dotDigital Group PLC

LSE:DOTD

Earnings Call Analysis

Earnings Call Transcript 2022-Q2

[Unverified Participant]

Welcome

to

the

Dotdigital

Group

plc

Interim

Results

Investor

Presentation.

Throughout

this

recorded

presentation,

investors

will

be

in

listen-only

mode.

Questions

are

encouraged

and

could

be

furnished

at

any

time

by

the

Q&A

tab

situated

in

the

right-hand

corner of

your

screen.

Just

simply

type in

your

questions

and

press

send.

The

company

may

not

be

in

a

position

to

answer every

question

it

receives

during

the meeting

itself. However,

the

company

will

review

all

questions

submitted today

and

publish

responses

where

it is

appropriate

to

do

so.

Before

we

begin,

I

would

like

to

submit the

following

poll.

I'd

now

like

to

hand

you over

to

Paraag

Amin,

CFO;

and

Milan

Patel,

CEO.

Good afternoon

to you

both.

[Milan Patel]

Good afternoon,

[ph]



Alexander (00:38).

Thank

you

very

much

for

handing over

to

us,

and

welcome,

all,

to

our

Dotdigital

Group

plc

first

half

interim

results

presentation.

For

some

of

you,

this

will

be

a

recap.

But

for

some

of

the

newer

investors

or

looking

to

invest,

I'll

take you

through

from

history

to

what

we

do

and

our

growth

strategy.

Originally

formed in

1999, was

a

very

simple

marketing

tool

made

for

the

marketing

department,

but

they

were

able

to

send

bulk

messages

to

people

on

their

subscriber

list.

So

today,

where

the

market

has evolved

and

the

platform

has

evolved,

it's

a

very

sophisticated

platform

that

captures

data

into

the

platform,

allows

the

marketing

teams

to

understand

who they're

communicating

to

and

gives

them

the

full

complete

toolset

in

order

to

use

that

data

to

be

highly

relevant

and

personalized

and gives

them

all

of

the

different

channels

that

they

can

communicate

to.

It's

about

sending the

right

message

at

the

right

time

to

the

right

person

through

the

right

channels.

In

terms

of

the

business,

center

that to

three

main

global

hubs.

UK

is

a

hub

into

EMEA.

Our

New

York

offices

is

a hub

[ph]



into (01:50)

America.

And

our

Sydney

offices

is

a

hub

into

APAC.

We

have

over

340

employees

globally,

predominantly

in

sales

and

marketing,

IT

and

development, small

amount

of

people

in

professional

services

and

the

back

office,

have

eight

offices

across

the

world,

very

strong

network

of

tech

and

solution

partners

around

our

strategic

partners

within

the

integrations

that

we have

within

e-commerce,

and

also

within

the

CRM

space

as

well.

As

we

look

forward,

we

will

talk

about

some

of

the

new

strategic

partnerships

that are

coming

on.

We're

very

much

focused

in

that

mid-market

and

upper

mid-market

where

we

know

the

cost

of

acquisition

to

lifetime

value

makes

sense.

In

terms

of

some of

the

KPIs that

we

look

at,

the

organic

growth

strategy is

centered

around

three

main

pillars,

whether it's

around

geographic

expansion,

whether

it's

around

our

strategic

partnerships,

or

product

innovation.

We

talk

about

not

only

our

domestic

market,

which

is

around

EMEA,

predominantly

in

the

UK,

expansion

into

the

US,

and

further

into

LATAM.

And

in

terms

of

APAC,

further

push

into

Far

East

Asia

and

also

some

of

the

newer

where

we're

dipping

our

toe

in

the

water

into

areas

like

Japan.

In

terms

of

what

we

measure

from

a

strategic

partnerships

perspective

is

the

number

of

our

customers

that are

using

the

integration

within

– whether

it's our

e-commerce

platforms

like

Magento,

which

is

now

owned

by

Adobe,

or

Adobe

Commerce.

In

terms

of

some

of

the

partnerships

that

we

have

with

Shopify

and

BigCommerce

in

the

e-commerce

space

or

Microsoft

Dynamics

and

Salesforce

in

the

CRM

space.

What

we've

continued

to

do

is

really

expand

on

the

recurring

revenues

we

have

from

the

business,

predominantly

in

two

main

forms,

whether

it's

what we

describe

as

our

functionality

recurring

revenues,

and

that's

based

on

licenses,

and

additional

functionality

our

customers

are

buying,

or

data

that

they're

bringing

in,

which

in

turn

increases

our

license

fees

that

we

charge

our

customers.

In

terms

of

messaging,

there's

two

main

parts

what

we

describe

as

premium

messaging,

which

is

around

our

SMS

and

[ph]



WhatsApp

(04:06) messaging

or/and our core

e-mail

and

other

90%

plus

gross

margin

message

charges.

In

terms

of

what we

continued

to

do

over

the

last

10 years

is

we

talk

about

profitable

growth.

Over

the

last

10 years,

CAGR,

from

a

revenue

perspective,

is

in

that

19%.

In

terms

of

profitability,

around

the

20%.

And

we

continuously

increase

the

cash

from

a

conversion

perspective.

You

can

see

some

of

the

customers

we

help.

We

also

help

mid-market

companies

that

you

may

not

recognize.

The

part

of

what

we

are

seeing

as

we

look

at

new

business

that

is

coming

on

board,

we're

seeing

higher

value

mid-market

companies

as

they're

getting

more

sophisticated,

but

also

larger

enterprises

that are

using

our

platform,

whether

they're

deploying

it

on

multiple

territories

or

multiple

brands

as

they

expand

out.

In

terms of

last

half,

saw

a

10%

organic

growth,

strong

profitability.

We

were

– if

we

look

at

the

financial

results for

the

full

year,

there

was

some

one-off

spike

in

SMS

from

the

pandemic.

But,

effectively,

as

we

go

through

the

presentation,

we'll

talk

about

that and

the

unwinding

of

that.

We

continue

to

win

larger

value

business

complemented

from

our

existing

customers

in

terms

of

expanding

the

product

adoption,

very

much

focused

on

our

people

and

continuing

to

invest

behind

our

people.

For

us,

it's

the

successful

ingredients

of

not

only platform,

but

also

the

people

that

really

gives

it

the

value

proposition

and

the

success

that

we've

had

in

the

business.

In

terms

of

– if

anybody

attended

my

last

presentation,

we

were

talking

about

building

a

customer

data

platform.

That

proposition

is

out

and

have

– has

beta

customers

now

on

that.

And

our

product

managers

are

now

working

out

the

monetization

strategy

from

the

CDP

side

of

things

and

as

we

look

forward

and

building

out

those

use

cases

and

how

we're

generating

return

on

investment

for

our

marketeers.

For

us,

we

continue

to

[ph]



see kind

of (06:07)

strategic

partnerships,

but

also

broaden

on

our

existing

partnerships

that

we

have,

both

from

the

ecommerce

and

CRM,

and

some

of

the

newer

strategic

partnerships

that

we

have

with

the

sales

and service

clouds.

For

us,

our

pipeline

is

underpinned

by

a

recurring

SaaS

business

model.

We

look

at

some

of

the

statistics.

We're

seeing

strong

growth

in

the

half.

We're

seeing

strong

profitability.

Recurring

revenues

as

a

total

revenue

from

a

group

perspective

is

continuing

to

increase.

So,

94%

of

our

group

revenues

is

now

recurring.

Functionality

recurring

revenue

continues

to

grow

very

strongly,

22%

in

the

period. That's

a

combination

of

existing

customers

adding

more,

but

also

newer

customers

buying

more functionality

from

when

they

start

with

us.

Strong

cash

position,

no

debt

within

the

organization,

of

£40

million.

So

if we

cover

some

of

the

evolving

backdrop

and

some

of the

headwinds

we've

seen

in

the first

half,

a

lot

of

companies

have

seen

headwinds

from

a

people

perspective,

whether

it's

salary

inflation,

whether

it's

around

retention.

We

have

seen

a

slight

increase

in

employee

attrition.

However,

we've

done

quite

a

lot

around

the

attrition

and

reducing

this

as

we

look

forward.

In

terms

of

salary,

benchmark

analysis

has

already

started.

We've

implemented

recommendations.

We've

increased

our

benefits

packages

in

our

international

regions.

We're using

share

options

as

a

way

of

retaining

from

an

overall

remunerations

package.

More

importantly,

we

look

at

how

much

of

the

staff

are

engaged

with

the

business.

Three

main

metrics

I look

at

or

we

look

at

is

around

employee

engagement. We see

over 90%

there.

97%

of

our

employees

are

proud

to

work for

the

business.

And

92%

would

recommend

us

to

their

friends

or

other

people

that

they

may

know.

So

very

strong

engagement

of

our

staff

within

the

business.

In

terms

of

the

US,

it

is

a

competitive

labor

market.

All

businesses

are

facing

that.

What

we

did

see

in

the

first

half

was

a

slightly

higher

attrition

in

our

management

in

that

region

and

customer

success

and

salespeople.

What

we've

done,

we've

got

new

management in

place

now.

They

are

from

industry

who

are

making

a

difference

in

that

business

unit.

We've

added

a

VP of

Growth.

We've

added

a

Head

of

Customer

Success

in

the

region.

We've

now

got

back

to

the

same

levels

we

had

from

a

customer

success

perspective.

And

in

between,

we

are

now

starting to

increase

the

salespeople

that

we

have

in

region

as

the

demand

has

been

created.

We've

increased

the

resourcing

we

have

from

an

in-house

recruitment

perspective.

We've

added

people

in

these

regions

to

continue

hiring

and

building

a

pipeline

of

great

talent

that

we

can

bring

into

the

business.

In

terms

of

the

other

factor,

compounding

the

US –

sorry,

compounding

is,

in

this

year,

now

that

the

UK

has

opened

up

from

the

COVID

perspective

and

also

quarantining

elements

have come

out,

effectively,

we

are

seeing

some

of

the

one-off

pandemic-related

messages

diluting

our

marketing

SMS

growth.

We've

seen

over

100%

growth

in

the

last

six-month

period

in

customers

from

a

marketing

perspective

adopting

more

of

the

SMS.

We

continue

to

see

newer

omni-channels

like

in

that

push

as

more

and more

brands

build

applications

on

Android

or

iOS

so

that

they

can

provide

that

single

consistent

message

across

all

channels

and

that

single

content

and

personalization

across

every

touchpoint

that

they

have

with

their

end

customer,

regardless

of

whether

it's

a

transaction

message,

whether

it's a

marketing

message,

and

we

continue

to

see

that

adoption

increasing

as

we

look

into

the future.

So

what

is the

marketeers'

challenge

now?

And

I

guess,

as

more

and

more marketeers

are

engaging

with

their

end

customer,

whether

it's

using

e-mail,

whether

it's

using

all

digital

forms,

it's

the

battle

into

inboxes.

It's

about

being

very

personalized.

It's

about

understanding

who

you're

talking

to

and

using

that

data

that

they have

on

the

recipient

to

be

very

highly

targeted.

In

terms

of

more

and

more marketeers

are

now

trying

to

create

customer

journeys

at

every

touchpoint

that

they

have,

effectively, what

we

have

is

a

platform

that

is

not

only

able

to

personalize

at

each

of

these

different

touchpoints,

we

give

them

all

of

the

different

channels

to

communicate

on.

We

give

them

the

data

to

really

understand

who

they're

speaking

to,

which

allows them

to

have

those

real-time

optimizations

as

well

as

all

of

the

data

integrations

off

the shelf

that

they

are

using

today.

And

we

continue

to

invest

in

our

R&D

to

build

out

integrations

into other

business

systems.

If

we

look

at

the platform,

it's

about

bringing

data

into

the

platform.

We

take

all

of

the

heavy

lifting

in

terms

of

data

hygiene.

We

give

them

the

information

to

really

get

personalized

from

a marketing

automation

perspective, allows

them

to

action

the

data

that

they

have.

It

allows

them

to

learn

through

AI

and

machine

learning

capabilities

that

we

have.

It

allows them

to

predict

to

build

a

higher

return

on

investment,

but

also

have

more

of

their

recipients

engage

with

their

brand,

and

really

analyze

the

campaign

effectiveness

to

reaction

the

marketing

automation

from

an

efficiency

perspective.

Lots

and

lots

of

functionality

around

empowering

our

customers

to

drive

better

marketing

models

or

enhance

their

marketing

strategies,

give

them

all

the

tools

to

communicate,

and

build

on

the outcomes

that

they're looking

to,

whether

it's around

growing

customers,

whether

it's

around

driving

people

to

event,

whether it's

about

disseminating

information,

and it's

about

retaining.

What

we

have

seen

in

the

marketplace

from

the

marketing

department

perspective

is

not

only

about

customer

acquisition.

Retention

marketing

is

coming

higher

up the

priority

from

a

strategy

perspective.

Effectively,

with

the

tools

that

we

provide,

they

can

continue

the

influential

side

of

things

and

build

on

the

influences

that

they

are

building,

and

continue

that

brand

awareness

as

they

use

the

platform

in

the

territories

that

they

operate

in.

So

what does

the

competitive

landscape

look

like?

We

all

have

a

target

segment

that

we

build

our

platform

for.

You've

got

some

of

the

competitors

like

MailChimp

and

Constant

Contact,

which

are

really

building

their

platform

for

the

small

business

market.

You've

got

platforms

that

work

and

build

functionality

in

that

mid-market,

as

well

as

you've

got

players

that

really

go

after

the

large

enterprise.

As

I

mentioned

at

the

start of

the

presentation,

for

us, it's

been

very

focused

in

that

mid-market,

upper

mid-market,

and

we

continue

to

see

an

increase

in

larger

enterprises

deploying

our

platforms

between

different

brands

that

they

may

have

or

even

different

territories

that

they're

using

our

platform

in.

In

terms

of

our

growth

strategy,

as

I

mentioned earlier

in

the

presentation,

our

organic

growth

is

focused

around

three

main

pillars,

whether

it's

around

product

innovation,

whether it's around

our

strategic

partnerships and

geographic

expansion

from

the

hubs

that we

have.

When

we

describe

a

hub

for

our

geographic

territory,

it's

scaling

from

the

foundations

that

we

have.

It's

having

every

single

department

in

that

territory

to

really

scale

from,

understanding

the

customer

and

making

sure

that

we're

delivering

on

the

needs

and

the

reason

they

choose

Dotdigital

as a

platform

of

choice.

We

continue

to

expand our product

suite.

We

can

see

that

coming

through

in

our

functionality

recurring

revenues. Platform

adoption

is

increasing,

which

really

provides

us

for

organic

growth

into

the

future,

very

much

deepening

our

relationships,

focused

on

cross-selling,

upselling,

as

well

as

allowing

our

customers

to

unlock

more

value

out

the

platform

through

adoption,

but

working

with

them

on

their

strategies

to

drive

a

higher

return

on

investment.

We

continue

to

grow

our

customer

base

globally,

increasing

our

global

market

presence.

The

platform

is

well-received

in

different

territories. But

we

also

see

demand

as

we

piggyback

on

the

coattails

of

our

global

partnerships

that

we

have. In

terms

of

deepening

our

strategic

partnerships,

it's

about

building

integrations,

making

it

very

easy

for

our

marketeers

to

bring

data

into

the

platform,

but

as

well

as

working

out

the

areas

that

mid-market

find

challenges

in

the

data

silos

that

they

may

have

and

making

it

easy

to

remove

those

silos.

For

us,

it's

also

important

to

continue

globalizing

our

talent,

making

sure

we're

onboarding,

building

that

culture

that

we

have

within

our

business

and

expanding

that

out,

which

really

makes

us

successful

as

we

look

forward.

So

we're

very

much

focused

on

organic

growth,

but

we

also look

at

acquisitions

that

really

makes

sense

for

the

business,

not

just

from

an

arbitrage

perspective,

but

real

synergies

that

our

marketeers

could

have

in

having

additional

functionality

from

adjacent

technology

perspective,

whether

it's

building

foundations

from

a

people

or

from

a

business

perspective

in

territories

that are

strategic

to

us

through

consolidation,

or

deeper

functionality

that

we

may

be

missing

today

that

would

take

us

multiple

years

to

really

build.

So

if

we

look

at

what's

happening

from

a

product

innovation

perspective,

we

saw

revenue

growth

of

over 22%

in

the

period

from

a

recurring

perspective

continuing

to

increase

as

platform

adoption

is

being

increased,

or

customers

bringing

in

more

contacts

into

the

database,

as

well

as

increasing

the

level

of

data

that

is

being

brought

into

the

platform.

We've

continued

to

enhance

our

user

experience

end-to-end,

whether

it's

the

customer

journeys

we

have

with

our

end

customers

from

the

start

point,

they

start

using

Dotdigital,

and

we

handhold

them

all

the way

through

to

their

more

sophisticated

marketing

strategies.

In

the year,

or

in

the

last

six

months,

we've

launched

our

customer

data

platform,

as

I

mentioned

earlier.

We're

working

with

customers

in

driving

user

case

studies,

how

they

can

use

that

data

to

really

get

hyper-personalized

on

a

one-to-one

basis

with

their

end

recipients

or

their

customers.

If

we look

at

what's

happening

from

a

metrics

perspective,

we're

seeing

more

and more

customers

using

more

than

one

channel.

Over

20%

of

our

customers

are

increasing

the

channel

usage

within

their

own

marketing

strategies.

You're

seeing

more

and

more product

data

continuing

to

come

into

the

platform,

and

we

continue

to

see

that

rise

in

e-mail

volumes

of

over 18%

in

the

last

six

months.

But

that

continues

to

accelerate

into

the

second

half

and

as

we

look

into the

future.

In

terms

of

building

pipeline

for

us

and

continuing

our

market

reach,

we

have

a

very

strong

foothold

in

the

UK.

We

are

the

largest

for what

we

do.

Most

marketing

departments

would

have heard

of

us

or

know

of

us.

And

effectively,

we

have

a

blue

print

of

international

expansion

through

strategic

partners,

whether

it's

in

our

North

American

market,

whether

it's

in

our

APAC

market,

where

they

help

drive

brand

awareness

within

their

user

base.

We

continue

to

add

value

from

a

proposition

perspective

and

see

those

clients

seeing

real

value

from

the

platform

that

they

are

using

and

effectively

continue

to

build

on

that.

We've

seen

strong

growth

across

all

of

the

integrations

that

we

have,

whether

it's

in

the

e-commerce

space,

in

Magento,

some

of

the

newer

connectors

that

we

have

that

is

continuing

to

increase

from

a

compounding

perspective.

We've

seen

an

increase

in

customers

using

our

Shopify

integration.

That

continues

to

feature

and

accelerate.

In

terms

of

some of

the

other

areas,

Microsoft

Dynamics,

and

some

of

our

new

integrations

that

we've

been

doing

with

our

strategic

partners,

we're

now

starting to

build

connectors

within

the

sales

and

service

clouds

as

more

and

more

customers

are

storing

conversations

using

those

keywords

in

those

conversations

to

really

drive

marketing

automation.

So

one

of

the

newer strategic

partners

that

we

are

excited

about

and

we

see

real

opportunity

for

is

around

our

integrations

with

Zendesk,

and

that

will

continue

to

feature

as

we

look

forward.

In

terms

of

our

growth

in

the

different

regions,

all

three

regions

grew.

APAC,

very

strong

growth

of

27%.

And

we

continue

to

push

further

not

only

into

the

Australian

and New

Zealand

market,

whether

it's

through

our

own

direct

marketing

efforts

or

our

strategic

partners,

further

into

Far

East

Asia

through

our

Singapore

office,

and

we've

now

started to

[indiscernible]



(19:41) as

we've

seen

stronger

demand

coming

from

Japan

and

work

with

the

likes

of

Shopify

to

push

further

from

a

go-to

market

perspective

as

we

look

forwards

into

that

market

with

some

feet

on

the

ground.

In

terms

of

the

US

growth,

we

saw

3%.

As

I

talked

about

some of

the

headwinds

we've

seen,

we've

continued

to

solidify

the

foundations

that

we

have

within

the

North

American

region.

We

started

to

accelerate

some

of

the

investments

that

we've

been

doing

from

a

marketing

perspective

as

we've

got

the

people.

In

terms

of

that

growth

coming

through

into

the future

years,

as

we're

an

annuity

business,

for

us,

customer

success

teams

and

sales

take

about

three

to

six

months

to

ramp

up

in

getting

to

that

full

target

or

hitting

those

full

targets

and

that

starts to

come

through

into

the

future

years

in

terms

of

revenue

growth

in

that

region.

Whenever,

from

an

annuity

revenue-based

perspective,

you

start

to add the

clients

through

the

period,

you

see

the

full

impact

of

the

revenue

growth

in

the

following

periods

and

that

will

continue

to

build.

In

terms

of

EMEA,

very

strong

growth

in

the

EMEA

market,

predominantly

led

by

the

UK.

But

as

we

start

to

develop

more

brand

awareness outside

of

the

UK,

we

continue

to

see

a

strong

demand

for

our

platform

in

these

regions.

I'll

pass

you

over to

Paraag

to go

through

the

financial

details.

[Paraag Shashikant Amin]

Yes.

So,

good

afternoon,

everyone.

So

looking

at

the

first

half

and

in

terms

of

the

numbers

and

what we've

seen,

so

group

revenue

grew

10%

to

£30.9

million

in

the

half.

And

then

the

monthly

average

revenue

per

customer

increased

19%

to

now

£1,422

per

month

per

customer.

Now,

in

our

business,

we

have

a

broad

range

of

monthly

spend,

those

contracted

customer

by

customer,

so

that

could

be

anywhere

from

sort

of

the

lower

end,

our

customers

paying

us

around

£250

a

month.

And

then

there

are

customers

at

the

much

sort

of

higher

end

paying

tens

of

thousands

of

pounds

a

month,

so

£30,000,

£40,000, £50,000

a

month

at

the

very

high-end.

So

the

average

revenue

per

customer

isn't

measurable

as

to

how

many

customers

we

have.

So

in

a

subscription

business

like,

say,

a

Netflix

or a

Sky,

you

can

take

average

revenue

per

customer

or

ARPU

and

multiply

that

by

number

of

customers,

which

gives

you

the

overall

revenue.

In

our

case,

because

we

have

such

a

broad

range

of

that

average

revenue

per

customer

and what

we're

also

talking

about

here

is

the

contracted

revenue,

so

it's

not

the

total

revenue of

the

business.

What

we

do

see,

therefore,

is

our

customer

numbers

have

actually

increased

over

time.

And

those

customers

are

spending

more

than

the

existing

customer

base

that

have come

through

and

our

existing

customers

over

time

also

spend

more.

So

the

ARPC

is

just

more

of

an

indicative

trend

of

the

new

customer

wins

and

the

growth

in

the

existing

customer

base

that's

coming

through.

It's

not

going

to drive

into

a

one-to-one

correlation

with

revenue.

It

absolutely

helps

because,

of

course,

your

customer

base

is

spending more and

your

new

customer is

coming

in.

But

there's

not

a

kind

of

one-to-one

correlation

as

you

would

have

with

a

pure

subscription

model.

Now,

Milan

has talked

about

the

three

pillars

of

growth.

So,

international

revenue

grew

4%

in

the

period.

The

US

was

the

principal

area

of

weakness,

as

Milan

talked

about.

But

functionality

revenue

growing

22%

is

very

much

key

to

the

R&D

spend

that

we

do.

It

does

show

that

as

we're

spending

more

on

R&D,

and

we

spent

£3.5

million

in

the

first

half,

that

leads

to

not

only

the

growth

in

the

functionality

of revenue,

but

also

that's

where

that

average

revenue

per

customer

also

goes

up.

So

as

customers

take

on

and

adopt

some

of

that

functionality

that

we're

building,

they

will

then

be

spending

more

with

us

as

well.

So

the

–

from

an

R&D

and

a

return

on

investment

perspective,

that's

going

very

well.

In

terms

of

the

partnerships, as

Milan

has

also

talked

about,

the

revenue

grew

9%.

Again,

that's

indicative

of

the

investment

that

we

put

into

our

partnership

team

over

the past

12

months.

We

have

revamped

our

partnership

model

to

be

more

scalable.

We've

added

new

people

or

partner

managers

into

the

teams.

So

that

number,

over

time,

we'd

expect

to

increase

and

drive

that

topline

further.

From

a

profitability

point

of

view,

we've

seen

both

adjusted

EBITDA

and

adjusted

operating

profit,

both

up

17%

in

the

first

half.

Now, I'll

talk

a

little

bit

more

in

detail

about

that

on

the

next

slide,

because

there

are

some

anomalies,

I

suppose,

or

trends

that

have

led

to

a

higher

margin

than

maybe

we

would

have anticipated

at

the

start

of

the

year.

The

chart

on

the

right-hand

side

of

the

slide

just

shows

the

revenue

progression

and

how

that

revenue

half-on-half

continues

to

increase. And,

of

course,

we

had

a

pandemic-related

spike

last

year,

which

drove

the

first

half

of

fiscal

2021

probably

to

a

higher

level

of

growth

than

we've

seen

historically.

But

the

normal

trend

has

continued

as

we've

moved

into

the

second

half

of

last

year

and

into

the

first

half of

this

year.

So

just

looking

in

more

detail

at

the

P&L.

So

I

talked

about

the

overall

revenue,

the

average

revenue

per

customer,

and

then

the

strategic

pillars. So

I won't

go

too

much

more

into

the

detail

on

revenue.

But

when

it

comes

to

our

margins

and

costs,

so

the

gross

profit,

that

increased

broadly

in

line

with

the

growth

in

revenue,

so

9%.

So

our

cost

of

sale

has

remained

at

sort

of

similar

growth

levels

to

the

revenue

levels,

and

the

margin

therefore

has

remained

relatively

stable.

And

then

what

that's

also

done,

therefore,

is,

in

theory,

the

operating

profit

margin

and

the EBITDA

margins

would

have

also

been

similar

kinds

of

growth

levels

in

a

normalized

year,

but,

instead,

obviously, they

grew

17%

rather

than

the

sort

of 9%,

10%.

And

the

reason

for

that

is

very

simple.

Milan

talked

about

people

earlier,

but

it's

taken

longer

than

we

would

have anticipated

to

fill

a

lot

of

the

new

hires

that

we

wanted

to

make

at

the

start

of the

year.

And

also,

in

terms

of

some

of

the

people

that

have

left

the

business

during

the

first

half

of

the

year,

we've

–

again,

it's

taken

a

little

bit

longer

to

backfill,

and

therefore,

there

might

be

a

gap

for

a

month

or

two

as

we

are

back

filling

those

roles.

And

so

what

that's

meant

is

that

the

– in

the

first

half,

we

just

didn't

spend

as

much

as

we

would have

anticipated

on

head

count.

Now,

that

has

reversed

and

we

now

have

all

of

the

head

count

in

place

that

was

anticipated.

The

backfills

have

reduced, so

the

level

of

people

leaving

in

the

last

couple

of months

has

been

lower

than

it

was

in

the

first

half.

So, at

this

moment

in

time,

the

total

number

of

employees

we

have

has

increased

over

350

from

being

340

at

the

end

of

the

period,

we're

talking

about

the

first

half.

So,

with

the

investment

that's

gone in

into

those

people,

and

some

of

those

are

key

hires,

as

Milan has

mentioned,

such

as

the

VP

of

Growth

and

the

Head

of

Customer

Success

in

the

US.

Those

costs,

you

see

the

full

impact

in

the

second

half

of

this

year.

So

our

full-year

margin,

operating

margin,

will

be

closer

to

the

normalized

long-term

guidance

that we

gave

of

20%

to

25%.

In

fact,

it

will

be

closer

to

that

20%

mark.

So

around

the

21%

level

is

what

we're

anticipating,

so

long

as

there's

nothing

else

that

changes

in

the

next

few

months.

So

we'll

see

that

second

half

impact

when

it comes

to

the

actual

margin

within

the

half.

But

for

the

year,

it's

very

much

within

that

guidance.

Two

other

just

points

on

that

to

note.

We

also

will

be

having

a

higher

level

of

marketing

spend

in

the

first

half

– sorry,

in

the

second

half

versus

the

first

half

because

we've

now

got

that

full

team

in

place

in

the

US.

In

the

first

half

where

there

wasn't

a

full

team

in

place,

it

didn't

make

sense

to

ramp

up

the

marketing

budget.

And

so

that'll

be

very

much

second

half-weighted.

Again,

that's

influencing

the

overall

margin

for

the

half

and

the

year.

So,

as

we

look

forward –

this

is

the

sort

of

final

point

on

this.

As

we

look

forward,

the

margins,

operating

margins,

will

be

around

the

20%

to

22%

level

for

the

next

couple

of

years

because

you'll

see

the

full-year

impact

of

all

that

hiring

that

we've

done

this

year.

But

also

from

a

marketing

budget

perspective,

there

won't

be

– it won't

be

so

lumpy

as

it

has

been

this

year

because

of

the

recruitment

needs

and

the

people

churn

that

we've

seen

in

the

first

half,

particularly

in

the

US.

So

next

year

becomes

a

much

smoother

year

in

terms

of

from

the

start

to

what

we

expect

to

happen

by

the

end.

That's

probably

the

key

things

to

highlight

when

it

comes

to

the

P&L.

I'll

move

over

to

the

balance

sheet.

So

the

balance

sheet

is

very

similar

to,

I

suppose,

what

we've reported

in

the

past

in

terms

of

the

health

of

it.

Strong

cash

position

continues

to grow.

We've

got

no

debt.

It

does

give

us

opportunities

to

invest

as

we

look

forward.

But

again,

with

the

balance

sheet,

it's

a

very

strong

balance

sheet,

which

gives

us

[ph]



a bandwidth of (29:40)

strategic

investments.

And

then

the

cash

flows,

which

of

course,

help

that

is

we've

got

strong

cash

flow,

with

the

adjusted

free

cash

flow

of

£8.6

million,

total

cash

balance

at

the

end

of

the

period,

so

the

end

of

December,

was

£40

million.

That

has

grown

from

£27.6

million

a

year

prior

to

that.

So

there's

been

a

strong

level

of

cash

conversion

and

then

cash

collection

as

well

as

–

continues

to

improve.

So

a

healthy

cash

balance

for

the

business,

very

much

underpinning

the

long-term

future

of

the

business.

There's

no

issues,

therefore,

when

it

comes

to

potentially

having

–

running

out

of

cash

or

anything

like

that.

We've

got

enough

for

a

long,

long

time.

The

health of

the

balance sheet

is

very

healthy.

The

businesses

are in

an

extremely

strong

position

financially

from

that

perspective.

So

we're

all

set

for

making

sure

that

we

can

invest

as

we

go

forward

for

the

future

years.

With

that,

I

know

there

are

questions

in

the

chat,

which

we'll

address

during

the

Q&A,

but

I'll

hand

it

back

over

to

Milan.

[Milan Patel]

Thanks,

Paraag.

So

I

guess

from

an

outlook

perspective,

we've

talked

about some

of

the

headwinds

that

we've

had

and

what

we're

actually

doing

about

it.

In

regards

to

the

US,

we've

now

got

the

management

in

place

to

really

take that

growth

to

that

next

level

that

we

are

looking

for.

We've

got

a

strong

team

in

that

region

where

we

are

going

through

the

onboarding

process

and

you'll

start

to see

the

benefits

of

the

newer

staff

as

they

are

fully

trained

and

optimized.

In

terms

of

there

is

slightly

slower

growth

in

– from

the

previous

expectations

in

the

current

year,

we

are

looking

to

not

only

see

that

unraveling

[ph]



of (31:34)

some

of the

pandemic

messages,

but

optically

that

covers

up

some

of

the

increase

that

we're

getting

from

marketing

messages

that

are

going

out,

which

has

expanded

significantly

and

growth

through

the

period

has

been

significant.

In

terms

of

– for

us,

the

operating

margins

remain

over

20%.

Continuing

to

look

into

the

future,

it

will

continue

to

see

the

levels

of

investment

that

we

require

in

the

business,

the

investment

that

we

are

making

in

our

people

from

a

learning

and

development,

but

also

new

talent

that

we're

bringing

into

the

business.

From

a

cultural

perspective,

we'll

continue

to

expand

now

as

we

move to

more

of a

flexi-working

scenario.

In

terms

of

other

elements,

return to

more

convention

in

sales

process,

that

helps

win

some

of

the

upper

tier,

mid-market

companies

and

large

enterprise,

but

also

it

helps

with

the

strengthening

of

our

partnerships

that

we

have

across

the

different

regions,

which

in

turn

means

additional

lead

flow

that

comes

in

from

demand

[audio gap]



(32:33).

In

terms

of,

Paraag

mentioned, in

our

financial

strength,

really

gives

us

sort

of

flexibility

to

invest

in

both

organic

and

inorganic

growth

opportunities

we

look

forward.

For

us,

we've

continued

to

strengthen

our

foundations

across

all

of

our

different

regions,

whether

it's

around

the products

and

whether

it's

around

our

people

to

really

scale

for

that

future

growth

as

we

look

forward.

So,

in

summary,

in

terms

of

the

industry

itself,

that

continues

to

grow

between

10%

and

14%.

You're

seeing

marketing –

from

a

marketing

budget

perspective,

digital

marketing

continued to

increase

as

a

percentage of

overall

marketing

budgets.

You're

seeing

more

of

the

traditional

marketing

budgets

being

put

into

digital,

which

is

a

lot

more

cost

effective

and

you

can measure

the

return

on

investment.

We

have

high

visibility

in

our

recurring

revenues.

Over

94%

of

our

– sorry.

94%

of

our

group

revenues

is

recurring,

very

much

agile

business

structure

which

makes

quick

decisions.

And

that

allows us

to

empower

our

culture

and

our

people

to

really

push

the

business

forward

in

the

visions

that

we're

achieving.

A

very

focused

growth

strategy

around

geographic,

around

strategic

partnerships

and

product

innovation.

From

a

fundamentals

perspective,

the

long

term

vision

and

the

value

proposition

remains

unchanged.

[ph]

Alexander (33:59),

I'll

hand

back

to

you

in

terms

of

taking

some

of the

questions.

Thank

you

very much. And

thank

you

very much

for your

presentation.

Ladies

and

gentlemen,

please,

do

continue

to submit

your

questions

using

the

Q&A

tab

situated

on

the

top

right

hand

corner

of

your

screen.

But

just

while

the

company

take

a

few

months

to review

those

questions

submitted

today,

I'd

like

to

remind

you

that

recording

of

this

presentation,

along

with

a

copy

of

the

slides

and

the

published

Q&A,

can

be

accessed

by

via your investor

dashboard.

As

you

can

see,

we've

received

a

number of

questions

throughout

today's

presentation,

and

thank

you

to

all

the

investors

for

submitting

their

questions.

But I'd

ask

you

to

read out

the

questions

and

give

responses

where

it's

appropriate

for

you

to

do

so,

and

I'll

pick

up

from you at

the

end.

[Milan Patel]

No

problem

at

all.

So

first

question

from

[ph]



Henry (34:42).

Quite

a

lot

of

cash

on

the

balance

sheet,

what you

intend

to use

it

for?

So

part

of what

I

am

doing,

[ph]



Henry (34:48),

is

really

focused

on

getting

my

management

team.

So

we

are

in

the

process

of

replacing

our

CFO.

That's

quite

a

long

down

the

process

in

terms

of

getting

a

short

list.

Once

I've got

the

new

CFO

and

the

Chairman, we

will

then

take

stock

in

terms

of

whether

we

invest

that

more

for

organic

growth

or

whether

we

look at

M&A

from

a

strategic

standpoint,

whether

it's around

the

synergy

technology

or

more

consolidation

in

strategic

territories

that

we're

looking

at.

Paraag, there's

a

question

from

[ph]

Andrew (35:26).

In

terms

of

[indiscernible]



(35:27),

please,

if

you

could

talk

about

the

basis

on

which

you

capitalize

and

amortize

R&D.

CapEx

seems

to

run

consistently

ahead

of

amortization.

[Paraag Shashikant Amin]

Yeah.

So

we

obviously

do

the

capitalization

in

line

with

the

guidelines

where we

look

to

capitalize

anything

that

is

for

future

development.

But

the

key

here

is

that

when

we

made

the

acquisition of

Comapi,

there

was

a

one-off

spike

in

that

level

of

capitalization

that

took

place.

Since

then,

the

increase

you'll

see

in

R&D

over

the

last

three,

four

years

has

been

at

a

constant

level.

The

amortization

is

catching

up

to

the

point

where

probably

in

two

years'

time,

assuming

we

continue

to

increase

R&D

by

a

couple

hundred thousand, say,

£300,000

to £400,000

a

year,

which is

what we've

been

doing

for

the

last

few

years, the

amortization

will

actually

catch

up

in

about

two

years'

time

when

they'll

be

equal

and

net

each

other

off

on

the

P&L.

[Milan Patel]

Thank

you,

Paraag.

Another

question

I

have.

How

do

you

plan

to

respond

to

recent

share

price

drop?

Will

you

buy

back

shares?

Effectively,

we

don't

comment

on

the

share

price

movements.

But

effectively,

in

terms

of

answering

your

question

in

regards

to buyback

of

shares,

we'll

be

talking

to

our

advisors.

Myself

and

the

board

will

also

look

at –

once

the

roadshow

is

over,

look

at

where

we

are

and

what

we

do

next,

whether

we

do

buy

back

shares,

whether

we

invest

the money

organically,

or

whether

we

look

at

acquisitions

as a

way

forward

to

complement

our

growth

rates

that

we

have

from

an

organic

standpoint.

[indiscernible]

[Paraag Shashikant Amin]

(37:13)

the

question

from

[ph]



Will (37:13)

on

the

margin,

just

to

clarify

a

little

bit.

The

question

is,

you

say

the

margin

should

be

in

the

20%

to

22%

range

for

the

next

couple

of

years.

But

if

you

annualize

the

second

half, the

implied

guidance

shows

that

margins

for

the next

year would

be

a

lot

lower.

Are

you

saying

that

there's

a

lot

of

one-off

spend

in

the

second

half

OpEx?

So

there's

two

elements

to

it.

So

there

is

a

second

half

weighting thing

when

it

comes

to some

of

that

budget.

So

as

I

mentioned

earlier,

marketing

spend

is

very

much

second

half

weighted.

There's

a

lot

more

in

the

second

half

than

there

was

in

the

first.

There's

two

reasons

for

that.

One

is

partly

the

US

and

the

– having

the

US

team

in

place.

The

second

part

is

that

if you

take

the

UK

as

an

example,

we

still

had

lockdown

and

the

pandemic.

Now,

events

have

opened

up,

travelers

opened

up.

There's

a

lot

of

marketing-related

activity.

There's

a

lot

of

partnership

team-related

activity.

And

then

general

business

travel

between

offices

and

–

so

therefore,

marketing

spend,

travel

and

subsistence

spend,

and

a

lot

of

those

kinds

of

things

are

very

much

now

back

to

normalized

levels

in

the

second

half

where

they

weren't

in the

first

half.

Now,

when

we

look

forward,

we

set

these

budgets

based

on

the

full

year

what

we're

expecting

in

terms

of

revenue

and,

therefore,

a

cost

base,

with

a

little

bit

of

flex

if

needed.

And

so

what

the

budgeting

for

next

year is

is

based

on

the

revenue

we

anticipate,

we

have

a

cost

base

that

is

able

to

be

within

that

20%

to

22%

range.

Now,

if

we

don't

quite

spend

enough,

that

percentage

will

be

higher.

If the

revenue

is

higher,

that

percentage

will probably

be

at

the

lower

end

of

that

20%

to

22%

range.

But

ultimately,

we

have

a

plan

on

a

three-year

basis

of

the

cost

that

we

expect

to

be

within

the

business.

So

you

can't

just

annualize

the

second

half

and

take

that

as

your

run

rate

for

next

year.

And

then

I

think

there's

a

few

more

parts

to

that

question.

But

I

think

the

–

do you

anticipate

similar

top-line

growth

next

year

as

this

year?

Well, the

numbers

in

the

market

that

you

can

see

from

the

analysts

and

consensus

show

that,

at

this

moment

in

time,

we

expect

growth

to

be

slightly

higher

next

year

than

it

is

this

year

when

it

comes

to

topline.

So

topline

this

year

is

roughly

7.5%

is

the

sort

of midpoint

of

the

guidance.

Next

year,

that

should

be

over

8%

based

on

what

we're

seeing

today.

So

growth

should

accelerate

next

year.

And

then

you

can

look

at

analyst

notes

for

years

beyond

that.

But,

essentially,

next

year

should

be

an

increase

on

the

growth

that

we've

seen

this

year.

I'm

trying

to

get

through

these

questions

to see

which

other

ones

we

haven't

gone

through

in

the

actual

presentation.

So,

Milan,

maybe

you

want

to take

the

one

from

[ph]



JP (40:19)

around

–

I'll

read

the

question

out.

So

there's

been

a

lot

of

consolidation

in

your

market.

As

one

of

the

last

independent

players,

does

this

put

Dotdigital

at

a

competitive

disadvantage

compared

to

larger/piggybacked

firms

who

can

deploy

more

resources? Please

comment

on

the

general

state

of

competition

as

perceived

by

ourselves.

[Milan Patel]

Yeah. In

terms

of

consolidation,

what

we've

seen

from

a

historic

standpoint

is

when

they

go

through

that

consolidation,

there's

a

change

in

strategy.

There's

disruption

initially

that

happens

when

you

go

through

any

corporate

activity.

So,

for

us,

we

are

laser-focused

on

working

with

our

sales

teams

to

really

pinpoint

the

company

or

competitor

and

differentiate

our

product

against

them

with

a

very

focused

approach

of

winning

or

displacing

that

provider.

You

also

see

cultural

differences

when

any

company

is

either

consolidated

through

private

equity

or

a

trade

buyer.

And at

that

point,

we

pick

up

quite

a

lot

of the

talent

from

the

business.

In

terms

of

does

it

disadvantage

us

from

a

competitive

advantage

perspective,

there

is

a

lot

of

private

equity

and

VC-backed

money

going

into

some

of

the

competitors

from

the

landscape that

I

provided,

but

we're

very

focused

in

the

niches

that

we

play

in.

We

work

with

a

strategic

partners

in

the

international

regions.

As

I

mentioned

earlier,

we

are

the

largest

in

the

UK,

so

most

of

the

marketing

teams

have

already

heard of

us.

But

from

the

international

region's

perspective,

we

focused

on

ecommerce.

We've

increased

the

addressable

market

or

opportunity

we

can

go

after

in

the

CRM

space

and

we're

increasing

that

market

opportunity

now

with

integrations

or

strategic

partners

in

the

sales

and

service

clouds.

In

terms

of

them

spending

a

lot

more

of

their

marketing

dollars,

they're

looking

for

general

[ph]



marketeers (42:27).

We're

very

focused

in

our

approach

on

how

we

win

our

customers

for

future

growth.

[Paraag Shashikant Amin]

There's

a

question

of

customer

concentration.

So

our

top

100

customers

make

up

about

31%

of

revenue, so it's

about

a

third

of

revenue

from

the

top

100.

There's

no

customer

from

a

contracted

perspective

that

is

over

1%.

I

think

our

largest

customers

just

under

that.

So

it's

a

pretty

sort

of

long

list

when

it

comes

to

the

concentration

of

customers.

[Milan Patel]

A

question

from

[ph]



Andrew (43:12).

Please,

could

you

be

more

explicit

about

the

issues

of

management

staff

in

the

US?

How

many

people

are

involved?

How

has it

affected

customer

service?

Will

it

affect renewals?

So

there

was

a

couple

of

moving

parts

there.

What

we

saw

was

some

private

equity-backed

businesses

or

VC-backed

competitors

that

took

a

couple

of

our

management

teams,

which,

effectively,

while

I

couldn't

get

out

to

the

US

in

terms

of

stabilizing

some

of

our

employees

in

that

region,

we

did

see

some

of

our

customer

success

and

go-to-market

employees

leave

the

business

for

higher

levels

of

salary.

In

terms

of

where

we

are

now,

we've

replaced

the

management

team

there

with

people

from

industry

who

really

know

that

region,

who

can

really

drive

that

growth

forward.

We've

also

added

in

terms

of

our

customer

success

teams.

We've

increased

the

amount

we're

going

to be

recruiting.

There

was

some

level

of

higher

attrition

while

we

were

going

through

[indiscernible]



(44:26)

period.

What

we

have

seen

is

that

customer

attrition

in

that

North

America

market

now

stabilized.

And

we're

now

seeing

the

positive

impacts

that

we've

put

in

terms

of

investment

in

our

customer

success

staff

in

that

region

and

our

Head

of

Customer

Success

that

will

lead

the

charge

in

terms

of

our

retention

strategies

and

expansion

strategies

has

just

started

with

us

last

week.

So

we're

working

with

her

and

the

rest

of

the

team

in

terms

of

onboarding

and

training

to

really

look

at

what

we're

seeing

going

forward.

Most

of

the

renewals

that

were

affected

by

the

customer

service

level is

dropping,

[ph]

avoid

(45:07)

the

churn

during

that

last

four-month

period.

And

we

feel

we're

in

a

better

place

now

with

the

deployment

of

our

customers

with

the

right

level of

skills

from

our

customer

success

teams

to

really

move forward

and

the

renewal

rate

increasing

as

we

look

forward

into

the

future

year.

[Paraag Shashikant Amin]

So

there's

one

more

question

from

[ph]



Rosemarie (45:30) here.

Over

how

much

of

your

revenues

does

the

ARPC

apply?

So

I think

I

mentioned

earlier

that

we

do

it

over

our

contracted

recurring

revenue,

and

that's

around

82%

of

the

total

revenue.

So

that's

the

element.

The

other

piece

just

to

sort

of

finish

off

the

breakdown

of

revenue,

so

we

have

6%

that

is

one-off

services.

Those

are

when

new

customers

come

on

board

and

there's

training

and

custom-designed

templates

that

are

created

and

working

with

our

services

teams

on

getting

that

smooth

up

and

running

through

the

process.

And

then

there's

the

SMS

revenue

and

even,

I

suppose,

WhatsApp

will

fit

into

that

as

that

starts

to

grow,

which

is

typically

not

contracted

and

is

a

pay-as-you-go.

But

we're

buying

[ph]



service

(46:19) rate,

we're

buying

the

actual

supply

from

aggregators

and

then

reselling

that

to

our

customer

base.

So

the

average

revenue

per

customer,

we're

talking

about

purely

just

the

contracted

recurring

revenue,

which

is

just

over

80%

of

the

total.

So

I

think

that's

pretty

much

all

the

questions.

[Unverified Participant]

Yeah.

Thank

you,

Milan,

Paraag.

I

think

you've

addressed

those

questions you can for the

investors.

And

of

course,

the

company

will

review

all

questions

submitted

today

and

will

publish

those

responses

on

the

Investor Meet

Company

platform.

Just

before

redirecting

investor

to

provide

you

with

their

feedback,

which

I

know

is

particularly

important

to

the

company,

Milan,

can

I

ask

for

a few

closing

comments?

[Milan Patel]

Yeah. No

problem at

all.

In

terms

of

the

fundamentals

of

the

business,

that

continues

to

– that

hasn't

changed.

We

continue

to

see

strong,

profitable

growth

that

is

coming

through.

We

see

some

of

the

newer

changes

that

we've

made,

whether

it's

in

North

America,

whether

we've

addressed

some

of

the

headwinds

from

a

people

perspective.

That

will

continue

to

pay

dividends.

In

terms

of

our

opportunities,

we

continue

to

see

strong

opportunities

within

APAC,

further

into

EMEA

and

also

into

the North

American

market

as we

push

forward.

In

terms

of

product

innovation,

we've

done

lots

of

new

functionality

deployment.

We've

carried

out

our

customer

data platform.

We're

looking

at

the

analysis.

Our

customers

continue

to

drive

a

higher

return

and

investment

from

the

product

and

research

and

development that

we're

doing.

And

we

can

continue

to

see

that

coming

through

in

the

functionality

recurring

revenues

that

have been

growing

in

the

last

six

months,

but

also

will

be

growing

into

the future.

In

terms

of

strategic

partnerships,

that

continue

to

go

from

strength

to

strength,

whether

it's

in

our

e-commerce

integrations

that

we

have

or

whether

it's

in

our

CRM.

We're

now

looking

at

newer

partnerships

within

sales and

service

clouds.

Some

of the

exciting

opportunities

that

we

have

are

with

the

newer

integrations

with

people

like

Zendesk

as

we

look

forward.

And

I

think

what

we

have

today

is

a

business

that

continues

to

deliver

on

cash

generation,

very

profitable,

strong

growth.

And

as

we look

forward, that

will

continue.

Thank

you

very

much.

[Unverified Participant]

Milan,

Paraag,

thank

you very

much

for

updating

investors

today.

Could

I please

ask

investors

not

to

close

the

session

as

you'll

now

be

automatically

redirected

to

provide

your

feedback

in

order

for

the

management

team

can

better

understand

your

views

and

expectations?

This'll

only

take

a

few

moments

to complete

and

I'm

sure

will be

greatly valued

by

the

company.

On

behalf

of the

management

team

of

Dotdigital

Group

plc,

we'd

like

to

thank

you

for

attending

today's

presentation

and

good

afternoon

to

you

all.