actually served as clients. We have -- once had a thought, we've not done the energy industry because we never worked with one of the big gas companies, actually, we have worked with many green energy supplier. So we've also worked out that sector, too. It's not also just about your blue-chip sort of super high-tech companies. They're looking to have people in software development and technical. Still, everybody and every company is looking to be more technically savvy and have more digital skills within their organization, and coding underpins many aspects of that. We actually, last year, had a [indiscernible] higher software development from us, which is something that I probably never expected started when we started the company 5 years ago. And also underpinning our success is the way that we make sure that we only attract the best people to apply for our opportunities. So we have an entry challenge for the course, and that is literally is sort of a 2- to 3-week process, where that people must learn the fundamentals of software programming, kind of on their own. We do have some platforms that we are building out and also some sort of short free courses there for people to get a taste of it. But then to be considered for the bootcamp, they must pass the test, and it's around 7 to 1. It's about in 7 people that we take from the pool who [ aced it ] through to actually taking a seat on the coding bootcamp or on an apprenticeship. And thereby, that's how we get to a result of 94% of people succeeding. And almost every single person that we take on, complete our course. So it's just a few of the awards that we've won over the years. Now I understand that you see many companies who may have won awards [ that faster ], what does it really mean? For us, what it means is that we've got a super team within our business because we've got the ability to win awards, which are usually given to really super fast-growing, high technology-focused companies. But at the same time, we've got elements of our business, which are regulated by offsetting that, where we -- our [ apprentice ] company is subject to often inspections. So to be able to comply with things like that as well as also seem to be super tech savvy in a really, really fast growth and really agile as a business, we're really, really proud of that. Okay. So a lot of people ask about like, who is your competition, Chris? What's going on with the universities? Surely, the universities are starting to do things like this now and large, big apprenticeship companies, like colleges or the big providers as well. So we firmly compete still on the agile competitive edge by making sure that everything we teach really is the latest technologies. Our tech teams are also consultants that go into businesses and go into work on live software projects, whether that be for us or for external clients. So there are no exactly what are the trends, what we're following. And we make sure that we get people coming out Northcoders coming and say, "If you want someone to hit the ground running in your software development team, you go to Northcoders." It's very, very different to how many it takes for this education establishments to come up with new curriculum and move on like that.

We've just got some recent kind of [ quality ] stuff from the -- that they've been [ planned ] about on the internet recently. Just to kind of highlight the very significant demand in the growing market that we are experiencing at the minute. So 2/3 of the U.K. businesses plan to invest in tech training for employees, and further half of all U.K. bosses plan to hire new tech staff this year. So I just -- that kind of just underpins the fact that this is not just one sector, this is not just the tech industry, this is -- the demand is coming from all different industries. And we are, post-IPO, in a really, really good position to be able to really take advantage of all that demand as we move on to our growth path and [ overall ] strategy. Yes. So we just have some statistics on here that we are really proud of as a company. So Northcoders really champions diversity and inclusivity, it's at the heart of everything we do. We have a team set up, and we have things in place to really try and bridge the gap between this, so the low percentage of women and people from diverse background in the tech industry. We hear a lot from our partners and from the businesses that we work with that it would really benefit them to have more diverse teams. So that's something that we really champion, and we really want to try and make a change for in the industry. And we have been awarded with -- we've awarded 294 fully funded Department for Education scholarships. So this is something that we're really, really pleased how we've been able to do. This completely makes the course accessible to people from all walks of life that maybe wouldn't have been able to afford it before, which also will really diversify the industry.

Okay. Move on to the financial review and year-end.

So I'll just talk about some financial highlights from our results. So we're really pleased to report that we had a 124% increase on revenue from 2020. So we met our market expectation of GBP 3 million revenue. We can also compare that to our most recent kind of [ noncollegiate ]. So if we look back at 2019, which was our highest-ever revenue year of GBP 2 million, we've also matched that as well. We reported a gross profit margin of 72%. So we aim to move back towards our target of 79% that we've seen in 2019. So we are certainly moving back towards that level, and this is driven by the cost benefits of the new hybrid model. And we now are able to teach a lot more people at once. We need a lot less tutors to reach the type of demand that we won, and so we're really happy with that. Our adjusted EBITDA, so we report EBITDA and we adjust it to take away non-underlying costs. So we removed the IPO costs, and we also removed share-based payments. So this -- we're very happy to see that this has gone from a lot of GBP 0.3 million to a profit of GBP 0.4 million. And this just shows that our underlying profit is good. And as we move into future years where there's not going to be the non-underlying and then exceptional items like the IPO cost, we're in a really good position, moving forward. And we also reported net assets of GBP 2.2 million, of which GBP 1.6 million was cash. So that puts us into a really good position, moving forward through our growth plans.

Yes. Thanks, Charlotte. We obviously just yet -- as I said at the beginning of this presentation, we are really, really happy with these results. We -- the expectation of the profit, obviously, I know it's quite easy for a company to have coming down on an IPO, which was a huge distraction. It took [ lowest ] time last year and then finally being a little bit -- still we [ meet ] your first set of results [indiscernible] to get with us. We're really, really happy to have done that, and it put us in a fantastic position for this year, also, where we've got over 55% visibility of our revenue targets and the market expectation for our revenue this year. In terms of operationally, we are ahead in terms of our costs and our underlying profit. So we remain in a fantastic position to do the same again with this financial year also. So I'm going to skip within the slide deck, which will be available to download. There is some much more detailed tables on the income statement, which you will be able to acquire, should you be interested in seeing more detail. And we're going to go into a few more parts of the operational review of the company and what's happened over the past year. So our IPO set out a strategy of doing a regional rollout of hubs. Now, while Northcoders hub is a small place where people can come and think of it -- as opposed to our traditional business model was, we used to have lecture theaters, we used to be doing the same delivery of the content in Leeds as we did in Manchester, where people were jumping on the [indiscernible] to get to one place to the other to help out on like the days when it was busy. And then obviously, during the pandemic, all that was taken away. Everything was going completely 100% online. What we wanted to do with our hybrid delivery model was take all the best parts of our old business like the building of community, the fact that learners can come together and help each other and really work together, meeting with employers and networking, just that kind of stuff that I think everyone will realize that we missed when we were literally all sat in our houses for however long it was. So that was -- the plan was to get the message out there. We need to hire someone in learner acquisition, a person in employer acquisition, [ invest ] money on marketing and then roll out into these regions. But now in Northcoders, service no longer -- like the campus in Manchester was 10,000 square foot. We have 2 big kind of lecture theaters, think of like in a university. Now we hope is more like -- more like a we work for learners to kind of come together, come in once or twice a week, get the best part of that togetherness and thrive within their learning, meet each and do all the best bits. But still, it's [ not ] a massive overhead for us as a company. So we now have 4 hubs, Manchester, Leeds, New Castle and Birmingham. The plan was, initially at the IPO for next year, to have a hub in Liverpool and Sheffield also. We absolutely feel that we can accelerate that now and do those two this year faster than we set out to do. And we also have an interesting hub, which is a partnership with Grimsby Town Football Club through a friend of Northcoders, Jason Stockwood, who's best known to be the CEO of Match.com and more recently a [ simpler ] business for those that know that company. And he's just very keen on making sure that opportunities that are available are life-changing opportunity to individuals that he's making sure they are in his home town and -- through the football club that he loves and now owns, that everyone's got the awareness of this. So we're going to be opening a hub in Grimsby Town Football Club, which is actually in a partnership with Lincoln Football Club, too, and spreading to also a regional hub in [ home ]. But as we can see from the -- where we [ talk ] our students from, we've had someone from Hong Kong. So we're not reliant on like a physical premises to be able to deliver our business model. When there was like more recent lockdown, once we transformed the company into being this hybrid model, which is so more efficient, we had no negative effects of the lockdowns, where we ultimately have to almost stop running our business for a few weeks while we pivoted to the new model. So that's what [indiscernible]. We also have our corporate solutions business, which we're putting focus on. We've always done some corporate work. It's mostly been very bespoke, software engineering services, but we're also spending on our business in more sort of horizontal growth, into like data engineering being one of the areas that's becoming increasingly popular and also seems to be less people doing data into. And we recently signed a solutions contract with Rolls Royce, and that's worth about [ GBP 250,000 ]. That's actually a similar model to the company FDM Group, who are on the FTSE stock market with over GBP 1 billion in their market cap. There's a higher [ trained ] deployment listed, very similar [ to hiring ] people trying up in data engineering, and we've deployed them as a team with a senior engineer [indiscernible] into Rolls Royce, into their data science teams. And we've got multiple conversations. We signed a new contract literally just now. And we've also got conversations with some really big companies, many on the FTSE [ open ] market. Some of the conversations avenue programs look at 4 times of size. So that is a big area of growth for us, and we hope to see more of a split of our revenue between bootcamps, consumers, apprenticeship education and solutions, which is B2B, corporate.

Yes, so we just got a few kind of statistics here and a few highlights from the year. So we had a record amount of demand. In 2021, we received a lot of applications, which has kind of created a really good pipeline as we've kind of -- 2022, we were really pleased to announce that we enrolled 99 apprentices on to our apprenticeship course in the year, that's a new line of business for us, and we're just excited to go into 2022 with a really, really functioning business unit. We grew our teaching team in the period and then a further growth in 2022. So we currently have [indiscernible] staff on the teaching team and 80 staff in total now. And then, we're proud to say that our average starting salary that our graduate is going to earn has increased to GBP 26,488, which is an increase from about GBP 25,000 in the previous year. So we will continue to kind of focus on these operations. We want to increase accessibility. We want to see adding more private finance options to the group and really just kind of take advantage of this increase in demand.

Okay. So just looking through the questions, and we have 4 questions in all these, so we can probably answer all of those. So as going to see who's the best person for each question. In terms of highlights as well, we've also been working with the -- within our apprenticeship company, Northcoders TechEd, which is a separate business, which we bought over a year. We're going to have been working with the government on the skills bootcamp initiative, which is basically the government saying, and we've been evolving this concept for a long time, this course seems to work really, really well. Northcoders is really talking to a couple of other well-known good-quality providers, too. How do we actually use government funding to be able to take people quickly and people to ultimately be training for the jobs of [indiscernible] as opposed to jobs that are going to ultimately be made redundant? And we literally got wind of a conversation with -- we've got wind of news from the Department of Education that all those trials and those conversations have been a huge success. And over the next 4 years, we're going to be putting GBP 1.5 billion into skills bootcamp. Now that's obviously not only software engineering, but we are also doing other things here at Northcoders. But in terms of the amount of when Northcoders [ got ] in that just to show a long-term commitment to kind of leveling up agendas, and everyone as seems think "Ah! We are with government funding," from the [ statement ] is going to a smart meter phenomenon. As soon as they say, "Ah! Smart meters aren't free anymore," and then that's it, the taps turn enough for the companies that do nothing that install those. And we've obviously got a diverse stream of revenues, but also things like that do show a real commitment to digital skills and skills of tomorrow from the government or from the funding vehicles that support education companies. So the question is the revenue.

Charlotte?

Yes. So it seems we have a few finance questions, which is brilliant. So if we can just -- do you want to just pop back into the financial slides? And then we'll run through -- we did kind of skip past them and didn't [indiscernible].

[Operator Instructions]

So what is the revenue profile? How much visibility do you have, going forward? And how do you scale up what is needed? So in the year, if we look at the GBP 3 million revenue, that is split across our 3 different revenue streams. So it was a 34% apprenticeship, 47% bootcamps and 19% corporate solutions. So we have -- as Chris said, we've got our 55% revenue visibility going into 2022. So that is -- it's mainly around the fact that our apprenticeship to 13-month programs, we got a lot of visibility there. And we've also signed some corporate contracts, and then we've signed a contract with the Department for Education as well, which provides us with a lot of visibility. But super happy that we can kind of -- we are now in a position as a business where we can have a forward look, and we can see that in the visibility. How do you scale up what is needed? So basically, we've got all our teams in place. We have ramped up cohorts -- cohort sciences. We have just -- in January, we did our biggest [indiscernible] cohort of 104 people. And we will just keep up in the numbers. We've got all the infrastructure in place. We've got all the software in place to kind of create in efficiencies. So we're in a really good position to scale up.

Sorry, I do this as Simon asked two questions, so I'm going to say, Charlotte answered the first question by Simon about the revenue split from obviously apprenticeships, government-funded comes to our consumers. And corporate revenue is the solutions. And the second one is, recruitment is [ finally ] due to problems, how we are also experiencing a problem that we are trying to solve. So we have two different -- within there, we have a core tech team, which are ultimately scalable across, well, in theory, hundreds of thousands of learners, and they are the 6 people that are in that team that are responsible for the content, for making all the preparation and delivery of workshops because all the workshops, whether you're in a hub, whether in Hong Kong or whether you're literally in Manchester or Leeds, are delivered online. And then the rest -- so those people, we have a fantastic package for retaining staff and team members. In general, we have a 4.5-day working week, which we're looking to improve upon. We also have scheme for that team, especially and more senior people, which is our share option scheme, which is going to see that team as we succeed, as we grow our share price, they will also benefit from share of that have been put in place to our IPO. But the actual -- we have mentors as well. So that is -- you have basically -- for 8 learners, you have 1 mentor. Now we are investing in our intangible assets to improve on the efficiency of the course material and the delivery of it, and we've got some machine learning on our health desk and so on as well which is going to help us improve the scale -- the ratios and ultimately the cost. But those people are people we hire them directly from the coding bootcamps ourselves. So we always have a stream of people coming through. People who we think are ultimately the best people, we'll have the earliest conversation with them before anyone else gets to talk to them, if you like, and they are usually the people who come on to say "Mentor with us for 1, 2, 3 cohorts," depending on how they feel. And then they may well go on to a contract like an incubated contracts like the one I mentioned with Rolls Royce, where we actually deploy them into a business and they're an employee of ours, but they are contracted to a corporate solution with the company. So I hope that answers that question. We got...

Yes. So for the cash flow statement, answer to that one, please. There was a GBP 1 million cash outflow from operations due to an increase in receivables. Can you talk through this? And whether it will reverse out in 2022? So yes, there is an increase in receivables there year-on-year as we move into '21. And this is due to -- basically the growth weighted towards the end of 2021, which also caused the payment term to kind of push it to 2022. And that's the main cause of that receivable increase. We also -- the payment terms are a bit longer on the Department of Education funding just because of stuff that we need to do to claim the fund in. And so because that ramped up in the last half previous year, that caused that number to increase as well. And yes, it does reverse out in 2022. There was a bit of a timing issue, which caused a high number.

You've picked up all the questions. And of course, there any further questions that do come through, the company will be able to review those and will publish responses, where appropriate, to some company platform. Chris, perhaps before redirecting investors to provide you with their feedback, it's particularly important to you, I could just ask you for a few closing comments, please.

Yes. I think the closing comment is just we are super happy with everything we've done since our IPO, and we're really happy with the value that we have and that we've managed to meet the expectations of our new investors that have stuck with us through the process. That's for people who were shareholders before the IPO and that came in with the fund raise. At that time, we're in a really, really confident, fantastic position for this year. We've come into the year, we really like our biggest intake ever to really kick off in January with some with our sort of best monthly and quarterly revenue numbers that we've ever had. And we beat the expectation for the profit last year, and we're feeling really confident, great spot for this year. I'm just excited to get to the next set of results, which will be the interim results in September, which we think by then will have visibility of the entire of the year's market expectation in terms of revenue, and we'll also have a much better publishable figure on where we are with expectation in terms of profit and whether we're likely to be able to beat it like we did last year. And thanks all for listening.

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

Thank you.