#VELA investee co. #SKL Skillcast Group PLC – Interim Results September 27, 2023 – Posted in: Vela Technologies Plc (VELA) – Tags: courseware, e learning, finance, platform, revenue, SAAS, statements, subscription

Skillcast (AIM: SKL), the provider of SaaS compliance platforms and off-the-shelf e-learning courseware, is pleased to announce strong growth in recurring subscription revenue in its unaudited results for the six months ended 30 June 2023.

 Highlights

		6 months to 30 June 2023 (unaudited)  (H1 23)	6 months to 30 June 2022 (unaudited) (H1 22)	12 Months to 31 December 2022 (audited)	Change (H1 23 v H1 22)
Revenue		£5.2m	£4.5m	£9.8m	+15%
Gross margin (%)		66.5%	69.8%	70.1%	-3.3pps
Annualised recurring revenue (ARR)*		£8.1m	£6.4m	£6.8m	+27%
(LBITDA)/EBITDA		-£0.7m	-£0.2m	-£0.3m	-354%
Basic (loss)/EPS (pence)		-0.863p	-0.162p	-0.460p	-432%
Dividend per share (pence)		0.168p	0.168p	0.447p	0%
Cash in bank		£7.6m	£7.5m	£7.7m	+2%
(Cash burn) / Free cash flow		-£0.1m	-£0.4m	£0.3m	+80%

·    Revenue growth of 15% (H1 22: 20%) driven by a 23% increase in subscription revenues predominantly from new customers

o  Subscription revenues increased to 75% of total revenues (H1 22: 70%)

o  ARR* increased 27% YoY to £8.1m in June 2023 (June 22: £6.4m) and +20% year to date

·    Gross margin fell 3.3 percentage points to 66.5% (H1 22: 69.8%) due to one-off cloud transitional costs.

·    LBITDA of -£0.7m as investment continues following IPO in December 2021, with average headcount increasing 20% over the past 12 months to 114 (June 22: 95). Key growth roles now filled

·    Interim dividend declared of £150,000, in line with last year as per our stated policy.  This represents 0.168 pence per share (H1 22: 0.168 pence per share)

·    Cash in bank up at £7.6m at 30 June 2023 (30 June 2022: £7.5m) despite trading loss

·    Cash burn of only £0.1m in H1 23 with upfront cash from growing sales offsetting trading losses

Current Trading and Outlook

Trading since the period end continues to be encouraging, with the rate of year-on-year ARR growth accelerating to further support future subscription revenues. In the second half of the year, we look forward to complementing our existing technology offerings by launching Skillcast Basic: our low-cost, e-commerce plan for small companies.

We expect the increase in overheads to continue to slow now that we have filled all identified key management and growth roles. We plan to increase prices at the end of the year to offset continuing inflationary pressure and remain on track with our long term plans set out at the time of the IPO in 2021.

Vivek Dodd, Chief Executive Officer, said:

“I am delighted with the pick-up in our ARR growth, which was 20% for the first half of the year alone. We have continued to increase organically the recurring portion of our total revenues from 63% in H1 21, to 70% in H1 22, and 75% in H1 23.

“Our increased focus on value for money and data-led compliance is finding favour with compliance departments, and we are continuing investments in products and marketing to bring innovative solutions to market. We will shortly launch a low-cost e-commerce offer in H2 23 to help small businesses provide compliance e-learning to their staff.

“Trading in the second half of the year has started well, and the sales pipeline remains strong. We have declared an interim dividend in line with last year of £150,000 (0.168 pence per share) and will review our dividend policy after we have returned to profitability.”

*Further details on the calculation of ARR are set out in the Financial Review below

Enquiries:

Skillcast Group plc	+44 (0)20 7929 5000
Richard Amos, Chairman Vivek Dodd, Chief Executive Officer
Richard Steele, Chief Financial Officer
Allenby Capital Limited (Nominated Adviser & Broker)	+44 (0)20 3328 5656
James Reeve, Piers Shimwell (Corporate Finance)
Jos Pinnington, Tony Quirke (Sales and broking)

 

Background

Our Purpose

Skillcast enables businesses to build ethical and resilient workplaces. Our vision is to be a leading provider of compliance platform and digital training courseware for staff compliance.

Who we are

The Group is headquartered in the City of London, with an operations hub on the island of Malta. We develop content and technology to help companies with staff compliance. We have 120+ employees, many of whom have been with the Group for over a decade.

What we do

Skillcast provides time-saving and cost-effective “SaaS” (Software as a Service) solutions, including:

·    100+ off-the-shelf (OTS) e-learning courses that cover topics including Anti Money Laundering (AML); Bribery and Corruption; Diversity; Equality and Inclusion (DEI); Environmental, Social and Governance (ESG); GDPR; Health and Safety; Modern Slavery; Risk Management; and Senior Managers & Certification Regime (SMCR) for the financial services industry.

·    A feature-rich compliance platform that helps companies to digitise, automate and consolidate various staff compliance processes including training, policy attestations, declarations, disclosures, surveys, submissions and approvals.

·    Bespoke content consultancy to further personalise, adapt or gamify to meet clients’ requirements.

·    Award-winning customer service to help employees obtain the optimum learning experience and provide companies with efficient and insightful learning management.

·    Free access to a host of webinars, events and SkillcastConnect community portal, which bring together compliance professionals for peer group networking.

Our customers

Over 1,000 companies use Skillcast’s SaaS (Software as a Service) products consultancy services to support over 1 million employees to meet their compliance requirements. Originally targeting the financial services industry, 45% of revenues now come from other sectors, including retail, manufacturing, transport and real estate.

Investing for growth

The corporate compliance market is large, resilient, fragmented and growing, and the directors believe Skillcast is well-positioned to thrive. The Group boosted its already strong balance sheet at the time of its AIM admission in December 2021 and is investing in its products, technology, commercial teams and organisational structure.

Strategic and operational progress

Our focus in 2023, as in previous years, is on growing the subscription business measured through the size of our ARR book. We believe Skillcast has a tremendous growth opportunity as companies seek to digitise their staff compliance to reduce costs, improve employee experience and reduce the risk of breaches in the face of ever-growing regulations.

Our business model of recurring annual subscriptions provides a stable base we can build upon with product upsells and new customer acquisitions. Our investments over the past year enabled us to start 2023 with a flurry of new product launches.

Product

In February 2023, we launched our FastTrack product, which, when added to our off-the-shelf (“OTS”) courses, enables experienced employees to demonstrate their compliance understanding with a pre-assessment and opt for a shorter version of the course. This improves employee acceptance of compliance training and saves staff time while ensuring full compliance.

In March 2023, we launched our Global Compliance and Global Risk courses. Compliance is generally a nationally focussed activity reflecting the rule of law. These global libraries open up the market for multinational companies, particularly in Europe, that need their courses to be based on global best practices and be available in multiple languages.

In April 2023, we launched our new micro-learning Compliance Bites: a library of short, engaging videos on key compliance topics designed to improve employee retention.

In the coming months, we will launch a new self-service plan to supply compliance training to small UK businesses. We already serve this market segment, but we believe that we can substantially increase our penetration in this underserved segment with the new service plan that will be more affordable, easy to manage and customised for industry sectors.

Technology

Migration of our application to Microsoft Azure was completed on time and budget in March 2023 and has enhanced our service’s speed, reliability and security, helping us maintain our reputation as trustworthy custodians of our customers’ data. It also provides the scalability we need to support future growth in the customer base.

We have invested in cyber risk prevention, implementing enhanced monitoring and protection software across our IT ecosystem. In Autumn 2023, we expect to be able to certify as Type 1 SOC 2 compliant.

We are increasing our use of AI in our products and in operational areas. We use AI to improve the efficiency of our product development in areas including coding and translations. We recently implemented an AI based sales pipeline tool and plan to implement an AI service tool for our Customer Success team in the near future.

Commercial

We continue to invest in our marketing and sales operations and are pleased with the continuing growth we are seeing in subscription revenues and ARR. We continue to attract new clients and were particularly pleased to secure two large clients with annual subscription revenues in excess of £70,000 in the period. We are seeing up sales from our new products, supporting our 104% net retention rate in H1 23.

Scalable infrastructure

We are seeing the benefits of our enhanced governance and support roles following our IPO. Our first-ever strategy day in November 2022 helped deliver our 2023 operating plan, which we monitor through a financial and OKR reporting framework.

Outlook

Trading since the period end continues to be encouraging, with the rate of year-on-year ARR growth accelerating to further support future subscription revenues. In the second half of the year, we look forward to complementing our existing technology offerings by launching Skillcast Basic: our low-cost, e-commerce plan for small companies.

We expect the increase in overheads to continue to slow now that we have filled all identified key management and growth roles. We plan to increase prices at the end of the year to offset continuing inflationary pressure and remain on track with our long term plans set out at the time of the IPO in 2021.

Financial Review

Revenue

Total revenues of £5.2 million were 15% up on the comparable period last year (H1 22: £4.5 million), driven by software-as-a-service (“SaaS”) subscription revenues. Subscription revenues typically accrue from 12-month contracts, invoiced up front, for our library of compliance e-learning courses and associated compliance products. During H1 23, subscription revenue growth helped increase the proportion of revenues from subscriptions to 75% (H1 22: 70%) of total revenues. Total revenue-generating clients in H1 23 increased by 26% to 1,059 (H1 22: 841). The top 10 clients accounted for 22% of revenues in the period (H1 22: 23%).

Subscription (“SaaS”) revenues grew 23% to £3.9 million (H1 22: £3.1 million), driven by a 26% increase in new clients predominantly buying our core compliance e-learning libraries and Learning Management System (“LMS”) feature on our compliance platform.  We were encouraged to see higher demand for other features on our compliance platform, such as Policy Hub growing at a faster 35% growth on H1 22 to represent 11% of subscription sales (H1 22: 10%).

Annual recurring revenue (“ARR”), our key performance indicator to measure subscription sales progress, grew by 27% to £8.1 million over the past 12 months (June 2022: £6.4 million) and by 20% since the start of the year (December 2022: £6.8 million). 83% of the ARR growth in the period was derived from new clients, including two large clients with an annual contract value of over £70,000 each. Average ARR per new account increased by 23% to £6,629 (H1 22: £5,396), and by 7% to £5,797, excluding these two large accounts. Net retention rate increased to 104% (H1 23: 95%), helped by a price rise, which contributed 4%, and reduced churn of 3% (H1 22: 7%).

Revenue from professional services was £1.3 million, which was essentially in line with the same period last year. Our strategy remains to maintain this revenue stream steady at approximately the same absolute level as in previous years.

Gross profit

Gross profit margin decreased by 3.3 percentage points to 66.5% in H1 23 (H1 22: 69.8%) as a result of the one-off transitional higher cloud computing costs incurred during the migration of all clients to Microsoft Azure, which was completed in March 2023. We have subsequently signed a new fixed contract with Azure which will start to see cost reductions in H2 23.

Investing for growth

Overheads grew by 26% or £0.9 million in the period (H1 22: 50% or £1.3 million) to £4.3 million (H1 22: £3.4 million) as the Group continued to invest to drive future growth as intended. The majority of this investment was in people.

In H1 23, total employment costs (including employees in operations included in the cost of goods sold), increased by £1.0 million or 29% to £4.4 million (H1 22: £3.4 million), and the average headcount increased by 20% to 114 (H1 22: 95). On 30 June 2023, our headcount was 121 (30 June 2022: 99). The biggest area of growth was in the sales and marketing function with an average of nine more heads during the period. Average employment costs per employee were 7% higher in H1 23 compared to H1 22.

Non-people-related overheads were £1.9 million and increased by £0.4 million or 24% on the same period last year (H1 22: £1.5 million). Marketing activity costs increased 107% compared to the same period last year. Other increases were predominantly driven by increases in revenue, headcount or inflation.

EBITDA

Due to the ongoing investment, the Group delivered an LBITDA of £0.7 million in H1 23 (H1 22: LBITDA: £0.2 million). This profit performance reflects the intended investment programme, which is supported by the fundraising in December 2021.

Tax

The Group reported a loss before tax of £0.8 million in the period and consequently was not liable for any corporation tax in either its UK or Malta jurisdictions.

The Group had unutilised tax losses carried forward of £1.3 million as of 31 December 2022 (2021: £0.7 million) due predominantly to research and development credits. These will increase in 2023 due to trading losses and an expected research and development claim. Given the varying degrees of uncertainty as to the timescale of the utilisation of these losses, the Group has not recognised the potential deferred tax assets associated with these losses.

In Malta, a withholding tax rebate of £0.1 million, due to Inmarkets Group Ltd with regards to dividends declared by Inmarkets International Ltd for 2021, was reflected as a tax credit in H1 22.  No such dividends were declared in H1 23.

EPS

The basic loss per share was 0.863 pence on 89.5 million shares. (H1 22: 0.162 pence). 

Dividend

With a business that is backed by recurring revenues that provide strong cash generation, the Board is committed to paying dividends. The Board, therefore, declared an interim dividend of £150,000 consistent with the previous year, or 0.168 pence per issued ordinary share. The interim dividend will be paid on 27 October 2023 to shareholders on the register on 6 October 2023.

It is the Board’s stated policy to maintain the total aggregate annual dividend of at least £400,000, consistent with previous years, for the current year. The Board will review its policy when the Company has returned to profitability.

Balance sheet and cash flow

Net assets at 30 June 2023 were £5.9 million, £0.7 million less than at 31 December 2022 and £1.3 million less than at 30 June 2022 due to the retained losses accumulated from the accelerated investments and dividends paid.

There was a small operating cash burn in H1 23 of £0.1 million (H1 22: £0.3m) as cash receipts paid upfront from higher subscription sales offset trading losses. This cash burn, which is relatively small in comparison to the cash resources of the Group was planned as part of the growth strategy and was due in part to the investment programme we are undertaking. The Group had £7.6m cash at bank at 30 June 2023 (30 June 2023: £7.7m) and has no bank debt.

The Group does not capitalise any intellectual property on either the content or technology of its products. It has two right-of-use assets totalling £0.5 million at 30 June 2023, representing its leased offices in London and Malta.

Trade and other receivables at 30 June 2023 of £3.7 million were £0.3 million lower than 30 June 2022. Trade debtors of £2.3 million were £0.2 million lower than at 30 June 2022 despite the revenue growth and debtor days fell from 76 at 30 June 2022 to 63 days at 30 June 2023. Other receivables of £1.5 million 30 June 2023 are in line with 30 June 2022. £0.6 million of this balance relates to tax rebate due from the Maltese government. During the period £0.2 million was received.

Current liabilities of £5.8 million at 30 June 2023 were £1.1 million higher than at 30 June 2022 primarily due to an increase in contractual liabilities relating to deferred income. Deferred income of £4.2 million at 30 June 2023 was £0.8 million or 24% higher than 30 June 2022 due to SaaS contracts and incomplete professional services projects.

Alternative Performance Measures

*Annual Recurring Revenue (ARR)

ARR is also used to assess the performance and the trend of subscription revenue. ARR is calculated by multiplying the Monthly Recurring Revenue (“MRR”) by twelve. MRR is defined as the subscription revenue that was recognised in a month, excluding any retrospective upward adjustments that arise at the end of the contract where there have been more subscribers than a client originally contracted for, less any contract losses (Churn), or downward adjustments arising on contract renewal. The Directors consider that the ARR, derived from software-as-a-service (SaaS) sales, is a key measure of the performance of the business. The ARR increased 27% to £8.1 million on the year (June 22: £6.4 million) and 20% since December 2022 (£6.8 million).