Northcoders Group PLC (CODE) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen, and welcome to the Northcoders Group PLC Interim Results Investor Presentation. [Operator Instructions] However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I would like to submit the following poll and if you could give that your kind of attention, I'm sure the company would be most grateful. Now I'd like to hand over to CEO, Chris Hill. Good afternoon.

Hello, everyone. Thank you very much for joining us, and I'll introduce myself. My name is Chris. I'm the founder and the CEO of Northcoders. I Started Northcoders over 8 years ago now. And I am career changer myself, which gave me the idea to train people into software development, turns up very well for ourselves personally. And when I was working in corporate software engineering saw a huge skills gap in the market in -- when I was working for Sky, they were looking for dozens -- they were looking for hundreds of software engineers and we just couldn't get people. So what we did is we began to hire like university graduates and they just didn't really come equipped with the exacting skills required by buyers on the ground. So -- so we were like running many training group comps for these individuals. And that gave me the idea given the traction of coding bootcamps grow to Manchester and start Northcoders in 2015, and I'm still here today. And I'll hand over to Charlotte to introduce herself and the other Board members who are not with us today.

Hi, everyone. Thank you for joining us. My name is Charlotte Prior. I am the CFO at Northcoders. I've been with the company for around 5 years now, sorry. And I'm a chartered management accountant and I look after the kind of finance, payroll, HR function of the business. The other members of our Board, we have Amul Batra. He is Chief Partnerships Officer. Amul was a very early-stage investor and chose to stay on and work to the company and heads up the sales and marketing function. We have 2 nonexecs. Nick Parker is from a finance background and Angela Williams is from a HR people background. Both have vast experience with PLC businesses and help us along the way. I just go over some financial highlights from the RNS this morning. So we are pleased to report that revenue grew to GBP 3.5 million from GBP 2.3 million in the same period in 2022. We've had record demand for our consumer bootcomp training, our core area of the business. And this achieved revenues of GBP 2.8 million, up from GBP 1.7 million in the same period in 2022. Our underlying adjusted overall EBITDA was just over breakeven. This was in line with management expectations. We always plan to make investments into business solutions and tech returners in the first half of the year. And so this was in line with where we plan to be. So as I said earlier, the consumer training bootcamp area of the business grew by 65% and achieved an adjusted EBITDA of just over GBP 0.5 million. This shows on growing profitability in that area and there is ongoing efficiencies to be making with the nCore platform that we are building at the minute. The loss after tax of GBP 0.2 million, delivering an EPS of negative 2.07p. We have experienced some difficulties in the corporate solutions side of the business, which we will go over further in the slide deck, but we are in a good strong cash position with a strong balance sheet at the end of the period. Some operational highlights. So our coding bootcamp training sector of the business have seen applications more than doubled in the period to 7,107. And then as of Q3, applications stood at now over 10,000. We've achieved further successful Department for Education funding. And so we are currently working on a bid of GBP 4.5 million. This runs from October and then into 2024. And we currently have a bid out for a further GBP 10 million of funding which was done in February. If we are successful in that bid and will run for 18 months. The geographical expansion plan is going really well. And at the point of our IPO in 2021, we only have students from Manchester and Leeds. We now have over 45% of our students coming from areas outside of Manchester and Leeds. This really opens up the job market and means that we can grow that side of the business further. Tech returners are now fully integrated into the business. They provide conversations with big corporate companies where we can cross-sell Northcoders products as well. And they are -- and we're now benefiting from efficiencies between teams. Tech returners brought a reframe conference to the group. So reframe women in tech is a conference that's been run in Manchester, attracts -- attracted around 750 people at the last conference, and we're now running that conference in London to increase corporate brand awareness in that region. Business Solutions, although if we have faced tough -- we have been facing the tough year, and we do forecast that time, will continue to be taking that area. We are pleased to report that and we have signed our first public sector contract. So that is where the significant government department. It's a small contract, but the good thing about that is it enables us to create case studies and wins further work in that area. Investment into nCore is on track and we are on track to be running with that in Q1 2024. That will enable further efficiencies within the training area of the business and enable us to increase profit margins in that area. And then data engineering and cloud engineering are both launched. Data engineering was launched first, and we are really pleased with how strongly that's performing. And graduates are going on to earn well over the average of what we see from our graduate pool and cloud engineering is picking up nicely. And just first further financial analysis. And if we look at the consumer bootcamps P&L on its own, we can see revenue growth of 65% and GBP 0.5 EBITDA and a 1.9% gross profit on GBP 2.8 million revenue. As we said before, we've got further infrastructure improvements to be made further efficiencies for the revenue growth. And we are able because of our increase in applications to have the entry standard higher than other. We are able to be more picky in that area and ensure that people leave in the course are of the highest standard. And in turn, the average starting salary is now increasing nicely at GBP 28,500. Obviously, that looks going down from that GBP 0.5 million to the overall EBITDA. There's been some investments in overhead, so above-the-line investments. Business services, we've invested around GBP 0.5 million into overheads and GBP 0.3 million so far in returners. And business services is sale staff marketing, really making sure that, that brand is ready for market, making sure that we are attending conferences so that we can go up against the likes of FDM, asset global and really make a dent in the business services sector. Tech returners. We've done some work on commercializing their products and bringing them into the group. In a time where we have seen a downturn in the tech economy, we have had contracts delayed and we've had contracts deferred, but we feel that we're in a good position to pick up on tailwinds as they come through.

Thank you, Charlotte. So I'm going to go over the company overview. So we have 2 main divisions within the company. Our training bootcamps division is our robust and core, highly profitable business model within the organization. And the majority of our business over the years has stemmed from our training bootcamp division. In fact, we've actually received 50% year-on-year growth from this division. And then we do continue to make further investments into our business solutions side of the company, which is our consultancy and our corporate academies. I'll talk through the training bootcamp division first and explain a little bit about what we do within training bootcamps. We have 3 main flavors of training bootcamp, software development, data engineering and cloud engineering. And the way that our framework works is that we have a pool of people who wish to join. So that's the application phase. And what we do within the application phase is that we make sure that we're only selecting the real best people to join our onboarding and actually coming to the training phase of our coding bootcamps. It's around about 5% of people who acquire for the course actually end up taking a seat on one of the training bootcamps. And the reason for that is we would much rather have less people graduating from our course and keep that real high brand presence and making sure that everyone who does embark on the training bootcamp get the incredibly positive outcome for that individual, which is where the career element comes into the course. It's important to every single person that we take on, guess the outcome in which they hope for when they embarked on the journey with us. So within the training bootcamp division over the next 12 to 18 months, we're set to embark on some further growth initiatives, including new teaching disciplines, both within software development and other technical services. So we're looking at bringing a different program and languages to bolster our main software development training bootcamp, which is going to give us variants of outcomes for those individuals who take our courses. One thing that we've never really done is we've never really monetized the pipeline of people who come out of our course. Our community is now at least 2,000 strong. So we are putting together a series of courses, which are for people within their careers once they do start out with the business in their first role, where they can cross skill into areas such as, for example, your software developer. Understanding cloud engineering is going to give you some much better career opportunities. And whilst that's not something that's going to be like a huge amount of revenue on to develop the courses and people are sort of using their subscription credits to access those, they will be a highly profitable item within our P&L account. As Charlotte mentioned before, the nCore platform, which is basically our sort of automated teaching platform. At the moment, we have a very much 40% of demand given service that we need help, they press a button, and we come along to help them. And what we are moving to [indiscernible] are moving to constantly monitoring that person's work and where they're up to and understanding how they're taking the [indiscernible] and where they're getting to so we can begin to group people, look into understanding and running like many to seminars where we bring people together. And we're actually going to end up being able to give people more of our time, but it being much more efficient for our teams, and therefore, our cost base. And this is also proving that this is an opportunity for us to be able to launch a sort of part-time learn program, which backed by our brand and the outcomes that we get for those individuals, we think could be a huge growth area for the business, something that we could certainly continue with our sort of geographic expansion, possibly even outside of the U.K. because it is rather rare that someone is able to offer such a great curriculum framework, but with the access able to be part time, distance learning and so on and so forth. So the Business Solutions division, which is the division of this year. As we've explained in the investor went out this morning, we are seeing delays in deferrals of some of our contracts. Corporate academies this year have been a difficult part of the business. But to put that into perspective, there's been some humongous redundancies made in the tech sector. You could take a company like a Accentia. I think it was tens of thousands of redundancies that they estimate. So if you think that the gradual trend of that business, once they're making lots of people redundant, they're not going to be recruiting for graduates in the same year. So therefore, those academics are put off. And then at the same time, some of our other clients who maybe are usually recruiting people from university to train into tech, there's a larger pool of people for them to recruit from with experience that don't need training that are possibly more ready to hit the cloud running. So we have seen this year be a tough year, which has impacted on our forecasted numbers as we saw this morning. But just to explain our Business Solution division, we have multiple levels of engagement with corporate clients launches our hiring service where we are looking for opportunities for [indiscernible] to get their first time in industry, enhances a little bit of wraparound support for those individuals in the early years of their career. Our Elite program is where the very best graduates from Northcoders are on a consultancy basis, employed by Northcoders and deployed into businesses and then service incubator, where we also have senior team leaders to take away the pressure felt by businesses of bringing in people who are new to industry, new to technology, and we can really look after the pain points for them within that. Not something that we are currently embark on doing with some large organizations such as equal experts with the central government, and there's some huge frameworks that we've been put on to, which gives us a good positive pipeline for the future. So in terms of the growth strategy for the Business Solutions division, we've got a real focus on diversity within emerging technologies. So when we're talking about developing AI, machine learning, data lakes and all the things that do underpin near the hype around AI. We've got a real diverse group of people who are ready to go into that sector, which we genuinely believe we can be a spokesperson about how good and positive that's going to be for the industry that we get people for more walks of life. We've trained people, not just university graduates from the kind of same background as what has generally been the people who go into the technology sector over the years, but we've trained a [indiscernible] is now senior software engineer for [indiscernible] Commission. We trained [indiscernible] there really is no thing of the typical Northcoder, and that's why we embrace new technologies. We think we've got a real voice within that for companies to embrace, bringing those type of people into these emerging technologies. We are developing our go-to-market strategy this year. We've invested in marketing. We invested in business development and sales. We are going to continue to do so. Over the coming year, whilst the contracts haven't quite started coming to fruition yet, we generally believe that we're not investing in something that's never going to happen. This could really be the real hockey stick growth area for Northcoders over the next few years. And from there, we've got a great sales pipeline. It's been little bit unpredictable, but we're sort of tightening up on what we consider as a sort of contacted positive sale within this division. In terms of competition, there's various angles on business operates across sort of multiple playing fields, and we've got -- there's a rather fragmented market when it comes like bootcamps and training providers. There are some very small providers and there is also some big ones [indiscernible] skills bootcamps. There's real barrier to entry now though, when it comes to delivering the skills to bootcamps because it's not so easy to get onto those frameworks, so that's quite a good defense strategy when it comes to sort of bootcamps. So we have, over the years, seen people think, "Oh, that looks at an incredibly market, and I can get one of these coding bootcamps gone up relatively easily, but that's certainly no longer the case." Hire, train deploy. It's a big market. And we are challenged about within that market that we really do believe in the same class of our brand. People often ask, well, what about universities? Are people are not going to go to universities to gain these skills, but the problem there is same as or witness when [indiscernible] those years ago is that people aren't digitally [indiscernible] with the curriculum like on the absolute bleeding edge of turnaround curriculum changes within weeks, not months or years on the universities. So that is the one thing that we can say is that we are definitely more in touch and ready to capitalize and prepare people for what technologies have to want today than your traditional University. So yes, of course, the market conditions, especially on the corporate side, as we've talked about, have been challenging this year. But despite those challenges, we do generally say here and believe that tailwinds will come from the situation that we are in now and what we've got to do with a business to be ready to sort of jump on that back at the top of the hill when those tailwinds come. There's been quite a lot of sort of macro uncertainty, different decisions within government, but none of those have affected where we house a business and things like our skills bootcamp frameworks that we work within are incredibly robust, and we've not seen any problems there whatsoever. And ultimately, in the areas with which we operate, there's still a humongous skills gap, and there's new technologies coming in that, people don't understand how to embrace and we are perfectly positioned to help businesses and individuals work with that. So we're incredibly confident as to the future of the business.

Cool. So let's go over some finances. We have a graph on here to show the revenue map. As we said before, it was predominantly consumer training and the first 6 months of the year. And the revenue growth per half year, as you can see from the bar chart, has grown half year on half year. That's something that we are proud of and that we have grown revenue in what has been a really kind of uncertain economy for the tech industry. There's clearly still a really high demand for our courses. And a lot of people talk about AI and that whether kind of -- whether that's going to affect us as a business. I think -- and what we have kind of seen is that the more AI and the more tech you've talked about in the -- in social media, the more kind of it attracts people towards a technology career. And so we can see here on the P&L, 63% gross profit margin and then how that kind of falls down to the net loss after tax. On the cash flow side of things, we are -- we have a comfortable cash position. We've had no new bank loans in the period, and we are repaying bank loans. And we're keeping an eye on these as obviously, interest rates have increased, but we do have fixed interest rates on those loans. We don't have the [indiscernible] loan anymore, which was tracked on base rate. We have fixed interest rate loans, and we also have our large cash balance in a nice savings account. And so that should offset some of that interest, too. No bad debt in the period. And we have tax refund from R&D activities. And then if we look at the balance sheet, it's not the most detailed balance sheet, but it kind of shows that noncurrent assets are growing. We -- current assets have obviously grown in the period, along with cash. And the noncurrent liabilities are obviously reducing as we pay up those bank loans. So in summary, the overall sentiment of the RNS today and application momentum is continuing as we've said. Demand for our core products is higher than ever. And we are really happy with how data engineering and cloud engineering is now performing alongside software engineering, opening up that market even further for us. And happy to say that we are still receiving support from the U.K. government on the skills bootcamp initiative. They allocated GBP 1.5 billion over the next 6 years. We are on that framework. As Chris said before, that creates a barrier to entry as you are not on that framework now for the next 6 years and the people won't be getting on to that. And acquisitions -- tech returners going really well, enabling us to be able to offer diversity pipelines. We talk a lot around business solutions and we are waiting for the market to pick back waiting for a turn there. But what we do have as a strategy is that a lot of big companies are crying out for diversity and they are receiving a lot of pressure from the government bodies, in that they need a more diverse workforce to be able to carry out these government contracts. So we are well placed to be able to help out in that area. We can obviously ignore the fact that there's been budget constraints, workforce reductions, recruitment freezes and that has led to our corporate clients delay in and defer in budgets. In line with management expectations, the current financial year is presenting some challenges and the numbers that are out in the market have significantly reduced. We are very confident in the numbers that are now out in the market. We have been incredibly prudent when speaking to our analysts. We have made sure that the numbers that are out in the market. We have visibility over and we are not in a position where we are promising too much. The tech economy, obviously, is showing some signs of improvement. We have just come out of August, which is usually a quiet month for us. And we've had a record month in August on the consumer bootcamp side. And we are having a lot more conversations with corporates as we've moved into September. And as Chris said before, we're now on the Dallas framework to pick up more government-funded work. And we are in a really strong position when it comes to cash and balance sheet, and we are not looking to raise any money to carry out the investment activities that we have planned. That's the end of the slide.

Great, Charlotte, Chris. Thank you very much indeed for updating investors this evening. [Operator Instructions] But as well, Chris and Charlotte take a couple of moments to review your questions. I'd just like to remind you that a recording of this presentation or with a copy of the slides and the published Q&A can be accessed via your investment company dashboard. Chris and Charlotte, if I could invite you please to open up the Q&A tab. You'll see a number of questions both submitted ahead of today's event and during the presentation. If I could ask you just to read out the questions and I'll pick up from you at the end.

Cool. okay. I'll go first -- start with the first question. Are there any plans to increase the float availability of shares, this encouraging more institutional investors into the company? There were no plans at present to raise any more money from the market in terms of new shares for new money. I think not something I planned. We are in a very strong cash position, and we've got investments we can make off our own balance sheet. In terms of encouraging institutional investors to join the story, and there is many different ways in which they can do that. We are certainly in conversation with some who are incredibly excited over joining us, but they can buy shares in the market or there is obviously some institutions that may be in a position where they want to exit their position and we're always running our Investor Relations in a very open way through our brokers that we know when those opportunities might arise. So we can ensure that's the best situation for everybody. And then we've got, can you an overview of the industry? Who are your direct competitors? And what does the market share makeup? Has the market share change in recent years? It is a difficult question to answer, the size of the market and what is our market share because the market -- I mean where do you start? Where do you stop? You talk about just data engineering bootcamps and coding bootcomes, we can definitely say we are the biggest player in the U.K. market without a doubt. When you start bringing in the universities, higher trade deploy, companies like who are on the 40 to 50 that do similar activity, then the market is incredibly vast. And then some of the largest consultants are also considered part of that market. So our share would be incredibly small, but as is our opportunity. So just look in terms of core training bootcamps, we are the leading provider on that in terms of numbers and delivery of those bootcamps. And the market has been growing, we've been growing. Again, as I said, I think, at the beginning, 50% year-on-year, and the market is certainly keeping up with that. Pricing trends, Charlotte, I think, next...

Yes. So what -- the next question is, what do your current pricing trend look like? And we have increased prices over the last few years and in line with inflation and in line with our kind of bootcamp becoming more reputable and the fact that we are creating higher and higher kind of wage opportunities. And we have a lot of our bootcamp contracted with the Department of Education. And we're happy to kind of say that whenever we have increased the prices with them, they have allowed that. And so our common pricing trend basically looks like we increased to cover inflationary and cover costs. But we're not too much higher than competitors. And our main competitor is probably make us in London. And then there's a lot of other smaller holding bootcamps and -- but relative to our kind of main competitors were not too different.

Cool. I mean the next question is about everyone say topic AI. So it's talking about AI, artificial intelligence, how do you think -- how does the future of the coders look? And do you see AI as a threat or an advantage to the job of coders and certainly in terms of in detail, the junior market, do you expect that it will massively affect the junior market versus post the senior coders? In terms of declining roles for junior developers versus senior developers, I would say, I told a bit like if there's no focus, there's not going to be very many dogs in the same way that people are always going to have to progress through that career. It's about, -- I think it's more about where it starts. So in terms of AI, we see ourselves -- and yes, nobody has seen like a sort of a [indiscernible] AI strategy from Northcoders or massive marketing push on coming on our bootcamp because we keep the best in AI. And that's because within -- especially data engineering, I mean, AI and things that we know like the chat ups that we're all used to get right in and so on are all large language models, which are basically built upon data lakes and machine learning. And those things have been embedded into our data engineering curriculum from day 1 as it's done. So if anything, we are empowering people with the skills that they need to go into those arenas. And as far as -- the one thing that we're sort of what is our, what is our voice when it comes to AI is everyone's talking about AI being the next thing that takes over our eyes that it's going to ultimately reshape what it means for the human in some senses. And our take on that is we'll make sure that while we're doing that, that when people are going into these junior engineering and people are becoming like emerging technologies to make sure that we're embedded in with those skills that they need to use AI to the best of their power. You're not going to replace your software development team by using AI. But yes, they probably can use that to be better and, therefore, add more value to your organization. And then there's also the diversity element. We are super strong on diverse teams and bringing people into the industry from the background that we've disclosed previously. And I personally think it's super important that people that go into developing the AI applications that we do make so that's represented from people from multiple background as opposed to your sort of standard similar background through the university and into the technology sector as it definitely has been from what we see through the -- well, the way the technology moves over the past decades.

We have one here. Can you tell me about industry [indiscernible] is demand faster than the supply. And I think we all kind of fared about the digital skills gap in the U.K. and how we feel like as an economy, we need to level off in the tech sector and how there's not enough digitally skilled people? I think the pandemic only elevated that, and only set that up in that the world is much more digitalized. And when we talk about AI, that kind of pushes our agenda forward as well. And so yes, I would say the demand is faster than the supply. But I think it's also about getting -- about not saturating the market in specific areas and around ensuring that we are training people to a really high standard so that they can go into and make a real difference in these jobs.

Cool. What plan investment you have you identified in the business for the next 6 months? So 3 key areas. One is our nCore platform, of which there is a more detailed question about later on. So we'll leave that one to answer that. Secondly is the continuation of our business development activity, our -- we're building a corporate presence in London. We're running like our refrain conference here in London, for example, that's why there seems that we are investing in doing. And then yes, we've got new technical areas within our disciplines that we're investing in, albeit sustainably in a way that we are developing new initiatives such as the part in boot camp and the different flavors of our cost as we go along -- as we generate cash, and we're just doing those investments as and when it's tried to do so and keeping our very strong cash position rather than raising any new money.

And next one, when you reference geographical function, are the plans for growth outside the U.K.? Currently, we have had some students outside of the U.K. So our training platform is all streamed out online. So technically, we could teach people from anywhere in the world. I think we've had a student in France, a student in Hong Kong, student in Iceland. And right now, we are teaching 9 to 5, Monday to Friday. And so that would have worked for someone on a different time zone. [ Online ] course comes into play and the part time that distance learning course has come into play, and there's no reason why we can't grow outside of the U.K. There's obviously a bit more legislation for me to get my head around when it comes to outside of the U.K., but it's definitely not a reason to obviously not go into growth in other countries.

Cool. Are you still running the Rolls Royce program? Are there any other opportunities like this with other companies? Yes, there are a lot of opportunities like this with lots of the companies. We are finding it [indiscernible] time difficult to get commitment and start dates. And it feels like it's ever-moving contracts that we've got another contract, which is about security clearance, which so far been delayed since April. We have hit some [indiscernible] patches with getting these contracts started and the revenue recognized for them at the moment, but we haven't yet. I thought that's going to be a huge problem. So yes, the intellect accelerator is very much where we plan to continue to grow in the near future. Can you expand on the nCore platform revenue opportunity? How do you charge? And what are your expectations there? So nCore is our revenue-generating piece of technology as such. nCore could potentially will generate further training courses and ways of delivery, such as part time, what nCore is all about. It's all about monitoring each learner as they work through the program and being able to group people into certain understandings of certain concepts. So that, let's say, for example, if instead of it being the one presses a buzzer when they need help, that we've got a group of 5 or 6 people that nCore has identified a finding it to get past point X in some certain piece of the coursework and so on. We can grab all those people to get in them out where they are a matter what time it is and we can initially deliver live content to those people in terms of a minute to a seminar group, giving the learners more time, but also meaning that we have less of a bank of people sat there waiting for these type of requests. But -- of course, in the future, there's very much the way that we identify that we're delivering multiple of these breakout sections. There are always about one particular core concept as we do now. We'll be able to predefine written, video and exercise content to be able to deal without the need for intervention from one of our teams. So it's very much all about efficiency and experience the nCore platform.

That's great. Charlotte and Chris, thank you very much for taking all those questions from investors, and thank you for your engagement this evening. Chris, Charlotte, I know investor feedback will be important to you. I'll shortly redirect those on the call to give you their thoughts and expectations. But if I may, Chris, just ask you for a few closing comments, just to wrap up with. And then as I said, I'll go and regard investors for their feedback.

Yes. Yes, thank you, everyone, for joining us and taking the time. We love to and so and we have huge confidence in the business due to the fact that we have got this underlying training bootcamp business, which is set with got 50% year-on-year, and we've grown that significantly in the comparable period from the first half of this year to first half of last year. That underlying is incredibly profitable and generates cash to really strengthen the balance sheet without the need for dilution investment. But yes, we also do have so many opportunities that we are looking to capitalize on, and we have also got the way that we are going to manage the kind of investment into those areas in the coming year. And yes, we're really excited just to keep going and see where we get to.

That's great, Chris and Charlotte. Thank you once again for updating investors this evening. Could I please ask investors not to close the session as we're now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. It's going to take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Northcoders Group PLC, I'd like to thank you for attending today's presentation. Good evening to you.