Skillcast H1 2025: Recurring revenue muscle, margins up, cash piling in
Skillcast’s half-year numbers show a SaaS business hitting its stride. Subscription revenues rose 23% to £6.4 million, helping lift total revenue 18% to £7.5 million. Annualised recurring revenue (ARR) is up 23% year-on-year to £12.8 million, and EBITDA jumped to £0.7 million with a 9.0% margin. Cash is strong at £11.5 million and the interim dividend is up 20%.
In short: more subscriptions, better margins, and healthier cash flows. The mix is getting cleaner too, with subscriptions now 85% of revenue.
Quick scorecard: the key numbers that matter
| Metric | H1 2025 | H1 2024 | Change |
|---|---|---|---|
| Total revenue | £7.5m | £6.4m | +18% |
| Subscription revenue | £6.4m | £5.2m | +23% |
| ARR | £12.8m | £10.4m | +23% |
| Gross margin | 75.5% | 71.7% | +3.8pps |
| EBITDA | £0.7m | £0.03m | +2,074% |
| EBITDA margin | 9.0% | -0.5% | +9.5pps |
| Basic EPS | 0.636p | (0.009)p | N/A |
| Dividend per share | 0.202p | 0.168p | +20% |
| Cash in bank | £11.5m | £8.3m | +38% |
| Free cash flow | £2.2m | £1.0m | +126% |
| Net retention | 100% | 100% | Stable |
| Annualised churn | 7% | 12% | Improved |
| Professional services revenue | £1.1m | £1.2m | -7% |
| SaaS gross margin | 79.5% | 79.0% | +0.5pp |
| Professional services gross margin | 51.7% | 41.7% | +10.0pps |
| Rule of 40 | 32% | 27% | +5pps |
Subscription engine purring: ARR up, churn down, mix improving
ARR rose 23% to £12.8 million and is up 10% since December. New clients added £1.1 million of ARR in the half, in line with last year. Net retention held at 100% with price rises dialled back to 3% (H1 24: 7%), and annualised churn improved to 7% (H1 24: 12%). That combination – stable retention, lower churn, new logos – is exactly what you want to see in a SaaS book.
Subscriptions now contribute 85% of revenue. The product mix is edging upmarket too: the Premium plan is 7.4% of ARR (H1 24: 2.9%) and the new Enhanced plan is 1.1%. Average ARR per client (excluding CoreCompliance) increased by 12%. CoreCompliance – the self-serve offer for small businesses – is still small at 1.2% of ARR but growing, with client numbers up 327% to 141 and average ARR per client rising to £1,053 (H1 24: £870).
Margins moving the right way: operational gearing in action
Gross margin stepped up to 75.5% (from 71.7%) as Skillcast reduced its professional services cost base. SaaS margins edged up to 79.5%, while professional services margins improved sharply to 51.7% after headcount changes last year. Overheads rose 9% to £5.1 million, which is modest against 18% revenue growth – textbook operational gearing.
EBITDA hit £0.7 million and a 9.0% margin, a marked turnaround from a small loss last year. Profit before tax came in at £0.7 million, and basic EPS was 0.636p. The Rule of 40 – ARR growth plus EBITDA margin – improved to 32%. Not mission accomplished yet, but clearly heading in the right direction.
Cash generation and dividend: upfront billing doing the heavy lifting
Free cash flow was £2.2 million (H1 24: £1.0 million), helped by upfront cash from subscriptions, a return to profitability, and faster cash collection under auto-renewal terms. Debtor days reduced to 52 (from 64), and deferred income rose to £6.5 million, up 28% year-on-year, reflecting contracted revenue yet to be recognised. Cash at bank stood at £11.5 million with no bank debt.
The Board declared an interim dividend of 0.202p per share (£180,000), up 20% and in line with the policy to broadly track subscription revenue growth. It will be paid on 24 October 2025 to shareholders on the register on 3 October 2025. For context, the total dividend for 2024 was 0.517p per share.
Product momentum: AI assistant rollout, new libraries, and a stronger funnel
Skillcast is rolling out Aida, its AI-powered compliance assistant, to Enhanced and Premium subscribers. The pitch is simple: get concise answers sourced from company policies, Skillcast courses, and curated statutory documents, with links to the underlying sources. That should drive engagement without bloating content production costs.
Marketing spend increased 35% and a revamped website launched in March delivered higher engagement and domain authority. On product, an improved UI/UX and content authoring tool are due later this year. New content is landing to meet emerging obligations, such as Failure To Prevent Fraud coming into force in September, and an EU Compliance library is scheduled for Q4 2025. Management has also engaged advisers to explore bolt-on acquisitions that fit product and valuation criteria.
Geography and customer base: still UK-led, with room to broaden
Revenue remains predominantly UK-based at £5.86 million, with Europe at £0.55 million and the rest of world at £1.10 million. The company serves over 1,400 clients across regulated sectors, with the top 10 contributing 17% of revenue. That’s diversified for a business this size, and the planned EU content expansion should help nudge the mix over time.
What I like, what I’m watching
Positives
- Recurring revenue strength: subscriptions are 85% of revenue, ARR up 23%, net retention 100%, churn down to 7%.
- Margin expansion: gross margin up 3.8pps; EBITDA to 9.0% with overheads up only 9% against 18% revenue growth.
- Cash discipline: £11.5 million cash, no bank debt, free cash flow of £2.2 million, faster collections, and higher deferred income.
- Product mix improving: Premium and Enhanced plans growing share of ARR; Aida rollout could deepen stickiness.
- Shareholder returns: interim dividend up 20% and supported by cash generation.
Watch-outs
- Professional services softness: revenue down 7% and limited visibility, though mix shift reduces its importance.
- Pricing power moderated: 3% price rises (vs 7% last year) support retention but may dampen upsells.
- Cost base still rising: marketing up 35% and continued product investment – sensible, but requires continued ARR growth to protect margins.
- Geographic concentration: the UK remains the lion’s share of revenue; execution on the EU library will matter.
- Acquisitions: sensible bolt-ons could accelerate growth, but integration and valuation discipline will be key.
Jargon buster
- ARR: annualised recurring revenue – the annual value of contracted subscription revenue.
- Net retention: how much revenue you keep and expand from existing customers, excluding new customers; 100% means no net shrinkage.
- Churn: the annualised rate at which customers or revenue are lost.
- Rule of 40: a SaaS yardstick – ARR growth rate plus EBITDA margin. Higher is better; 40% is a common benchmark.
Bottom line
Skillcast is doing what good SaaS businesses do: grow ARR, expand margins, and convert it to cash. The subscription mix is improving, churn is down, and the balance sheet is clean. Professional services drift and UK concentration are the niggles, but the trajectory – especially on cash and profitability – is encouraging.
If management keeps compounding ARR and nudging margins up, that Rule of 40 target starts to look very achievable.
